Final Results - Part 1

Vodafone Group Plc 27 May 2003 Vodafone Group Plc Preliminary Results for the year ended 31 March 2003 PART 1 Embargo: VODAFONE GROUP PLC Not for publication PRELIMINARY ANNOUNCEMENT OF RESULTS before 07:00 YEAR ENDED 31 MARCH 2003 hours 27 May 2003 Continued excellent operating performance with strong revenue, profit and free cash flow growth * Turnover increased 33% to Â£30,375 million, including the effect of a first full year's results from the Group's Japanese operations, with Group data revenues increasing 73% to Â£3,622 million. Proportionate turnover increased 14% to Â£33,926 million * Profit on ordinary activities before taxation, before goodwill amortisation of Â£14,056 million and exceptional items of Â£581 million, increased 36% to Â£8,429 million * Earnings per ordinary share, before goodwill amortisation and exceptional items, increased by 32% to 6.81 pence. Basic loss per share reduced from 23.77p to 14.41p * Loss for the financial year of Â£9,819 million, compared to Â£16,155 million for the prior year * Final dividend increased to 0.8983 pence per share. Total dividend per share for year increased 15% * Group proportionate EBITDA, before exceptional items, increased 26% to Â£12,679 million. Mobile business proportionate EBITDA margin, before exceptional items, improved to 38.4%. Group EBITDA, before exceptional items, increased by 40% to Â£11,217 million * Free cash flow more than doubled to Â£5,171 million after investing Â£5,180 million in tangible capital expenditure * Organic customer growth of 11%. Proportionate registered customers at 31 March 2003 of 119.7 million Lord MacLaurin, Chairman, commented: Once again we have delivered excellent results and this is a great testament to Sir Christopher Gent, our retiring Chief Executive. Sir Christopher has led our Company with great distinction over these past six and a half years taking Vodafone from a company of modest scale and international reach to the leading mobile telecommunications company in the world, a great achievement. Sir Christopher Gent, Chief Executive, commented: These results show that Vodafone has again exceeded expectations. In particular, we achieved strong year-on-year growth in operating profit, before goodwill amortisation and exceptional items, adjusted earnings per share, EBITDA and free cash flow. Today Vodafone has an unmatched global footprint and is now combining this strength with a range of services for customers which gives Vodafone a real competitive advantage. We are progressively building a brand ascendancy in mobile which is gaining recognition both within our industry and in the world at large. The continuing improvement in performance enables Vodafone to build new services for the future for our customers while continuing to grow returns for our shareholders. Julian Horn-Smith, Group Chief Operating Officer, commented: We have produced an excellent operating performance with good customer growth, positive ARPU trends and continued focus on cost management, delivering a strong improvement in both margins and cash flow generation. The successful launch of Vodafone live! is the most visible manifestation of our strategy to drive revenue through the take up of service offerings unique to Vodafone. We have laid the foundation for further profitable growth and success in the years ahead. GROUP FINANCIAL HIGHLIGHTS Statutory Year ended 31 March 2003 2002 Increase Â£m Â£m % Turnover 30,375 22,845 33 Group EBITDA, before exceptional items 11,217 8,031 40 Total Group operating profit, before goodwill amortisation and exceptional items 9,181 7,044 30 Profit on ordinary activities before taxation, before goodwill amortisation and exceptional items 8,429 6,199 36 Goodwill amortisation (14,056) (13,470) 4 Exceptional operating items (576) (5,408) - Exceptional non-operating items (5) (860) - -------- --------- -------- Loss on ordinary activities before taxation (6,208) (13,539) - Loss for the financial year (9,819) (16,155) - Proportionate Year ended 31 March 2003 2002 Increase Â£m Â£m % Turnover - Mobile telecommunications 31,853 27,818 15 - Other operations 2,073 1,981 5 -------- --------- -------- 33,926 29,799 14 Organic growth at constant 9 exchange rates EBITDA, before exceptional items - Mobile telecommunications 12,235 9,902 24 - Other operations 444 191 132 -------- --------- -------- 12,679 10,093 26 Organic growth at constant exchange rates 22 Proportionate information is calculated on the basis described on page 34. Cash flow information Year ended 31 March 2003 2002 Increase Â£m Â£m % Net