Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
| o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended: March 31, 2011
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report:
For the transition period from: to
Commission
file number: 001-10086
VODAFONE GROUP PUBLIC LIMITED COMPANY
(Exact name of Registrant as specified in its charter)
England
(Jurisdiction of incorporation or organization)
(Jurisdiction of incorporation or organization)
Vodafone House, The Connection, Newbury, Berkshire RG14 2FN, England
(Address of principal executive offices)
(Address of principal executive offices)
Rosemary Martin (Group General Counsel and Company Secretary)
tel +44 (0) 1635 33251, fax +44 (0) 1635 580 857
tel +44 (0) 1635 33251, fax +44 (0) 1635 580 857
Vodafone House, The Connection, Newbury, Berkshire RG14 2FN, England
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Name of each exchange | ||
| Title of each class | on which registered | |
| See Schedule A | See Schedule A |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or
common stock as of the close of the period covered by the annual report.
Ordinary Shares of 11 3/7 US cents each
|
51,577,525,830 | |||||
7% Cumulative Fixed Rate Shares of £1 each
|
50,000 |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
Yes þ No o
If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
| Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o |
Indicate by check mark which basis of accounting the registrant has used to
prepare the financial statements included in this filing:
| US GAAP o | International Financial Reporting þ | Other o | ||
| Standards as issued by the | ||||
| International Accounting | ||||
| Standards Board |
If “Other” has been checked in response to the previous question, indicate by
check mark which financial statement item the registrant has elected to follow
Item 17 o Item 18 o
If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
SCHEDULE A
| Name of each exchange | ||
| Title of each class | on which registered | |
Ordinary shares of 11 3/7 US cents each
|
NASDAQ Global Select Market* | |
American Depositary Shares (evidenced
by American Depositary Receipts) each
representing ten ordinary shares
|
NASDAQ Global Select Market | |
5.00% Notes due December 2013
|
New York Stock Exchange | |
4.150% Notes due June 2014
|
New York Stock Exchange | |
5.375% Notes due January 2015
|
New York Stock Exchange | |
5% Notes due September 2015
|
New York Stock Exchange | |
3.375% Notes due November 2015
|
New York Stock Exchange | |
2.875% Notes March 2016
|
New York Stock Exchange | |
5.75% Notes March 2016
|
New York Stock Exchange | |
5.625%
Notes due February 2017
|
New York Stock Exchange | |
4.625% Notes due July 2018
|
New York Stock Exchange | |
5.450% Notes due June 2019
|
New York Stock Exchange | |
4.375% Notes due March 2021
|
New York Stock Exchange | |
7.875% Notes due February 2030
|
New York Stock Exchange | |
6.25% Notes due November 2032
|
New York Stock Exchange | |
6.15% Notes due February 2037
|
New York Stock Exchange |
| * | Listed, not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission. |
Table of Contents
| Vodafone GroupAnnual Report on Form 20-FFortheyearended31 March 2011power to you |
Table of Contents
| Delivering a more valuable Vodafone Group highlights for the 2011 financial year ^ A ^ ^\ I ^^ ^^ ^ ^^ L^. u^ ^^7 ^\ U^. k*^ This constitutes the annual report on Form 20-F of Vodafone Group Pic ^™ £j. ^^ ^y [j | I f^ [j [^ ^™ / I I [j | (the ‘Company’) in accordance with the requirements of the US ^^^,,^L^1 ‘ l™ ‘ ¦ •^l^1 ¦ U f tVL/l I Securities and Exchange Commission (the’SEC’) for the year ended Revenue Adjusted Operating profit Free Cash flOW 31 March 2011 and is dated l June 2011. This document contains certain 3 2% growth 31% growth 2 7% decrease information set out within the Company’s annual report in accordance with International Financial Reporting Standards (‘I FRS’) and with those parts of the UK Companies Act 2006 applicable to companies re porting ^£^7f\ Qm Q Of^P> under IFRS, dated 17 May 2011, as updated or supplemented if Jj f ^^» jy I ^J« Z/ ^^ L/ necessary. Details of events occurring subsequent to the approval of the ., ... _ . .. . . r. annual report on 17 May 2011 are summarise don page A-l. The content MODIle CUStOmerS lOtal dividends of tne Group’swebsite (www.vodafone.com) should not be considered 14.5% growth 7.1% growth to form part of this annual report on Form 20-F. |
Vodafone
Group Plc Annual Report 2011 1
Highlights of the year
| • | Group revenue increased 3.2% to £45.9 billion with a strong result from emerging markets and signs of renewed growth in some parts of Europe. | |
| • | Adjusted operating profit rose 3.1% to £11.8 billion, supported by a good performance from our US associate, Verizon Wireless. | |
| • | Free cash flow of £7.0 billion, reflecting consistent levels of capital expenditure and strong working capital performance. | |
| • | £14.2 billion expected to be raised from agreed disposals of interests in China Mobile (China), SoftBank (Japan) and, after year end, SFR (France). | |
| • | Total dividends per share of 8.90 pence, up 7.1% in line with our dividend per share growth target. £6.8 billion committed to share buybacks. |
Our new strategy
In
November 2010 we unveiled an updated strategy to move us from ‘A
Stronger Vodafone’ to ‘A More
Valuable Vodafone’. The new strategy is composed of four main elements:
Focus
on key areas of growth potential
Mobile data, emerging markets, enterprise, total communications and new services.
Deliver
value and efficiency from scale
Using our size and scale to drive cost efficiencies and operational effectiveness.
Generate
liquidity or free cash flow from non-controlled interests
Releasing
liquidity and free cash
flow from minority stakes and investments.
Apply
rigorous capital discipline to investment decisions
Allocating capital to maximise
shareholder value.
Find out more on pages 12 to 27
You can visit our online annual report at:
www.vodafone.com/investor
| Contents | ||
| Business review# | ||
| 2 | ||
| 4 | ||
| 6 | ||
| 8 | ||
| 10 | ||
| 12 | ||
| 28 | ||
| 30 | ||
| 32 | ||
| Performance# | ||
| 34 | ||
| 44 | ||
| 45 | ||
| 47 | ||
| Governance# | ||
| 52 | ||
| 55 | ||
| 62 | ||
| Financials | ||
| 74 | ||
| 75 | ||
| 76 | ||
| 77 | ||
| 79 | ||
| 80 | Consolidated financial statements |
|
| Additional information | ||
| 132 | ||
| 139 | ||
| 140 | ||
| 143 | ||
| 146 | ||
| 148 | ||
| 149 | ||
| 151 | ||
Exhibit 1.1 |
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Exhibit 4.2 |
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Exhibit 4.3 |
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Exhibit 4.4 |
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Exhibit 4.6 |
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Exhibit 4.7 |
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Exhibit 4.8 |
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Exhibit 4.35 |
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Exhibit 4.36 |
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Exhibit 7 |
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Exhibit 12 |
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Exhibit 13 |
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Exhibit 15.1 |
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Exhibit 15.2 |
||
# These sections make up the directors’ report
The
terms ‘Vodafone’, the ‘Group’, ‘we’,
‘our’ and ‘us’ refer to the Company and, as applicable,
its subsidiaries and/or interests in joint ventures and associates.
Unless otherwise stated references: to ‘year’
or ‘2011’ mean the financial year ended 31 March 2011;
to ‘2010’ or ‘previous year’ mean the financial year ended 31 March 2010; to the ‘third quarter’,
‘previous quarter’ or ‘Q3’ are to the quarter ended 31 December 2010; and to the ‘fourth quarter’ or
‘Q4’ are to the quarter ended 31 March 2011.
All amounts marked with an ‘(*)’ represent organic growth which presents performance on a
comparable basis, both in terms of merger and acquisition activity and foreign exchange rates.
Definitions of terms used throughout the report can be found on page 149.
This report is dated 17 June 2011.
Table of Contents
| 2 Vodafone Group Pic Annual Report 2011
About us
|
Table of Contents
| Distribution A broad range of channels through which customers can access our services and products Direct channels We directly own and manage about 2,200 stores around the world and we also havearound 10,300 Vodafone-branded stores run through franchise and exclusive deaLerarrangements. In most of our Local markets sales forces also sell direct to enterprise customers. Vodafone Group Pic Annual Report 2011 3 Indirect channels The level of indirect distribution varies between markets and may include using third party service providers, independent dealers, distributors and retailers. Online The internet has also become an increasingly powerfuland cost-effective distribution channel. 51% of ou r Europea n contract customers receive their bills online. Services Services to meet all our customers’ needs Voice We are one of the largest carriers of mobile voice traffic in the world providing domestic, intemationaland roamingvoice services to more than 370 million customers. Messaging Our networks sent and received over 292 billion text, picture, musicand video messagesthisyear. Data More than 75 million customers buy our mobile data services which allowaccess to the internet, emailand applications on their phones, tablets, laptops and netbooks. Fixed line Over six million customers use ourfixed broadband services in 13 markets to meet theirtotal communications needs. In addition, through Gateway, we provide wholesale carrier services to more than 40 African countries. Other service revenue This includes business managed services, such assecure remote networkaccess,and revenue from mobile virtual networkoperators generated from selling access to our networkat the wholesale level. Service revenue by type (%) Devices Ensuring that our services are available through multiple platforms Smartphones and tablets These have advanced capabilities including access to email, the internet and mobile applications such as Google Maps™ and Facebook. Smartphones nowaccountfor 19% of the total number of phones used by ourcustomers in Europe. We now supply the iPhone in 19 markets. Vodafone branded handsets We are making Vodafone designed handsets available to mass market audiences while offering differentiated experiences. During the year 14 new handsets were released under our own brandand we shipped 5.8 million. Other connected devices In addition to handsets, we supply a range of innovative connected smart devices. During the year we launched our first ever USB stick based on 4G/LTE technology and Vodafone WebBox which enables customers to connectto the internet using existing television sets by simply plugging in a keyboard with an embedded mobile SIM. 4G/LTE mobile broadband USB stick The Samsung GT-B3740, is our first ever 4G/LTE network device which enables customers to experience super-fast mobile broadband. |
Table of Contents
| 4 VodafoneGroup Pic Annual Report 2011
Vodafone at a glance
|
Table of Contents
| Vodafone Group Pic Annual Report 2011 5 Our mobile subsidiariesand joint venture Our subsidiariesand joint ventures in AMAP in Europe operate underthe brand name operate underthe’Vodafone’ brand, or in the ‘Vodafone’ and our major fixed Line businesses case of Vodacom and its mobile subsidiaries, operate as’Vodafone’or in the case of Italy as’Vodacom’and’Gateway’brands. In India as ‘TeleTu’ or in Spain as Tele2’. we operate as ‘Vodafone Essar’. Our associate in Kenya operates as ‘Safaricom’. 2.5% decrease 20.0% growth Revenue™ £32.0t>n (2010:£32.8bn) (2010:£11.1bn) 9.8% decrease 55.5% growth Adjusted operating profit(1) £5.7bn £1.3bn (2010:£6.4bn) (2010:£0.8bn) stable 6.2% growth Capital expenditure"' £3.7bn £2.2bn (2010:£3.7bn) (2010:£2.1bn) 9.2% decrease 53.7% growth Operating free cash flow(1) £7.5bn £2.4bn (2010:£8.2bn) (2010:£1.6bn) Mobile customers by market(2) MiLLions . MiLLi°ns Germany 36.7 India 134.6 Italy 23.4 Vodacom 43.5 UK 19.1 Egypt 31.8 Spain 17.3 Australia 3.6 Turkey 16.8 Ghana 3.0 Romania 9.2 New Zealand 2.5 Portugal 6.1 Qatar 0.8 Netherlands 5.0 Fiji 0.3 Greece 3.9 Total 220.1 Czech Republic 3.2 Notes: -— —y^— Vodacom consists of: (DThesumoftheseamountsdonotequaLGrouptotaLsdue ^—±- ’ SouthAfrica 26 5 to Non-Controlled Interests and Common Functions and Ireland 2.2 —: r~r . —:— ~tt~ Tanzania 8.9 ntercompanyelimmations. Albania 1 6 (2) Controlled and jointly controlled businesses. Excludes M ^— —^~ Democratic Republic of Congo 4.2 3.4millioncustomersrepresentingtheGroup’sshareof —‘- Mozambique 3.1 customers inour Polish jointventure Polkomtel which Total 147.4 Lesotho 0~8 s in our Non-Controlled Interests and Common Functions segment. n addition to the above, our associate Safaricom had 6.9 million mobile customers based on our percentage ownership. Non-Controlledlnterestsarebusinessesin Business Country Ownership at 51 Ma rch 2011 C~7 AY\r\ which we have an equity interest but do not Verizon Wireless US 45.0% t/iTUl havemanagementcontrol.Weaimtomaximise Agreed proceeds cpD Franrp AA O0/^ thevalueoftheseinterestseitherbygenerating r^J name HH,U^° fromthesaleof liquidityorincreasingfreecashflow.Duringthe Polkomtel Poland 24.4% Non-Controlled yearwesoldourinterestsinChinaMobileand ,,,- .., 4.,,, ... . .Ma “ Interests i. ,^ , .. . .,_,,,,., . BhartiAirtel India 4.4%u’ SoftBankandmApnl2011 weannouncedan agreementtosellour44%interestinSFR. China Mobile China Sold’5‘ SoftBank Japan SoldM> Common Functions primarily represent the resultsofthe partner marketsand the net result Notes: ofunallOCatedcentralGroupCOStS. (1) SaleannouncedinApril2011. (2) Indirect interest. (3) We previously held a 3.2% interest in China Mobile Limited. (4) Our interests previously included loan notes and receivables issued by SoftBank. |
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| 6 VodafoneGroup Pic Annual Report 2011
Chairman’s statement |
Table of Contents
| Vodafone Group Pic Annual Report 2011 7 Vodafone total shareholder return (2011 financialyear) FTSE100 total shareholder return (2011 financialyear) Vodafone share price vs FTSE 100 — Vodafone (share price in pence) — FTSE 100 index 200 7000 180 xl!L~*y fcA. ^! 625° 120 ™ 4000 1 Apr 10 1 Jun 10 1 Aug 10 1 Oct 10 1 Dec 10 1 Feb 11 1 Apr 1’ Acrossthe Group we continue to promote text giving, enabling mobile networksthatlead the industryforspeedand reliability, our customers to give money simply and free of charge Thiswillbecrucialascustomers’expectationsgrowinlinewith to support charitable appeals following disasters. Using this their data usage, platform we raised over NZ$1.3 million for the Red Cross to supportthepeopleofChristchurch. Furthermore, we have continually assessed the risks and opportunities of having capital deployed in some of our The Board non-controlled interests. This is particularly true of Verizon During the year the Board appointed Renee James as a Wireless, from which we have not received a dividend (other non-executive director. Renee is Senior Vice President and than tax related dividend receipts) for six years. It would General Manager of the Software and Services Group for arguably have been easier to sell our stake along the way, but Intel Corporation. She joined the Board in January 2011 and it our decision to remain invested has been strongly vindicated is clear that her industry knowledge and expertise will make by its exceptional operating performance and strong cash a strong contribution to the Group through another period generation,whichhaveledtoasignificantincreaseinthevalue of rapid technological change. of the asset. The Board welcomed the publication in February of the Our approach has led to strong returns to shareholders over Davies Review on Women on Boards and, in line with its the last five years. Total shareholder return since July 2006 recommendations, it is our aspiration to have a minimum has been 85%, compared to 22% for the FTSE 100 and 6% for of 25% female representation on the Board by 2015. The theMSCIGlobalTelecoms Index. Financial Reporting Council is currently consulting on changes to the UK Corporate Governance Code including I am delighted to welcome Gerard Kleisterlee as Vodafone’s a recommendation that companies adopt a boardroom new Chairman. As CEO of Philips, Gerard spent ten successful diversity policy; we expect to comply with any such years at the helm of an international consumer technology recommendation. The Board recognises the importance of business, and the Group is certain to make continued good gender balance throughout the Group and continues to progress under his stewardship. I wish him, and the Group, all support our CEO, Vittorio Colao, in his efforts to build a thebestforthefuture. diverse organisation. Further information can be found in the Corporate Governance section of this report. After five years as Chairman I am retiring from the Board at :—J the AGM in July. It has been a privilege to chaira Board of such f^~ "^5? jC diverse and rich experience, and to help steer the Group through the challenges of a dynamicindustryandan uncertain Sir John Bond economic environment. Chairman As a Board, our goal has always been to make the right decisions based on the long-term opportunities for the business. As a result, we now have an established presence in a number of emerging markets that offer attractive potential for sustained growth; and our commitment to maintaining investment throughout the economic cycle means we have |
Table of Contents
| 8 VodafoneGroup Pic Annual Report 2011
Mobile telecommunications industry |
Table of Contents
| Vodafone Group Pic Annual Report 2011 9 A growing industry ^^^^^^^^^ Data traffic has more j than doubled year- | ^^_J ‘ ^^m ff! ^_^_ on-yeardue to usage | i I ]W^ _ ^ mEmHs/St M of smart connected ‘^*™"-1^"^ JT ! [ I devices and significant I ^fc- H ^^¦¦—I progress in mobile *.-¦¦ ^^^^M ^^^^^Ktf “^t^^ .”—>. “^""^(^ Mobile data and networks Emerging markets ¦ Mobile data traffic is driving revenue growth. ¦ Mobile phone usage continues to grow rapidly. ¦ Network speeds are increasing dramatically ¦ Data represents a significant growth opportunity, because of improving technology. ¦ The pace of product innovation remains high. In 2006 data accounted for 3% of industry revenue, in 2010 Thenumberofcustomersusingmobileservicesinemerging it reached 13% and by 2014 it is expected to be 21%. Demand markets such as India and Africa has grown rapidly over is being driven by the widening range of smart connected the Last ten years, increasing by over 17 times, compared devices, such as mobile broadband sticks, smartphones and to nearly 130% in more mature markets such as Europe, tablets, greater network speeds and an increased range of The key driver of growth has been a fundamental need applications with greater functionality. Smartphone sales for communication services against a background of often grew by 66% in the 2010 calendar year, compared to a 16% low quality alternative fixed line infrastructure and strong increase in the 2009 calendar year, and are expected to economic growth, continue to grow due to lower entry prices, device innovation and attractive applications. Most of the future growth in mobile customers is expected to continue to be in emerging markets where Today’s 3G networks offer typically achieved data download mobile penetration is only around 70% compared to speeds of up to 4 Mbps which is around 100 times faster than approximately 130% in mature markets such as Europe, that delivered by 2G networks ten years ago. The industry has supported by the expectation of continued strong recently begun to deploy 4G/LTE networks which will provide economic growth, typically achieved rates of up to 12 Mbps, depending on the capabilityofthedevicesandthenetwork. Data also represents a substantial growth opportunity in emerging markets both in terms of mobile broadband and Device innovation is a key feature of our industry. Recent mobile internet services. It is being driven partly by the lack developments include femtocells which enhance customers’ of fixed line broadband infrastructure but also by locally indoor 3G signals via a fixed line broadband connection and relevant content and services in local languages, and mobile Wi-Fi devices which allow customers to share their software innovations that give customers a high-quality mobile broadband connection with others. mobile internet experience on affordable handsets. Mobile data demand is being accelerated by devices Emerging market customer growth will be driven by and network improvements rising mobile penetration and GDP growth ¦ Market customers growth 2006 2010 (2010-2014 estimated cumulative annual growth rate) (%) Smartphone share of industry handset 18% shipments (%) 8 21 ^^^^^^^^h Typically achieved data download speeds (Mbps) 2.2 4 I 6% 1A I South Africa Egypt India The industry data on pages 8 and 9 has been sourced from Wireless Intelligence, Strategy Analytics, Merrill Lynch, Informa WCIS and CISCO. |
Table of Contents
| 10 VodafoneGroup Pic Annual Report 2011
Chief Executive’s review
|
Table of Contents
| VodafoneGroup Pic Annual Report 2011 11 Group organic service revenue growth (%) 2.1 ( (0.3) | ^^A M S ¦ fc M ‘, 2009 2010 2011 M / / ¦ Focus on five key areas of growth potential shareholder, for £6.8 billion. These three transactions Mobile data: data revenue was up 26.4%<*> year-on-year to crystallisedsignificantvalueforshareholders.with£6.8 billion £5.1 billion, and now represents 12.0% of Group service of proceeds being committed to share buyback programmes. revenue. We have continued to increase the penetration of smartphones into our customer base as these are a key driver Applying rigorous capital discipline of data adoption. to investment decisions We continue to apply capital discipline to our investment Network quality is absolutely central to our data strategy and decisions. We apply rigorous commercial analysis and we have made further significant investments over the last demanding hurdle rates to ensure that any investment or 12monthstoimprovethespeedandreliabilityofourcoverage. corporate activity will enhance shareholder returns. We will Based on third party tests performed in 16 of our main 3G continue to undertake regular reviews of Vodafone’s entire markets, we rankfirstfor overall data performancein 13 markets, portfolio to ensure thatwe optimise value for shareholders. Enterprise: revenue in the overall European enterprise Prospects for 2012 financial year segment was up 0.5%<*> year-on-year and represented 29.5% We enter the new financial year in a strong position. We are of our European service revenue. Within this, Vodafone Global gaining or holding market share in most of our major markets, Enterprise, which serves our multinational customers, and are leading our competitors in the drive to migrate delivered revenue growth of around 8%<*> thanks to some customers to smartphones and data packages. We will important customer wins and increased penetration of continue to focus on our key growth areas of data, enterprise existing customer accounts. This market offers attractive and emerging markets, while maintaining investment in growth opportunities, as multinationals and smaller networkqualityandthedevelopmentofnewservices. companies alike look not only to manage costs but also to move to converged platforms and improve mobile However, we continue to face challenging macroeconomic connectivityfortheirworkforces. conditions across our southern European footprint, and we expect further regulated cuts to mobile termination rates to Emerging markets: the Group has an attractive level of have a negative impact of about 2.5 percentage points on exposure to emerging markets where penetration is lower service revenue growth in the 2012 financialyear. and GDP growth higher than in the more mature markets of western Europe. The Group adjusted EBITDA margin is expected to continue to decline, albeit at a lower rate than in the 2011 financial year. Total communications: we continue to develop our fixed The main driver is the persistent revenue decline in some of Linecapabilitiestomeetourcustomers’total communications our southern European operations, needs beyond mobile connectivity. Revenue from our fixed Lineoperationsamountedto£3.4billion,up5.2%<*)year-on-year. Adjusted operating profit is expected to be in the range of £11.0 billion to £11.8 billion, reflecting the loss of our New services: machine-to-machine platforms CM2M’), £0.5billionshareofprofitsfromSFRasaresultofthedisposal mobile financial services and near-field communications, ofour44%interest. among other new services, all offer potential for incremental growth. During the year we made good progress in our Free cash flow is expec ted to be in the range of £6.0 to M2M business and continued the growth and expansion of £6.5 billion, reflecting continued strong cash generation our mobile money transfer platform, which now has over offset by the £0.3 billion reduction in dividends from SFR and 20 million customersand is currently being trialled in India. China Mobile Limited in the 2012 financial year, and the more limited working capitalimprovementsavailablegoingforward. Deliver value and efficiency from scale Capital expenditure is expected to be at a similar level to last The current composition of the Group has enabled us to yearonaconstantcurrencybasis. increase efficiency and achieve favourable comparable cost positionsinmanymarkets.Duringtheyearwealsoestablished We are well positioned to continue to deliver value to a more formal relationship with Verizon to leverage our shareholders through the achievement of our medium-term purchasing poweracrossa wide range of suppliers. targets for revenue, free cash flow and dividend growth; our commitment to investment in profitable growth areas; and our Generate liquidity or free cash flow from clear capital discipline. non-controlled interests ¦ t / , Duringtheyearweagreeddisposalsofour3.2%stakeinChina . 7/ Mobile Limited and our SoftBank interests for a total cash V^J^_ t/V consideration of £7.4 billion. Subsequent to the year end, ‘**•” we announced the sale of our44% holding in SFR, the number Vittorio Colao two mobile operator in France, to Vivendi, the majority Chief Executive |
Table of Contents
| 12 Vodafone Group Pic Annual Report 2011
Strategy in action |
Table of Contents
| Vodafone Group Pic Annual Report 2011 13 Our business in India has grown from 28 million f customers at the time of 73^ ” ^^-^^k. acquisition in May 2007 | ^B^ ( to become our largest Jjj Is -v marketwith over ^^ c^ 134 million customers ^K .-¦ at 31 March / JIHV ¦TTW^fi JP|?<T .’\S> H^M A number of factors may impact the prices Key revenue performance indicators121 we charge and therefore the revenue we 2009 2010 2011 receive including: Service revenue growth (0.3)% (1.6)% 2.1% ¦ competition; Data revenue growth 25.9% 19.3% 26.4% ¦ regulatory decisions and Legislation on Emerging markets service revenue growth13‘ 6.4%M> 7.9% 11.8% mobile termination rates, international ~ : : ; ~ ., ,,.,,, ttt; m,m;nn ,h,,^ ,n^ *« ^«ii,wiih, Europe enterprise service revenue growth -l5) (4.8)% 0.5% roaming charges and the availability 1 _ f and cost of spectrum; and Fixed line revenue growth 2.1% 7.9% 5.2% ¦ changes in macroeconomic conditions. The net savingsfrom our cost efficiency Organic European operating expenses ^^^^^™»« programmes may be impacted by inflationary (£bn) U ^^^^^En pressuresandthevolumeoftrafficonour ES networks which can affect our operating costs. Net savings will be used eitherto invest in commercial activities or respond to competitor activity or retained for margin enhancement. 2009 2010 2011 Inthosebusinessesinwhichwehavea Dividends and sale proceeds from ^^^^^^^ non-controlling interest, matters such as the non-controlled interests (£bn) timing and amount of cash distribution may ¦ Dividend income from non-controlled interests’9 require the consent of our partners which can ¦ Cash received from the sale of non-controlled influencetheleveloffreecashflowwereceive interests"' I from that business. ^^^^^Rl I KQ I 2009 2010 2011 The returns we make on investments may be Return to shareholders (£bn) impacted by competitor activity, regulatory ¦ Dividends paid decisions and macroeconomic conditions ¦ Share buybacks ^^^^^^^ that affect our commercial position, financial performanceandthemarketenvironmentin ^^B I which we operate. The cost of financing investmentand hence £15.7bn the return on investment maybe influenced by Total returns to shareholders changesin credit markets or our credit ratings. over the last three years. 2009 2010 2011 Notes: (4) Excludes India, Ghana and Qatar as these were not owned for the full financial year. (7) A further £1.5 billion is expected be received in April 2012 from the sale of the Group’s (5) Information not available. interests in SoftBank. (6) Excludes tax related dividend receipts from Verizon Wireless. |
Table of Contents
| Mobile data: strategy Our data revenue was up 26.4%(*)year-on-year to £5.1 billion and now represents 12.0% of Group service revenue. Network quality is central to our data strategy and based on third party tests ^ performed in 16 of our main 3G markets, we rank first for overall data performance in 13 markets. |
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| Vodafone Group Pic Annual Report 2011 15 Focus on key areas of growth potential: Mobile data-strategy Samsung Galaxy Tab 10.1 v We were the first operator to launch this Samsung tablet which uses the Android™ 3.0 Honeycomb operating system to deliver mobile entertainment such as gaming, reading eBooks or updating a social network status. How the market is developing Approach The fastest growing sector of the global telecommunications We already have a strong data position in Europe thanks to our market is mobile data. According to industry estimates, significant 3G investment, with over 66,000 3G sites providing between 2010 and 2014 total global revenue from fixed voice high speed mobile data and 65% of our 3G network providing will decline by US$70 billion, mobile voice will increase by theoretical downlink speeds faster than 14.4 Mbps. Some of US$24 billion, fixed data will increase by US$49 billion and ourEuropeantargetsaresetoutinthetablebelow. mobile data will increase by US$138 billion (source: IDC WorldwideBlackBook2010). March20ii bt MaS Mobile data penetration of our customer base in Europe is Number of 5G sites 66^000 9O000 around 37%, far higher than in developing countries such as Percentage of 3G network India at around 18% which highlights the opportunities in at>14.4Mbps 65% 100% emerging markets. Data usage growth on our networks has been significant, growing by around 69%acrosstheGroup over thelastyearcomparedwith25%forvoice. We have also launched commercial initiatives to encourage mobile data use including: Mobile data demand is being accelerated by the wide range of sophisticated devices available, including mobile broadband ¦ tiered pricing plans to give customers more control sticks, smartphones and tablets, greater network speeds and (see page 19); an increased range of applications. ¦ re-designing customer experience and support systems to provide a better mobile data experience; Our objective is to deliver data faster, with the best ¦ a multiplicity of data-enabled devices such as experienceand more profitably smartphones, tablets, low-cost handsets and USB To accelerate the opportunities of mobile data we are sticks; and investing in: ¦ managing smartphone and networkyields to deliver profitable growth. ¦ network technologies to deliver the best network experience; Typical achieved speeds in Vodafone’s network (Mbps) ¦ providing a better data experience to our customers ¦ Vodafone’s markets average™ through all our customer channels; and ¦ Best competitor market average ¦ providing leading smart connected devices. 3.0 1.8 Downlink Uplink Note: (1) Europe region plus Egypt and Vodacom. Source: Vodafone commissioned third party drive-by tests on data user speeds (September 2010 — January 2011). |
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| Mobile data: technology We have collaborated with our main suppliers to pioneer the development of single RAN base station equipment which enables us to replace our existing 2G and 3G base stations with one solution which also supports LIE, providing significant savings in energy consumption and maintenance, and delivering improvements in capacity and coverage. |
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| Vodafone Group Pic Annual Report 2011 17 Focus on key areas of growth potential: Mobile data-technology Vodafone 3G station ¦* ‘kw^^b Branded as Vodafone I Sure Signal in the UKa I femtocell that guarantees I a 3G signal and super-fast I mobile data transfer where installed in homes: • also available for enterprise customers. Network trials As part of a strategy to implement scalable and cost-effective We always aim to deliver a market-leading customer self-build solutions we have deployed high capacity ethemet experience and we use a third party to compare our networks microwave technology and high bandwidth optical fibre with those of our major competitors. During the year we transmission solutions. In Europe about 80% of our radio base benchmarked our 16 main 3G markets. The results showed stations are served by self-built transmission (where we have that weare the leading data services provider in 13 markets.On physically installed and own the infrastructure) and over 20% average across the networks measured we were almost 40% are currently connected using high capacity technologies, faster on data downlink than our best competitor and 40% faster on data uplink, a resultachieved through our investment New services and capabilities engineering in extensive network upgrades and optimisation. We have consolidated the national IP networks in all our major markets into a single IP network giving us the ability to deliver Investing to increase coverage high quality IPconnectivity to our customers. Continued site deployment At 31 March 2011 we had over 66,000 3G sites in Europe, Investing to improve cost efficiency providing 83% 3G coverage across our major European Yield management capability markets.Thisrepresentsanincreaseofover8,500sitesduring We have been supporting the improvement of 3G data the year. service quality by managing the operational effectiveness of our network capacity.This enables us to optimise content Vodafone 3G station and services as well as manage our costs. We have improved We have continued to introduce Vodafone 3G stations, also 3G data service quality in this way in 18 markets, known asfemtocells in our markets.These innovative devices deliver a personal 3G mobile phone signal to customers Network sharing through a fixed line broadband connection, giving coverage To reduce the cost of mobile network infrastructure, we to customers where mobile operatorsare unable toprovidea have continued to use network sharing agreements with strong enough signal. At 31 March 2011 Vodafone 3G stations other operators in all of our controlled markets, with 70% of were in service in seven of our markets serving almost the new radio sites throughout the Group being shared with 400,000 customers. other mobile network operators. Investing to improve customer experience Single radio access network (‘RAN’) High speed packet access CHSPA’) upgrades and green technology We have continued to upgrade our HSPA networks with 65%of By 31 March 2011 we had installed over 9,000 of these new our European 3G network equipped with 14.4 Mbpstheoretical single RAN base stations. We are also working hard to reduce peak downlink speeds or above and 90% providing 7.2 Mbps or our carbon impact through the wide-scale adoption of leading above theoretical downlink speeds. Peak download speeds of edge green technology solutions. Across our markets we are up to 43.2 Mbps (downlink) and 5.8 Mbps (uplink) are now equipping our radio sites with advanced carbon-efficient supported in several key traffic areas. These figures are solutionssuchaswind.solarandfuelcelltechnologies. theoretical peak rates deliverable in ideal radio conditions with no customer contention for resources. Research and development (‘R&D’) Our R&D ambition is to pioneer innovative services and Lon g-term evolution CLTE’) technology in order to connect anyone and any device to one During the year we commercially launched our 4G/LTE another and to the internet. We have introduced six key technology in Germany and Verizon Wireless launched in programmes to achieve these ambitions: networks of the the US. 4G/LTE can offer better performance than our current future; smart charging; mobile location analysis; consumer 3G/HSPA technology while increasing network capacity. electronics; automotive;andM2M. High capacity backhaul upgrades Our focus over the next year will be on data and smart To support the high speed data capabilities introduced across communication. We are also launching an innovation centre our access networks we have upgraded our backhaul and in the US and have strengthened our patent portfolio backbone transmission networks, which connect our base through strategic patent filing activity in areas relevant to our stationstogether, to the latest high bandwidth IPtechnologies. business interests. |
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| Mobile data: customer experience, pricing and connected devices We are enhancing our customer care, retail presence and online service to ensure that customers get the best data experience. We are introducing data centric store formats and we now have 5,000 specialised data customer care representatives in Europe. |
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| Vodafone Group Pic Annual Report 2011 19 Focus on key areas of growth potential: Mobile data-customer experience, pricing and connected devices 1 Mobile Wi-Fi R201 A mobile Wi-Fi hotspot device that lets customers share their 3G mobile connectior with up to five users at the press of a button. Customer experience Smart connected devices Toacceleratetheopportunitiesofmobiledataweareinvesting Our handset portfolio is key to our strategy as it helps in providing a better data experience to our customers differentiate us from the competition, acquire customers and through all channels. They interact with us through retail increase data usage. stores, online, through our call centres and by our mobile phones. We place great importance on multi-channel Smartphones and tablets capabilities to make it convenient and easy for people to We aim to have the most attractive portfolio in the market. contact us. We have developed the online self service and Smartphones now account for 19% of the total number of sales function, and website visits have grown to approximately phones used by our customers in Europe and this is expected 133 million a month. to grow strongly. We are also driving down the cost of smartphones in order to make the data experience available Most of our markets are able to propose individually relevant for lower income segments in both European and emerging offers, specific to a particular customer based on their usage markets. Examples of this are the Android-powered Vodafone patterns, and we are seeing as many as 50% of customers 845and945deviceslaunchedduringtheyear. accepting them when offered. We are enhancing our billing and customer management platforms to make it easier for We also aim to lead the tablet segment, which is growing people to have several Vodafone SIMs, subscriptions and rapidly. We were the first operator to launch an Android bundles, using different devices. We are also developing a HoneycombtabletwiththeSamsungGalaxyTab10.1vandwe single view of all our customers which will allow multiple havestartedtodistributetheAppleiPad2. services used by a customer to be managed and presented on a single bill. Vodafone branded handsets We have developed a broad range of Vodafone branded To better understand our customers’ satisfaction, we started handsets focused on mobile internet experience and to use net promoterscore (‘NPS’)thisyearto measure to what design differentiation. The Android-powered Vodafone 845 extent customers would recommend us to others. We are in and 945 are competitively driving mobile internet further a NPS leadership position in either consumer or enterprise into the prepaid segment. The Vodafone 553 accelerated in over 60% of our markets. We are also implementing the widespread use of qwerty devices and related programmes in all our controlled markets to get direct messaging and social network trends. Additionally, devices feedbackfrom customers to help us improve service. such as the Vodafone 543 powered with Opera Mini, enhance mobile internet browsing experiences even on low Pricing bandwidth connections. Tiered data pricing in Europe We have introduced tiered data pricing to give customers more Other devices control over their mobile data spend and therefore encourage During theyear we introduced the Vodafone K4605 USB stick mobile data use. Customers are charged for the amount of which provides theoretical peak data download speeds of data they use rather than a flat fee for a high level or unlimited 42.2 Mbps using 3G/HSDPA technology and a 4G/LTE USB use.Thebenefitsincludeprovidingsmallerandlessexpensive stick which has the potential for faster download speeds, allowances for people who do not use much data and better We also launched Vodafone WebBox (see page 21 for further cost management for higher users as well as optimising the information) and Vodafone TV services (see page 23 for capacity of the data network. further information). Data roaming Smartphone yield management This year we launched a market leading smartphone roaming Evidence from our main markets shows that smartphones are data plan that allows our European customers to use their driving incremental ARPU uplift and longer customer life home data plan abroad for only €2 a day to access the internet, times relative to non-smartphones. emails and applications, making data roaming easier and more affordable. Acrossourmarketsweareworkingtooptimisethesmartphone migration path by carefully managing how we allocate acquisition and retention subsidies, managingoursmartphone portfolio, and maximising data attachment on smartphones and the penetration of integrated tariffs. As data penetration and usage amongst existing customers grows, we are introducing tiered data allowances. |
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| 20 Vodafone Group Pic Annual Report 2011 Focus on key areas of growth potential: Emerging markets Customer growth will be driven by rising mobile Development impact of products and services penetration and GDPgrowth Mobile services are a key driver of economic development in The number of customers using mobile services in emerging emerging markets by increasing access to communications markets such as India and Africa has grown rapidly over the and mobile-enabled services. We continued to market Lasttenyears,increasingbyover17timescomparedtonearly Vodafone-branded competitively priced handsets, selling 130% in more mature markets such as Europe. In the 2010 1.7milliondevicesduringtheyearinouremergingmarkets<2>. calendar year the Indian mobile market increased by more than 225 million customers, nearly four times the size of The uptake of Vodafone M-Pesa, which brings financial the UK population. The key driver of growth has been a services to people without bank accounts, continued to grow, fundamental need for communication services against a making an increasing contribution to economic development background of low quality fixed infrastructure and strong in communities that lack conventional banking services. It economic growth. now has over 20 million customers globally (11 million in 2010), who transferredaround US$500 million a month during Most ofthe future growth in mobile phone users is expected to the year (up from US$300 million a month in the previous continue to be in emerging markets where mobile penetration financial year). We launched Vodafone M-Pesa in South Africa, is still only approximately 70% compared with around QatarandFijiduringtheyear.bringingthetotaltosixmarkets, 130% in Europe, supported by the expectation of continued and began pilotsinlndiawithlCICIBankandHDFC Bank, strong economic growth. We expect to see between 20 to 40 percentage points of additional penetration by 2014 in The Vodafone WebBox (see opposite) was launched in emerging markets01. South Africa in February 2011 and other markets will follow inthe2012financialyear. Data is the next major opportunity Data represents a substantial growth opportunity as only 19% Strong performance ofouractivecustomersinemergingmarketsusedataservices We are either number one or two in six of our seven which isabout half the rate in Europe.There are two significant emerging markets based on revenue. This year’s performance opportunities. One is mobile broadband, helped by the lack of highlights include: a comprehensive fixed broadband infrastructure in emerging markets. Already in South Africa mobile broadband accounts ¦ increased revenue market share in India and Turkey; for around 90% of all broadband. The other is mobile internet ¦ data revenue growth of 43.8%<*> in Vodacom and 37.7%<*i which we are driving by: in Egypt;and ¦ surpassing the 134 million customer mark in India, an ¦ enhancing the mobile internet experience through increaseof 34 million over the year, our Opera Mini browser software which provides faster page downloads; We launched 3G services in India in February 2011 and ¦ driving down the cost of internet enabled handsets anticipate that this will provide further revenue growth powered by Opera Mini, with prices starting at US$45; opportunities going forward. ¦ low day-to-day micro pricing which allows the purchase of individual data services, for example the download . . r Notes: of a single ring tone; and (1) source: mforma was. ¦ locally relevant Content and Services in local languages. (2) India, Vodacom, Egypt, Turkey.Ghana, Qatar and Fiji. |
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| Vodafone WebBox Dji^U A Vodafone innovation bringing internet access to a customer’s existing television set just by plugging in a keyboard with a built-in mobile SIM card. It was Ma developed specifically for customers in emerging BmMMM markets where technology and cost barriers often WBM exclude people from enjoying readily available ftjjflflllB internet access. |
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| Machine-to-machine CM2M’) services Machine-to-machine communications, commonly known as M2M ortelemetry, enables devices to communicate with one another via built-in mobile SIM cards. This allows key information to be automatically exchanged without human intervention making it possible to reduce costs, and improve efficiency and services to customers, for example, enabling drivers to upload and download real-time information to their sat nav devices on traffic jams which can help reduce journey times and save fuel. Focus on key areas of growth potential: Enterprise Enterprise customers Multinational companies Mfe"^^ *~’~ Our enterprise customers range from small-office-home- Vodafone Global Enterprise manages the communication ¦ j “SiJ office CSoHo’) businesses and small to medium-sized needs of over 560 of our largest multinational corporate ‘ ~a| ^\\ enterprises CSMEs’), through to large domestic and customers. It provides a range of managed services ™ “t »’ multinational companies. Across the Group we have which bring together every aspect of a customer’s tM^)^ 34 million enterprise customers accounting for around 9% telecommunications infrastructure, both fixed and mobile, l"* of all customers and around 23% of service revenue. providing greater visibility and control of expenditure. During the year Vodafone Global Enterprise achieved organic ^^1 Selected expansion in growth markets revenue growth of around 8%<*>. Newcustomersand renewed SoHo and SME contracts thisyear included Unilever, Luxottica and Bosch. In Vodafone One Net Our focus for SoHos and SMEs is to provide customers with March 2011 Vodafone Global Enterprise received the HP Enables small and integrated fixed and mobile communications solutions Supplier of the Year Award for its role in delivering globally medium size business where we host and maintain the entire service “in the cloud” to consistent managed mobility services to Hewlett Packard. customers to combine help customers reduce costs and simplify administration. theirfixed and mobile Vodafone One Net for example, brings together fixed and In October 2010 we acquired Quickcomm and TnT communications into mobile communications in one system and now has around Expense Management, which are specialist providers of a single service with 1.4 million end users in six markets. Through our partnership telecommunications expense management services. The one number, one voice with Microsoft we provide our customers with hosted acquisitions will strengthen our ability to provide our mailbox and one bill. email, conferencing and collaboration services in a single enterprise customers with greater visibility and control over package called Microsoft Online suite, which is now available their combined fixed lineand mobile expenditure, in four markets. In the area of health, Vodafone Global Enterprise is working Domestic companies with partners such as Novartis on innovative health projects. For larger domestic companies we provide unified Further information is contained in “Sustainable business” communications solutions delivering integrated mobile and on page 30. fixed services, fixed voice and data services, IP virtual private networks and network integration services. |
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| VodafoneTV This is a new service, Launched in four markets, that provides a wide range of content over the airwaves through a fixed Line broadband connection. In Germany it is supplied through an innovative ‘hybrid’ set-top box which delivers free and pay TV channels transmitted by satellite, cable or broadband. It also provides on-demand films and TV programmes, and other premium content. Focus on key areas of growth potential: Total communications To meet customers’ total communications needs beyond immediately after purchase via the USB broadband modem just mobile we have developed our fixed line capabilities and then later with fixed broadband when this has been including voice calls and broadband data, to provide a full provisioned. During the year we have enriched this product in suite of services. We can integrate customers’ mobile and fixed our largest fixed markets (Germany, Italy and Spain) through Line communications into one service and provide related the integration of digital living network alliance CDLNA’) services such as Vodafone TV. Enterprise customers in capabilities which facilitates the sharing of digital media particular have shown an increasing demand for receiving all between different electronic devices. For example, a DLNA I their communication productsfrom one company. compliant TV can operate with a DLNA compliant PC to play music or videos, or display photos. Approach Vodafone DSL Router Our European strategy is to obtain long-term access to fast We have been offering triple play services (fixed broadband, The DSL Router fixed broadband to service high value customers in a capital voice and TV) in Portugal since 2009. This year we increased comes complete with efficient manner. Access is obtained through wholesale our presence in the home TV market by launching services in a Vodafone Mobile agreements, partnerships oracquisitions. Italy, Spain and Germany. Broadband USB stick so customers can have Fixed services Application services instant access to the Fixed broadband and voice account for around 8% of Weofferarangeoftotalcommunicationsapplicationsaswell internetwhiletheirfixed ourservicerevenue.Wehavefixedservicesin13countrieswith as services for enterprise and consumer customers. For broadband is set-up. 6.1 million fixed broadband customers at 31 March 2011, example Vodafone Always Best Connected software enables a 9.5% increase over the previous year. In addition, through customers to stay connected to the internet on the best Gateway, we provide wholesale carrier services in over 40 available connection wherever they are by automatically African countries. managing the switching between connection types including mobile broadband, Wi-Fi and LAN. Vodafone PC Backup is an Combining fixed and mobile services online back-up and restore service that enables users to The Vodafone DSL Router, now available in 11 markets, up remotely store data securely and automatically via their from six markets the previous year, combines mobileand fixed internet connection, broadband services. This means customers can connect |
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| Mobile payments (an application of NFC) Vodafone, ABN AMRO, ING, KPN, Rabobank and T-Mobile signed a Letter of intent this year to create a joint venture company and introduce simple and secure mobile payments at checkouts in the Netherlands. It is an early example of how Vodafone is leading the market for mobile payments in partnership with other mobile network operators and major banks. Focus on key areas of growth potential: New services We have strategically chosen to expand into a number of new Financial services growth segments to create additional revenue and enhanced VodafoneM-Pesaisnowliveinsixmarkets.Furtherinformation customer experience that complement our core voice and is contained in “Focus on key areas of growth potential: data products. Emerging markets” on page 20. Machine-to-machine CM2M’) Near field communication CN FC) M2M connections allow devices to communicate with one NFC allows communication between devices when they are another via built-in mobile SIM cards. This allows us to offer touched together or brought within a few centimetres of each services such as fleet tracking and asset management, remote other. We aim to make mobile phones the preferred device for monitoring of, for example, vending machines, cash machines most personal transactions including payments, tickets, Vodafone Ad Plus andbuildingmanagement.aswellassecurityandsurveillance. coupons, identification and the provision of information. We in Romania allows We are now serving around 5.3 million M2M connections have been developing mobile NFC standards since 2006, have companies to access around the world. Further information is contained in “Focus conducted trials in several markets and are now developing by SMS an opted in on key areas of growth potential: Enterprise” on page 22 and services and partnerships in preparation for commercial customer base of up to “Sustainable business” on page 30. launch in key markets. five million customers. Research in Romania Third party billing Mobile advertising shows almost 58% We work with third party content and service providers to We have an established mobile advertising business in 18 of our customers like simplify our customers’ experience when they purchase countrieswithawiderangeofcapabilities.Thefastadoptionof to receive relevant applications and content by letting our customers charge smartphone devices is promoting mobile as an alternative adverts on their mobile these services direct to their mobile account (‘charge to bill’), channel to reach consumers and we are collaborating We provide a single technical interface to these providers to with other mobile network operators to make the most of the / ¦»’»•» . . g reach all our European customers and we plan to expand this potential of mobile advertising. 1 ^^^¦H^^B reachtootherpartsoftheworldoverthe2012financialyear. I ¦ |
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| Delivering cost efficiency from sharing resources This year we established two shared service centres in India to provide quick, simple and cost effective customer contact points for our technology and business operations and data services for our finance and administration functions in seven European markets and across India. We expect to gain significant benefits to help consolidate, standardise and optimise the way we run our operations. Deliver value and efficiency from scale Against a background of continual price pressures due to Our achievements to date ~7C\^l/ competition and regulation we continually seek to improve We have been taking advantage of the large scale of our I \J/O our cost efficiency. During the year we reduced our European networks. We are sharing base station sites where this Newradiosites operating costs by 4% on an organic basis, equivalent to makes commercial sense in order to reduce site rental and deployed thisyear saving over £140 million. We have used the savings to fund maintenance costs. We have also renegotiated leases on most builtasshared investment in customer facing activities and growth areas of our sites, are standardising the technology we deploy, and sitestoreduce such as data and enterprise services. have reduced the energy consumption of our sites and operating costs switching centres. We are reducing costs in maintenance and Our cost advantage fieldactivitiesinparticularthrough outsourcing. C\ ir\v Based on external independent benchmarking we have \J VCI favourable comparative cost positions in many markets. This We use the Vodafone Procurement Company, the central O’l A r\v^c\ reflects both our scale as one of the world’s largest mobile Group procurement function based in Luxembourg, to t IH”\yl I I communications companies by revenue and our ongoing leverage our scale to achieve better prices, more value and Reduction in organic costfocus. drive standardisation across the business. We have further European operating reduced costs by centralising the purchasing of handsets. Our costs due to our cost position vs competitors [arge sjze a[s0 a[[OWS us to drive ethical, health and safety, costsaving Network: cost to carry a unit of data™ Top quartile position labour and environmental standards with our suppliers and Terminals: cost to purchase aLso t0 9et the best rates on warehousing, inbound and a handset"' Top quartile position outbound logistics, and repair costs. General supplies12’ 4% better than our shared service centres in Hungary, India and Egypt have global benchmark allowed us to reduce costs as well as deliver better service. Notes: Additionally, we have outsourced application development (DATKearneyExecutiveSummaryReport. ancj majntenance to third party providers on multi-year (2) The Hackett Group’s world class benchmarking. COmDetitive tenders |
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| Verizon Wireless In the US, our associate Verizon Wireless has continued to perform strongly. Organic service revenue increased by 5.8%c*) Led by a 3.1% increase in the customer base to 88.4 million and strong data revenue growth driven by increased smartphone penetration. Verizon Wireless launched 4G LTE services in December 2010 and began distribution of the iPhone on its network in February 2011. Generate liquidity or free cash flow from non-controlled interests Non-controlled interests constitute around 40% (based on third Polkomtel ~7 Q 0/ party estimates) of the value of the Group’s assets. We aim to Polkomtel trades as Plus in Poland and is a leading operator in «3 -7 /O maximise the value of these interests either by generating Poland. Along with the four other owners we are exploring Groupadjusted Liquidity or increasing free cash flow in order to fund profitable optionsfora sale of the business. operating profit from investmentandenhanceshareholder returns. Verizon Wireless BhartiAirtel (201036%) Verizon Wireless Bharti is the market leader in India. Following the purchase of Verizon Wireless is our largest non-controlled interest, in which our controlling interest in Vodafone Essar in India in 2007, we we havean equity interest of 45%. Itisthe revenue marketleader sold 5.6% of our stake in Bharti in 2008 and retained a 4.4% in the US and performed strongly thisyearwith service revenue indirect interest, growth of 5.8%(,). To create additional value we are working closely with Verizon Wireless on several initiatives that leverage Sale of interests our combined scaleand scope including purchasing of network In September 2010 we sold our 3.2% interest in China Mobile equipment, IT and services, technology enhancements and Limitedfor£4.3billion.InNovember2010wesoldourinterests propositions for multinational companies. We received around in SoftBank of Japan for £3.1 billion and approximately half of £1.0 billion in dividends this year, in relation to tax related the proceeds have been received to date and used to reduce dividend receipts (see “Dividends from associates and to non- the Group’s net debt.The remaining proceedsare expected to controlling shareholders” on page 48 for further information), be received in April 2012. In April 2011 we announced the sale which was substantially less than our proportionate share of of our44%interestinSFR, the second largest mobile operator Verizon Wireless’ free cash flow which shows the material in France, for £6.8 billion. The transaction, which is subject to opportunity forincremental returns. competition authority and regulatory approvals, isexpected to complete during the second calendar quarter of 2011. Proceeds from the sale of all of these interests are being used to reduce net debt and committed to a £6.8 billion buyback of our shares of which £2.6 billion has been completed to date. |
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| Creating value for shareholders We aim to increase shareholder returns through regular dividends and one-off returns. In 2009 we established a target to grow total dividends per share by at least 7% per annum until the financialyear ending 31 March 2013, and consistent with this, total dividends per share increased by 7.1% in 2011 to 8.90 pence per share. In addition, we have committed £6.8 billion to buying back our shares, of which £2.6 billion has been returned to date. Apply rigorous capital discipline to investment decisions Discipline of regular business reviews Selective acquisitions ~7®/ We are focused on enhancing returns to our shareholders and When managing capital we also consider whether to I SO are therefore careful how we invest shareholders’ money. We strengthen the Group by acquiring other companies to Targetannual regularly review the cash needs of each of our businesses increase our operations in a particular market. All potential increase in total across the globe, taking into account their performance and acquisitions are judged on strict financial and commercial dividends per share competitive position. criteria, especially whether they would provide meaningful until March 2013 scale in a particular segment, the cost of the acquisition and How we invest your money the ability to enhance the Group’s free cash flow. For example, —.. . . Organic investment in March 2011 we announced our intention to acquire LUW We make capital investments, such as for new equipment BelCompany BV, the Netherlands’ largest independent njrtol^ A or spectrum, in our existing businesses to improve their telecom retailer, which will expand our Dutch stores from jl I IU LC l\ performanceanddriveorganicgrowth. 86to296. Target long-term credit rating Returns to shareholders Investment principles We thoroughly review the best ways to provide returns to our All of our investments, whether in existing businesses shareholders. We have a target of increasing total dividends or acquisitions, are subject to rigorous commercial analysis per share by at least 7% a year until the financial year ending and demanding hurdle rates (the minimum rate of return on an 31 March 2013. When we have surplus funds we consider investment) to ensure they enhance shareholder returns. We additional returns to shareholders through special dividends remain committed to ourtarget credit rating of low single Afor or share buyback programmes. long-term debt as this provides us with a low cost of debt and good access to liquidity from financial institutions. |
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| 28 Vodafone Group Pic Annual Report 2011
Key market review
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| Vodafone Group Pic Annual Report 2011 29 —. Ourstrong brand and ncreased customer r^^l focus, supported by Jfl ^^BJ our leading network performance, is driving our improved j£ ^M ^J^^^^^^^ performance. ^^H Revenue by key market (%) Mobile service revenue market share (%)<1 ^^^^ ¦ 2010 ^rt ^ ¦ Germany ¦ 201’ ft ^ ltalV 54 ¦ ¦ Spain ^^ 53<2; ^. UK 34 34 33 | ^_ w-s- ¦¦¦¦¦¦¦¦-.!¦ Germany Italy Spain UK India South Africa0- United Kingdom ¦ Significant year-on-year improvement ^^^^^^^ in revenue trends. Service revenue growth (%)(,) 4.7 ¦ Data revenue increased 28.5%(,)due to Adjusted EBITDA margin (%) ~2s7 increasing penetration of smartphones. (1.1)1 ¦ - ¦ Strong contract customer growth due (4.7) Operating free cash flow (£m) 950_ to increased commercial focus. 2009 2010 2011 India ¦ Revenue growth improved through the (4) year as the customer base increased ^^^^^^^ Service revenue growth (%)(,) 16.2 and price declines slowed. 147 16.2 Adjusted EBITDA margin (%) ~25£ ¦ Fourthsuccessiveyearofgaining I ^^^H ^^^H - revenue market share. ^^^^^^H ^^^^^^H ^^^^^^H Operating free cash flow (£m) 455_ ¦ Commenced 3G services in February 2011 2009 2010 2011 with 1.5 million customers by 31 March. Vodacom ¦ Strong revenue growth led by increasing demand for mobile broadband services. ^^^^^^^ Service revenue growth (%)(,) 5.8 Launched Web Box service for ., 58 Adjusted EBITDA mai.nn(%.i 55.7 internet access. I ^^^^M ^^^^B - ¦ Continued network investment with over ^^^^^^M^^^^^^M^^^^^^M Operating free cash flow (£m) 1,559 3,200 base stations now 4G/LTE ready. 2009 2010 2011 Notes: (3) Market share information relates to South Africa which is Vodacom’s largest business. (1) At31 March (2011 estimated). (4) This figure reflects pro-forma growth which is organic growth adjusted to include acquired business for the whole (2) Q3 2010 and Q3 2011 data; mobile total revenue share. of both periods. |
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Sustainable business
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| VodafoneGroupPlcAnnualReport2011 31 Instant Network Vodafone Foundation and Group Technology worked M with Huawei and Telecoms l^—^^^B ‘ Sans Frontieresto develops |TjL ^^^^^^^^^ portable GSM/EDGE mobile JI | feh network that provides ‘^M I ‘• ^f instant mobile coverage i Jj “ ‘ for emergency situations ¦ ¦ f^^B ‘ ^B; in under 40 minutes, which - “; ^^^^^^^ fits into three suitcase-size ^^ boxes to be transported by plane worldwide. in emerging markets we are setting carbon intensity targets to Sustainability governance reduce emissions per network node. The Executive Committee is ultimately responsible for our sustainability performance and receives a formal update every We are deploying more efficient equipment across our year, as does the Board. Each local market has a sustainability network, working with suppliers to develop more efficient management structure and a system for monitoring equipment, and using solar and wind power to generate performance and reporting to the Group. We also influence renewable energyforoff-grid base stations. and monitor the sustainability performance of our joint ventures, outsourcing partners and other organisations with Ethical business whichwework. Our business and sustainability strategies are underpinned by our business principles and code of conduct which stress The Vodafone Sustainability Expert Advisory Panel met the importance of responsible, ethical and honest behaviour twice during the year to discuss various issues. We engage in everything we do. This means being a responsible a wide range of stakeholders, including customers, employer, maintaining the health and safety of our employees investors, employees, suppliers, communities, governments and contractors (see “People” on page 32), ensuring high and regulators, standards of labour and environmental protection in our supply chain, transparent and ethical business practices, clear Our 11th annualsustainability report, which isassured by Ernst pricing and maintaining a safe internet experience (including & Young LLP using the International Standard on Assurance child safety and privacy). In response to the proposed Engagements(‘ISAE3000’)tocheckadherencetotheAA1000 disclosure requirements on conflict minerals required by Account Ability Principles Standard CAA1000APS’), is available the US Dodd-Frank legislation, we continue to strengthen our at www.vodafone.com/sustainability. 16 local markets also due diligence activities on the source and chain of custody of publish their own sustainability reports, these materials. The issue of human rights and access to communications has been brought into sharp focus by Key performance indicators’11 continuing eventsin the Middle East and North Africa. 2011 2010 2009 Vodafone Group Social investment - The Vodafone Foundation and its network of 27 local Energy use (GWh) foundations continue to invest in the communities in which (direct and indirect) 4,117 5,278 5,044 Vodafone operates. Specific initiatives include Mobiles for Carbon dioxide emissions Good projects which include the piloting of handsets for (millions of tonnes) 1.96 1.21 1.22 women at risk of domestic violence and an instant network D«,rar,(,n.,,( »r,»^,. Percentage of energy which provides rapid network coverage for emergencies, sourced from renewables 19.42 25 19 Red Alert SMS fundraising services for emergency appeals and its World of Difference programme which enables Number of phones collected for individuals to take paid time to work for a charity of their reuse and recycling (millions) 1.25 1.55 1.55 choice for up to a year. We make grants to a variety of local Network equipment waste charitable organisations meeting the needs of their generated (tonnes) 7,475 5,870 4,944 communities. Total donations for the year were £49.6 million : and included donations of £5.2 million towards foundation Percentage of network equipment operating costs. waste sent for reuse or recycling 99 98 97 NJote: (1)These performance indicators were calculated using actual or estimatec data collected by our mobile operating companies. The data is sourced frorr nvoices, purchasing requisitions, direct data measurement and estimations where required. The carbon dioxide emissions figures are calculated using the kWh/CO., conversion factor for the electricity provided by the national grid, suppliers or the International Energy Agency and for other energy sources in each operating company. The 2011 data includes India, Ghana, Qatar and South Africa but excludes all other Vodacom markets. Our joint venture in Italy is included inallyears. |
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| People Our people are integral to building and sustaining our success Organisation effectiveness and change Employment policies and employee relations Employees by We employed an average of around 83,900 people worldwide Our employment policies are developed to reflect local legal, location (%) during the year and saw an increase in the percentage of cultural and employment requirements. We aim to be ^^^^ women in senior roles, up from 14.5% to 16.5%. People recognised as an employer of choice and therefore seek to ^^ numbers have changed in different areas of the business maintain high standards and good employee relations according to overall business strategy. For example: in wherever we operate. t/k Vodacom head count was increased to support the growing ^3 enterprise businessand data; in India, we increased headcount Our goal is to create a working culture that is inclusive for all. to grow the business; in Ghana, to drive operational efficiency, We believe that having a diverse workforce helps to meet the we reduced headcount through redundancy and outsourcing different needs ofourcustomersacrosstheglobe.An inclusive ¦ Germany ofnetworkoperations,callcentresandfacilities;andintheUK culture and environment is one which respects, values, ¦ Italy we reduced back office roles and increased investment in celebrates and makes the most of the individual differences ¦ Spair customer facing activities. we each bring to Vodafone, to the benefit of our customers, ¦ UK employees, shareholders, business partners and the wider ¦ India We have also made a number of changes to our structure, communities in which we operate. We do not condone unfair ¦ Vodacom governance and accountabilities to help us concentrate on treatment of any kind and offer equal opportunities in all Other our main commercial and financial priorities. These changes aspects of employment and advancement regardless of race, includethecreationofaGroupCommercialunit.expansionof nationality, gender, age, marital status, sexual orientation, the role and scope of Group Technology to oversee all disability, religious or political beliefs. This also applies to operating companies, the consolidation of our regional agency workers, the self-employed and contract workers who structure into two distinct regions, plus reporting line changes work for us. In our latest people survey, 87% of employees to align teams more closely with theirfunctions. agreed that Vodafone treats people fairly, regardless of their gender, background, age or beliefs. |
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| Vodafone Group Pic Annual Report 2011 33 Q7 Qf\f\ The main emphasis of our global diversity strategy has been plans and key individuals, and at our monthly Executive 0+D)Js\J\J on gender diversity and to increase the number of women in Committee meetings we discuss the senior leadership roles. Average employees management positions which has risen to 16.5%. Efforts to increase the percentage further will continue during the A global graduate and recruitment programme was introduced 2012 financialyear. Our second priority has been to increase with a target to hire 250-300 top graduates across the Group O Q talent from our emerging markets in Group roles and senior during the year. By 31 March 2011 we had recruited 306. In L- J leadership positions. addition, we partnered with nine leading MBA schools in Europe, Nationalities the US, Africa and India to recruit 15-20 MBA graduates for key in top senior During the year we ran a series of two-and-a-half day diversity management roles. management roles and inclusion workshops for over 450 people from human resources teams globally to support their senior leaders who Learning and capability development had previously all attended inclusive leadership workshops in We are committed to helping people reach their full potential their local market. through ongoing training and development. People identify and agree their development objectives with their managers Health, safety and wellbeing every year as part of the performance dialogue process. Local, The health, safety and wellbeing of everyone affected by our functional and global learning programmes are provided to business activities has continued to be a high priority. The meet people’s development needs, delivered through a blend implementation of the Vodafone fatality prevention plan saw of classroom training, e-leaming, coaching, mentoring and on- a significant reduction, of 33%, in fatalities in India, Ghana and the-job experience. Turkey, where there were 14 fatalities in those countries this year compared with 21 in the previous year. Sadly, across the During the year we invested around £55 million in training Group 21 fatalities have occurred this year including four programmes. In our most recent people survey, 72% of our fatalities that occurred within the Vodacom Group operations, employees rated the opportunity to develop the skills that which are included in the Group figure for the first time this theyneedtodotheirjobwellasgoodorverygood, year. The Vodafone fatality prevention plan has now been rolled out across Vodacom’s subsidiaries which has seen a Inspire, our global leadership development programme for reduction in fatal incidents to one in the last six months of the high-potential managers, is in its fourth year. So far, 124 people financial year. Out of the Group total 17 were third-party havecompletedtheprogramme. contractors and four were Vodafone employees. Further detailscan befoundintheGroup’s2011 sustainability report. Performance, rewardand recognition We reward employees based on their performance, potential As part of a more robust governance programme, we and contribution to the success of the business and we aim introduced external health and safety benchmark reviews, to provide competitive and fair rates of pay and benefits in These reviews evaluated health and safety management every country where we operate. We also offer competitive systems in several countries, including New Zealand, Czech retirement and other benefit provisions which vary depending Republic, Hungary, Romania, Vodacom South Africa and Egypt, on conditions and practices in local markets. Culture, communications and engagement Global short-term incentive plans are offered to a large In October 2010 we carried out our sixth annual global people percentage of employees an d global long-term incentive survey.The survey measures employees’levelof engagement, plans are offered to our senior managers. Both plans are paid a combination of pride, loyalty and motivation and 90% of according to individualand company performance, those surveyed responded. We achieved an overall employee engagement score of 75 which means we have maintained a Key performance indicators highscoreinemployeeengagementforthethirdyearrunning. 2011 2010 2009 Number of employees™ 83,862 84,990 79,097 Regular, consistent and open communication is fundamental —; —; ; to high levels of employee engagement. Our people have Nationalities in top senior access to information about our business through a global management roles 29 26 25 intranet.withlocaltranslationsandcontentwhereappropriate. Women in top senior TheChiefExecutivecommunicatesdirectlywithallemployees management roles (%) 16.5 14.5 13.1 through regular team meetings, email and video updates and tttt: this is reinforced by local chief executive communications in Employee turnover rates (%F 15 15 15 all our markets. Relevant performance and change issues are Notes: alSO diSCUSSed With Our employees through team meetings, (1) Represents the average number of employeesinourcontrolled and jointly round table discussions or through elected representative ,,, controlled marketsduring the year 3 r (2) Based on our controlled markets and ourjointventure in Italy. bodiesin some of the European countries. Our culture is based on The Vodafone Way. All of our senior Leadership team (approximately 250 people) have now been through the Leading in The Vodafone Way workshop which provides a picture of howThe Vodafone Way works day-to-day. Local markets will roll out a similar programme for all their managers. We have also created a community of ‘change Leads’, senior leaders who meet regularly to identify what more ^^^^ canbedonetofurtherembedTheVodafoneWay. ^^te*_ Diversity and inclusion Talent and resourcing ^ Our inclusive culture Duringtheyearouremployeescontinuedtoperformatahigh t respects, values, Level and we strengthened our leadership team. This was i™ \ j tj I celebrates and makes achieved partly by introducing talent identification tools and bA ^* ''^ the most of the diversity partly by investing in staff with high potential and helping \ Hl. of our people. them with their career planning and development. Quarterly ^B, ‘ 1 , r J^W talent reviews are held to discuss performance, succession H. . |
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34 Vodafone Group Plc Annual Report 2011
Operating results
This section presents our operating performance, providing commentary on how the revenue
and the adjusted EBITDA performance of the Group and its operating segments within Europe, Africa,
Middle East and Asia Pacific, and Non-Controlled Interests and Common Functions have developed in
the last three years.
