Interim Results - Part 5

Vodafone Group Plc 16 November 2004 Vodafone Group Interim Results For the six months ended 30 September 2004 PART 5 NOTES TO THE INTERIM RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2004 7 Reconciliation of operating loss to net cash inflow from operating activities Six months to Six months to Year ended 30 September 30 September 31 March 2004 2003 2004 £m £m £m Operating loss (2,245) (1,841) (4,776) Exceptional operating items - (351) (228) Depreciation 2,142 2,206 4,362 Goodwill amortisation 6,373 6,547 13,095 Amortisation of other intangible fixed assets 204 22 98 Loss on disposal of tangible fixed assets 31 35 89 ------- ------- ------- Group EBITDA(1) 6,505 6,618 12,640 Working capital movements (94) (522) (238) Payments in respect of exceptional items (32) (15) (85) ------- ------- ------- Net cash inflow from operating activities 6,379 6,081 12,317 ======= ======= ======= (1) Group EBITDA is not a measure recognised under UK GAAP but is presented in order to highlight operational performance of the Group. 8 Analysis of net debt Other non-cash changes and At 30 At 1 April exchange September 2004 Cash flow movements 2004 £m £m £m £m Liquid resources 4,381 (2,411) 28 1,998 ------- ------- ------- ------- Cash at bank and in hand 1,409 1,215 28 2,652 Bank overdrafts (42) (79) (1) (122) ------- ------- ------- ------- 1,367 1,136 27 2,530 ------- ------- ------- ------- Debt due within one year (other than bank overdrafts) (2,000) 788 (213) (1,425) Debt due after one year (12,100) 161 246 (11,693) Finance leases (136) 8 (3) (131) ------- ------- ------- ------- (14,236) 957 30 (13,249) ------- ------- ------- ------- Net debt (8,488) (318) 85 (8,721) ======= ======= ======= ======= Included within net debt at 30 September 2004 are bond issues maturing as follows: £m One year or less 1,305 More than one year but not more than two years 525 More than two years but not more than five years 4,488 More than five years but not more than ten years 2,431 More than ten years but not more than twenty years 1,630 More than twenty years 1,366 ------- 11,745 ======= 9 Summary of differences between UK and US GAAP The interim results have been prepared in accordance with UK Generally Accepted Accounting Principles ('UK GAAP'), which differ in certain significant respects from US Generally Accepted Accounting Principles ('US GAAP'). A description of the relevant accounting principles which differ materially has been provided within Vodafone Group Plc's Annual Report for the year ended 31 March 2004. The effects of these differing accounting principles are as follows: Six months to Six months to Year ended 30 September 30 September 31 March 2004 2003 2004 £m £m £m Revenue from continuing operations in accordance with UK GAAP 16,796 16,081 32,741 Items (decreasing)/increasing revenue: Non-consolidated entity (2,678) (2,612) (5,276) Connection revenue 617 (536) 188 ------- ------- ------- Revenue from continuing operations in accordance with US GAAP 14,735 12,933 27,653 ======= ======= ======= Net loss in accordance with UK GAAP (3,195) (4,254) (9,015) Items decreasing/(increasing) net loss: Investments accounted for under the equity method 662 789 1,354 Connection revenue and costs 9 12 29 Goodwill and other intangible assets (3,116) (3,116) (6,520) Licence fee amortisation (193) (3) (76) Exceptional items - (253) (351) Capitalised interest (32) 223 406 Income taxes 2,612 3,426 6,183 Other (47) 15 (137) ------- ------- ------- Net loss in accordance with US GAAP (3,300) (3,161) (8,127) ======= ======= ======= US GAAP basic and diluted loss per share (4.93)p (4.64)p (11.93)p ======= ======= ======= As at As at As at 30 September 30 September 31 March 2004 2003 2004 as restated £m £m £m Shareholders' equity in accordance with UK GAAP 107,744 124,583 111,924 Items increasing/(decreasing) shareholders' equity: Investments accounted for under the equity method 6,336 5,581 5,566 Connection revenue and costs (24) (72) (55) Goodwill and other intangible assets 44,162 49,156 45,320 Licence fee amortisation (306) (43) (109) Capitalised interest 1,584 1,296 1,615 Income taxes (39,250) (42,988) (40,074) Proposed dividends 1,263 650 728 Other 137 120 114 ------- ------- ------- Shareholders' equity in accordance with US GAAP 121,646 138,283 125,029 ======== ======== ======== On 29 September 2004, the Staff of the United States Securities and Exchange Commission ('SEC') announced new guidance in the interpretation of US GAAP in relation to accounting for intangible assets. Historically, under US GAAP, Vodafone has assigned to mobile licences the residual purchase price in business combinations in excess of the fair values of all assets and liabilities other than mobile licences and goodwill. This approach has been on the basis that mobile licences were indistinguishable from goodwill. The adoption of the new SEC guidance will now require Vodafone to distinguish between mobile licences and goodwill. However, the new guidance does not permit the amount historically recorded as mobile licences to be subsequently reallocated between mobile licences