cash inflow from operating activities 11,142 8,102 38 Free cash flow 5,171 2,365 119 Net debt at 31 March 13,839 12,034 15 Per share information Year ended 31 March 2003 2002 Increase % Earnings/(loss) per share - before goodwill amortisation and exceptional items 6.81 p 5.15 p 32 - after goodwill amortisation and exceptional items (14.41)p (23.77)p - Dividends per share 1.6929p 1.4721p 15 This results announcement contains certain information on the Group's results and cash flows that have been derived from amounts calculated in accordance with UK Generally Accepted Accounting Principles, ('UK GAAP'), but are not themselves UK GAAP measures. They should not be viewed in isolation as alternatives to the equivalent UK GAAP measure and should be read in conjunction with the equivalent UK GAAP measure. Further disclosures are also provided under 'Use of Non-GAAP Financial Information' on page 38. GROUP OPERATING HIGHLIGHTS * Sustained improvement in ARPU in many key markets in Europe, driven by increased usage of both voice and data services, combined with better than expected ARPU levels in Japan * Continued strong progress in data, with revenues from data services increasing by 73% to Â£3,622 million, representing 14.6% of service revenues for the year ended 31 March 2003 and 15.6% of service revenues for the month of March 2003. Data service revenues expected to exceed 20% of mobile service revenues in 2004 * Further improvement in the Group's mobile business proportionate EBITDA margin, before exceptional items, which improved by 2.8 percentage points to 38.4%. Japanese mobile proportionate EBITDA margin, before exceptional items, of 31.3% from 22.5% in the prior year. Group proportionate EBITDA margin, before exceptional items, improved 3.5 percentage points to 37.4% * Worldwide customer base of 119.7 million proportionate registered customers, representing growth of 18.6 million or 18.4% since 31 March 2002, including 10.7 million organic net additions. Venture registered customer base of 296.0 million * Tangible fixed asset additions of approximately Â£4,800 million, lower than expected due to rephasing and cost efficiencies * Mannesmann synergies calculated on a proportionate after tax cash flow basis achieved, exceeding target set for the year ended 31 March 2003 VODAFONE LIVE! * European launch of Vodafone live!, Vodafone's easy to use consumer service, bringing customers a world of colour, sound and pictures, with over one million live! customers at 31 March 2003 * Now launched in thirteen countries * Critically acclaimed by the industry, receiving awards from the GSM Association for best consumer application, advertising and mobile handset OTHER COMMERCIAL INITIATIVES * Launch of the first global service from Vodafone's business proposition, Mobile Office from Vodafone, called Mobile Connect Card, offering a Vodafone-branded solution for secure remote connection of laptops to a corporate network using a Vodafone-enabled GPRS data card and customised software * Launch of new services: prepaid top-ups, allowing customers to top-up their prepaid mobile phones when travelling abroad; Eurocall Platinum, aimed at high-usage business travellers in Europe; and GPRS roaming, enabling seamless access to Vodafone live! and Mobile Connect Card across Vodafone and Vodafone's partner networks * Continued development of the brand through high-profile sponsorship and advertising campaigns, leading to increased brand recognition and awareness * Partner network agreements in eight countries, including Iceland, which was signed in April 2003 SIGNIFICANT TRANSACTIONS * Acquisition of remaining minority stakes in Vodafone Germany and Vodafone Spain for a total cash consideration of Â£2,050 million, and additional minority stakes in the Group's subsidiaries in the Netherlands, Portugal and Sweden for a total cash consideration of Â£1,062 million * Acquisition of additional 15% stake in Cegetel for a cash consideration of Â£1,402 million, taking the Group's economic interest in Cegetel and SFR to 30% and approximately 43.9%, respectively * Further investment of $750 million (Â£513 million) in China Mobile, increasing interest to approximately 3.27% * Cash proceeds of approximately Eur 1 billion (Â£0.7 billion) raised through asset disposals OUTLOOK For the year ending 31 March 2004 In the coming year, the Group expects to achieve growth of over 10% in average proportionate customers with a similar growth in proportionate revenues. In addition, a forecast small improvement in EBITDA margins should generate better proportionate EBITDA growth