2011 financial year compared to the 2010 financial year
Group(1)(2)
| Non-Controlled | ||||||||||||||||||||||||||||||||
| Africa, | Interests and | |||||||||||||||||||||||||||||||
| Middle East | Common | |||||||||||||||||||||||||||||||
| Europe | and Asia | Functions(3) | Eliminations | 2011 | 2010 | % change | ||||||||||||||||||||||||||
| £m | Pacific £m | £m | £m | £m | £m | £ | Organic(4) | |||||||||||||||||||||||||
Revenue |
32,015 | 13,304 | 659 | (94 | ) | 45,884 | 44,472 | 3.2 | 2.8 | |||||||||||||||||||||||
Service revenue |
30,097 | 12,292 | 412 | (63 | ) | 42,738 | 41,719 | 2.4 | 2.1 | |||||||||||||||||||||||
Adjusted EBITDA |
10,823 | 3,999 | (152 | ) | — | 14,670 | 14,735 | (0.4 | ) | (0.7 | ) | |||||||||||||||||||||
Adjusted operating profit |
5,726 | 1,272 | 4,820 | — | 11,818 | 11,466 | 3.1 | 1.8 | ||||||||||||||||||||||||
Adjustments for: |
||||||||||||||||||||||||||||||||
Impairment losses |
(6,150 | ) | (2,100 | ) | ||||||||||||||||||||||||||||
Other income and expense(5) |
(72 | ) | 114 | |||||||||||||||||||||||||||||
Operating profit |
5,596 | 9,480 | ||||||||||||||||||||||||||||||
Non-operating income and expense(6) |
3,022 | (10 | ) | |||||||||||||||||||||||||||||
Net investment income/(financing costs) |
880 | (796 | ) | |||||||||||||||||||||||||||||
Profit before taxation |
9,498 | 8,674 | ||||||||||||||||||||||||||||||
Income tax expense |
(1,628 | ) | (56 | ) | ||||||||||||||||||||||||||||
Profit for the financial year |
7,870 | 8,618 | ||||||||||||||||||||||||||||||
| Notes: | ||
| (1) | The Group revised its segment structure on 1 October 2010. See note 3 to the consolidated financial statements. | |
| (2) | Current period results reflect average exchange rates of £1:€1.18 and £1:US$1.56. | |
| (3) | Common Functions primarily represent the results of the partner markets and the net result of unallocated central Group costs. | |
| (4) | Organic growth includes Vodacom at the current level of ownership but excludes Australia following the merger with Hutchison 3G Australia on 9 June 2009. | |
| (5) | Other income and expense for the year ended 31 March 2011 included £56 million representing the net loss on disposal of certain Alltel investments by Verizon Wireless. This is included within the line item “Share of results in associates” in the consolidated income statement. | |
| (6) | Non-operating income and expense for the year ended 31 March 2011 includes £3,019 million profit arising on the sale of the Group’s 3.2% interest in China Mobile Limited. For further details see “Other significant transactions” on page 49. | |
Revenue
Group revenue increased by 3.2% to £45,884 million and Group service revenue increased by 2.4% to
£42,738 million. On an organic basis Group service revenue increased by 2.1%(*), with a 0.8
percentage point improvement between the first and second half as both Europe and AMAP delivered
improved organic service revenue trends.
In Europe service revenue fell by 0.4%(*) with a decline of 0.3%(*) in
the second half
of the year. Both the UK and Germany performed well delivering full year service revenue growth of
4.7%(*) and 0.8%(*) respectively. Spain continued to experience economic
pressures which have intensified competition leading to a 6.9%(*) decline in service
revenue. Service revenue also declined by 2.1%(*) in Italy driven by a challenging
economic and competitive environment combined with the impact of termination rate cuts. Our
improved commercial offers in Turkey have delivered service revenue growth of 28.9%(*),
despite a 52% cut in termination rates which was effective from 1 April 2010. Challenging economic
and competitive conditions continued in our other central European businesses where service revenue
growth was also impacted by mobile termination rate cuts. European enterprise revenue increased by
0.5%(*) with improved roaming activity and important customer wins.
In AMAP service revenue grew by 9.5%(*). Vodacom continued to perform well, with strong
data revenue growth from mobile broadband offsetting weaker voice revenue which was impacted by two
termination rate cuts during the year. In India service revenue increased by 16.2%(*),
driven by an increase in the mobile customer base and a more stable pricing environment towards the
end of the year. In Qatar the customer base reached 757,000 by the end of the year, with 45% of the
population now actively using Vodafone services less than two years after launch. On an organic
basis, service revenue in Egypt declined by 0.8%(*) where performance was impacted by
the socio-political unrest during the fourth quarter.
Adjusted EBITDA and profit
Adjusted
EBITDA decreased by 0.4% to £14,670 million with a 1.1 percentage point decline in both the
reported and organic adjusted EBITDA margin.
In Europe adjusted EBITDA decreased by 3.7%(*), with a decline in adjusted EBITDA
margin of 1.7 percentage points, primarily driven by a reduction in service revenue in most
markets and higher investment in acquisition and retention costs, partially offset by operating
cost efficiencies.
In AMAP adjusted EBITDA increased by 7.5%(*), driven primarily by growth in India,
together with improvements in Vodacom, Ghana, New Zealand and Qatar, partially offset by a slight
decline in Egypt. The adjusted EBITDA margin fell 0.6 percentage points(*), the two
main factors behind the decline being higher recurring licence fee costs in India and the change
in regional mix from the strong growth in India.
Adjusted operating profit grew by 3.1% as a result of an increase in the Group’s share of results
of Verizon Wireless partially offset by the decline in Group adjusted EBITDA. The Group’s share of
results in Verizon Wireless, the Group’s associate in the United States, increased by
8.5%(*) primarily due to the expanding customer base, robust data revenue, efficiencies
in operating expenses and lower acquisition costs partially offset by higher customer retention
costs reflecting the increased demand for smartphones in the United States.
The Group recorded other net income of £5,342 million, primarily in relation to a £2.8 billion net
gain on the sale of the Group’s interests in China Mobile Limited, £1.8 billion on the settlement
of a tax case and £0.5 billion from the disposal of investments in SoftBank Mobile Corp.
Operating profit decreased by 41.0% primarily due to higher impairment losses compared to the prior
year. Impairment losses totalling £6,150 million were recorded relating to our businesses in Spain
(£2,950 million), Italy (£1,050 million), Ireland (£1,000 million), Greece (£800 million) and
Portugal (£350 million) primarily resulting from increased discount rates as a result of
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Vodafone Group Plc Annual Report 2011 35
Performance
increases in government bond rates together with lower cash flows within business plans,
reflecting weaker country-level macro economic environments. The impairment loss in the prior year
was £2,100 million.
Profit for the year decreased by 8.7%.
Net
investment income/(financing costs)
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Investment income |
1,309 | 716 | ||||||
Financing costs |
(429 | ) | (1,512 | ) | ||||
Net
investment income/(financing costs) |
880 | (796 | ) | |||||
Analysed as: |
||||||||
Net financing costs before income
from investments |
(852 | ) | (1,024 | ) | ||||
Potential interest charges arising on settlement
of outstanding tax issues(1) |
(46 | ) | (23 | ) | ||||
Income from investments |
83 | 145 | ||||||
Foreign exchange(2) |
256 | (1 | ) | |||||
Equity put rights and similar arrangements(3) |
95 | (94 | ) | |||||
Interest
related to the settlement of tax cases(4) |
872 | 201 | ||||||
Disposal of SoftBank financial instruments(5) |
472 | — | ||||||
| 880 | (796 | ) | ||||||
| Notes: | ||
| (1) | Excluding interest credits related a tax case settlement. | |
| (2) | Comprises foreign exchange rate differences reflected in the income statement in relation to certain intercompany balances and the foreign exchange rate differences on financial instruments received as consideration on the disposal of Vodafone Japan to SoftBank in April 2006. | |
| (3) | Includes foreign exchange rate movements, accretion expense and fair value charges. Further details of these options are provided on page 51. | |
| (4) | The £872 million in the year ended 31 March 2011 relates to the settlement of a tax case and the £201 million in the year ended 31 March 2010 relates to the settlement of the German tax loss claim. | |
| (5) | See “Other significant transactions” on page 49. | |
| Net financing costs before income from investments decreased from £1,024 million to £852 million primarily due to a reduction in net debt, partially offset by an increase in average interest rates for debt denominated in US dollars. At 31 March 2011 the provision for potential interest charges arising on settlement of outstanding tax issues was £398 million (31 March 2010: £1,312 million), with the reduction primarily reflecting the settlement of a tax case. |
Taxation
The adjusted effective tax rate for the year ended 31 March 2011 was 24.5%. This is in line with
the adjusted effective tax rate for the year ended 31 March 2010 of 24.0%. Tax on adjustments to
derive adjusted profit before tax includes tax payable on the gain on the disposal of the Group’s
3.2% interest in China Mobile Limited.
Income tax expense includes a credit of £929 million arising as a result of the settlement of a
tax case in July 2010. For further details see note 4 to the consolidated financial statements in
the half-year financial report for the six months ended 30 September 2010.
Earnings per share
Adjusted
earnings per share increased by 4.0% to 16.75 pence for the year ended 31 March 2011 due to
growth in adjusted earnings and a reduction in shares arising from the Group’s share buyback
programme. Basic earnings per share decreased to 15.2 pence primarily due to the £6,150 million of
impairment charges partially offset by a gain on disposal of the
Group’s 3.2% interest in China Mobile
Limited and the settlement of a tax case.
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Profit attributable to equity shareholders |
7,968 | 8,645 | ||||||
Pre-tax adjustments: |
||||||||
Impairment loss |
6,150 | 2,100 | ||||||
Other income and expense(1)(4) |
72 | (114 | ) | |||||
Non-operating income and expense(2)(4) |
(3,022 | ) | 10 | |||||
Investment income and financing costs(3)(4) |
(1,695 | ) | (106 | ) | ||||
| 1,505 | 1,890 | |||||||
Taxation |
(697 | ) | (2,064 | ) | ||||
Adjusted profit attributable to equity shareholders |
8,776 | 8,471 | ||||||
Weighted average number of shares outstanding |
||||||||
Basic |
52,408 | 52,595 | ||||||
Diluted |
52,748 | 52,849 | ||||||
| Notes: | ||
| (1) | The year ended 31 March 2011 includes £56 million representing the net loss on disposal of certain Alltel investments by Verizon Wireless. This is included within the line item “Share of results in associates” in the consolidated income statement. | |
| (2) | The year ended 31 March 2011 includes £3,019 million representing the profit arising on the sale of the Group’s 3.2% interest in China Mobile Limited. | |
| (3) | See notes 2, 3, 4 and 5 in “Net investment income/(financing costs)” above. | |
| (4) | These amounts comprise ‘Other net income’ of £5,342 million | |
Europe(1)
| Germany | Italy | Spain | UK | Other | Eliminations | Europe | % change | |||||||||||||||||||||||||||||
| £m | £m | £m | £m | £m | £m | £m | £ | Organic | ||||||||||||||||||||||||||||
Year ended 31 March 2011 |
||||||||||||||||||||||||||||||||||||
Revenue |
7,900 | 5,722 | 5,133 | 5,271 | 8,253 | (264 | ) | 32,015 | (2.5 | ) | 0.6 | |||||||||||||||||||||||||
Service revenue |
7,471 | 5,432 | 4,735 | 4,931 | 7,787 | (259 | ) | 30,097 | (3.4 | ) | (0.4 | ) | ||||||||||||||||||||||||
Adjusted EBITDA |
2,952 | 2,643 | 1,562 | 1,233 | 2,433 | — | 10,823 | (7.1 | ) | (3.7 | ) | |||||||||||||||||||||||||
Adjusted operating profit |
1,548 | 1,903 | 915 | 348 | 1,012 | — | 5,726 | (9.8 | ) | (6.1 | ) | |||||||||||||||||||||||||
Adjusted EBITDA margin |
37.4 | % | 46.2 | % | 30.4 | % | 23.4 | % | 29.5 | % | 33.8 | % | ||||||||||||||||||||||||
Year ended 31 March 2010 |
||||||||||||||||||||||||||||||||||||
Revenue |
8,008 | 6,027 | 5,713 | 5,025 | 8,357 | (297 | ) | 32,833 | ||||||||||||||||||||||||||||
Service revenue |
7,722 | 5,780 | 5,298 | 4,711 | 7,943 | (295 | ) | 31,159 | ||||||||||||||||||||||||||||
Adjusted EBITDA |
3,122 | 2,843 | 1,956 | 1,141 | 2,582 | — | 11,644 | |||||||||||||||||||||||||||||
Adjusted operating profit |
1,695 | 2,107 | 1,310 | 155 | 1,084 | — | 6,351 | |||||||||||||||||||||||||||||
Adjusted EBITDA margin |
39.0 | % | 47.2 | % | 34.2 | % | 22.7 | % | 30.9 | % | 35.5 | % | ||||||||||||||||||||||||
| Note: | ||
| (1) | The Group revised its segment structure on 1 October 2010. See note 3 to the consolidated financial statements. | |
Table of Contents
36 Vodafone Group Plc Annual Report 2011
Operating results continued
Revenue declined by 2.5% reflecting a 3.2 percentage point impact from unfavourable foreign
exchange rate movements. On an organic basis service revenue declined by 0.4%(*)
reflecting reductions in most markets offset by growth in Germany, the UK, the Netherlands and
Turkey. The decline was primarily driven by lower voice revenue resulting from continued market
and regulatory pressure on pricing and the challenging economic climate, partially offset by
growth in data and fixed line revenue.
Adjusted EBITDA decreased by 7.1% including a 3.5 percentage point impact from unfavourable
exchange rate movements. On an organic basis adjusted EBITDA decreased by 3.7%(*), with
a 1.7 percentage point decline in adjusted EBITDA margin resulting from a reduction in service
revenue in most markets and higher customer investment, partially offset by operating cost
savings.
| Organic | M&A | Foreign | Reported | |||||||||||||
| change | activity | exchange | change | |||||||||||||
| % | pps | pps | % | |||||||||||||
Revenue — Europe |
0.6 | 0.1 | (3.2 | ) | (2.5 | ) | ||||||||||
Service revenue |
||||||||||||||||
Germany |
0.8 | — | (4.1 | ) | (3.3 | ) | ||||||||||
Italy |
(2.1 | ) | — | (3.9 | ) | (6.0 | ) | |||||||||
Spain |
(6.9 | ) | — | (3.7 | ) | (10.6 | ) | |||||||||
UK |
4.7 | — | — | 4.7 | ||||||||||||
Other Europe |
0.5 | 0.5 | (3.0 | ) | (2.0 | ) | ||||||||||
Europe |
(0.4 | ) | 0.1 | (3.1 | ) | (3.4 | ) | |||||||||
Adjusted EBITDA |
||||||||||||||||
Germany |
(1.5 | ) | — | (3.9 | ) | (5.4 | ) | |||||||||
Italy |
(3.1 | ) | — | (3.9 | ) | (7.0 | ) | |||||||||
Spain |
(16.8 | ) | — | (3.3 | ) | (20.1 | ) | |||||||||
UK |
8.0 | — | — | 8.0 | ||||||||||||
Other Europe |
(2.4 | ) | 0.2 | (3.6 | ) | (5.8 | ) | |||||||||
Europe |
(3.7 | ) | 0.1 | (3.5 | ) | (7.1 | ) | |||||||||
Adjusted operating profit |
||||||||||||||||
Germany |
(4.9 | ) | — | (3.8 | ) | (8.7 | ) | |||||||||
Italy |
(5.9 | ) | — | (3.8 | ) | (9.7 | ) | |||||||||
Spain |
(27.3 | ) | — | (2.9 | ) | (30.2 | ) | |||||||||
UK |
125.1 | — | — | 125.1 | ||||||||||||
Other Europe |
(2.0 | ) | 0.3 | (4.9 | ) | (6.6 | ) | |||||||||
Europe |
(6.1 | ) | 0.1 | (3.8 | ) | (9.8 | ) | |||||||||
Germany
Service revenue increased by 0.8%(*) driven by strong data and messaging revenue
growth. Data revenue grew by
27.9%(*) as a result of increased penetration of
smartphones and Superflat Internet tariffs. Mobile revenue remained stable in the fourth quarter
despite a termination rate cut effective from 1 December 2010. Enterprise revenue grew by
3.6%(*) driven by strong customer and data revenue growth.
Adjusted EBITDA declined by 1.5%(*), with a 1.6 percentage point reduction in the
adjusted EBITDA margin. This decline was driven by increased customer acquisition and retention,
contributed to by the launch of the iPhone in the third quarter, partially offset by operating
cost efficiencies.
During the year we acquired LTE spectrum in Germany and launched LTE services towards the end of
the year, initially targeting rural areas underserved by fixed broadband.
Italy
Service revenue declined by 2.1%(*) primarily driven by the challenging economic and
competitive environment, the impact of termination rate cuts and customer tariff optimisation. The
average contract customer base grew by 12.6% enabling the partial offset of these pressures. Data
revenue growth remained strong at 21.5%(*) driven by the high level of customers
migrating to smartphones and taking advantage of data plans. There was continued investment to
improve quality and coverage of the network. Fixed line revenue continued to grow with the
broadband customer base reaching 1.7 million at 31 March 2011 on a 100% basis.
Adjusted EBITDA decreased by 3.1%(*), with a fall in the adjusted EBITDA margin of 1.0
percentage point, as a result of the decline in service revenue and higher investment in
acquisition and retention costs partially offset by a reduction in operating expenses.
Spain
Service revenue declined by 6.9%(*) impacted by continued intense competition, general
economic weakness and the penetration of lower priced tariffs into the customer base. New
integrated plans were introduced in the third quarter in response to the demand for combined voice
and data tariffs driven by the increase in smartphones. Data revenue grew by 14.8%(*)
driven by mobile broadband and mobile internet. One-off items contributed to a 1.8 percentage
point(*) improvement to service revenue growth for the fourth quarter.
Adjusted EBITDA declined 16.8%(*), with a 3.8 percentage point fall in the adjusted
EBITDA margin, due to lower service revenue and proportionately higher acquisition and retention
costs, partially offset by a reduction in operating expenses.
UK
Service revenue increased by 4.7%(*) driven by data revenue growth due to increasing
penetration of smartphones and mobile internet bundles and strong net contract customer additions,
which more than offset continued competitive pressures and weaker prepaid revenue. The termination
rate cuts announced in March 2011 are expected to have a significant negative impact on revenue
growth during the 2012 financial year.
Adjusted EBITDA increased by 8.0%(*) with the adjusted EBITDA margin increasing by 0.7
percentage points, reflecting higher service revenue partially offset by higher customer
acquisition and retention costs.
Other Europe
Service revenue increased by 0.5%(*) with growth in Turkey and the Netherlands being
partially offset by declines in other markets due to the challenging economic environment and
intense competitive factors. In Turkey service revenue grew by 28.9%(*) driven by
strong growth in both data and voice revenue, despite a 52% cut in termination rates effective
from 1 April 2010. In Greece service revenue declined by 19.4%(*) with intense
competition driving a reduction in prepaid revenue and economic factors leading to customer tariff
optimisation.
Adjusted EBITDA declined by 2.4%(*), with declines in all markets except Turkey and the
Netherlands, due primarily to lower service revenue and higher acquisition and retention costs
partially offset by operating cost efficiencies.
Table of Contents
Vodafone Group Plc Annual Report 2011 37
| Africa, Middle East and Asia Pacific(1) | Performance |
| Africa, | ||||||||||||||||||||||||||||
| Middle East | ||||||||||||||||||||||||||||
| and Asia | ||||||||||||||||||||||||||||
| India | Vodacom | Other | Eliminations | Pacific | % change | |||||||||||||||||||||||
| £m | £m | £m | £m | £m | £ | Organic(2) | ||||||||||||||||||||||
Year ended 31 March 2011 |
||||||||||||||||||||||||||||
Revenue |
3,855 | 5,479 | 3,971 | (1 | ) | 13,304 | 20.0 | 9.5 | ||||||||||||||||||||
Service revenue |
3,804 | 4,839 | 3,650 | (1 | ) | 12,292 | 20.0 | 9.5 | ||||||||||||||||||||
Adjusted EBITDA |
985 | 1,844 | 1,170 | — | 3,999 | 20.7 | 7.5 | |||||||||||||||||||||
Adjusted operating profit |
15 | 827 | 430 | — | 1,272 | 55.5 | 8.6 | |||||||||||||||||||||
Adjusted EBITDA margin |
25.6 | % | 33.7 | % | 29.5 | % | 30.1 | % | ||||||||||||||||||||
Year ended 31 March 2010 |
||||||||||||||||||||||||||||
Revenue |
3,114 | 4,450 | 3,526 | (1 | ) | 11,089 | ||||||||||||||||||||||
Service revenue |
3,069 | 3,954 | 3,224 | (1 | ) | 10,246 | ||||||||||||||||||||||
Adjusted EBITDA |
807 | 1,528 | 977 | — | 3,312 | |||||||||||||||||||||||
Adjusted operating (loss)/profit |
(37 | ) | 520 | 335 | — | 818 | ||||||||||||||||||||||
Adjusted EBITDA margin |
25.9 | % | 34.3 | % | 27.7 | % | 29.9 | % | ||||||||||||||||||||
| Notes: | ||
| (1) | The Group revised its segment structure on 1 October 2010. See note 3 to the consolidated financial statements. | |
| (2) | Organic growth includes Vodacom at the current level of ownership and excludes Australia following the merger with Hutchison 3G Australia on 9 June 2009. | |
Revenue grew by 20.0% with an 8.5 percentage point benefit from foreign exchange rate
movements and the full year impact of the consolidation of Vodacom results from 18 May 2009
partially offset by the impact of the creation of the Vodafone Hutchison Australia (‘VHA’) joint
venture on 9 June 2009. On an organic basis service revenue grew by 9.5%(*) despite the
impact of MTR reductions and difficult economic environments. The growth was driven by a strong
performance in India and continued growth from Vodacom and the rest of the region, other than Egypt
where performance was impacted by the socio-political unrest during the fourth quarter.
Adjusted EBITDA grew by 20.8% with foreign exchange rate movements contributing 8.0 percentage
points of growth. On an organic basis adjusted EBITDA grew by 7.5%(*) driven primarily
by growth in India, together with improvements in Vodacom, Ghana, Qatar and New Zealand, partially
offset by a decline in Egypt following pricing pressure and socio-political unrest.
| Organic | M&A | Foreign | Reported | |||||||||||||
| change | activity | exchange | change | |||||||||||||
| % | pps | pps | % | |||||||||||||
Revenue – |
||||||||||||||||
Africa, Middle East
and Asia Pacific |
9.5 | 2.0 | 8.5 | 20.0 | ||||||||||||
Service revenue |
||||||||||||||||
India |
16.2 | — | 7.7 | 23.9 | ||||||||||||
Vodacom |
5.8 | 6.7 | 9.9 | 22.4 | ||||||||||||
Other Africa, Middle East
and Asia Pacific |
7.2 | (0.9 | ) | 6.9 | 13.2 | |||||||||||
Africa, Middle East
and Asia Pacific |
9.5 | 2.2 | 8.3 | 20.0 | ||||||||||||
Adjusted EBITDA |
||||||||||||||||
India |
15.1 | — | 7.0 | 22.1 | ||||||||||||
Vodacom |
4.9 | 4.9 | 10.9 | 20.7 | ||||||||||||
Other Africa, Middle East
and Asia Pacific |
5.1 | 10.6 | 4.1 | 19.8 | ||||||||||||
Africa, Middle East
and Asia Pacific |
7.5 | 5.3 | 8.0 | 20.8 | ||||||||||||
Adjusted operating profit |
||||||||||||||||
India |
134.0 | — | 6.5 | 140.5 | ||||||||||||
Vodacom |
5.7 | 38.2 | 15.1 | 59.0 | ||||||||||||
Other Africa, Middle East
and Asia Pacific |
2.2 | 29.2 | (3.0 | ) | 28.4 | |||||||||||
Africa, Middle East
and Asia Pacific |
8.6 | 39.9 | 7.0 | 55.5 | ||||||||||||
India
Service
revenue grew by 16.2%(*) including a 1.7 percentage point(*) benefit from Indus
Towers, the Group’s network sharing joint venture. Growth was driven by a 39.0% increase in the
average mobile customer base and stable usage per customer trends, partially offset by a fall in
the effective rate per minute due to an increase in the penetration of lower priced tariffs into
the customer base and strong competition in the market.
February 2011 saw the launch of commercial 3G services following the purchase of 3G spectrum in
May 2010 and subsequent network build. By the end of the year 1.5 million customers had activated
their 3G access.
Adjusted EBITDA grew by 15.1%(*) driven by the increase in the customer base and
economies of scale which absorbed pricing and cost pressures.
Vodacom
Service revenue grew by 5.8%(*) driven by South Africa where growth in data revenue of
35.9%(*)(1) offset a decline in voice revenue caused by termination rate cuts effective
from 1 March 2010 and 1 March 2011.
In South Africa data revenue growth was driven by a 48.9%(*) increase in data usage due
to strong growth in mobile connect cards and smartphones. In addition, successful commercial
activity, particularly in off-peak periods, drove higher voice usage during the year which
partially offset the impact of termination rate cuts. Net customer additions returned to
pre-registration levels for the first time in the third quarter, with the trend continuing during
the fourth quarter with net additions of 1.2 million.
In Vodacom’s operations outside South Africa service revenue growth continued with strong
performances from Tanzania and Mozambique. Trading conditions remain challenging in the Democratic
Republic of Congo and the Gateway operations.
Adjusted EBITDA grew by 4.9%(*) driven by the increase in service revenue, strong
handset sales and lower interconnection costs, partially offset by higher operating expenses.
On 1 April 2011 Vodacom refreshed its branding to more closely align with that of the Group.
| Note: | ||
| (1) | Data revenue in South Africa grew by 41.8%(*). Excluding the impact of reclassifications between messaging and data revenue during the year, data revenue grew by 35.9%(*). | |
Table of Contents
38 Vodafone Group Plc Annual Report 2011
Operating results continued
Other Africa, Middle East and Asia Pacific
Service revenue grew by 7.2%(*) with growth across all markets except Egypt. In Qatar
the customer base reached 757,000 by the end of the year, with 45% of the population now actively
using Vodafone services. The decline in Egypt service revenue was driven by a combination of
termination rate reductions, competitive pressure on pricing and socio-political unrest during the
fourth quarter, offset in part by strong customer and data revenue growth during the year. In
Ghana service revenue growth of 21.0%(*) was supported by competitive tariffs and
improved brand awareness.
VHA integration remains on track and a number of important initiatives were completed during the
financial year to begin realising the benefits of the merger. Contact centre operations were
consolidated into two major centres in Hobart and Mumbai India, substantial progress was made in
the consolidation of the retail footprint, and a major refit of retail stores is underway. VHA
appointed new suppliers for network managed services, core, transmission and IT managed services.
Adjusted EBITDA increased by 5.1%(*) driven by growth in Ghana, New Zealand and Qatar
partially offset by a decline in Egypt resulting primarily from the lower effective price per
minute but also impacted by the sociopolitical unrest during the fourth quarter.
Non-Controlled Interests and Common Functions Verizon Wireless(1)
| 2011 | 2010 | % change | ||||||||||||||
| £m | £m | £ | Organic(3) | |||||||||||||
Revenue |
18,711 | 17,222 | 8.6 | 6.0 | ||||||||||||
Service revenue |
17,238 | 15,898 | 8.4 | 5.8 | ||||||||||||
Adjusted EBITDA |
7,313 | 6,689 | 9.3 | 6.7 | ||||||||||||
Interest |
(261 | ) | (298 | ) | (12.4 | ) | ||||||||||
Tax(2) |
(235 | ) | (205 | ) | 14.6 | |||||||||||
Share of result in
Verizon Wireless |
4,569 | 4,112 | 11.1 | 8.5 | ||||||||||||
| Notes: | ||
| (1) | All amounts represent the Group’s share unless otherwise stated. | |
| (2) | The Group’s share of the tax attributable to Verizon Wireless relates only to the corporate entities held by the Verizon Wireless partnership and certain state taxes which are levied on the partnership. The tax attributable to the Group’s share of the partnership’s pre-tax profit is included within the Group tax charge. | |
| (3) | Organic growth rates include the impact of a non-cash revenue adjustment which was recorded by Verizon Wireless to defer previously recognised data revenue that will be earned and recognised in future periods. Excluding this the equivalent organic growth rates for service revenue, revenue,adjusted EBITDA and the Group’s share of result in Verizon Wireless would have been 6.4%(*), 6.6%(*), 8.2%(*) and 10.8%(*) respectively. | |
In the United States Verizon Wireless reported 2.6 million net mobile customer additions
bringing its closing mobile customer base to 88.4 million, a 3.1% increase. Customer growth
improved in the fourth quarter of the year following the launch of the iPhone 4 on the Verizon
Wireless network in February 2011.
Service revenue growth of 5.8%(*) was driven by the expanding customer base and robust
data revenue primarily derived from growth in the penetration of smartphones.
The adjusted EBITDA margin remained strong despite the competitive challenges and economic
environment. Efficiencies in operating expenses and lower customer acquisition costs resulting
from lower volumes have been partly offset by a higher level of customer retention costs
reflecting the increased demand for smartphones.
As part of the regulatory approval for the Alltel acquisition, Verizon Wireless was required to
divest overlapping properties in 105 markets. On 26 April 2010 Verizon Wireless completed the sale
of network and licence assets in 26 markets, encompassing 0.9 million customers, to Atlantic
Tele-Network for US$0.2 billion. On 22 June 2010 Verizon Wireless completed the sale of network
assets and mobile licences in the remaining 79 markets to AT&T Mobility for US$2.4 billion. As a
result the Verizon Wireless customer base reduced by approximately 2.1 million net customers on a
100% basis, partially offset by certain adjustments in relation to the Alltel acquisition.
On 23 August 2010 Verizon Wireless acquired a spectrum licence, network assets and related
customers in southwest Mississippi and in Louisiana, formerly owned by Centennial Communications
Corporation, from AT&T Inc. for cash consideration of US$0.2 billion. This acquisition was made to
enhance Verizon Wireless’ network coverage in these two locations.
Verizon Wireless’ net debt at 31 March 2011 totalled US$9.6 billion (31 March 2010: US$22.4
billion).
Table of Contents
Vodafone Group Plc Annual Report 2011 39
Performance
2010 financial year compared to the 2009 financial year
Group(1)
| Non- | ||||||||||||||||||||||||||||||||
| Africa, | Controlled | |||||||||||||||||||||||||||||||
| Middle East | Interests and | |||||||||||||||||||||||||||||||
| and Asia | Common | |||||||||||||||||||||||||||||||
| Europe | Pacific | Functions(2) | Eliminations | 2010 | 2009 | % change | ||||||||||||||||||||||||||
| £m | £m | £m | £m | £m | £m | £ | Organic(3) | |||||||||||||||||||||||||
Revenue |
32,833 | 11,089 | 667 | (117 | ) | 44,472 | 41,017 | 8.4 | (2.3 | ) | ||||||||||||||||||||||
Service revenue |
31,159 | 10,246 | 397 | (83 | ) | 41,719 | 38,294 | 8.9 | (1.6 | ) | ||||||||||||||||||||||
Adjusted EBITDA |
11,644 | 3,312 | (221 | ) | — | 14,735 | 14,490 | 1.7 | (7.4 | ) | ||||||||||||||||||||||
Adjusted operating profit |
6,351 | 818 | 4,297 | — | 11,466 | 11,757 | (2.5 | ) | (7.0 | ) | ||||||||||||||||||||||
Adjustments for: |
||||||||||||||||||||||||||||||||
Impairment losses |
(2,100 | ) | (5,900 | ) | ||||||||||||||||||||||||||||
Other income and expense |
114 | — | ||||||||||||||||||||||||||||||
Operating profit |
9,480 | 5,857 | ||||||||||||||||||||||||||||||
Non-operating income and expense |
(10 | ) | (44 | ) | ||||||||||||||||||||||||||||
Net financing costs |
(796 | ) | (1,624 | ) | ||||||||||||||||||||||||||||
Profit before taxation |
8,674 | 4,189 | ||||||||||||||||||||||||||||||
Income tax expense |
(56 | ) | (1,109 | ) | ||||||||||||||||||||||||||||
Profit for the financial year |
8,618 | 3,080 | ||||||||||||||||||||||||||||||
| Notes: | ||
| (1) | 2010 results reflect average exchange rates of £1:€1.13 and £1:US$1.60. | |
| (2) | Common Functions primarily represents the results of the partner markets and the net result of unallocated central Group costs and excludes income from intercompany royalty fees. | |
| (3) | Organic growth includes India and Vodacom (except the results of Gateway) at the current level of ownership but excludes Australia following the merger with Hutchison 3G Australia on 9 June 2009. | |
Revenue
Group revenue increased by 8.4% to £44,472 million, with favourable exchange rates contributing
5.7 percentage points of growth and merger and acquisition activity contributing 5.0 percentage
points. During the year the Group acquired an additional 15% stake in Vodacom and fully
consolidated its results from 18 May 2009.
Group service revenue increased by 8.9% to £41,719 million, while organic service revenue declined
by 1.6%(*). Service revenue was impacted by challenging economic conditions in Europe
offset by growth in Africa, Middle East and Asia Pacific.
In Europe service revenue fell 3.8%(*), a 2.1 percentage point decline on the previous
year reflecting challenging economic conditions in most markets, regulatory pressures on pricing,
offset by growth in Italy, Turkey and the Netherlands. The decline was primarily driven by reduced
voice revenue resulting from continued market and regulatory pressure on pricing and slower usage
growth partially offset by growth in data and fixed line. Turkey returned to growth in the second
half of the financial year with service revenue growing 31.3%(*) in the fourth quarter.
Romania experienced intense competition throughout the year with service revenue declining
19.9%(*). Mobile termination rate cuts in the region which became effective during the
year, contributed 2.4 percentage points to the decline in service revenue. Data revenue grew by
17.7%(*) due to an increase in data plans sold with smartphones and good PC
connectivity revenue across the region. Fixed line revenue increased by 7.5%(*) with
the number of fixed broadband customers reaching 5.4 million at 31 March 2010, a net increase of
960,000 customers during the financial year.
In Africa, Middle East and Asia Pacific service revenue rose by 7.5%(*) due to strong
growth in Vodacom and India. India’s service revenue increased by 14.7%(*), 4.7
percentage points of which was delivered by the network sharing joint venture Indus Towers with the
remainder being driven by a 46.7% increase in the mobile customer base offset in part by a decline
in mobile voice pricing. In Egypt service revenue grew by 1.3%(*) and Qatar increased
its mobile customer base to 465,000, following the launch of services in July.
Adjusted
EBITDA and profit
Adjusted EBITDA increased by 1.7% to £14,735 million, with favourable exchange rates contributing
5.8 percentage points and the impact of merger and acquisition
activity, primarily the full
consolidation of Vodacom, contributing 3.3 percentage points to adjusted EBITDA growth.
In Europe, adjusted EBITDA decreased by 8.9%(*), with a decline in the adjusted EBITDA
margin of 1.5 percentage points, primarily driven by the downward revenue trend, reduced adjusted
EBITDA margins across the majority of Europe, investment in Turkey to drive growth in the second
half of the financial year and the growth of lower margin fixed line operations partially offset by
operating and direct cost savings.
In Africa, Middle East and Asia Pacific adjusted EBITDA increased by 5.5%(*) due to
strong revenue growth in Vodacom and India, combined with direct and customer cost savings
partially offset by declines in other markets due to pricing and recessionary pressure and the
start-up in Qatar.
Operating profit increased primarily due to changes in impairment losses. In the 2010 financial
year, the Group recorded net impairment losses of £2,100 million. Vodafone India was impaired by
£2,300 million primarily due to intense price competition following the entry of a number of new
operators into the market. This was partially offset by a £200 million reversal in relation to
Vodafone Turkey resulting primarily from movements in discount rates. In the prior year impairment
losses of £5,900 million were recorded.
Adjusted operating profit decreased by 2.5%, or 7.0%(*) on an organic basis, with a 6.0
percentage point contribution from favourable exchange rates, whilst the impact of merger and
acquisition activity reduced adjusted operating profit growth by 1.5 percentage points.