and goodwill. The adoption of this new guidance is likely to result in a reduction in the carrying value of Vodafone's equity accounted investment in Verizon Wireless under US GAAP. Vodafone is currently assessing the impact of this change in interpretation. Any resulting reduction in the carrying value of Vodafone's investment in Verizon Wireless under US GAAP would not be as a result of a change in Vodafone's view of the financial prospects of Verizon Wireless. INDEPENDENT REVIEW REPORT BY DELOITTE & TOUCHE LLP TO VODAFONE GROUP PLC Introduction We have been instructed by the Company to review the financial information for the six months ended 30 September 2004 which comprises the Consolidated Profit and Loss Account, Consolidated Balance Sheet, Consolidated Cash Flow, Consolidated Statement of Total Recognised Gains and Losses, Movement in Equity Shareholders' Funds and related notes 1 to 9. We have read the other information contained in the interim results report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the Company in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed. Directors' responsibilities The interim results report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim results report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting polices and presentation applied to the interim figures are consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of Group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with United Kingdom auditing standards and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 September 2004. Deloitte & Touche LLP Chartered Accountants London 16 November 2004 UNAUDITED PROPORTIONATE FINANCIAL INFORMATION FOR THE SIX MONTHS TO 30 SEPTEMBER 2004 Basis of preparation The tables of financial information below are presented on a proportionate basis. Proportionate presentation is not a measure recognised under UK GAAP and is not intended to replace the consolidated financial statements prepared in accordance with UK GAAP. However, since significant entities in which the Group has an interest are not consolidated, proportionate information is provided as supplemental data to facilitate a more detailed understanding and assessment of the consolidated financial statements prepared in accordance with UK GAAP. UK GAAP requires consolidation of entities controlled by the Group and the equity method of accounting for entities in which the Group has significant influence but not a controlling interest. Proportionate presentation is a pro rata consolidation, which reflects the Group's share of turnover and expenses in both its consolidated and unconsolidated entities. Proportionate results are calculated by multiplying the Group's ownership interest in each entity by each entity's results. Proportionate information includes results from the Group's equity accounted investments and investments held at cost. The Group does not have control over the turnover, expenses or cash flows of these investments and is only entitled to cash from dividends received from these entities. The Group does not own the underlying assets of these investments. Proportionate turnover is stated net of intercompany turnover. Proportionate EBITDA is defined as operating profit before exceptional items and depreciation and amortisation of subsidiary undertakings, associated undertakings and investments, proportionate to equity stakes. Proportionate EBITDA represents the Group's ownership interests in the respective entities' EBITDA. As such, proportionate EBITDA does not represent EBITDA available to the Group. Proportionate EBITDA margin before exceptional items is proportionate EBITDA before exceptional items, as a percentage of proportionate turnover. Six months to Six months to Year ended 30 September 30 September 31 March 2004 2003 2004 £m £m £m Reconciliation of proportionate turnover to statutory turnover Proportionate turnover 21,179 19,692 39,446 Minority share of turnover in subsidiary undertakings 1,395 2,452 4,521 Group share of turnover in associated undertakings and trade investments (5,778) (5,245) (10,408) ------- ------- ------- Statutory turnover 16,796 16,899 33,559 ======= ======= ======= Reconciliation of proportionate EBITDA, before exceptional items to loss for the period Proportionate EBITDA, before exceptional items 8,295 7,792 15,114 Minority share of EBITDA in subsidiary undertakings 552 899 1,602 Group's share of EBITDA in associated undertakings and trade investments (2,342) (2,073) (4,076) ------- ------- ------- Group EBITDA 6,505 6,618 12,640 Charges for depreciation (2,142) (2,206) (4,362) Exceptional operating items - 351 228 Goodwill amortisation (6,373) (6,547) (13,095) Amortisation of other intangibles (204) (22) (98) Loss on disposal of tangible fixed assets (31) (35) (89) ------- ------- ------- Operating loss (2,245) (1,841) (4,776) Share of operating profit in associated undertakings 630 263 546 Exceptional non-operating items 22 (58) (103) Net interest payable and similar items (291) (356) (714) Tax on loss on ordinary activities (987) (1,792) (3,154) Minority interests (including non-equity