Preliminary Results - Part 3

Vodafone Group PLC 29 May 2001 PART 3 NOTES TO THE PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2001 1 Basis of preparation The preliminary results for the year ended 31 March 2001 are an abridged statement of the full Group accounts which were approved by the Board of Directors on 29 May 2001. The Auditors' Report on these accounts was unqualified. The preliminary results do not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985. The non- pro forma information relating to the year ended 31 March 2000, is an extract from the published accounts for that year, which have been delivered to the Registrar of Companies, and on which the Auditors' Report was unqualified. On 3 April 2000, Vodafone contributed its US wireless and paging assets into a new joint venture partnership, Verizon Wireless, in which Vodafone had a 65.1% ownership interest. Following completion of the Bell Atlantic/GTE merger to form Verizon Communications, GTE's US wireless assets were contributed to Verizon Wireless on 10 July 2000 and Vodafone Group's ownership interest reduced to 45%. Prior to the formation of Verizon Wireless, the turnover and operating results of Vodafone Group's US wireless and paging operations were consolidated within Group operating profit from continuing operations. From 3 April 2000, Vodafone Group has equity accounted for its interest in the operating results of Verizon Wireless, which is included in the Group's share of the operating profit of joint ventures and associated undertakings from continuing operations. The turnover and operating loss (after goodwill amortisation) of Vodafone Group's US businesses for the year ended 31 March 2000 were £2,585m and £100m, respectively. The net assets of the US businesses contributed to the Verizon Wireless joint venture have been treated as having been disposed, and Vodafone Group's interest in the new venture is included within fixed asset investments as an interest in an associated undertaking. On 12 April 2000, Vodafone Group received clearance from the European Commission for the acquisition of Mannesmann AG. Vodafone Group has accounted for the transaction as an acquisition under UK GAAP in accordance with Financial Reporting Standard 6, 'Acquisitions and Mergers'. Turnover and operating loss from acquisitions excludes the results of Mannesmann operations that were held for resale on acquisition. These excluded operations include Atecs Mannesmann, Mannesmann's watches and tubes businesses, Orange, Infostrada, tele.ring and Ipulsys. On 27 July 2000, Vodafone AirTouch Plc was renamed Vodafone Group Plc. 2 Segmental analysis The Group's principal business is the supply of mobile telecommunications services and products. Other operations primarily comprise fixed line telecommunications businesses acquired as part of the acquisition of Mannesmann AG and the Vizzavi Europe joint venture. Analyses of turnover and total Group operating profit by geographical region and class of business are as follows: Year ended Year ended 31 March 31 March 2001 2000 £m £m Group turnover Mobile telecommunications: Continental Europe 9,577 1,705 United Kingdom 3,444 2,901 United States 9 2,585 Asia Pacific 713 565 Middle East and Africa 308 117 -------- -------- 14,051 7,873 Other operations: Continental Europe 953 - -------- -------- 15,004 7,873 ======== ======== Total Group operating profit/(loss) (before goodwill and exceptional items) Mobile telecommunications: Continental Europe 3,035 955 United Kingdom 795 706 United States 1,237 541 Asia Pacific 205 188 Middle East and Africa 213 148 -------- -------- 5,485 2,538 Other operations: Continental Europe (281) - -------- -------- 5,204 2,538 Subsidiary undertakings 3,322 1,685 Share of joint ventures and associated undertakings 1,882 853 Amortisation of goodwill (11,882) (1,712) Exceptional operating items (320) (30) -------- -------- Total Group operating (loss)/profit (6,998) 796 ======== ======== Exceptional operating items of £320m primarily comprise impairment charges of £91m in relation to the carrying value of certain assets within the Group's Globalstar service provider businesses, exceptional reorganisation costs of £85m relating to the restructuring of the Group's operations in Germany and the US, and £141m in relation to the Group's share of the restructuring costs incurred by Verizon Wireless. 