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32 Vodafone Group Plc Annual Report 2009
Operating results continued
Net financing costs
2008 2007
£m £m
Investment income 714 789
Financing costs (2,014) (1,612)
Net financing costs (1,300) (823)
Analysed as:
Net financing costs before dividends from investments (823) (435)
Potential interest charges arising on settlement of
outstanding tax issues (399) (406)
Dividends from investments 72 57
Foreign exchange(1) (7) (41)
Changes in fair value of equity put rights and
similar arrangements(2) (143) 2
(1,300) (823)
Notes:
(1) Comprises foreign exchange differences reflected in the consolidated 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.
(2) Includes the fair value movement in relation to put rights and similar arrangements held by
minority interest holders in certain of the Group’s subsidiaries. The valuation of these financial
liabilities is inherently unpredictable and changes in the fair value could have a material impact
on the future results and financial position of Vodafone. Also includes a charge of £333 million
representing the initial fair value of the put options granted over the Essar Group’s interest in
Vodafone Essar, which has been recorded as an expense. Further details of these options are
provided on page 44.
Net financing costs before dividends from investments increased by 89.2% to
£823 million due to increased financing costs, reflecting higher average debt and
effective interest rates. After taking account of hedging activities, the net financing
costs before dividends from investments are substantially denominated in euro.
At 31 March 2008, the provision for potential interest charges arising on settlement
of outstanding tax issues was £1,577 million (2007: £1,213 million).
Taxation
The effective tax rate was 24.9% (2007: 26.3% exclusive of impairment losses).
The rate was lower than the Group’s weighted average statutory tax rate due to the
structural benefit from the ongoing enhancement of the Group’s internal capital
structure and the resolution of historic issues with tax authorities. The 2008 financial
year tax rate benefits from the cessation of provisioning for UK Controlled Foreign
Company (‘CFC’) risk as highlighted in the 2007 financial year. The 2007 financial year
additionally benefited from one-off additional tax deductions in Italy and favourable
tax settlements in that year.
The 2007 effective tax rate including impairment losses was (101.7)%. The negative
tax rate arose from no tax benefit being recorded for the impairment losses of
£11,600 million.
Earnings/(loss) per share
Adjusted earnings per share increased by 11.0% from 11.26 pence to 12.50 pence for
the year to 31 March 2008, primarily due to increased adjusted operating profit and
the lower weighted average number of shares following the share consolidation
which occurred in July 2006. Basic earnings per share from continuing operations
were 12.56 pence compared to a basic loss per share from continuing operations of
8.94 pence for the year to 31 March 2007.
2008 2007
£m £m
Profit/(loss) from continuing operations
attributable to equity shareholders 6,660 (4,932)
Adjustments:
Impairment losses – 11,600
Other income and expense(1) 28 (502)
Share of associated undertakings’ non-operating
income and expense – (3)
Non-operating income and expense(2) (254) (4)
Investment income and financing costs(3) 150 39
(76) 11,130
Tax on the above items 44 13
Adjusted profit from continuing operations
attributable to equity shareholders 6,628 6,211
Weighted average number of shares outstanding Million Million
Basic 53,019 55,144
Diluted(4) 53,287 55,144
Notes:
(1) The amount for the 2008 financial year represents a pre-tax charge offsetting the tax benefit
arising on recognition of a pre-acquisition deferred tax asset.
(2) The amount for the 2008 financial year includes £250 million representing the profit on disposal
of the Group’s 5.60% direct investment in Bharti Airtel.
(3) See notes 1 and 2 in net financing costs.
(4) In the year ended 31 March 2007, 215 million shares have been excluded from the calculation of
diluted loss per share as they are not dilutive.