The share of results in Verizon Wireless, the Group’s associate in the US, increased by
8.0%(*) primarily due to the expanding customer base, robust data revenue and operating
expenses efficiencies partially offset by higher customer acquisition and retention costs.
Table of Contents
40 Vodafone Group Plc Annual Report 2011
Operating results continued
Net financing costs
| 2010 | 2009 | |||||||
| £m | £m | |||||||
Investment income |
716 | 795 | ||||||
Financing costs |
(1,512 | ) | (2,419 | ) | ||||
Net financing costs |
(796 | ) | (1,624 | ) | ||||
Analysed as: |
||||||||
Net financing costs before dividends
from investments |
(1,024 | ) | (1,480 | ) | ||||
Potential interest charges arising on
settlement
of outstanding tax issues(1) |
(23 | ) | 81 | |||||
Dividends from investments |
145 | 110 | ||||||
Foreign exchange(2) |
(1 | ) | 235 | |||||
Equity put rights and similar arrangements(3) |
(94 | ) | (570 | ) | ||||
Interest on settlement of German tax claim(4) |
201 | — | ||||||
| (796 | ) | (1,624 | ) | |||||
| Notes: | ||
| (1) | Excluding interest on settlement of German tax claim. | |
| (2) | Comprises foreign exchange differences reflected in the 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 in April 2006. | |
| (3) | Primarily represents foreign exchange movements and accretion expense. Further details of these options are provided on page 51. | |
| (4) | See “Taxation” below for further details. | |
Net financing costs before dividends from investments decreased from £1,480 million to £1,024
million primarily due to the impact of significantly lower interest rates given our preference for
floating rate borrowing, partially offset by the 13.4% increase in average net debt being offset
by changes in the currency mix of debt. At 31 March 2010 the provision for potential interest
charges arising on settlement of outstanding tax issues was £1,312 million (31 March 2009: £1,635
million).
Taxation
The effective tax rate was 0.6% (2009:26.5%). This rate was lower than our weighted average
statutory tax rate principally due to the impact of the agreement of the German write down losses
(see note 6 to the consolidated financial statements) and also the ongoing benefits from our
internal capital structure.
Income tax expense includes a credit of £2,103 million arising from the German tax authorities’
decision that €15 billion of losses booked by a German subsidiary in 2001 are tax deductible. The
credit includes benefits claimed in respect of prior years as well as the recognition of a
deferred tax asset for the potential use of losses in future tax years.
Earnings per share
Adjusted earnings per share decreased by 6.2% to 16.11 pence for the year ended 31 March 2010 due
the prior year tax benefit discussed above. Basic earnings per share increased to 16.44 pence
primarily due to the impairment losses of £5,900 million in relation to Spain, Turkey and Ghana in
the prior year compared to net impairment losses of £2,100 million in 2010 and the income tax
credit arising from the German tax settlement discussed above.
| 2010 £m |
2009 £m |
|||||||
Profit attributable to equity shareholders |
8,645 | 3,078 | ||||||
Pre-tax adjustments: |
||||||||
Impairment losses, net |
2,100 | 5,900 | ||||||
Other income and expense |
(114 | ) | — | |||||
Non-operating income and expense |
10 | 44 | ||||||
Investment income and financing costs(1) |
(106 | ) | 335 | |||||
| 1,890 | 6,279 | |||||||
Taxation |
(2,064 | ) | (300 | ) | ||||
Adjusted profit attributable to equity shareholders |
8,471 | 9,057 | ||||||
Weighted average number of shares outstanding |
Million | Million | ||||||
Basic |
52,595 | 52,737 | ||||||
Diluted |
52,849 | 52,969 | ||||||
| Note: | ||
| (1) | See notes 1 and 2 in “Net financing costs” to the left. | |
Europe
| Germany | Italy | Spain | UK | Other | Eliminations | Europe | % change | |||||||||||||||||||||||||||||
| £m | £m | £m | £m | £m | £m | £m | £ | Organic | ||||||||||||||||||||||||||||
Year ended 31 March 2010 |
||||||||||||||||||||||||||||||||||||
Revenue |
8,008 | 6,027 | 5,713 | 5,025 | 8,357 | (297 | ) | 32,833 | 0.2 | (4.5 | ) | |||||||||||||||||||||||||
Service revenue |
7,722 | 5,780 | 5,298 | 4,711 | 7,943 | (295 | ) | 31,159 | 0.9 | (3.8 | ) | |||||||||||||||||||||||||
Adjusted EBITDA |
3,122 | 2,843 | 1,956 | 1,141 | 2,582 | — | 11,644 | (3.9 | ) | (8.9 | ) | |||||||||||||||||||||||||
Adjusted operating profit |
1,695 | 2,107 | 1,310 | 155 | 1,084 | — | 6,351 | (7.0 | ) | (12.6 | ) | |||||||||||||||||||||||||
Adjusted EBITDA margin |
39.0 | % | 47.2 | % | 34.2 | % | 22.7 | % | 30.9 | % | 35.5 | % | ||||||||||||||||||||||||
Year ended 31 March 2009 |
||||||||||||||||||||||||||||||||||||
Revenue |
7,847 | 5,547 | 5,812 | 5,392 | 8,514 | (343 | ) | 32,769 | ||||||||||||||||||||||||||||
Service revenue |
7,535 | 5,347 | 5,356 | 4,912 | 8,070 | (343 | ) | 30,877 | ||||||||||||||||||||||||||||
Adjusted EBITDA |
3,225 | 2,565 | 2,034 | 1,368 | 2,920 | — | 12,112 | |||||||||||||||||||||||||||||
Adjusted operating profit |
1,835 | 1,839 | 1,421 | 328 | 1,406 | — | 6,829 | |||||||||||||||||||||||||||||
Adjusted EBITDA margin |
41.1 | % | 46.2 | % | 35.0 | % | 25.4 | % | 34.3 | % | 37.0 | % | ||||||||||||||||||||||||
Table of Contents
Vodafone Group Plc Annual Report 2011 41
Performance
Revenue increased by 0.2% benefiting from exchange rate movements. On an organic basis service
revenue declined by 3.8%(*) reflecting reductions in most markets partially offset by
growth in Italy, Turkey and the Netherlands. The decline was primarily driven by reduced voice
revenue resulting from continued market and regulatory pressure on pricing and slower usage growth
as a result of the challenging economic climate. This was partially offset by growth in data and
fixed line revenue.
Adjusted EBITDA decreased by 3.9% resulting from an organic decline partially offset by a positive
contribution from foreign exchange rate movements. On an organic basis, adjusted EBITDA decreased
by 8.9%(*) resulting from a decline in organic service revenue in most markets and
increased customer investment partially offset by operating and direct cost savings. The adjusted
EBITDA margin declined 1.5 percentage points.
| Organic | M&A | Foreign | Reported | |||||||||||||
| change | activity | exchange | change | |||||||||||||
| % | pps | pps | % | |||||||||||||
Revenue — Europe |
(4.5 | ) | 0.1 | 4.6 | 0.2 | |||||||||||
Service revenue |
||||||||||||||||
Germany |
(3.5 | ) | — | 6.0 | 2.5 | |||||||||||
Italy |
1.9 | — | 6.2 | 8.1 | ||||||||||||
Spain |
(7.0 | ) | — | 5.9 | (1.1 | ) | ||||||||||
UK |
(4.7 | ) | 0.6 | — | (4.1 | ) | ||||||||||
Other |
(6.0 | ) | — | 4.4 | (1.6 | ) | ||||||||||
Europe |
(3.8 | ) | 0.1 | 4.6 | 0.9 | |||||||||||
Adjusted EBITDA |
||||||||||||||||
Germany |
(8.9 | ) | — | 5.7 | (3.2 | ) | ||||||||||
Italy |
4.3 | — | 6.5 | 10.8 | ||||||||||||
Spain |
(9.9 | ) | — | 6.1 | (3.8 | ) | ||||||||||
UK |
(17.7 | ) | 1.1 | — | (16.6 | ) | ||||||||||
Other |
(16.0 | ) | — | 4.4 | (11.6 | ) | ||||||||||
Europe |
(8.9 | ) | 0.1 | 4.9 | (3.9 | ) | ||||||||||
Adjusted operating profit |
||||||||||||||||
Germany |
(13.2 | ) | (0.1 | ) | 5.7 | (7.6 | ) | |||||||||
Italy |
7.8 | — | 6.8 | 14.6 | ||||||||||||
Spain |
(13.8 | ) | — | 6.0 | (7.8 | ) | ||||||||||
UK |
(58.3 | ) | 5.6 | — | (52.7 | ) | ||||||||||
Other |
(27.7 | ) | — | 4.8 | (22.9 | ) | ||||||||||
Europe |
(12.6 | ) | 0.1 | 5.5 | (7.0 | ) | ||||||||||
Germany
Service revenue declined by 3.5%(*) driven by a 5.0%(*) reduction in
mobile
revenue partly offset by a 1.3%(*) improvement in fixed line revenue. The mobile
revenue decline was driven by a decrease in voice revenue impacted by a termination rate cut
effective from April 2009, reduced roaming, competitive pressure and continued tariff optimisation
by customers. The service revenue decline in the fourth quarter slowed to 1.6%(*) with
mobile revenue declining 1.8%(*) driven by the acceleration in data growth and improved
usage trends. Data revenue benefited from an increase in Superflat Internet tariff penetration to
over 500,000 customers, a 46% increase in smartphones and an 85% increase in active Vodafone
Mobile Connect cards compared with the previous year.
Fixed line revenue growth of 1.3%(*) was supported by a 0.4 million increase in fixed
broadband customers to 3.5 million at 31 March 2010 and a 0.2 million increase in wholesale fixed
broadband customers to 0.4 million at 31 March 2010.
Adjusted EBITDA declined by 8.9%(*) driven by lower service revenue and investment in
customer acquisition and retention offset in part by lower interconnect costs and a reduction of
operating expenses principally from fixed and mobile integration synergies.
Italy
Service revenue growth was 1.9%(*) with strong growth in data revenue, driven by
higher penetration of PC connectivity devices and mobile internet services, and fixed revenue. The
continued success of dual branding led to a closing fixed broadband customer base of 1.3 million on
a 100% basis. Increased regulatory, economic and competitive pressures led to the fall in voice
revenue partially mitigated through initiatives to stimulate customer spending and the continued
growth in high value contract customers. Mobile contract customer additions were strong both in
consumer and enterprise segments and the closing contract customer base was up by 14.5%.
Adjusted EBITDA increased by 4.3%(*) and adjusted EBITDA margin increased by 1.0
percentage point as a result of increased revenue, continued operational efficiencies and cost
control.
Spain
Full year service revenue declined by 7.0%(*) primarily due to a decline in voice
revenue which was driven by continued intense competition and economic weakness, including high
unemployment, termination rate cuts effective from April and October 2009 and increased
involuntary churn. In the fourth quarter the service revenue decline improved to
6.2%(*) as voice usage increased due to further penetration of our flat rate tariffs
and fixed line revenue continued to grow with 0.6 million fixed broadband customers by the end of
the financial year.
Adjusted EBITDA declined 9.9%(*) and the adjusted EBITDA margin decreased by 0.8
percentage points as the decline in service revenue, the increase in commercial costs and the
dilutive effect of lower margin fixed line services more than offset the reduction in overhead
costs.
UK
Service revenue declined by 4.7%(*) with lower voice revenue primarily due to a mobile
termination rate reduction effective from July 2009, continued intense competition and economic
pressures resulting in customers optimising bundle usage and lower roaming revenue. These were
partially offset by higher messaging revenue, strong growth in data revenue driven by the success
of mobile internet bundles and higher wholesale revenue derived from existing MVNO agreements. The
decline in the fourth quarter slowed to 2.6%(*) driven by higher data growth and the
impact of mobile customer additions achieved through the launch of new products and expanded
indirect distribution channels.
The 17.7%(*) decline in adjusted EBITDA was primarily due to lower service revenue and
increased customer investment partially offset by cost efficiency initiatives, including
streamlined processes, outsourcing and reductions in publicity and consultancy.
Table of Contents
42 Vodafone Group Plc Annual Report 2011
Operating results continued
Other Europe
Service revenue decreased by 6.0%(*) with declines in all countries except the
Netherlands and Turkey, which returned to growth in the second half of the year, as all markets
were impacted by the economic downturn. In the Netherlands service revenue increased
3.0%(*) benefiting from strong growth in visitor revenue. Service revenue in Turkey
increased by 31.3%(*) in the fourth quarter driven by an improving trend in outgoing
mobile revenue. The quality and mix of customers continued to improve, with Vodafone remaining the
market leader in mobile number portability in Turkey. In Romania service revenue declined by
19.9%(*) due to intense competition throughout the year, mobile termination rate cuts
and the continued impact on ARPU resulting from local currency devaluation against the euro, as
tariffs are quoted in euros while household incomes are earned in local currency. In the Czech
Republic and Hungary the decline in service revenue was driven by mobile termination rate cuts
which became effective during the year, impacting incoming mobile voice revenue and challenging
economic conditions. Vodafone launched its 3G network services in the Czech Republic during the
fourth quarter. Service revenue in Greece declined by 14.5%(*) primarily due to a
mobile termination rate cut effective from January 2009, tariff changes and a particularly tough
economic and competitive climate. Service revenue in Ireland declined due to a combination of
recessionary and competitive factors. In Portugal there was a termination rate reduction effective
from April 2009 which contributed to a fall in service revenue of 4.9%(*).
Adjusted EBITDA declined by 16.0%(*) mainly due to a reduction in service revenue
coupled with turnaround investment in Turkey. The significant service revenue growth in the second
half of the financial year in Turkey was driven by investment and improvement in many areas of the
business. These led to higher operating costs which, when coupled with increased interconnect
costs arising from the introduction of new “any network” tariffs plans, resulted in negative
adjusted EBITDA for the financial year. In Romania adjusted EBITDA decreased by
26.5%(*) due to the revenue decline but this was partially offset by strong cost
reduction initiatives in all areas. The adjusted EBITDA margin fell by 3.4 percentage points with
declines in all markets except the Netherlands, Portugal, Czech Republic and Hungary. The decline
in service revenue was partially offset by lower customer costs and a reduction in operating
expenses.
Africa, Middle East and Asia Pacific
| Africa, | ||||||||||||||||||||||||||||
| Middle East | ||||||||||||||||||||||||||||
| and Asia | ||||||||||||||||||||||||||||
| India | Vodacom | Other | Eliminations | Pacific | % change | |||||||||||||||||||||||
| £m | £m | £m | £m | £m | £ | Organic(1) | ||||||||||||||||||||||
Year ended 31 March 2010 |
||||||||||||||||||||||||||||
Revenue |
3,114 | 4,450 | 3,526 | (1 | ) | 11,089 | 43.6 | 6.1 | ||||||||||||||||||||
Service revenue |
3,069 | 3,954 | 3,224 | (1 | ) | 10,246 | 44.2 | 7.5 | ||||||||||||||||||||
Adjusted EBITDA |
807 | 1,528 | 977 | — | 3,312 | 38.3 | 5.5 | |||||||||||||||||||||
Adjusted operating profit |
(37 | ) | 520 | 335 | — | 818 | (11.4 | ) | (0.3 | ) | ||||||||||||||||||
Adjusted EBITDA margin |
25.9 | % | 34.3 | % | 27.7 | % | 29.9 | % | ||||||||||||||||||||
Year ended 31 March 2009 |
||||||||||||||||||||||||||||
Revenue |
2,689 | 1,778 | 3,258 | (2 | ) | 7,723 | ||||||||||||||||||||||
Service revenue |
2,604 | 1,548 | 2,953 | (2 | ) | 7,103 | ||||||||||||||||||||||
Adjusted EBITDA |
717 | 606 | 1,072 | — | 2,395 | |||||||||||||||||||||||
Adjusted operating profit |
(30 | ) | 373 | 580 | — | 923 | ||||||||||||||||||||||
Adjusted EBITDA margin |
26.7 | % | 34.1 | % | 32.9 | % | 31.0 | % | ||||||||||||||||||||
| Note: | ||
| (1) | Organic growth includes Vodacom (except the results of Gateway) at the current level of ownership and includes India but excludes Australia following the merger with Hutchison 3G Australia on 9 June 2009. | |
Revenue
increased by 43.6% benefiting from the treatment of Vodacom as a subsidiary and the
full consolidation of its results from 18 May 2009 combined with a significant benefit from
foreign exchange rate movements, offset in part by the impact of the creation of a joint venture
in June 2009 between Vodafone Australia and Hutchison 3G Australia. On an organic basis service
revenue increased by 7.5%(*) reflecting a 51% increase in the mobile customer base and
continued strong data revenue growth partially offset by a decline in mobile voice pricing. India
contributed around 64% of the region’s organic service revenue growth.
Table of Contents
Vodafone Group Plc Annual Report 2011 43
Performance
Adjusted
EBITDA increased by 38.3%, also benefiting from the full consolidation of Vodacom and
positive foreign exchange rate movements, offset in part by the creation of the joint venture in
Australia. On an organic basis adjusted EBITDA increased by 5.5%(*) with adjusted
EBITDA margin decreasing due to turnaround investment in Ghana, the competitive pricing
environment in India and the impact of launching services in Qatar.
| Organic | M&A | Foreign | Reported | |||||||||||||
| change | activity | exchange | change | |||||||||||||
| % | pps | pps | % | |||||||||||||
Revenue – |
||||||||||||||||
Africa, Middle East
and Asia Pacific |
6.1 | 25.2 | 12.3 | 43.6 | ||||||||||||
Service revenue |
||||||||||||||||
India |
14.7 | — | 3.2 | 17.9 | ||||||||||||
Vodacom |
4.6 | 112.0 | 38.8 | 155.4 | ||||||||||||
Other |
2.9 | (3.3 | ) | 9.6 | 9.2 | |||||||||||
Africa, Middle East
and Asia Pacific |
7.5 | 24.9 | 11.8 | 44.2 | ||||||||||||
Adjusted EBITDA |
||||||||||||||||
India |
9.2 | — | 3.4 | 12.6 | ||||||||||||
Vodacom |
10.4 | 101.8 | 39.9 | 152.1 | ||||||||||||
Other |
(4.8 | ) | (11.6 | ) | 7.5 | (8.9 | ) | |||||||||
Africa, Middle East
and Asia Pacific |
5.5 | 20.5 | 12.3 | 38.3 | ||||||||||||
Adjusted operating profit |
||||||||||||||||
India |
30.7 | — | (7.4 | ) | 23.3 | |||||||||||
Vodacom |
12.5 | 3.1 | 23.8 | 39.4 | ||||||||||||
Other |
(19.7 | ) | (27.6 | ) | 5.1 | (42.2 | ) | |||||||||
Africa, Middle East
and Asia Pacific |
(0.3 | ) | (22.3 | ) | 11.2 | (11.4 | ) | |||||||||
India
Service revenue grew by 14.7%(*) for the year, with fourth quarter growth of 6.5%(*)
including a 0.3 percentage point(*) benefit from Indus Towers. The contribution to India’s revenue
growth from Indus Towers for the fourth quarter was lower than in the third quarter as the fourth
quarter represented the first anniversary of significant revenue being earned from the network
sharing joint venture. Mobile service revenue growth was driven by the increase in the customer
base, with record net additions for the quarter of 9.5 million, partially offset by ongoing
competitive pressure on mobile voice pricing. Customer penetration in the Indian mobile market
reached an estimated 50% at 31 March 2010 representing an increase of 16.0 percentage points
compared to 31 March 2009.
Adjusted EBITDA grew by 9.2%(*) driven by the increased customer base and the 37.6%
increase in total mobile minute usage during the year, with costs decreasing as a percentage of
service revenue despite the pressure on pricing. Network expansion continued with the addition of
9,000 base stations by Indus Towers and an additional 16,000 by Vodafone Essar.
Vodacom
Service revenue grew by 4.6%(*) driven by a robust performance in South Africa offset
by revenue declines in Tanzania and the Democratic Republic of Congo. Data revenue increased by
32.9%(*) driven by increased penetration of mobile broadband and higher mobile internet
usage. The introduction of prepaid customer registration in South Africa negatively impacted
customer growth in the year and mobile termination rate reductions are expected to reduce growth
in the 2011 financial year, with the first reduction taking effect from 1 March 2010.
Adjusted EBITDA increased by 10.4%(*) driven by the increase in service revenue and
lower direct costs and regulatory fees in South Africa.
Other Africa, Middle East and Asia Pacific
Service revenue increased by 2.9%(*) driven by the performance of Egypt and Qatar. In
Egypt service revenue grew by 1.3%(*) as pressure on voice pricing and a 1.0% impact of
retrospective mobile termination rate reductions introduced in the fourth quarter was offset by
31% growth in the average customer base and 64.2%(*) growth in data and fixed line
revenue, with data driven by increased penetration of mobile internet devices. Having launched
services in July 2009, Qatar increased its mobile customer base to 465,000 customers at 31 March
2010, representing 28% of the total population.
Adjusted EBITDA declined 4.8%(*) with a 5.2% decline in adjusted EBITDA margin due to
pricing, recessionary pressures and the impact of start-up costs in Qatar offset in part by
efficiency savings.
On 9 June 2009 Vodafone Australia successfully completed its merger with Hutchison 3G Australia to
form a 50:50 joint venture, Vodafone Hutchison Australia Pty Limited. Since the merger the joint
venture has performed well delivering 8% pro-forma service revenue growth in the fourth quarter
and cost synergies to date of £65 million, in line with management’s expectations.
Non-Controlled Interests and Common Functions Verizon Wireless(1)
| 2010 | 2009 | % change | ||||||||||||||
| £m | £m | £ | Organic | |||||||||||||
Revenue |
17,222 | 14,085 | 22.3 | 5.0 | ||||||||||||
Service revenue |
15,898 | 12,862 | 23.6 | 6.3 | ||||||||||||
Adjusted EBITDA |
6,689 | 5,543 | 20.7 | 4.4 | ||||||||||||
Interest |
(298 | ) | (217 | ) | 37.3 | |||||||||||
Tax(2) |
(205 | ) | (198 | ) | 3.5 | |||||||||||
Non-controlling interests |
(80 | ) | (78 | ) | 2.6 | |||||||||||
Discontinued operations |
93 | 57 | 63.2 | |||||||||||||
Group’s share of result in
Verizon Wireless |
4,112 | 3,542 | 16.1 | 8.0 | ||||||||||||
| Notes: | ||
| (1) | All amounts represent the Group’s share unless otherwise stated. | |
| (2) | The Group’s share of the tax attributable to Verizon Wireless relates only to the corporate entities held by the Verizon Wireless partnership and certain state taxes which are levied on the partnership. The tax attributable to the Group’s share of the partnership’s pre-tax profit is included within the Group tax charge. | |
In the United States Verizon Wireless reported 3.4(3) million net mobile customer
additions bringing its closing mobile customer base to 85.7(3) million, up
4.3%(3). Customer growth reflected recent market trends towards the prepaid segment
alongside market leading customer churn.
Service revenue growth of 6.3%(*) was driven by the expanding customer base and robust
data revenue derived from growth in multimedia handsets and smartphones.
The adjusted EBITDA margin remained strong despite the tougher competitive and economic
environment. Efficiencies in operating expenses have been partly offset by a higher level of
customer acquisition and retention costs, particularly for high-end devices including smartphones.
The integration of the recently acquired Alltel business is going according to plan. Store
rebranding is complete and network conversions are well underway and on track. As part of the
regulatory approval for the Alltel acquisition, Verizon Wireless is required to divest overlapping
properties in 105 markets. On 26 April 2010 Verizon Wireless completed the sale of network and
licence assets in 26 markets, corresponding to 0.9 million customers, to Atlantic Tele-Network for
US$0.2 billion. Verizon Wireless has agreed to sell the network assets and mobile licences in the
remaining 79 markets, corresponding to approximately 1.5 million customers, to AT&T for US$2.4
billion. This transaction remains subject to receipt of regulatory approval and is expected to
complete by 30 June 2010.
Other Non-Controlled Interests
The share of profit in SFR increased reflecting the foreign exchange benefits upon translation of
the results into sterling.
| Note: | ||
| (3) | Customers have been restated to reflect retail customers only, as reported externally by Verizon Wireless. | |
Table of Contents
44 Vodafone Group Plc Annual Report 2011
Guidance
2012 financial year and medium-term guidance
| 2011 | ||||||||
| actual | 2012 | |||||||
| performance | guidance | |||||||
| £bn | £bn | |||||||
Adjusted operating profit |
11.8 | 11.0 – 11.8 | ||||||
Free cash flow |
7.0 | 6.0 – 6.5 | ||||||
2012 financial year
Adjusted operating profit is expected to be in the range of £11.0 billion to £11.8 billion,
reflecting the loss of our £0.5 billion share of profits
from SFR as a result of the disposal of
our 44% stake.
Free cash flow is expected to be in the range of £6.0 billion to £6.5 billion, reflecting
continued strong cash generation offset by the £0.3 billion reduction in dividends from China
Mobile Limited and SFR in the 2012 financial year, and the more limited working capital
improvements available going forward. Capital expenditure is expected to be at a similar level to
last year on a constant currency basis.
Medium-term guidance
The execution of the updated strategy is targeted to achieve annual growth in organic service
revenue of between 1% and 4% in the period to 31 March 2014. We expect that the Group adjusted
EBITDA margin will stabilise by the end of this period.
As a result of the loss of £0.5 billion of cash dividends from our disposals of stakes in China
Mobile Limited and SFR, we expect that annual free cash flow generation will now be in the £5.5
billion to £6.5 billion range in the period to March 2014, underpinning the three year 7% per annum
dividend per share growth target issued in May 2010. We continue to expect that total dividends per
share will be no less than 10.18 pence for the 2013 financial year.
The free cash flow target range excludes any incremental benefit that we derive from our strategy
to generate liquidity or incremental cash flow from non-controlled interests of the Group such as
Verizon Wireless and Polkomtel.
Assumptions
Guidance for the 2012 financial year and the medium-term is based on our current assessment of
the global economic outlook and assumes foreign exchange rates of £1:€1.15 and £1:US$1.60. It
excludes the impact of licence and spectrum purchases, material one-off tax related payments and
restructuring costs and assumes no material change to the current structure of the Group.
With respect to the 7% per annum dividend per share growth target, as the Group’s free cash flow
is predominantly generated by companies operating within the euro currency zone, we have assumed
that the euro to sterling exchange rate remains within 10% of the above guidance exchange rate.
Actual exchange rates may vary from the exchange rate assumptions used. A1% change in the euro to
sterling exchange rate would impact adjusted operating profit and free cash flow by approximately
£50 million and a 1% change in the dollar to sterling exchange rate would impact adjusted
operating profit by approximately £50 million.
2011 financial year
| Adjusted | ||||||||
| operating | Free | |||||||
| profit | cash flow | |||||||
| £bn | £bn | |||||||
Guidance
— May 2010(1) |
11.2 – 12.0 | > 6.5 | ||||||
Guidance
— November 2010(1) |
11.8 – 12.2 | > 6.5 | ||||||
2011 performance on guidance basis(3) |
12.2 | 7.2 | ||||||
Foreign exchange(1) |
(0.3 | ) | (0.2 | ) | ||||
Verizon Wireless(2) |
(0.1 | ) | — | |||||
2011 reported performance(3) |
11.8 | 7.0 | ||||||
| Notes: | ||
| (1) | The Group’s guidance reflected assumptions for average exchange rates for the 2011 financial year of approximately £1:€1.15 and £1:US$1.50. Actual exchange rates were £1:€1.18 and £1:US$1.56. | |
| (2) | The Group’s guidance did not include the impact of the revenue recognition and Alltel related adjustments in Verizon Wireless. | |
| (3) | After Verizon iPhone launch costs. | |
Table of Contents
Vodafone Group Plc Annual Report 2011 45
The following discussion of principal risk factors and uncertainties identifies the most
significant risks that may adversely affect our business, operations, liquidity, financial
position or future performance. Additional risks not presently known to us, or that we currently
deem less material, may also impact our business. This section should be read in conjunction with
the “Forward-looking statements” on page 148 of this document.
Adverse
macroeconomic conditions in the markets in which we operate could impact our
results of operations.
Adverse macroeconomic conditions and deterioration in the global economic environment, such as
further economic slowdown in the markets in which we operate, may lead to a reduction in the level
of demand from our customers for existing and new products and services. In difficult economic
conditions, consumers may seek to reduce discretionary spending by reducing their use of our
products and services, including data services, or by switching to lower-cost alternatives offered
by our competitors. Similarly, under these conditions the enterprise customers that we serve may
delay purchasing decisions, delay full implementation of service offerings or reduce their use of
our services. In addition, adverse economic conditions may lead to an increased number of our
consumer and enterprise customers that are unable to pay for existing or additional services. If
these events were to occur it could have a material adverse effect on our results of operations.
The
continued volatility of worldwide financial markets may have a negative impact on our access
to finance.
Our key sources of liquidity in the foreseeable future are likely to be cash generated from
operations and borrowings through long-term and short-term issuances in the capital markets as well
as committed bank facilities. Due to volatility experienced in capital and credit markets around
the world, new issuances of debt securities may experience decreased demand. Adverse changes in
credit markets or our credit ratings could increase the cost of borrowing and banks may be
unwilling to renew credit facilities on existing terms. Any of these factors could have a negative
impact on our access to finance.
Regulatory
decisions and changes in the regulatory environment could adversely affect our
business.
As we have ventures in a large number of geographic areas, we must comply with an extensive range
of requirements that regulate and supervise the licensing, construction and operation of our
telecommunications networks and services. In particular, there are agencies which regulate and
supervise the allocation of frequency spectrum and which monitor and enforce regulation and
competition laws which apply to the mobile telecommunications industry. Decisions by regulators
regarding the granting, amendment or renewal of licences, to us or to third parties, could
adversely affect our future operations in these geographic areas. In addition, other changes in the
regulatory environment concerning the use of mobile phones may lead to a reduction in the usage of
mobile phones or otherwise adversely affect us. Additionally, decisions by regulators and new
legislation, such as those relating to international roaming charges and call termination rates,
could affect the pricing for, or adversely affect the revenue from, the services we offer. Further
details on the regulatory framework in certain countries and regions in which we operate, and on
regulatory proceedings, can be found in “Regulation” on page 140.
Increased competition may reduce our market share and revenue.
We face intensifying competition and our ability to compete effectively will depend on, among
other things, our network quality, capacity and coverage, pricing of services and equipment,
quality of customer service, development of new and enhanced products and services in response to
customer demands and changing technology, reach and quality of sales and distribution channels and
capital resources. Competition could lead to a reduction in the rate at which we add new
customers, a decrease in the size of our market share and a decline in our ARPU as customers
choose to
receive telecommunications services or other competing services from other providers. Examples
include but are not limited to competition from internet based services and MVNOs.
The focus of competition in many of our markets continues to shift from customer acquisition to
customer retention as the market for mobile telecommunications has become increasingly penetrated.
Customer deactivations are measured by our churn rate. There can be no assurance that we will not
experience increases in churn rates, particularly as competition intensifies. An increase in churn
rates could adversely affect profitability because we would experience lower revenue and
additional selling costs to replace customers or recapture lost revenue.
Increased competition has also led to declines in the prices we charge for our mobile services and
is expected to lead to further price declines in the future. Competition could also lead to an
increase in the level at which we must provide subsidies for handsets. Additionally, we could face
increased competition should there be an award of additional licences in jurisdictions in which a
member of our Group already has a licence.
Delays
in the development of handsets and network compatibility and components may hinder the
deployment of new technologies.
Our operations depend in part upon the successful deployment of continuously evolving
telecommunications technologies. We use technologies from a number of vendors and make significant
capital expenditure in connection with the deployment of such technologies. There can be no
assurance that common standards and specifications will be achieved, that there will be
inter-operability across Group and other networks, that technologies will be developed according to
anticipated schedules, that they will perform according to expectations or that they will achieve
commercial acceptance. The introduction of software and other network components may also be
delayed. The failure of vendor performance or technology performance to meet our expectations or
the failure of a technology to achieve commercial acceptance could result in additional capital
expenditure by us or a reduction in our profitability.
We may
experience a decline in revenue or profitability notwithstanding our
efforts to increase
revenue from the introduction of new services.
As part of our strategy we will continue to offer new services to our existing customers and seek
to increase non-voice service revenue as a percentage of total service revenue. However, we may
not be able to introduce these new services commercially or may experience significant delays due
to problems such as the availability of new mobile devices, higher than anticipated prices of new
devices 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.
Expected
benefits from our cost reduction initiatives may not be realised.
We have entered into several cost reduction initiatives principally relating to network sharing,
the outsourcing of IT application, development and maintenance, data centre consolidation, supply
chain management and a business transformation programme to implement a single, integrated
operating model using one enterprise resource planning (‘ERP’) system. However, there is no
assurance that the full extent of the anticipated benefits will be realised in the timeline
envisaged.
Table of Contents
46 Vodafone Group Plc Annual Report 2011
Principal risk factors and uncertainties continued
Changes
in assumptions underlying the carrying value of certain Group assets could
result in impairment.
We complete a review of the carrying value of Group assets annually, or more frequently where the
circumstances require, to assess whether those carrying values can be supported by the net present
value of future cash flows derived from such assets. This review examines the continued
appropriateness of the assumptions in respect of highly uncertain matters upon which the valuations
supporting carrying values of certain Group assets are based. This includes an assessment of
discount rates and long-term growth rates, future technological developments, and timing and
quantum of future capital expenditure as well as several factors which may affect revenue and
profitability identified within the other risk factors in this section such as intensifying
competition, pricing pressures, regulatory changes and the timing for introducing new products or
services. Discount rates are in part derived from yields on government bonds, the level of which
may change substantially period to period and which may be affected by political, economic and
legal developments which are beyond our control. Due to our substantial carrying value of goodwill
under International Financial Reporting Standards, the revision of any of these assumptions to
reflect current or anticipated changes in operations or the financial condition of the Group could
lead to an impairment in the carrying value of certain Group assets. While impairment does not
impact reported cash flows, it does result in a non-cash charge in the consolidated income
statement and thus no assurance can be given that any future impairments would not affect our
reported distributable reserves and therefore our ability to make distributions to our shareholders
or repurchase our shares. See “Critical accounting estimates” on page 77 and note 10 to the
consolidated financial statements.
Our emerging market footprint may present exposure to unpredictable economic, political,
regulatory, tax and legal risks.
Political, regulatory, economic and legal systems in emerging markets may be less predictable than
in countries with more stable institutional structures. Since we operate in and are exposed to
emerging markets, the value of our investments in these markets may be adversely affected by
political, regulatory, economic, tax and legal developments which are beyond our control and
anticipated benefits resulting from acquisitions and other investments we have made in these
markets may not be achieved in the time expected or at all. For further information on legal and
tax proceedings see note 28.
We
participate in joint ventures which expose us to operational and financial risk.
We participate in a number of joint ventures, some of which we do not control. Whether or not we
hold majority interests or maintain operational control in our joint ventures, our partners may
have economic or business interests or goals that are inconsistent with ours, exercise their
rights in a way that prohibits us from acting in a manner which we would like or they may be
unable or unwilling to fulfil their obligations under the joint venture or other agreements. In
particular, some of our interests in mobile licences are held through entities in which we are a
significant but not a controlling owner. Under the governing documents for some of these
partnerships and corporations, certain key matters such as the approval of business plans and
decisions as to the timing and amount of cash distributions require the consent of our partners.
In others these matters may be approved without our consent. We may enter into similar
arrangements as we participate in ventures formed to pursue additional opportunities. Although we
have not been materially constrained by our participation in joint ventures to date, no assurance
can be given that the actions or decisions of our joint venture partners will not affect our
ventures in a way that hinders our corporate objectives or reduces any anticipated cost savings or
revenue enhancement resulting from these ventures.
Expected
benefits from investment in networks, licences and new technology may not be realised.
We have made substantial investments in the acquisition of licences and in our mobile networks,
including the roll out of 3G networks. We expect to continue to make significant investments in our
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 our capital
expenditures in future years could remain high or exceed that which we have 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 our
operations.
Our business may be impaired by actual or perceived health risks associated with the transmission
of radio waves from mobile telephones, transmitters and associated equipment.
Concerns have been expressed 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 the event of national governments
responding to public concern with the imposition of more stringent exposure limits, our costs may
be increased. In addition, as described under the heading “Legal proceedings” in note 28 to the
consolidated financial statements, several mobile industry participants including Verizon Wireless
and ourselves have had lawsuits filed against us alleging various health consequences as a result
of mobile phone usage including brain cancer. While we are not aware that such health risks have
been substantiated, there can be no assurance that the actual or perceived risks associated with
radio wave transmission will not impair our ability to retain customers and attract new customers,
reduce mobile telecommunications usage or result in further litigation. In such event, because of
our strategic focus on mobile telecommunications, our business and results of operations may be
more adversely affected than those of other companies in the telecommunications sector.
Our business would be adversely affected by the non-supply of equipment and support services by a
major supplier.
Companies within the Group source network infrastructure and other equipment, as well as
network-related and other significant support services, from third party suppliers. The withdrawal
or removal from the market of one or more of these major third party suppliers could adversely
affect our operations and could require us to make additional capital or operational expenditures.
Our business could be adversely affected by disruptions to our telecommunications networks.
We are dependent on the secure operation of our telecommunications networks and attacks on critical
infrastructure, or disruption of our networks caused by other factors beyond our control, pose an
increasing threat. As the importance of mobile communication in everyday life, as well as during
times of crisis, increases and the volume of personal and business data being communicated and
stored by network operators grows, organisations and individuals look to us to maintain service and
protect sensitive information. Any significant interruption in our service or in our ability to
protect sensitive information, whether caused by acts of terrorism, industrial action, natural
disasters, political unrest or otherwise, could have a material adverse effect on our revenue and
our reputation.
Table of Contents
Vodafone Group Plc Annual Report 2011 47
Performance
Financial position and resources
Consolidated statement of financial position
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Non-current assets |
||||||||
Intangible assets |
68,558 | 74,258 | ||||||
Property, plant and equipment |
20,181 | 20,642 | ||||||
Investments in associates |
38,105 | 36,377 | ||||||
Other non-current assets |
7,373 | 11,489 | ||||||
| 134,217 | 142,766 | |||||||
Current assets |
17,003 | 14,219 | ||||||
Total assets |
151,220 | 156,985 | ||||||
Total equity shareholders’ funds |
87,555 | 90,381 | ||||||
Total non-controlling interests |
6 | 429 | ||||||
Total equity |
87,561 | 90,810 | ||||||
Liabilities |
||||||||
Borrowings |
||||||||
Long-term |
28,375 | 28,632 | ||||||
Short-term |
9,906 | 11,163 | ||||||
Taxation liabilities |
||||||||
Deferred tax liabilities |
6,486 | 7,377 | ||||||
Current taxation liabilities |
2,262 | 2,874 | ||||||
Other non-current liabilities |
1,373 | 1,550 | ||||||
Other current liabilities |
15,257 | 14,579 | ||||||
Total liabilities |
63,659 | 66,175 | ||||||
Total equity and liabilities |
151,220 | 156,985 | ||||||
Assets
Intangible assets
At 31
March 2011 our intangible assets were £68.6 billion (2010: £74.3 billion) with goodwill
comprising the largest element at £45.2 billion (2010: £51.8 billion). The decrease primarily
resulted from impairment losses of £6.2 billion, amortisation of £3.5 billion and unfavourable
foreign exchange rate movements of £0.9 billion partially offset by £4.7 billion of additions.
Refer to note 10 to the consolidated financial statements for further information on the impairment
charge.
Property, plant and equipment
Property, plant and equipment decreased from £20.6 billion at 31 March 2010 to £20.2 billion at 31
March 2011 predominantly as a result of £4.7 billion of additions offset by £4.4 billion of
depreciation charges and unfavourable foreign exchange rate movements of £0.6 billion.
Investments in associates
Investments in associates increased from £36.4 billion at 31 March 2010 to £38.1 billion at 31
March 2011 primarily due to our share of the results of associates, after deductions of interest,
tax and non-controlling interest, which contributed £5.1 billion to the increase, mainly arising
from our investment in Verizon Wireless, partially offset by £1.4 billion of dividends received and
unfavourable foreign exchange movements of £1.9 billion.
Other non-current assets
Other non-current assets decreased to £7.4 billion at 31 March 2011 (2010: £11.5 billion) mainly
due to other investments which totalled £1.4 billion at 31 March 2011 compared to £7.6 billion at
31 March 2010. The decrease was primarily as a result of the disposal of our 3.2% interest in
China Mobile Limited and our interests in SoftBank investments.
Current assets
Current assets increased to £17.0 billion at 31 March 2011 from £14.2 billion at 31 March 2010
due to an increase in cash and short-term investments resulting from the disposal of our interests
in SoftBank and the element of the proceeds from the disposal of our 3.2% interest in China Mobile
Limited not utilised for the share buyback programme.
Total equity and liabilities
Total
equity shareholders’ funds
Total equity shareholders’ funds decreased from £90.4 billion at 31 March 2010 to £87.6 billion
at 31 March 2011. The profit for the year of £8.0 billion was more than offset by equity dividends
of £4.5 billion, an other comprehensive loss of £4.5 billion and the share buyback of £2.1 billion.
Borrowings
Long-term borrowings and short-term borrowings decreased to £38.3 billion at 31 March 2011 from
£39.8 billion at 31 March 2010 mainly as a result of foreign exchange rate movements and bond
repayments during the year.
Taxation liabilities
Current tax liabilities decreased from £2.9 billion at 31 March 2010 to £2.3 billion at 31
March 2011 mainly as a result of lower outstanding tax liabilities in the US as a result of
accelerated tax depreciation and the resolution of long-standing tax disputes.
Other current liabilities
Other current liabilities increased from £14.6 billion at 31 March 2010 to £15.3 billion at 31
March 2011. Trade payables at 31 March 2011 were equivalent to 37 days (2010:31 days) outstanding,
calculated by reference to the amount owed to suppliers as a proportion of the amounts invoiced by
suppliers during the year. It is our policy to agree terms of transactions, including payment
terms, with suppliers and it is our normal practice that payment is made accordingly.
Contractual obligations and contingencies
A summary of our principal contractual financial obligations is shown below. Further details
on the items included can be found in the notes to the consolidated financial statements. Details
of the Group’s contingent liabilities are included in note 28 to the consolidated financial
statements.
| Payments due by period £m | ||||||||||||||||||||
| Contractual obligations(1) | Total | <1 year | 1-3 years |
3-5 years |
>5 years | |||||||||||||||
Borrowings(2) |
45,226 | 10,864 | 8,727 | 10,093 | 15,542 | |||||||||||||||
Operating lease commitments(3) |
6,513 | 1,225 | 1,704 | 1,240 | 2,344 | |||||||||||||||
Capital commitments(3)(4) |
2,124 | 1,885 | 228 | 11 | — | |||||||||||||||
Purchase commitments(5) |
5,937 | 3,619 | 1,835 | 142 | 341 | |||||||||||||||
Total contractual cash obligations(1) |
59,800 | 17,593 | 12,494 | 11,486 | 18,227 | |||||||||||||||
| Notes: | ||
| (1) | The above table of contractual obligations includes commitments in respect of options over interests in Group businesses held by non-controlling shareholders (see “Option agreements and similar arrangements”) and obligations to pay dividends to non-controlling shareholders (see “Dividends from associates and to non-controlling shareholders”).The table excludes current and deferred tax liabilities and obligations under post employment benefit schemes, details of which are provided in notes 6 and 23 to the consolidated financial statements respectively. The table also excludes the contractual obligations of associates. | |
| (2) | See note 22 to the consolidated financial statements. | |
| (3) | See note 27 to the consolidated financial statements. | |
| (4) | Primarily related to network infrastructure. | |
| (5) | In addition to the purchase commitments disclosed above, Vodafone Netherlands has announced its intention to acquire BelCompany BV, one of the largest telecom retailers in the Netherlands, from the Macintosh Retail Group for €120 million. The transaction is subject to regulatory and other approvals. | |
Equity dividends
The table below sets out the amounts of interim, final and total cash dividends paid or, in
the case of the final dividend for the 2011 financial year, proposed, in respect of each financial
year.
| Pence per ordinary share | ||||||||||||
| Year ended 31 March | Interim | Final | Total | |||||||||
2007 |
2.35 | 4.41 | 6.76 | |||||||||
2008 |
2.49 | 5.02 | 7.51 | |||||||||
2009 |
2.57 | 5.20 | 7.77 | |||||||||
2010 |
2.66 | 5.65 | 8.31 | |||||||||
2011 |
2.85 | 6.05 | (1) | 8.90 | ||||||||
| Note: | ||
| (1) | The final dividend for the year ended 31 March 2011 was proposed on 17 May 2011 and is payable on 5 August 2011 to holders on record as of 3 June 2011. For american depositary share (‘ADS’) holders the dividend will be payable in US dollars under the terms of the ADS depositary agreement. Dividend payments on ordinary shares will be paid by direct credit into a nominated bank or building society account or, alternatively, into the Company’s dividend reinvestment plan. The Company no longer pays dividends in respect of ordinary shares by cheque. | |
Table of Contents
48 Vodafone Group Plc Annual Report 2011
Financial position and resources continued
We provide returns to shareholders through dividends and have historically paid dividends
semi-annually, with a regular interim dividend in respect of the first six months of the financial
year payable in February and a final dividend payable in August. The directors expect that we will
continue to pay dividends semi-annually.
In November 2010 the directors announced an interim dividend of 2.85 pence per share representing
a 7.1% increase over last year’s interim dividend. The directors are proposing a final dividend of
6.05 pence per share representing a 7.1% increase over last year’s final dividend. Total dividends
for the year increased by 7.1% to 8.90 pence per share.
In May 2010 the directors issued a dividend per share growth target of at least 7% per annum for
each of the financial years in the period ending 31 March 2013, assuming no material adverse
foreign exchange rate movements. We expect that total dividends per share will therefore be no
less than 10.18p for the 2013 financial year. See page 44 for the assumptions underlying this
expectation.
Liquidity and capital resources
The major sources of Group liquidity for the 2011 and 2010 financial years were cash generated
from operations, dividends from associates and borrowings through short-term and long-term
issuances in the capital markets. We do not use non-consolidated special purpose entities as a
source of liquidity or for other financing purposes.
Our key sources of liquidity for the foreseeable future are likely to be cash generated from
operations and borrowings through long-term and short-term issuances in the capital markets as
well as committed bank facilities.
Our liquidity and working capital may be affected by a material decrease in cash flow due to
factors such as reduced operating cash flow resulting from further possible business disposals,
increased competition, litigation, timing of tax payments and the resolution of outstanding tax
issues, regulatory rulings, delays in the development of new services and networks, licence and
spectrum payments, inability to receive expected revenue from the introduction of new services,
reduced dividends from associates and investments or increased dividend payments to
non-controlling shareholders. Please see the section titled “Principal risk factors and
uncertainties” on pages 45 and 46.
We are also party to a number of agreements that may result in a cash outflow in future periods.
These agreements are discussed further in “Option agreements and similar arrangements” at the end
of this section.
Wherever possible, surplus funds in the Group (except in Albania, Egypt, India and Vodacom) are
transferred to the centralised treasury department through repayment of borrowings, deposits,
investments, share purchases and dividends. These are then loaned internally or contributed as
equity to fund our operations, used to retire external debt, invested externally or used to pay
dividends.
Cash flows
Free cash flow decreased by 2.7% to £7,049 million primarily due to higher taxation payments
and dividends to non-controlling shareholders in subsidiaries partially offset by improved cash
generated from operations and lower payments for capital expenditure.
Cash generated by operations increased by 0.4% to £15,392 million primarily driven by foreign
exchange rate movements and working capital improvements. Cash capital expenditure decreased by
£328 million primarily due to lower expenditure in India. We invested £2,982 million in licences
and spectrum including £1,725 million in India and £1,210 million in Germany.
Payments for taxation increased by 14.3% to £2,597 million primarily due to the absence of the
one-time benefit of additional tax deductions which were available in Italy in the previous year.
Dividends received from associates and investments were stable at £1,509 million.
Net interest payments decreased by 5.5% to £1,328 million primarily due to lower average net debt.
| 2011 | 2010 | |||||||||||
| £m | £m | % | ||||||||||
Cash generated by operations |
15,392 | 15,337 | 0.4 | |||||||||
Cash capital expenditure(1) |
(5,658 | ) | (5,986 | ) | ||||||||
Disposal of intangible assets and property, plant and equipment |
51 | 48 | ||||||||||
Operating free cash flow |
9,785 | 9,399 | 4.1 | |||||||||
Taxation |
(2,597 | ) | (2,273 | ) | ||||||||
Dividends received from associates and investments(2) |
1,509 | 1,577 | ||||||||||
Dividends paid to non-controlling shareholders in subsidiaries |
(320 | ) | (56 | ) | ||||||||
Interest received and paid |
(1,328 | ) | (1,406 | ) | ||||||||
Free cash flow |
7,049 | 7,241 | (2.7 | ) | ||||||||
Other amounts(3) |
45 | — | ||||||||||
Licence and spectrum payments |
(2,982 | ) | (989 | ) | ||||||||
Acquisitions and disposals(4) |
(183 | ) | (2,683 | ) | ||||||||
Contributions from non-controlling
shareholders in subsidiaries(5) |
— | 613 | ||||||||||
Equity dividends paid |
(4,468 | ) | (4,139 | ) | ||||||||
Purchase of treasury shares |
(2,087 | ) | — | |||||||||
Foreign exchange |
834 | 1,038 | ||||||||||
Other(6) |
5,250 | (174 | ) | |||||||||
Net debt decrease |
3,458 | 907 | ||||||||||
Opening net debt |
(33,316 | ) | (34,223 | ) | ||||||||
Closing net debt |
(29,858 | ) | (33,316 | ) | (10.4 | ) | ||||||
| Notes: | ||
| (1) | Cash paid for purchase of property, plant and equipment and intangible assets, other than licence and spectrum payments. | |
| (2) | Year ended 31 March 2011 includes £373 million (2010:£389 million) from our interest in SFR and £1,024 million (2010:£1,034 million) from our interest in Verizon Wireless. | |
| (3) | Comprises items in respect of: the UK CFC settlement (£800 million), tax relating to the disposal of China Mobile Limited (£208 million), the SoftBank disposal (£1,409 million) and the court deposit made in respect of the India tax case (£356 million). The latter is included within the line item “Purchase of interests in subsidiaries and joint ventures, net of cash acquired” in the consolidated statement of cash flows. | |
| (4) | Year ended 31 March 2011 includes net cash and cash equivalents paid of £183 million (2010: £1,777 million) and assumed debt of £nil (2010: £906 million). | |
| (5) | Year ended 31 March 2010 includes £613 million in relation to Qatar. | |
| (6) | Year ended 31 March 2011 includes £4,264 million in relation to the disposal of our 3.2% interest in China Mobile Limited. | |
Dividends
from associates and to non-controlling shareholders
Dividends from our associates are generally paid at the discretion of the board of directors
or shareholders of the individual operating and holding companies and we have no rights to receive
dividends except where specified within certain of the Group’s shareholders’ agreements such as
with SFR, our associate in France. Similarly, we do not have existing obligations under
shareholders’ agreements to pay dividends to non-controlling interest partners of our subsidiaries
or joint ventures, except as specified below.
