Final Results

Vodafone Group Plc 30 May 2006 Vodafone Group Plc Preliminary Results for the year ended 31 March 2006 PART 1 VODAFONE GROUP PLC Embargo: Not for publication VODAFONE ANNOUNCES RESULTS FOR before 07:00 hours THE YEAR ENDED 31 MARCH 2006 30 May 2006 Financial performance: * Group revenue of Â£29.4 billion from continuing operations, with organic growth(1) of 7.5%. Mobile telecommunications revenue increased to Â£28.1 billion, with organic growth of 6.7% * Adjusted basic earnings per share(1) increased by 13.0% to 10.11 pence. Basic loss per share was 27.66 pence. Loss before taxation for the year was Â£14.9 billion after impairment charges of Â£23.5 billion * Free cash flow(1) of Â£6.4 billion and net cash inflow from operating activities up 10.3% to Â£10.2 billion, after net taxation paid of Â£1.7 billion Operational highlights: * Net proportionate customer additions of 21.5 million in the year * Closing proportionate customer base of 170.6 million, with organic growth of 14.9% in the year * Non-messaging data revenue grew by 61.2% to Â£0.8 billion, with organic growth of 60.4% * Mobile voice usage increased by 24.6% to 178.3 billion minutes, with organic growth of 18.9% Increasing returns to shareholders: * Total dividends per share increased by 49%, to 6.07 pence, with a final dividend per share of 3.87 pence, giving a dividend pay out ratio of 60% and a total pay out of Â£3.7 billion for the financial year * Â£6.5 billion expended on the share purchase programme in the 2006 financial year, reducing shares in issue by 7.5% * Â£9 billion to be returned to shareholders in the 2007 financial year in the form of a 'B' share arrangement, including an additional Â£3 billion announced today * Total returns to shareholders announced over the year of Â£19.2 billion (1) See page 3 for Group Financial and Operating Highlights and page 40 for use of non-GAAP financial information. Arun Sarin, Chief Executive, commented: 'Vodafone has met or exceeded expectations, outperforming its competitors in an increasingly challenging marketplace. We have restructured the Group and updated our strategy and we will seize the opportunities provided by new technologies to continue delivering innovative services to our customers. In the past year, we have announced returns of Â£10.2 billion to shareholders through dividends and buybacks and the dividend pay out ratio has been increased to 60% of earnings. We have also committed to a further Â£9 billion return via a 'B' share arrangement. We will continue to focus on delivering value and superior returns to shareholders.' CHIEF EXECUTIVE'S STATEMENT Vodafone has delivered another year of robust financial performance against a backdrop of increasing competition and ongoing regulation, meeting or exceeding expectations for revenue, margin and free cash flow and declaring returns to shareholders of over Â£19 billion. We have further enhanced our unique customer franchise through adding a net 22 million organic proportionate mobile customers in the year, taking the total proportionate base to over 170 million. This represents organic growth of 15%, with strong performances across all regions. We continue to drive product innovation and deliver value to customers by stimulating usage and revenue across our base through offerings such as Vodafone Zuhause in Germany, Stop the Clock in the UK and Vodafone Passport. We also reached our 10 million 3G target ahead of plan before the end of March. Excluding Japan, we closed the year with 7.7 million devices, generating over 5% of total Group revenue during the year. With coverage now approaching 60%, our 3G networks, which are being further enhanced with the launch of HSDPA, provide us with a very important platform for delivering high quality and innovative services to our customers. The first tangible evidence of HSDPA usage is likely to come from our laptop users, either using Vodafone Mobile Connect or through built-in capability. Organic proportionate mobile revenue growth of 9% reflects the breadth of our footprint. Strong performances in Spain, the US and our emerging markets helped offset lower growth in several of our more established markets, as the impact of higher penetration and increasing competition took effect. Despite these pressures, we continue to outperform substantially all of our principal competitors. EBITDA margins were slightly down year on year on an organic proportionate mobile basis. During the last financial year, we sought to optimise our portfolio of assets, either disposing of assets where we believed we could not earn a superior return or investing in businesses we believe Vodafone can create substantial additional value for shareholders. The most significant transaction saw the sale of Vodafone Japan for an enterprise fair value of Â£8.9 billion announced in March. This is an attractive price and will result in Â£6 billion of the cash proceeds from the sale being returned directly to shareholders as part of a larger Â£9 billion cash return we are announcing today. Vodafone also announced acquisitions during the year in the Czech Republic, Romania, India, South Africa and Turkey, which enable us to increase our exposure to fast growing emerging markets. We are confident that we can deliver value through these acquisitions and they are all already exceeding the plans we made at the time of making our purchase decision. However, alongside issues such as competition and regulation, our environment is changing. Our customers' needs are evolving as technology changes provide far greater choice in services. Furthermore, we are seeing changes to the competitive landscape as not only incumbent operators are seeking to offer fixed mobile convergence, but also new internet based players are seeking to expand their communications offerings. We need to ensure we continue to leverage Vodafone's unique customer franchise and continue to outperform our competitors. The result of these new realities is that Vodafone has five key strategic objectives to deliver. First, in our more mature European markets to focus on both cost reduction and revenue stimulation. Second, to capture strong growth in emerging markets. Third, to meet customers' needs by extending our current mobile only offering to deliver total communications solutions. Fourth, to actively manage our portfolio to maximise returns and, fifth, continue to align our financial policies regarding capital structure and shareholder returns to our strategy. Vodafone