3 Exceptional non-operating items Year ended Year ended 31 March 31 March 2001 2000 £m £m Profit on termination of hedging instrument 261 - Impairment of fixed asset investments (193) - Profit on disposal of fixed assets 6 - Profit on disposal of fixed asset investments 6 954 -------- -------- 80 954 ======== ======== The profit on termination of the hedging instrument arose in March 2001 upon the settlement of a hedging transaction entered into by the Group in order to obtain protection against an adverse market-related price adjustment included in the original terms of the agreement for the sale of Infostrada S.p.A. This hedging transaction was terminated with cash proceeds to the Group of approximately Eur 410 million. The impairments of fixed asset investments are in relation to the Group's interests in Globalstar and Shinsegi Telecom, Inc. 4 Taxation Year ended Year 31 March ended 2001 31 March £m 2000 £m United Kingdom: Current taxation 217 117 Deferred taxation (35) 11 -------- -------- 182 128 -------- -------- International: Current taxation 793 691 Deferred taxation 280 (134) Tax on exceptional non-operating items 35 - -------- -------- 1,108 557 -------- -------- 1,290 685 ======== ======== Parent and subsidiary undertakings 1,118 494 Share of joint ventures and associated undertakings 172 191 -------- -------- 1,290 685 ======== ======== 5 Equity dividends The directors propose a final dividend of 0.714p per share for the year ended 31 March 2001, making a total of 1.402p (2000 - 1.335p) for the year. The record date for the final dividend is 8 June 2001 and the dividend is payable on 10 August 2001. Shareholders may take a scrip dividend alternative to the cash dividend in accordance with the rules of Vodafone Group Plc's Scrip Dividend Scheme. The ex-dividend date is 6 June 2001 and the last date for elections or variations to mandates under the Scrip Dividend Scheme is 11 July 2001. 6 Earnings per share Year ended Year 31 March ended 2001 31 March £m 2000 £m (Loss)/earnings for basic (loss)/ earnings per share (9,763) 487 Amortisation of goodwill 11,882 1,712 Exceptional operating items, net of attributable taxation 230 19 Exceptional non-operating items, net of attributable taxation (45) (954) Exceptional finance costs, net of attributable taxation - 12 -------- -------- Earnings for adjusted earnings per share 2,304 1,276 ======== ======== Weighted average number of shares (millions): Basic and adjusted 61,439 27,100 7 Reconciliation of operating (loss)/profit to net cash inflow from operating activities Year ended Year 31 March ended 2001 31 March £m 2000 £m Operating (loss)/profit before exceptional items (6,263) 1,011 Depreciation 1,593 746 Amortisation of goodwill 9,585 674 Amortisation of other intangible fixed assets 24 12 -------- -------- 4,939 2,443 Payments in respect of exceptional items (84) (30) Working capital movements (268) 97 -------- -------- 4,587 2,510 ======== ======== 8 Net cash outflow for capital expenditure and financial investment Year ended Year 31 March ended 2001 31 March £m 2000 £m Purchase of intangible fixed assets (13,163) (185) Purchase of tangible fixed assets (3,698) (1,848) Purchase of investments (3,254) (17) Disposal of interests in tangible fixed assets 275 294 Disposal of investments 513 991 Loans to joint ventures (85) - Loans repaid by associated undertakings 5 9 Loans to acquired businesses held for sale (1,509) - Loans repaid by acquired businesses held for sale 1,905 - -------- -------- (19,011) (756) ======== ======== 9 Net cash inflow/(outflow) for acquisitions and disposals Year ended Year 31 March ended 2001 31 March £m 2000 £m Purchase of subsidiary undertakings (219) (4,062) Net cash acquired with subsidiary undertakings 542 4 Proceeds on formation of joint venture 2,544 - Purchase of interests in associated undertakings (79) (717) Purchase of customer bases (15) (9) Disposal of interests in joint ventures and associated undertakings 1,878 28 Disposal of acquired businesses held for sale 26,002 - -------- -------- 30,653 (4,756) ======== ======== 10 Analysis of net debt Other Acquisitions non-cash At 1 (excluding changes & At 31 April Cash cash & exchange March 2000 flow overdrafts) movements 2001 £m £m £m £m £m Liquid resources 30 7,541 - 22 7,593 ------ ------ ------ ------ ------ Cash at bank and in hand 159 (98) - 7 68 Bank overdrafts (43) 43 - (5) (5) ------ ------ ------ ------ ------ 116 (55) - 2 63 ------ ------ ------ ------ ------ Debt due within one year (other than bank overdrafts) (751) 4,774 (7,186) (443) (3,606) Debt due after one year (6,038) 2,026 (6,540) (220) (10,772) ------ ------ ------ ------ ------ (6,789) 6,800 (13,726) (663) (14,378) ------ ------ ------ ------ ------ (6,643) 14,286 (13,726) (639) (6,722) ====== ====== ====== ====== ====== Included within net debt are bond issues maturing as follows: £m One year or less 3,436 More than one year but not more than two years 622 More than two years but not more than five years 3,629 More than five years 5,801 ------- 13,488 ======= 11 Summary of differences between UK and US GAAP The preliminary 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 is provided within Vodafone Group Plc's Annual Report & Accounts for the year ended 31 March 2001. The effects of these differing accounting principles are as follows: Year ended Year ended 31 March 31 March 2001 2000 £m £m Revenues in accordance with UK GAAP 15,004 7,873 Items decreasing revenues: Non-consolidated subsidiaries (3,409) - Other (492) - ------- ------- Revenues in accordance with US GAAP 11,103 7,873 ======= ======= Net (loss)/income in accordance