Vodafone 2007 Annual Report Download - page 37

Vodafone Group Plc Annual Report 2007 35
Investment income and financing costs
2007 2006 Change
£m £m %
Net financing costs before dividends
from investments(1) (435) (318) 36.8
Potential interest charges arising on
settlement of outstanding tax issues (406) (329) 23.4
Changes in the fair value of equity put
rights and similar arrangements 2(161) 101.2
Dividends from investments 57 41 39.0
Foreign exchange(2) (41) ––
Net financing costs (823) (767) 7.3
Notes:
(1) Includes a one off gain of £86 million related to the Group renegotiating its investments in
SoftBank
(2) Comprises foreign exchange differences reflected in the income statement in relation to certain
intercompany balances and the foreign exchange differences on financial instruments
received as consideration in the disposal of Vodafone Japan to SoftBank, which completed in
April 2006
Net financing costs before dividends from investments increased by 36.8%
to £435 million as increased financing costs, reflecting higher average debt
and interest rates, and losses on mark to market adjustments on financial
instruments more than offset higher investment income resulting from new
investments in SoftBank, which arose on the sale of Vodafone Japan during
the year, including an £86 million gain related to the renegotiation of these
investments. At 31 March 2007, the provision for potential interest charges
arising on settlement of outstanding tax issues was £1,213 million.
Taxation
The effective tax rate, exclusive of impairment losses, is 26.3% (2006: 27.5%),
which is lower than the Group’s weighted average tax rate due to the
resolution of a number of historic tax issues with tax authorities and additional
tax deductions in Italy. The prior year benefited from the tax treatment of a
share repurchase in Vodafone Italy and favourable tax settlements.
A significant event in the year was a European Court decision in respect of
the UK Controlled Foreign Company (“CFC”) legislation, following which
Vodafone has not accrued any additional provision in respect of the
application of UK CFC legislation to the Group.
The effective tax rate including impairment losses is (101.7)% compared to
(16.0)% for the prior year. The negative tax rates arise from no tax benefit
being recorded for the impairment losses of £11,600m (2006: £23,515m).
Basic loss per share
Basic loss per share from continuing operations decreased from 27.66 pence
to a loss per share of 8.94 pence for the current year. The basic loss per share
is after a charge of 21.04 pence per share (2006: 37.56 pence per share) in
relation to an impairment of the carrying value of goodwill.
Operating result
Adjusted operating profit increased by 1.4% to £9,531 million, with organic
growth of 4.2%. The net impact of acquisitions and disposals and
unfavourable exchange rate movements reduced reported growth by
0.3 percentage points and 2.5 percentage points, respectively, with both
effects arising principally in the EMAPA region. The Europe region declined
4.7% on an organic basis, whilst the EMAPA region recorded organic growth of
24.3%. Strong performances were delivered in Spain, the US and a number of
emerging markets.
Adjusted operating profit is stated after charges in relation to regulatory fines
in Greece of £53 million and restructuring costs within common functions,
Vodafone Germany, Vodafone UK and Other Europe of £79 million. The
EMAPA region accounted for all of the Group’s reported and organic growth in
adjusted operating profit.
Adjusted operating profit for the 2007 financial year was principally
denominated in euro (55%), US dollar (22%) and sterling (5%), with the
remaining 18% being denominated in other currencies.
The acquisitions and stake increases led to the rise in acquired intangible
asset amortisation, and these acquisitions, combined with the continued
expansion of network infrastructure in the region, resulted in higher
depreciation charges.
The Group’s share of results from associates increased by 13.0%, mainly due
to Verizon Wireless which reported record growth in net additions and
increased ARPU. The growth in Verizon Wireless was offset by a reduction in
the Group’s share of results from its other associated undertakings, which
fell due to the disposals of Belgacom Mobile S.A. and Swisscom Mobile A.G.
as well as the impact of reductions in termination rates and intense
competition experienced by SFR in France.
Statutory operating loss was £1,564 million compared with a loss of £14,084
million in the previous financial year following lower impairment charges. In
the year ended 31 March 2007, the Group recorded an impairment charge of
£11,600 million (2006: £23,515 million) in relation to the carrying value of
goodwill in the Group’s operations in Germany (£6,700 million) and Italy
(£4,900 million). The impairment in Germany resulted from an increase in
long term interest rates, which led to higher discount rates, along with
increased price competition and continued regulatory pressures in the
German market. The impairment in Italy resulted from an increase in long
term interest rates and the estimated impact of legislation cancelling the
fixed fees for the top up of prepaid cards and the related competitive response
in the Italian market. The increase in interest rates accounted for £3,700
million of the reduction in value during the year.
Certain of the Group’s cost reduction and revenue stimulation initiatives are
managed centrally within common functions. Consequently, operating and
capital expenses are incurred centrally and recharged to the relevant
countries, primarily in Europe. This typically results in higher operating
expenses with a corresponding reduction in depreciation for the countries
concerned.
Other income and expense for the year ended 31 March 2007 included the
gains on disposal of Belgacom Mobile S.A. and Swisscom Mobile A.G.,
amounting to £441 million and £68 million, respectively.
PerformancePerformance