continues to execute on its One Vodafone programme and remains on track to deliver the benefits of scale. As a result of our review of strategy, we are reiterating our expectations for revenue market share gains, continuing to target 10% capital efficiency and introducing a separate operating expense target. As a result, we are announcing a new dividend policy with a targeted 60% payout of adjusted earnings per share and are therefore declaring a final dividend of 3.87 pence, bringing the full year dividend to 6.07 pence. In the future, we expect to grow dividends per share in line with underlying earnings per share. Linked also to our strategy, we have announced our new target of a low single A credit rating, one notch below our existing target rating. This provides greater flexibility to increase leverage and, in addition to the Â£6 billion return of cash from the Japan sale, we are returning a further Â£3 billion to shareholders. The total Â£9 billion will be returned via a B share arrangement shortly after our AGM. We currently have no plans for further share purchases or other one off returns to shareholders. With no let up in intensity in recent months, the operating environment will remain challenging. We see organic growth for next year in proportionate mobile revenue in the range of 5% to 6.5% with underlying proportionate organic mobile EBITDA margins around 1 percentage point lower than the 2006 financial year. Free cash flow is expected to be in the range of Â£5.2 billion to Â£5.7 billion before around Â£1.2 billion of tax payments, with interest, from settling long standing disputes, giving an expected range of Â£4.0 billion to Â£4.5 billion for reported free cash flow. Vodafone is well positioned to deliver on its strategy. Our regional scale, strong brand and unrivalled customer reach provides a significant opportunity to deliver value to both our customers and shareholders. Arun Sarin GROUP FINANCIAL AND OPERATING HIGHLIGHTS Year ended 31 March 2006 2005 Change % ------------------- Continuing operations(1): Page Â£m Â£m Â£ Organic ----------------------------------------------------------------------------------------------- Financial information Revenue 6 29,350 26,678 10.0 7.5 Operating (loss)/profit 6 (14,084) 7,878 (Loss)/profit before taxation 25 (14,853) 7,285 (Loss)/profit for the financial year 25 (17,233) 5,416 Basic (loss)/earnings per share (pence) 32 (27.66)p 8.12p Capitalised fixed asset additions 4,005 4,227 (5.3) Net cash flow from operating activities 23 10,190 9,240 10.3 ----------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- Performance reporting(2) Group EBITDA 37 11,766 10,740 9.6 6.9 Adjusted operating profit 6 9,399 8,353 12.5 11.4 Adjusted profit before tax 21 8,793 7,832 12.3 Adjusted effective tax rate 21 30.4% 27.8% Adjusted profit for the year attributable to equity shareholders 32 6,328 5,925 6.8 Adjusted basic earnings per share (pence) 32 10.11p 8.95p 13.0 Free cash flow 23 6,418 6,592 (2.6) Net debt at 31 March 23 17,318 10,175 70.2 ----------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------- Operational Vodafone live! - active devices (million)(3)(4) 43 27.1 17.4 55.7 3G registered devices (million)(3)(4) 43 7.7 1.4 450.0 Vodafone Mobile Connect data card - registered devices (million)(3)(4) 0.7 0.2 250.0 Mobile voice usage (billion minutes)(3)(4) 47 178.3 143.1 24.6 18.9 Non-voice services as a % of service revenue 6 17.0% 15.5% ----------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------- The full year results have been prepared in accordance with International Financial Reporting Standards ('IFRS') (including International Accounting Standards ('IAS') and interpretations issued by the International Accounting Standards Board ('IASB') and its committees, and as interpreted by any regulatory bodies applicable to the Group) and adopted for use in the European Union ('EU'). This results announcement contains certain information on the Group's results and cash flows that have been derived from amounts calculated in accordance with IFRS but are not themselves IFRS measures. They should not be viewed in isolation as alternatives to the equivalent IFRS measure and should be read in conjunction with the equivalent IFRS measure. Further disclosures are provided under 'Use of Non-GAAP Financial Information' on page 40. -------------------------------------------------------------------------------- See page 41 for definition of terms (1) Excluding the results of the discontinued operations in Japan in the 2005 and 2006 financial years. (2) These measures are stated excluding impairment losses, non-recurring amounts related to business acquisitions and disposals and changes in the fair value of equity put rights and similar arrangements (3) Cumulative number at 31 March (4) Figures represent 100% of subsidiary information and a pro-rata share in joint ventures GROUP PROPORTIONATE INFORMATION Year ended 31 March 2006 2005 Change % ------------------- Â£m Â£m Â£ Organic ----------------------------------------------------------------------------------------------- Financial Revenue Mobile telecommunications - Germany 5,754 5,684 1.2 - Italy 4,363 4,273 2.1 - Spain 3,995 3,261 22.5 - UK 5,048 5,065 (0.3) - Other mobile operations(1) 8,947 7,482 19.6 - Common functions(2) 145 127 14.2 Less: revenue between mobile operations (442) (333) ---------- ---------- 27,810 25,559 8.8 6.4 - Associated undertakings and investments 12,407 10,475 18.4 ---------- ---------- 40,217 36,034 11.6 9.0 Other operations 1,275 1,094 16.6 Less: revenue between mobile and other operations (137) (269) ---------- ---------- Continuing operations 41,355 36,859 12.2 9.6 ========== ========== Discontinued operations - Japan 7,100 6,743 5.3 EBITDA(3) Mobile telecommunications - Germany 2,703 2,645 2.2 - Italy 2,270 2,280 (0.4) - Spain 1,373 1,136 20.9 - UK 1,623 1,709 (5.0) - Other mobile operations(1) 3,117 2,726 14.3 - Common functions(2) 279 (15) ---------- ---------- 11,365 10,481 8.4 6.1 - Associated undertakings and investments 4,821 4,146 16.3 ---------- ---------- 16,186 14,627 10.7 8.2 Other operations 194 134 44.8 ---------- ---------- Continuing operations 16,380 14,761 11.0 8.5 ========== ========== Discontinued operations - Japan 1,562 1,799 (13.2) Percentage Percentage EBITDA margin(3) Points Points Mobile telecommunications - Germany 47.0% 46.5% 0.5 - Italy 52.0% 53.4% (1.4) - Spain 34.4% 34.8% (0.4) - UK 32.2% 33.7% (1.5) - Other mobile operations(1) 