Included in the dividends received from associates and investments is an amount of £1,024 million
(2010: £1,034 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 only tax distributions have
been issued. Following the announcement of Verizon Wireless’ acquisition of Alltel, certain
additional tax distributions were agreed in addition to the tax distributions required by the
partnership agreement. Taken together with recent revisions to the tax distribution provisions in
the partnership agreement, current projections forecast that tax distributions will cover the US
tax liabilities arising from our partnership interest in Verizon Wireless.
Under the terms of the partnership agreement the Verizon Wireless board has no obligation to
effect additional distributions above the level of the tax distributions. However, the Verizon
Wireless board has agreed that it will review distributions from Verizon Wireless on a regular
basis. When considering whether distributions will be made each year, the Verizon Wireless board
will take into account its debt position, the relationship
Table of Contents
Vodafone Group Plc Annual Report 2011 49
Performance
between debt levels and maturities, and overall market conditions in the context of the five year
business plan. It is expected that Verizon Wireless’ free cash flow will be deployed in servicing
and reducing debt in the near term.
During the year ended 31 March 2011 cash dividends totalling £373 million (2010: £389 million) were
received from SFR. Following SFR’s purchase of Neuf Cegetel it was agreed that SFR would partially
fund debt repayments by a reduction in dividends between 2009 and 2011 inclusive. In April 2011 we
announced an agreement to dispose of our 44% interest in SFR. We will also receive a final dividend
from SFR of €200 million (£176 million) on
completion of the transaction. Future cash flows will be
reduced by the loss of dividends from SFR.
Verizon Communications Inc. 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 will not impair the financial condition
or prospects of Vodafone Italy including, without limitation, its credit standing. During the 2011
financial year Vodafone Italy paid dividends net of withholding tax totalling €325 million to
Verizon Communications Inc.
Given Vodacom’s strong financial position and cash flow generation, the Vodacom board has decided
to increase its dividend payout ratio from 40% to approximately 60% of headline earnings for the
year ended March 2011.
Acquisitions
We invested £183 million (2010: £1,777 million), net of cash and cash equivalents acquired, in
acquisition activities during the year.
Other significant transactions
On 10 September 2010 we sold our entire 3.2% interest in China Mobile Limited for a total
consideration of £4.3 billion before tax and transaction costs. Future cash flows will be reduced
by the loss of dividends from China Mobile Limited.
On 9 November 2010 we agreed to sell to SoftBank Corp. of Japan our interests which were
originally received as part of the proceeds from the sale of Vodafone Japan in 2006, for a total
consideration of ¥412.5 billion (£3.1 billion). ¥212.5 billion (£1.6 billion) of the consideration
was received in December 2010 and ¥200 billion (£1.5 billion) is expected to be received in April
2012.
On 30 March 2011 the Essar Group exercised its underwritten put option over 22.0% of Vodafone
Essar Limited (‘VEL’) following which, on 31 March 2011, we exercised our call option over the
remaining 11.0% of VEL owned by the Essar Group. The consideration due under these two options is
US$5 billion (£3.1 billion). The Group does not believe that there is any legal requirement to
withhold tax in respect of these transactions but as discussed in detail under ‘Legal proceedings’
on page 122, if the Authority for Advanced Rulings directs tax to be withheld, this amount is
anticipated to be approximately an additional US$1 billion.
On 3 April 2011 we announced an agreement to sell our entire 44% interest in SFR to Vivendi for a
cash consideration of €7.75 billion (£6.8 billion). Subject to customary competition authority and
regulatory approvals, the transaction is expected to complete during the second calendar quarter
of 2011.
Treasury shares
The Companies Act 2006 permits companies to purchase their own shares out of distributable
reserves and to hold shares in treasury. While held in treasury, no voting rights or pre-emption
rights accrue and no dividends are paid in respect of treasury shares. Treasury shares may be sold
for cash, transferred (in certain circumstances) for the purposes of an employee share scheme or
cancelled. If treasury shares are sold, such sales are deemed to be a new issue of shares and will
accordingly count towards the 5% of share capital which the Company is permitted to issue on a non
pre-emptive basis in any one year as approved by its shareholders at the
AGM. The proceeds of any sale of treasury shares up to the amount of the original purchase price,
calculated on a weighted average price method, is attributed to distributable profits which would
not occur in the case of the sale of non-treasury shares. Any excess above the original purchase
price must be transferred to the share premium account.
Following the disposal of our 3.2% interest in China Mobile Limited on 10 September 2010, we
initiated a £2.8 billion share buyback programme under the authority granted by our shareholders
at the 2010 AGM. In addition to ordinary market purchases, the Group placed irrevocable purchase
instructions with a number of banks to enable the banks to buy back shares on our behalf when we
may otherwise have been prohibited from buying in the market. Details of the shares purchased to
16 May 2011 including those purchased under irrevocable instructions, are shown below:
| Total number | Maximum | |||||||||||||||
| Average price | of shares | value of shares | ||||||||||||||
| paid per share | purchased | that may yet | ||||||||||||||
| Number of | inclusive of | under share | be purchased | |||||||||||||
| shares | transaction | repurchase | under the | |||||||||||||
| purchased(1) | costs | programme(2) | programme(3) | |||||||||||||
| Date of share purchase | ’000 | Pence | ’000 | £m | ||||||||||||
September 2010 |
115,400 | 161.78 | 115,400 | 2,613 | ||||||||||||
October 2010 |
187,500 | 165.50 | 302,900 | 2,303 | ||||||||||||
November 2010 |
209,400 | 170.21 | 512,300 | 1,947 | ||||||||||||
December 2010 |
162,900 | 167.44 | 675,200 | 1,674 | ||||||||||||
January 2011 |
177,090 | 176.67 | 852,290 | 1,361 | ||||||||||||
February 2011 |
134,700 | 179.23 | 986,990 | 1,120 | ||||||||||||
March 2011 |
250,900 | 177.26 | 1,237,890 | 675 | ||||||||||||
April 2011 |
135,100 | 176.81 | 1,372,990 | 436 | ||||||||||||
May 2011 |
127,000 | 170.14 | 1,499,990 | 268 | ||||||||||||
Total |
1,499,990 | (4) | 172.01 | 1,499,990 | 220 | |||||||||||
| Notes: | ||
| (1) | The nominal value of shares purchased is 113/7 US cents each. | |
| (2) | No shares were purchased outside the publicly announced share buyback programme. | |
| (3) | In accordance with shareholder authority granted at the 2010 AGM. | |
| (4) | The total number of shares purchased represents 2.9% of our issued share capital at 16 May 2011. | |
The aggregate amount of consideration paid by the Company for the shares at 16 May 2011 was
£2,580 million.
Following the announcement of the agreement to dispose of our 44% interest in SFR on 3 April 2011,
we also announced that we will return £4 billion of the net proceeds to shareholders by way of a
share buyback programme. This programme will commence following completion of the existing £2.8
billion programme.
Shares purchased are held in treasury in accordance with sections 724 to 732 of the Companies Act
2006 and are cancelled in accordance with the Association of British Insurers guidelines. The
movement in treasury shares during the year is shown below:
| Number | ||||||||
| Million | £m | |||||||
1 April 2010 |
5,146 | 7,810 | ||||||
Reissue of shares |
(150 | ) | (232 | ) | ||||
Purchase of shares |
1,238 | 2,125 | ||||||
Cancelled shares |
(1,000 | ) | (1,532 | ) | ||||
31 March 2011 |
5,234 | 8,171 | ||||||
Funding
We have maintained a robust liquidity position throughout the year thereby enabling us to
service shareholder returns, debt and expansion through capital investment. This position has been
achieved through continued delivery of strong operating cash flows, the impact of the working
capital reduction programme, issuances of short-term and long-term debt, and non-recourse
borrowing assumed in respect of the emerging market businesses. It has not been necessary for us
to draw down on our syndicated committed bank facilities during the year.
Table of Contents
50 Vodafone Group Plc Annual Report 2011
Financial position and resources continued
Net debt
Our consolidated net debt position at 31 March was as follows:
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Cash and cash equivalents(1) |
6,252 | 4,423 | ||||||
Short-term borrowings: |
||||||||
Bonds |
(2,470 | ) | (1,174 | ) | ||||
Commercial paper(2) |
(1,660 | ) | (2,563 | ) | ||||
Put options over non-controlling interests |
(3,113 | ) | (3,274 | ) | ||||
Bank loans |
(2,070 | ) | (3,460 | ) | ||||
Other short-term borrowings(1) |
(593 | ) | (692 | ) | ||||
| (9,906 | ) | (11,163 | ) | |||||
Long-term borrowings: |
||||||||
Put options over non-controlling interests |
(78 | ) | (131 | ) | ||||
Bonds, loans and other long-term borrowings |
(28,297 | ) | (28,501 | ) | ||||
| (28,375 | ) | (28,632 | ) | |||||
Other financial instruments(3) |
2,171 | 2,056 | ||||||
Net debt |
(29,858 | ) | (33,316 | ) | ||||
Notes:
| (1) | At 31 March 2011 the amount includes £531 million (2010: £604 million) in relation to cash received under collateral support agreements. | |
| (2) | At 31 March 2011 US$551 million was drawn under the US commercial paper programme and €1,490 million was drawn under the euro commercial paper programme. | |
| (3) | Comprises i) mark-to-market adjustments on derivative financial instruments which are included as a component of trade and other receivables (2011: £2,045 million; 2010: £2,128 million) and trade and other payables (2011: £548 million; 2010: £460 million) and ii) short-term investments in index linked government bonds and collateral support agreements included as a component of other investments (2011: £674 million; 2010: £388 million). These government bonds have less than six years to maturity, can be readily converted into cash via the repurchase market and are held on an effective floating rate basis. |
At 31 March 2011 we had £6,252 million of cash and cash equivalents which are held in accordance
with our treasury policy.
We hold cash and liquid investments in accordance with the counterparty and settlement risk limits
of the Board approved treasury policy. The main forms of liquid investments at 31 March 2011 were
money market funds, UK index linked government bonds and bank deposits.
Net debt decreased by £3,458 million to £29,858 million primarily due to the sale of our interests
in SoftBank and the element of the proceeds from the sale of our 3.2% interest in China Mobile
Limited which was not committed to the share buyback programme. The £7,049 million free cash flow
generated during the year was primarily used to fund £4,468 million of dividend payments to
shareholders as well as spectrum purchases in Germany and India. Net debt represented 32.8% of our
market capitalisation at 31 March 2011 compared with 41.6% at 31 March 2010. Average net debt at
month end accounting dates over the 12 month period ended 31 March 2011 was £31.4 billion and
ranged between £28.4 billion and £34.9 billion during the year.
The cash received from collateral support agreements mainly reflects the value of our interest rate
swap portfolio which is substantially net present value positive. See note 21 to the consolidated
financial statements for further details on these agreements.
Commercial paper programmes
We currently have US and euro commercial paper programmes of US$15 billion and £5 billion
respectively which are available to be used to meet short-term liquidity requirements. At 31 March
2011 an amount external to the Group of €1,490 million (£1,317 million) was drawn under the euro
commercial paper programme and US$551 million (£343 million) was drawn down under the US commercial
paper programme, with such funds being provided by counterparties external to the Group. At 31
March 2010 US$245 million (£161 million) was drawn under the US commercial paper programme and
€2,491 million (£2,219 million), £161 million and US$33 million (£22 million) was drawn under the
euro commercial paper programme. The commercial paper facilities were supported by US$4.2 billion
(£2.6 billion) and €4.2 billion (£3.7 billion) of syndicated
committed bank facilities (see “Committed facilities”), which mature on 9 March 2016 and 1 July
2015 respectively. No amounts had been drawn under either bank facility.
Bonds
We have a €30 billion euro medium-term note programme and a US shelf programme which are used to
meet medium to long-term funding requirements. At 31 March 2011 the total amounts in issue under
these programmes split by currency were US$14.3 billion, £2.6 billion, €10.6 billion and £0.2
billion sterling equivalent of other currencies.
In the year ended 31 March 2011 bonds with a nominal value equivalent of £0.7 billion at the
relevant 31 March 2011 foreign exchange rates were issued under the US shelf and the euro
medium-term note programme. The bonds issued during the year were:
| Nominal | Sterling | |||||||
| amount | equivalent | |||||||
| Date of bond issue | Maturity of bond | Million | Million | |||||
August 2010
|
August 2011 | US$100 | 64 | |||||
March 2011
|
March 2016 | US$600 | 374 | |||||
March 2011
|
March 2021 | US$500 | 311 | |||||
At 31 March 2011 we had bonds outstanding with a nominal value of £20,987 million (2010: £21,963
million).
Committed facilities
The following table summarises the committed bank facilities available to us at 31 March 2011.
| Committed bank facilities | Amounts drawn | |
1 July 2010 |
||
€4.2 billion syndicated
revolving credit facility,
maturing 1 July 2015
|
No drawings have been made against this facility. The facility supports our commercial paper programmes and may be used for general corporate purposes including acquisitions. | |
9 March 2011 |
||
US$4.2 billion syndicated
revolving credit facility,
maturing 9 March 2016
|
No drawings have been made against this facility. The facility supports our commercial paper programmes and may be used for general corporate purposes including acquisitions. | |
16 November 2006 |
||
€0.4 billion loan facility,
maturing 14 February 2014
|
This facility was drawn down in full on 14 February 2007. The facility is available for financing capital expenditure in our Turkish operating company. | |
28 July 2008 |
||
€0.4 billion loan facility,
maturing 12 August 2015
|
This facility was drawn down in full on 12 August 2008. The facility is available for financing the roll-out of converged fixed mobile broadband telecommunications network in Italy. | |
15 September 2009 |
||
€0.4 billion loan facility,
maturing 30 July 2017
|
This facility was drawn down in full on 30 July 2010. The facility is available for financing capital expenditure in our German operations. | |
29 September 2009 |
||
US$0.7 billion export
credit agency loan facility,
final maturity date
19 September 2018
|
An initial drawing was made of US$120 million on 3 November 2010. The facility is available for financing eligible Swedish goods and services. | |
Table of Contents
Vodafone Group Plc Annual Report 2011 51
Performance
Under the terms and conditions of the €4.2 billion and US$4.2 billion syndicated committed bank
facilities lenders have the right, but not the obligation, to cancel their commitments and have
outstanding advances repaid no sooner than 30 days after notification of a change of control. This
is in addition to the rights of lenders to cancel their commitment if we commit an event of
default; however, it should be noted that a material adverse change clause does not apply.
The facility agreements provide for certain structural changes that do not affect the obligations
to be specifically excluded from the definition of a change of control.
The terms and conditions of the €0.4 billion loan facility maturing on 14 February 2014 are similar
to those of the €4.2 billion and US$4.2 billion syndicated committed bank facilities with the
addition that, should our Turkish operating company spend less than the equivalent of €0.8 billion
on capital expenditure, we will be required to repay the drawn amount of the facility that exceeds
50% of the capital expenditure.
The terms and conditions of the €0.4 billion loan facility maturing 12 August 2015 are similar to
those of the €4.2 billion and US$4.2 billion syndicated committed bank facilities with the addition
that, should our Italian operating company spend less than the equivalent of €1.5 billion on
capital expenditure, we will be required to repay the drawn amount of the facility that exceeds 18%
of the capital expenditure.
The loan facility agreed on 15 September 2009 provides €0.4 billion of seven year term finance for
the Group’s virtual digital subscriber line (‘VDSL’) project in Germany. The terms and conditions
are similar to those of the €4.2 billion and US$4.2 billion syndicated committed bank facilities
with the addition that should the Group’s German operating company spend less than the equivalent
of €0.8 billion on VDSL related capital expenditure, the Group will be required to repay the drawn
amount of the facility that exceeds 50% of the VDSL capital expenditure.
The Group entered into an export credit agency loan agreement on 29 September 2009 for US$0.7
billion. The terms and conditions of the facility are similar to those of the €4.2 billion and
US$4.2 billion syndicated committed bank facilities with the addition that the Company is permitted
to draw down under the facility based on the eligible spend with Ericsson up until the final
drawdown date of 30 June 2011. Quarterly repayments of any drawn balance commenced on 30 June 2010
with a final maturity date of 19 September 2018.
Furthermore, certain of our subsidiaries are funded by external facilities which are non-recourse
to any member of the Group other than the borrower due to the level of country risk involved. These
facilities may only be used to fund their operations. At 31 March 2011 Vodafone Essar had
facilities of INR 281 billion (£3.9 billion) of which INR 262 billion (£3.7 billion) is drawn.
Vodafone Egypt has a partly drawn EGP 1.2 billion (£121 million) syndicated bank facility of EGP
4.0 billion (£418 million) that matures in March 2014. Vodacom had fully drawn facilities of ZAR
8.1 billion (£741 million), US$120 million (£73 million) and TZS 87 billion (£36 million), Vodafone
Americas has a US$1.4 billion (£871 million) US private placement with a maturity of 17 August 2015
and Ghana had a fully drawn facility of US$75 million (£47 million) with a final maturity of 15
March 2018.
In aggregate we have committed facilities of approximately £15,703 million, of which £7,247 million
was undrawn and £8,456 million was drawn at
31 March 2011.
We believe that we have sufficient funding for our expected working capital requirements for at
least the next 12 months. Further details regarding the maturity, currency and interest rates of
the Group’s gross borrowings at 31 March 2011 are included in note 22 to the consolidated financial
statements.
Financial assets and liabilities
Analyses of financial assets and liabilities including the maturity profile of debt, currency and
interest rate structure are included in notes 18 and 22 to the consolidated financial statements.
Details of our treasury management and policies are included within note 21 to the consolidated
financial statements.
Option agreements and similar arrangements
Potential cash outflows
In respect of our interest in the Verizon Wireless partnership, an option granted to Price
Communications, Inc. by Verizon Communications Inc. was exercised on 15 August 2006. Under the
option agreement Price Communications, Inc. exchanged its preferred limited partnership interest in
Verizon Wireless of the East LP for 29.5 million shares of common stock in Verizon Communications
Inc. Verizon Communications Inc. has the right, but not the obligation, to contribute the preferred
interest to the Verizon Wireless partnership diluting our interest. However, we also have the right
to contribute further capital to the Verizon Wireless partnership in order to maintain our
percentage partnership interest. Such amount, if contributed, would be US$0.8 billion.
Our aggregate direct and indirect interest in Vodafone Essar Limited (‘VEL’), our Indian operating
company, is 59.9% at 31 March 2011. We have call options to acquire shareholdings in companies
which indirectly own a further 7.1% interest in VEL. The shareholders of these companies also have
put options which, if exercised, would require us to purchase the remaining shares in the
respective company. If these options were exercised, which can only be done in accordance with
Indian law prevailing at the time of exercise, we would have a direct and indirect interest of
67.0% in VEL. On 30 March 2011 the Essar Group exercised its underwritten put option over 22.0% of
VEL following which, on 31 March 2011, we exercised our call option over the remaining 11.0% of VEL
owned by the Essar Group. The consideration due under these two options is US$5 billion (£3.1
billion). The Group does not believe that there is any legal requirement to withhold tax in respect
of these transactions but as discussed on page 122, if the Authority for Advanced Rulings directs
tax to be withheld, this amount is anticipated to be approximately an additional US$1 billion.
Off-balance sheet arrangements
On 7 January 2011 State Bank of India provided a guarantee on our behalf of INR 85 billion (£1.2
billion) to the Supreme Court of India in relation to the ongoing litigation in respect of the
purchase of Vodafone Essar Limited as disclosed on page 122. We have counter indemnified State Bank
of India for any amounts payable under this guarantee.
Other than this guarantee we do not have any material off-balance sheet arrangements as defined in
item 5.E.2. of the SEC’s Form 20-F. Please refer to notes 27 and 28 to the consolidated financial
statements for a discussion of our commitments and contingent liabilities.
Quantitative and qualitative disclosures about market risk
A discussion of our financial risk management objectives and policies and the exposure of the Group
to liquidity, market and credit risk is included within note 21 to the consolidated financial
statements.
Table of Contents
52 Vodafone Group Plc Annual Report 2011
Board of directors and Group management
Directors and senior management
Our business is managed by our Board of directors (‘the Board’). Biographical details of the
directors and senior management at 17 May 2011 are as follows:
Board of directors
Chairman
1. Sir John Bond†, aged 69, became Chairman of Vodafone Group Plc in July 2006, having previously
served as a non-executive director of the Board, and is Chairman of the Nominations and Governance
Committee. He is Chairman of Xstrata plc and a non-executive director of A.P. Møller – Mærsk A/S
and Shui On Land Limited (Hong Kong SAR). He retired from the position of Group Chairman of HSBC
Holdings plc in May 2006. Previous non-executive directorships include the London Stock Exchange
plc, Orange plc, British Steel plc, the Court of the Bank of England and Ford Motor Company, US. He
is also an advisor to Northern Trust in Chicago. Sir John will retire from the Board at the
conclusion of the Company’s AGM on 26 July 2011.
Executive directors
2. Vittorio Colao, Chief Executive, aged 49, was appointed Chief Executive of Vodafone Group Plc
after the AGM in July 2008. He joined the Board in October 2006 as Chief Executive, Europe and
Deputy Chief Executive. The early part of his career was spent in the Milan office of McKinsey & Co
working on media, telecommunications and industrial goods, with additional responsibility for
recruitment. In 1996 he joined Omnitel Pronto Italia, which subsequently became Vodafone Italy, and
was appointed Chief Executive in 1999. He was then appointed Regional Chief Executive Officer,
Southern Europe for Vodafone Group Plc in 2001, became a member of the Board in 2002 and was
appointed to the role of Regional Chief Executive Officer for Southern Europe, Middle East and
Africa for Vodafone in 2003. In 2004 he left Vodafone to join RCS MediaGroup, the leading Italian
publishing company, where he was Chief Executive until he rejoined Vodafone as Chief Executive
Officer, Europe. He sits on the International Advisory Board of Bocconi University, Italy.
3. Andy Halford, Chief Financial Officer, aged 52, joined the Board in July 2005. He joined
Vodafone in 1999 as Financial Director for Vodafone Limited, the UK operating company, and in 2001
he became Financial Director for Vodafone’s Northern Europe, Middle East and Africa region. In 2002
he was appointed Chief Financial Officer of Verizon Wireless in the US and is currently a member of
the Board of Representatives of the Verizon Wireless partnership. Prior to joining Vodafone he was
Group Finance Director at East Midlands Electricity Plc. In December 2010 he was appointed as
Chairman of The Hundred Group of Finance Directors in the UK. He holds a bachelor’s degree in
Industrial Economics from Nottingham University and is a Fellow of the Institute of Chartered
Accountants in England and Wales.
4. Michel Combes, aged 49, Chief Executive Officer, Europe Region, was appointed to the Board in
June 2009, having joined the Company in October 2008. He began his career at France Telecom in 1986
in the External Networks Division and then moved to the Industrial and International Affairs
Division. After being technical advisor to the Minister of Transportation from 1991 to 1995, he
served as Chairman and Chief Executive Officer of
GlobeCast from 1995 to 1999. He was Executive Vice President of Nouvelles Frontieres Group from
December 1999 until the end of 2001 when he moved to the position of Chief Executive Officer of
Assystem-Brime, a company specialising in industrial engineering. He returned to France Telecom
Group in 2003 as Senior Vice President of Group Finance and Chief Financial Officer. Until January
2006 he was Senior Executive Vice President, in charge of NExT Financial Balance & Value Creation
and a member of the France Telecom Group Strategic Committee. From 2006 to 2008 he was Chairman and
Chief Executive Officer of TDF Group. He is President of the Supervisory Board of Assystem SA in
France and serves as a non-executive director on the boards of ISS Equity A/S, ISS Holding A/S and
ISS A/S.
5. Stephen Pusey, aged 49, Group Chief Technology Officer, joined Vodafone in September 2006 and
was appointed to the Board in June 2009. He is responsible for all aspects of Vodafone’s networks,
IT capability and research and development. Prior to joining Vodafone he held the positions of
Executive Vice President and President, Nortel EMEA, having joined Nortel in 1982 where he gained a
wealth of international experience across both the wireline and wireless industries and in business
applications and solutions. Prior to Nortel, he spent several years with British Telecom.
Deputy Chairman and senior independent director
6. John Buchanan§†, aged 68, became Deputy Chairman and senior independent director in July 2006 and
has been a member of the Board since April 2003. He retired from the board of directors of BP
p.l.c. in 2002 after six years as Group Chief Financial Officer and executive director following a
wide-ranging career with the company. He was a member of the United Kingdom Accounting Standards
Board from 1997 to 2001. He is Chairman of Smith & Nephew plc, Senior Independent Director of BHP
Billiton Plc, Chairman of The International Chamber of Commerce (UK) and is Chairman of the
trustees for the UK Christchurch Earthquake Appeal. Previous non-executive directorships include
AstraZeneca plc and Boots plc.
Non-executive directors
7. Alan Jebson§, aged 61, joined the Board in December 2006. In May 2006 he retired from his role
as Group Chief Operating Officer of HSBC Holdings plc, a position which included responsibility for
IT and Global Resourcing. During a long career with HSBC he held various positions in IT including
the position of Group Chief Information Officer. His roles included responsibility for the Group’s
international systems including the consolidation of HSBC and Midland systems following the
acquisition of Midland Bank in 1993. He originally joined HSBC as Head of IT Audit in 1978 where,
building upon his qualification as a chartered accountant, he built an international audit team and
implemented controls in the group’s application systems. He is also a non-executive director of
Experian Group plc and MacDonald Dettwiler and Associates Ltd. in Canada.
8. Samuel Jonah‡, aged 61, was appointed to the Board in April 2009. He is Executive Chairman of
Jonah Capital (Pty) Limited, an investment holding company in South Africa and serves on the boards
of various public and private companies including The Standard Bank Group. He previously worked for
Ashanti Goldfields Company Limited, becoming Chief Executive Officer in
Table of Contents
Vodafone Group Plc Annual Report 2011 53
Governance
1986, and was formerly Executive President of AngloGold Ashanti Limited, a director of Lonmin Plc
and a member of the Advisory Council of the President of the African Development Bank. He is an
advisor to the Presidents of Nigeria and Togo and previously served as an advisor to the Presidents
of South Africa and Ghana. An Honorary Knighthood was conferred on him by Her Majesty the Queen in
2003 and in 2006 he was awarded Ghana’s highest national award, the Companion of the Order of the
Star.
9. Nick Land§, aged 63, joined the Board in December 2006 and is Chairman of the Audit Committee.
Solely for the purposes of relevant legislation he is the Board’s appointed financial expert on the
Audit Committee. In June 2006 he retired as Chairman of Ernst & Young LLP after a distinguished
career spanning 36 years with the firm. He became an audit partner in 1978 and held a number of
management appointments before becoming Managing Partner in 1992. He was appointed Chairman and
joined the Global Executive Board of Ernst & Young Global LLP in 1995. He serves as a non-executive
director of Alliance Boots GmbH, BBA Aviation plc and the Ashmore Group plc and was appointed as a
non-executive director of the Financial Reporting Council on 1 April 2011. He is an advisor to the
board of SNR Denton LLP, a member of the Advisory Board of Alsbridge plc, Chairman of the Board of
Trustees of Farnham Castle, and is a member of the Finance and Audit Committees of the National
Gallery. He is also Chairman of the board of trustees of the Vodafone Foundation.
10. Anne Lauvergeon§, aged 51, joined the Board in November 2005. She is Chief Executive Officer of
AREVA Group, the leading French energy company, having been appointed to that role in July 2001.
She started her professional career in 1983 in the steel industry and in 1990 she was named Advisor
for Economic International Affairs at the French Presidency and Deputy Chief of its Staff in 1991.
In 1995 she became a Partner of Lazard Frères & Cie, subsequently joining Alcatel Telecom as Senior
Executive Vice President in March 1997. She was responsible for international activities and the
Group’s industrial shareholdings in the energy and nuclear fields. In 1999 she was appointed
Chairman and Chief Executive Officer of AREVA NC. She is currently also a member of the Advisory
Board of the Global Business Coalition on HIV/AIDS and a non-executive director of Total S.A. and
GDF SUEZ.
11. Luc Vandevelde†‡, aged 60, joined the Board in September 2003 and is Chairman of the
Remuneration Committee. He is a director of Société Générale and the Founder and Managing Director
of Change Capital Partners LLP, a private equity fund. He was formerly Chairman of the Supervisory
Board of Carrefour SA, Chairman of Marks & Spencer Group plc and Chief Executive Officer of
Promodès, and has held senior European and international roles with Kraft General Foods.
12. Anthony Watson CBE†‡, aged 66, was appointed to the Board in May 2006. He is currently Chairman
of Marks & Spencer Pension Trust Ltd and is the Senior Independent Director of Hammerson plc and
Witan Investment Trust. He is a non-executive director of Lloyds Banking Group plc and sits on the
Advisory Board of Norges Bank Investment Management. He joined the Board of the Shareholder
Executive in October 2009, having been a member of its Advisory Group since April 2008. Prior to
joining the Vodafone Board
he was Chief Executive of Hermes Pensions Management Limited, a position
he had held since 2002. Previously he was Hermes’ Chief Investment Officer having been Managing
Director of AMP Asset Management plc and the Chief International Investment Officer of Citicorp
Investment Management from 1991 until joining Hermes in 1998. He was Chairman of The Strategic
Investment Board in Northern Ireland until he retired in March 2009. In January 2009 he was awarded
a CBE for his services to the economic redevelopment of Northern Ireland.
13. Philip Yea‡, aged 56, became a member of the Board in September 2005. He has held a number of
roles in the private equity industry, most notably at 3i Group plc where he was Chief Executive
from 2004 until January 2009, and prior to 3i at Investcorp, where his main focus was on the
turnaround and performance of portfolio investments. He is a former Finance Director of Diageo plc,
the global drinks group, where as Finance Director of Guinness plc he was closely involved in the
creation of Diageo through Guiness’s merger with Grand Metropolitan P.L.C. in 1997. Philip holds a
number of advisory positions including to HRH The Duke of York in his role as the UK’s Special
Representative for International Trade & Investment, as well as to PricewaterhouseCoopers in the UK
and Bridges Ventures. He is also Chairman of the trustees of the British Heart Foundation. He has
previously held non-executive roles at HBOS plc and Manchester United plc.
Appointments since the 2010 AGM
14. Renee James, aged 46, joined the Board in January 2011. She is Senior Vice President and
General Manager of the software and services group for Intel Corporation with responsibility for
delivering software products and support across Intel’s entire product line by building and
distributing software and services products and partnering with independent software partners in
the industry. In addition, she is the Chairman of the software subsidiaries of Intel, Havok,
WIndRiver Systems and McAfee, and also serves as an independent director on the VMware Inc. Board
of Directors and is a member of its Audit Committee. She holds bachelor’s and master’s degrees from
the University of Oregon.
15. Gerard Kleisterlee, aged 64, was appointed to the Board on 1 April 2011. He retired as
President/Chief Executive Officer and Chairman of the Board of Management and the Group Management
Committee of Koninklijke Philips Electronics N.V. (‘Philips’) on 31 March 2011 after a career with
Philips spanning over more than three decades. He has been a member of the Daimler AG Supervisory
Board since April 2009, a non-executive director of the Supervisory Board and member of the Audit
Committee of Royal Dutch Shell since November 2010, and a member of the Board of Directors of Dell
since December 2010. He will succeed Sir John Bond as Chairman of the Company on conclusion of the
AGM on 26 July 2011.
| § | Audit Committee | |
| † | Nominations and Governance Committee | |
| ‡ | Remuneration Committee |
Table of Contents
54 Vodafone Group Plc Annual Report 2011
Board of directors and Group management continued
Executive Committee
Chaired by Vittorio Colao, this committee focuses on the Group’s strategy, financial structure and
planning, succession planning, organisational development and Group-wide policies. The Executive
Committee membership comprises the executive directors, details of whom are shown on page 52 above,
and the senior managers who are listed below.
Senior management
Members of the Executive Committee who are not also executive directors are regarded as senior
managers of the Company.
Warren Finegold, aged 54, Group Strategy and Business Development Director, joined the Executive
Committee in April 2006 as Chief Executive, Global Business Development with responsibility for
mergers and acquisitions and business development. He assumed his current position in August 2009
when his role was expanded to include Group Strategy. He started his career with Hill Samuel & Co.
Limited as an Executive in the Corporate Finance department, advising clients on mergers and
acquisitions. He then moved to Goldman Sachs International in 1986 where he held positions in New
York and London. Prior to joining Vodafone he was a Managing Director of UBS Investment Bank where
he held a number of senior positions, most recently as head of its technology team in Europe.
Matthew Kirk, aged 50, Group External Affairs Director, was appointed to his current position and
joined the Executive Committee in March 2009. Matthew joined Vodafone in 2006 as Group Director of
External Relationships. Prior to that he was a member of the British Diplomatic Service for more
than 20 years and before joining Vodafone served as British Ambassador to Finland.
Morten Lundal, aged 46, Group Chief Commercial Officer, was appointed to his current position in
October 2010, having joined the Executive Committee in November 2008, and previously served as
Chief Executive Officer for the Africa and Central Europe region. He joined Nordic mobile operator,
Telenor, in 1997 and held several Chief Executive Officer positions including for the Internet
Division and Telenor Business Solutions as well as the position of Executive Vice President for
Corporate Strategy before becoming the Chief Executive Officer of Telenor’s Malaysian subsidiary,
DiGi Telecommunications.
Rosemary Martin, aged 51, was appointed Group General Counsel and Company Secretary in March 2010.
She previously served as Chief Executive Officer of the Practical Law Group prior to which she
previously spent 11 years with Reuters Group Plc. in various company secretary and legal roles,
with the last five years as Group General Counsel and Company Secretary. Before joining Reuters she
was a partner with Mayer, Brown, Rowe & Maw. She is a non-executive director of HSBC Bank Plc (the
European arm of HSBC Group) and a member of the Institute of Chartered Accountants of England and
Wales Corporate Governance Committee.
Nick Read, aged 46, Chief Executive Officer, Africa, Middle East and Asia Pacific region, was
appointed to this position in October 2010. He became a member of the Executive Committee in
November 2008 at the time serving as Chief Executive Officer for the Asia Pacific and Middle East
region. He joined Vodafone in 2002 and has held a variety of senior roles including Chief Financial
Officer and Chief Commercial Officer of Vodafone Limited, the UK operating company, and was
appointed Chief Executive Officer of Vodafone Limited in early 2006. Prior to joining Vodafone he
held senior global finance positions with United Business Media plc and Federal Express Worldwide.
Ronald Schellekens, aged 47, Group Human Resources Director, joined Vodafone and the Executive
Committee in January 2009. Ronald is responsible for the Vodafone human resources management
function as well as health and safety, and Vodafone’s property and real estate. Prior to joining
Vodafone he was Executive Vice President Human Resources for Royal Dutch Shell plc’s global
downstream business. Prior to working for Shell he worked for nine years at PepsiCo in various
international senior human resources roles including assignments in Switzerland, Spain, South
Africa, the UK and Poland. In his last role he was responsible for the Europe, Middle East and
Africa region for PepsiCo Foods International. Prior to PepsiCo he worked for nine years for AT&T
in human resources roles in the Netherlands and Poland.
Other Board and Executive Committee members
The following members also served on the Board or the Executive Committee during the year:
Simon Murray was a non-executive director until his retirement on 27 July 2010. Terry Kramer was
Regional President – Vodafone Americas and a member of the Executive Committee until 31 July 2010.
Wendy Becker was
Group Chief Marketing Officer and a member of the Executive Committee until January 2011.
Table of Contents
Vodafone Group Plc Annual Report 2011 55
We are committed to high standards of corporate governance which we consider are critical to
business integrity and to maintaining investors’ trust in us. We expect all our directors,
employees and suppliers to act with honesty, integrity and fairness. Our business principles set
out the standards we set ourselves to ensure we operate lawfully, with integrity and with respect
for the culture of every country in which we do business.
Compliance with the Combined Code
Our ordinary shares are listed in the UK on the London Stock Exchange. In accordance with the
Listing Rules of the UK Listing Authority, we confirm that throughout the year ended 31 March 2011
and at the date of this document we were compliant with the provisions of, and applied the
principles of, Section 1 of the 2008 FRC Combined Code on Corporate Governance (the “Combined
Code”). The Combined Code can be found on the FRC website (www.frc.org.uk). This corporate
governance section, together with the “Directors’ remuneration” section on pages 62 to 73,
provides detail of how we apply the principles and comply with the provisions of the Combined
Code.
The FRC issued the new UK Corporate Governance Code in 2010, applicable for financial years
beginning on or after 29 June 2010. We will report on it for the first time in our 2012 financial
year and intend to be in compliance.
Corporate governance statement
We comply with the corporate governance statement requirements pursuant to the FSA’s
Disclosure and Transparency Rules by virtue of the information included in this “Corporate
governance” section of the annual report together with information contained in the “Shareholder
information” section on pages 132 to 138.
Board organisation and structure
The role of the Board
The Board
is responsible for the overall conduct of the Group’s business and has the powers,
authorities and duties vested in it by and pursuant to the relevant laws of England and Wales and
the articles of association of the Company. The Board:
| • | has final responsibility for the management, direction and performance of our businesses; | |
| • | is required to exercise objective judgement on all corporate matters independent from executive management; | |
| • | is accountable to shareholders for the proper conduct of the business; and | |
| • | is responsible for ensuring the effectiveness of and reporting on our system of corporate governance. |
The Board has a formal schedule of matters reserved to it for its decision and these include:
| • | Group strategy and long-term plans; | |
| • | major capital projects, acquisitions or divestments; | |
| • | annual budget and operating plan; | |
| • | group financial structure, including tax and treasury; | |
| • | annual and half-year financial results and shareholder communications; | |
| • | system of internal control and risk management; and | |
| • | senior management structure, responsibilities and succession plans. |
The schedule is reviewed annually. It was last formally reviewed in March 2011 at which time, it
was determined that no amendments were required.
Other specific responsibilities are delegated to Board committees which operate within clearly
defined terms of reference. Details of the responsibilities delegated to the Board committees are
given on pages 57 and 58.
Board meetings
The Board meets at least eight times a year and the meetings are structured to allow open
discussion. All directors participate in discussing strategy, trading and financial performance
and risk management. All substantive agenda items have comprehensive briefing material which is
circulated one week before the meeting.
The following table shows the number of years directors have been on the Board at 31 March 2011
and their attendance at scheduled Board meetings they were eligible to attend during the year:
| Years | Meetings | |||||||
| on Board | attended | |||||||
Sir John Bond |
6 | 8/8 | ||||||
John Buchanan |
8 | 8/8 | ||||||
Vittorio Colao |
4 | 8/8 | ||||||
Michel Combes |
1 | 8/8 | ||||||
Andy Halford |
5 | 8/8 | ||||||
Renee James (since 1 January 2011) |
<1 | 3/3 | ||||||
Alan Jebson |
4 | 7/8 | ||||||
Samuel Jonah |
2 | 8/8 | ||||||
Nick Land |
4 | 8/8 | ||||||
Anne Lauvergeon |
5 | 6/8 | ||||||
Simon Murray (until 27 July 2010) |
– | 2/2 | ||||||
Stephen Pusey |
1 | 8/8 | ||||||
Luc Vandevelde |
7 | 8/8 | ||||||
Anthony Watson |
5 | 8/8 | ||||||
Philip Yea |
5 | 8/8 | ||||||
In addition to regular Board meetings, there are a number of other meetings to deal with specific
matters. Directors unable to attend a Board meeting because of another engagement are
nevertheless provided with all the information relevant for such meetings and are able to discuss
issues arising in the meeting with the Chairman or the Chief Executive.
Division of responsibilities
The roles of the Chairman and Chief Executive are separate and there is a division of
responsibilities that is clearly established, set out in writing and agreed by the Board to ensure
that no one person has unfettered powers of decision. The Chairman is responsible for the
operation, leadership and governance of the Board, ensuring its effectiveness and setting its
agenda. The Chief executive is responsible for the management of the
Group’s business and the
implementation of Board strategy and policy.
Board balance and independence
Our Board consists of 15 directors, 13 of whom served throughout the year. At 31 March 2011,
in addition to the Chairman, Sir John Bond, there were four executive directors and nine
non-executive directors. Renee James and Gerard Kleisterlee were appointed as non-executive
directors with effect from 1 January 2011 and 1 April 2011 respectively. Simon Murray was a
member of the Board until his retirement at the annual general
meeting (‘AGM’) on 27 July 2010.
The Board welcomed the publication of the Davies Review on Women on Boards in February 2011. It
is our aspiration to have a minimum of 25% female representation on the Board by 2015. Subject to
securing suitable candidates, we intend to effect the changes required to the Board’s composition
by recruiting additional directors and/or filling vacancies which arise when directors do not
seek re-election, by appointing new directors who fit the skills criteria and gender balance
which would meet the Board’s aspirations. The FRC is currently consulting on changes to the UK
Corporate Governance Code which may result in the Code including a recommendation
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56 Vodafone Group Plc Annual Report 2011
Corporate governance continued
that companies adopt a boardroom diversity policy; we expect to comply with any such
recommendation. The Board recognises the importance of gender balance throughout the Group and
continues to support Vittorio Colao in his efforts to build a diverse organisation. Further
information, including the proportions of women in senior management and within the organisation
overall, is contained in our 2011 sustainability report at www.vodafone.com/sustainability.
The Deputy Chairman, John Buchanan, is the nominated Senior Independent Director and his role
includes being available for approach or representation by directors or significant shareholders
who may feel inhibited about raising issues with the Chairman. He is also responsible for
conducting an annual review of the performance of the Chairman and, in the event it should be
necessary, convening a meeting of the non-executive directors.
We consider all of our present non-executive directors to be fully independent. The Board is aware
of the other commitments of its directors and is satisfied that these do not conflict with their
duties as directors of the Company. Changes to the commitments of the directors are reported to
the Board.
There are no cross-directorships or significant links between directors serving on the Board
through involvement in other companies or bodies. For the purpose of section 175 of the Companies
Act 2006, the Company’s articles of association include a general power for the directors to
authorise any matter which would or might otherwise constitute or give rise to a breach of the duty
of a director under this section, to avoid a situation in which a director has, or could have, a
direct or indirect interest that conflicts or may possibly conflict, with the interests of the
Company. To this end procedures have been established for the disclosure of any such conflicts and
also for the consideration and authorisation of these conflicts by the Board, where relevant. The
directors are required to complete a conflicts questionnaire, initially on appointment and annually
thereafter. In the event of a potential conflict being identified, details of that conflict would
be submitted to the Board (excluding the director to whom the potential conflict related) for
consideration and, as appropriate, authorisation in accordance with the Companies Act 2006 and the
articles of association. Where an authorisation was granted, it would be recorded in a register of
potential conflicts and reviewed periodically. On an ongoing basis directors are responsible for
notifying the Company Secretary if they become aware of actual or potential conflict situations or
a change in circumstances relating to an existing authorisation. To date, no conflicts of interest
have been identified.
Under the laws of England and Wales, the executive and non-executive directors are equal members
of the Board and have overall collective responsibility for the Company’s direction. In
particular, non-executive directors are responsible for:
| • | bringing a wide range of skills and experience, including independent judgement on issues of strategy, performance, financial controls and systems of risk management; | |
| • | constructively challenging the strategy proposed by the Chief Executive and executive directors; | |
| • | scrutinising and challenging performance across the Group’s business; | |
| • | assessing risk and the integrity of the financial information and controls; and | |
| • | ensuring appropriate remuneration and succession planning arrangements are in place in relation to executive directors and other senior executive roles. |
Board effectiveness
Appointments to the Board
There is a
formal, rigorous and transparent procedure for the appointment of new directors to
the Board. Candidates are identified and selected on merit against objective criteria and with due
regard to the benefits of diversity on the Board, including gender. This process was followed
during the recruitment of Renee James and Gerard Kleisterlee and is described in the section on
the Nominations and Governance Committee set out on page 57.
Information and professional development
From time to time the Board receives detailed presentations from non-Board members on matters
of significance. Financial plans, including budgets and forecasts, are regularly discussed at
Board meetings. The non-executive directors periodically visit different parts of the Group and
are provided with briefings and information to assist them in performing their duties.
The Chairman is responsible for ensuring that induction and training programmes are provided and
the Company Secretary organises the programmes. Individual directors are also expected to take
responsibility for identifying their training needs and to take steps to ensure that they are
adequately informed about the Company and their responsibilities as a director. The Board is
confident that all its members have the knowledge, ability and experience to perform the functions
required of a director of a listed company.
On appointment, individual directors undergo an induction programme covering, amongst other
things:
| • | the business of the Group; | |
| • | their legal and regulatory responsibilities as directors; | |
| • | briefings and presentations from relevant executives; and | |
| • | opportunities to visit business operations. |
If appropriate the induction will also include briefings on the scope of the internal audit
function and the role of the Audit Committee, meetings with the external auditor and other areas
the Company Secretary deems appropriate considering the director’s area of responsibility.
Throughout their period in office the directors are continually updated on the Group’s businesses
and the regulatory and industry specific environments in which it operates. These updates are
by way of written briefings and meetings with senior executives and, where appropriate, external
sources.
Performance evaluation
Performance evaluation of the Board, its committees and individual directors takes place on an
annual basis and is conducted within the terms of reference of the Nominations and Governance
Committee with the aim of improving the effectiveness of the Board and its committees, individual
contributions and the Group’s performance as a whole. The evaluation is designed to determine
whether the Board continues to be capable of providing the high level judgement required and
whether, as a Board, the directors are informed and up to date with the business and its goals and
understand the context within which it operates. Every three years the performance evaluation is
conducted by an independent external advisor. The last external evaluation took place in respect of
the 2010 financial year.
This year the Board undertook a formal self-evaluation of its own performance. The process was led
by the Chairman and included a review of the administration of the Board and its committees
covering the operation of the Board and its committees, agendas, reports and information produced
for their consideration. Using questionnaires completed by all directors, the Chairman produced a
report on Board performance which was sent to and considered by the Nominations and Governance
Committee before being discussed with the Board members at a Board meeting.
The
Chairman led the assessment of the Chief Executive and the
non-executive directors, the Chief
Executive undertook the performance reviews for the executive directors and the Senior Independent
Director led the review of the performance of the Chairman.
The Chairman reported the results of the evaluations at the Board meeting in March 2011. The
performance of each director of the Board was found to be effective and it was concluded that the
Board provides the effective leadership and control required for a listed company. The Nominations
and Governance Committee confirmed to the Board that the contributions made by the directors
offering themselves for election and re-election at the AGM in July 2011 continue to be effective
and that the Company should support their election and re-election. In addition, the Board
considered recommendations made by directors during the Board performance evaluation for the
improvement of Board procedures and its effectiveness.
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Vodafone Group Plc Annual Report 2011 57
Governance
Consequently, some changes in Board practice are being implemented, including extending
the duration of Audit Committee meetings and allocating more time in the Board schedule for
strategy discussions. The Board will continue to review its procedures, its effectiveness and
development in the financial year ahead.
Re-election of directors
Although not required by the articles of association, in the interests of good corporate
governance the directors have resolved that, subject to the recommendation of the Nominations and
Governance Committee, they will all submit themselves for re-election at each AGM. Accordingly, at
the AGM to be held on 26 July 2011, all the directors will offer themselves for re-election with
the exception of Sir John Bond who is retiring from the Board. New directors seek election for the
first time in accordance with the articles of association.
Independent advice
The Board recognises that there may be occasions when one or more of the directors feels it is
necessary to take independent legal and/or financial advice at the Company’s expense. There is an
agreed procedure to enable them to do so.
Indemnification of directors
In accordance with our articles of association and to the extent permitted by the laws of
England and Wales, directors are granted an indemnity from the Company in respect of liabilities
incurred as a result of their office. In respect of those matters for which the directors may not
be indemnified, we maintained a directors’ and officers’ liability insurance policy throughout the
financial year. Neither our indemnity nor the insurance provides cover in the event that a
director is proven to have acted dishonestly or fraudulently.
Board committees
The Board has established an Audit Committee, a Nominations and Governance Committee and a
Remuneration Committee, each of which has formal terms of reference approved by the Board. The
Board reviews the terms of reference for each of the committees on an ongoing basis and is
satisfied that they comply with the requirements of the Combined Code. The terms of reference for
all Board committees can be found on our website at
www.vodafone.com/governance or a copy can be obtained by application to the Company Secretary at our
registered office.
The committees are provided with all necessary resources to enable them to undertake their duties
in an effective manner. The Company Secretary or her delegate acts as secretary to the committees.
The minutes of committee meetings are circulated to all directors.
Each committee has access to such information and advice, both from within the Group and
externally, at the Company’s cost as it deems necessary. This may include the appointment of
external consultants where appropriate. Each committee undertakes an annual review of the
effectiveness of its terms of reference and makes recommendations to the Board for changes where
appropriate.
Audit Committee
The members of the Audit Committee during the year, together with a record of their attendance
at meetings which they were eligible to attend, are set out below:
| Meetings attended | ||||
Nick Land, Chairman and financial expert |
4/4 | |||
John Buchanan |
4/4 | |||
Alan Jebson |
4/4 | |||
Anne Lauvergeon |
3/4 | |||
The Audit Committee is comprised of financially literate members having the necessary ability and
experience to understand financial statements. Solely for the purpose of fulfilling the
requirements of the Sarbanes-Oxley Act and the Combined Code, the Board has designated Nick Land,
who is an independent non-executive director satisfying the independence
requirements of Rule 10A-3 of the US Securities Exchange Act 1934 (the ‘Exchange Act’), as its
financial expert on the Audit Committee. Further details on Nick Land can be found in “Board of
directors and Group management” on page 53.
The Audit Committee’s responsibilities include:
| • | overseeing the relationship with the external auditor; | |
| • | reviewing our preliminary results announcement, half-year results and annual financial statements; | |
| • | monitoring compliance with statutory and listing requirements for any exchange on which our shares and debt instruments are quoted; | |
| • | reviewing the scope, extent and effectiveness of the activity of the Group internal audit department; | |
| • | engaging independent advisors as it determines is necessary and to perform investigations; | |
| • | reporting to the Board on the quality and acceptability of our accounting policies and practices including, without limitation, critical accounting policies and practices; and | |
| • | playing an active role in monitoring our compliance efforts in respect of Section 404 of the Sarbanes-Oxley Act. |
At least twice a year the Audit Committee meets separately with the external auditor, the Chief
Financial Officer and the Group Audit Director without other management being present. Further
details on the work of the Audit Committee and its oversight of the relationships with the
external auditor can be found under “Auditor” and the “Report from the Audit Committee” which are
set out on pages 60 and 61.
Nominations and Governance Committee
The members of the Nominations and Governance Committee during the year, together with a
record of their attendance at meetings which they were eligible to attend, are set out below:
| Meetings attended | ||||
Sir John Bond, Chairman |
7/7 | |||
John Buchanan |
7/7 | |||
Luc Vandevelde |
7/7 | |||
Anthony Watson (from 26 July 2010) |
5/5 | |||
The Nominations and Governance Committee’s key objective is to ensure that the Board comprises
individuals with the requisite skills, knowledge and experience to ensure that it is effective in
discharging its responsibilities. The Nominations and Governance Committee:
| • | leads the process for identifying and making recommendations to the Board of candidates for appointment as directors giving full consideration to succession planning and the leadership needs of the Group; | |
| • | makes recommendations to the Board on the composition of the Nominations and Governance Committee and the composition and chairmanship of the Audit and Remuneration Committees; | |
| • | regularly reviews the structure, size and composition of the Board including the balance of skills, knowledge and experience and the independence of the non-executive directors, and makes recommendations to the Board with regard to any change; and | |
| • | is responsible for the oversight of all matters relating to corporate governance, bringing any issues to the attention of the Board. |
During the financial year an external search was commissioned, using an independent consulting
firm which actively searches for female as well as male candidates, for a non-executive director
with relevant international experience in the high-tech sector. Renee James was identified as a
potential candidate and subsequently recommended to the Board by the Nominations and Governance
Committee on the basis that she met the desired criteria.
