Interim Results - Part 5

Vodafone Group Plc 18 November 2003 VODAFONE GROUP PLC INTERIM RESULTS PART 5 NOTES TO THE INTERIM RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2003 1 Basis of preparation Statutory financial information The unaudited interim results have been prepared on a basis consistent with the accounting policies set out on pages 76 to 78 of Vodafone Group Plc's Annual Report & Accounts and Form 20-F for the year ended 31 March 2003. The interim results should therefore be read in conjunction with the 2003 Annual Report & Accounts and Form 20-F. The interim results for the six months to 30 September 2003, which were approved by the Board of Directors on 17 November 2003, do not comprise statutory accounts within the meaning of section 240 of the Companies Act 1985. Full accounts for the year ended 31 March 2003, incorporating an unqualified auditors' report, have been filed with the Registrar of Companies. Restatement In June 2003, the Group announced changes in the regional structure of its operations. The former Northern Europe and Central Europe regions were combined into a new Northern Europe region, with the exception of the United Kingdom and Ireland that now form their own region. The results below are presented in accordance with the new regional structure. The results of the Japan Telecom fixed line business, which has been disposed of, are analysed as discontinued operations and prior periods' analyses are restated to reflect this business as discontinued. 2 Segmental and other analyses The Group's principal business is the supply of mobile telecommunications services and products. Other operations primarily comprise fixed line telecommunications businesses and, until 29 August 2002, the Vizzavi joint venture. Analyses of turnover and total Group operating profit/(loss) by geographical region and class of business are as follows: Six months to Six months to Year ended 30 September 30 September 31 March 2003 2002 2003 £m £m £m Turnover(1) Mobile telecommunications: United Kingdom and Ireland 2,528 2,300 4,655 Northern Europe 3,676 2,989 6,177 Southern Europe 4,835 3,877 8,051 Americas - 5 5 Asia Pacific 4,357 4,126 8,364 Middle East and Africa 157 143 290 ------- ------- ------- 15,553 13,440 27,542 Other operations Europe 449 441 854 Asia Pacific(2) 897 1,017 1,979 ------- ------- ------- 16,899 14,898 30,375 ======= ======= ======= (1) The analysis of Group turnover represents turnover of the Company and its subsidiary undertakings and is stated net of inter-company turnover. (2) Includes the following amounts in relation to discontinued operations: six months to 30 September 2003: £818 million; six months to 30 September 2002: £969 million; year ended 31 March 2003: £1,828 million. Total Group operating Six months to Six months to Year ended profit / (loss) 30 September 30 September 31 March (before goodwill amortisation) 2003 2002 2003 £m £m £m Mobile telecommunications: United Kingdom and Ireland 685 637 1,326 Northern Europe 1,689 1,311 2,512 Southern Europe 1,729 1,261 2,495 Americas 705 644 1,219 Asia Pacific 736 734 1,421 Middle East and Africa 140 88 197 ------- ------- ------- 5,684 4,675 9,170 Other operations Europe (41) (94) (138) Asia Pacific(1) 79 59 149 ------- ------- ------- 5,722 4,640 9,181 ------- ------- ------- - Subsidiary undertakings 4,355 3,604 7,076 - Share of joint ventures and associated undertakings 1,367 1,036 2,105 ------- ------- ------- Goodwill amortisation (7,651) (6,837) (14,056) Exceptional operating items (Note 3)(2) 351 - (576) ------- ------- ------- Total Group operating loss (1,578) (2,197) (5,451) ======= ======= ======= (1) Includes the following amounts in relation to discontinued operations: six months to 30 September 2003: £66 million; six months to 30 September 2002: £74 million; year ended 31 March 2003: £162 million. (2) Includes the following amounts in relation to discontinued operations: six months to 30 September 2003: £nil; six months to 30 September 2002: £nil; year ended 31 March 2003: £(405) million. 3 Exceptional operating items Six months to Six months to Year ended 30 September 30 September 31 March 2003 2002 2003 £m £m £m Contribution tax 351 - - Impairment of intangible and tangible fixed assets - - (485) Reorganisation costs - - (91) ------- ------- ------- 351 - (576) ======= ======= ======= The exceptional operating income of £351 million comprises expected recoveries and provision releases in relation to a contribution tax levy on Vodafone Italy that is no longer expected to be payable. 