34.8% 36.4% (1.6) ---------- ---------- 40.9% 41.0% (0.1) - Associated undertakings and investments 38.9% 39.6% (0.7) ---------- ---------- Mobile EBITDA margin(3) - Continuing operations 40.2% 40.6% (0.4) (0.3) - Discontinued operations 22.0% 26.7% (4.7) (1) Excludes the results of associated undertakings and investments. (2) Common functions represent revenue from Partner Markets and unallocated central Group income and expenses. (3) Charges for the use of the Vodafone brand and trademark were revised with effect from 1 April 2005. The impact of the change was to reduce individual operating company EBITDA margins by up to 1.0 percentage point in the year to 31 March 2006 though there was no material impact on mobile or Group EBITDA or EBITDA margin. See page 8 for details. Proportionate information is presented and calculated on the basis described on page 37. See page 41 for definition of terms. ----------------------------------------------------------------------------------------------- 2006 2005 Change % ------------------- Million Million Reported Organic ----------------------------------------------------------------------------------------------- Customers Net proportionate customer additions(1) 21.5 16.2 32.7 Proportionate customers at 31 March 170.6 140.1 21.8 14.9 (1) Excludes additions from acquisitions and stake changes. Analysis provided on page 42. Customers are presented for continuing operations. See page 41 for definition of terms. ----------------------------------------------------------------------------------------------- OUTLOOK Please see 'Forward-Looking Statements' on page 39 and definition of terms on page 41. ------------------------------------------------------------------------------------------------------ 2007 financial year 2006 financial year 2006 financial year Outlook Actual performance Outlook(2) Organic proportionate mobile revenue growth(1) 5% to 6.5% 9.0% 8% to 9% Organic proportionate mobile Around 1 percentage 0.3 percentage points Higher end of flat to EBITDA margin(1) point lower than 2006 lower than 2005 1 percentage points financial year financial year lower than 2005 financial year Free cash flow* Â£4.0 to Â£4.5 billion Â£6.4 billion Â£5.8 to Â£6.3 billion Capitalised fixed asset additions Â£4.2 to Â£4.6 billion Â£4.0 billion Â£3.8 to Â£4.2 billion * Stated after an estimated Â£1.2 billion of tax payments, including associated interest, in respect of a number of long standing tax issues ------------------------------------------------------------------------------------------------------ (1) Assumes constant exchange rates and excludes the impact of business acquisitions and disposals for the financial measures and adjusted to reflect like-for-like ownership levels in both years for the proportionate measures (2) As reported in the Group's interim results announcement issued on 15 November 2005 and updated in the Group press release issued on 17 March 2006 for the sale of Vodafone Japan The Group continues to expect organic growth in proportionate mobile revenue to be in the range of 5% to 6.5%, lower than the 2006 financial year, reflecting the increasingly intense competitive environment, continued regulatory reductions in termination rates and the one off beneficial impact from the introduction of mobile to mobile termination rates in France in the 2006 financial year. Proportionate mobile EBITDA margins are expected to be around 1 percentage point lower than the 2006 financial year on an organic basis, with the impact of pricing pressures, additional customer investment and changes in termination rates offsetting initiatives to drive further cost efficiencies, excluding the impact of any one off business restructuring costs. Group capitalised fixed asset additions are expected to be in the range of Â£4.2 billion to Â£4.6 billion, which is higher than the 2006 financial year due to the effect of recently completed acquisitions and disposals and the Group's rollout of HSDPA. The effective tax rate for the year is expected to increase by a similar amount to the increase in the 2006 financial year due to one off benefits in the 2006 financial year. Free cash flow is expected to be in the range of Â£5.2 billion to Â£5.7 billion before an estimated Â£1.2 billion of tax payments, including associated interest, in respect of the potential unfavourable resolution of a number of long standing tax issues, giving an expected range of Â£4.0 billion to Â£4.5 billion for reported free cash flow. The Group currently forecasts a further significant increase in cash tax and associated interest payments in the 2008 financial year, including a potentially material amount related to the CFC litigation which could be paid should the litigation be resolved unfavourably in that year. In order to simplify its financial reporting and improve understanding of its results, the Group will be moving to a single basis of statutory reporting and will no longer provide proportionate financial information with effect from the 2008 financial year. The Group's outlook statement will also change to reflect only statutory financial measures. In addition, starting with the outlook for the 2008 financial year, the Group will no longer provide an initial outlook for the following financial year with its interim results in November. The outlook will only be provided with the preliminary results of the preceding financial year in May. One Vodafone The One Vodafone initiatives are aimed at achieving cost savings and enhancing revenue for the Group's controlled mobile businesses and the Group's jointly controlled mobile business in Italy. The Group remains on track to deliver on its original expectations. The Group is announcing today that it has updated its One Vodafone targets to reflect both the new organisation structure and additional cost saving initiatives. The Group continues to anticipate delivering benefits equivalent to at least 1% additional revenue market share in the 2008 financial year compared with the 2005 financial year. The Group will continue to measure its progress against this target by tracking its performance in Germany, Italy, Spain and the UK against its principal competitors. With respect to costs, the Group is separating its expectations for capitalised fixed asset additions and the aggregate of payroll and other operating expenses ('operating expenses'), both of which now relate to its Europe region. Capitalised fixed asset additions are expected to be 10% of