Vodafone 2002 Annual Report Download - page 41

Operating and Financial Review and Prospects Vodafone Group Plc 39Annual Report & Accounts and Form 20-F
Turnover for the Middle East and Africa region comprises the turnover of the
Group’s Egyptian subsidiary. The almost three-fold increase in turnover from
£117 million for the year ended 31 March 2000 to £308 million for the year
ended 31 March 2001, reflects strong customer growth in Egypt, where the
customer base increased from 405,000 customers at 31 March 2000 to
1,171,000 customers at 31 March 2001.
Turnover for the Group’s other operations mainly comprises turnover relating to
Arcor and Telecommerce, which has subsequently been renamed Vodafone
Information Systems GmbH. Arcor is the leading wireline competitor to Deutsche
Telekom in Germany and provides telecommunication services for Deutsche
Bahn AG, the German railway company. By 31 March 2001, Arcor had more than
2.2 million contract voice customers and more than 16.2 billion voice and
internet minutes were switched over its network in the financial year. The
revenue of Arcor in the year ended 31 March 2001 reached approximately
11.6 billion. Vodafone Information Systems GmbH provides a range of activities
for Group and external customers, from the maintenance of IT facilities to the
development of technologies and services supporting cellular networks. The main
contribution to revenue is derived from the IT-solutions business.
Mobile data revenues In the year to 31 March 2001, mobile data, including SMS,
data and internet services, accounted for 8.1% of service revenues in Vodafone’s
controlled subsidiaries, comprised of 7.7% for messaging and 0.4% for internet
data. Data service revenues reached 9.3% of service revenues in the month of
March 2001, up from 1% in the prior year. This reflects particularly strong
growth in SMS usage in controlled networks, which accounted for 8.8% of
service revenues in March 2001 for controlled subsidiaries. For the total Group
including associates, mobile data represented 6.2% of service revenues for the
year and 7.0% in March 2001, measured on a proportionate basis.
In the Group’s main markets of Germany, Italy and the United Kingdom, the
growth of data revenues, mainly SMS, has resulted in revenues from data and
internet services as a proportion of total service revenues increasing to 13.4%,
6.2% and 6.6%, respectively, for the year ended 31 March 2001. Data and
internet revenues in Germany, Italy and the United Kingdom represented 16.2%,
7.2% and 7.6%, respectively, of service revenues in March 2001. SMS revenues
were the principal component of these revenue streams and represented
approximately 97% of data revenues in Germany and Italy, and over 85% of data
revenues in the United Kingdom.
For J-Phone Vodafone, the Group’s associated undertaking in Japan, data
revenues represented 12.9% of service revenues in March 2001. Internet data is
the main component of data revenues, representing 8.2% of total service
revenues. A driver of this growth in Japan is the ability to access mobile internet
services using phones with an “always-on”capacity, which differentiates the
service in Japan from the Group’s other main markets. Almost 62% of J-Phone
Vodafone’s customers now have internet-capable phones, a higher proportion of
its customer base than any other operator in Japan.
Operating profit and costs
The total Group operating loss of £6,989 million for the year ended 31 March
2001 compares with a total Group operating profit of £798 million for the year
ended 31 March 2000. This is after amortisation charges for goodwill of
£11,873 million (2000: £1,710 million) and charging exceptional operating costs
of £320 million (2000: £30 million). Before goodwill and exceptional operating
costs, total Group operating profit more than doubled from £2,538 million for the
year ended 31 March 2000 to £5,204 million for the year ended 31 March
2001. The increase in the goodwill amortisation charge from £1,710 million for
the year ended 31 March 2000 to £11,873 million for the year ended 31 March
2001 is primarily due to amortisation of the goodwill arising from the acquisition
of Mannesmann, provisionally calculated to be £83 billion, goodwill on formation
of the Verizon Wireless partnership and a full year’s amortisation charge for
goodwill relating to the acquired AirTouch operations (excluding US businesses
contributed to Verizon Wireless). These charges for goodwill amortisation have
not affected the cash flows of the Group.
Exceptional operating costs of £320 million primarily comprise impairment
charges of £91 million in relation to the carrying value of certain assets within
the Group’s Globalstar service provider businesses described below, exceptional
reorganisation costs of £85 million relating to the restructuring of the Group’s
operations in Germany and the US, and £141 million in relation to the Group’s
share of the restructuring costs incurred by Verizon Wireless.
In Europe, total Group operating profit, before goodwill amortisation and
exceptional items, increased from £1,661 million in the year ended 31 March
2000 to £3,830 million in the year ended 31 March 2001, including operating
profit from acquisitions of £2,300 million. This increase primarily reflects the
rapid growth in customer numbers in all major markets, the acquisition of
Mannesmann, the Group’s increased shareholding in Airtel and the acquisition of
a 25% equity interest in Swisscom Mobile. In Germany, connection and
marketing costs associated with the near doubling of the customer base lowered
the margin on earnings before interest, tax, depreciation and amortisation, or
EBITDA, of D2 Vodafone by six percentage points to 35%. This represents an
improvement on the 30% margin reported in the first half of the financial year,
partly due to the implementation of changes to commercial policies as D2
Vodafone focused on maximising economic returns rather than continuing to
increase the size of its customer base. In Italy, which has much lower equipment
subsidies, customer growth of 40% during the year contributed to an EBITDA
margin of 45%, an increase of three percentage points over last year. In the
United Kingdom, total operating profit before goodwill amortisation increased
13% from £706 million for the year ended 31 March 2000 to £795 million for
the year ended 31 March 2001. The percentage growth in operating profit was
less than the percentage increase in turnover as increased usage was offset by
connection costs on customer growth and tariff reductions. In the rest of the
Europe region, strong operating results were reported throughout, with
particularly strong improvements in profit margins in the Group’s subsidiaries in
Greece, the Netherlands and Spain.
In the United States, total Group operating profit, before goodwill amortisation
and exceptional costs, increased from £541 million during the year to 31 March
2000 to £1,237 million for the year ended 31 March 2001. This reflects the
inclusion of the results of US operations for a full twelve month period, the
profitable trading of Verizon Wireless during the year, as the business has
focused on gaining high value customers through new customer additions and
the migration of existing analogue customers to digital price plans, offset by the
costs of migrating US customers from analogue to digital networks.
Total Group operating profit, before goodwill amortisation, for the Asia Pacific
region increased by £17 million, from £188 million for the year ended 31 March
2000 to £205 million for the year ended 31 March 2001. This increase reflects