4 Exceptional non-operating items Six months to Six months to Year ended 30 September 30 September 31 March 2003 2002 2003 £m £m £m (Loss)/profit on disposal of businesses (69) 3 22 Amounts written off fixed asset investments (4) (4) (340) Profit on disposal of fixed asset investments - 268 255 Profit on disposal of fixed assets 16 - 3 Share of associate (loss)/profit on disposal of investment (1) - 55 ------- ------- ------- (58) 267 (5) ======= ======= ======= 5 Tax on loss on ordinary activities Six months to Six months to Year ended 30 September 30 September 31 March 2003 2002 2003 £m £m £m United Kingdom corporation tax charge at 30% 152 120 195 ------- ------- ------- Overseas corporation tax Current tax: Current year 1,265 996 1,971 Prior year (144) - 9 ------- ------- ------- 1,121 996 1,980 ------- ------- ------- Total current tax 1,273 1,116 2,175 Deferred tax - origination of and reversal of timimg differences 385 486 818 ------- ------- ------- Tax on loss on ordinary activities 1,658 1,602 2,993 Tax on exceptional items 134 - (37) ------- ------- ------- Total tax charge 1,792 1,602 2,956 ======= ======= ======= Parent and subsidiary undertakings 1,559 1,428 2,624 Share of associated undertakings and joint ventures 233 174 332 ------- ------- ------- 1,792 1,602 2,956 ======= ======= ======= 6 Earnings per share Six months to Six months to Year ended 30 September 30 September 31 March 2003 2002 2003 £m £m £m Loss for basic loss per share (4,254) (4,336) (9,819) Goodwill amortisation 7,651 6,837 14,056 Exceptional operating items (351) - 576 Exceptional non-operating items 58 (267) 5 Tax on exceptional items 134 - (37) Share of exceptional items attributable to minority interests 23 - (139) ------- ------- ------- Earnings for adjusted earnings per share 3,261 2,234 4,642 ======= ======= ======= Weighted average number of shares (millions) 68,191 68,152 68,155 Basic and diluted loss per share (6.24)p (6.36)p (14.41)p Adjusted basic earnings per share 4.78p 3.28p 6.81p Diluted loss per share is the same as basic loss per share as it is considered that there are no dilutive potential ordinary shares. 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 2003 2002 2003 £m £m £m Operating loss (1,841) (2,163) (5,295) Exceptional items (351) - 496 Depreciation 2,206 1,892 3,979 Goodwill amortisation 6,547 5,767 11,875 Amortisation of other intangible fixed assets 22 23 53 Loss on disposal of tangible fixed assets 35 47 109 ------- ------- ------- Group EBITDA(1) 6,618 5,566 11,217 Working capital movements (522) 116 (52) Payments in respect of exceptional items (15) (6) (23) ------- ------- ------- Net cash inflow from operating activities 6,081 5,676 11,142 ======= ======= ======= (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 At 1 changes and At 30 April exchange September 2003 Cash flow movements 2003 £m £m £m £m Liquid resources 291 1,126 - 1,417 ------- ------- ------- ------- Cash at bank and in hand 475 2,901 (148) 3,228 ------- ------- ------- ------- Debt due within one year (other than bank overdrafts) (1,323) 917 (1,157) (1,563) Debt due after one year (12,994) (1,940) 1,161 (13,773) Finance leases (288) 76 (3) (215) ------- ------- ------- ------- (14,605) (947) 1 (15,551) ------- ------- ------- ------- Net debt (13,839) 3,080 (147) (10,906) ======= ======= ======= ======= Included within net debt are bond issues maturing as follows: £m One year or less 1,274 More than one year but not more than two years 1,411 More than two years but not more than five years 3,270 More than five years but not more than ten years 3,947 More than ten years but not more than twenty years 2,316 More than twenty years 1,181 ------- 13,399 ======= 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 is provided within Vodafone Group Plc's Annual Report & Accounts and Form 20-F for the year ended 31 March 2003. The effects of these differing accounting principles are as follows: Six months to Six months to Year ended 30 September 30 September 31 March 2003 2002 2003 as as restated(1) restated(1) £m £m £m Revenues from continuing operations in accordance with UK GAAP 16,081 13,929 28,547 Items decreasing revenues: Non-consolidated subsidiaries (2,612) (2,101) (4,371) Deferral of connection revenues (536) (831) (1,760) ------- ------- ------- Revenues from continuing operations in accordance with US GAAP 12,933 10,997 22,416 ======= ======= ======= Net loss in accordance with UK GAAP (4,254) (4,336) (9,819) Items (increasing)/decreasing net loss: Goodwill and other intangibles amortisation (3,116) (2,868) (5,487) Investments accounted for under the