revenues in the 2008 financial year for the total of the Group's Europe region and common functions, which will require reducing expenditure in that year by approximately Â£400 million to Â£500 million when compared to the 2006 financial year. Assuming no significant changes in exchange rates and after adjusting for acquisitions and disposals, the Group now expects operating expenses alone to be broadly stable in the 2008 financial year when compared to the 2006 financial year for the total of its Europe region and common functions, excluding the potential impact from its New Businesses unit and any one off business restructuring costs. BUSINESS REVIEW ----------------------------------------------------------------------------------------------- Year ended 31 March 2006 2005 Change % Continuing operations: Â£m Â£m Â£ Organic Revenue Mobile telecommunications - Total service revenue 25,881 23,547 9.9 7.2 - Other revenue(1) 2,256 2,193 2.9 ---------- ---------- 28,137 25,740 9.3 6.7 Other operations 1,339 1,095 22.3 Less: revenue between mobile and other operations (126) (157) (19.7) ---------- ---------- 29,350 26,678 10.0 7.5 ========== ========== Operating Adjusted operating profit (loss)/ profit - Mobile telecommunications 9,280 8,334 11.4 10.3 - Other operations 119 19 ---------- ---------- 9,399 8,353 12.5 11.4 - Impairment losses (23,515) (475) - Other 15 - - Non-operating income in associated undertakings 17 - ---------- ---------- Operating (loss)/profit (14,084) 7,878 ========== ========== Mobile telecommunications Trading results Voice services 21,493 19,888 8.1 5.3 Non-voice services - messaging 3,556 3,143 13.1 10.6 - data 832 516 61.2 60.4 ---------- ---------- Total service revenue 25,881 23,547 9.9 7.2 Net other revenue(1) 532 546 (2.6) Interconnect costs (4,210) (3,815) 10.4 Other direct costs (1,936) (1,756) 10.3 Net acquisition costs(1) (1,541) (1,446) 6.6 Net retention costs(1) (1,444) (1,234) 17.0 Payroll (2,127) (2,009) 5.9 Other operating expenses (3,625) (3,264) 11.1 ---------- ---------- EBITDA 11,530 10,569 9.1 6.4 Acquired intangibles amortisation (157) - Purchased licence amortisation (947) (919) 3.0 Depreciation and other amortisation (3,581) (3,341) 7.2 Share of result in associated undertakings 2,435 2,025 20.2 ---------- ---------- Adjusted operating profit 9,280 8,334 11.4 10.3 ========== ========== (1) Total mobile revenue includes Â£1,724 million (2005: Â£1,647 million), which has been excluded from net other revenue and deducted from acquisition and retention costs in the trading results. See page 41 for definition of terms ----------------------------------------------------------------------------------------------- GROUP RESULTS Revenue increased by 10.0% to Â£29,350 million in the year to 31 March 2006, resulting from organic growth of 7.5%, favourable movements in exchange rates of 0.5% and a further 2.0% from the acquisitions in the Czech Republic, India, Romania and South Africa, partially offset by the impact of the disposal of the Group's operations in Sweden. Adjusted operating profit increased by 12.5% to Â£9,399 million, with organic growth of 11.4%, following organic growth of 10.3% in the Group's mobile business. Favourable exchange rate movements benefited reported growth for the Group by 1.0% whilst the net impact of acquisitions and disposals improved reported growth by 0.1%. The Group recorded an impairment charge to the carrying value of goodwill in the Group's operations in Germany (Â£19,400 million) and Italy (Â£3,600 million) reflecting a revision of the Group's view of the prospects for these businesses, particularly in the medium to long term, and a further Â£515 million was recorded in respect of the Swedish business following the announcement of its disposal. This was the primary reason for the operating loss of Â£14,084 million in the current financial year compared with an operating profit of Â£7,878 million in the previous financial year. MOBILE TELECOMMUNICATIONS RESULTS Revenue Revenue in the mobile business increased by 9.3%, or 6.7% on an organic basis, for the year to 31 March 2006 due to a 7.2% increase in service revenue on an organic basis offset by lower growth in other revenue. Service revenue growth reflected a 15.2% organic increase in the average customer base of the controlled mobile networks and the Group's share of jointly controlled mobile networks, offset by the impact of lower ARPU in a number of the Group's markets. Competitive pressures have intensified recently following a significant number of new market entrants and greater competition from incumbents, specifically in the mature markets of Western Europe. Many of these markets have penetration rates over 100% which, along with termination rate cuts and a higher proportion of lower spending prepaid customers across the Group, have led to the decline in ARPU. The estimated impact of termination rate cuts on the growth in service revenue in the current financial year is as follows: Estimated impact of Service revenue termination rate cuts growth excluding the Reported growth on service revenue estimated impact of in service revenue growth termination rate cuts % % % Germany 1.4 1.7 3.1 Italy 1.9 4.4 6.3 Spain 22.0 2.9 24.9 United Kingdom 1.6 1.6 3.2 Other Mobile Operations 22.3 2.7 25.0 Mobile telecommunications business 9.9 2.6 12.5 Voice revenue increased by 8.1%, or by 5.3% on an organic basis, due to the growth in average customers and a successful usage stimulation programme leading to a 24.6% growth in total minutes, or 18.9% on an organic basis, offset by tariff declines from competition and termination rate cuts. Revenue from outgoing calls was the primary driver of voice revenue growth, whilst incoming voice revenue increased marginally as a significant increase in the proportion of incoming calls from other mobile networks was offset by the impact of termination rate cuts, particularly in the second half of the current financial year. Messaging revenue rose by 13.1%, or 10.6% on an organic basis, as an increase in the average customer base and the number of messages sent per customer was offset by tariff declines. The success of 3G, Vodafone live! and offerings in the business segment, including Vodafone Mobile Connect data cards and BlackBerry(R) from Vodafone, were the main contributors to a 61.2% increase, or 60.4% on an organic basis, in non-messaging data revenue. An additional 6,321,000 3G devices were registered on the Group's networks in the current