Vodafone 2002 Annual Report Download - page 39

Operating and Financial Review and Prospects Vodafone Group Plc 37Annual Report & Accounts and Form 20-F
The Group’s equipment costs and cost of providing financial incentives to service
providers and dealers for obtaining new customers amounted to £4,160 million,
or 18.2% of turnover, for the year ended 31 March 2002, compared with £3,364
million, or 22.4% of turnover for the year ended 31 March 2001. Reflecting the
Group’s realigned strategy to focus on gaining and retaining higher value
customers, total acquisition costs reduced in the majority of the Group’s major
markets, particularly in respect of the prepaid customer segment.
In the UK, the average cost to connect for contract customers rose slightly
from £114 for the year to 31 March 2001 to £116, reflecting the impact of
the increased proportion of higher value customers connected in the year.
The average cost to connect for prepaid customers fell from £53 to £26 for the
year to 31 March 2002, as a result of the decision to reduce distribution
incentives to improve the profitability of this market segment.
In Germany, following the reduction in equipment subsidies and reduced
commissions, the total average cost to connect reduced to 181, with the cost to
connect for prepaid customers reducing to 124. The cost to connect for contract
customers decreased to 1156.
In Italy, the average cost to connect for customers, already very low, slightly
declined from 137 to 135.
In Japan, total average costs to connect reduced from ¥39,047 to ¥34,145
following the reduction in acquisition incentives and equipment subsidies.
Selling and distribution costs increased to £1,457 million in the year ended
31 March 2002, compared with £1,162 million in the year ended 31 March
2001, representing 6.4% and 7.7% of turnover for each year, respectively.
The £1,457 million comprises £1,196 million from continuing operations and
£261 million from acquisitions, representing 6.7% of turnover from continuing
operations and 5.3% of turnover from acquisitions, respectively.
Administrative expenses increased from £11,579 million for the year ended
31 March 2001 to £18,319 million in the year ended 31 March 2002.
Administrative expenses include a charge for goodwill amortisation, which
increased from £9,585 million for the year ended 31 March 2001 to £10,962
million, and an increase in exceptional operating costs from £176 million for the
year ended 31 March 2001 to £4,486 million for the year ended 31 March 2002.
Excluding amortisation charges for goodwill and exceptional operating costs,
administrative expenses represented 12.6% of Group turnover for the year ended
31 March 2002, compared with 12.1% for the year ended 31 March 2001.
Profit on ordinary activities before interest
During the year ended 31 March 2002, the Group reported a loss on ordinary
activities before interest of £12,694 million, compared with a loss for the year
ended 31 March 2001 of £6,909 million. The principal items that resulted in the
increased loss are: the increase in exceptional operating items and exceptional
non-operating items, which increased from £320 million to £5,408 million and
£(80)m to £860 million, respectively; the increased charge in respect of goodwill
amortisation from £11,873 million to £13,470 million; partially offset by
improved operating profit, before goodwill amortisation and exceptional items,
which increased from £5,204 million to £7,044 million.
Exceptional non-operating items of £860 million comprise an impairment charge
of £900 million in respect of the Group’s investment in China Mobile, offset by
an aggregate profit of £60 million on the disposal of fixed assets, businesses and
fixed asset investments, principally relating to the reduction in the Group’s
interest in Vodafone-Panafon Hellenic Telecommunications Company S.A. from
55% to 51.9%, the disposal of the Group’s interest in the Korean mobile
operator, Shinsegi Telecom, Inc., offset by a net loss on disposal of certain other
operations. The prior year exceptional non-operating items of £80 million profit
comprised of predominantly a profit on termination of a hedging instrument of
£261 million offset by an impairment charge of £193 million in relation to the
Group’s interests in Globalstar and Shinsegi Telecom, Inc.
Net interest payable
Total Group net interest payable, including the Group’s share of the net interest
expense of joint ventures and associated undertakings, decreased from £1,177
million for the year ended 31 March 2001 to £845 million for the year ended
31 March 2002. Net interest costs in respect of the Group’s net borrowings
decreased from £850 million in the year to 31 March 2001 to £503 million in
the year ended 31 March 2002, reflecting the reduction in average net debt
levels, primarily due to proceeds received from the disposal of assets held for
resale during the second half of the 2001 financial year. The Group’s share of
the net interest expense of joint ventures and associated undertakings increased
from £327 million to £342 million due primarily to the inclusion of interest costs
from the Group’s newly acquired interest in Grupo Iusacell.
Taxation
Following the adoption of FRS 19 during the period, the effective rate of taxation
has been restated on a full provision basis for the year ended 31 March 2001 from
33.9% to 37.5%. The adoption of FRS 19 has no impact on Group cash flows.
Further information on the restatement can be found on page 78.
The effective rate of taxation, before goodwill amortisation and exceptional items,
for the year ended 31 March 2002 has decreased by 1.8% to 35.7%, mainly
as a result of a one off German tax refund arising from the distribution of
retained earnings.
Basic earnings per share
Adopting FRS 19 has also resulted in the restatement of the prior year’s earnings
per share figures. Basic earnings per share, before goodwill and exceptional
items, were restated from 3.75p to 3.54p per ordinary share, and basic earnings
per share, after goodwill amortisation and exceptional items, were restated from
a loss of 15.89p to a loss of 16.09p per ordinary share.
In respect of the 2002 financial year, basic earnings per share, before goodwill
and exceptional items, increased by 45%, from 3.54p for the year ended
31 March 2001 to 5.15p as at 31 March 2002. This primarily reflects the
improved operational performance of the Group, the effect of acquisitions
completed in the period, partly offset by an increase in the weighted average
number of ordinary shares in issue.
Basic loss per share, after goodwill and exceptional items, increased from a loss
of 16.09p for the year ended 31 March 2001 to a loss per share of 23.77p for
the year ended 31 March 2002. The loss per share of 23.77p includes an
increase in the charge for the amortisation of goodwill from 19.32p per share,
for the year ended 31 March 2001, to a charge of 19.82p per share for the year