equity method 789 213 289 Exceptional items (253) - 270 Connection income 12 9 16 Capitalised interest 223 237 408 Income taxes 3,426 2,608 5,320 Other 12 (37) (52) ------- ------- ------- Net loss in accordance with US GAAP (3,161) (4,174) (9,055) ======= ======= ======= US GAAP basic and diluted loss per ordinary share (4.64)p (6.12)p (13.29)p ======= ======= ======= Shareholders' equity in accordance with UK GAAP 124,641 125,912 128,671 Items increasing/(decreasing) shareholders' equity: Goodwill and other intangibles - net of amortisation 49,156 50,123 51,144 Investments accounted for under the equity method 5,581 4,551 4,630 Exceptional items - - 270 Deferral of connection income (72) (91) (84) Capitalised interest 1,296 989 1,073 Cumulative deferred income taxes (42,988) (45,345) (45,446) Proposed dividends 650 542 612 Other 19 (532) (434) ------- ------- ------- Shareholders' equity in accordance with US GAAP 138,283 136,149 140,436 ======= ======= ======= (1) The reconciliations of net loss and shareholders' equity for the six months ended 30 September 2002 and year ended 31 March 2003 have been restated to reclassify certain items within the reconciliations presented. This restatement had no impact on the Group's previously reported net income or shareholders' equity under US GAAP. 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 2003 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 2003. Deloitte & Touche LLP Chartered Accountants London 17 November 2003 UNAUDITED PROPORTIONATE FINANCIAL INFORMATION FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2003 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. Proportionate financial information is not presented in the Group's Annual Report & Accounts and Form 20-F for the year ended 31 March 2003. 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 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. Analysis of proportionate turnover Six months to Six months to Year ended 30 September 30 September 31 March 2003 2002 2003 £m £m £m Mobile telecommunications: United Kingdom 2,150 2,000 4,026 Ireland 378 300 629 Germany 2,708 2,246 4,642 Other Northern Europe 2,477 1,604 3,458 Italy 2,006 1,598 3,353 Other Southern Europe 2,069 1,411 2,981 Verizon Wireless 3,102 2,841 5,686 Other Americas 31 66 116 Japan 2,698 2,602 5,258 Other Asia Pacific 698 553 1,178 Middle East and Africa 358 238 526 ------- ------- ------- 18,675 15,459 31,853 Other operations: Europe 419 380 752 Asia Pacific 598 678 1,321 ------- ------- ------- 19,692 16,517 33,926 ======= ======= ======= Reconciliation of proportionate turnover to statutory turnover Six months to Six months to Year ended 30 September 30 September 31 March 2003 2002 2003 £m £m £m Proportionate turnover 19,692 16,517 33,926 Minority share of turnover in subsidiary undertakings 2,452 2,758 5,437 Group share of turnover in joint ventures, associated undertakings and trade investments (5,245) (4,377) (8,988) ------- ------- ------- 16,899 14,898 30,375 ======= ======= ======= Analysis of proportionate EBITDA, before exceptional items Six months to Six months to Year ended 30 September 30 September 31 March 2003 2002 2003 £m £m £m Mobile telecommunications: United Kingdom 788 739 1,541 Ireland 176 128 274 Germany 1,264 1,038 2,016 Other Northern Europe 1,019 648 1,349 Italy 1,100 789 1,654 Other Southern Europe 799 524 1,062 Verizon Wireless 1,107 1,002 2,001 Other Americas 2 8 (24) Japan 873 833 1,645 Other Asia Pacific 269 209 474 Middle East and Africa 173 109 243 ------- ------- ------- 7,570 6,027 12,235 Other operations: Europe 46 (2) 48 Asia Pacific 176 178 396 ------- ------- ------- Proportionate EBITDA, before exceptional items 7,792 6,203 12,679 ======= ======= ======= Reconciliation of proportionate EBITDA, before exceptional items to loss for period Six months to Six months to Year ended 30 September 30 September 31 March 2003 2002 2003 £m £m £m Proportionate EBITDA, before exceptional items 7,792 6,203 12,679 Minority share of EBITDA in subsidiary undertakings 899 1,028 1,889 Group's share of EBITDA in joint ventures, associated undertakings and trade investments (2,073) (1,665) (3,351) ------- ------- ------- Group EBITDA 6,618 5,566 11,217 Charges for depreciation (2,206) (1,892) (3,979) Exceptional operating items 351 - (496) Goodwill amortisation (6,547) (5,767) (11,875) Amortisation of other intangibles (22) (23) (53) Loss on disposal of tangible fixed assets (35) (47) (109) ------- ------- ------- Operating loss (1,841) (2,163) (5,295) Share of profit/(losses) in joint ventures and associated