financial year, bringing the total to 7,721,000 at 31 March 2006, including 660,000 business devices such as Vodafone Mobile Connect 3G/GPRS data cards. Prior to the announcement of the disposal of Vodafone Japan in March 2006, the Group registered its ten millionth consumer 3G device, when including 100% of the devices in Italy. Other revenue increased to Â£2,256 million, principally due to growth in revenue related to acquisition and retention activities in Spain, partially offset by a reduction in net other revenue, resulting principally from a fall in the number of customers connected to non-Vodafone networks in the UK. A 32.5% rise in the number of gross customer additions, partially offset by a fall in the average revenue for handset sales to new prepaid customers and a 24.3% increase in the number of upgrades, led to a 4.7% growth in revenue related to acquisition and retention activities to Â£1,724 million. Adjusted operating profit Adjusted operating profit increased by 11.4% to Â£9,280 million, comprising organic growth of 10.3% and favourable exchange rate movements of 1.1%. Interconnect costs increased by 7.2% on an organic basis, as strong growth in outgoing voice usage was partially offset by cuts in termination rates in a number of markets and an increased proportion of outgoing traffic being to other Vodafone customers, which does not result in interconnect expense. The rise in the number of upgrades and the increased cost of upgrading customers to 3G were the primary contributors to an 9.4% organic growth in acquisition and retention costs, net of attributable revenue, to Â£2,985 million. Payroll and other operating expenses as a percentage of service revenue continued to fall, reaching 22.2% for the year to 31 March 2006 compared to 22.4% for the previous financial year. The charge relating to the amortisation of acquired intangible assets was Â£157 million following acquisitions in the Czech Republic, India, Romania and South Africa in the current year. Depreciation and other amortisation increased, principally due to the net impact of the acquisitions and disposal in the current financial year and the ongoing expansion of 3G networks. The Group's share of the result in associated undertakings, before non-recurring amounts related to business acquisitions and disposals, grew by 20.2% after the deduction of interest, tax and minority interest, and 16.8% before the deductions, primarily due to growth at Verizon Wireless in the US. The Group's share of the result in Verizon Wireless increased by 25.5% to Â£2,112 million, before deduction of interest, tax and minority interest, with a particularly strong performance in the second half of the current financial year. MOBILE TELECOMMUNICATIONS - REVIEW OF OPERATIONS Vodafone operating companies are licensed on an arm's length basis to use the Vodafone brand and related trademarks. These arrangements have been reviewed and the charges for the use of the Vodafone brand and related trademarks were revised upwards with effect from 1 April 2005 to reflect the positioning of the brand in the current markets. There is no material impact on the Group's overall operating profit or EBITDA margin. The impact of the change is to reduce individual operating company margins by up to 1.0 percentage point, depending on the operating company, with a corresponding increase in the profit attributable to the common functions segment, which forms part of the mobile telecommunications business. In April 2006, the Group announced changes to the organisational structure of its operations, effective from 1 May 2006. The following results are presented in accordance with the organisation structure in place for the year to 31 March 2006. Pro forma segmental results for the new structure for the year to 31 March 2006 and the six months to 30 September 2005 are provided on page 48. GERMANY ----------------------------------------------------------------------------------------------- Financial highlights Year ended 31 March 2006 2005 Change % Â£m Â£m Â£ â‚¬ Total revenue(1) 5,754 5,684 1.2 1.2 ---------- ---------- Trading results Voice services 4,304 4,358 (1.2) (1.3) Non-voice services - messaging 836 800 4.5 4.6 - data 254 162 56.8 56.8 ---------- ---------- Total service revenue 5,394 5,320 1.4 1.4 Net other revenue(1) 114 122 (6.6) (6.9) Interconnect costs (732) (734) (0.3) (0.3) Other direct costs (281) (314) (10.5) (10.3) Net acquisition costs(1) (366) (348) 5.2 5.2 Net retention costs(1) (349) (330) 5.8 5.6 Payroll (412) (425) (3.1) (3.0) Other operating expenses (665) (646) 2.9 3.1 ---------- ---------- EBITDA 2,703 2,645 2.2 2.1 Purchased licence amortisation (342) (342) - - Depreciation and other amortisation (865) (830) 4.2 4.3 ---------- ---------- Adjusted operating profit 1,496 1,473 1.6 1.3 ---------- ---------- EBITDA margin 47.0% 46.5% KPIs Closing customers ('000) 29,191 27,223 7.2 Average monthly ARPU â‚¬23.3 â‚¬24.9 (6.4) Vodafone live! active devices ('000) 6,214 4,845 28.3 3G devices ('000) 2,025 358 (1) Total revenue includes Â£246 million (2005: Â£242 million), which has been excluded from net other revenue and deducted from acquisition and retention costs in the trading results See page 41 for definition of terms ----------------------------------------------------------------------------------------------- The German market has seen recent intensification in price competition, principally from new market entrants, together with high levels of penetration and further reductions in termination rates. Despite this, Vodafone has continued to lead the market in the number of 3G customers and has launched innovative products such as mobile TV and Vodafone Zuhause, which allows users to replace fixed line networks installed in their homes. In addition, Vodafone launched HSDPA technology in March 2006. Total revenue increased by 1.2% as the benefits of a larger customer base and an increase in non-voice service revenue were partly offset by reduced voice pricing, in response to aggressive competition, and a further termination rate cut in December 2005 from 13.2 to 11.0 eurocents per minute. The average customer base grew by 8.4% due to the attractiveness of promotions, including an offer which allowed prepaid customers to pay a fixed charge for calls to fixed lines and other Vodafone customers, which was taken up by more than one and a quarter million customers, and new products such as Vodafone Zuhause, which had 448,000 registered customers at 31 March 