Vodafone 2007 Annual Report Download - page 61

Vodafone Group Plc Annual Report 2007 59
Expected benefits from investment in networks,
licences and new technology may not be realised.
The Group has made substantial investments in the acquisition of licences
and in its mobile networks, including the roll out of 3G networks. The Group
expects to continue to make significant investments in its mobile networks
due to increased usage and the need to offer new services and greater
functionality afforded by new or evolving telecommunications technologies.
Accordingly, the rate of the Group’s capital expenditures in future years could
remain high or exceed that which it has experienced to date.
There can be no assurance that the introduction of new services will
proceed according to anticipated schedules or that the level of demand for
new services will justify the cost of setting up and providing new services.
Failure or a delay in the completion of networks and the launch of new
services, or increases in the associated costs, could have a material adverse
effect on the Group’s operations.
The Group may experience a decline in revenue or
profitability notwithstanding its efforts to increase
revenue from the introduction of new services.
As part of its strategy, the Group will continue to offer new services to its
existing customers and seek to increase non-voice service revenue as a
percentage of total service revenue. However, the Group may not be able to
introduce commercially these new services, or may experience significant
delays due to problems such as the availability of new mobile handsets,
higher than anticipated prices of new handsets or availability of new
content services. In addition, even if these services are introduced in
accordance with expected time schedules, there is no assurance that
revenue from such services will increase ARPU or maintain profit margins.
The Group’s business and its ability to retain customers
and attract new customers may be impaired by actual
or perceived health risks associated with the
transmission of radiowaves from mobile telephones,
transmitters and associated equipment.
Concerns have been expressed in some countries where the Group operates
that the electromagnetic signals emitted by mobile telephone handsets and
base stations may pose health risks at exposure levels below existing
guideline levels and may interfere with the operation of electronic equipment.
In addition, as described under the heading “Legal proceedings” in note 31 to
the Consolidated Financial Statements, several mobile industry participants,
including the Company and Verizon Wireless, have had lawsuits filed against
them alleging various health consequences as a result of mobile phone
usage, including brain cancer. While the Company is not aware that such
health risks have been substantiated, there can be no assurance that the
actual, or perceived, risks associated with radiowave transmission will not
impair its ability to retain customers and attract new customers, reduce
mobile telecommunications usage or result in further litigation. In such event,
because of the Group’s strategic focus on mobile telecommunications, its
business and results of operations may be more adversely affected than those
of other companies in the telecommunications sector.
The Group’s business would be adversely affected by
the non-supply of equipment and support services by
a major supplier.
Companies within the Group source their network infrastructure and related
support services from third party suppliers. The removal from the market of
one or more of these third party suppliers would adversely affect the Group’s
operations and could result in additional capital expenditures by the Group.
Seasonality
The Group’s financial results have not, historically, been subject to
significant seasonal trends.
Outlook
The measures presented in the Group’s outlook have been derived from
amounts calculated in accordance with IFRS but are not themselves IFRS
measures. Further disclosures are provided in “Performance – Non-GAAP
Information” on pages to 62 to 63 and below for proportionate measures.
2007 financial year
The following sets out the outlook provided by the Group in respect of the
2007 financial year and the Group’s actual performance:
2007 2007
Actual Performance Outlook
Organic proportionate mobile 6.3% 5% to 6.5%
revenue growth(1)
Organic proportionate 0.9 percentage points Around 1 percentage
mobile EBITDA margin(1) lower than 2006 point lower than
financial year 2006 financial year
Free cash flow £6.1 billion(2) £4.7 to £5.2 billion
Capitalised fixed asset £4.2 billion £4.2 to £4.6 billion
additions
Notes:
(1) Assumes constant exchange rates and excludes the impact of business acquisitions and disposals
for the financial measures and adjusted to reflect like-for-like ownership levels in both years.
(2) Amount includes £0.5 billion benefit from timing differences and the deferral of payments
originally expected in the year and is stated after £0.4 billion of tax payments, including
associated interest, in respect of a number of long standing tax issues.
2008 financial year
The following sets out the Group’s outlook for the 2008 financial year:
2008 Outlook(1)(2)
Revenue growth £33.3 billion to £34.1 billion
Adjusted operating profit £9.3 billion to £9.8 billion
Capitalised fixed asset additions £4.7 billion to £5.1 billion
Free cash flow £4.0 billion to £4.5 billion
Notes:
(1) This Outlook section contains forward looking statements within the meaning of the US Private
Securities Litigation Reform Act of 1995. Please refer to “Cautionary Statement Regarding
Forward-Looking Statements” set out on page 61.
(2) Includes assumption of average foreign exchange rates for the 2008 financial year of
approximately Euro 1.47:£1 and US$1.98:£1. A substantial majority of the Group’s revenue,
adjusted operating profit, capitalised fixed asset additions and free cash flow is denominated in
currencies other than sterling, the Group’s reporting currency.
The Group’s outlook statement now reflects only statutory financial
measures. Following completion of the Hutchison Essar transaction in India
on 8 May 2007, its results will be fully consolidated into the Group’s results
from that date and are therefore reflected in the outlook measures set out
below. The Group’s outlook ranges reflect current expectations for average
foreign exchange rates for the 2008 financial year.
Operating conditions are expected to continue to be challenging in Europe,
with competition remaining intense and ongoing regulatory pressure,
notwithstanding continued positive trends in data revenue and voice usage
growth. Increasing market penetration continues to result in overall strong
growth prospects for the EMAPA region.
Group revenue is expected to be in the range of £33.3 billion to
£34.1 billion. Adjusted operating profit is expected to be in the range of
£9.3 billion to £9.8 billion, with the Group EBITDA margin lower year on year.
Total depreciation and amortisation charges are anticipated to be around
£5.8 billion to £5.9 billion, higher than the 2007 financial year, primarily as a
result of the Hutchison Essar acquisition.
PerformancePerformance