than revenue growth. The Group anticipates a good performance for adjusted earnings per share growth. This year should see a further improvement in capital efficiency. This year's tangible fixed asset additions are expected to be approximately Â£5 billion, slightly higher than the year just finished, mainly through deferred investment from last year. The Group also expects to generate free cash flow somewhat higher than the Â£5.2 billion in the year just ended. BUSINESS REVIEW 2003 2002 Increase Â£m Â£m % Turnover - Mobile telecommunications 27,542 20,742 33 - Other operations 2,833 2,103 35 ------- ------- ------- 30,375 22,845 33 Cost of sales (17,896) (13,446) 33 Sales and administration costs* (5,403) (4,328) 25 Share of operating profit in joint ventures and associated undertakings* 2,105 1,973 7 ------- ------- ------- Total Group operating profit* 9,181 7,044 30 Goodwill amortisation (14,056) (13,470) 4 Exceptional operating items (576) (5,408) - ------- ------- ------- Total Group operating loss (5,451) (11,834) - ------- ------- ------- * Before goodwill amortisation and exceptional items Turnover Turnover increased 33% in the year. Growth from existing operations was Â£2,440m, an increase of 11%, and growth in respect of acquired businesses was Â£5,090m, mainly comprising J-Phone Vodafone and Japan Telecom which became subsidiaries from October 2001. Changes in exchange rates beneficially impacted the reported growth in total turnover as a result of a stronger Euro partially offset by a weaker Yen. Translating the results of overseas companies at exchange rates prevailing in the prior year would reduce reported growth by Â£171m. The Â£6,800m increase in turnover from mobile telecommunications comprises Â£2,584m growth from existing operations, representing an increase of over 12%, and Â£4,216m of growth from the full year inclusion of J-Phone Vodafone. Mobile service revenue increased 32% to Â£24,824m, as a result of greater usage of voice services, increased penetration of data products and services and the benefit of a full year's service revenues from J-Phone Vodafone. Revenues from voice services for the year ended 31 March 2003 were Â£21,201m, representing an increase of 27% over the comparable period. The Group achieved a sustained improvement in ARPU in many key markets in Europe, compared with the twelve month period ended 31 March 2002, as benefits from the Group's continued focus on high value customers led to increased penetration of the contract customer segment and initiatives to stimulate usage, including the launch of new and innovative products, were realised. In Japan, J-Phone Vodafone's ARPU fell 5.2%, though this was better than expected and, at Yen 87,159, still represents the highest ARPU of all the Group's controlled businesses. Another key driver of the growth in turnover and improved ARPU position was the continued success of the Group's data product and service offerings. Revenues from data services increased 73% to Â£3,622m for the year ended 31 March 2003 from Â£2,093m for the year ended 31 March 2002, to represent 14.6% of service revenues in the Group's controlled mobile subsidiaries, compared with 11.1% for the 2002 financial year. Whilst SMS revenues continue to represent the largest component of data revenues, an increased focus on providing value-added services has contributed to the increase in data revenues and the increased penetration of data services into the Group's customer base. In Japan, J-Phone Vodafone continues to enjoy success from its data and content service offerings such that data revenues have represented over 20% of service revenues every month since August 2002. During the period, Vodafone live! and Mobile Office from Vodafone were launched in most of the Group's European markets, both of which are expected to generate further growth in non-voice service revenues through games downloads, picture messaging and other content and information services. Further details on these two new service offerings can be found under 'Strategic Developments - Global Services' on pages 18 and 19. Mobile service revenue growth was adversely affected both by reductions in interconnect rates in a number of the Group's markets, mainly in Europe, and the effect of increased competitive activity in certain key European markets by existing competitors looking to attract market share and generate customer loyalty. Mobile equipment and other turnover increased 36% to Â£2,719m for the year ended 31 March 2003, compared with Â£2,003m for the year ended 31 March 2002, largely attributable