minority interests) (324) (470) (814) ------- ------- ------- Loss for the period (3,195) (4,254) (9,015) ======= ======= ======= OTHER INFORMATION 1) Copies of this document are available from the Company's registered office: Vodafone House The Connection Newbury Berkshire RG14 2FN 2) These interim results will be available on the Vodafone Group Plc website, www.vodafone.com, from 16 November 2004. For further information: Vodafone Group Investor Relations Melissa Stimpson Darren Jones Tel: +44 (0) 1635 673310 Media Relations Bobby Leach Ben Padovan Tel: +44 (0) 1635 673310 Tavistock Communications Lulu Bridges John West Tel: +44 (0) 20 7920 3150 High resolution photographs are available to the media free of charge at www.newscast.co.uk. Vodafone, Vodafone live!, Vodafone Mobile Connect and Vodafone Wireless Office are trademarks of the Vodafone Group. Other product and company names mentioned herein may be the trademarks of their respective owners. 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 the statements under 'Chief Executive's Statement' regarding returns to shareholders, free cash flow in this and future financial years and the impact thereof on future financial performance, organic growth in average proportionate customers, number of Vodafone live! with 3G customers, share purchases, proportionate mobile revenue and the level of proportionate mobile margins; the statements under 'Outlook' regarding Vodafone's expectations for the years ending 31 March 2005 and 2006 as to average proportionate mobile customer growth, number of Vodafone live! with 3G customers, full year proportionate organic mobile revenue, proportionate mobile EBITDA margins, depreciation and licence amortisation, capitalised fixed asset additions, free cash flow, cash expenditure on fixed assets, tax payments, share purchases and guidance under IFRS; the statements under 'United Kingdom' regarding Vodafone UK's restructuring programme and its impact on support costs and operations; the statements under 'Americas' regarding expansion of certain Verizon Wireless services; the statements under 'Japan' with respect to expected availability of 3G handsets, the expected impact on margins and market position once the handsets are available and the expected outcome of the plans announced to improve Vodafone Japan's performance and competitive position; the statements under 'Taxation' with respect to the expected effective tax rates; the statements under 'Dividends' with respect to dividend payments and increases in the level of dividends; and the statements under 'One Vodafone' regarding anticipated benefits to the Group of the One Vodafone programme, including statements related to revenue generation, speed to market for new services and the Group's strategic cost position, free cash flow, cost savings and revenue enhancements and combined mobile operating expenses. These forward-looking statements are made on the basis of certain assumptions which Vodafone believes to be reasonable in light of Vodafone's operating experience in recent years. The principal assumptions on which these statements are based relate to exchange rates, customer numbers, usage and pricing, take-up of new services, termination and interconnect rates, customer acquisition and retention costs, network opening and operating costs and the availability of handsets. The document also contains other forward-looking statements including statements with respect to Vodafone's expectations as to launch and roll-out dates for products and services, including, for example, 3G services and handsets, Vodafone live! and Vodafone's business services; intentions regarding the development of products and services; 3G penetration rates; acquisitions and disposals; expectations with respect to shareholder value growth; share purchases; our ability to be a mobile market leader; mobile call termination rates; the Group's adoption and implementation of IFRS and the impact thereof on the Group's effective tax rate; dividend payments by Vodafone Italy; the impact of recent US GAAP pronouncements; maintenance of credit ratings and overall market trends. 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 particularly the statements under 'Chief Executive's Statement', 'Outlook', 'One Vodafone', 'Dividends' and 'Taxation' referred to above. These factors include, but are not limited to, the following: changes in economic or political conditions in markets served by operations of the Group that would adversely affect the level of demand for mobile services; greater than anticipated competitive activity requiring changes in pricing models and/or new product offerings or resulting in higher costs of acquiring new customers or providing new services; the impact on capital spending from investment in network capacity and the deployment of new technologies, or the rapid obsolescence of existing technology; slower customer growth or reduced customer retention; the possibility that technologies, including mobile internet platforms, and services, including 3G services, will not perform according to expectations or that