Vodafone 2006 Annual Report Download - page 34

32 Vodafone Group Plc Annual Report 2006
Operating Results
continued
(Loss)/profit for the financial year from discontinued operations
Years ended 31 March
2006 2005 Change
£m £m %
Revenue(1) 7,268 7,396 (1.7)
Adjusted operating profit 455 664
Impairment loss (4,900) –
Operating (loss)/profit (4,445) 664
Non-operating income and expense −
−13
Net financing costs (3) (11)
(Loss)/profit before taxation (4,448) 666
Tax on (loss)/profit(1) (140) 436
(Loss)/profit for the financial year (4,588) 1,102
Note:
(1) Included a deferred tax credit of £599 million in the year to 31 March 2005 in respect of losses in Vodafone Holdings K.K.
which became eligible for offset against profits of Vodafone K.K. following the merger of the two entities on 1 October
2004.
On 17 March 2006, the Group announced that an agreement had been reached to sell
its 97.7% interest in Vodafone Japan to SoftBank. This resulted in the Group’s operations
in Japan being classified as an asset held for sale and being presented as a discontinued
operation. The disposal was completed on 27 April 2006.
Following the announcement on 17 March 2006, the Group recognised an impairment
loss of £4,900 million in respect of Vodafone Japan. The recoverable amount of
Vodafone Japan was the fair value less costs to sell.
On completion of the disposal of Vodafone Japan in April 2006, a loss on disposal was
recognised as the difference between the final sale proceeds less costs to sell and the
carrying value at the date of disposal. The loss on disposal includes, among other items,
the cumulative exchange differences in respect of Vodafone Japan previously
recognised in equity from 1 April 2004 through to completion.
Review of Operations
Please refer to the Summary of Key Performance Indicators for Principal Markets on
page 37 and note 3 to the Consolidated Financial Statements.
Mobile businesses
Vodafone operating companies are licensed on an arm’s length basis to use the
Vodafone brand and related trademarks. These arrangements have been reviewed
and the charges for the use of the Vodafone brand and related trademarks were revised
with effect from 1 April 2005 to reflect the positioning of the brand in the
current markets. There is no material impact on the Group’s overall operating profit. The
impact of the change is to reduce individual operating company profitability with a
corresponding increase in the profit attributable to the common functions segment,
which forms part of the mobile telecommunications business.
In April 2006, the Group announced changes to the organisational structure of its
operations, effective from 1 May 2006. The following results are presented in
accordance with the organisation structure in place for the year to 31 March 2006.
Germany
Local
Years ended 31 March currency
2006 2005 Change change
£m £m % %
Revenue(1) 5,754 5,684 1.2 1.2
Trading results
Voice services 4,304 4,358 (1.2) (1.3)
Non-voice services
– Messaging 836 800 4.5 4.6
– Data 254 162 56.8 56.8
Total service revenue 5,394 5,320 1.4 1.4
Net other revenue(1) 114 122 (6.6) (6.9)
Interconnect costs (732) (734) (0.3) (0.3)
Other direct costs (281) (314) (10.5) (10.3)
Net acquisition costs(1) (366) (348) 5.2 5.2
Net retention costs(1) (349) (330) 5.8 5.6
Payroll (412) (425) (3.1) (3.0)
Other operating
expenses (665) (646) 2.9 3.1
Purchased licence
amortisation (342) (342) – –
Depreciation and other
amortisation(2) (865) (830) 4.2 4.3
Adjusted operating
profit(2) 1,496 1,473 1.6 1.3
Notes:
(1) Revenue includes revenue of £246 million (2005: £242 million) which has been excluded from other revenue and
deducted from acquisition and retention costs in the trading results.
(2) Before impairment losses
The German market has seen recent intensification in price competition, principally from
new market entrants, together with high levels of penetration and further reductions in
termination rates. Despite this, Vodafone has continued to lead the market in the
number of 3G customers, and has launched innovative products such as mobile TV and
Vodafone Zuhause, which allows users to replace fixed line networks installed in their
homes. In addition, Vodafone launched HSDPA technology in March 2006.
Total revenue increased by 1.2% as the benefits of a larger customer base and an
increase in non-voice service revenue were partly offset by reduced voice pricing, in
response to aggressive competition, and a further termination rate cut in December
2005 from 13.2 to 11.0 eurocents per minute. The average customer base grew by 8.4%
due to the attractiveness of promotions, including an offer which allowed prepaid
customers to pay a fixed charge for calls to fixed lines and other Vodafone customers,
which was taken up by more than one and a quarter million customers, and new
products such as Vodafone Zuhause, which had 448,000 registered customers at
31 March 2006. New prepaid tariffs, including a low priced internet only offer, and
ongoing promotional activity, particularly in the last four months of the year, contributed
to total voice usage increasing by 13.7%. Excluding the termination rate cut in
December 2005, service revenue growth would have been 3.1% in local currency. A
further cut in termination rates is currently expected by the end of 2006.
Non-voice service revenue increased by 13.4% in local currency, driven primarily by strong
growth of 56.8% in non-messaging data revenue. Vodafone maintained its leadership in
the 3G market, demonstrated by Vodafone live! with 3G customers generating over 3.1
million full track music downloads in the current financial year for Vodafone, more than
any other mobile network operator in Germany. The number of active Vodafone live!
devices continued to increase, with 28.3% growth in the year. In the business segment,
there were 241,000 Vodafone Mobile Connect 3G/GPRS data cards and 226,000 wireless
push e-mail enabled devices registered on the network at 31 March 2006. Messaging
revenue increased 4.6%, in local currency, mainly as a result of promotional activities.
Overall cost efficiencies, counteracted by investments in customer acquisition and
retention and an increase in Group charges for the use of the brand and related
trademarks, which represented 1.1% of service revenue, lead to an increase in adjusted
operating profit of 1.3% in local currency to £1,496 million. Growth in 3G customers and
increased gross additions, partially offset by a rise in the proportion of low subsidy prepaid