In February 2010 the Board initiated a succession planning process to search for a new chairman.
The independent consulting firm was provided with a detailed brief of the desired candidate
profile and their services were used to conduct a thorough search to identify suitable candidates.
The Nominations and Governance Committee considered a list of potential
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58 Vodafone Group Plc Annual Report 2011
Corporate governance continued
candidates and those shortlisted were met by members of the Board. Following an interview
process, Gerard Kleisterlee was invited to join the Board and to become Vodafone’s chairman in
succession to Sir John Bond. In accordance with the Combined Code, Sir John Bond did not chair the
Nominations and Governance Committee when dealing with the appointment of Mr Kleisterlee. The
Deputy Chairman took the chair. Mr Kleisterlee’s deep knowledge of the commercial sector, his
international experience and familiarity with business in emerging markets were factors in the
Board’s decision.
The Nominations and Governance Committee meets periodically when reguired. In addition to
scheduled meetings, there are a number of ad hoc meetings to address specific matters. No one
other than a member of the Nominations and Governance Committee is entitled to be present at its
meetings. The Chief Executive, other non-executive directors and external advisors may be invited
to attend.
Remuneration Committee
The members of the Remuneration Committee during the year, together with a record of their
attendance at scheduled meetings which they were eligible to attend, are set out below:
| Meetings attended | ||||
Luc Vandevelde, Chairman |
5/5 | |||
Samuel Jonah (from 1 June 2010) |
3/3 | |||
Simon Murray (until 27 July 2010) |
1/2 | |||
Anthony Watson |
5/5 | |||
Philip Yea |
5/5 | |||
In addition to scheduled meetings, there were a number of ad hoc meetings to deal with specific
matters. The responsibilities of the Remuneration Committee include:
| • | determining, on behalf of the Board, the policy on the remuneration of the Chairman, the executive directors and the senior management team; | |
| • | determining the total remuneration packages for these individuals including any compensation on termination of office; and | |
| • | appointing any consultants in respect of executive directors’ remuneration. |
The Chairman and Chief Executive may attend the Remuneration Committee’s meetings by invitation.
They do not attend when their individual remuneration is discussed. No director is involved in
deciding his or her own remuneration.
Further information on the Remuneration Committee’s activities is contained in “Directors’
remuneration” on pages 62 to 73.
Executive Committee
The executive directors, together with certain other Group functional heads and regional chief
executives, meet 11 times a year as the Executive Committee under the chairmanship of the Chief
Executive. The Executive Committee is responsible for our competitive and financial performance,
reviewing strategy and new business opportunities including major acquisitions and disposals, the
management of our capital structure and funding, and key organisational and policy decisions. The
members of the Executive Committee and their biographical details are set out on pages 52 and 54.
The Executive Committee members and the chief executive officers of the major operating companies
and other selected individuals, depending on topics discussed, met twice during the year to
discuss strategy.
Company Secretary
The Company Secretary acts as secretary to the Board and to the committees of the Board and,
with the consent of the Board, may delegate responsibility for the administration of the
committees to other suitably qualified staff. The Company Secretary:
| • | assists the Chairman in ensuring that all directors have full and timely access to all relevant information; |
| • | is responsible for ensuring that the correct Board procedures are followed and advises the Board on corporate governance matters; and | |
| • | administers the procedure under which directors can, where appropriate, obtain independent professional advice at the Company’s expense. |
The appointment or removal of the Company Secretary is a matter for the Board as a whole.
Relations with shareholders
We are committed to communicating our strategy and activities clearly to our shareholders and,
to that end, we maintain an active dialogue with investors through a planned programme of investor
relations activities. The investor relations programme includes:
| • | formal presentations of full year and half-year results, and interim management statements; | |
| • | briefing meetings with major institutional shareholders in the UK, the US and in Continental Europe after the half-year results and preliminary announcement, to ensure that the investor community receives a Balanced and complete view of our performance and the issues we face; | |
| • | regular meetings between institutional investors and analysts and the Chief Executive and Chief Financial Officer to discuss business performance; | |
| • | hosting investors and analysts sessions at which senior management from relevant operating companies deliver presentations which provide an overview of each of the individual businesses and operations; | |
| • | attendance by senior executives across the business at relevant meetings and conferences throughout the year; | |
| • | responding to enquiries from shareholders and analysts through our Investor Relations team; and | |
| • | www.vodafone.com/investor which is a section dedicated to shareholders on our website. |
Overall responsibility for ensuring that there is effective communication with investors and that
the Board understands the views of major shareholders on matters such as governance and strategy
rests with the Chairman, who makes himself available to meet shareholders for this purpose.
The Senior Independent Director and other members of the Board are also available to meet major
investors on request. The Senior Independent Director has a specific responsibility to be
available to shareholders who have concerns, for whom contact with the Chairman, Chief Executive
or Chief Financial Officer has either failed to resolve their concerns or for whom such contact is
inappropriate.
At the 2007 AGM the shareholders approved amendments to the articles of association which enabled
us to take advantage of the provisions in the Companies Act 2006 to communicate with our
shareholders electronically. Following that approval, unless a shareholder has specifically asked
to receive a hard copy, they will receive notification of the availability of the annual report on
our website www.vodafone.com/investor. For this year shareholders will receive the notice of
meeting and form of proxy in paper through the post unless they have previously opted to receive
email communications. We do not intend to send the notice of meeting and form of proxy to
shareholders in paper through the post for the 2012 financial year unless shareholders have
specifically asked to receive communications in hard copy. Shareholders continue to have the option
to appoint proxies and to give voting instructions electronically.
The principal communication with private investors is via the annual report and through the AGM,
an occasion which is attended by all our directors and at which all shareholders present are given
the opportunity to question the Chairman, the Chairmen of the Audit, Nominations and Governance,
and Remuneration Committees and the rest of the Board. After the AGM shareholders can meet
informally with directors.
A summary presentation of results and development plans is also given at the AGM before the
Chairman deals with the formal business of the meeting. The AGM is broadcast live on our website
(www.vodafone.com/agm) and a recording of the webcast can subsequently be viewed on our website.
All
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Vodafone Group Plc Annual Report 2011 59
Governance
substantive resolutions at our AGMs are decided on a poll. The poll is conducted by our
registrars and scrutinised by Electoral Reform Services. The proxy votes cast in relation to all
resolutions, including details of votes withheld, are disclosed to those in attendance at the
meeting and the results of the poll are published on our website and announced via the Regulatory
News Service. Financial and other information is made available on our website
(www.vodafone.com/investor) which is regularly updated.
A summary of our share and control structures is set out on pages 135 and 136 in the shareholder
information section of this report.
Political donations
The directors consider that it is in the best interest of shareholders that we participate in
public debate and opinion forming on matters which affect our business. In order not to inhibit
these activities and to avoid inadvertent infringement of the Companies Act 2006, at the 2008 AGM
the directors sought and received shareholders’ approval for the Company and its subsidiaries to
be authorised, for the purposes of part 14 of the Companies Act 2006, to make political donations
and to incur political expenditure during the period from the AGM to the conclusion of the AGM for
the 2012 financial year or 29 July 2012, whichever is earlier, up to a maximum aggregate amount of
£100,000 per year. Neither the Company nor any of its subsidiaries have made any such political
donations during the year. It is our Group policy not to make political donations or incur
political expenditure as those expressions are normally understood.
Internal control
The Board has overall responsibility for the system of internal control. A sound system of
internal control is designed to manage rather than eliminate the risk of failure to achieve
business objectives and can only provide reasonable and not absolute assurance against material
misstatement or loss. The process of managing the risks associated with social, environmental and
ethical impacts is also discussed under “Sustainable business” on pages 30 to 31.
The Board has established procedures that implement in full the Turnbull Guidance “Internal
Control: Revised Guidance for Directors on the Combined Code” for the year under review and to the
date of approval of the annual report. These procedures, which are subject to regular review,
provide an ongoing process for identifying, evaluating and managing the significant risks we face.
See page 75 for management’s report on internal control over financial reporting.
Monitoring and review activities
There are clear processes for monitoring the system of internal control and reporting any
significant control failings or weaknesses together with details of corrective action. These
include:
| • | a formal annual confirmation provided by the Chief Executive and Chief Financial Officer of each Group company certifying the operation of their control systems and highlighting any weaknesses, the results of which are reviewed by regional management, the Audit Committee and the Board; | |
| • | a review of the appropriateness of disclosures undertaken by the Chief Executive and the Chief Financial Officer which includes formal annual meetings with the Group’s Disclosure Committee; and | |
| • | periodic examination of business processes on a risk basis including reports on controls throughout the Group undertaken by the Group internal audit department which reports directly to the Audit Committee. |
In addition, we review any reports from the external auditor presented to the Audit Committee and
management relating to internal financial controls.
Any controls and procedures, no matter how well designed and operated, can provide only reasonable
and not absolute assurance of achieving the desired control objectives. Management is required to
apply judgement in evaluating the risks we face in achieving our objectives, in determining the
risks that are considered acceptable to bear, in assessing the likelihood of the risks concerned
materialising, in identifying our ability to reduce the
incidence and impact on the business of risks that do materialise and in ensuring that the costs
of operating particular controls are proportionate to the benefit.
Risk management
We have a Risk Council to manage the process of identifying, evaluating, monitoring and
mitigating risks. The Risk Council is chaired by the Chief Financial Officer, facilitated by the
Group Audit Director and attended by representatives from the two geographic regions, finance and a
cross section of functions. Meeting twice a year, the Risk Council discusses and reviews the risks
identified by the senior management of the regions and functions in their area of business. The
risks are plotted on a “risk matrix” on the basis of the likelihood of those risks occurring and
the impact if they do occur taking into consideration the action being taken to manage and mitigate
them. Those risk assessments are presented to the Executive Committee and the Audit Committee which
in turn report to the Board for review and confirmation. The Group risks identified through this
process are included in “Principal risk factors and uncertainties” on pages 45 and 46. The Risk
Council ensures the ongoing review of risks to the business, the controls in place to mitigate
risks and identifies any further action required.
Risk mitigation
Although many risks remain outside of our direct control, a range of activities are in place
to mitigate the primary risks identified including those set out on pages 45 to 46. A significant
number of risks faced relate to the wider operational and commercial affairs of the Group
including those in relation to competitor and regulator activity, the impact of technological
developments, the development of new products and services, the success of cost reduction
initiatives, the realisation of benefits from investments and the potential reliance on certain
suppliers. The responsibility for the Group’s actions to address and mitigate these risks is
either allocated to personnel with direct functional responsibility for the matter or to operating
company and regional management with appropriate reporting and monitoring by the Risk Council and
Executive Committee. The size of the Group’s operations, its geographical spread and its large and
diverse customer base assist in mitigating these risks.
A range of mitigations for other risks faced by the Group are also in place:
| • | Macroeconomic, political and legal risks are considered by the Group’s strategic planning process and as part of the Group’s processes for capital allocation. | |
| • | The Group has in place formal treasury policies that seek to ensure the Group’s financing plans place appropriate weight on the risks arising from volatile capital markets. | |
| • | Where we do not have controlling interests in certain of our investments, we work with our partners to maximise alignment of interests through the development of mutually beneficial commercial outcomes and actively involve ourselves in the governance of the company concerned. | |
| • | The potential for health risks is comprehensively addressed through a wide range of activities including the close monitoring of developments in areas of science and technology and ensuring the devices sold meet all necessary regulatory requirements including specific absorption rate (‘SAR’) limits in relation to radio frequency emission and absorption. | |
| • | We have invested significantly to minimise the risk of disruption of our telecommunications services and have extensive business continuity arrangements to mitigate the risks arising from a critical system failure. |
Activity and progress on these matters are reported both into the Risk Council and the Executive
Committee.
Review of effectiveness
The Board and the Audit Committee have reviewed the effectiveness of the internal control
system including financial, operational and compliance controls and risk management, in accordance
with the Combined Code for the period from 1 April 2010 to 17 May 2011 (the date of approval of
our annual report). No significant failings or weaknesses were identified during this review.
However, had there been any such failings or weaknesses, the Board confirms that necessary actions
would have been taken to remedy them.
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60 Vodafone Group Plc Annual Report 2011
Corporate governance continued
Disclosure controls and procedures
We maintain “disclosure controls and procedures”, as such term is defined in Rule 13a-15(e) of
the Exchange Act, that are designed to ensure that information required to be disclosed in reports
that we file or submit under the Exchange Act is recorded, processed, summarised and reported
within the time periods specified in the SEC’s rules and forms, and that such information is
accumulated and communicated to management, including our Chief Executive and Chief Financial
Officer as appropriate, to allow timely decisions regarding required disclosure.
The directors, the Chief Executive and the Chief Financial Officer have evaluated the
effectiveness of the disclosure controls and procedures and, based on that evaluation, have
concluded that the disclosure controls and procedures are effective at the end of the period
covered by this document.
Going concern
The going concern statement required by the Listing Rules and the Combined Code is set out in
the “Directors’ statement of responsibility” on page 75.
Auditor
Following a recommendation by the Audit Committee, and in accordance with Section 489 of the
Companies Act 2006, a resolution proposing the reappointment of Deloitte LLP as our auditor will
be put to the shareholders at the 2011 AGM. We do not indemnify our external auditor.
In its assessment of the independence of the auditor and in accordance with the US Public Company
Accounting Oversight Board’s standard on independence, the Audit Committee receives in writing
details of relationships between the Company and Deloitte LLP that may have a bearing on their
independence and receives confirmation that they are independent of the Company within the meaning
of the securities laws administered by the SEC.
In addition, the Audit Committee pre-approves the audit fee after a review of both the level of
the audit fee against other comparable companies, including those in the telecommunications
industry, and the level and nature of non-audit fees, as part of its review of the adequacy and
objectivity of the audit process.
In a further measure to ensure auditor independence is not compromised we have a policy that
provides for the pre-approval by the Audit Committee of permitted non-audit services by Deloitte
LLP. The policy lists categories of non-audit services from which the auditor is excluded from
providing. For certain specific permitted services the Audit Committee has pre-approved that
Deloitte LLP can be engaged by management subject to specified fee limits for individual
engagements and fee limits for each type of specific service permitted. For all other services, or
those permitted services that exceed the specified fee limits, the Chairman of the Audit Committee,
or in his absence another member, can pre-approve permitted services which have not been
pre-approved by the Audit Committee.
In addition to their statutory duties, Deloitte LLP is also engaged where, as a result of their
position as auditor, they either must, or are best placed to, perform the audit-related services
in question. This is primarily work in relation to matters such as shareholder circulars, Group
borrowings, regulatory filings, and certain business acquisitions and disposals. Other work is
awarded on the basis of competitive tender.
During the year Deloitte LLP and its affiliates charged the Group £9 million (2010: £9 million,
2009: £8 million) for audit and audit-related services and a further £1 million (2010: £1 million,
2009: £1 million) for non-audit assignments which primarily comprised fees in relation to a number
of taxation assignments totalling £1 million (2010: £1 million, 2009: £1 million). The auditor was
considered the most suitable supplier for the services given its extensive knowledge of the Group.
After reviewing external requirements and guidelines in place, the types of services rendered were
considered by the Audit Committee not to impact the objectivity and independence of Deloitte LLP.
An analysis of these fees can be found in note 4 to the consolidated financial statements.
US listing requirements
Vodafone’s american depositary shares are listed on the NASDAQ Stock Market LLC (‘NASDAQ’) and
we are therefore subject to the rules of NASDAQ as well as US securities laws and the rules of the
SEC. NASDAQ requires US companies listed on the exchange to comply with NASDAQ’s corporate
governance rules but foreign private issuers, such as the Company, are exempt from many of those
rules. However, pursuant to NASDAQ Listing Rule 5615 we are required to disclose a summary of any
material ways in which the corporate governance practices we follow differ from those required by
NASDAQ for US companies. The material differences are as follows:
Independence
| • | The NASDAQ rules require that a majority of the Board be comprised of independent directors and the rules include detailed definitions that US companies must use for determining independence. | |
| • | The Combined Code requires a company’s board of directors to assess and make a determination as to the independence of its directors. |
While the Board does not explicitly take into consideration NASDAQ’s detailed definitions, it has
carried out an assessment based on the requirements of the Combined Code and has determined in its
judgement that all of the non-executive directors are independent within those requirements. At 17
May 2011 the Board comprised the Chairman, four executive directors and ten non-executive
directors.
Committees
| • | NASDAQ rules require US companies to have a nominations committee, an audit committee and a compensation committee, each composed entirely of independent directors, with the nominations committee and audit committee required to have a written charter that addresses the committees’ purpose and responsibilities. | |
| • | Both our Nominations and Governance Committee and our Remuneration Committee have terms of reference and compositions that comply with the Combined Code’s requirements. | |
| • | Our Nominations and Governance Committee is chaired by the Chairman of the Board and its other members are non-executive directors of the Company. | |
| • | Our Remuneration Committee is composed entirely of non-executive directors whom the Board has determined to be independent. | |
| • | The Audit Committee is composed entirely of non-executive directors whom the Board has determined to be independent and who meet the requirements of Rule 10A-3 under the Exchange Act. |
We consider that the terms of reference of these committees, which are available on our website
(www.vodafone.com/governance), are generally responsive to the relevant NASDAQ rules but may not
address all aspects of these rules.
Code of conduct
Under NASDAQ rules US companies must adopt a code of conduct applicable to all directors,
officers and employees. We have adopted a Code of Conduct which applies to all employees. It sets
out what conduct is expected of employees as they adhere to our Business Principles and draws
their attention to the Group’s policies. In addition, a Code of Ethics has been adopted in
compliance with Section 406 of the Sarbanes-Oxley Act which is applicable to the senior financial
and principal executive officers. We have made our Code of Ethics available on our website
(www.vodafone.com/ governance).
Quorum
Under NASDAQ rules companies are required to have a minimum quorum of 33.33% of the
shareholders of ordinary shares for shareholder meetings. However, our articles of association
provide for a quorum for general meetings of shareholders of two shareholders regardless of the
level of their aggregate share ownership.
Table of Contents
Vodafone Group Plc Annual Report 2011 61
Governance
Related party transactions
| • | The NASDAQ rules require companies to conduct appropriate reviews of related party transactions and potential conflicts of interest via the company’s audit committee or other independent body of the board of directors. | |
| • | We are subject to extensive provisions under the Listing Rules issued by the FSA in the UK (the “Listing Rules”) governing transactions with related parties, as defined therein, and the Companies Act 2006 also restricts the extent to which companies incorporated in England and Wales may enter into related party transactions. | |
| • | Our articles of association contain provisions regarding disclosure of interests by our directors and restrictions on their votes in circumstances involving conflicts of interest. | |
| • | In lieu of obtaining an independent review of related party transactions for conflicts of interests, but in accordance with the Listing Rules, the Companies Act 2006 and our articles of association, we seek shareholder approval for related party transactions that meet certain financial thresholds or where transactions have unusual features. |
| • | The concept of a related party for the purposes of NASDAQ’s listing rules differs in certain respects from the definition of a transaction with a related party under the Listing Rules. |
Shareholder approval
| • | NASDAQ requires shareholder approval for certain transactions involving the sale or issuance by a listed company of share capital. | |
| • | Under the NASDAQ rules, whether shareholder approval is required for such transactions depends on, among other things, the number of shares to be issued or sold in connection with a transaction, while we are bound by the provisions of the Listing Rules which state that shareholder approval is required, among other things, when the size of a transaction exceeds a certain percentage of the size of the listed company undertaking the transaction. | |
| • | In accordance with our articles of association we also seek shareholder approval annually for issuing shares and to dis-apply the pre-emption rights that apply under law in line with limit guidelines issued by investor bodies. |
Report from the Audit Committee
The Audit Committee assists the Board in carrying out its responsibilities in relation to
financial reporting requirements, risk management and the assessment of internal controls. The
Audit Committee also reviews the effectiveness of the Company’s internal audit function and
manages the Company’s relationship with the external auditor. For further details, its terms of
reference can be found on the Vodafone website (www.vodafone. com/governance).
The Audit Committee is composed of independent, non-executive directors selected to provide the
wide range of financial and commercial expertise necessary to fulfil the Committee’s duties. The
membership of the Committee is set out in the table on page 57. By invitation of the Chairman of
the Audit Committee, the Chief Executive, the Chief Financial Officer, the Group Financial
Controller, the Director of Financial Reporting, the Group Audit Director and the external auditor
also attend the Audit Committee meetings. Relevant people from the business are also invited to
attend certain meetings in order to provide insight and enhance the Audit Committee’s awareness of
key issues and developments in the business which are relevant to the Audit Committee in the
performance of its role.
During the year ended 31 March 2011 the principal activities of the Audit Committee were as
follows:
Financial reporting
The Audit Committee reviewed and discussed with management and the external auditor the
half-year and annual financial statements focusing on, amongst other matters:
| • | the quality and acceptability of accounting policies and practices; | |
| • | the clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance reporting requirements; and | |
| • | material areas in which significant judgements have been applied. |
To aid their review, the Audit Committee considered reports from the Group Financial Controller
and the Director of Financial Reporting and also reports from the
external auditor, Deloitte LLP,
on the scope and outcome of their half-year review and annual audit.
Risk management and internal control
The Audit Committee reviewed the process by which the Group evaluated its control environment,
its risk assessment process and the way in which significant business risks were managed. It also
considered the Group Audit Director’s reports on the effectiveness of internal controls,
significant identified frauds and any identified fraud that involved management or employees with a
significant role in internal controls. The Audit Committee was also responsible for oversight of
the Group’s compliance activities in relation to section 404 of the Sarbanes-Oxley Act.
Internal audit
The Audit Committee monitored and reviewed the scope, extent and effectiveness of the activity
of the Group Internal Audit department and received reports from the Group Audit Director which
included updates on audit activities, progress of the Group audit plan, the results of any
unsatisfactory audits and the action plans to address these areas, and resource requirements of the
internal audit department. The Audit Committee held private discussions with the Group Audit
Director as necessary throughout the year.
External auditor
The Audit Committee reviewed and monitored the independence of the external auditor and the
objectivity and effectiveness of the audit process and provided the Board with its recommendation
to the shareholders on the reappointment of Deloitte LLP as external auditor. The Audit Committee
approved the scope and fees for audit services and, after consideration of whether they were
permissible under the Group’s policies, non-audit services provided by Deloitte LLP.
Private meetings were held with Deloitte LLP without management being present to ensure that there
were no restrictions on the scope or independence of their audit.
Audit Committee effectiveness
The Audit Committee conducts a formal review of its effectiveness annually and concluded that
its performance was effective. Details of the Board and Committee evaluation process can be found
under “Performance evaluation” on page 56.
Nick Land
On behalf of the Audit Committee
On behalf of the Audit Committee
Table of Contents
62 Vodafone Group Plc Annual Report 2011
Directors’ remuneration
Letter from the Remuneration Committee
Dear Shareholder
Although business conditions were somewhat more stable this year compared to the prior year, the
global economy still remained challenging. As a consequence, the Remuneration Committee has
maintained its focus on ensuring that the Company’s remuneration policies in general, and the
packages of the executive directors in particular, were designed to allow the Company to recruit,
retain and motivate its talented people and to ensure those people were fully incentivised to
maximise shareholder value.
The key principles of our reward philosophy are set out on page 63. Each year the Remuneration
Committee reviews these principles as well as the operation and design of the compensation
packages provided to executives. If changes are required, the Committee is both willing and able
to effect those changes. The key changes made during the year are detailed below:
| • | In order to reflect the equal importance of growing revenue and profit we rebalanced the relative weightings of these two measures in the short-term incentive plan. At the same time we also changed the definition of profit from adjusted operating profit to adjusted EBITDA. Details of this are on page 65. | |
| • | In order to simplify the long-term incentive awards both the co-investment requirement and the matching awards are now defined in terms of a percentage of gross salary. Details of this plan are on page 64. |
| • | In order to ensure greater alignment with shareholders we have re-emphasised the importance of share ownership for executives and have introduced share ownership goals to all our operating company chief executives and to the rest of the senior leadership team. Details of the current ownership levels are on page 63 where it is noted that at the year end the value of shares held by the Executive Committee exceeded £15 million. | |
| • | Finally after reviewing base salaries for the Executive Committee it was decided appropriate to make some modest salary increases. Details of the increases for the executive directors are found on page 67 but it should be noted that the average increase for the Executive Committee is 3% which is in line with general increases for employees of the Group based in the UK. |
As in previous years the Remuneration Committee has had dialogue with its shareholders about the
changes and appreciates the feedback from them. The Remuneration Committee will continue to take
an active interest in investors’ views and the voting on the remuneration report. As such, it
hopes to receive your support at the AGM on 26 July 2011.
Luc Vandevelde
Chairman of the Remuneration Committee
17 May 2011
Chairman of the Remuneration Committee
17 May 2011
Remuneration Committee
The Remuneration Committee is comprised to exercise independent judgement and consists only
of independent non-executive directors. In anticipation of the retirement of Simon Murray on 27
July 2010, the Board appointed Samuel Jonah to the Remuneration Committee. Further details can
be found on page 58.
Remuneration Committee
| Chairman | Luc Vandevelde | |
Committee members
|
Samuel Jonah (from 1 June 2010) | |
| Simon Murray (until 27 July 2010) | ||
| Anthony Watson | ||
| Philip Yea | ||
The Remuneration Committee regularly consults with the Chief Executive and the Group HR
Director on various matters relating to the appropriateness of awards for executive directors and
senior executives, though they are not present when their own compensation is discussed. In
addition, the Group Reward and Policy Director provides a perspective on information provided to
the Committee, and requests information and analyses from external advisors as required. The
Deputy Group Company Secretary advises the Committee on corporate governance guidelines and acts
as secretary to the Committee.
Management attendees at Remuneration
Committee meetings
Committee meetings
| Chief Executive | Vittorio Colao | |
Group HR Director
|
Ronald Schellekens | |
Group Reward and Policy Director
|
Adrian Jackson | |
Deputy Group Company Secretary
|
Philip Howie | |
External advisors
The Remuneration Committee appointed Towers Watson (‘TW’) and PricewaterhouseCoopers LLP (‘pwc’)
as independent advisors in 2007. During the year TW supplied market data and advice on market
practice and governance and pwc provided performance analyses and advice on plan design and
performance measures. The advisors also provided advice to the Company on general human resource
and compensation related matters. In addition, pwc provided a broad range of tax, share scheme and
advisory services to the Group during the year.
As noted in his biographical details on page 53 of this annual report, Philip Yea sits on an
advisory board for pwc. In light of their role as advisor to the Remuneration Committee on
remuneration matters, the Committee continue to consider this position and have determined that
there is no conflict or potential conflict arising.
Meetings
The Remuneration Committee had five meetings during the year. The Committee’s work during
these meetings and throughout the year included, but was not limited to:
| • | a review of the total compensation packages of the executive directors and the most senior management of the company; | |
| • | approval of the global short-term incentive bonus framework and targets; | |
| • | approval of the 2011 global short-term incentive bonus payout; | |
| • | approval of the long-term incentive framework, targets and 2011 grant levels; | |
| • | approval of the July 2008 global long-term incentive vesting level; | |
| • | approval of the introduction of share ownership goals to all operating company chief executive officers and selected senior leadership individuals below the Board and Executive Committee; | |
| • | a review of the current UK corporate governance environment and the implications for our company; | |
| • | a review of the director’s remuneration report; and | |
| • | a review of Chairman’s fees. |
On an annual basis, the Committee’s effectiveness is reviewed as part of the evaluation of the
Board.
Table of Contents
Vodafone Group Plc Annual Report 2011 63
Governance
Reward philosophy
The principles of reward, as well as the individual elements of the reward package, are
reviewed each year to ensure that they continue to support our company strategy. These principles
are set out below.
Competitive reward assessed on a total compensation basis
Vodafone wishes to provide a level of remuneration which attracts, retains and motivates
executive directors of the highest calibre. Within the package there needs to be the opportunity
for executive directors to achieve significant upside for truly exceptional performance. The
package provided to the executive directors is reviewed annually on a total compensation basis
i.e. single elements of the package are not reviewed in isolation. When the package is reviewed it
is done so in the context of individual and company performance, internal relativities,
criticality of the individual to the business, experience and the scarcity or otherwise of talent
with the relevant skill set.
The principal external comparator group (which is used for reference purposes only) is made up of
companies of similar size and complexity to Vodafone, and is principally representative of the
European top 25 companies and a few other select companies relevant to the sector. The comparator
group excludes any financial services companies. When undertaking the benchmarking process the
Remuneration Committee makes assumptions that individuals will invest their own money into the
long-term incentive plan. This means that individuals will need to make a significant investment in
order to achieve the maximum payout.
Pay for performance
A high proportion of total reward will be awarded through short-term and long-term performance
related remuneration. The Remuneration Committee believes that incorporating and setting
appropriate performance measures and targets in the package is
paramount – this will be reflected in
an appropriate balance of operational and equity performance.
This is demonstrated in the charts below where we see that at target payout over 70% of the package
is delivered in the form of variable pay which rises to almost 90% if maximum payout is achieved.
Fixed pay comprises base salary and pension contributions, while variable pay comprises the annual
bonus and the long-term incentive opportunity assuming maximum co-investment and no movement in
current share price.
Alignment to shareholder interests
Note:
| (1) | Proportions for the directors other than the Chief Executive are the same. |
Share ownership is a key cornerstone of our reward policy and is designed to help maintain
commitment over the long-term, and to ensure that the interests of our senior management team are
aligned with those of shareholders. Executive directors are expected to build and maintain a
significant shareholding in Vodafone shares as follows:
| • | Chief Executive — four times base salary; and | |
| • | Other executive directors — three times base salary. |
In all cases executives have been given five years to achieve these goals.
Current levels of ownership and the date by which the goal should be or was required to be
achieved are as shown below:
| Value of | ||||||||||||||||
| Goal as a | Current% | shareholding | Date for goal | |||||||||||||
| % of salary | of salary held(1) | (£m)(1) | to be achieved | |||||||||||||
Vittorio Colao |
400 | % | 460 | % | 4.9 | July 2012 | ||||||||||
Andy Halford |
300 | % | 634 | % | 4.4 | July 2010 | ||||||||||
Michel Combes |
300 | % | 154 | % | 1.2 | June 2014 | ||||||||||
Stephen Pusey |
300 | % | 240 | % | 1.3 | June 2014 | ||||||||||
Note:
| (1) | Based on a share price at 31 March 2011 of 176.5 pence and includes net intrinsic value of any option gains. |
Collectively the Executive Committee including the executive directors own 8.7 million
Vodafone shares, with a value of £15.2 million at 31 March 2011.
Alignment with shareholders is also achieved through the use of total shareholder return (‘TSR’)
measure in the Global Long-Term Incentive (‘GLTI’) plan.
Incentive targets linked to business strategy
When designing our incentives, performance measures are chosen that support our strategic
objectives as shown below:
| Strategic objectives | Supported by | |
Focus on key areas of growth
potential — Aiming to deliver organic
service revenue growth of 1 — 4% a year
until the year ended 31 March 2014 in
five key areas: mobile data, emerging
markets, enterprise, total
communications and new services.
|
Revenue and relative performance targets in the Global Short-Term Incentive Plan (‘GSTIP’). | |
Delivering value and efficiency from
scale — Continuing to drive benefit from
the Group’s scale advantage and maintain
our focus on cost.
|
Adjusted EBITDA, free cash flow and relative performance targets in the GSTIP. | |
Generate liquidity or free cash flow
from non-controlled interests — Aim to
seek to maximise the value of
non-controlled interests through
generating liquidity or increasing free
cash flow in order to fund profitable
investments and enhance shareholders
returns.
|
The use of TSR as a performance measure in GLTI as well as the value of the underlying shares. | |
Apply rigorous capital discipline to
investment decisions — Continuing to
apply capital discipline to our
investment decisions through rigorous
commercial analysis and demanding
investment criteria to ensure any
investment in existing businesses or
acquisitions will enhance value for
shareholders.
|
Free cash flow targets in both the GSTIP and GLTI as well as the TSR target in the GLTI. | |
Assessment of risk
In setting the balance between base salary, annual bonus and long-term incentive levels, the
Remuneration Committee has considered the risk involved in the incentive schemes and is satisfied
that the following design elements mitigate the principal risks:
| • | the heavy weighting on long-term incentives which reward sustained performance; | |
| • | the need for short-term incentive payouts to be used to purchase and hold investment shares in order to fully participate in the long-term arrangements; and | |
| • | a considerable weighting on non—financial measures in the short-term plan, which provides an external perspective on our performance by focusing on customer satisfaction and performance relative to our competitors. |
The Remuneration Committee will continue to consider the risks involved in the incentive plans on
an ongoing basis.
Table of Contents
64 Vodafone Group Plc Annual Report 2011
Directors’ remuneration continued
The remuneration package
The table below summarises the main components of the reward package for executive directors.
| Objective and practice | Performance period | Award size and performance conditions | ||||
Base salary
|
• To attract and retain the best talent. • Base salaries are reviewed annually and set on 1 July.
|
n/a |
• Level of skill and experience, scope of responsibilities, individual and business performance, and competitiveness of the total remuneration package are taken into account when determining the appropriate level of base salary. |
|||
Global Short-Term Incentive Plan (‘GSTIP’)
|
• To motivate employees and incentivise delivery of performance over the one-year operating cycle.
• Bonus levels and the appropriateness of measures and weightings are reviewed annually to ensure they continue to support our strategy.
|
1 year |
• Performance over the financial year is measured against stretching financial and non-financial performance targets set at the start of the financial year.
• Summary of the plan in the 2011 financial year: |
|||
|
• The annual bonus is paid in cash in June each year for performance over the previous financial year.
|
– service revenue (30%);
– operating profit (20%);
– free cash flow (20%); and
– competitive performance assessment (30%).
• Target bonus is 100% of base salary.
• Minimum and maximum bonus is in a range of 0 — 200% of base salary with maximum only paid out for exceptional performance. |
|||||
Global Long-Term Incentive Plan (‘GLTI’) base awards
|
• To motivate and incentivise delivery of sustained performance over the long-term.
• Award levels and the framework for determining vesting are reviewed annually to ensure they continue to support our strategy.
|
3 years |
• Performance over three financial years is measured against stretching targets set at the beginning of the performance period.
• Vesting is determined based on a matrix of two measures as follows: |
|||
|
• Long-term incentive awards (base awards) consist of performance shares which are granted each year in June/July and vest three years later based on Group operational and external performance.
|
– free cash flow as our operational performance measure; and
– relative TSR as our external performance measure.
• Awards vest to the extent performance conditions are satisfied, three years from grant.
• The Chief Executive’s base award will have a target face value of 137.5% of base salary as of June 2011. The base award for the other executive directors will have a target face value of 110% of base salary as of June 2011.
• Minimum vesting is zero times and maximum vesting is four times the base award level. |
|||||
Global Long-Term Incentive Plan (‘GLTI’)
co-investment matching awards
|
• To support and encourage greater shareholder alignment through a high level of personal financial commitment.
• Individuals may purchase Vodafone shares and hold them in trust for three years in order to receive additional performance shares in the form of a GLTI matching award.
• GLTI matching awards are granted each year in June/July in line with the investment made, and vest three years later based on Group operational and external performance.
|
3 years |
• GLTI matching awards are subject to the same performance conditions as the main GLTI award.
• Executive directors can co-invest up to their annual gross salary.
• Matching awards will be granted on a one for one basis at target performance.
• Minimum vesting is zero times and maximum vesting is four times the target award level. |
|||
Other remuneration
In addition to base pay and incentive opportunities as described in the table above, the
Company offers a competitive package of retirement and other benefits as follows:
| • | Executive directors may choose to participate in the defined contribution pension scheme or to receive a cash allowance in lieu of pension. The cash payment or pension contribution is equal to 30% of annual gross salary. From 6 April 2011 contributions into the defined contribution pension scheme are restricted to £50,000 per annum. Any residual of the 30% pension benefit will be delivered as a cash allowance. | |
| • | Company car or cash allowance worth £19,200 per annum. | |
| • | Private medical insurance. | |
| • | Chauffeur services, where appropriate, to assist with their role. |
Table of Contents
Vodafone Group Plc Annual Report 2011 65
Governance
Awards made to executive directors during the 2011 financial year
| Reward elements | Vittorio Colao | Andy Halford | Michel Combes | Stephen Pusey | ||||
Base salary
|
Vittorio’s base salary was increased from £975,000 to £1,065,000 in July 2010. | Andy’s base salary was increased from £674,100 to £700,000 in July 2010. | Michel’s base salary was increased from £740,000 to £770,000 in July 2010. | Stephen’s base salary was increased from £500,000 to £550,000 in July 2010. | ||||
Annual bonus
|
The target bonus was £1,065,000 and the maximum bonus was £2,130,000. | The target bonus was £700,000 and the maximum bonus was £1,400,000. | The target bonus was £770,000 and the maximum bonus was £1,540,000 | The target bonus was £550,000 and the maximum bonus was £1,100,000. | ||||
Long-term incentive plan
|
In June 2010 the base award had a face value of 137.5% of base salary at target performance. | In June 2010 the base award had a face value of 110% of base salary at target performance. | In June 2010 the base award had a face value of 110% of base salary at target performance. | In June 2010 the base award had a face value of 110% of base salary at target performance. | ||||
Investment opportunity
|
Vittorio invested the maximum into the GLTI plan (731,796 shares) and therefore received a matching award with a face value of 100% of base salary at target. | Andy invested the maximum into the GLTI plan (506,910 shares) and therefore received a matching award with a face value of 100% of base salary at target. | Michel invested 53% of the maximum into the GLTI plan (275,960 shares) and therefore received a matching award with a face value of 53% of base salary at target. | Stephen invested 37% of the maximum into the GLTI plan (141,834 shares) and therefore received a matching award with a face value of 37% of base salary at target. | ||||
Pay and performance for the 2012 financial year
The Remuneration Committee considers the remuneration increases for the different groups of
employees across all of our local markets and other relevant factors when assessing the pay of the
executive directors. During its regular review of total compensation in March 2011, the
Remuneration Committee decided that due to an improvement in business performance, with a return to
revenue growth, and continued focus on profit and strong cash flow, that modest salary increases
for the executive directors would be appropriate. Individual increases will become effective from 1
July 2011 and are set out in the table on page 67. When determining these increases the
Remuneration Committee took into account the general increases in each of the major markets. It
should be noted that the average increase for the executive directors is 2.8% and for the whole of the
Executive Committee it is 3% which is in line with increases in the rest of the Group based in the
UK.
Details of the GSTIP
The short-term incentive plan rewards performance over the one year operating cycle. This plan
consists of four performance measures, three of which are financial measures with the fourth being
an assessment of our competitive performance including market share performance relative to our
competitors measured by revenue and profit, as well as customer endorsement and satisfaction
measured by net promoter score. Each performance measure has an individual weighting which is
reviewed each year to ensure alignment with our strategy. In the table below we describe our
achievement against each of the performance measures and the resulting total incentive payout level
for the year ended 31 March 2011.
| Performance achievement | ||||||||||||||||||||
| Between | Between | |||||||||||||||||||
| threshold | target and | Above | ||||||||||||||||||
| Performance measure | Weighting | Below threshold | and target | maximum | maximum | |||||||||||||||
Service revenue |
30 | % | ü | |||||||||||||||||
Profit |
20 | % | ü | |||||||||||||||||
Cash flow |
20 | % | ü | |||||||||||||||||
Competitive performance assessment |
30 | % | ü | |||||||||||||||||
| Total incentive payout level | 124.2 | % | ||||||||||||||||||
Changes to the GSTIP in 2012
For the 2012 financial year the framework for our annual incentive plan will remain the same as in
2011. However, to emphasise our focus on profitable growth we have rebalanced the weightings for
service revenue and profit so the two measures are equally weighted. As a result, the split of
weightings for our performance measures for the 2012 financial year will be:
| • | Service revenue – 25%; | |
| • | Profit (“earnings before interest tax depreciation amortisation”) – 25%; | |
| • | Free cash flow – 20%; and | |
| • | Competitive performance assessment – 30%. |
We believe these measures continue to support our strategy by capturing our underlying operational
performance, and our performance as viewed by our customers and in relation to our competition.
Table of Contents
66 Vodafone Group Plc Annual Report 2011
Directors’ remuneration continued
Details of the GLTI
The first award under the current GLTI plan was made in July 2008 (2009 financial year) and will
vest in July 2011. Details of how the plan works are included in the table on page 64. The extent
to which awards vest depend on two performance conditions:
| • | underlying operational performance as measured by free cash flow; and | |
| • | relative TSR against a peer group median. |
Free cash flow
The free cash flow performance is based on a three year cumulative adjusted free cash flow figure.
The definition of adjusted free cash flow is reported free cash flow excluding:
| • | Verizon Wireless additional distributions; | |
| • | the impact of any mergers, acquisitions and disposals; | |
| • | certain material one-off tax settlements; and | |
| • | foreign exchange rate movements over the performance period. |
The
cumulative adjusted free cash flow target and range for awards in the
2012, 2011, 2010 and 2009
financial years are shown in the table below:
| Vesting | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
| Performance | percentage | £bn | £bn | £bn | £bn | |||||||||||||||
Threshold |
50 | % | 16.70 | 18.00 | 15.50 | 15.50 | ||||||||||||||
Target |
100 | % | 19.20 | 20.50 | 18.00 | 17.50 | ||||||||||||||
Superior |
150 | % | 20.45 | 21.75 | 19.25 | 18.50 | ||||||||||||||
Maximum |
200 | % | 21.70 | 23.00 | 20.50 | 19.50 | ||||||||||||||
The target free cash flow level is set by reference to the Company’s three year plan and market
expectations. The Remuneration Committee considers the targets to be critical to the Company’s
long-term success and its ability to maximise shareholder value, and to be in line with the
strategic goals of the Company. The Remuneration Committee also considers these targets to be
sufficiently demanding with significant stretch where only outstanding performance will be rewarded
with a maximum payout.
TSR out-performance of a peer group median
We have a limited number of appropriate peers and this makes the measurement of a relative ranking
system volatile. As such, the out-performance of the median of a peer group is felt to be the most
appropriate TSR measure. The peer group for the performance condition
for the 2011, 2010 and 2009
financial years is:
| • | BT Group; | |
| • | Deutsche Telekom; | |
| • | France Telecom; | |
| • | Telecom Italia; | |
| • | Telefonica; and | |
| • | Emerging market composite (consists of the average TSR performance of Bharti, MTN and Turkcell). |
The relative TSR position will determine the performance multiplier. This will be applied to the
free cash flow vesting percentage. There will be no multiplier until TSR performance exceeds median.
Above median the following table will apply to the 2012, 2011, 2010 and 2009 financial years (with
linear interpolation between points):
| Out- | ||||||||
| performance | ||||||||
| of peer group | ||||||||
| median | Multiplier | |||||||
Median |
0.0% p.a. | No increase | ||||||
65th percentile |
4.5% p.a. | 1.5 times | ||||||
80th percentile (upper quintile) |
9.0% p.a. | 2.0 times | ||||||
The performance measure has been calibrated using standard techniques.
Combined vesting matrix
The combination of the two performance measures gives a combined vesting matrix as follows:
| TSR performance | ||||||||||||
| Free cash flow measure | Up to median | 65th | 80th | |||||||||
Threshold |
50 | % | 75 | % | 100 | % | ||||||
Target |
100 | % | 150 | % | 200 | % | ||||||
Superior |
150 | % | 225 | % | 300 | % | ||||||
Maximum |
200 | % | 300 | % | 400 | % | ||||||
The combined vesting percentages are applied to the target number of shares granted.
Table of Contents
Vodafone Group Plc Annual Report 2011 67
Governance
Performance shares vesting in 2011
Adjusted free cash flow for the three year period ended on 31 March 2011 was £16.9 billion and the
graph below shows our TSR performance against our peer group for the same period resulted in an
outperformance of the median by 3.9%. Using the matrix above, this results in a payout of 30.6%
of the maximum. These shares will vest in July 2011.
The free cash flow performance is approved by the Remuneration Committee. The performance
assessment in respect of the TSR out-performance of a peer group median is undertaken by pwc.
Pay for the 2012 financial year
The information provided in the table below explains what the executive directors who were on
the Board on 31 March 2011 will actually receive from base salary and awards made previously with
performance conditions which ended on 31 March 2011 but that will vest in the 2012 financial year.
| Vittorio Colao | Andy Halford | Michel Combes | Stephen Pusey | |||||||||||||
Base salary |
||||||||||||||||
Base salary effective from July 2011 |
£ | 1,110,000 | £ | 700,000 | £ | 790,000 | £ | 575,000 | ||||||||
GSTIP
(Annual bonus) (1) |
||||||||||||||||
Target (100% of base salary at 31 March 2011) |
£ | 1,065,000 | £ | 700,000 | £ | 770,000 | £ | 550,000 | ||||||||
Percentage of target achieved for the 2011 financial year |
124.2 | % | 124.2 | % | 96.8 | % | 124.2 | % | ||||||||
Actual bonus payout in June 2011 |
£ | 1,322,730 | £ | 869,400 | £ | 745,052 | £ | 683,100 | ||||||||
GLTI performance shares |
||||||||||||||||
GLTI performance base share awarded in July 2008 |
4,126,587 | 2,282,447 | 2,589,782 | 942,132 | ||||||||||||
GLTI performance match share awarded in July 2008 |
3,001,154 | 2,074,952 | 736,919 | 500,844 | ||||||||||||
Vesting percentage based on cumulative adjusted three
year free cash flow and TSR out-performance |
30.6 | % | 30.6 | % | 30.6 | % | 30.6 | % | ||||||||
GLTI performance shares vesting in 2011 |
2,181,088 | 1,333,363 | 1,017,970 | 441,550 | ||||||||||||
| Note: | ||
| (1) | The executive directors’ GSTIP for the 2011 financial year is payable in June 2011 with actual payments detailed in the table above. Vittorio Colao, Andy Halford and Stephen Pusey were measured solely against Group performance, whilst Michel Combes was measured on both Group and Europe region performance. | |
Table of Contents
68 Vodafone Group Plc Annual Report 2011
Directors’ remuneration continued
Other considerations
Service contracts of executive directors
The Remuneration Committee has determined that after an initial term of up to two years’
duration executive directors’ contracts should thereafter have rolling terms and be terminable on
no more than 12 months notice.
The table below summarises the key elements of their service contract:
| Provision | Detailed items | |||
| Notice period | 12 months | |||
| Retirement date | Normal retirement date | |||
| Termination payment | Up to 12 months salary Bonus paid up to termination day Entitlements under incentive plans and benefits that are consistent with the terms of such plans |
|||
| Remuneration | Salary, pension, and benefits Company car or cash allowance Participation in the GSTIP, GLTI and the employee share schemes |
|||
| Non-competition | During employment and for 12 months thereafter | |||
Contract dates
|
Date of service agreement |
Length of Board service | ||
Vittorio Colao
|
27 May 2008 | 2 years 10 months | ||
Andy Halford
|
20 May 2005 | 5 years 10 months | ||
Michel Combes
|
1 June 2009 | 1 year 10 months | ||
Stephen Pusey
|
1 June 2009 | 1 year 10 months | ||
Additionally, all of the Company’s share plans contain provisions relating to a change of
control. Outstanding awards and options would normally vest and become exercisable on a change of
control to the extent that any performance condition has been satisfied. The Remuneration Committee
may also decide that the extent to which an award will vest will be further reduced pro-rata to
reflect the acceleration of vesting.
Fees retained for external non-executive directorships
Executive directors may hold positions in other companies as non-executive directors. Michel
Combes was the only executive director with such positions held at Assystem SA and ISS Group, and
in accordance with Group policy he retained fees for the year of €50,223 from Assystem SA and
DKK243,750 from ISS Group (£73,250 in total).
Cascade to senior management
The principles of the policy are cascaded, where appropriate, to the other members of the
Executive Committee as set out below.
| Cascade of policy to Executive Committee – 2011 financial year | ||
Total remuneration and base salary
|
||
Methodology consistent with the executive directors. |
||
Annual bonus |
||
The annual bonus is based on the same measures. For some individuals these are measured
within a region rather than across the whole Group. |
||
| Cascade of policy to Executive Committee – 2011 financial year | ||
Long-term incentive
|
||
The long-term incentive is consistent with the executive directors including the opportunity to
invest in the GLTI to receive matching awards. In addition, Executive Committee members have a
share ownership requirement of two times base salary. |
||
All-employee share plans
The executive directors are also eligible to participate in the all-employee plans.
| Summary of plans | ||
Sharesave
|
||
The Vodafone Group 2008 Sharesave Plan is a HM Revenue & Customs (‘HMRC’) approved scheme open
to all staff permanently employed by a Vodafone Company in the UK as of the eligibility date.
Options under the plan are granted at up to a 20% discount to market value. Executive directors’
participation is included in the option table on page 71. |
||
Share Incentive Plan
|
||
The Vodafone Share Incentive Plan is an HMRC approved plan open to all staff permanently
employed by a Vodafone Company in the UK. Participants may contribute up to a maximum of £125 per
month (or 5% of salary if less) which the trustee of the plan uses to buy shares on their behalf.
An equivalent number of shares are purchased with contributions from the employing company.
UK-based executive directors are eligible to participate. |
||
Dilution
All awards are made under plans that incorporate dilution limits as set out in the guidelines
for share incentive schemes published by the Association of British Insurers. The current estimated
dilution from subsisting awards, including executive and all-employee share awards, is
approximately 3.4% of the Company’s share capital at 31 March 2011 (3.1% at 31 March 2010).
Funding
A mixture of newly issued shares, treasury shares and shares purchased in the market by the
employee benefit trust are used to satisfy share-based awards. This policy is kept under review.
Other matters
The Share Incentive Plan and the co-investment into the GLTI plan include restrictions on the
transfer of shares while the shares are subject to the plan. Where, under an employee share plan
operated by the Company, participants are the beneficial owners of the shares but not the
registered owner, the voting rights are normally exercised by the registered owner at the
discretion of the participant.
TSR performance
The following chart is included in order to be compliant with the requirements of the large and
medium sized companies and Groups (Accounts and Reports) Regulations 2008. Data was provided by
FTSE and DataStream and shows performance of the Company relative to the FTSE 100 index over a five
year period, of which we were a constituent throughout the year. It should be noted that the payout
from the long-term incentive plan is based on the TSR performance shown in the graph on page 67 and
not on the graph below.