vendors' performance will not meet the Group's requirements; changes in the projected growth rates of the mobile telecommunications industry; the Group's ability to realise expected synergies and benefits associated with 3G technologies and the integration of our operations and those of acquired companies; future revenue contributions of both voice and non-voice services offered by the Group; lower than expected impact of GPRS, 3G and Vodafone live! and the Group's business offerings on the Group's future revenue, cost structure and capital expenditure outlays; the ability of the Group to harmonise mobile platforms and any delays, impediments or other problems associated with the roll-out and scope of 3G technology and services and Vodafone live! and the Group's business or service offerings in new markets; the ability of the Group to offer new services and secure the timely delivery of high-quality, reliable GPRS and 3G handsets, network equipment and other key products from suppliers; greater than anticipated prices of new mobile handsets; the ability to realise benefits from entering into partnerships for developing data and internet services and entering into service franchising and brand licensing; the possibility that the pursuit of new, unexpected strategic opportunities may have a negative impact on one or more of the measurements of our financial performance or the level of dividends; any unfavourable conditions, regulatory or otherwise, imposed in connection with pending or future acquisitions or dispositions; changes in the regulatory framework in which the Group operates, including possible action by regulators in markets in which the Group operates or by the European Commission regulating rates the Group is permitted to charge; the Group's ability to develop competitive data content and services which will attract new customers and increase average usage; the impact of legal or other proceedings against the Group or other companies in the mobile telecommunications industry; the possibility that new marketing campaigns or efforts are not an effective expenditure; the possibility that the Group's integration efforts do not increase the speed-to-market of new products or improve the Group's cost position; changes in exchange rates, including particularly the exchange rate of pound sterling to the euro, US dollar and the Japanese yen; the risk that, upon obtaining control of certain investments, the Group discovers additional information relating to the businesses of that investment leading to restructuring charges or write-offs or with other negative implications; 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; final resolution of open issues which might impact the effective tax rate; timing of any tax payments relating to the resolution of open issues; and loss of suppliers or disruption of supply chains. Furthermore, a review of the reasons why actual results and developments may differ materially from the expectations disclosed or implied within forward-looking statements can be found under 'Risk Factors' contained in our Annual Report on Form 20-F with respect to the financial year ended 31 March 2004. 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 assurance can be given that the forward-looking statements in this document will be realised. Neither Vodafone Group nor any of its affiliates intends to update these forward-looking statements. 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 UK GAAP, but this information is not itself an expressly permitted GAAP measure. Such non-GAAP measures should not be viewed in isolation as alternatives to the equivalent GAAP measure. A summary of certain of the non-GAAP measures included in this results announcement, together with details where additional information and reconciliation to the nearest equivalent GAAP measure can be found, is shown below. Non-GAAP measure Equivalent GAAP Location in this results measure announcement of reconciliation and further information --------------------- --------------------- ------------------------------ Group EBITDA, before Operating loss Note 7 on page 30 exceptional items Mobile EBITDA before Total Group Business review on page 6 exceptional items operating loss Total Group operating Total Group operating Note 2 on page 28 profit (before goodwill loss amortisation and exceptional items) Profit on ordinary Loss on ordinary Group Financial Highlights on activities before activities before page 3 taxation (before taxation goodwill amortisation and exceptional items) Operating free cash Net cash inflow from Cash flows and funding on page flow operating activities 20 Free cash flow Net cash inflow from Cash flows and funding on page operating activities 20 Adjusted earnings per Earnings per share Note 6 on page 29 share Proportionate turnover Statutory turnover Proportionate financial information on page 33 Proportionate EBITDA, Loss for the financial Proportionate financial before exceptional year information on page 33 items Effective rate of Tax on loss on Profit on ordinary activities taxation before goodwill ordinary activities before taxation (before amortisation and as a percentage of goodwill amortisation and exceptional items loss on ordinary exceptional items) is shown in activities before Group Financial Highlights on taxation page 3 Tax on loss on ordinary Tax on loss on Note 5 on page 29 activities before ordinary activities exceptional items In addition the trading results of the Group and key markets present certain GAAP financial information, being revenue and cost of sales related to acquisition and retention activity, on a net basis. The Group belives that this basis of presentation provides useful information for investors regarding trends in net subsidies with respect to the acquisition and retention of customers and facilitates comparability of results with other companies operating in the mobile telecommunications business. 'Other revenue', 'Net acquisition costs' and 'Net retention costs', as used in the trading results, are defined on page 37. Definition of terms Term Definition ------------- ---------------------------------------------------------------- Organic growth The percentage movements in organic growth are presented to at constant reflect operating performance on a comparable basis. Where a exchange subsidiary or associated undertaking was newly acquired or rates disposed of in the current or prior period, the Group adjusts, under organic growth calculations, the results for the current and prior period to remove the amount the Group earned in both periods as a result of the acquisition or disposal of subsidiary or associated undertakings. Where the Group increases, or decreases, its ownership interest in an associated undertaking in the current or prior period, the Group's share of results for the prior period are restated at the current period's ownership level. A further adjustment in organic calculations excludes the effect of exchange rate movements by restating the current period's results as if they had been generated at the prior period's exchange rates. Customer A customer is defined as a SIM, or in territories where SIMs do not exist, a unique mobile telephone number, which has access to the network for any purpose (including data only usage) except telemetric applications. Telemetric applications include, but are not limited to, asset and equipment tracking, mobile payment/ billing functionality (for example, vending machines and meter readings) and includes voice enabled customers whose usage is limited to a central service operation (for example, emergency response applications in vehicles). Active A customer who has made or received a chargeable event in the customer last three months. ARPU Total revenue excluding handset revenue and connection fees divided by the weighted average number of customers during the period. Average Total ARPU in an accounting period divided by the number of monthly ARPU months in the period. Depreciation This measure includes the profit or loss on disposal of fixed and assets but excludes goodwill amortisation. amortisation Intra-segment Turnover between operating companies of the same business (mobile turnover or non-mobile) within the same reporting segment. Inter-segment Turnover between operating companies of the same business (mobile turnover or non-mobile) in different reporting segments. Non-voice Comprises all service revenue that is not related to voice service services including, but not limited to messaging, downloads, revenue Internet browsing and other data services. Messaging Messaging revenue includes all SMS and MMS revenue including revenue wholesale messaging revenue, revenue from the use of messaging services by Vodafone customers roaming away from their home network and customers visiting the local network. Data revenue Data revenue includes all non-voice service revenue excluding messaging. Other Comprises all non-service revenue. In the trading results, revenue presented for the mobile telecommunications business and the Group's key markets, other revenue excludes revenue relating to acquisition and retention activities as such revenue is deducted from acquisition and retention costs. The Group believes that this basis of presentation provides useful information for investors regarding trends in net subsidies with respect to the acquisition and retention of customers and facilitates comparability of results with other companies operating in the mobile telecommunications business. Net The total of connection fees, trade commissions and equipment acquisition costs, net of related revenue, relating to new customer costs connections. Net retention The total of trade commissions, loyalty scheme and equipment costs costs, net of related revenue, relating to customer retention and upgrade. Churn Total gross customer disconnections in the period divided by the average total customers in the period. EBITDA Operating profit before depreciation, amortisation, profit or margin loss on disposal of fixed assets and exceptional items as a percentage of total turnover This information is provided by RNS The company news service from the London Stock Exchange

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