Vodafone 2007 Annual Report Download - page 55

Vodafone Group Plc Annual Report 2007 53
Contingencies
Details of the Group’s contingent liabilities are included in note 31 of the
Consolidated Financial Statements.
A number of Vodafone subsidiaries acquired 3G licences through auctions in
2000 and 2001. An appeal was filed by Vodafone Group Services Limited on
behalf of Vodafone Limited, along with appeals filed by other UK mobile
network operators which were granted a 3G licence, with the VAT and Duties
Tribunal on 18 October 2003 for recovery of VAT on the basis that the
amount of the licence fee was inclusive of VAT. The amount claimed by
Vodafone Limited is approximately £888 million. In August 2004, these
claims were referred, jointly, to the ECJ and a hearing took place on
7 February 2006. On 7 September 2006, the Advocate General’s opinion was
released rejecting Vodafone’s claim. Whilst the Advocate General’s decision
is not binding on the ECJ it is likely it will follow his opinion. A decision by
the ECJ is expected this year. The Group has not recognised any amounts in
respect of this matter to date. In addition, the Group has made claims for
recovery of VAT in relation to 3G licence fees in other European jurisdictions.
Equity Dividends
The table below sets out the amounts of interim, final and total cash
dividends paid or, in the case of the final dividend for the 2007 financial
year, proposed, in respect of each financial year, indicated both in pence per
ordinary share and translated, solely for convenience, into cents per
ordinary share at the Noon Buying Rate on each of the respective payment
dates for such interim and final dividends.
Pence per ordinary share Cents per ordinary share
Year ended 31 March Interim Final Total Interim Final Total
2003 0.7946 0.8983 1.6929 1.2939 1.4445 2.7384
2004 0.9535 1.0780 2.0315 1.7601 1.9899 3.7500
2005 1.91 2.16 4.07 3.60 4.08 7.68
2006 2.20 3.87 6.07 3.83 6.73 10.56
2007 2.35 4.41(1) 6.76 4.61 8.68(1) 13.28
Note:
(1) The final dividend for the year was proposed on 29 May 2007 and is payable on 3 August 2007
to holders of record as of 8 June 2007. This dividend has been translated into US dollars at the
Noon Buying Rate at 30 March 2007 for ADS holders, but will be payable in US dollars under the
terms of the ADS depository agreement.
The Company has historically paid dividends semi-annually, with a regular
interim dividend in respect of the first six months of the financial year
payable in February and a final dividend payable in August. The Board of
directors expect that the Company will continue to pay dividends
semi-annually. In November 2006, the directors announced an interim
dividend of 2.35 pence per share, representing a 6.8% increase over last
year’s interim dividend.
In considering the level of dividends, the Board takes account of the outlook
for earnings growth, operating cash flow generation, capital expenditure
requirements, acquisitions and divestments, together with the amount of
debt and share purchases.
Accordingly, the directors announced a final dividend of 4.41 pence per
share, representing a 14.0% increase on last year’s final dividend.
The Board remains committed to its existing policy of distributing 60% of
adjusted earnings per share by way of dividend but, in recognition of the
earnings dilution arising from the acquisition of Hutchison Essar, it has
decided that it will target modest increases in dividend per share in the near
term until the payout ratio returns to 60%.
Cash dividends, if any, will be paid by the Company in respect of ordinary
shares in pounds sterling or, to holders of ordinary shares with a registered
address in a country which has adopted the euro as its national currency, in
euro, unless shareholders wish to elect to continue to receive dividends in
sterling, are participating in the Company’s Dividend Reinvestment Plan, or
have mandated their dividend payment to be paid directly into a bank or
building society account in the United Kingdom. In accordance with the
Company’s Articles of Association, the sterling: euro exchange rate will be
determined by the Company shortly before the payment date.
The Company will pay the ADS Depositary, The Bank of New York, its
dividend in US dollars. The sterling: US dollar exchange rate for this purpose
will be determined by the Company shortly before the payment date. Cash
dividends to ADS holders will be paid by the ADS Depositary in US dollars.
Liquidity and Capital Resources
Cash flows
The major sources of Group liquidity for the 2007 and 2006 financial years
were cash generated from operations, dividends from associated
undertakings, borrowings through short term and long term issuances in
the capital markets and, particularly in the 2007 financial year, investment
and business disposals. The Group does not use off-balance sheet special
purpose entities as a source of liquidity or for other financing purposes.
The Group’s key sources of liquidity for the foreseeable future are likely to be
cash generated from operations and borrowings through long term and short
term issuances in the capital markets, as well as committed bank facilities.
Additionally, the Group has a put option in relation to its interest in Verizon
Wireless which, if exercised, could provide a material cash inflow. Please see
“Option agreements and similar arrangements” at the end of this section.
The Group’s liquidity and working capital may be affected by a material
decrease in cash flow due to factors such as reduced operating cash flow
resulting from further possible business disposals, increased competition,
litigation, timing of tax payments and the resolution of outstanding tax issues,
regulatory rulings, delays in development of new services and networks,
licences and spectrum payments, inability to receive expected revenue from
the introduction of new services, reduced dividends from associates and
investments or increased dividend payments to minority shareholders. Please
see the section titled “Performance – Risk Factors, Seasonality and Outlook”,
on pages 58 to 60. In particular, the Group anticipates a significant increase in
cash tax payments and associated interest payments over the next two years
due to the resolution of long standing tax issues.
The Group is also party to a number of agreements that may result in a cash
outflow in future periods. These agreements are discussed further in
“Option agreements and similar arrangements” at the end of this section.
Wherever possible, surplus funds in the Group (except in Albania, Egypt and
Turkey) are transferred to the centralised treasury department through
repayment of borrowings, deposits and dividends. These are then on-lent or
contributed as equity to fund Group operations, used to retire external debt
or invested externally.
Increase in cash in the year
During the 2007 financial year, the Group decreased its net cash inflow from
operating activities by 12.8% to £10,328 million, including £10,193 million
from continuing operations. The Group generated £6,127 million of free
cash flow from continuing operations, a reduction of 4.5% on the previous
financial year, and experienced an additional outflow of £8 million from
discontinued operations. Free cash flow from continuing operations
decreased from the prior financial year due to an increase in capital
expenditure and higher interest payments.
Performance