Table of Contents
Vodafone Group Plc Annual Report 2011 69
Governance
Remuneration for the year ended 31 March 2011
The remuneration of executive directors was as follows:
The remuneration of executive directors was as follows:
| Salary/fees | Incentive schemes(1) | Cash in lieu of pension | Benefits/other(2) | Total | ||||||||||||||||||||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||||||||||||||||||||||||||||||
Chief Executive
Vittorio Colao |
1,043 | 975 | 1,323 | 1,255 | 313 | 292 | 55 | 146 | 2,734 | 2,668 | ||||||||||||||||||||||||||||||
Other executive directors
Andy Halford |
694 | 674 | 869 | 868 | 208 | 169 | 27 | 26 | 1,798 | 1,737 | ||||||||||||||||||||||||||||||
Michel Combes |
763 | 737 | 745 | 818 | 229 | 221 | 22 | 52 | 1,759 | 1,828 | ||||||||||||||||||||||||||||||
Stephen Pusey |
538 | 491 | 683 | 632 | 161 | 147 | 31 | 38 | 1,413 | 1,308 | ||||||||||||||||||||||||||||||
Total |
3,038 | 2,877 | 3,620 | 3,573 | 911 | 829 | 135 | 262 | 7,704 | 7,541 | ||||||||||||||||||||||||||||||
Notes:
| (1) | These figures are the cash payouts from the 2011 financial year Vodafone GSTIP and are in relation to the performance against targets in adjusted operating profit, service revenue, free cash flow and competitive performance for the financial year ended 31 March 2011. | |
| (2) | Includes amounts in respect of cost of living allowance, private healthcare and car allowance. |
The aggregate remuneration we paid to our Executive Committee(1) for services for
the year ended 31 March 2011 is set out below. The aggregate number of Executive Committee members
at 31 March 2011 was six, a reduction of two compared to 31 March 2010.
| 2011 | 2010 | |||||||
| £’000 | £’000 | |||||||
Salaries and fees |
3,151 | 3,655 | ||||||
Incentive schemes(2) |
4,081 | 4,417 | ||||||
Cash in lieu of pension |
456 | 164 | ||||||
Benefits/other |
799 | 3,376 | ||||||
Total |
8,487 | 11,612 | ||||||
Notes:
| (1) | Aggregate remuneration for the Executive Committee is in respect of those individuals who were members of the Executive Committee, other than the executive directors, during the year ended 31 March 2011 and reflects compensation paid from either 1 April 2010 or date of appointment to the Executive Committee, to 31 March 2011 or date of leaving, where applicable. |
| (2) | Comprises the incentive scheme information for the Executive Committee members on an equivalent basis to that disclosed for directors in the table at the top of this page. Details of share incentives awarded to directors and other members of the Executive Committee are included in footnotes to “Long-term incentives” on page 70. |
Pensions
Vittorio Colao, Andy Halford, Michel Combes and Stephen Pusey take a cash allowance of 30% of
base salary in lieu of pension contributions.
The Executive Committee, including the executive directors, are provided benefits in the event of
death in service. They also have an entitlement under a long-term disability plan from which
two-thirds of base salary, up to a maximum benefit determined by the insurer, would be provided
until normal retirement date.
Pension benefits earned by the director in the year ended 31 March 2011 were:
| Transfer value | Employer | |||||||||||||||||||||||||||||||
| Change in | Change in | of change | allocation/ | |||||||||||||||||||||||||||||
| Change in | transfer value | accrued | in accrued | contribution | ||||||||||||||||||||||||||||
| Total accrued | accrued | Transfer | Transfer | over year less | benefit in | benefit net | to defined | |||||||||||||||||||||||||
| benefit at 31 | benefit over | value at 31 | value at 31 | member | excess of | of member | contribution | |||||||||||||||||||||||||
| March 2011(1) | the year(1) | March 2010(2) | March 2011(2) | contributions | inflation(3) | contributions | Plans | |||||||||||||||||||||||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||||||||||||||||||||||||
Andy Halford |
17.8 | — | 628.0 | 701.2 | 73.2 | (0.8 | ) | (32.8 | ) | — | ||||||||||||||||||||||
Notes:
| (1) | Andy Halford took the opportunity to take early retirement from the pension scheme due to the closure of the scheme on 31 March 2010 (aged 51 years). In accordance with the scheme rules, his accrued pension at this date was reduced with an early retirement factor for four years to reflect the fact that his pension is being paid before age 55 and is therefore expected to be paid out for a longer period of time. In addition, Andy Halford exchanged part of his early retirement pension at 31 March 2010 for a tax-free cash lump sum of £118,660. The pension in payment at 31 March 2010 was £17,800 per year. This pension is due to increase on 1 April 2011 by 5%, in line with the scheme rules, to £18,700 per year. However, at 31 March 2011 the pension in payment remained at £17,800 per year as shown above. No member contributions are payable as Andy Halford is in receipt of his pension. | |
| (2) | The transfer value at 31 March 2011 has been calculated on the basis and methodology set by the trustees after taking actuarial advice. No director elected to pay additional voluntary contributions. The transfer value disclosed above does not represent a sum paid or payable to the individual director. Instead it represents a potential liability of the pension scheme. | |
| (3) | Inflation has been taken as the increase in the retail price index over the year to 30 September 2010. |
In respect of the Executive Committee, the Group has made aggregate contributions of
£508,600 (2010: £851,000) into defined contribution pension schemes.
Table of Contents
70 Vodafone Group Plc Annual Report 2011
Directors’ remuneration continued
Directors’ interests in the shares of the Company
Long-term incentives
Performance shares
Long-term incentives
Performance shares
Conditional awards of ordinary shares made to executive directors under the Vodafone Global
Incentive Plan (‘GIP’) for the relevant financial years are shown below. Long-term incentive shares
that vested during the year ended 31 March 2011 are also shown below:
| Total interest | ||||||||||||||||||||||||||||||||
| in performance | Shares | Shares | ||||||||||||||||||||||||||||||
| shares at | conditionally | forfeited | Shares | Total interest | Market | |||||||||||||||||||||||||||
| 1 April 2010 | awarded | during | vested during | in performance | price at date | |||||||||||||||||||||||||||
| or date of | during the 2011 | the 2011 | the 2011 | shares at | awards | |||||||||||||||||||||||||||
| appointment | financial year(1) | financial year(2) | financial year(3) | 31 March 2011(4) | Total value(5) | granted | Vesting date | |||||||||||||||||||||||||
| Number | Number | Number | Number | Number | ||||||||||||||||||||||||||||
| of shares | of shares | of shares | of shares | of shares | £’000 | Pence | ||||||||||||||||||||||||||
Vittorio Colao |
||||||||||||||||||||||||||||||||
2007 |
1,557,409 | — | (1,168,057 | ) | (389,352 | ) | — | — | 156.00 | Jul 2010 | ||||||||||||||||||||||
2008 – Base award |
4,126,587 | — | — | — | 4,126,587 | 7,283 | 129.95 | Jul 2011 | ||||||||||||||||||||||||
2008 – Match award |
3,001,154 | — | — | — | 3,001,154 | 5,297 | 129.95 | Jul 2011 | ||||||||||||||||||||||||
2009 – Base award |
4,564,995 | — | — | — | 4,564,995 | 8,057 | 117.20 | Jun 2012 | ||||||||||||||||||||||||
2009 – Match award |
1,817,866 | — | — | — | 1,817,866 | 3,209 | 117.20 | Jun 2012 | ||||||||||||||||||||||||
2010 – Base award |
— | 4,097,873 | — | — | 4,097,873 | 7,233 | 142.94 | Jun 2013 | ||||||||||||||||||||||||
2010 – Match award |
— | 2,980,271 | — | — | 2,980,271 | 5,260 | 142.94 | Jun 2013 | ||||||||||||||||||||||||
Total |
15,068,011 | 7,078,144 | (1,168,057 | ) | (389,352 | ) | 20,588,746 | 36,339 | ||||||||||||||||||||||||
Andy Halford |
||||||||||||||||||||||||||||||||
2007 |
1,190,305 | — | (892,729 | ) | (297,576 | ) | — | — | 156.00 | Jul 2010 | ||||||||||||||||||||||
2008 – Base award |
2,282,447 | — | — | — | 2,282,447 | 4,029 | 129.95 | Jul 2011 | ||||||||||||||||||||||||
2008 – Match award |
2,074,952 | — | — | — | 2,074,952 | 3,662 | 129.95 | Jul 2011 | ||||||||||||||||||||||||
2009 – Base award |
2,524,934 | — | — | — | 2,524,934 | 4,457 | 117.20 | Jun 2012 | ||||||||||||||||||||||||
2009 – Match award |
1,676,756 | — | — | — | 1,676,756 | 2,959 | 117.20 | Jun 2012 | ||||||||||||||||||||||||
2010 – Base award |
— | 2,154,750 | — | — | 2,154,750 | 3,803 | 142.94 | Jun 2013 | ||||||||||||||||||||||||
2010 – Match award |
— | 1,958,863 | — | — | 1,958,863 | 3,457 | 142.94 | Jun 2013 | ||||||||||||||||||||||||
Total |
9,749,394 | 4,113,613 | (892,729 | ) | (297,576 | ) | 12,672,702 | 22,367 | ||||||||||||||||||||||||
Michel Combes |
||||||||||||||||||||||||||||||||
2008 – Base award |
2,589,782 | — | — | — | 2,589,782 | 4,571 | 129.95 | Nov 2011 | ||||||||||||||||||||||||
2008 – Match award |
736,919 | — | — | — | 736,919 | 1,301 | 129.95 | Nov 2011 | ||||||||||||||||||||||||
2009 – Base award |
2,771,771 | — | — | — | 2,771,771 | 4,892 | 117.20 | Jun 2012 | ||||||||||||||||||||||||
2009 – Match award |
533,854 | — | — | — | 533,854 | 942 | 117.20 | Jun 2012 | ||||||||||||||||||||||||
2010 – Base award |
— | 2,370,225 | — | — | 2,370,225 | 4,183 | 142.94 | Jun 2013 | ||||||||||||||||||||||||
2010 – Match award |
— | 1,144,116 | — | — | 1,144,116 | 2,019 | 142.94 | Jun 2013 | ||||||||||||||||||||||||
Total |
6,632,326 | 3,514,341 | — | — | 10,146,667 | 17,908 | ||||||||||||||||||||||||||
Stephen Pusey |
||||||||||||||||||||||||||||||||
2007 |
491,325 | — | (368,494 | ) | (122,831 | ) | — | — | 156.00 | Jul 2010 | ||||||||||||||||||||||
2008 – Base award |
942,132 | — | — | — | 942,132 | 1,663 | 129.95 | Jul 2011 | ||||||||||||||||||||||||
2008 – Match award |
500,844 | — | — | — | 500,844 | 884 | 129.95 | Jul 2011 | ||||||||||||||||||||||||
2009 – Base award |
1,872,818 | — | — | — | 1,872,818 | 3,306 | 117.20 | Jun 2012 | ||||||||||||||||||||||||
2009 – Match award |
510,879 | — | — | — | 510,879 | 902 | 117.20 | Jun 2012 | ||||||||||||||||||||||||
2010 – Base award |
— | 1,693,018 | — | — | 1,693,018 | 2,988 | 142.94 | Jun 2013 | ||||||||||||||||||||||||
2010 – Match award |
— | 571,097 | — | — | 571,097 | 1,008 | 142.94 | Jun 2013 | ||||||||||||||||||||||||
Total |
4,317,998 | 2,264,115 | (368,494 | ) | (122,831 | ) | 6,090,788 | 10,751 | ||||||||||||||||||||||||
Notes:
| (1) | The awards were granted during the year under the Vodafone Global lncentive Plan using an average of the closing share prices on each of the five working days prior to 28 June 2010 being 142.9 pence. These awards have a performance period running from 1 April 2010 to 31 March 2013. The performance conditions are a matrix of free cash flow performance and relative TSR. The vesting date will be in June 2013. |
| (2) | Shares granted on 24 July 2007 vested on 24 July 2010. The performance condition on these awards was a relative TSR measure against the companies making up the FTSE Global Telecoms index at the start of the performance period. The threshold relative TSR performance target was met and as such shares vested at 25%. The share price on the vesting date was 151.5 pence. |
| (3) | The share vesting gave rise to cash payments equal to the equivalent value of dividends over the vesting period. These cash payments equated to £91,484 for Vittorio Colao, £70,198 for Andy Halford and £28,976 for Stephen Pusey. |
| (4) | The total interest at 31 March 2011 includes awards over three different performance periods ending on 31 March 2011, 31 March 2012 and 31 March 2013. The performance conditions for the award vesting in July 2011 are a matrix of free cash flow performance and relative TSR. |
| (5) | The total value is calculated using the closing mid-market share price at 31 March 2011 of 176.5 pence. |
The aggregate number of shares conditionally awarded during the year to the Executive
Committee, other than the executive directors, was 9,276,317 shares. The performance and vesting
conditions on the shares awarded in the year are based on a matrix of free cash flow performance
and relative TSR.
Table of Contents
Vodafone Group Plc Annual Report 2011 71
Governance
Share options
No options have been granted to directors during the year. The following information
summarises the directors’ options under the Vodafone Group 2008 Sharesave Plan (‘SAYE’), the
Vodafone Group 1998 Company Share Option Scheme (‘CSOS’), the Vodafone Group Plc 1999 Long-Term
Stock Incentive Plan (‘LTSIP’) and the GIP.HMRC approved awards may be made under all of the
schemes mentioned. The table also summarises the directors’ options under the Vodafone Group 1998
Executive Share Option Scheme (‘ESOS’) which is not HMRC approved. No other directors have options
under any of these schemes.
In the past, options under the Vodafone Group 1998 Sharesave Scheme were granted at a discount of
20% to the market value of the shares and options under the Vodafone Group 2008 Sharesave Plan
were also granted at a discount of 20% to the market value of the shares at the time of the grant.
No other options may be granted at a discount.
| Options | Options | Options | ||||||||||||||||||||||||||||||||||||||
| At | granted | exercised | lapsed | |||||||||||||||||||||||||||||||||||||
| 1 April 2010 | during the | during the | during the | Options | Market | |||||||||||||||||||||||||||||||||||
| or date of | 2011 financial | 2011 financial | 2011 financial | held at | Option | price on | ||||||||||||||||||||||||||||||||||
| appointment | year | year | year | 31 March 2011 | price | Date from | exercise | |||||||||||||||||||||||||||||||||
| Grant | Number | Number | Number | Number | Number | which | Expiry | |||||||||||||||||||||||||||||||||
| date | of shares | of shares | of shares | of shares | of shares | Pence(1) | exercisable | date | Pence | |||||||||||||||||||||||||||||||
Vittorio Colao |
||||||||||||||||||||||||||||||||||||||||
GIP |
Nov 2006 | 3,472,975 | — | — | — | 3,472,975 | 135.50 | Nov 2009 | Nov 2016 | — | ||||||||||||||||||||||||||||||
GIP(2) |
Jul 2007 | 3,003,575 | — | — | — | 3,003,575 | 167.80 | Jul 2010 | Jul 2017 | — | ||||||||||||||||||||||||||||||
SAYE |
Jul 2009 | 16,568 | — | — | — | 16,568 | 93.85 | Sep 2014 | Feb 2015 | — | ||||||||||||||||||||||||||||||
Total |
6,493,118 | — | — | — | 6,493,118 | |||||||||||||||||||||||||||||||||||
Andy Halford |
||||||||||||||||||||||||||||||||||||||||
CSOS |
Jul 2000 | 200 | — | — | (200 | ) | — | 282.30 | Jul 2003 | Jul 2010 | — | |||||||||||||||||||||||||||||
ESOS |
Jul 2000 | 66,700 | — | — | (66,700 | ) | — | 282.30 | Jul 2003 | Jul 2010 | — | |||||||||||||||||||||||||||||
LTSIP |
Jul 2001 | 152,400 | — | — | — | 152,400 | 151.56 | Jul 2004 | Jul 2011 | — | ||||||||||||||||||||||||||||||
LTSIP |
Jul 2005 | 1,291,326 | — | — | — | 1,291,326 | 145.25 | Jul 2008 | Jul 2015 | — | ||||||||||||||||||||||||||||||
GIP(2) |
Jul 2007 | 2,295,589 | — | — | — | 2,295,589 | 167.80 | Jul 2010 | Jul 2017 | — | ||||||||||||||||||||||||||||||
SAYE |
Jul 2009 | 9,669 | — | — | — | 9,669 | 93.85 | Sep 2012 | Feb 2013 | — | ||||||||||||||||||||||||||||||
Total |
3,815,884 | — | — | (66,900 | ) | 3,748,984 | ||||||||||||||||||||||||||||||||||
Stephen Pusey |
||||||||||||||||||||||||||||||||||||||||
GIP |
Sep 2006 | 1,034,259 | — | — | — | 1,034,259 | 113.75 | Sep 2009 | Sep 2016 | — | ||||||||||||||||||||||||||||||
GIP(2) |
Jul 2007 | 947,556 | — | — | — | 947,556 | 167.80 | Jul 2010 | Jul 2017 | — | ||||||||||||||||||||||||||||||
SAYE |
Jul 2009 | 9,669 | — | — | — | 9,669 | 93.85 | Sep 2012 | Feb 2013 | — | ||||||||||||||||||||||||||||||
Total |
1,991,484 | — | — | — | 1,991,484 | |||||||||||||||||||||||||||||||||||
Michel Combes |
||||||||||||||||||||||||||||||||||||||||
SAYE |
Jul 2009 | 9,669 | — | — | — | 9,669 | 93.85 | Sep 2012 | Feb 2013 | — | ||||||||||||||||||||||||||||||
Total |
9,669 | — | — | — | 9,669 | |||||||||||||||||||||||||||||||||||
Notes:
| (1) | The closing mid-market share price on 31 March 2011 was 176.5 pence. The highest mid-market share price during the year was 185.0 pence and the lowest price was 126.5 pence. |
| (2) | The performance condition on these options is a three year cumulative growth in adjusted earnings per share. The options vested at 100% on 24 July 2010. |
Table of Contents
72 Vodafone Group Plc Annual Report 2011
Directors’ remuneration continued
Non-executive directors’ remuneration
The remuneration of non-executive directors is reviewed annually by the Chairman following
consultation with the Remuneration Committee Chairman. Our policy is to pay competitively for the
role including consideration of the time commitment required. In this regard, the fees are benchmarked
against a comparator group of the FTSE 15 companies. Following the 2011 review there will
be no increase to the fees of non executive directors. However, there is an increase to the Deputy
Chairman and Chairmanship of the Remuneration Committee fees from 1 April 2011.
| Fee payable (£’000s) | ||||||||
| From | From | |||||||
| Position/role | 1 April 2011 | 1 April 2010 | ||||||
Chairman(1) |
600 | 600 | ||||||
Deputy Chairman |
175 | 162 | ||||||
Non-executive director |
115 | 115 | ||||||
Chairmanship of Audit Committee |
25 | 25 | ||||||
Chairmanship of Remuneration Committee |
25 | 20 | ||||||
Note:
| (1) | The Chairman’s fee also includes the fee for the Chairmanship of the Nominations and Governance Committee. |
In addition, an allowance of £6,000 is payable each time a non-Europe based non-executive
director is required to travel to attend Board and committee meetings to reflect the additional
time commitment involved.
Details of each non-executive director’s remuneration for the 2011 financial year are included in
the table below.
Non-executive directors do not participate in any incentive or benefit plans. The Company does not
provide any contribution to their pension arrangements. The Chairman is entitled to use of a car
and a driver whenever and wherever he is providing his services to or representing the Company.
Chairman and non-executive directors service contracts
The Chairman, Sir John Bond, has a contract that may be terminated by either party on 12 months
notice. The date of his letter of appointment is 5 December 2005. Sir John Bond will be standing
down from his role as Chairman and Chairman of the Nominations and Governance Committee and will
not stand for re-election at the AGM on 26 July 2011. Subject to his election by shareholders,
Gerard Kleisterlee will become Chairman in succession to Sir John Bond.
Non-executive directors, including the Deputy Chairman, are engaged on letters of appointment that
set out their duties and responsibilities. The appointment of non-executive directors may be
terminated without compensation. Non-executive directors are generally not expected to serve for a
period exceeding nine years.
The terms and conditions of appointment of non-executive directors are available for inspection at
the Company’s registered office during normal business hours and at the AGM (for 15 minutes prior
to the meeting and during the meeting).
| Date of | Date of | |||||||
| letter of appointment | election/re-election | |||||||
John Buchanan |
28 April 2003 | AGM 2011 | ||||||
Renee James |
1 January 2011 | AGM 2011 | ||||||
Alan Jebson |
7 November 2006 | AGM 2011 | ||||||
Samuel Jonah |
9 March 2009 | AGM 2011 | ||||||
Gerard Kleisterlee |
1 April 2011 | AGM 2011 | ||||||
Nick Land |
7 November 2006 | AGM 2011 | ||||||
Anne Lauvergeon |
20 September 2005 | AGM 2011 | ||||||
Luc Vandevelde |
24 June 2003 | AGM 2011 | ||||||
Anthony Watson |
6 February 2006 | AGM 2011 | ||||||
Philip Yea |
14 July 2005 | AGM 2011 | ||||||
Information for non-executive directors serving during the year ended 31 March 2011:
| Salary/fees | Benefits | Total | ||||||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
| £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |||||||||||||||||||
Chairman |
||||||||||||||||||||||||
Sir John Bond |
600 | 575 | 3 | 3 | 603 | 578 | ||||||||||||||||||
Deputy Chairman |
||||||||||||||||||||||||
John Buchanan |
162 | 155 | — | — | 162 | 155 | ||||||||||||||||||
Non-executive directors |
||||||||||||||||||||||||
Renee James(1) |
35 | — | — | — | 35 | — | ||||||||||||||||||
Alan Jebson(1) |
151 | 146 | — | — | 151 | 146 | ||||||||||||||||||
Samuel Jonah(1) |
151 | 140 | — | — | 151 | 140 | ||||||||||||||||||
Nick Land |
140 | 135 | — | — | 140 | 135 | ||||||||||||||||||
Anne Lauvergeon |
115 | 110 | — | — | 115 | 110 | ||||||||||||||||||
Simon Murray (retired 26 July 2010) |
38 | 110 | — | — | 38 | 110 | ||||||||||||||||||
Luc Vandevelde |
135 | 130 | — | — | 135 | 130 | ||||||||||||||||||
Anthony Watson |
115 | 110 | — | — | 115 | 110 | ||||||||||||||||||
Philip Yea |
115 | 110 | — | — | 115 | 110 | ||||||||||||||||||
Total |
1,757 | 1,721 | 3 | 3 | 1,760 | 1,724 | ||||||||||||||||||
Note:
| (1) | Salary/fees includes travel allowances. |
Table of Contents
Vodafone
Group Plc Annual Report 2011 73
Governance
Beneficial interests
The beneficial interests of directors and their connected persons in the ordinary shares of
the Company, which includes interests in the Vodafone Share Incentive Plan, but which excludes
interests in the Vodafone Group share option schemes, and the Vodafone Group short-term or
long-term incentives, are shown below:
| 1 April 2010 or | ||||||||||||
| 16 May 2011 | 31 March 2011 | date of appointment | ||||||||||
Sir John Bond |
370,677 | 370,677 | 357,584 | |||||||||
John Buchanan |
222,223 | 222,223 | 211,055 | |||||||||
Vittorio Colao |
2,307,663 | 2,307,663 | 1,575,567 | |||||||||
Andy Halford |
2,335,914 | 2,335,622 | 2,186,541 | |||||||||
Michel Combes |
670,589 | 670,297 | 392,223 | |||||||||
Stephen Pusey |
544,733 | 544,733 | 402,599 | |||||||||
Renee James(1) |
50,000 | 50,000 | — | |||||||||
Alan Jebson |
82,340 | 82,340 | 82,340 | |||||||||
Samuel Jonah |
55,350 | 55,350 | — | |||||||||
Gerard Kleisterlee(1) |
— | — | — | |||||||||
Nick Land |
35,000 | 35,000 | 35,000 | |||||||||
Anne Lauvergeon |
28,936 | 28,936 | 28,936 | |||||||||
Simon Murray (retired 27 July 2010) |
— | — | 246,250 | |||||||||
Luc Vandevelde |
89,030 | 89,030 | 72,829 | |||||||||
Anthony Watson |
115,000 | 115,000 | 115,000 | |||||||||
Philip Yea |
61,250 | 61,250 | 61,250 | |||||||||
Note:
| (1) | Non-executive directors appointed to the Board as follows: Renee James 1 January 2011, Gerard Kleisterlee 1 April 2011. |
At 31 March 2011 and during the period from 1 April 2011 to 16 May 2011, no director had any
interest in the shares of any subsidiary company. Other than those individuals included in the table
above who were Board members at 31 March 2011, members of the Group’s Executive Committee at 31
March 2011 had an aggregate beneficial interest in 2,755,152 ordinary shares of the Company. At 16
May 2011 the directors had an aggregate beneficial interest in 6,968,705 ordinary shares of the
Company and the Executive Committee members had an aggregate beneficial interest in 2,755,736
ordinary shares of the Company. None of the directors or the Executive Committee members had an
individual beneficial interest amounting to greater than 1% of the Company’s ordinary shares.
Interests in share options of the Company
At 16 May 2011 there had been no change to the directors’ interests in share options from 31
March 2011 (see page 71).
Other than those individuals included in the table above, at 16 May 2011, members of the Group’s
Executive Committee held options for 2,620,271 ordinary shares at prices ranging from 115.3 pence
to 167.8 pence per ordinary share, with a weighted average exercise price of 161.9 pence per
ordinary share exercisable at dates ranging from July 2008 to July 2017.
Sir John Bond, John Buchanan, Alan Jebson, Renee James, Samuel Jonah, Gerard Kleisterlee, Nick
Land, Anne Lauvergeon, Luc Vandevelde, Anthony Watson and Philip Yea held no options at 16 May
2011.
Directors’ interests in contracts
None of the current directors had a material interest in any contract of significance to which
the Company or any of its subsidiaries was a party during the financial year.
Luc Vandevelde
On behalf of the Board
On behalf of the Board
Table of Contents
74 Vodafone Group Plc Annual Report 2011
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Separate financial statements required by Rule 3-09 of Regulation S-X |
B-1 | |||
Report of Independent Registered Public Accounting Firm |
B-30 |
Table of Contents
Vodafone Group Plc Annual Report 2011 75
Financials
Directors’ statement of responsibility
Financial statements and accounting records
Company law of England and Wales requires the directors to prepare financial statements for
each financial year which give a true and fair view of the state of affairs of the Company and of
the Group at the end of the financial year and of the profit or loss of the Group for that period.
In preparing those financial statements the directors are required to:
| • | select suitable accounting policies and apply them consistently; | |
| • | make judgements and estimates that are reasonable and prudent; | |
| • | state whether the consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as issued by the IASB, in accordance with IFRS as adopted for use in the EU and Article 4 of the EU IAS Regulations; | |
| • | state for the Company financial statements whether applicable UK accounting standards have been followed; and | |
| • | prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business. |
The directors are responsible for keeping proper accounting records which disclose with reasonable
accuracy at any time the financial position of the Company and of the Group and to enable them to
ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the EU
IAS Regulation. They are also responsible for the system of internal control, for safeguarding the
assets of the Company and the Group and, hence, for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Directors’ responsibility statement
The Board confirms to the best of its knowledge:
| • | the consolidated financial statements, prepared in accordance with IFRS as issued by the International Accounting Standards Board (‘IASB’) and IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and | |
| • | the directors’ report includes a fair review of the development and performance of the business and the position of the Group together with a description of the principal risks and uncertainties that it faces. |
Neither the Company nor the directors accept any liability to any person in relation to the annual
report except to the extent that such liability could arise under English law. Accordingly, any
liability to a person who has demonstrated reliance on any untrue or misleading statement or
omission shall be determined in accordance with section 90A and Schedule 10A of the Financial
Services and Markets Act 2000.
Disclosure of information to auditor
Having made the requisite enquiries, so far as the directors are aware, there is no relevant
audit information (as defined by Section 418(3) of the Companies Act 2006) of which the Company’s
auditor is unaware and the directors have taken all the steps they ought to have taken to make
themselves aware of any relevant audit information and to establish that the Company’s auditor is
aware of that information.
Going concern
After reviewing the Group’s and Company’s budget for the next financial year, and other longer
term plans, the directors are satisfied that, at the time of approving the financial statements,
it is appropriate to adopt the going concern basis in preparing the financial statements. Further
detail is included within liquidity and capital resources on pages 48 to 51 and notes 21 and 22 to
the consolidated financial statements which include disclosure in relation to the Group’s
objectives, policies and processes for managing its capital; its financial risk management
objectives; details of its financial instruments and hedging activities; and its exposures to
credit risk and liquidity risk.
Management’s report on internal control over financial reporting
As required by Section 404 of the Sarbanes-Oxley Act management is responsible for
establishing and maintaining adequate internal control over financial reporting for the Group.
The Company’s internal control over financial reporting includes policies and procedures that:
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
transactions and dispositions of assets; are designed to provide reasonable assurance that
transactions are recorded as necessary to permit the preparation of financial statements in
accordance with IFRS, as adopted by the EU and IFRS as issued by the IASB, and that receipts and
expenditures are being made only in accordance with authorisation of management and the directors
of the Company; and provide reasonable assurance regarding prevention or timely detection of
unauthorised acquisition, use or disposition of the Company’s assets that could have a material
effect on the financial statements.
Any internal control framework, no matter how well designed, has inherent limitations including
the possibility of human error and the circumvention or overriding of the controls and procedures,
and may not prevent or detect misstatements. Also projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes
in conditions or because the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the internal control over financial reporting at 31
March 2011 based on the Internal Control -Integrated Framework, issued by the Committee of
Sponsoring Organizations of the Treadway Commission (‘COSO’). Vodacom’s controls have been included
in the Group’s assessment for the first time this year. Based on management’s assessment management
has concluded that the internal control over financial reporting was effective at 31 March 2011.
Management has excluded from its assessment the internal control over financial reporting of
entities which are accounted for under the equity method, including Verizon Wireless and SFR,
because the Group does not have the ability to dictate or modify the controls at these entities and
does not have the ability to assess, in practice, the controls at these entities. Accordingly, the
internal controls of these entities, which contributed a net profit of £5,059 million (2010: £4,742
million) to the profit for the financial year, have not been assessed, except relating to controls
over the recording of amounts relating to the investments that are recorded in the Group’s
consolidated financial statements.
During the period covered by this document there were no changes in the Company’s internal control
over financial reporting that have materially affected or are reasonably likely to materially
affect the effectiveness of the internal controls over financial reporting.
The Company’s internal control over financial reporting at 31 March 2011 has been audited by
Deloitte LLP, an independent registered public accounting firm who also audit the Group’s
consolidated financial statements. Their audit report on internal controls over financial
reporting is on page 76.
By Order of the Board
Rosemary Martin
Company Secretary
17 May 2011
Company Secretary
17 May 2011
Table of Contents
76 Vodafone Group Plc Annual Report 2011
Audit report on internal controls
Report of independent registered public accounting firm to the members of Vodafone Group Plc
We have audited the internal control over financial reporting of Vodafone Group Plc and
subsidiaries and applicable joint ventures (the ‘Group’) as of 31 March 2011 based on criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. As described in management’s report on internal controls
over financial reporting, management has excluded from its assessment the internal control over
financial reporting of those entities that are accounted for under the equity method, including
Verizon Wireless and Société Française du Radiotéléphone S.A. (“SFR”), because the Group does not
have the ability to dictate or modify controls at these entities and does not have the ability to
assess, in practice, the controls at these entities. Accordingly, the internal controls over
financial reporting of these entities, which contributed a net profit of £5,059 million to the
profit for the financial year, have not been assessed, except relating to the Group’s controls over
the recording and related disclosures of amounts relating to the investments that are recorded in
the consolidated financial statements.
The Group’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying management’s report on internal control over financial
reporting. Our responsibility is to express an opinion on the Group’s internal control over
financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the
supervision of, the company’s principal executive and principal financial officers, or persons
performing similar functions, and effected by the company’s board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorisations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorised acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to
error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Group maintained, in all material respects, effective internal control over
financial reporting as of 31 March 2011, based on the criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated financial statements of the Group as of and for the year
ended 31 March 2011, prepared in conformity with International Financial Reporting Standards
(‘IFRS’), as adopted by the European Union and IFRS as issued by the International Accounting
Standards Board. Our report dated 17 May 2011 expressed an unqualified opinion on those financial
statements.
Deloitte LLP
Chartered Accountants and Registered Auditor
London
United Kingdom
17 May 2011
Table of Contents
Vodafone Group Plc Annual Report 2011 77
Financials
Critical accounting estimates
The Group prepares its consolidated financial statements in accordance with IFRS as issued by
the IASB and IFRS as adopted by the EU, the application of which often requires judgements to be
made by management when formulating the Group’s financial position and results. Under IFRS, the
directors are required to adopt those accounting policies most appropriate to the Group’s
circumstances for the purpose of presenting fairly the Group’s financial position, financial
performance and cash flows.
In determining and applying accounting policies, judgement is often required in respect of items
where the choice of specific policy, accounting estimate or assumption to be followed could
materially affect the reported results or net asset position of the Group should it later be
determined that a different choice would be more appropriate.
Management considers the accounting estimates and assumptions discussed below to be its critical
accounting estimates and, accordingly, provides an explanation of each below.
The discussion below should also be read in conjunction with the Group’s disclosure of significant
IFRS accounting policies which is provided in note 2 to the consolidated financial statements,
“Significant accounting policies”.
Management has discussed its critical accounting estimates and associated disclosures with the
Company’s Audit Committee.
Impairment reviews
IFRS requires management to undertake an annual test for impairment of indefinite lived assets
and, for finite lived assets, to test for impairment if events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Impairment testing is an area involving management judgement, requiring assessment as to whether
the carrying value of assets can be supported by the net present value of future cash flows
derived from such assets using cash flow projections which have been discounted at an appropriate
rate. In calculating the net present value of the future cash flows, certain assumptions are
required to be made in respect of highly uncertain matters including management’s expectations of:
| • | growth in adjusted EBITDA, calculated as adjusted operating profit before depreciation and amortisation; | |
| • | timing and quantum of future capital expenditure; | |
| • | long-term growth rates; and | |
| • | the selection of discount rates to reflect the risks involved. |
The Group prepares and approves formal five year management plans for its operations, which are
used in the value in use calculations. In certain developing markets the fifth year of the
management plan is not indicative of the long-term future performance as operations may not have
reached maturity. For these operations, the Group extends the plan data for an additional five
year period.
For businesses where the five year management plans are used for the Group’s value in use
calculations, a long-term growth rate into perpetuity has been determined as the lower of:
| • | the nominal GDP rates for the country of operation;and | |
| • | the long-term compound annual growth rate in adjusted EBITDA in years six to ten estimated by management. |
For businesses where the plan data is extended for an additional five years for the Group’s value
in use calculations, a long-term growth rate into perpetuity has been determined as the lower of:
| • | the nominal GDP rates for the country of operation;and | |
| • | the compound annual growth rate in adjusted EBITDA in years nine to ten of the management plan. |
Changing the assumptions selected by management, in particular, the discount rate and growth rate
assumptions used in the cash flow projections, could significantly affect the Group’s impairment
evaluation and hence results.
The Group’s review includes the key assumptions related to sensitivity in the cash flow
projections. Further details are provided in note 10 to the consolidated financial statements.
Revenue recognition and presentation
Arrangements with multiple deliverables
In revenue arrangements including more than one deliverable, the deliverables are assigned to
one or more separate units of accounting and the arrangement consideration is allocated to each
unit of accounting based on its relative fair value.
Determining the fair value of each deliverable can require complex estimates due to the nature of
the goods and services provided. The Group generally determines the fair value of individual
elements based on prices at which the deliverable is regularly sold on a standalone basis after
considering volume discounts where appropriate.
Presentation: gross versus net
When deciding the most appropriate basis for presenting revenue or costs of revenue, both the
legal form and substance of the agreement between the Group and its business partners are reviewed
to determine each party’s respective role in the transaction.
Where the Group’s role in a transaction is that of principal, revenue is recognised on a gross
basis. This requires revenue to comprise the gross value of the transaction billed to the
customer, after trade discounts, with any related expenditure charged as an operating cost.
Where the Group’s role in a transaction is that of an agent, revenue is recognised on a net basis
with revenue representing the margin earned.
Taxation
The Group’s tax charge on ordinary activities is the sum of the total current and deferred tax
charges. The calculation of the Group’s total tax charge necessarily involves a degree of
estimation and judgement in respect of certain items whose tax treatment cannot be finally
determined until resolution has been reached with the relevant tax authority or, as appropriate,
through a formal legal process. The final resolution of some of these items may give rise to
material profits, losses and/or cash flows.
The complexity of the Group’s structure following its geographic expansion makes the degree of
estimation and judgement more challenging. The resolution of issues is not always within the
control of the Group and it is often dependent on the efficiency of the legal processes in the
relevant taxing jurisdictions in which the Group operates. Issues can, and often do, take many
years to resolve. Payments in respect of tax liabilities for an accounting period result from
payments on account and on the final resolution of open items. As a result there can be substantial
differences between the tax charge in the consolidated income statement and tax payments.
Significant items on which the Group has exercised accounting judgement include litigation with the
Indian tax authorities in relation to the acquisition of Vodafone Essar (see note 28 to the
consolidated financial statements), recognition of a deferred tax asset in respect of the losses
arising following the agreement of German tax loss claims (see note 6 of the consolidated financial
statements) and the recognition of a deferred tax asset in respect of losses in Luxembourg
following the settlement of the CFC tax case (see note 6 to the consolidated financial statements).
The amounts recognised in the consolidated financial statements in respect of each matter are
derived from the Group’s best estimation and judgement as described above. However, the inherent
uncertainty regarding the outcome of these items means eventual resolution could differ from the
accounting estimates and therefore impact the Group’s results and cash flows.
Recognition of deferred tax assets
The recognition of deferred tax assets is based upon whether it is more likely than not that
sufficient and suitable taxable profits will be available in the future against which the reversal
of temporary differences can be deducted. Where the temporary differences are related to losses,
the availability of the losses to offset against forecast taxable profits is also considered.
Table of Contents
78 Vodafone Group Plc Annual Report 2011
Critical accounting estimates continued
Recognition therefore involves judgement regarding the future financial performance of the
particular legal entity or tax group in which the deferred tax asset has been recognised.
Historical differences between forecast and actual taxable profits have not resulted in material
adjustments to the recognition of deferred tax assets.
Business combinations
The recognition of business combinations requires the excess of the purchase price of
acquisitions over the net book value of assets acquired to be allocated to the assets and
liabilities of the acquired entity. The Group makes judgements and estimates in relation to the
fair value allocation of the purchase price. If any unallocated portion is positive it is
recognised as goodwill and if negative, it is recognised in the income statement.
Goodwill
The amount of goodwill initially recognised as a result of a business combination is dependent
on the allocation of the purchase price to the fair value of the identifiable assets acquired and
the liabilities assumed. The determination of the fair value of the assets and liabilities is
based, to a considerable extent, on management’s judgement.
Allocation of the purchase price affects the results of the Group as finite lived intangible
assets are amortised, whereas indefinite lived intangible assets, including goodwill, are not
amortised and could result in differing amortisation charges based on the allocation to indefinite
lived and finite lived intangible assets.
On transition to IFRS the Group elected not to apply IFRS 3, “Business combinations”,
retrospectively as the difficulty in applying these requirements to the large number of business
combinations completed by the Group from incorporation through to 1 April 2004 exceeded any
potential benefits. Goodwill arising before the date of transition to IFRS, after adjusting for
items including the impact of proportionate consolidation of joint ventures, amounted to £78,753
million.
If the Group had elected to apply the accounting for business combinations retrospectively it may
have led to an increase or decrease in goodwill and increase in licences, customer bases, brands
and related deferred tax liabilities recognised on acquisition.
Finite lived intangible assets
Other intangible assets include the Group’s aggregate amounts spent on the acquisition of
licences and spectrum, computer software, customer bases, brands and development costs. These
assets arise from both separate purchases and from acquisition as part of business combinations.
On the acquisition of mobile network operators the identifiable intangible assets may include
licences, customer bases and brands. The fair value of these assets is determined by discounting
estimated future net cash flows generated by the asset where no active market for the assets exist.
The use of different assumptions for the expectations of future cash flows and the discount rate
would change the valuation of the intangible assets.
The relative size of the Group’s intangible assets, excluding goodwill, makes the judgements
surrounding the estimated useful lives critical to the Group’s financial position and performance.
At 31 March 2011 intangible assets, excluding goodwill, amounted to £23,322 million (2010: £22,420
million) and represented 15.4% (2010:14.3%) of the Group’s total assets.
Estimation of useful life
The useful life used to amortise intangible assets relates to the expected future performance
of the assets acquired and management’s judgement of the period over which economic benefit will
be derived from the asset. The basis for determining the useful life for the most significant
categories of intangible assets is as follows:
Licences and spectrum fees
The estimated useful life is generally the term of the licence unless there is a presumption of
renewal at negligible cost. Using the licence term reflects the period over which the Group will
receive economic benefit. For technology specific licences with a presumption of renewal at
negligible cost, the estimated useful economic life reflects the Group’s expectation of the period
over which the Group will continue to receive economic benefit from the licence. The economic lives
are periodically reviewed taking into consideration such factors as changes in technology.
Historically any changes to economic lives have not been material following these reviews.
Customer bases
The estimated useful life principally reflects management’s view of the average economic life of
the customer base and is assessed by reference to customer churn rates. An increase in churn rates
may lead to a reduction in the estimated useful life and an increase in the amortisation charge.
Historically changes to the estimated useful lives have not had a significant impact on the
Group’s results and financial position.
Capitalised software
The useful life is determined by management at the time the software is acquired and brought into
use and is regularly reviewed for appropriateness. For computer software licences, the useful life
represents management’s view of expected benefits over which the Group will receive benefits from
the software, but not exceeding the licence term. For unique software products controlled by the
Group, the life is based on historical experience with similar products as well as anticipation of
future events which may impact their life such as changes in technology. Historically changes in
useful lives have not resulted in material changes to the Group’s amortisation charge.
Property, plant and equipment
Property, plant and equipment also represent a significant proportion of the asset base of the
Group being 13.3% (2010:13.1%) of the Group’s total assets. Therefore the estimates and
assumptions made to determine their carrying value and related depreciation are critical to the
Group’s financial position and performance.
Estimation of useful life
The charge in respect of periodic depreciation is derived after determining an estimate of an
asset’s expected useful life and the expected residual value at the end of its life. Increasing an
asset’s expected life or its residual value would result in a reduced depreciation charge in the
consolidated income statement.
The useful lives and residual values of Group assets are determined by management at the time the
asset is acquired and reviewed annually for appropriateness. The lives are based on historical
experience with similar assets as well as anticipation of future events which may impact their life
such as changes in technology. Furthermore, network infrastructure is only depreciated over a
period that extends beyond the expiry of the associated licence under which the operator provides
telecommunications services if there is a reasonable expectation of renewal or an alternative
future use for the asset.
Historically changes in useful lives and residual values have not resulted in material changes to
the Group’s depreciation charge.
Provisions and contingent liabilities
The Group exercises judgement in measuring and recognising provisions and the exposures to
contingent liabilities related to pending litigation or other outstanding claims subject to
negotiated settlement, mediation, arbitration or government regulation, as well as other
contingent liabilities (see note 28 to the consolidated financial statements). Judgement is
necessary in assessing the likelihood that a pending claim will succeed, or a liability will
arise, and to quantify the possible range of the financial settlement. Because of the inherent
uncertainty in this evaluation process, actual losses may be different from the originally
estimated provision.
Table of Contents
Vodafone Group Plc Annual Report 2011 79
Financials
Report of independent registered public accounting firm
To the Board of Directors and Shareholders of Vodafone Group plc
We have audited the accompanying consolidated statements of financial position of Vodafone
Group plc and subsidiaries (the “Company”) as of 31 March 2011 and 31 March 2010, and the
related consolidated income statements, consolidated statements of comprehensive income,
consolidated statements of changes in equity and consolidated
statements of cash flows for each
of the three years in the period ended 31 March 2011. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of 31 March 2011 and 31 March 2010, and the
results of its operations and its cash flows for each of the three years in the period ended 31
March 2011, in conformity with International Financial Reporting Standards (“IFRS”) as adopted
for use in the European Union and IFRS as issued by the International Accounting Standards
Board (“IASB”).
We have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Company’s internal control over
financial reporting as at 31 March 2011, based on the criteria established in the Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated 17 May 2011 expressed an unqualified opinion on the
Company’s internal control over financial reporting.