with UK GAAP (9,763) 487 Items (increasing)/decreasing net loss: Goodwill amortisation (5,293) (425) Reorganisation costs 84 25 Capitalised interest 365 - Income taxes 7,711 439 Minority interests (35) 35 Other (140) (8) ------- ------- Net (loss)/income in accordance with US GAAP (7,071) 553 ======= ======= US GAAP basic (loss)/earnings per ordinary share (11.51)p 2.04p Shareholders' equity in accordance with UK GAAP 145,393 140,833 Items increasing/(decreasing) shareholders' equity: Goodwill - net of amortisation 66,067 10,283 Capitalised interest 365 - Fixed asset investments - 9,054 Cumulative deferred income taxes (51,446) (12,334) Proposed dividends 464 417 Minority interests (5,181) (1,939) Other (140) 20 ------- ------- Shareholders' equity in accordance with US GAAP 155,522 146,334 ======= ======= Total assets in accordance with UK GAAP 172,065 153,368 Items increasing/(decreasing) total assets: Goodwill - net of amortisation 66,067 10,283 Capitalised interest 365 - Fixed asset investments - 9,054 Non-consolidated subsidiaries (2,982) - Deferred tax asset 177 616 Other 1,275 26 ------- ------- Total assets in accordance with US GAAP 236,967 173,347 ======= ======= 12 Pro forma proportionate financial information The tables of unaudited pro forma financial information on page 33 are presented on a proportionate basis. The basis of preparation of pro forma financial information is given below. Proportionate presentation is not required by 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 flow 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. Basis of preparation of unaudited pro forma financial information Pro forma financial information for the year ended 31 March 2000 has been derived from the audited consolidated financial statements of the Group for the relevant period, the unaudited financial results of AirTouch Communications, Inc. for the three month period ended 30 June 1999 and the unaudited financial results of Mannesmann AG for the year ended 31 March 2000. The financial results of Mannesmann for the relevant periods have been adjusted to exclude the results of businesses held for resale on acquisition. The financial statements of AirTouch and Mannesmann, previously prepared under US GAAP and German GAAP, respectively, have been adjusted to conform materially with Vodafone Group's accounting policies under UK GAAP. The pro forma adjustments for the year ended 31 March 2000 have been determined as if the merger with AirTouch Communications, Inc. and the acquisition of Mannesmann AG took place on 1 April 1999. Pro forma financial information for the year ended 31 March 2001 has been derived from the Group's consolidated financial results for the year and the unaudited financial results of Mannesmann AG, excluding the results of businesses held for resale on acquisition, for the period from 1 April 2000 to 12 April 2000. Pro forma adjustments include assumptions made by Vodafone Group's management that it believes to be reasonable. The unaudited pro forma financial information does not take into account any synergies, including cost savings, or any severance and restructuring costs, which may or are expected to occur as a result of the merger with AirTouch or the acquisition of Mannesmann, except insofar as such costs and savings have been included in the financial statements of the Vodafone Group for each of the periods presented. Year ended Year ended 31 March 31 March 2001 2000 £m £m Pro forma proportionate turnover Mobile telecommunications: Continental Europe 9,743 8,063 United Kingdom 3,458 2,945 United States 5,008 3,650 Asia Pacific 2,771 1,537 Middle East and Africa 448 395 -------- -------- 21,428 16,590 Other operations 802 825 -------- -------- 22,230 17,415 ======== ======== Pro forma proportionate EBITDA* Mobile telecommunications: Continental Europe 3,534 2,906 United Kingdom 1,068 934 United States 1,627 1,145 Asia Pacific 587 377 Middle East and Africa 227 142 -------- -------- 7,043 5,504 Other operations (27) 17 -------- -------- Pro forma proportionate EBITDA* 7,016 5,521 Less: depreciation and amortisation, excluding goodwill (2,234) (1,715) -------- -------- Mobile telecommunications 5,019 3,977 Other operations (237) (171) Pro forma proportionate total Group operating profit before goodwill and exceptional items 4,782 3,806 ======== ======== * Proportionate EBITDA (earnings before interest, tax, depreciation and amortisation) is defined as operating profit before exceptional items plus depreciation and amortisation of subsidiary undertakings, joint ventures, 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. For further information contact: Tim Brown, Group Corporate Affairs Director Melissa Stimpson, Head of Group Investor Relations Jon Earl, Investor Relations Manager Darren Jones, Investor Relations Manager Tel: +44 (0) 1635 673310 Lulu Bridges/Sarah Landgrebe Tavistock Communications Tel: +44 (0) 20 7600 2288 MORE TO FOLLOW

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