Vodafone 2007 Annual Report Download - page 56

54 Vodafone Group Plc Annual Report 2007
Financial Position and Resources
continued
2007 2006
£m £m
Net cash flows from operating activities 10,328 11,841
Continuing operations 10,193 10,190
Discontinued operations 135 1,651
Taxation 2,243 1,682
Purchase of intangible fixed assets (899) (690)
Purchase of property, plant and equipment (3,633) (4,481)
Disposal of property, plant and equipment 34 26
Operating free cash flow 8,073 8,378
Taxation (2,243) (1,682)
Dividends from associated undertakings 791 835
Dividends paid to minority shareholders
in subsidiary undertakings (34) (51)
Dividends from investments 57 41
Interest received 526 319
Interest paid (1,051) (721)
Free cash flow 6,119 7,119
Continuing operations 6,127 6,418
Discontinued operations (8) 701
Net cash inflow/(outflow) from acquisitions
and disposals 7,081 (3,587)
Other cash flows from investing activities (92) (56)
Equity dividends paid (3,555) (2,749)
Other cash flows from financing activities (4,712) (1,555)
Increase/(decrease) in cash in the year 4,841 (828)
Capital expenditure
During the 2007 financial year, £3,633 million was spent on property, plant
and equipment, a decrease of 18.9% from the previous financial year.
The net cash outflow in intangible assets increased from £690 million in the
previous financial year to £899 million in the current financial year, with the
largest element being expenditure on computer software.
Dividends from associated undertakings and investments, and
dividends to minority shareholders
Dividends from the Group’s associated undertakings are generally paid at
the discretion of the Board of directors or shareholders of the individual
operating companies and Vodafone has no rights to receive dividends,
except where specified within certain of the companies’ shareholders’
agreements, such as with SFR, the Group’s associated undertaking in France.
Similarly, the Group does not have existing obligations under shareholders’
agreements to pay dividends to minority interest partners of Group
subsidiaries or joint ventures, except as specified below.
Included in the dividends received from associated undertakings and
investments was an amount of £328 million (2006: £195 million) received
from Verizon Wireless. Until April 2005, Verizon Wireless’ distributions were
determined by the terms of the partnership agreement distribution policy
and comprised income distributions and tax distributions. Since April 2005,
tax distributions have continued. Current projections forecast that tax
distributions will not be sufficient to cover the US tax liabilities arising from
the Group’s partnership interest in Verizon Wireless until 2015 and, in the
absence of additional distributions above the level of tax distributions
during this period, will result in a net cash outflow for the Group. Under the
terms of the partnership agreement, the board of directors has no
obligation to provide for additional distributions above the level of the tax
distributions. It is the current expectation that Verizon Wireless will continue
to re-invest free cash flow in the business and reduce indebtedness.
During the year ended 31 March 2007, cash dividends totalling
£450 million (2006: £511 million) were received from SFR in accordance
with the shareholders’ agreement.
Verizon Communications Inc. (“Verizon Communications”) has an indirect
23.1% shareholding in Vodafone Italy and, under the shareholders’
agreement, the shareholders have agreed to take steps to cause Vodafone
Italy to pay dividends at least annually, provided that such dividends would
not impair the financial condition or prospects of Vodafone Italy including,
without limitation, its credit rating. Vodafone Italy’s board of directors is
considering the level of a dividend that may be paid during the 2008
financial year. No dividends were or have been proposed or paid by
Vodafone Italy during or since the year ended 31 March 2007.
The Hutchison Essar shareholders’ agreement provides for the payment of
dividends to minority partners under certain circumstances (see page 136
for further details on the Hutchison Essar acquisition).
Acquisitions and disposals
The Group received a net £6,989 million cash and cash equivalents from
acquisition and disposal activities, including a net cash outflow of
£92 million from the purchase and disposal of investments, in the year to
31 March 2007. The acquisitions are described in more detail under
“Business – Business Overview – How We Developed”.
An analysis of the main transactions in the 2007 financial year, including
the changes in the Group’s effective shareholding, is shown below:
£m
Acquisitions:
Telsim Mobil Telekomunikasyon Hizmetleri
(from nil to 100% of trade and assets) (2,569)
Disposals:
Vodafone Japan (from 97.7% to nil)(1) 6,810
Belgacom Mobile (25% to nil) 1,343
Swisscom Mobile (25% to nil) 1,776
Other net acquisitions and disposals, including investments(1) (371)
Total 6,989
Note:
(1) Amounts are shown net of cash and cash equivalents acquired or disposed.
On disposal of Vodafone Japan to SoftBank on 27 April 2006, the Group
received non-cash consideration with a fair value of approximately
¥0.23 trillion (£1.1 billion), comprised of preferred equity and a
subordinated loan. Softbank also assumed external debt of approximately
¥0.13 trillion (£0.6 billion).
In December 2006, the subordinated loan was partly repaid by SoftBank,
with the remaining portion refinanced with a new subordinated loan, and
the terms of the preferred equity were improved. As a result of this
refinancing, the Group recorded a gain of £86 million, which is reported in
investment income.
Special distribution of £9 billion
On 17 March 2006, following the announcement of the sale of Vodafone
Japan, the Group stated that it would make a special distribution to
shareholders of approximately £6 billion. Consistent with the Group’s
strategy of targeting a low single A credit rating over the long term, on
30 May 2006 the Group announced that it would return a further £3 billion
to shareholders, resulting in a total distribution of approximately £9 billion
in the form of a B share arrangement.
The B share arrangement was approved at an Extraordinary General Meeting
of the Company on 25 July 2006. Payment in respect of redemption of the
B share arrangement was made in August 2006 and February 2007 and all
but £20 million of the total amount payable had been settled as at