to the volume of gross customer connections and upgrades in the year, including a full year impact of J-Phone Vodafone and the effects of the reduction in handset subsidies, in line with the Group's strategy. Turnover from other operations increased by Â£730m in the year to Â£2,833m, an increase of 35%. This change was primarily a result of the impact of Japan Telecom, which was consolidated for a full year, and a turnover reduction from other operations, principally in Arcor, following the disposal of the Telematiks business. Expenses Consolidated cost of sales represented 58.9% of turnover in both the years ended 31 March 2003 and 31 March 2002. Excluding J-Phone Vodafone, the Group's equipment costs and cost of providing financial incentives to service providers and dealers for acquiring and retaining customers declined to 13.8% of turnover from mobile telecommunications, compared with 14.7% for the prior year, demonstrating the continued focus on gaining and retaining high-value customers in the most cost-efficient manner. Inclusive of J-Phone Vodafone, equipment costs and financial incentives amounted to 21.1% of turnover from mobile telecommunications as costs to connect and retain customers, although reducing, remain higher in Japan than in the Group's other key markets. Sales and administration costs, excluding goodwill amortisation and exceptional items, increased almost entirely as a result of the full year inclusion of results from J-Phone Vodafone and Japan Telecom and represent 17.8% of turnover in respect of the year ended 31 March 2003, compared with 18.9% for the prior year. Excluding J-Phone Vodafone and Japan Telecom, sales and administration costs represented 20.3% and 23.5% of turnover for the year ended 31 March 2003 and 2002, respectively, as these costs were reduced across the Group, reflecting the realisation of benefits from the Group's continued focus on cost control and the realisation of synergies on acquisitions. Depreciation charges, which are charged within both cost of sales and sales and administration costs, increased by 38% to Â£3,979m from Â£2,880m in the comparable period. The increase was primarily as a result of the full year inclusion of J-Phone Vodafone and Japan Telecom. However, a proportion of the increase was also attributable to network infrastructure improvements and additions made in the previous and current financial year. In Japan, depreciation increased as a result of the increased charge in respect of its UMTS network, which was opened for commercial service in December 2002 and in Germany, depreciation increased as a result of the prior year expenditure on network infrastructure improvements. The charge for goodwill amortisation increased as a result of a full year's charge for prior year acquisitions, charges in respect of current year acquisitions and the impact of foreign exchange movements. Exceptional operating costs comprise impairment charges of Â£405m and Â£80m in respect of the tangible fixed assets of Japan Telecom and goodwill in respect of the Group's interest in Grupo Iusacell, respectively, additional costs incurred as a result of the integration of Vizzavi into the Group, following the acquisition of the remaining 50% interest in August 2002, and related restructuring of the Group's Global mobile platform business. Total Group operating profit, before goodwill amortisation and exceptional items Total Group operating profit, before goodwill amortisation and exceptional items, increased by 30% as a result of growth in turnover, improved margins and the benefit of changes in exchange rates, particularly the impact of a stronger Euro offset by a weaker Yen and US dollar. Translating the results of overseas companies at exchange rates prevailing in the prior year would reduce reported growth by Â£25m. Proportionate results Proportionate turnover increased 14% to Â£33,926m as a result of both strong organic growth together with the effect of increased stakes in a number of the Group's existing businesses, principally Japan Telecom and J-Phone Vodafone. In the mobile businesses, proportionate turnover grew by 15% to Â£31,853m, including 10.4% organic growth in service revenues. The Group's proportionate EBITDA margin, before exceptional items, in the mobile businesses increased from 35.6% in the prior year to 38.4% in the year ended 31 March 2003, with most of the Group's main operations reporting increased EBITDA margins. Greater control over customer acquisition and retention costs accounted for 1.1 of the 2.8 percentage point increase in the Group's mobile