undertakings 263 (34) (156) Exceptional non-operating items (58) 267 (5) Net interest payable and similar items (356) (390) (752) Tax on loss on ordinary activities (1,792) (1,602) (2,956) Minority interests (including non-equity minority interests) (470) (414) (655) ------- ------- ------- Loss for period (4,254) (4,336) (9,819) ======= ======= ======= OTHER INFORMATION These interim results will be available on the Vodafone Group Plc website, www.vodafone.com, from 18 November 2003. Copies of this document are also available from the Company's registered office: Vodafone House The Connection Newbury Berkshire RG14 2FN For further information: Vodafone Group Tim Brown, Group Corporate Affairs Director Tel: +44 (0) 1635 673310 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 Justin Griffiths Tel: +44 (0) 20 7920 3150 High resolution photographs are available to the media free of charge at www.newscast.co.uk. 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 'Outlook' with respect to Vodafone's expectations for the year ending 31 March 2004 as to average proportionate mobile customer growth, full year proportionate mobile revenue organic growth, proportionate mobile EBITDA margins, capitalised fixed asset additions, mobile capital efficiency, free cash flow and tax payments; statements with respect to Vodafone's expectations for the year ending 31 March 2005 as to organic growth in average proportionate mobile customers and proportionate mobile revenues, proportionate mobile EBITDA margins and organic growth in proportionate mobile EBITDA and capitalised fixed asset additions; the statements under 'Expenses' with respect to the expected amount for additional depreciation and amortisation; and the statements under 'Taxation' with respect to the expected effective tax rates. 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 rates, customer acquisition and retention 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, Vodafone live! and Vodafone's business offerings; intentions regarding the development of products and services; the ability to integrate our operations throughout the Group in the same format and on the same technical platform and the ability to be operationally efficient; the anticipated share repurchase programme; the rate of dividend growth by the Group or its existing investments; expected effective tax rates and expected tax payments; mobile penetration and coverage rates; expectations with respect to long-term shareholder value growth; our ability to be the mobile market leader, overall market trends and other trend projections. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as 'anticipates', 'aims', 'could', 'may', 'should', 'expects', 'believes', 'intends', 'plans' or 'targets'. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements particularly the statements under 'Outlook', 'Expenses' 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, the integration of our operations and those of recently 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 revenues, 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 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; 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 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; changes in exchange rates, including particularly the exchange rate of the pound 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 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 & Accounts and Form 20-F with respect to the financial year ended 31 March 2003. 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 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 -------------------------------------------------------------------------------- EBITDA, before exceptional items Operating loss Note 7 on page 28 Total Group operating profit Total Group Note 2 on page 26 (before goodwill amortisation and operating loss exceptional items) Profit on ordinary activities Loss on ordinary Group Financial Highlights before taxation (before goodwill activities on page 2 amortisation and exceptional before items) taxation Free cash flow Net cash inflow Cash flows and funding on from operating page 18 activities Adjusted earnings per share Earnings per Note 6 on page 27 share Proportionate turnover Statutory Proportionate financial turnover information on page 31 Proportionate EBITDA, before Operating loss Proportionate financial exceptional items information on page 32 This information is provided by RNS The company news service from the London Stock Exchange

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