2006. New prepaid tariffs, including a low priced internet only offer, and ongoing promotional activity, particularly in the last four months of the year, contributed to total voice usage increasing by 13.7%. Excluding the termination rate cut in December 2005, service revenue growth would have been 3.1% in local currency. A further cut in termination rates is currently expected by the end of 2006. Non-voice service revenue increased by 13.4% in local currency, driven primarily by strong growth of 56.8% in non-messaging data revenue. Vodafone maintained its leadership in the 3G market, demonstrated by Vodafone live! with 3G customers generating over 3.1 million full track music downloads in the current financial year for Vodafone, more than any other mobile network operator in Germany. The number of active Vodafone live! devices continued to increase, with 28.3% growth in the year. In the business segment, there were 241,000 Vodafone Mobile Connect 3G/GPRS data cards and 226,000 wireless push email enabled devices registered on the network at 31 March 2006. Messaging revenue increased 4.6% in local currency, mainly as a result of promotional activities. The EBITDA margin increased to 47.0% as overall cost efficiencies were partly counteracted by investments in customer acquisition and retention and an increase in Group charges for the use of the brand and related trademarks, which represented 1.0 percentage point in EBITDA margin. Growth in 3G customers and increased gross additions, partially offset by a rise in the proportion of low subsidy prepaid additions, led to a 5.2% increase in net acquisition costs. An increase in the number of customer upgrades resulted in a 5.6% increase in net retention costs. Interconnect costs decreased by 0.3%, as the termination rate cuts in the current and previous financial years more than offset the effect of higher voice usage. Adjusted operating profit was further impacted by additional depreciation charges from continued 3G network deployment. ITALY ------------------------------------------------------------------------------------------------------- Financial highlights Year ended 31 March 2006 2005 Change % Â£m Â£m Â£ â‚¬ Total revenue(1)(2) 4,363 4,273 2.1 2.0 ---------- ---------- Trading results(2) Voice services 3,472 3,492 (0.6) (0.7) Non-voice services - messaging 600 532 12.8 12.9 - data 98 67 46.3 45.2 ---------- ---------- Total service revenue 4,170 4,091 1.9 1.8 Net other revenue(1) 15 14 7.1 2.8 Interconnect costs (681) (701) (2.9) (3.1) Other direct costs (241) (232) 3.9 3.8 Net acquisition costs(1) (78) (71) 9.9 9.6 Net retention costs(1) (93) (74) 25.7 25.1 Payroll (250) (250) - - Other operating expenses (572) (497) 15.1 15.1 ---------- ---------- EBITDA 2,270 2,280 (0.4) (0.5) Purchased licence amortisation (74) (74) - - Depreciation and other amortisation (524) (512) 2.3 2.0 ---------- ---------- Adjusted operating profit 1,672 1,694 (1.3) (1.3) ---------- ---------- EBITDA margin 52.0% 53.4% KPIs Closing customers ('000)(2) 18,490 17,280 7.0 Average monthly ARPU â‚¬28.5 â‚¬29.9 (4.7) Vodafone live! active devices('000)(2) 4,097 2,113 93.9 3G devices ('000)(2) 2,250 511 (1) Total revenue includes Â£178 million (2005: Â£168 million), which has been excluded from net other revenue and deducted from acquisition and retention costs in the trading results (2) The results presented are the Group's proportionate share as a result of Vodafone Italy's classification as a joint venture See page 41 for definition of terms ------------------------------------------------------------------------------------------------------- Competition in Italy has continued to intensify with the mobile network operators competing aggressively on subsidies and, increasingly, on price, particularly in the second half of the year. Vodafone achieved average customer growth of 6.9% driven by successful promotions, despite the competitive environment and a market penetration rate well in excess of 100% due to customers having more than one SIM. In local currency, total revenue rose by 2.0%, reflecting the increase in service revenue which was driven primarily by continuing growth in non-voice services as voice revenue declined marginally following an average 20.5% reduction in termination rates from September 2005. Excluding the impact of the termination rate cut, service revenue increased by 5.2% in local currency. Strong promotional activities, for example free calls after the first minute and free text messages for a small activation fee which were taken up by more than ten million customers, and the increase in the customer base, led to a rise of 5.1% in voice usage and a 41.7% increase in messaging, including a 261% growth in MMS usage. An increase in the number of SIMs per user and competitive pressures led to a reduction in activity rates, especially in the second half of the year, and an increase in blended churn from 17.2% to 18.7%. Non-voice service revenue rose by 16.5% in local currency, primarily driven by a 12.9% rise in messaging revenue. Increased penetration of 3G devices, a focus on retaining high value customers, increased usage of Vodafone live! and Vodafone Mobile Connect data cards and attractive data promotions were the main contributors to 45.2% growth in non-messaging data revenue. The EBITDA margin for the current financial year decreased by 1.4 percentage points, which includes the impact of an increase in Group charges for the use of brand and related trademarks, recognised in the second half of the financial year in other operating expenses, which resulted in a 1.0 percentage point fall. Investment in customer acquisition and retention and higher marketing spend in response to the competitive pressures, along with the increased costs from the continued roll out of the 3G network, led to a 0.4 percentage point decrease in the EBITDA margin. Strong upgrade activities and a focus on high value customers in response to aggressive competition led to the rise in retention costs, whilst handset promotions adversely impacted acquisition costs, especially in the first half of the year. Interconnect costs fell due to the cut in termination rates combined with promotions focusing on calls to other Vodafone and fixed-line numbers, which incur lower interconnect costs, especially in the second half of the year. Other direct costs increased 3.8%, primarily as a result of an increase in content provision costs arising from the increase in data service usage. SPAIN ------------------------------------------------------------------------------------------------------- Financial highlights Year ended 31 March 2006 2005 Change % Â£m Â£m Â£ â‚¬ Total revenue(1) 3,995 3,261 22.5 22.6 ---------- ---------- Trading results Voice services 3,093 2,558 20.9 20.9 Non-voice services - messaging 417 340 22.6 23.0 - data 105 65 61.5 62.1 ---------- ---------- Total service revenue 3,615 2,963 22.0 22.0 Net other revenue(1) 6 2 Interconnect costs (634) (540) 17.4 17.5 Other direct costs (329) (263) 25.1 25.4 Net acquisition costs(1) (274) (246) 11.4 11.7 Net retention costs(1) (249) (172) 44.8 45.3 Payroll (151) (140) 7.9 7.8 Other operating expenses (611) (468) 30.6 30.7 ---------- ---------- EBITDA 1,373 1,136 20.9 20.6 Purchased licence amortisation (69) (69) - - Depreciation and other amortisation (336) (292) 15.1 14.8 ---------- ---------- Adjusted operating profit 968 775 24.9 24.6 ---------- ---------- EBITDA margin 34.4% 34.8% KPIs Closing customers ('000) 13,521 11,472 17.9 Average monthly ARPU â‚¬35.6 â‚¬34.5 3.2 Vodafone live! active devices ('000) 5,514 2,992 84.3 3G devices ('000) 902 88 (1) Total revenue includes Â£374 million (2005: Â£296 million), which has been excluded from net other revenue and deducted from acquisition and retention costs in the trading results See page 41 for definition of terms ------------------------------------------------------------------------------------------------------- Vodafone continued to perform strongly in Spain, maintaining a broadly stable EBITDA margin, despite an increasingly competitive market, through promotions and competitive tariffs attracting new customers and encouraging prepaid customers to migrate to contract tariffs. Total revenue for the financial year increased by 22.6% in local currency, due principally to a rise in service revenue achieved from an 18.5% growth in the average customer base and an improvement in ARPU, notwithstanding a 10.6% cut in the termination rate in November 2005. The launch of attractive tariffs, successful promotional campaigns and the offer of an appealing handset portfolio increased the average customer base and encouraged a further increase in the proportion of contract customers from 46.9% at 31 March 2005 to 49.6% at 31 March 2006. These factors contributed to a 34.0% increase in total voice usage compared with the previous financial year and a reduction in blended churn from 21.9% at 31 March 2005 to 20.9% at 31 March 2006. The principal driver behind the 23.0% growth in messaging revenue in local currency was a 23.1% increase in messaging usage due to the higher customer base and targeted promotions. The growth of 62.1% in non-messaging data revenue was due to an increase of 814,000 in the number of registered 3G devices and the success of data solutions, which have contributed to Vodafone leading the 3G market in Spain, along with an 84.3% increase in the number of Vodafone live! devices. The EBITDA margin for the current financial year increased by 0.5 percentage points before the impact of the increased Group charge for use of the brand and related trademarks, which resulted in a 0.9 percentage point fall in the EBITDA margin. Interconnect costs fell as a proportion of service revenue, due to promotions which encouraged calls to be made to Vodafone and fixed-line numbers, which incur lower interconnect costs, and the cut in termination rates. A higher proportion of prepaid gross customer additions, which have a lower per unit acquisition cost, particularly in the first half of the financial year, led to acquisition costs falling as a proportion of service revenue compared to the previous financial year. These relative cost reductions were offset by the cost of upgrading customers to 3G handsets, migrating prepaid customers to contract tariffs and a larger customer base, reflected in a 45.3% increase in net retention costs. Other direct costs increased mainly due to increased content provision costs resulting from higher usage of the expanded offering on the Vodafone live! platform. UNITED KINGDOM ----------------------------------------------------------------------------------------------------- Financial highlights Year ended 31 March 2006 2005 Change % Â£m Â£m Total revenue(1) 5,048 5,065 (0.3) ---------- ---------- Trading results Voice services 3,642 3,672 (0.8) Non-voice services - messaging 705 684 3.1 - data 221 142 55.6 ---------- ---------- Total service revenue 4,568 4,498 1.6 Net other revenue(1) 135 177 (23.7) Interconnect costs (862) (771) 11.8 Other direct costs (355) (367) (3.3) Net acquisition costs(1) (380) (388) (2.1) Net retention costs(1) (395) (391) 1.0 Payroll (391) (403) (3.0) Other operating expenses (697) (646) 7.9 ---------- ---------- EBITDA 1,623 1,709 (5.0) Purchased licence amortisation (333) (333) - Depreciation and other amortisation (592) (597) (0.8) ---------- ---------- Adjusted operating profit 698 779 (10.4) ---------- ---------- EBITDA margin 32.2% 33.7% KPIs Closing customers ('000) 16,304 15,324 6.4 Average monthly ARPU Â£24.0 Â£25.5 (5.9) Vodafone live! active devices ('000) 4,181 3,443 21.4 3G devices ('000) 1,033 190 (1) Total revenue includes Â£345 million (2005: Â£390 million), which has been excluded from net other revenue and deducted from acquisition and retention costs in the trading results See page 41 for definition of terms ----------------------------------------------------------------------------------------------------- Vodafone UK continued to see strong growth in its customer base, without a corresponding increase in acquisition and retention investment, despite the UK being one of the most competitive markets in which the Group operates, with mobile penetration rates in excess of 100%. Enhanced data offerings led to strong growth in non-messaging data revenue and Vodafone UK now has over 1 million registered 3G devices. Total revenue fell by 0.3%, as a 1.6% increase in service revenue was offset by a fall in equipment and other revenue. Service revenue grew by 3.2%, excluding the effect of the September 2004 termination rate cut, benefiting from an increase in average customers of 7.8%, partially offset by falling ARPU, notwithstanding a rise in usage. New customer offerings, including Stop the Clock, helped to stimulate a 10.1% increase in total voice usage, but this was offset by changes in prices during the year to improve competitiveness in the market, leading to an overall 0.8% decrease in voice revenue, which