EBITDA margin, before exceptional items, during the year, with the remainder of the margin improvement arising from cost control measures and the realisation of Group synergies and efficiency gains, including the achievement of synergies expected from the Mannesmann acquisition. In Japan, proportionate mobile EBITDA margins, before exceptional items, have been raised from 22.5% to 31.3%, as a result of lower customer acquisition and retention costs and the impact of an extensive range of restructuring initiatives, including the merger of the regional operating companies into a single structure. The EBITDA margin, before exceptional items, has exceeded 30% over two years ahead of Company expectations on taking control in October 2001. Mobile Telecommunications Northern Europe Financial highlights Year ended 31 March 2003 2002 Increase Â£m Â£m % Statutory turnover - United Kingdom 4,026 3,763 7 - Other Northern Europe 2,031 1,669 22 -------- -------- 6,057 5,432 12 -------- -------- Statutory total Group - United Kingdom 1,120 941 19 operating profit * - Other Northern Europe 1,102 744 48 -------- -------- 2,222 1,685 32 -------- -------- Proportionate Turnover - United Kingdom 4,026 3,763 7 - Other Northern Europe 3,396 2,753 23 -------- -------- 7,422 6,516 14 -------- -------- Proportionate EBITDA - United Kingdom 1,541 1,294 19 (before exceptional - Other Northern items) Europe 1,358 970 40 -------- -------- 2,899 2,264 28 -------- -------- Proportionate EBITDA - United Kingdom 38.3% 34.4% Margin - Other Northern 40.0% 35.2% Europe Key performance indicators (United Kingdom only) ARPU Â£292** Â£276 Churn 30.0% 27.3% Cost to connect Â£56** Â£67 * Before goodwill amortisation and exceptional items ** Amended basis of calculation. See page 41 for further details United Kingdom Vodafone UK has had a successful year, strengthening its contract customer base, launching innovative new products and increasing ARPU which, coupled with the continued focus on cost efficiencies, have driven growth in statutory turnover and EBITDA, and led to growth in the proportionate EBITDA margin of almost 4 percentage points. Statutory turnover increased 7% to Â£4,026m and within this, service revenue increased by 6% to Â£3,748m, compared with Â£3,525m in the year ended 31 March 2002. ARPU grew by 6%, primarily due to a favourable combination of the improved mix of the customer base, the focus on high value customers and through stimulation of usage. Contract ARPU fell from Â£555 to Â£532 in the year. However, this is demonstrating signs of stabilising having fallen only Â£4 since 30 September 2002. Prepaid ARPU increased to Â£125 at 31 March 2003 from Â£118 at 31 March 2002. In the latest figures reported by Oftel, published during April 2003, Vodafone UK maintained its lead in revenue market share for outbound calls, with a lead of 7 percentage points over its nearest competitor. Data as a percentage of service revenue grew by 2.6 percentage points from 11.8% to 14.4%. Vodafone UK anticipates continued improvement in the 2004 financial year as the full benefits from propositions such as Vodafone live! are increasingly realised. Attracting and retaining contract customers has continued to be a key objective in the past year as part of the realignment of commercial policies to focus on high value customers. At 31 March 2003, Vodafone UK had 13,300,000 registered customers, an increase of 114,000 since 31 March 2002, of which contract customers represented 41%, having grown by 9% in the year. In the same period contract churn fell from 26.2% to 23.1%. According to information contained in the latest Oftel report, at 31 December 2002, Vodafone UK's contract base exceeded that of its nearest competitor by 21%. The acquisition of Cellular Operations Limited also added a further 370,000 contract customers to the in-house managed base. Prepaid churn increased to 34.5%. Vodafone UK participated in the Group's launch of Vodafone live! in October 2002 and, by the end of March 2003, 240,000 Vodafone live! handsets had been activated, with 413,000 MMS capable handsets activated in total. Customer activity levels were also improved in the year, with total active customers increasing to 91%, compared with 89% at 31 March 2002. Contract customer activity reduced to 95% and prepaid customer activity improved 4 percentage points to 88%. Total operating expenses, excluding goodwill amortisation and exceptional items, as a proportion of turnover continued to decline, falling from 19.9% for the year ended 31 March 2002 to 19.6% for the year ended 31 March 2003. The