Vodafone 2003 Annual Report Download - page 36

Vodafone Group Plc Annual Report & Accounts and Form 20-F 2003
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OPERATING AND FINANCIAL REVIEW AND PROSPECTS Continued
In the Northern Europe Region’s other operations, total Group operating profit,
before goodwill amortisation and exceptional items increased by 48% from £744
million to £1,102 million for the year ended 31 March 2003, including £500
million from associated undertakings. The Northern Europe Region also benefited
from the first full year inclusion of Vodafone Ireland, which became a subsidiary
of the Group in May 2001, and the increase in the Group’s effective stake in SFR
from 32.0% to approximately 43.9% in January 2003.
Central Europe
In Germany, total Group operating profit, before goodwill amortisation and
exceptional items, increased from £1,429 million for the year ended 31 March
2002 to £1,435 million for the year ended 31 March 2003 as the effect of the
growth in turnover, as described above, was almost entirely offset by increased
costs, predominantly due to higher acquisition costs, and a higher depreciation
charge as a consequence of the expenditure on network infrastructure and IT
system improvements in the 2002 financial year.
The Group’s other interests in the Central Europe Region, including the Group’s
interests in Swisscom and Polkomtel, reported a 59% increase in total Group
operating profit, before goodwill amortisation and exceptional items, to £181
million for the year ended 31 March 2003.
Southern Europe
Growth in total Group operating profit, before goodwill amortisation and
exceptional items, in the Southern Europe Region, increased primarily due to a
25% increase in Vodafone Italy, to £1,588 million for the year ended
31 March 2003. The improvement in Vodafone Italy was principally driven by the
growth in turnover, as described above, and the continued focus on controlling
acquisition and retention costs. Cost to connect decreased from 135 to 125 as a
result of strict management of commercial policies.
Total Group operating profit, before goodwill amortisation and exceptional items,
in the Group’s other interests in Southern Europe increased by 13% from £805
million for the year ended 31 March 2002 to £907 million for the year ended
31 March 2003, principally reflecting increases in Vodafone Spain and
Vodafone Greece.
Americas
The results of the Americas Region, which largely reflect the Group’s interest in
Verizon Wireless, were adversely affected by the relative strength of sterling
against the US dollar. In Verizon Wireless, total Group operating profit, before
goodwill amortisation and exceptional items, decreased by 5% from £1,332
million for the year ended 31 March 2002 to £1,270 million for the year ended
31 March 2003. However, when measured in local currency, total Group
operating profit, before goodwill amortisation and exceptional items, increased
5%, driven by customer growth and improved usage, particularly in data
revenues, which increased by 106% over the comparable period to £136 miilion.
At 31 March 2003, Verizon Wireless’ total customer base stood at 33,324,000,
a 12.6% increase on the prior year. Annual ARPU increased from $576 to $584
due to a focus on selling plans with higher access price points, also reflected in
an increase in cost to connect from $125 to $139.
The total Group operating loss, before goodwill amortisation and exceptional
items, for the other interests of the Group in the Americas Region, increased
from a loss of £15 million for the year ended 31 March 2002 to a loss of £51
million for the year ended 31 March 2003, due to the deterioration in the
financial performance of Iusacell.
Asia Pacific
Total Group operating profit, before goodwill amortisation and exceptional items,
for the Asia Pacific Region increased principally as a result of J-Phone Vodafone
becoming a subsidiary undertaking on 12 October 2001. Prior to this date,
J-Phone Vodafone was accounted for as an associated undertaking. J-Phone
Vodafone’s total Group operating profit, before goodwill amortisation and
exceptional items, increased from £523 million for the year ended 31 March
2002 to £1,310 million for the year ended 31 March 2003, as a result of the
stake changes and the benefits of increased turnover and corporate efficiency
initiatives. Average cost to connect reduced from ¥34,145 to ¥32,519 as a
result of lower customer acquisition subsidies and more cost efficient
purchasing. However, the increase in total Group operating profit, before goodwill
amortisation and exceptional items, as a result of these measures was partially
offset by an increase in the depreciation charge as a result of the launch of 3G
services.
The Group’s other operations in the Asia Pacific Region reported a 68% growth
in total Group operating profit, before goodwill amortisation and exceptional
items, to £111 million for the year ended 31 March 2003, principally as a result
of a focus on operational efficiencies in Vodafone Australia and Vodafone New
Zealand.
Middle East and Africa
In the Middle East and Africa Region, notwithstanding the Egyptian pound’s
continued devaluation, total Group operating profit, before goodwill amortisation
and exceptional items, increased largely as a result of the Group’s Egyptian
subsidiary, which focused on cost effectiveness to improve margins. The Group’s
South African associate, Vodacom, reported improved results as its operations in
Tanzania, Lesotho and the Democratic Republic of Congo continued to grow.
Safaricom also improved its profitability in the year.
Other operations
The Group’s other operations reported a total Group operating profit, before
goodwill amortisation and exceptional items, of £11 million for the year ended
31 March 2003, compared with a loss of £323 million for the year ended
31 March 2002. Japan Telecom, which became a subsidiary of the Group in
October 2001, accounted for a total Group operating profit, before goodwill
amortisation and exceptional items, of £149 million for the year ended 31 March
2003, compared with a loss of £17 million in the prior year, as the benefits of
management’s transformation plan start to be realised. The Group’s European
non-mobile businesses, principally Arcor and Cegetel, also reported reduced
losses, from £306 million for the year ended 31 March 2002 to £138 million for
the year ended 31 March 2002.
Consolidated cost of sales
Consolidated costs of sales increased from £13,446 million in the year ended
31 March 2002 to £17,896 million in the year ended 31 March 2003
representing 58.9% of turnover for both periods.
The Group’s cost of sales consist primarily of financial incentives to service
providers and dealers, payments to landline and mobile operators for delivering
calls outside the Group’s networks and for providing landline or microwave links,
depreciation of network infrastructure, the cost of customer equipment sold and
network operating costs.
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