Deloitte LLP
Chartered Accountants and Registered Auditor
London
United Kingdom
17 May 2011
Table of Contents
80 Vodafone Group Plc Annual Report 2011
Consolidated income statement
for the years ended 31 March
| 2011 | 2010 | 2009 | ||||||||||||||
| Note | £m | £m | £m | |||||||||||||
Revenue |
3 | 45,884 | 44,472 | 41,017 | ||||||||||||
Cost of sales |
(30,814 | ) | (29,439 | ) | (25,842 | ) | ||||||||||
Gross profit |
15,070 | 15,033 | 15,175 | |||||||||||||
Selling and distribution expenses |
(3,067 | ) | (2,981 | ) | (2,738 | ) | ||||||||||
Administrative expenses |
(5,300 | ) | (5,328 | ) | (4,771 | ) | ||||||||||
Share of result in associates |
14 | 5,059 | 4,742 | 4,091 | ||||||||||||
Impairment losses |
10 | (6,150 | ) | (2,100 | ) | (5,900 | ) | |||||||||
Other income and expense |
(16 | ) | 114 | — | ||||||||||||
Operating profit |
4 | 5,596 | 9,480 | 5,857 | ||||||||||||
Non-operating income and expense |
15 | 3,022 | (10 | ) | (44 | ) | ||||||||||
Investment income |
5 | 1,309 | 716 | 795 | ||||||||||||
Financing costs |
5 | (429 | ) | (1,512 | ) | (2,419 | ) | |||||||||
Profit before taxation |
9,498 | 8,674 | 4,189 | |||||||||||||
Income tax expense |
6 | (1,628 | ) | (56 | ) | (1,109 | ) | |||||||||
Profit for the financial year |
7,870 | 8,618 | 3,080 | |||||||||||||
Attributable to: |
||||||||||||||||
– Equity shareholders |
7,968 | 8,645 | 3,078 | |||||||||||||
– Non-controlling interests |
(98 | ) | (27 | ) | 2 | |||||||||||
| 7,870 | 8,618 | 3,080 | ||||||||||||||
Basic earnings per share |
8 | 15.20p | 16.44p | 5.84p | ||||||||||||
Diluted earnings per share |
8 | 15.11p | 16.36p | 5.81p | ||||||||||||
Consolidated statement of comprehensive income
for the years ended 31 March
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Gains/losses) on revaluation of available-for-sale investments, net of tax |
310 | 206 | (2,383 | ) | ||||||||
Foreign exchange translation differences, net of tax |
(2,132 | ) | (1,021 | ) | 12,375 | |||||||
Net actuarial gains/losses) on defined benefit pension schemes, net of tax |
136 | (104 | ) | (163 | ) | |||||||
Revaluation gain |
— | 860 | 68 | |||||||||
Foreign exchange gains transferred to the income statement |
(630 | ) | (84 | ) | (3 | ) | ||||||
Fair value (gains)/losses transferred to the income statement |
(2,192 | ) | 3 | — | ||||||||
Other, net of tax |
19 | 67 | (40 | ) | ||||||||
Other comprehensive (loss)/income |
(4,489 | ) | (73 | ) | 9,854 | |||||||
Profit for the financial year |
7,870 | 8,618 | 3,080 | |||||||||
Total comprehensive income for the year |
3,381 | 8,545 | 12,934 | |||||||||
Attributable to: |
||||||||||||
– Equity shareholders |
3,567 | 8,312 | 13,037 | |||||||||
– Non-controlling interests |
(186 | ) | 233 | (103 | ) | |||||||
| 3,381 | 8,545 | 12,934 | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
Vodafone Group Plc Annual Report 2011 81
Financials
Consolidated statement of financial position
at 31 March
| 2011 | 2010 | |||||||||||
| Note | £m | £m | ||||||||||
Non-current assets |
||||||||||||
Goodwill |
9 | 45,236 | 51,838 | |||||||||
Other intangible assets |
9 | 23,322 | 22,420 | |||||||||
Property, plant and equipment |
11 | 20,181 | 20,642 | |||||||||
Investments in associates |
14 | 38,105 | 36,377 | |||||||||
Other investments |
15 | 1,381 | 7,591 | |||||||||
Deferred tax assets |
6 | 2,018 | 1,033 | |||||||||
Post employment benefits |
23 | 97 | 34 | |||||||||
Trade and other receivables |
17 | 3,877 | 2,831 | |||||||||
| 134,217 | 142,766 | |||||||||||
Current assets |
||||||||||||
Inventory |
16 | 537 | 433 | |||||||||
Taxation recoverable |
281 | 191 | ||||||||||
Trade and other receivables |
17 | 9,259 | 8,784 | |||||||||
Other investments |
15 | 674 | 388 | |||||||||
Cash and cash equivalents |
18 | 6,252 | 4,423 | |||||||||
| 17,003 | 14,219 | |||||||||||
Total assets |
151,220 | 156,985 | ||||||||||
Equity |
||||||||||||
Called up share capital |
19 | 4,082 | 4,153 | |||||||||
Additional paid-in capital |
153,760 | 153,509 | ||||||||||
Treasury shares |
(8,171 | ) | (7,810 | ) | ||||||||
Retained losses |
(77,661 | ) | (79,655 | ) | ||||||||
Accumulated other comprehensive income |
15,545 | 20,184 | ||||||||||
Total equity shareholders’ funds |
87,555 | 90,381 | ||||||||||
Non-controlling interests |
2,880 | 3,379 | ||||||||||
Put options over non-controlling interests |
(2,874 | ) | (2,950 | ) | ||||||||
Total non-controlling interests |
6 | 429 | ||||||||||
Total equity |
87,561 | 90,810 | ||||||||||
Non-current liabilities |
||||||||||||
Long-term borrowings |
22 | 28,375 | 28,632 | |||||||||
Taxation liabilities |
350 | — | ||||||||||
Deferred tax liabilities |
6 | 6,486 | 7,377 | |||||||||
Post employment benefits |
23 | 87 | 237 | |||||||||
Provisions |
24 | 482 | 497 | |||||||||
Trade and other payables |
25 | 804 | 816 | |||||||||
| 36,584 | 37,559 | |||||||||||
Current liabilities |
||||||||||||
Short-term borrowings |
22 | 9,906 | 11,163 | |||||||||
Taxation liabilities |
1,912 | 2,874 | ||||||||||
Provisions |
24 | 559 | 497 | |||||||||
Trade and other payables |
25 | 14,698 | 14,082 | |||||||||
| 27,075 | 28,616 | |||||||||||
Total equity and liabilities |
151,220 | 156,985 | ||||||||||
The consolidated financial statements were approved by the Board of directors and authorised
for issue on 17 May 2011 and were signed on its behalf by:
|
 |
|
Vittorio Colao
|
Andy Halford | |
Chief Executive
|
Chief Financial Officer |
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
82 Vodafone Group Plc Annual Report 2011
Consolidated statement of changes in equity
for the years ended 31 March
| Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Additional | Other comprehensive income | share- | Non- | |||||||||||||||||||||||||||||||||||||||||||||
| Share | paid-in | Treasury | Retained | Currency | Pensions | Investment | Revaluation | holders’ | controlling | |||||||||||||||||||||||||||||||||||||||
| capital | capital(1) | shares | losses | reserve | reserve | reserve | surplus | Other | funds | interests | Total | |||||||||||||||||||||||||||||||||||||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||||||||
1 April 2008 |
4,182 | 153,139 | (7,856 | ) | (81,980 | ) | 5,974 | (96 | ) | 4,531 | 112 | 37 | 78,043 | (1,572 | ) | 76,471 | ||||||||||||||||||||||||||||||||
Issue or reissue of
shares |
3 | 4 | 65 | (44 | ) | — | — | — | — | — | 28 | — | 28 | |||||||||||||||||||||||||||||||||||
Purchase of own
shares |
— | — | (1,000 | ) | — | — | — | — | — | — | (1,000 | ) | — | (1,000 | ) | |||||||||||||||||||||||||||||||||
Redemption or
cancellation of shares |
(32 | ) | 47 | 755 | (770 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Share-based payment |
— | 158 | (2) | — | — | — | — | — | — | — | 158 | — | 158 | |||||||||||||||||||||||||||||||||||
Acquisition of
subsidiaries |
— | — | — | (87 | ) | — | — | — | — | — | (87 | ) | 436 | 349 | ||||||||||||||||||||||||||||||||||
Comprehensive income |
— | — | — | 3,078 | 12,477 | (163 | ) | (2,383 | ) | 68 | (40 | ) | 13,037 | (103 | ) | 12,934 | ||||||||||||||||||||||||||||||||
Profit |
— | — | — | 3,078 | — | — | — | — | — | 3,078 | 2 | 3,080 | ||||||||||||||||||||||||||||||||||||
OCI – before tax |
— | — | — | — | 12,614 | (220 | ) | (2,383 | ) | 68 | (56 | ) | 10,023 | (105 | ) | 9,918 | ||||||||||||||||||||||||||||||||
OCI – taxes |
— | — | — | — | (134 | ) | 57 | — | — | 16 | (61 | ) | — | (61 | ) | |||||||||||||||||||||||||||||||||
Transfer to the income
statement |
— | — | — | — | (3 | ) | — | — | — | — | (3 | ) | — | (3 | ) | |||||||||||||||||||||||||||||||||
Dividends |
— | — | — | (4,017 | ) | — | — | — | — | — | (4,017 | ) | (162 | ) | (4,179 | ) | ||||||||||||||||||||||||||||||||
Other |
— | — | — | — | — | — | — | — | — | — | 16 | 16 | ||||||||||||||||||||||||||||||||||||
31 March 2009 |
4,153 | 153,348 | (8,036 | ) | (83,820 | ) | 18,451 | (259 | ) | 2,148 | 180 | (3 | ) | 86,162 | (1,385 | ) | 84,777 | |||||||||||||||||||||||||||||||
Issue or reissue of
shares |
— | — | 189 | (119 | ) | — | — | — | — | — | 70 | — | 70 | |||||||||||||||||||||||||||||||||||
Share-based payment |
— | 161 | (2) | — | — | — | — | — | — | — | 161 | — | 161 | |||||||||||||||||||||||||||||||||||
Acquisition of
subsidiaries |
— | — | — | (133 | ) | — | — | — | — | — | (133 | ) | 1,636 | 1,503 | ||||||||||||||||||||||||||||||||||
Comprehensive income |
— | — | — | 8,645 | (1,365 | ) | (104 | ) | 209 | 860 | 67 | 8,312 | 233 | 8,545 | ||||||||||||||||||||||||||||||||||
Profit/(loss) |
— | — | — | 8,645 | — | — | — | — | — | 8,645 | (27 | ) | 8,618 | |||||||||||||||||||||||||||||||||||
OCI – before tax |
— | — | — | — | (1,320 | ) | (149 | ) | 377 | 860 | 79 | (153 | ) | 260 | 107 | |||||||||||||||||||||||||||||||||
OCI – taxes |
— | — | — | — | 39 | 45 | (171 | ) | — | (12 | ) | (99 | ) | — | (99 | ) | ||||||||||||||||||||||||||||||||
Transfer to the income
statement |
— | — | — | — | (84 | ) | — | 3 | — | — | (81 | ) | — | (81 | ) | |||||||||||||||||||||||||||||||||
Dividends |
— | — | — | (4,131 | ) | — | — | — | — | — | (4,131 | ) | (56 | ) | (4,187 | ) | ||||||||||||||||||||||||||||||||
Other |
— | — | 37 | (97 | ) | — | — | — | — | — | (60 | ) | 1 | (59 | ) | |||||||||||||||||||||||||||||||||
31 March 2010 |
4,153 | 153,509 | (7,810 | ) | (79,655 | ) | 17,086 | (363 | ) | 2,357 | 1,040 | 64 | 90,381 | 429 | 90,810 | |||||||||||||||||||||||||||||||||
Issue or reissue of
shares |
— | — | 232 | (125 | ) | — | — | — | — | — | 107 | — | 107 | |||||||||||||||||||||||||||||||||||
Redemption or
cancellation of shares |
(71 | ) | 71 | 1,532 | (1,532 | ) | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Purchase of own
shares |
— | — | (2,125 | ) | — | — | — | — | — | — | (2,125 | ) | — | (2,125 | ) | |||||||||||||||||||||||||||||||||
Share-based payment |
— | 180 | (2) | — | — | — | — | — | — | — | 180 | — | 180 | |||||||||||||||||||||||||||||||||||
Acquisition of
subsidiaries |
— | — | — | (120 | ) | — | — | — | — | — | (120 | ) | 35 | (85 | ) | |||||||||||||||||||||||||||||||||
Comprehensive income |
— | — | — | 7,968 | (2,669 | ) | 136 | (1,882 | ) | — | 14 | 3,567 | (186 | ) | 3,381 | |||||||||||||||||||||||||||||||||
Profit/(loss) |
— | — | — | 7,968 | — | — | — | — | — | 7,968 | (98 | ) | 7,870 | |||||||||||||||||||||||||||||||||||
OCI – before tax |
— | — | — | — | (2,053 | ) | 190 | 347 | — | 14 | (1,502 | ) | (88 | ) | (1,590 | ) | ||||||||||||||||||||||||||||||||
OCI – taxes |
— | — | — | — | 14 | (54 | ) | (37 | ) | — | — | (77 | ) | — | (77 | ) | ||||||||||||||||||||||||||||||||
Transfer to the income
statement |
— | — | — | — | (630 | ) | — | (2,192 | )(3) | — | — | (2,822 | ) | — | (2,822 | ) | ||||||||||||||||||||||||||||||||
Dividends |
— | — | — | (4,468 | ) | — | — | — | — | — | (4,468 | ) | (328 | ) | (4,796 | ) | ||||||||||||||||||||||||||||||||
Other |
— | — | — | 271 | — | — | (238 | ) | — | — | 33 | 56 | 89 | |||||||||||||||||||||||||||||||||||
31 March 2011 |
4,082 | 153,760 | (8,171 | ) | (77,661 | ) | 14,417 | (227 | ) | 237 | 1,040 | 78 | 87,555 | 6 | 87,561 | |||||||||||||||||||||||||||||||||
| Notes: | ||
| (1) | Includes share premium and the capital redemption reserve. | |
| (2) | Includes a £24 million tax credit (2010: £11 million credit, 2009: £9 million charge). | |
| (3) | Amount for 2011 includes a £208 million tax credit. | |
Table of Contents
Vodafone Group Plc Annual Report 2011 83
Financials
Consolidated statement of cash flows
for the years ended 31 March
| 2011 | 2010 | 2009 | ||||||||||||||
| Note | £m | £m | £m | |||||||||||||
Net cash flow from operating activities |
26 | 11,995 | 13,064 | 12,213 | ||||||||||||
Cash flows from investing activities |
||||||||||||||||
Purchase of interests in subsidiaries and joint ventures, net of cash acquired |
(402 | ) | (1,777 | ) | (1,389 | ) | ||||||||||
Purchase of intangible assets |
(4,290 | ) | (2,134 | ) | (1,764 | ) | ||||||||||
Purchase of property, plant and equipment |
(4,350 | ) | (4,841 | ) | (5,204 | ) | ||||||||||
Purchase of investments |
(318 | ) | (522 | ) | (133 | ) | ||||||||||
Disposal of interests in subsidiaries, net of cash disposed |
— | — | 4 | |||||||||||||
Disposal of interests in associates |
— | — | 25 | |||||||||||||
Disposal of property, plant and equipment |
51 | 48 | 317 | |||||||||||||
Disposal of investments |
4,467 | 17 | 253 | |||||||||||||
Dividends received from associates |
1,424 | 1,436 | 647 | |||||||||||||
Dividends received from investments |
85 | 141 | 108 | |||||||||||||
Interest received |
1,659 | 195 | 302 | |||||||||||||
Taxation on investing activities |
(208 | ) | — | — | ||||||||||||
Net cash flow from investing activities |
(1,882 | ) | (7,437 | ) | (6,834 | ) | ||||||||||
Cash flows from financing activities |
||||||||||||||||
Issue of ordinary share capital and reissue of treasury shares |
107 | 70 | 22 | |||||||||||||
Net movement in short-term borrowings |
(573 | ) | 227 | (25 | ) | |||||||||||
Proceeds from issue of long-term borrowings |
4,861 | 4,217 | 6,181 | |||||||||||||
Repayment of borrowings |
(4,064 | ) | (5,184 | ) | (2,729 | ) | ||||||||||
Purchase of treasury shares |
(2,087 | ) | — | (963 | ) | |||||||||||
B share capital redemption |
— | — | (15 | ) | ||||||||||||
Equity dividends paid |
(4,468 | ) | (4,139 | ) | (4,013 | ) | ||||||||||
Dividends paid to non-controlling shareholders in subsidiaries |
(320 | ) | (56 | ) | (162 | ) | ||||||||||
Contributions from non-controlling shareholders in subsidiaries |
— | 613 | — | |||||||||||||
Other transactions with non-controlling shareholders in subsidiaries |
(137 | ) | — | 618 | ||||||||||||
Interest paid |
(1,578 | ) | (1,601 | ) | (1,470 | ) | ||||||||||
Net cash flow from financing activities |
(8,259 | ) | (5,853 | ) | (2,556 | ) | ||||||||||
Net cash flow |
1,854 | (226 | ) | 2,823 | ||||||||||||
Cash and cash equivalents at beginning of the financial year |
18 | 4,363 | 4,846 | 1,652 | ||||||||||||
Exchange (loss)/gain on cash and cash equivalents |
(12 | ) | (257 | ) | 371 | |||||||||||
Cash and cash equivalents at end of the financial year |
18 | 6,205 | 4,363 | 4,846 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
84 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements
1. Basis of preparation
The consolidated financial statements are prepared in accordance with IFRS as issued by the
IASB. The consolidated financial statements are also prepared in accordance with IFRS adopted by
the European Union (‘EU’), the Companies Act 2006 and
Article 4 of the EU IAS Regulations.
The preparation of financial statements in conformity with IFRS requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. For a discussion on the
Group’s critical accounting estimates see “Critical accounting estimates” on pages 77 and 78.
Actual results could differ from those estimates. The estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that period or in the period of the
revision and future periods if the revision affects both current and future periods.
Amounts in the consolidated financial statements are stated in pounds sterling.
Vodafone Group Plc is registered in England (No. 1833679).
2. Significant accounting policies
Accounting convention
The consolidated financial statements are prepared on a historical cost basis except for
certain financial and equity instruments that have been measured at fair value.
New accounting pronouncements adopted
IFRS 3 (Revised) “Business Combinations”
The Group adopted IFRS 3 (Revised) on 1 April 2010. The revised standard introduces changes in
the accounting for business combinations that impacts the amount of goodwill recognised, the
reported results in the period that a business combination occurs and future reported results. The
adoption of this standard is likely to have a significant impact on the Group’s accounting for
future business combinations.
Amendment to IAS 27 “Consolidated and Separate Financial Statements”
The Group adopted the amendment to IAS 27 on 1 April 2010. The amendment requires that when a
transaction occurs with non-controlling interests in Group entities that do not result in a change
in control, the difference between the consideration paid or received and the recorded
non-controlling interest should be recognised in equity. In cases where control is lost, any
retained interest should be remeasured to fair value with the difference between fair value and
the previous carrying value being recognised immediately in the income statement. The adoption of
this standard may have a significant impact on the Group’s accounting for future transactions
involving non-controlling interests.
The adoption of this standard has resulted in a change in presentation within the statement of
cash flows of amounts paid to acquire non-controlling interests in Group entities that do not
result in a change in control. In the year ended 31 March 2011 £137 million related to such
transactions was classified as “Other transactions with non-controlling shareholders in
subsidiaries” within “Net cash flows from financing activities”, whereas these amounts would have
previously been recorded in “Purchase of interests in subsidiaries and joint ventures, net of cash
acquired” within “Cash flows from investing activities”. There is no material impact in the
comparative period.
New accounting pronouncements not yet adopted
Phase I of IFRS 9 “Financial Instruments” was issued in November 2009 and is effective for
annual periods beginning on or after 1 January 2013. This standard has not yet been endorsed for
use in the EU. The standard introduces changes to the classification and measurement of financial
assets and the requirements relating to financial liabilities in relation to the presentation of
changes in fair value due to credit risks and the removal of an exemption from measuring certain
derivative liabilities at fair value. The
Group is currently assessing the impact of the standard on its results, financial position and
cash flows.
The Group has not adopted the following pronouncements, which have been issued by the IASB or the
IFRIC. These pronouncements have been endorsed for use in the EU, unless otherwise stated. The
Group does not currently believe the adoption of these pronouncements will have a material impact
on the consolidated results, financial position or cash flows of the Group.
| • | Amendments to IFRS 1, “Severe hyperinflation and removal of fixed dates for first-timer adopters”, effective for annual periods beginning on or after 1 July 2011. This standard has not yet been endorsed for use in the EU. | |
| • | Amendments to IFRS 7, “Financial Instruments: Disclosure”, effective for annual periods beginning on or after 1 July 2011. This standard has not yet been endorsed for use in the EU. | |
| • | “Improvements to IFRSs”, effective over a range of dates, with the earliest being for annual periods beginning on or after 1 January 2011. | |
| • | Amendment to IFRS 1, “Limited Exemption from Comparative IFRS 7 disclosures for first time adopters”, effective for annual periods beginning on or after 1 July 2010. | |
| • | Amendment to IAS 12, “Deferred tax: Recovery of Underlying Assets”, effective for annual periods beginning on or after 1 January 2012. This standard has not yet been endorsed for use in the EU. | |
| • | Amendment to IAS 24, “Related Party Disclosures — State-controlled Entities and the Definition of a Related Party”, effective for annual periods beginning on or after 1 January 2011. | |
| • | Amendment to IFRIC 14, “Prepayments on a Minimum Funding Requirement”, effective for annual periods beginning on or after 1 January 2011. | |
| • | IFRIC 19, “Extinguishing Financial Liabilities with Equity Instruments”, effective annual periods beginning on or after 1 July 2010 with early adoption permitted. |
The Group has also not adopted the following pronouncements, all of which were issued by the IASB
on 12 May 2011 and which are effective for annual periods beginning on or after 1 January 2013.
These pronouncements have not yet been endorsed for use in the EU. The Group has not completed its
assessment of the impact of these pronouncements on the consolidated results, financial position
or cash flows of the Group. However, the Group currently expects that IFRS 11, “Joint
Arrangements”, will have a material impact on the presentation of the Group’s interests in its
joint ventures owing to the Group’s significant investments in joint ventures as discussed in note
13.
| • | IFRS 10, ‘Consolidated Financial Statements’, which replaces parts of IAS 27, ‘Consolidated and Separate Financial Statements and all of SIC-12, ‘Consolidation – Special Purpose Entities’, builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The remainder of IAS 27, ‘Separate Financial Statements’, now contains accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates only when an entity prepares separate financial statements and is therefore not applicable in the Group’s consolidated financial statements. |
| • | IFRS 11, ‘Joint Arrangements’, which replaces IAS 31, ‘Interests in Joint Ventures’ and SIC-13, ‘Jointly Controlled Entities — Non-monetary Contributions by Venturers’, requires a single method, known as the equity method, to account for interests in jointly controlled entities which is consistent with the accounting treatment currently applied to investments in associates. The proportionate consolidation method currently applied to the Group’s interests in joint ventures is prohibited. IAS 28, ‘Investments in Associates and Joint Ventures’, was amended as a consequence of the issuance of IFRS 11. In addition to prescribing the accounting for investment in associates, it now sets out the requirements for the application of the equity method when accounting for joint ventures. The application of the equity method has not changed as a result of this amendment. |
| • | IFRS 12, ‘Disclosure of Interest in Other Entities’, is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The |
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Vodafone Group Plc Annual Report 2011 85
Financials
| • | standard includes disclosure requirements for entities covered under IFRS 10 and lFRS 11. | |
| • | IFRS 13, ‘Fair Value Measurement’, provides guidance on how fair value should be applied where its use is already required or permitted by other standards within IFRS, including a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRS. |
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and
entities controlled, both unilaterally and jointly, by the Company.
Accounting for subsidiaries
A subsidiary is an entity controlled by the Company. Control is achieved where the Company has
the power to govern the financial and operating policies of an entity so as to obtain benefits
from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the income
statement from the effective date of acquisition or up to the effective date of disposal, as
appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to
bring their accounting policies into line with those used by the Group.
All intra-group transactions, balances, income and expenses are eliminated on consolidation.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately
from the Group’s equity therein. Non-controlling interests consist of the amount of those interests
at the date of the original business combination and the non-controlling shareholder’s share of
changes in equity since the date of the combination. Total comprehensive income is attributed to
non-controlling interests even if this results in the non-controlling interests having a deficit
balance.
Business combinations
Acquisitions of subsidiaries are accounted for using the acquisition method. The cost of the
acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets
given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for
control of the acquiree. Acquisition-related costs are recognised in the income statement as
incurred. The acquiree’s identifiable assets and liabilities are recognised at their fair values
at the acquisition date.
Goodwill is measured as the excess of the sum of the consideration transferred,the amount of any
non-controlling interests in the acquiree and the fair value of the Group’s previously held equity
interest in the acquiree, if any, over the net amounts of identifiable assets acquired and
liabilities assumed at the acquisition date.
The interest of the non-controlling shareholders in the acquiree may initially be measured either
at fair value or at the non-controlling shareholders’ proportion of the net fair value of the
identifiable assets acquired, liabilities and contingent liabilities assumed. The choice of
measurement basis is made on an acquisition-by-acquisition basis.
Acquisition of interests from non-controlling shareholders
In transactions with non-controlling parties that do not result in a change in control, the
difference between the fair value of the consideration paid or received and the amount by which
the non-controlling interest is adjusted is recognised in equity.
Interests in joint ventures
A joint venture is a contractual arrangement whereby the Group and other parties undertake an
economic activity that is subject to joint control; that is, when the strategic financial and
operating policy decisions relating to the activities require the unanimous consent of the parties
sharing control.
The Group reports its interests in jointly controlled entities using proportionate consolidation.
The Group’s share of the assets, liabilities,
income, expenses and cash flows of jointly controlled entities are combined with the equivalent
items in the results on a line-by-line basis. Any goodwill arising on the acquisition of the
Group’s interest in a jointly controlled entity is accounted for in accordance with the Group’s
accounting policy for goodwill arising on the acquisition of a subsidiary.
Investments in associates
An associate is an entity over which the Group has significant influence and that is neither a
subsidiary nor an interest in a joint venture. Significant influence is the power to participate in
the financial and operating policy decisions of the investee but is not control or joint control
over those policies.
The results and assets and liabilities of associates are incorporated in the consolidated
financial statements using the equity method of accounting. Under the equity method, investments
in associates are carried in the consolidated statement of financial position at cost as adjusted
for post-acquisition changes in the Group’s share of the net assets of the associate, less any
impairment in the value of the investment. Losses of an associate in excess of the Group’s
interest in that associate are not recognised. Additional losses are provided for, and a liability
is recognised, only to the extent that the Group has incurred legal or constructive obligations or
made payments on behalf of the associate.
Any excess of the cost of acquisition over the Group’s share of the net fair value of the
identifiable assets, liabilities and contingent liabilities of the associate recognised at the
date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount
of the investment.
The licences of the Group’s associate in the US, Verizon Wireless, are indefinite lived assets as
they are subject to perfunctory renewal. Accordingly, they are not subject to amortisation but are
tested annually for impairment, or when indicators exist that the carrying value is not
recoverable.
Intangible assets
Identifiable intangible assets are recognised when the Group controls the asset, it is
probable that future economic benefits attributed to the asset will flow to the Group and the cost
of the asset can be reliably measured.
Goodwill
Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition
over the Group’s interest in the net fair value of the identifiable assets, liabilities and
contingent liabilities of the entity recognised at the date of acquisition.
Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any
accumulated impairment losses. Goodwill is held in the currency of the acquired entity and revalued
to the closing rate at each reporting period date.
Goodwill is not subject to amortisation but is tested for impairment.
Negative goodwill arising on an acquisition is recognised directly in the income statement.
On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is
included in the determination of the profit or loss recognised in the income statement on
disposal.
Goodwill arising before the date of transition to IFRS, on 1 April 2004, has been retained at the
previous UK GAAP amounts, subject to being tested for impairment at that date. Goodwill written
off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in
determining any subsequent profit or loss on disposal.
Finite
lived intangible assets
Intangible assets with finite lives are stated at acquisition or development cost, less
accumulated amortisation. The amortisation period and method is reviewed at least annually.
Changes in the expected useful life or the expected pattern of consumption of future economic
benefits embodied in the asset is accounted for by changing the amortisation period or method,
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86 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
2. Significant accounting policies continued
as appropriate, and are treated as changes in accounting estimates. The amortisation expense on
intangible assets with finite lives is recognised in profit or loss in the expense category
consistent with the function of the intangible asset.
Licence and spectrum fees
Amortisation periods for licence and spectrum fees are determined primarily by reference to the
unexpired licence period, the conditions for licence renewal and whether licences are dependent on
specific technologies. Amortisation is charged to the income statement on a straight-line basis
over the estimated useful lives from the commencement of service of the network.
Computer software
Computer software comprises computer software purchased from third parties as well as the cost of
internally developed software. Computer software licences are capitalised on the basis of the costs
incurred to acquire and bring into use the specific software. Costs that are directly associated
with the production of identifiable and unique software products controlled by the Group, and are
probable of producing future economic benefits are recognised as intangible assets. Direct costs
include software development employee costs and directly attributable overheads.
Software integral to a related item of hardware equipment is accounted for as property, plant and
equipment.
Costs associated with maintaining computer software programs are recognised as an expense when they
are incurred.
Internally developed software is recognised only if all of the following conditions are met:
| • | an asset is created that can be separately identified; | |
| • | it is probable that the asset created will generate future economic benefits; and | |
| • | the development cost of the asset can be measured reliably. |
Amortisation is charged to the income statement on a straight-line basis over the estimated useful
lives from the date the software is available for use.
Other intangible assets
Other intangible assets, including brands and customer bases, are recorded at fair value at the
date of acquisition. Amortisation is charged to the income statement on either a straight-line or
sum of digits basis over the estimated useful lives of intangible assets from the date they are
available for use.
Estimated useful lives
The estimated useful lives of finite lived intangible assets are as follows:
•
|
Licence and spectrum fees | 3 – 25 years | ||
•
|
Computer software | 3 – 5 years | ||
•
|
Brands | 1 – 10 years | ||
•
|
Customer bases | 2 – 7 years |
Property, plant and equipment
Land and buildings held for use are stated in the statement of financial position at their
cost, less any subsequent accumulated depreciation and subsequent accumulated impairment losses.
Equipment, fixtures and fittings are stated at cost less accumulated depreciation and any
accumulated impairment losses.
Assets in the course of construction are carried at cost, less any recognised impairment loss.
Depreciation of these assets commences when the assets are ready for their intended use.
The cost of property, plant and equipment includes directly attributable incremental costs
incurred in their acquisition and installation.
Depreciation is charged so as to write off the cost of assets, other than land and properties
under construction, using the straight-line method, over their estimated useful lives, as follows:
•
|
Freehold buildings | 25 – 50 years | ||
•
|
Leasehold premises | the term of the lease |
Equipment, fixtures and fittings:
•
|
Network infrastructure | 3 – 25 years | ||
•
|
Other | 3 – 10 years |
Depreciation is not provided on freehold land.
Assets held under finance leases are depreciated over their expected useful lives on the same
basis as owned assets or, where shorter, the term of the relevant lease.
The gain or loss arising on the disposal or retirement of an item of property, plant and equipment
is determined as the difference between the sale proceeds and the carrying amount of the asset and
is recognised in the income statement.
Impairment of assets
Goodwill
Goodwill is not subject to amortisation but is tested for impairment annually or whenever
there is an indication that the asset may be impaired.
For the purpose of impairment testing, assets are grouped at the lowest levels for which there are
separately identifiable cash flows, known as cash-generating units. If the recoverable amount of
the cash-generating unit is less than the carrying amount of the unit, the impairment loss is
allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to
the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the
unit. Impairment losses recognised for goodwill are not reversed in a subsequent period.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing
value in use, the estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset for which the estimates of future cash flows have not been adjusted.
The Group prepares and approves formal five year management plans for its operations, which are
used in the value in use calculations. In certain developing markets the fifth year of the
management plan is not indicative of the long term future performance as operations may not have
reached maturity. For these operations, the Group extends the plan data for an additional five
year period.
Property, plant and equipment and finite lived intangible assets
At each reporting period date, the Group reviews the carrying amounts of its property, plant and
equipment and finite lived intangible assets to determine whether there is any indication that
those assets have suffered an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent, if any, of the impairment loss.
Where it is not possible to estimate the recoverable amount of an individual asset, the Group
estimates the recoverable amount of the cash-generating unit to which the asset belongs.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its
carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its
recoverable amount. An impairment loss is recognised immediately in the income statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating
unit is increased to the revised estimate of its recoverable amount, not to exceed the carrying
amount that would have been determined had no impairment loss been recognised for the asset or
cash-generating unit in prior years. A reversal of an impairment loss is recognised immediately in
the income statement.
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Vodafone Group Plc Annual Report 2011 87
Financials
Revenue
Revenue is recognised to the extent the Group has delivered goods or rendered services under an
agreement, the amount of revenue can be measured reliably and it is probable that the economic
benefits associated with the transaction will flow to the Group. Revenue is measured at the fair
value of the consideration received, exclusive of sales taxes and discounts.
The Group principally obtains revenue from providing the following telecommunication services:
access charges, airtime usage, messaging, interconnect fees, data services and information
provision, connection fees and equipment sales. Products and services may be sold separately or in
bundled packages.
Revenue for access charges, airtime usage and messaging by contract customers is recognised as
services are performed, with unbilled revenue resulting from services already provided accrued at
the end of each period and unearned revenue from services to be provided in future periods
deferred. Revenue from the sale of prepaid credit is deferred until such time as the customer uses
the airtime, or the credit expires.
Revenue from interconnect fees is recognised at the time the services are performed.
Revenue from data services and information provision is recognised when the Group has performed the
related service and, depending on the nature of the service, is recognised either at the gross
amount billed to the customer or the amount receivable by the Group as commission for facilitating
the service.
Customer connection revenue is recognised together with the related equipment revenue to the extent
that the aggregate equipment and connection revenue does not exceed the fair value of the equipment
delivered to the customer. Any customer connection revenue not recognised together with related
equipment revenue is deferred and recognised over the period in which services are expected to be
provided to the customer.
Revenue for device sales is recognised when the device is delivered to the end customer and the
sale is considered complete. For device sales made to intermediaries, revenue is recognised if the
significant risks associated with the device are transferred to the intermediary and the
intermediary has no general right of return. If the significant risks are not transferred, revenue
recognition is deferred until sale of the device to an end customer by the intermediary or the
expiry of the right of return.
In revenue arrangements including more than one deliverable, the arrangements are divided into
separate units of accounting. Deliverables are considered separate units of accounting if the
following two conditions are met: (1) the deliverable has value to the customer on a stand-alone
basis and (2) there is evidence of the fair value of the item. The arrangement consideration is
allocated to each separate unit of accounting based on its relative fair value.
Commissions
Intermediaries are given cash incentives by the Group to connect new customers and upgrade
existing customers.
For intermediaries who do not purchase products and services from the Group, such cash incentives
are accounted for as an expense. Such cash incentives to other intermediaries are also accounted
for as an expense if:
| • | the Group receives an identifiable benefit in exchange for the cash incentive that is separable from sales transactions to that intermediary; and | |
| • | the Group can reliably estimate the fair value of that benefit. |
Cash incentives that do not meet these criteria are recognised as a reduction of the related
revenue.
Inventory
Inventory is stated at the lower of cost and net realisable value. Cost is determined on the
basis of weighted average costs and comprises direct materials and, where applicable, direct
labour costs and those overheads that have been incurred in bringing the inventories to their
present location and condition.
Leasing
Leases are classified as finance leases whenever the terms of the lease transfer substantially
all the risks and rewards of ownership of the asset to the lessee. All other leases are classified
as operating leases.
Assets held under finance leases are recognised as assets of the Group at their fair value at the
inception of the lease or, if lower, at the present value of the minimum lease payments as
determined at the inception of the lease. The corresponding liability to the lessor is included in
the statement of financial position as a finance lease obligation. Lease payments are apportioned
between finance charges and reduction of the lease obligation so as to achieve a constant rate of
interest on the remaining balance of the liability. Finance charges are recognised in the income
statement.
Rentals payable under operating leases are charged to the income statement on a straight-line
basis over the term of the relevant lease. Benefits received and receivable as an incentive to
enter into an operating lease are also spread on a straight-line basis over the lease term.
Foreign currencies
The consolidated financial statements are presented in sterling, which is the parent company’s
functional and presentation currency. Each entity in the Group determines its own functional
currency and items included in the financial statements of each entity are measured using that
functional currency.
Transactions in foreign currencies are initially recorded at the functional currency rate
prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign
currencies are retranslated into the respective functional currency of the entity at the rates
prevailing on the reporting period date. Non-monetary items carried at fair value that are
denominated in foreign currencies are retranslated at the rates prevailing on the initial
transaction dates. Non-monetary items measured in terms of historical cost in a foreign currency
are not retranslated.
Changes in the fair value of monetary securities denominated in foreign currency classified as
available-for-sale are analysed between translation differences and other changes in the carrying
amount of the security. Translation differences are recognised in the income statement and other
changes in carrying amount are recognised in equity.
Translation differences on non-monetary financial assets, such as investments in equity
securities, classified as available-for-sale are reported as part of the fair value gain or loss
and are included in equity.
For the purpose of presenting consolidated financial statements, the assets and liabilities of
entities with a functional currency other than sterling are expressed in sterling using exchange
rates prevailing at the reporting period date. Income and expense items and cash flows are
translated at the average exchange rates for the period and exchange differences arising are
recognised directly in equity. On disposal of a foreign entity, the cumulative amount previously
recognised in equity relating to that particular foreign operation is recognised in profit or
loss.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated
as assets and liabilities of the foreign operation and translated accordingly.
In respect of all foreign operations, any exchange differences that have arisen before 1 April
2004, the date of transition to IFRS, are deemed to be nil and will be excluded from the
determination of any subsequent profit or loss on disposal.
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88 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
2. Significant accounting policies continued
The net foreign exchange gain recognised in the consolidated income statement is £1,022
million (2010: £35 million gain, 2009: £131 million loss).
Research expenditure
Expenditure on research activities is recognised as an expense in the period in which it is
incurred.
Post employment benefits
For defined benefit retirement plans, the difference between the fair value of the plan assets
and the present value of the plan liabilities is recognised as an asset or liability on the
statement of financial position. Scheme liabilities are assessed using the projected unit funding
method and applying the principal actuarial assumptions at the reporting period date. Assets are
valued at market value.
Actuarial gains and losses are taken to the statement of comprehensive income as incurred. For
this purpose, actuarial gains and losses comprise both the effects of changes in actuarial
assumptions and experience adjustments arising because of differences between the previous
actuarial assumptions and what has actually occurred.
Other movements in the net surplus or deficit are recognised in the income statement, including
the current service cost, any past service cost and the effect of any curtailment or settlements.
The interest cost less the expected return on assets is also charged to the income statement. The
amount charged to the income statement in respect of these plans is included within operating
costs or in the Group’s share of the results of equity accounted operations as appropriate.
The Group’s contributions to defined contribution pension plans are charged to the income
statement as they fall due.
Cumulative actuarial gains and losses at 1 April 2004, the date of transition to IFRS, have been
recognised in the statement of financial position.
Taxation
Income tax expense represents the sum of the current tax payable and deferred tax.
Current tax payable or recoverable is based on taxable profit for the year. Taxable profit differs
from profit as reported in the income statement because some items of income or expense are
taxable or deductible in different years or may never be taxable or deductible. The Group’s
liability for current tax is calculated using UK and foreign tax rates and laws that have been
enacted or substantively enacted by the reporting period date.
Deferred tax is the tax expected to be payable or recoverable in the future arising from temporary
differences between the carrying amounts of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation of taxable profit. It is accounted for using
the statement of financial position liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available against which deductible
temporary differences can be utilised.
Such assets and liabilities are not recognised if the temporary difference arises from the initial
recognition (other than in a business combination) of assets and liabilities in a transaction that
affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are not
recognised to the extent they arise from the initial recognition of non tax deductable goodwill.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments
in subsidiaries and associates, and interests in joint ventures, except where the Group is able to
control the reversal of the temporary difference and it is probable that the temporary difference
will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each reporting period date and adjusted
to reflect changes in probability that sufficient taxable profits will be available to allow all
or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the
liability is settled or the asset realised, based on tax rates that have been enacted or
substantively enacted by the reporting period date.
Tax assets and liabilities are offset when there is a legally enforceable right to set off current
tax assets against current tax liabilities and when they either relate to income taxes levied by
the same taxation authority on either the same taxable entity or on different taxable entities
which intend to settle the current tax assets and liabilities on a net basis.
Tax is charged or credited to the income statement, except when it relates to items charged or
credited directly to equity, in which case the tax is also recognised directly in equity.
Financial instruments
Financial assets and financial liabilities, in respect of financial instruments, are
recognised on the Group’s statement of financial position when the Group becomes a party to the
contractual provisions of the instrument.
Trade receivables
Trade receivables do not carry any interest and are stated at their nominal value as reduced by
appropriate allowances for estimated irrecoverable amounts. Estimated irrecoverable amounts are
based on the ageing of the receivable balances and historical experience. Individual trade
receivables are written off when management deems them not to be collectible.
Other investments
Other investments are recognised and derecognised on a trade date where a purchase or sale of an
investment is under a contract whose terms require delivery of the investment within the timeframe
established by the market concerned, and are initially measured at cost, including transaction
costs.
Other investments classified as held for trading and available-for-sale are stated at fair value.
Where securities are held for trading purposes, gains and losses arising from changes in fair
value are included in net profit or loss for the period. For available-for-sale investments, gains
and losses arising from changes in fair value are recognised directly in equity, until the
security is disposed of or is determined to be impaired, at which time the cumulative gain or loss
previously recognised in equity, determined using the weighted average cost method, is included in
the net profit or loss for the period.
Other investments classified as loans and receivables are stated at amortised cost using the
effective interest method, less any impairment.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and call deposits, and other short-term highly
liquid investments that are readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Trade payables
Trade payables are not interest bearing and are stated at their nominal value.
Financial
liabilities and equity instruments
Financial liabilities and equity instruments issued by the Group are classified according to the
substance of the contractual arrangements entered into and the definitions of a financial liability
and an equity instrument. An equity instrument is any contract that evidences a residual interest
in the assets of the Group after deducting all of its liabilities and includes no obligation to
deliver cash or other financial assets. The accounting policies adopted for specific financial
liabilities and equity instruments are set out below.
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Vodafone Group Plc Annual Report 2011 89
Financials
Capital market and bank borrowings
Interest bearing loans and overdrafts are initially measured at fair value (which is equal to
cost at inception), and are subsequently measured at amortised cost, using the effective interest
rate method, except where they are identified as a hedged item in a fair value hedge. Any
difference between the proceeds net of transaction costs and the amount due on settlement or
redemption of borrowings is recognised over the term of the borrowing.
Equity
instruments
Equity instruments issued by the Group are recorded at the proceeds received, net of direct
issuance costs.
Derivative
financial instruments and hedge accounting
The Group’s activities expose it to the financial risks of changes in foreign exchange rates
and interest rates.
The use of financial derivatives is governed by the Group’s policies approved by the Board of
directors, which provide written principles on the use of financial derivatives consistent with the
Group’s risk management strategy. Changes in values of all derivatives of a financing nature are
included within investment income and financing costs in the income statement. The Group does not
use derivative financial instruments for speculative purposes.
Derivative financial instruments are initially measured at fair value on the contract date and are
subsequently remeasured to fair value at each reporting date. The Group designates certain
derivatives as either:
| • | hedges of the change of fair value of recognised assets and liabilities (‘fair value hedges’); or | |
| • | hedges of net investments in foreign operations. |
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or
exercised, or no longer qualifies for hedge accounting, or the Company chooses to end the hedging
relationship.
Fair value hedges
The Group’s policy is to use derivative instruments (primarily interest rate swaps) to convert
a proportion of its fixed rate debt to floating rates in order to hedge the interest rate risk
arising, principally, from capital market borrowings. The Group designates these as fair value
hedges of interest rate risk with changes in fair value of the hedging instrument recognised in
the income statement for the period together with the changes in the fair value of the hedged item
due to the hedged risk, to the extent the hedge is effective. The ineffective portion is
recognised immediately in the income statement.
Net Investment hedges
Exchange differences arising from the translation of the net investment in foreign operations
are recognised directly in equity. Gains and losses on those hedging instruments (which include
bonds, commercial paper and foreign exchange contracts) designated as hedges of the net
investments in foreign operations are recognised in equity to the extent that the hedging
relationship is effective. These amounts are included in exchange differences on translation of
foreign operations as stated in the statement of comprehensive income. Gains and losses relating
to hedge ineffectiveness are recognised immediately in the income statement for the period. Gains
and losses accumulated in the translation reserve are included in the income statement when the
foreign operation is disposed of.
Put option arrangements
The potential cash payments related to put options issued by the Group over the equity of
subsidiary companies are accounted for as financial liabilities when such options may only be
settled other than by exchange of a fixed amount of cash or another financial asset for a fixed
number of shares in the subsidiary.
The amount that may become payable under the option on exercise is initially recognised at fair
value within borrowings with a corresponding charge directly to equity. The charge to equity is
recognised separately as written put options over non-controlling interests, adjacent to
non-controlling interests in the net assets of consolidated subsidiaries.
The Group recognises the cost of writing such put options, determined as the excess of the fair
value of the option over any consideration received, as a financing cost.
Such options are subsequently measured at amortised cost, using the effective interest rate
method, in order to accrete the liability up to the amount payable under the option at the date at
which it first becomes exercisable. The charge arising is recorded as a financing cost. In the
event that the option expires unexercised, the liability is derecognised with a corresponding
adjustment to equity.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a
result of a past event, it is probable that the Group will be required to settle that obligation
and a reliable estimate can be made of the amount of the obligation. Provisions are measured at
the directors’ best estimate of the expenditure required to settle the obligation at the reporting
date and are discounted to present value where the effect is material.
Share-based payments
The Group issues equity-settled share-based payments to certain employees. Equity-settled
share-based payments are measured at fair value (excluding the effect of non market-based vesting
conditions) at the date of grant. The fair value determined at the grant date of the equity-settled
share-based payments is expensed on a straight-line basis over the vesting period, based on the
Group’s estimate of the shares that will eventually vest and adjusted for the effect of non
market-based vesting conditions.
Fair value is measured using a binomial pricing model, being a lattice-based option valuation
model, which is calibrated using a Black-Scholes framework. The expected life used in the model
has been adjusted, based on management’s best estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations.
The Group uses historical data to estimate option exercise and employee termination within the
valuation model; separate groups of employees that have similar historical exercise behaviour are
considered separately for valuation purposes. The expected life of options granted is derived from
the output of the option valuation model and represents the period of time that options are
expected to be outstanding. Expected volatilities are based on implied volatilities as determined
by a simple average of no less than three international banks, excluding the highest and lowest
numbers. The risk-free rates for periods within the contractual life of the option are based on
the UK gilt yield curve in effect at the time of grant.
Some share awards have an attached market condition, based on total shareholder return (‘TSR’),
which is taken into account when calculating the fair value of the share awards. The valuation for
the TSR is based on Vodafone’s ranking within the same group of companies, where possible, over
the past five years. The volatility of the ranking over a three year period is used to determine
the probable weighted percentage number of shares that could be expected to vest and hence affect
fair value.
The fair value of awards of non-vested shares is equal to the closing price of the Vodafone’s
shares on the date of grant, adjusted for the present value of future dividend entitlements where
appropriate.
Table of Contents
90 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
3. Segment analysis
The Group has a single group of related services and products being the supply of
communications services and products. Segment information is provided on the basis of geographic
areas, being the basis on which the Group manages its worldwide interests. Revenue is attributed
to a country or region based on the location of the Group company reporting the revenue.
Inter-segment sales are charged at arm’s length prices.
During the year ended 31 March 2011 the Group changed its organisation structure to enable
continued improvement in the delivery of the Group’s strategic goals. The Europe region now
consists of all existing controlled businesses in Europe plus the Group’s interests in Czech
Republic, Hungary, Romania and Turkey. The Africa, Middle East and Asia Pacific region includes
the Group’s interests in Egypt, India, Ghana, Kenya, Qatar and Vodacom as well as Australia, New
Zealand and Fiji. Non-Controlled Interests and Common Functions includes Verizon Wireless, SFR and
Polkomtel as well as central Group functions. The tables below present segment information on the
revised basis, with prior years amended to conform to the current year presentation.
| Segment | Intra-region | Regional | Inter-region | Group | Adjusted | |||||||||||||||||||
| revenue | revenue | revenue | revenue | revenue | EBITDA(1) | |||||||||||||||||||
| £m | £m | £m | £m | £m | £m | |||||||||||||||||||
31 March 2011 |
||||||||||||||||||||||||
Germany |
7,900 | (51 | ) | 7,849 | (2 | ) | 7,847 | 2,952 | ||||||||||||||||
Italy |
5,722 | (31 | ) | 5,691 | (3 | ) | 5,688 | 2,643 | ||||||||||||||||
Spain |
5,133 | (62 | ) | 5,071 | (2 | ) | 5,069 | 1,562 | ||||||||||||||||
UK |
5,271 | (50 | ) | 5,221 | (7 | ) | 5,214 | 1,233 | ||||||||||||||||
Other Europe |
8,253 | (70 | ) | 8,183 | (3 | ) | 8,180 | 2,433 | ||||||||||||||||
Europe |
32,279 | (264 | ) | 32,015 | (17 | ) | 31,998 | 10,823 | ||||||||||||||||
India |
3,855 | (1 | ) | 3,854 | (11 | ) | 3,843 | 985 | ||||||||||||||||
Vodacom |
5,479 | — | 5,479 | (8 | ) | 5,471 | 1,844 | |||||||||||||||||
Other Africa, Middle East and Asia Pacific |
3,971 | — | 3,971 | (27 | ) | 3,944 | 1,170 | |||||||||||||||||
Africa, Middle East and Asia Pacific |
13,305 | (1 | ) | 13,304 | (46 | ) | 13,258 | 3,999 | ||||||||||||||||
Non-Controlled Interests and Common Functions |
659 | — | 659 | (31 | ) | 628 | (152 | ) | ||||||||||||||||
Group |
46,243 | (265 | ) | 45,978 | (94 | ) | 45,884 | 14,670 | ||||||||||||||||
Verizon Wireless |
18,711 | (2) | 7,313 | |||||||||||||||||||||
31 March 2010 |
||||||||||||||||||||||||
Germany |
8,008 | (41 | ) | 7,967 | (8 | ) | 7,959 | 3,122 | ||||||||||||||||
Italy |
6,027 | (40 | ) | 5,987 | (2 | ) | 5,985 | 2,843 | ||||||||||||||||
Spain |
5,713 | (81 | ) | 5,632 | (2 | ) | 5,630 | 1,956 | ||||||||||||||||
UK |
5,025 | (47 | ) | 4,978 | (10 | ) | 4,968 | 1,141 | ||||||||||||||||
Other Europe |
8,357 | (88 | ) | 8,269 | (5 | ) | 8,264 | 2,582 | ||||||||||||||||
Europe |
33,130 | (297 | ) | 32,833 | (27 | ) | 32,806 | 11,644 | ||||||||||||||||
India |
3,114 | (1 | ) | 3,113 | (20 | ) | 3,093 | 807 | ||||||||||||||||
Vodacom |
4,450 | — | 4,450 | (7 | ) | 4,443 | 1,528 | |||||||||||||||||
Other Africa, Middle East and Asia Pacific |
3,526 | — | 3,526 | (30 | ) | 3,496 | 977 | |||||||||||||||||
Africa, Middle East and Asia Pacific |
11,090 | (1 | ) | 11,089 | (57 | ) | 11,032 | 3,312 | ||||||||||||||||
Non-Controlled Interests and Common Functions |
667 | — | 667 | (33 | ) | 634 | (221 | ) | ||||||||||||||||
Group |
44,887 | (298 | ) | 44,589 | (117 | ) | 44,472 | 14,735 | ||||||||||||||||
Verizon Wireless |
17,222 | (2) | 6,689 | |||||||||||||||||||||
31 March 2009 |
||||||||||||||||||||||||
Germany |
7,847 | (59 | ) | 7,788 | (9 | ) | 7,779 | 3,225 | ||||||||||||||||
Italy |
5,547 | (39 | ) | 5,508 | (3 | ) | 5,505 | 2,565 | ||||||||||||||||
Spain |
5,812 | (95 | ) | 5,717 | (2 | ) | 5,715 | 2,034 | ||||||||||||||||
UK |
5,392 | (48 | ) | 5,344 | (8 | ) | 5,336 | 1,368 | ||||||||||||||||
Other Europe |
8,514 | (102 | ) | 8,412 | (3 | ) | 8,409 | 2,920 | ||||||||||||||||
Europe |
33,112 | (343 | ) | 32,769 | (25 | ) | 32,744 | 12,112 | ||||||||||||||||
India |
2,689 | (2 | ) | 2,687 | (18 | ) | 2,669 | 717 | ||||||||||||||||
Vodacom |
1,778 | — | 1,778 | — | 1,778 | 606 | ||||||||||||||||||
Other Africa, Middle East and Asia Pacific |
3,258 | — | 3,258 | (32 | ) | 3,226 | 1,072 | |||||||||||||||||
Africa, Middle East and Asia Pacific |
7,725 | (2 | ) | 7,723 | (50 | ) | 7,673 | 2,395 | ||||||||||||||||
Non-Controlled Interests and Common Functions |
614 | — | 614 | (14 | ) | 600 | (17 | ) | ||||||||||||||||
Group |
41,451 | (345 | ) | 41,106 | (89 | ) | 41,017 | 14,490 | ||||||||||||||||
Verizon Wireless |
14,085 | (2) | 5,543 | |||||||||||||||||||||
| Notes: | ||
| (1) | The Group’s measure of segment profit, adjusted EBITDA, excludes the Group’s share of results in associates. The Group’s share of results in associates, by segment, for the year ended 31 March 2011 is Other Europe £nil (2010: £nil; 2009 £(3) million), Vodacom £nil (2010: £(2) million; 2009: £(1) million), Other Africa, Middle East and Asia Pacific £51 million (2010: £56 million; 2009: £31 million) and Non-Controlled Interests and Common Functions £5,008 million (2010: £4,688 million; 2009: £4,064 million). | |
| (2) | Values shown for Verizon Wireless, which is an associate, are not included in the calculation of Group revenue or adjusted EBITDA. | |
Table of Contents
Vodafone Group Plc Annual Report 2011 91
Financials
A
reconciliation of adjusted EBITDA to operating profit is shown below. For a reconciliation of
operating profit to profit before taxation, see the consolidated income statement on page 80.
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Adjusted EBITDA |
14,670 | 14,735 | 14,490 | |||||||||
Depreciation, amortisation and loss on disposal of fixed assets |
(7,967 | ) | (8,011 | ) | (6,824 | ) | ||||||
Share of results in associates |
5,059 | 4,742 | 4,091 | |||||||||
Impairment losses |
(6,150 | ) | (2,100 | ) | (5,900 | ) | ||||||
Other income and expense |
(16 | ) | 114 | — | ||||||||
Operating profit |
5,596 | 9,480 | 5,857 | |||||||||
| Other | ||||||||||||||||||||
| expenditure | ||||||||||||||||||||
| on | Depreciation | Impairment | ||||||||||||||||||
| Non-current | Capital | intangible | and | (reversal)/ | ||||||||||||||||
| assets(1) | expenditure(2) | assets | amortisation | loss | ||||||||||||||||
| £m | £m | £m | £m | £m | ||||||||||||||||
31 March 2011 |
||||||||||||||||||||
Germany |
20,764 | 824 | 1,214 | 1,361 | — | |||||||||||||||
Italy |
16,645 | 590 | 12 | 732 | 1,050 | |||||||||||||||
Spain |
9,596 | 517 | — | 641 | 2,950 | |||||||||||||||
UK |
6,665 | 516 | — | 874 | — | |||||||||||||||
Other Europe |
11,438 | 1,230 | 59 | 1,406 | 2,150 | |||||||||||||||
Europe |
65,108 | 3,677 | 1,285 | 5,014 | 6,150 | |||||||||||||||
India |
9,882 | 870 | 1,851 | 973 | — | |||||||||||||||
Vodacom |
7,382 | 572 | 19 | 1,013 | — | |||||||||||||||
Other Africa, Middle East and Asia Pacific |
4,797 | 754 | 2 | 793 | — | |||||||||||||||
Africa, Middle East and Asia Pacific |
22,061 | 2,196 | 1,872 | 2,779 | — | |||||||||||||||
Non-Controlled Interests and Common Functions |
1,570 | 346 | 9 | 83 | — | |||||||||||||||
Group |
88,739 | 6,219 | 3,166 | 7,876 | 6,150 | |||||||||||||||
31 March 2010 |
||||||||||||||||||||
Germany |
20,211 | 766 | 18 | 1,422 | — | |||||||||||||||
Italy |
17,941 | 610 | 60 | 732 | — | |||||||||||||||
Spain |
12,746 | 543 | — | 638 | — | |||||||||||||||
UK |
6,977 | 494 | — | 963 | — | |||||||||||||||
Other Europe |
13,883 | 1,282 | 228 | 1,467 | (200 | ) | ||||||||||||||
Europe |
71,758 | 3,695 | 306 | 5,222 | (200 | ) | ||||||||||||||
India |
8,665 | 853 | — | 848 | 2,300 | |||||||||||||||
Vodacom |
7,783 | 520 | — | 1,005 | — | |||||||||||||||
Other Africa, Middle East and Asia Pacific |
5,062 | 694 | — | 683 | — | |||||||||||||||
Africa, Middle East and Asia Pacific |
21,510 | 2,067 | — | 2,536 | 2,300 | |||||||||||||||
Non-Controlled Interests and Common Functions |
1,632 | 430 | 19 | 152 | — | |||||||||||||||
Group |
94,900 | 6,192 | 325 | 7,910 | 2,100 | |||||||||||||||
31 March 2009 |
||||||||||||||||||||
Germany |
750 | 16 | 1,378 | — | ||||||||||||||||
Italy |
521 | — | 735 | — | ||||||||||||||||
Spain |
632 | — | 606 | 3,400 | ||||||||||||||||
UK |
446 | — | 1,010 | — | ||||||||||||||||
Other Europe |
1,013 | 21 | 1,441 | 2,250 | ||||||||||||||||
Europe |
3,362 | 37 | 5,170 | 5,650 | ||||||||||||||||
India |
1,351 | — | 746 | — | ||||||||||||||||
Vodacom |
237 | — | 231 | — | ||||||||||||||||
Other Africa, Middle East and Asia Pacific |
581 | 1,101 | 527 | 250 | ||||||||||||||||
Africa, Middle East and Asia Pacific |
2,169 | 1,101 | 1,504 | 250 | ||||||||||||||||
Non-Controlled Interests and Common Functions |
378 | — | 140 | — | ||||||||||||||||
Group |
5,909 | 1,138 | 6,814 | 5,900 | ||||||||||||||||
| Notes: | ||
| (1) | Comprises goodwill, other intangible assets and property, plant and equipment. | |
| (2) | Includes additions to property, plant and equipment and computer software, reported within intangible assets. | |
Table of Contents
92 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
4. Operating profit
Operating profit has been arrived at after charging/(crediting):
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Net foreign exchange losses/(gains) |
14 | (29 | ) | 30 | ||||||||
Depreciation of property, plant and equipment (note 11): |
||||||||||||
Owned assets |
4,318 | 4,412 | 4,025 | |||||||||
Leased assets |
54 | 44 | 36 | |||||||||
Amortisation of intangible assets (note 9) |
3,504 | 3,454 | 2,753 | |||||||||
Impairment of goodwill (note 10) |
6,150 | 2,300 | 5,650 | |||||||||
(Reversal of impairment)/impairment of licence and spectrum (note 10) |
— | (200 | ) | 250 | ||||||||
Research and development expenditure |
287 | 303 | 280 | |||||||||
Staff costs (note 31) |
3,642 | 3,770 | 3,227 | |||||||||
Operating lease rentals payable: |
||||||||||||
Plant and machinery |
127 | 71 | 68 | |||||||||
Other assets including fixed line rentals |
1,761 | 1,587 | 1,331 | |||||||||
Loss on disposal of property, plant and equipment |
91 | 101 | 10 | |||||||||
Own costs capitalised attributable to the construction or acquisition of property, plant and equipment |
(331 | ) | (296 | ) | (273 | ) | ||||||
The total
remuneration of the Group’s auditor, Deloitte LLP, and its affiliates for services
provided to the Group is analysed below:
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Audit fees: |
||||||||||||
Parent company |
1 | 1 | 1 | |||||||||
Subsidiaries(1) |
7 | 7 | 5 | |||||||||
| 8 | 8 | 6 | ||||||||||
Fees for statutory and regulatory filings |
1 | 1 | 2 | |||||||||
Audit and audit-related fees |
9 | 9 | 8 | |||||||||
Other fees: |
||||||||||||
Taxation |
1 | 1 | 1 | |||||||||
Total fees |
10 | 10 | 9 | |||||||||
| Note: | ||
| (1) | The increase in the year ended 31 March 2010 primarily arose from the consolidation of Vodacom Group Limited as a subsidiary from 18 May 2009. | |
In addition to the above, the Group’s joint ventures and associates paid fees totalling £1
million (2010: £2 million, 2009: £3 million) and £5 million (2010: £7 million, 2009: £6 million)
respectively to Deloitte LLP and other member firms of Deloitte Touche Tohmatsu Limited during the
year. Deloitte LLP and other member firms of Deloitte Touche Tohmatsu Limited have also received
amounts totalling less than £1 million in each of the last three years in respect of services
provided to pension schemes and charitable foundations associated to the Group.