grew by 1.2% excluding the effect of the termination rate cut. A continuing focus on customer retention and an increasing proportion of customers on 18 month contracts had a positive impact on contract customer churn, which fell from 22.7% to 21.5%, although blended churn increased to 32.1%, including the effect of increased prepaid customer self-upgrades, consistent with market trends. Non-voice service revenue increased by 12.1%, driven largely by the success of enhanced data offerings. Growth of 843,000 over the financial year in registered 3G devices and the continued success of Vodafone Mobile Connect data cards and wireless push email contributed to non-messaging data revenue increasing by 55.6%. Combined voice and messaging promotions led to an 18.1% increase in total messaging usage, although this was partially offset by a decline in the average price per message, and resulted in a 3.1% rise in messaging revenue. The rise in interconnect costs and the cost of one off call centre closures were partially offset by efficiencies in overheads and acquisition and retention costs, leading to a fall in EBITDA margin of 0.5 percentage points, with a further 1.0 percentage point fall being due to an increase in Group charges for the use of brand and related trademarks, within other operating expenses. Interconnect costs increased by 11.8% following an increase in total usage, combined with an increase in the proportion of voice calls made to customers of other mobile network operators, as customers optimised cross-network bundled tariffs, partially offset by the termination rate cut. Despite higher gross additions and upgrades, especially in the first half of the year, and a higher proportion of 3G connections, acquisition and retention costs were kept stable with the prior year, mainly due to an increase in direct sales activity, SIM only promotions and a higher proportion of prepaid additions with lower subsidies. Payroll was 3.0% lower than the prior year and other operating expenses were also lower than the prior year, excluding one off call centre closures and the increase in Group charges for the use of brand and related trademarks, driven by the continued benefits of a structured cost reduction plan. US - Verizon Wireless ------------------------------------------------------------------------------------------------------- Financial highlights Year ended 31 March 2006 2005 Change % Â£m Â£m Â£ $ Adjusted operating profit 1,732 1,354 27.9 23.8 ---------- ---------- Share of result in Operating profit 2,112 1,683 25.5 21.5 associated Interest (204) (187) 9.1 5.4 undertakings Tax (116) (91) 27.5 22.5 Minority interest (60) (51) 17.6 14.9 ---------- ---------- 1,732 1,354 27.9 23.8 ---------- ---------- Proportionate revenue 8,298 6,884 20.5 16.4 Proportionate EBITDA margin 38.0% 37.5% KPIs Closing proportionate customers ('000) 23,530 20,173 16.6 Average monthly ARPU $51.4 $52.4 (1.9) Acquisition and retention costs as a percentage of service revenue 12.4% 12.9% See page 41 for definition of terms ------------------------------------------------------------------------------------------------------- The US mobile telecommunications market has seen continued significant growth in customer numbers over the last twelve months, with penetration reaching an estimated 72% at 31 March 2006. In this environment, Verizon Wireless continued to increase its market share and improve its market leading margin performance. Verizon Wireless outperformed its competitors with record net additions, increasing the proportionate customer base by 16.6% over the financial year to 23,530,000 and improving customer market share to approximately 25% whilst also maintaining the proportion of contract customers at 94.5% of the total customer base at 31 March 2006. The strong customer performance benefited from continuing improvements in customer loyalty, with a reduction in blended churn of 2.5 percentage points to 14.7% compared with the previous financial year, the lowest in the US mobile telecommunications industry. In local currency, proportionate service revenue increased by 14.9% due to the strong customer growth, partially offset by a fall in ARPU of 1.9%. The ARPU decline primarily resulted from an increase in the proportion of family share customers and voice tariff pricing changes implemented early in 2005, which included increases in the size of bundled minute plans. Non-voice service revenue increased by more than 100% compared with the previous financial year and represented 8.9% of service revenue for the current year. Continued increases in messaging revenues were augmented by strong growth from data products, including Verizon Wireless' consumer broadband multimedia offering, wireless email and broadband data card service. Verizon Wireless' next-generation EV-DO network is currently available to about 150 million people, approximately half the US population. This investment has paved the way for the launch of innovative new data services in areas such as full track music downloads and location based services. EBITDA margins continued to improve, with a 0.5 percentage point increase in the current financial year to 38.0%, maintaining a leading cost efficiency position in the US market. In local currency, the Group's share of Verizon Wireless' operating profit increased by 21.5%. The Group's share of the tax attributable to Verizon Wireless of Â£116 million for the year ended 31 March 2006 relates only to the corporate entities held by the Verizon Wireless partnership. The tax attributable to the Group's share of the partnership's pre-tax profit is included within the Group tax charge. Vodafone and Verizon Wireless are engaged in a number of joint projects, predominantly focusing upon bringing global services to their customers. The financial year saw the introduction of two new data roaming services for Verizon Wireless customers, in addition to the launch of new handsets for the global phone proposition, all of which leverage the Vodafone footprint. Verizon Wireless continued to strengthen its spectrum position with the completion of the purchase of several key spectrum licences, including licences from Nextwave, Leap Wireless and Metro PCS, and through participation in the FCC's Auction 58, which took place in February 2005, with licences being granted in May 2005. This information is provided by RNS The company news service from the London Stock Exchange

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