average cost to connect for contract customers was Â£117, slightly up compared with the Â£116 as reported for the prior year. The average cost to connect for prepaid customers fell from Â£26 to Â£10 for the year to 31 March 2003, reflecting continued efforts to reduce subsidies. Vodafone UK continues to be recognised in Oftel surveys as the leading UK network, with a call success rate of 98.3% as a result of continued investment to improve its network. During the year, the Competition Commission concluded its investigation into the cost of calling mobile phones. Despite its acknowledgement that the overall profits within the industry were not excessive, it sought to re-balance margins across the industry by requiring a reduction in the cost of calling mobile phones across all UK networks. Vodafone UK believes the basis on which the Competition Commission calculated these reductions is flawed and has requested a judicial review of this decision, which will be heard in June. Vodafone UK has also taken commercial actions to mitigate the effect of the required reduction. Other Northern Europe All operations in the region reported increases in customer numbers, most notably in Sweden where customer numbers grew by 14% to 1,325,000, despite market penetration of 89%, and in France where SFR increased its customer base by 7% to 13,324,000 and its market share from an estimated 34.2% to 35.1%. The increase in revenues is partially as a result of these improvements in customer numbers but is mainly due to increased customer usage. In the Netherlands, ARPU grew by over 13%, driven by the improved mix in the customer base and the introduction of new services. In Ireland, outstanding data revenue growth resulted in data revenues representing 19.1% of service revenues for the year ended 31 March 2003 and exceeding 20% of service revenues since December 2002. As a result of this growth in data usage, and the highest levels of voice usage in the Group's European businesses, ARPU in Ireland continues to be amongst the highest in the Group. Vodafone live! was launched in all of the Group's subsidiary operating companies in the region during the period. Strong financial performance was achieved across the region, principally attributable to increases in customer usage, particularly of data services, and continued focus on cost effectiveness. In addition, the region benefited from the first full year inclusion of Vodafone Ireland, which became a subsidiary of the Group in May 2001, and the relative strength of the Euro and Swedish Kronor against Sterling. The Group successfully completed the rollout of its rebranding programme across its other operations within Northern Europe as Europolitan Vodafone migrated to the single Vodafone brand in April 2002. The Group has also increased its interests in Vodafone Netherlands and Vodafone Sweden during the year to 97.2% and 99.1%, respectively, at 31 March 2003. The Group has commenced in Sweden, and intends to commence in the Netherlands, compulsory acquisition procedures to acquire the remaining shares in these operations. In addition, the Group has increased its effective holding in SFR from 32.0% to approximately 43.9% at 31 March 2003 through the acquisition of an additional 15% stake in Cegetel. The Group announced further Partner Agreements with Radiolinja Eesti in Estonia on 3 December 2002 and, on 16 April 2003, with Islandssimi hf in Iceland, adding to the existing Partner Agreements with Oy Radiolinja (Finland) and TDC Mobil (Denmark) within Northern Europe. Central Europe Financial highlights Year ended 31 March 2003 2002 Increase Â£m Â£m % Statutory turnover - Germany 4,646 4,112 13 - Other Central Europe 129 65 98 -------- -------- 4,775 4,177 14 -------- -------- Statutory total Group - Germany 1,435 1,429 - operating profit * - Other Central Europe 181 114 59 -------- -------- 1,616 1,543 5 -------- -------- Proportionate turnover - Germany 4,642 4,101 13 - Other Central Europe 691 593 17 -------- -------- 5,333 4,694 14 -------- -------- Proportionate EBITDA - Germany 2,016 1,837 10 (before exceptional - Other items) Central Europe 265 231 15 -------- -------- 2,281 2,068 10 -------- -------- Proportionate EBITDA - Germany 43.4% 44.8% margin - Other Central Europe 38.4% 39.0% Key performance indicators (Germany only) ARPU Eur 313 Eur 298 Churn 21.2% 23.5% Cost to connect Eur 81 Eur 81 * Before goodwill amortisation and exceptional items This information is provided by RNS The company news service from the London Stock Exchange

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