A description of the work performed by the Audit Committee in order to safeguard auditor
independence when non-audit services are provided is set out in “Corporate governance” on page 60.
Table of Contents
Vodafone Group Plc Annual Report 2011 93
Financials
5. Investment income and financing costs
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Investment income: |
||||||||||||
Available-for-sale investments: |
||||||||||||
Dividends received |
83 | 145 | 110 | |||||||||
Loans and receivables at amortised cost |
339 | 423 | 339 | |||||||||
Gain on settlement of loans and receivables(1) |
472 | — | — | |||||||||
Fair value through the income statement (held for trading): |
||||||||||||
Derivatives
— foreign exchange contracts |
38 | 3 | 71 | |||||||||
Other(2) |
263 | 92 | 275 | |||||||||
Equity put rights and similar arrangements(3) |
114 | 53 | — | |||||||||
| 1,309 | 716 | 795 | ||||||||||
Financing costs: |
||||||||||||
Items in hedge relationships: |
||||||||||||
Other loans |
746 | 888 | 782 | |||||||||
Interest rate swaps |
(338 | ) | (464 | ) | (180 | ) | ||||||
Dividends on redeemable preference shares |
58 | 56 | 53 | |||||||||
Fair value hedging instrument |
(47 | ) | 228 | (1,458 | ) | |||||||
Fair value of hedged item |
40 | (183 | ) | 1,475 | ||||||||
Cash flow hedges transferred from equity |
17 | 82 | — | |||||||||
Other financial liabilities held at amortised cost: |
||||||||||||
Bank loans and overdrafts(4) |
629 | 591 | 452 | |||||||||
Other loans(5) |
121 | 185 | 440 | |||||||||
Potential interest on settlement of tax issues(6) |
(826 | ) | (178 | ) | (81 | ) | ||||||
Equity put rights and similar arrangements(3) |
19 | 94 | 627 | |||||||||
Finance leases |
9 | 7 | 1 | |||||||||
Fair value through the income statement (held for trading): |
||||||||||||
Derivatives — forward starting swaps and futures |
1 | 206 | 308 | |||||||||
| 429 | 1,512 | 2,419 | ||||||||||
Net (investment income)/financing costs |
(880 | ) | 796 | 1,624 | ||||||||
| Notes: | ||
| (1) | Gain on settlement of loans and receivables issued by SoftBank Mobile Corp. | |
| (2) | Amounts include foreign exchange gains on investments held following the disposal of Vodafone Japan to SoftBank Corp. and for 2011, foreign exchange gains on net investment in foreign operations. | |
| (3) | Includes amounts in relation to the Group’s arrangements with its minority partners in India. | |
| (4) | The Group capitalised £138 million of interest expense in the year (2010:£1 million; 2009:£nil). The capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation was 9.8%. | |
| (5) | Amount for 2010 includes £48 million (2009: £94 million) of foreign exchange losses arising from net investments in foreign operations. | |
| (6) | Amounts for 2011, 2010 and 2009 include a reduction of the provision for potential interest on tax issues. | |
Table of Contents
94 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
6. Taxation
Income tax expense
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
United Kingdom corporation tax expense/(income): |
||||||||||||
Current year |
141 | 40 | (132 | ) | ||||||||
Adjustments in respect of prior years |
(5 | ) | (4 | ) | (318 | ) | ||||||
| 136 | 36 | (450 | ) | |||||||||
Overseas current tax expense/(income): |
||||||||||||
Current year |
2,152 | 2,377 | 2,111 | |||||||||
Adjustments in respect of prior years |
(477 | ) | (1,718 | ) | (934 | ) | ||||||
| 1,675 | 659 | 1,177 | ||||||||||
Total current tax expense |
1,811 | 695 | 727 | |||||||||
Deferred tax on origination and reversal of temporary differences: |
||||||||||||
United Kingdom deferred tax |
(275 | ) | (166 | ) | 20 | |||||||
Overseas deferred tax |
92 | (473 | ) | 362 | ||||||||
Total
deferred tax (income)/expense |
(183 | ) | (639 | ) | 382 | |||||||
Total income tax expense |
1,628 | 56 | 1,109 | |||||||||
Tax (credited)/charged directly to other comprehensive income
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Current tax (credit)/charge |
(14 | ) | (38 | ) | 133 | |||||||
Deferred tax (credit)/charge |
(117 | ) | 137 | (72 | ) | |||||||
Total tax
(credited)/charged directly to other comprehensive income |
(131 | ) | 99 | 61 | ||||||||
Tax (credited)/charged directly to equity
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Current tax (credit)/charge |
(5 | ) | (1 | ) | 1 | |||||||
Deferred tax (credit)/charge |
(19 | ) | (10 | ) | 8 | |||||||
Total tax (credited)/charged directly to equity |
(24 | ) | (11 | ) | 9 | |||||||
Factors affecting tax expense for the year
The table below explains the differences between the expected tax expense on continuing
operations, at the UK statutory tax rate of 28%, and the Group’s total tax expense for each year.
Further discussion of the current year tax expenses can be found in the section titled “Operating
results” on page 35. Subsequently, the UK statutory tax rate reduced to 26%, effective from 1
April 2011 and the impact on the year end tax balances is included in ‘effect of current year
changes in statutory tax rates’ below.
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Profit
before tax as shown in the consolidated income statement |
9,498 | 8,674 | 4,189 | |||||||||
Expected income tax expense on profit at UK statutory tax rate |
2,659 | 2,429 | 1,173 | |||||||||
Effect of taxation of associates, reported within operating profit |
145 | 160 | 118 | |||||||||
Impairment losses with no tax effect |
1,722 | 588 | 1,652 | |||||||||
Impact of agreement of German write down losses(1) |
— | (2,103 | ) | — | ||||||||
Expected income tax expense at UK statutory rate on profit from continuing operations,
before impairment losses and taxation of associates |
4,526 | 1,074 | 2,943 | |||||||||
Effect of different statutory tax rates of overseas jurisdictions(2) |
(141 | ) | 516 | 382 | ||||||||
Effect of current year changes in statutory tax rates |
(29 | ) | 35 | (31 | ) | |||||||
Deferred tax on overseas earnings |
143 | 5 | (26 | ) | ||||||||
Assets revalued for tax purposes |
121 | — | (155 | ) | ||||||||
Effect of previously unrecognised temporary differences including losses(3) |
(2,122 | ) | (1,040 | ) | (881 | ) | ||||||
Adjustments in respect of prior years(1) |
(1,028 | ) | (387 | ) | (1,124 | ) | ||||||
Expenses not deductible for tax purposes and other items |
677 | 425 | 423 | |||||||||
Exclude taxation of associates |
(519 | ) | (572 | ) | (422 | ) | ||||||
Income tax expense |
1,628 | 56 | 1,109 | |||||||||
| Notes: | ||
| (1) | See “Taxation” on page 40. | |
| (2) | 2011 includes the impact of the disposal of China Mobile Limited. | |
| (3) | See note below regarding deferred tax asset recognition in Luxembourg. | |
Table of Contents
Vodafone Group Plc Annual Report 2011 95
Financials
Deferred tax
Analysis of movements in the net deferred tax balance during the year:
| £m | ||||
1 April 2010 |
(6,344 | ) | ||
Exchange movements |
305 | |||
Credited to the income statement |
183 | |||
Credited directly to OCI |
117 | |||
Credited directly to equity |
19 | |||
Reclassification to current tax(1) |
1,249 | |||
Arising on acquisition |
3 | |||
31 March 2011 |
(4,468 | ) | ||
| Note: | ||
| (1) | See note below regarding CFC settlement. | |
Deferred tax assets and liabilities, before offset of balances within countries, are as
follows:
| Amount | Net | |||||||||||||||||||
| credited/ | recognised | |||||||||||||||||||
| (charged) | Gross | Gross | Less | deferred tax | ||||||||||||||||
| in income | deferred | deferred tax | amounts | asset/ | ||||||||||||||||
| statement | tax asset | liability | unrecognised | (liability) | ||||||||||||||||
| £m | £m | £m | £m | £m | ||||||||||||||||
Accelerated tax depreciation |
(1,374 | ) | 253 | (3,682 | ) | — | (3,429 | ) | ||||||||||||
Tax losses |
1,198 | 27,882 | — | (25,784 | ) | 2,098 | ||||||||||||||
Deferred tax on overseas earnings |
764 | — | (1,775 | ) | — | (1,775 | ) | |||||||||||||
Other short-term temporary differences |
(405 | ) | 4,890 | (2,844 | ) | (3,408 | ) | (1,362 | ) | |||||||||||
31 March 2011 |
183 | 33,025 | (8,301 | ) | (29,192 | ) | (4,468 | ) | ||||||||||||
Analysed in the statement of financial position, after offset of balances within countries, as:
| £m | ||||
Deferred tax asset |
2,018 | |||
Deferred tax liability |
(6,486 | ) | ||
31 March 2011 |
(4,468 | ) | ||
| Amount | Net | |||||||||||||||||||
| credited/ | recognised | |||||||||||||||||||
| (charged) | Gross | Gross | Less | deferred tax | ||||||||||||||||
| in income | deferred | deferred tax | amounts | asset/ | ||||||||||||||||
| statement | tax asset | liability | unrecognised | (liability) | ||||||||||||||||
| £m | £m | £m | £m | £m | ||||||||||||||||
Accelerated tax depreciation |
(577 | ) | 627 | (2,881 | ) | (1 | ) | (2,255 | ) | |||||||||||
Tax losses |
493 | 27,816 | — | (27,185 | ) | 631 | ||||||||||||||
Deferred tax on overseas earnings |
(22 | ) | — | (4,086 | ) | — | (4,086 | ) | ||||||||||||
Other short-term temporary differences |
745 | 4,796 | (3,135 | ) | (2,295 | ) | (634 | ) | ||||||||||||
31 March 2010 |
639 | 33,239 | (10,102 | ) | (29,481 | ) | (6,344 | ) | ||||||||||||
Analysed in the statement of financial position, after offset of balances within countries, as:
| £m | ||||
Deferred tax asset |
1,033 | |||
Deferred tax liability |
(7,377 | ) | ||
31 March 2010 |
(6,344 | ) | ||
Factors affecting the tax charge in future years
Factors that may affect the Group’s future tax charge include the impact of corporate
restructurings, the resolution of open issues, future planning opportunities, corporate
acquisitions and disposals, the use of brought forward tax losses and changes in tax legislation
and tax rates.
The Group is routinely subject to audit by tax authorities in the territories in which it
operates, and the items discussed below have reached litigation. The Group holds provisions in
respect of the potential tax liability that may arise, however, the amount ultimately paid may
differ materially from the amount accrued and could therefore affect the Group’s overall
profitability and cash flows in future periods.
On 22 July 2010 Vodafone reached agreement with the UK tax authorities with respect to the UK
Controlled Foreign Company (‘CFC’) tax case. Vodafone will pay £1.25 billion to settle all
outstanding CFC issues from 2001 to date and has also reached agreement that no further UK CFC tax
liabilities will arise in the near future under current legislation. Longer term, no CFC
liabilities are expected to arise as a consequence of the likely reforms of the UK CFC regime due
to the facts established in this agreement.
A Spanish subsidiary, Vodafone Holdings Europe SL (‘VHESL’), has resolved its dispute with the
Spanish tax authorities regarding the tax treatment of interest expenses claimed in the accounting
periods ended 31 March 2003 and 31 March 2004.
Table of Contents
96 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
6. Taxation continued
At 31 March 2011 the gross amount and expiry dates of losses available for carry forward are as
follows:
| Expiring | Expiring | |||||||||||||||
| within | within | |||||||||||||||
| 5 years | 6-10 years | Unlimited | Total | |||||||||||||
| £m | £m | £m | £m | |||||||||||||
Losses for which a deferred tax asset is recognised |
1 | — | 8,081 | 8,082 | ||||||||||||
Losses for which no deferred tax is recognised |
2,197 | 559 | 94,851 | 97,607 | ||||||||||||
| 2,198 | 559 | 102,932 | 105,689 | |||||||||||||
The losses arising on the write down of investments in Germany are available to use against
both German federal and trade tax liabilities. Losses of £3,892 million (2010: £3,922 million) are
included in the above table on which a deferred tax asset has been recognised. The Group has not
recognised a deferred tax asset on £13,389 million (2010: £14,544) of the losses as it is
uncertain that these losses will be utilised.
Included in the table above are losses amounting to £1,907 million (2010: £1,909 million) in
respect of UK subsidiaries which are only available for offset against future capital gains and
since it is uncertain whether these losses will be utilised, no deferred tax asset has been
recognised.
The losses above also include £82,725 million (2010: £83,168 million) that have arisen in overseas
holding companies as a result of revaluations of those companies’ investments for local GAAP
purposes. No deferred tax asset is recognised in respect of £78,757 million of these losses as it
is uncertain whether these losses will be utilised. A deferred tax asset has been recognised for
the remainder of these losses (see below).
A total deferred tax asset of £1,143 million has been recognised in relation to some of the losses
of a fiscal unity in Luxembourg as the members of this fiscal unity are expected to generate
taxable profits against which these losses will be used. £856 million of the asset has been
recognised as a result of the agreement reached with the UK tax authorities in respect of the CFC
tax case (discussed above).
The Group holds provisions in respect of deferred taxation that would arise if temporary
differences on investments in subsidiaries, associates and interests in joint ventures were to be
realised after the year end reporting date. No deferred tax liability has been recognised in
respect of a further £41,607 million (2010: £51,783 million) of unremitted earnings of subsidiaries
and joint ventures because the Group is in a position to control the timing of the reversal of the
temporary difference and it is probable that such differences will not reverse in the foreseeable
future. It is not practicable to estimate the amount of unrecognised deferred tax liabilities in
respect of these unremitted earnings.
7. Equity dividends
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Declared during the financial year: |
||||||||||||
Final dividend for the year ended 31 March 2010: 5.65 pence per share (2009: 5.20
pence per share, 2008: 5.02 pence per share) |
2,976 | 2,731 | 2,667 | |||||||||
Interim dividend for the year ended 31 March 2011: 2.85 pence per share (2010: |
||||||||||||
2.66 pence per share, 2009: 2.57 pence per share) |
1,492 | 1,400 | 1,350 | |||||||||
| 4,468 | 4,131 | 4,017 | ||||||||||
Proposed after the end of reporting period and not recognised as a liability: |
||||||||||||
Final dividend for the year ended 31 March 2011:6.05 pence per share (2010: 5.65
pence per share, 2009: 5.20 pence per share) |
3,106 | 2,976 | 2,731 | |||||||||
8. Earnings per share
| 2011 | 2010 | 2009 | ||||||||||
| Millions | Millions | Millions | ||||||||||
Weighted average number of shares for basic earnings per share |
52,408 | 52,595 | 52,737 | |||||||||
Effect of
dilutive potential shares: restricted shares and share options |
340 | 254 | 232 | |||||||||
Weighted average number of shares for diluted earnings per share |
52,748 | 52,849 | 52,969 | |||||||||
| £m | £m | £m | ||||||||||
Earnings for basic and diluted earnings per share |
7,968 | 8,645 | 3,078 | |||||||||
Table of Contents
Vodafone Group Plc Annual Report 2011 97
Financials
9. Intangible assets
| Licences and | Computer | |||||||||||||||||||
| Goodwill | spectrum | software | Other | Total | ||||||||||||||||
| £m | £m | £m | £m | £m | ||||||||||||||||
Cost: |
||||||||||||||||||||
1 April 2009 |
106,664 | 26,138 | 7,359 | 1,471 | 141,632 | |||||||||||||||
Exchange movements |
(2,751 | ) | 62 | (72 | ) | 326 | (2,435 | ) | ||||||||||||
Arising on acquisition |
1,185 | 1,454 | 153 | 1,604 | 4,396 | |||||||||||||||
Change in consolidation status |
(102 | ) | (413 | ) | (281 | ) | (175 | ) | (971 | ) | ||||||||||
Additions |
— | 306 | 1,199 | 19 | 1,524 | |||||||||||||||
Disposals |
— | — | (114 | ) | — | (114 | ) | |||||||||||||
31 March 2010 |
104,996 | 27,547 | 8,244 | 3,245 | 144,032 | |||||||||||||||
Exchange movements |
(1,120 | ) | (545 | ) | (16 | ) | 8 | (1,673 | ) | |||||||||||
Arising on acquisition |
24 | — | 17 | — | 41 | |||||||||||||||
Additions |
— | 3,157 | 1,493 | 9 | 4,659 | |||||||||||||||
Disposals |
— | — | (424 | ) | (1 | ) | (425 | ) | ||||||||||||
Other |
— | — | 635 | 8 | 643 | |||||||||||||||
31 March 2011 |
103,900 | 30,159 | 9,949 | 3,269 | 147,277 | |||||||||||||||
Accumulated impairment losses and amortisation: |
||||||||||||||||||||
1 April 2009 |
52,706 | 7,552 | 5,223 | 1,213 | 66,694 | |||||||||||||||
Exchange movements |
(1,848 | ) | (29 | ) | (104 | ) | 64 | (1,917 | ) | |||||||||||
Amortisation charge for the year |
— | 1,730 | 1,046 | 678 | 3,454 | |||||||||||||||
Change in consolidation status |
— | (135 | ) | (154 | ) | (181 | ) | (470 | ) | |||||||||||
Impairment losses |
2,300 | (200 | ) | — | — | 2,100 | ||||||||||||||
Disposals |
— | — | (87 | ) | — | (87 | ) | |||||||||||||
31 March 2010 |
53,158 | 8,918 | 5,924 | 1,774 | 69,774 | |||||||||||||||
Exchange movements |
(644 | ) | (104 | ) | (14 | ) | (6 | ) | (768 | ) | ||||||||||
Amortisation charge for the year |
— | 1,809 | 1,166 | 529 | 3,504 | |||||||||||||||
Impairment losses |
6,150 | — | — | — | 6,150 | |||||||||||||||
Disposals |
— | — | (426 | ) | — | (426 | ) | |||||||||||||
Other |
— | — | 485 | — | 485 | |||||||||||||||
31 March 2011 |
58,664 | 10,623 | 7,135 | 2,297 | 78,719 | |||||||||||||||
Net book value: |
||||||||||||||||||||
31 March 2010 |
51,838 | 18,629 | 2,320 | 1,471 | 74,258 | |||||||||||||||
31 March 2011 |
45,236 | 19,536 | 2,814 | 972 | 68,558 | |||||||||||||||
For licences and spectrum and other intangible assets, amortisation is included within the
cost of sales line within the consolidated income statement. Licences and spectrum with a net book
value of £3,845 million (2010: £2,570 million) have been pledged as security against borrowings.
The net book value at 31 March 2011 and expiry dates of the most significant licences are as
follows:
| 2011 | 2010 | |||||||||||
| Expiry date | £m | £m | ||||||||||
Germany |
December 2020/2025 | 5,540 | 4,802 | |||||||||
UK |
December 2021 | 3,581 | 3,914 | |||||||||
India |
September 2030 | 1,746 | — | |||||||||
Qatar |
June 2028 | 1,187 | 1,328 | |||||||||
Italy |
December 2021 | 1,002 | 1,097 | |||||||||
During the 2011 financial year the Group completed a number of smaller acquisitions for net
cash consideration of £46 million paid during the year. The aggregate fair values of goodwill,
identifiable assets and liabilities of the acquired operations were £24 million, £25 million and
£3 million, respectively. In addition, the Group completed the acquisition of certain
non-controlling interests for net cash consideration of £137 million.
During the year ended 31 March 2010, the aggregate cash consideration in respect of purchases of
interests in subsidiaries and joint ventures, net of cash acquired, was as follows:
| £m | ||||
Cash consideration paid: |
||||
Vodacom Group Limited |
1,577 | |||
Other acquisitions completed during the year |
26 | |||
Acquisitions of non-controlling interests |
150 | |||
Acquisitions completed in previous years |
(20 | ) | ||
| 1,733 | ||||
Net overdrafts acquired |
44 | |||
| 1,777 | ||||
Table of Contents
98 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
Total goodwill acquired was £1,185 million and included £1,193 million in relation to Vodacom,
£27 million in relation to other acquisitions completed during the year and a reduction of £35
million resulting from amendments to provisional purchase price allocations on acquisitions
completed in previous periods. In addition, there was a reduction of £102 million in relation to
the merger of Vodafone Hutchison Australia.
Vodacom Group Limited (‘Vodacom’)
On 20 April 2009 the Group acquired an additional 15% stake in Vodacom for cash consideration
of ZAR 20.6 billion (£1.6 billion). On 18 May 2009 Vodacom became a subsidiary following the
listing of its shares on the Johannesburg Stock Exchange and concurrent termination of the
shareholder agreement with Telkom SA Limited, the seller and previous joint venture partner.
During the period from 20 April 2009 to 18 May 2009 the Group continued to account for Vodacom as
a joint venture, proportionately consolidating 65% of the results of Vodacom.
The results of the acquired entity were consolidated in the income statement from 18 May 2009.
From 18 May 2009 to 31 March 2010 the acquired entity contributed £90 million to the profit
attributable to equity shareholders of the Group.
The purchase price allocation is set out in the table below:
| Fair value | ||||||||||||
| Bookvalue | Adjustments | Fairvalue | ||||||||||
| £m | £m | £m | ||||||||||
Net assets acquired: |
||||||||||||
Identifiable intangible assets(1) |
271 | 2,931 | 3,202 | |||||||||
Property, plant and equipment |
1,603 | — | 1,603 | |||||||||
Other investments |
25 | — | 25 | |||||||||
Inventory |
56 | — | 56 | |||||||||
Trade and other receivables |
870 | — | 870 | |||||||||
Cash and cash equivalents |
58 | — | 58 | |||||||||
Current and deferred taxation liabilities |
(140 | ) | (834 | ) | (974 | ) | ||||||
Short and long-term borrowings |
(1,312 | ) | — | (1,312 | ) | |||||||
Trade and other payables |
(897 | ) | 8 | (889 | ) | |||||||
Net identifiable assets acquired |
534 | 2,105 | 2,639 | |||||||||
Goodwill(2) |
1,193 | |||||||||||
Total asset acquired |
3,832 | |||||||||||
Non-controlling interests |
(973 | ) | ||||||||||
Revaluation gain |
(860 | ) | ||||||||||
Value of investment held prior to acquisition |
(422 | ) | ||||||||||
Total consideration(3) |
1,577 | |||||||||||
| Notes: | ||
| (1) | Identifiable intangible assets of £3,202 million consist of licences and spectrum fees of £1,454 million and other intangible assets of £1,748 million. | |
| (2) | The goodwill is attributable to the expected profitability of the acquired business and the synergies expected to arise after the Group’s acquisition of Vodacom. | |
| (3) | Includes £5 million of directly attributable costs. | |
10. Impairment
Impairment losses
The net impairment losses recognised in the consolidated income statement, as a separate line
item within operating profit, in respect of goodwill and licences and spectrum fees are as follows:
| 2011(1) | 2010 | 2009 | ||||||||||||
| Cash generating unit | Reportable segment | £m | £m | £m | ||||||||||
Italy |
Italy | 1,050 | — | — | ||||||||||
Spain |
Spain | 2,950 | — | 3,400 | ||||||||||
Greece |
Other Europe(2) | 800 | — | — | ||||||||||
Ireland |
Other Europe(2) | 1,000 | — | — | ||||||||||
Portugal |
Other Europe(2) | 350 | — | — | ||||||||||
Turkey |
Other Europe | — | (200 | ) | 2,250 | |||||||||
India |
India | — | 2,300 | — | ||||||||||
Ghana |
Other Africa, Middle East and Asia Pacific | — | — | 250 | ||||||||||
| 6,150 | 2,100 | 5,900 | ||||||||||||
| Notes: | ||
| (1) | Impairment charges for the year ended 31 March 2011 relate solely to goodwill. | |
| (2) | Total impairment losses in the Other Europe segment were £2,150 million in the year ended 31 March 2011. | |
Table of Contents
Vodafone Group Plc Annual Report 2011 99
Financials
Year ended 31 March 2011
The impairment losses were based on value in use calculations. The pre-tax adjusted discount rates
used in the most recent value in use calculation in the year ended 31 March 2011 are as follows:
| Pre-tax adjusted | ||||
| discount rate | ||||
Italy |
11.9 | % | ||
Spain |
11.5 | % | ||
Greece |
14.0 | % | ||
Ireland |
14.5 | % | ||
Portugal |
14.0 | % | ||
During the year ended 31 March 2011 the goodwill in relation to the Group’s investments in
Italy, Spain, Greece, Ireland and Portugal was impaired by £1,050 million, £2,950 million, £800
million, £1,000 million and £350 million, respectively. The impairment charges were primarily
driven by increased discount rates as a result of increases in government bond rates. In addition,
business valuations were negatively impacted by lower cash flows within business plans, reflecting
weaker country-level macro economic environments.
The pre-tax risk adjusted discount rates used in the previous value in use calculations at 31 March
2010 are disclosed below.
Year ended 31 March 2010
The net impairment losses were based on value in use calculations. The pre-tax adjusted discount
rates used in the value in use calculation in the year ended 31 March 2010 were as follows:
| Pre-tax adjusted | ||||
| discount rate | ||||
India |
13.8 | % | ||
Turkey |
17.6 | % | ||
During the year ended 31 March 2010 the goodwill in relation to the Group’s operations in
India was impaired by £2,300 million primarily due to intense price competition following the
entry of a number of new operators into the market. The pre-tax risk adjusted discount rate used
in the previous value in use calculation at 31 March 2009 was 12.3%.
In addition, impairment losses of £200 million, previously recognised in respect of intangible
assets in relation to the Group’s operations in Turkey, were reversed. The reversal was in
relation to licences and spectrum and was as a result of favourable changes in the discount rate.
The cash flow projections within the business plans used for impairment testing were substantially
unchanged from those used at 31 March 2009. The pre-tax risk adjusted discount rate used in the
previous value in use calculation at 31 March 2009 was 19.5%.
Year ended 31 March 2009
The impairment losses were based on value in use calculations. The pre-tax adjusted discount rates
used in the value in use calculation in the year ended 31 March 2009 were as follows:
| Pre-tax adjusted | ||||
| discount rate | ||||
Spain |
10.3 | % | ||
Turkey |
19.5 | % | ||
Ghana |
26.9 | % | ||
During the year ended 31 March 2009 the goodwill in relation to the Group’s operations in
Spain was impaired by £3,400 million following a fall in long-term cash flow forecasts resulting
from the economic downturn.
In addition, the goodwill and other intangible assets in relation to the Group’s operations in
Turkey was impaired by £2,250 million. At 30 September 2008 the goodwill was impaired by £1,700
million following adverse movements in the discount rate and adverse performance against previous
plans. During the second half of the 2009 financial year, impairment losses of £300 million in
relation to goodwill and £250 million in relation to licences and spectrum resulted from adverse
changes in both the discount rate and a fall in the long-term GDP growth rate. The cash flow
projections within the business plans used for impairment testing were substantially unchanged
from those used at 30 September 2008.
The goodwill in relation to the Group’s operations in Ghana was also impaired by £250 million
following an increase in the discount rate.
Goodwill
The carrying value of goodwill at 31 March was as follows:
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Germany |
12,200 | 12,301 | ||||||
Italy |
13,615 | 14,786 | ||||||
Spain |
7,133 | 10,167 | ||||||
| 32,948 | 37,254 | |||||||
Other |
12,288 | 14,584 | ||||||
| 45,236 | 51,838 | |||||||
Table of Contents
100 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
10. Impairment continued
Key assumptions used in the value in use calculations
The key assumptions used in determining the value in use are:
The key assumptions used in determining the value in use are:
| Assumption | How determined | |
Budgeted adjusted EBITDA
|
Budgeted adjusted EBITDA has been based on past experience adjusted for the following: | |
• voice and messaging revenue is expected to benefit from increased usage from new customers, the introduction of new services and traffic moving from fixed networks to mobile networks, though
these factors will be offset by increased competitor activity, which may result in price declines, and the trend of falling termination rates; |
||
• non-messaging
data revenue is expected to continue to grow strongly as the
penetration of 3G enabled devices and smartphones rises and new products and services are introduced; and |
||
• margins are expected to be impacted by negative factors such as an increase in the cost of acquiring and retaining
customers in increasingly competitive markets and the expectation of further
termination rate cuts by regulators and by positive factors such as the efficiencies expected from the implementation of Group initiatives. |
||
Budgeted capital expenditure
|
The cash flow forecasts for capital expenditure are based on past experience and include the ongoing capital expenditure required to roll out networks in emerging markets, to provide enhanced voice and data products and services and to meet the population coverage requirements of certain of the Group’s licences. Capital expenditure includes cash outflows for the purchase of property, plant and equipment and computer software. | |
Long-term growth rate
|
For businesses where the five year management plans are used for the Group’s value in use calculations, a long-term growth rate into perpetuity has been determined as the lower of: | |
• the nominal GDP rates for the country of operation; and |
||
• the long-term compound annual growth rate in adjusted EBITDA in years six to ten estimated by management. |
||
| For businesses where the plan data is extended for an additional five years for the Group’s value in use calculations,a long-term growth rate into perpetuity has been determined as the lower of: | ||
• the nominal GDP rates for the country of operation; and |
||
• the
compound annual growth rate in adjusted EBITDA in years nine to ten of the management plan. |
||
Pre-tax risk adjusted discount rate
|
The discount rate applied to the cash flows of each of the Group’s operations is generally based on the risk free rate for ten year bonds issued by the government in the respective market. Where government bond rates contain a material component of credit risk, high quality local corporate bond rates may be used. | |
| These rates are adjusted for a risk premium to reflect both the increased risk of investing in equities and the systematic risk of the specific Group operating company. In making this adjustment, inputs required are the equity market risk premium (that is the required increased return required over and above a risk free rate by an investor who is investing in the market as a whole) and the risk adjustment, beta, applied to reflect the risk of the specific Group operating company relative to the market as a whole. | ||
| In determining the risk adjusted discount rate, management has applied an adjustment for the systematic risk to each of the Group’s operations determined using an average of the betas of comparable listed mobile telecommunications companies and, where available and appropriate, across a specific territory. Management has used a forward-looking equity market risk premium that takes into consideration both studies by independent economists, the average equity market risk premium over the past ten years and the market risk premiums typically used by investment banks in evaluating acquisition proposals. | ||
Sensitivity to changes in assumptions
Other than as disclosed below, management believes that no reasonably possible change in any of the
above key assumptions would cause the carrying value of any cash generating unit to exceed its
recoverable amount.
31 March 2011
The estimated recoverable amounts of the Group’s operations in Italy, Spain, Greece, Ireland and
Portugal equalled their respective carrying values and, consequently, any adverse change in key
assumptions would, in isolation, cause a further impairment loss to be recognised. The estimated
recoverable amounts of the Group’s operations in Turkey, India and Ghana exceeded their carrying
values by approximately £1,481 million, £977 million and £138 million, respectively.
Table of Contents
Vodafone Group Plc Annual Report 2011 101
Financials
The table below shows the key assumptions used in the value in use calculations.
| Assumptions used in value in use calculation | ||||||||||||||||||||||||||||||||
| Italy | Spain | Greece | Ireland | Portugal | Turkey | India | Ghana | |||||||||||||||||||||||||
| % | % | % | % | % | % | % | % | |||||||||||||||||||||||||
Pre-tax adjusted discount rate |
11.9 | 11.5 | 14.0 | 14.5 | 14.0 | 14.1 | 14.2 | 20.8 | ||||||||||||||||||||||||
Long-term growth rate |
0.8 | 1.6 | 2.0 | 2.0 | 1.5 | 6.1 | 6.3 | 6.3 | ||||||||||||||||||||||||
Budgeted adjusted EBITDA(1) |
(1.0 | ) | — | 1.2 | 2.4 | (1.2 | ) | 16.8 | 16.5 | 41.4 | ||||||||||||||||||||||
Budgeted capital expenditure(2) |
9.6 - 11.3 | 7.8 - 10.6 | 10.7 - 12.3 | 9.4 - 11.6 | 12.4 - 14.1 | 10.0 - 16.6 | 12.9 - 22.7 | 7.3 - 41.3 | ||||||||||||||||||||||||
Notes:
| (1) | Budgeted adjusted EBITDA is expressed as the compound annual growth rates in the initial ten years for Turkey and Ghana and the initial five years for all other cash generating units of the plans used for impairment testing. | |
| (2) | Budgeted capital expenditure is expressed as the range of capital expenditure as a percentage of revenue in the initial ten years for Turkey and Ghana and the initial five years for all other cash generating units of the plans used for impairment testing. |
The table below shows, for Turkey, India and Ghana, the amount by which each key assumption must
change in isolation in order for the estimated recoverable amount to be equal to its carrying
value.
| Change required for the carrying value | ||||||||||||
| to equal the recoverable amount(1) | ||||||||||||
| Turkey | India | Ghana | ||||||||||
| pps | pps | pps | ||||||||||
Pre-tax adjusted discount rate |
5.6 | 1.1 | 6.9 | |||||||||
Long-term growth rate |
(19.6 | ) | (1.0 | ) | n/a | |||||||
Budgeted adjusted EBITDA(2) |
(4.7 | ) | (2.2 | ) | (8.7 | ) | ||||||
Budgeted capital expenditure(3) |
7.0 | 2.5 | 8.9 | |||||||||
Notes:
| (1) | The recoverable amount for Greece, which was impaired at 30 September 2010, equals the carrying value at 31 March 2011. | |
| (2) | Budgeted adjusted EBITDA is expressed as the compound annual growth rates in the initial ten years for Turkey and Ghana and the initial five years for all other cash generating units of the plans used for impairment testing. | |
| (3) | Budgeted capital expenditure is expressed as the range of capital expenditure as a percentage of revenue in the initial ten years for Turkey and Ghana and the initial five years for all other cash generating units of the plans used for impairment testing. |
The changes in the following table to assumptions used in the impairment review would, in
isolation, lead to an (increase)/decrease to the aggregate impairment loss recognised in the year
ended 31 March 2011:
| Italy | Spain | Greece | Ireland | Portugal | All other | |||||||||||||||||||||||||||||||||||||||||||
| Increase | Decrease | Increase | Decrease | Increase | Decrease | Increase | Decrease | Increase | Decrease | Increase | Decrease | |||||||||||||||||||||||||||||||||||||
| by 2 pps | by 2 pps | by 2 pps | by 2 pps | by 2 pps | by 2 pps | by 2 pps | by 2 pps | by 2 pps | by 2 pps | by 2 pps | by 2 pps | |||||||||||||||||||||||||||||||||||||
| £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | £bn | |||||||||||||||||||||||||||||||||||||
Pre-tax adjusted discount rate |
(2.4 | ) | 1.0 | (1.5 | ) | 2.2 | (0.2 | ) | — | (0.2 | ) | 0.3 | (0.3 | ) | 0.4 | (0.7 | ) | — | ||||||||||||||||||||||||||||||
Long-term growth rate |
1.0 | (2.4 | ) | 2.2 | (1.3 | ) | — | (0.1 | ) | 0.2 | (0.1 | ) | 0.4 | (0.3 | ) | — | (0.7 | ) | ||||||||||||||||||||||||||||||
Budgeted adjusted EBITDA(1) |
1.0 | (2.0 | ) | 1.4 | (1.3 | ) | — | (0.2 | ) | 0.2 | (0.2 | ) | 0.3 | (0.3 | ) | — | — | |||||||||||||||||||||||||||||||
Budgeted capital
expenditure(2) |
(1.1 | ) | 1.0 | (1.0 | ) | 1.0 | (0.1 | ) | — | (0.1 | ) | 0.3 | (0.2 | ) | 0.2 | — | — | |||||||||||||||||||||||||||||||
Notes:
| (1) | Budgeted adjusted EBITDA is expressed as the compound annual growth rates in the initial ten years for Turkey and Ghana and the initial five years for all other cash generating units of the plans used for impairment testing. | |
| (2) | Budgeted capital expenditure is expressed as the range of capital expenditure as a percentage of revenue in the initial ten years for Turkey and Ghana and the initial five years for all other cash generating units of the plans used for impairment testing. |
31 March 2010
The estimated recoverable amount of the Group’s operations in India equalled its respective
carrying value at 31 March 2010 and, consequently, any adverse change in key assumptions would, in
isolation, cause a further impairment loss to be recognised. The estimated recoverable amount of
the Group’s operations in Turkey, Germany, Ghana, Greece, Ireland, Italy, Portugal, Romania, Spain
and the UK exceeded their carrying value by approximately £130 million, £4,752 million, £18 million,
£118 million, £259 million, £1,253 million, £1,182 million, £372 million, £821 million and £1,207
million respectively.
The table below shows the key assumptions used in the value in use calculations.
| Assumptions used in value in use calculation |
||||||||||||||||||||||||||||||||||||||||||||
| India | Turkey | Germany | Ghana | Greece | Ireland | Italy | Portugal | Romania | Spain | UK | ||||||||||||||||||||||||||||||||||
| % | % | % | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||||||||||||
Pre-tax adjusted discount rate |
13.8 | 17.6 | 8.9 | 24.4 | 12.1 | 9.8 | 11.5 | 10.6 | 11.5 | 10.2 | 9.6 | |||||||||||||||||||||||||||||||||
Long-term growth rate |
6.3 | 7.7 | 1.0 | 5.2 | 1.0 | 1.0 | — | 0.5 | 2.1 | 1.5 | 1.5 | |||||||||||||||||||||||||||||||||
Budgeted adjusted EBITDA(1) |
17.5 | 34.4 | n/a | 20.2 | 3.9 | 0.8 | (0.1 | ) | n/a | (2.5 | ) | (0.7 | ) | 4.9 | ||||||||||||||||||||||||||||||
Budgeted capital expenditure(2) |
13.4 - 30.3 | 8.3 - 32.5 | n/a | 8.4 - 39.6 | 11.1 - 13.6 | 7.4 - 9.6 | 8.2 - 11.4 | n/a | 12.0 - 19.0 | 9.1 - 10.9 | 9.3 - 11.2 | |||||||||||||||||||||||||||||||||
Notes:
| (1) | Budgeted adjusted EBITDA is expressed as the compound annual growth rates in the initial ten years for Turkey and Ghana and the initial five years for all other cash generating units of the plans used for impairment testing. | |
| (2) | Budgeted capital expenditure is expressed as the range of capital expenditure as a percentage of revenue in the initial ten years for Turkey and Ghana and the initial five years for all other cash generating units of the plans used for impairment testing. |
Table of Contents
102 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
The table below shows, for Turkey, Germany, Ghana, Greece, Ireland, Italy, Portugal, Romania, Spain
and the United Kingdom, the amount by which each key assumption must change in isolation in order
for the estimated recoverable amount to be equal to its carrying value.
| Change required for carrying value to equal the recoverable amount | ||||||||||||||||||||||||||||||||||||||||
| Turkey | Germany | Ghana | Greece | Ireland | Italy | Portugal | Romania | Spain | UK | |||||||||||||||||||||||||||||||
| pps | pps | pps | pps | pps | pps | pps | pps | pps | pps | |||||||||||||||||||||||||||||||
Pre-tax adjusted discount rate |
0.5 | 1.8 | 1.0 | 0.7 | 1.0 | 0.8 | 4.5 | 2.0 | 0.6 | 1.3 | ||||||||||||||||||||||||||||||
Long-term growth rate |
(1.1 | ) | (1.9 | ) | (5.1 | ) | (0.9 | ) | (1.2 | ) | (0.8 | ) | (5.6 | ) | (2.6 | ) | (0.6 | ) | (1.6 | ) | ||||||||||||||||||||
Budgeted adjusted EBITDA(1) |
(2.0 | ) | n/a | (2.8 | ) | (3.7 | ) | (8.7 | ) | (5.0 | ) | n/a | (14.1 | ) | (4.5 | ) | (7.8 | ) | ||||||||||||||||||||||
Budgeted capital expenditure(2) |
1.5 | n/a | 2.5 | 2.8 | 7.0 | 5.1 | n/a | 13.8 | 3.5 | 5.8 | ||||||||||||||||||||||||||||||
Notes:
| (1) | Budgeted adjusted EBITDA is expressed as the compound annual growth rates in the initial ten years for Turkey and Ghana and the initial five years for all other cash generating units of the plans used for impairment testing. | |
| (2) | Budgeted capital expenditure is expressed as the range of capital expenditure as a percentage of revenue in the initial ten years for Turkey and Ghana and the initial five years for all other cash generating units of the plans used for impairment testing. |
11. Property, plant and equipment
| Equipment, | ||||||||||||
| Land and | fixtures | |||||||||||
| buildings | and fittings | Total | ||||||||||
| £m | £m | £m | ||||||||||
Cost: |
||||||||||||
1 April 2009 |
1,421 | 43,943 | 45,364 | |||||||||
Exchange movements |
(6 | ) | 8 | 2 | ||||||||
Arising on acquisition |
157 | 1,457 | 1,614 | |||||||||
Additions |
115 | 4,878 | 4,993 | |||||||||
Disposals |
(27 | ) | (1,109 | ) | (1,136 | ) | ||||||
Change in consolidation status |
(107 | ) | (2,274 | ) | (2,381 | ) | ||||||
Other |
24 | (58 | ) | (34 | ) | |||||||
31 March 2010 |
1,577 | 46,845 | 48,422 | |||||||||
Exchange movements |
(16 | ) | (678 | ) | (694 | ) | ||||||
Additions |
122 | 4,604 | 4,726 | |||||||||
Disposals |
(21 | ) | (3,001 | ) | (3,022 | ) | ||||||
Other |
69 | (732 | ) | (663 | ) | |||||||
31 March 2011 |
1,731 | 47,038 | 48,769 | |||||||||
Accumulated depreciation and impairment: |
||||||||||||
1 April 2009 |
583 | 25,531 | 26,114 | |||||||||
Exchange movements |
(12 | ) | (260 | ) | (272 | ) | ||||||
Charge for the year |
102 | 4,354 | 4,456 | |||||||||
Disposals |
(10 | ) | (995 | ) | (1,005 | ) | ||||||
Change in consolidation status |
(28 | ) | (1,461 | ) | (1,489 | ) | ||||||
Other |
(2 | ) | (22 | ) | (24 | ) | ||||||
31 March 2010 |
633 | 27,147 | 27,780 | |||||||||
Exchange movements |
(4 | ) | (114 | ) | (118 | ) | ||||||
Charge for the year |
99 | 4,273 | 4,372 | |||||||||
Disposals |
(19 | ) | (2,942 | ) | (2,961 | ) | ||||||
Other |
— | (485 | ) | (485 | ) | |||||||
31 March 2011 |
709 | 27,879 | 28,588 | |||||||||
Net book value: |
||||||||||||
31 March 2010 |
944 | 19,698 | 20,642 | |||||||||
31 March 2011 |
1,022 | 19,159 | 20,181 | |||||||||
The net book value of land and buildings and equipment, fixtures and fittings includes £131 million
and £155 million respectively (2010: £91 million
and £111 million) in relation to assets held under
finance leases. Included in the net book value of land and buildings and equipment, fixtures and
fittings are assets in the course of construction, which are not depreciated, with a cost of £38
million and £2,375 million respectively (2010: £45 million and £1,496 million). Property, plant and
equipment with a net book value of £972 million (2010: £389 million) has been pledged as security
against borrowings.
Table of Contents
Vodafone Group Plc Annual Report 2011 103
Financials
12. Principal subsidiaries
At 31 March 2011 the Company had the following principal subsidiaries carrying on businesses which
affect the profits and assets of the Group. Unless otherwise stated the Company’s principal
subsidiaries all have share capital consisting solely of ordinary shares and are indirectly held.
The country of incorporation or registration of all subsidiaries is also their principal place of
operation. All subsidiaries are directly or indirectly owned by the Company except for Vodafone
Qatar
Q.S.C.(1)
| Country of incorporation |
Percentage(2) | |||||||||||
| Name | Principal activity | or registration | shareholdings | |||||||||
Vodacom Business Africa Group (PTY) Limited(3)(4) |
Holding company | South Africa | 66.0 | |||||||||
Ghana Telecommunications Company Limited |
Network operator | Ghana | 70.0 | |||||||||
VM, SA(4)(5) |
Network operator | Mozambique | 56.1 | |||||||||
Vodacom Congo (RDC) s.p.r.l.(4) |
Network operator | The Democratic Republic of Congo |
33.7 | |||||||||
Vodacom Group Limited(6) |
Network operator | South Africa | 66.0 | |||||||||
Vodacom Lesotho (Pty) Limited(4) |
Network operator | Lesotho | 52.8 | |||||||||
Vodacom Tanzania Limited(4) |
Network operator | Tanzania | 42.9 | |||||||||
Vodafone Albania Sh.A. |
Network operator | Albania | 99.9 | |||||||||
Vodafone Americas Inc.(7) |
Holding company | US | 100.0 | |||||||||
Vodafone Czech Republic a.s. |
Network operator | Czech Republic | 100.0 | |||||||||
Vodafone D2 GmbH |
Network operator | Germany | 100.0 | |||||||||
Vodafone Egypt Telecommunications S.A.E. |
Network operator | Egypt | 54.9 | |||||||||
Vodafone España S.A.U. |
Network operator | Spain | 100.0 | |||||||||
Vodafone Essar Limited(8) |
Network operator | India | 59.9 | |||||||||
Vodafone Europe B.V. |
Holding company | Netherlands | 100.0 | |||||||||
Vodafone Group Services Limited(9) |
Global products and services provider | England | 100.0 | |||||||||
Vodafone Holding GmbH |
Holding company | Germany | 100.0 | |||||||||
Vodafone Holdings Europe S.L.U. |
Holding company | Spain | 100.0 | |||||||||
Vodafone Magyarorszag Mobile Tavkozlesi Zartkoruen
Mukodo Reszvenytarsasag(10) |
Network operator | Hungary | 100.0 | |||||||||
Vodafone International Holdings B.V. |
Holding company | Netherlands | 100.0 | |||||||||
Vodafone Investments Luxembourg S.a.r.l. |
Holding company | Luxembourg | 100.0 | |||||||||
Vodafone Ireland Limited |
Network operator | Ireland | 100.0 | |||||||||
Vodafone Libertel B.V. |
Network operator | Netherlands | 100.0 | |||||||||
Vodafone Limited |
Network operator | England | 100.0 | |||||||||
Vodafone Malta Limited |
Network operator | Malta | 100.0 | |||||||||
Vodafone Marketing S.a.r.l. |
Provider of partner market services | Luxembourg | 100.0 | |||||||||
Vodafone New Zealand Limited |
Network operator | New Zealand | 100.0 | |||||||||
Vodafone-Panafon Hellenic Telecommunications Company S.A. |
Network operator | Greece | 99.9 | |||||||||
Vodafone Portugal-Comunicações Pessoais, S.A.(11) |
Network operator | Portugal | 100.0 | |||||||||
Vodafone Qatar Q.S.C.(1) |
Network operator | Qatar | 23.0 | |||||||||
Vodafone Romania S.A. |
Network operator | Romania | 100.0 | |||||||||
Vodafone Telekomunikasyon A.S. |
Network operator | Turkey | 100.0 | |||||||||
Notes:
| (1) | The Group has rights that enable it to control the strategic and operating decisions of Vodafone Qatar Q.S.C., Vodacom Congo (RDC) s.p.r.l. and Vodacom Tanzania Limited. | |
| (2) | Effective ownership percentages of Vodafone Group Plc at 31 March 2011, rounded to nearest tenth of one percent. | |
| (3) | Previous name was Gateway Group (Pty) Limited. | |
| (4) | Shareholding is indirect through Vodacom Group Limited. The indirect shareholding is calculated using the 66.0% ownership interest in Vodacom referred to in note 6 below. | |
| (5) | The share capital of VM, SA consists of 60,000,000 ordinary shares and 469,690,618 preference shares. | |
| (6) | At 31 March 2011 the Group owned 65.0% of the issued share capital of Vodacom Group Limited (‘Vodacom’) with the 66.0% ownership interest in the outstanding shares in Vodacom resulting from the acquisition of treasury shares by Vodacom. | |
| (7) | Share capital consists of 395,834,251 ordinary shares and 1.65 million class D and E redeemable preference shares, of which 100% of the ordinary shares are held by the Group. | |
| (8) | The Group’s aggregate direct and indirect equity interest in Vodafone Essar Limited (‘VEL’) was 59.9% at 31 March 2011. The Group has call options to acquire shareholdings in companies which indirectly own a further 7.1% interest in VEL. The shareholders of these companies also have put options which, if exercised, would require Vodafone to purchase the remaining shares in the respective company. If these options were exercised, which can only be done in accordance with the Indian law prevailing at the time of exercise, the Group would have a direct and indirect interest of 67.0% of VEL. On 30 March 2011 the Essar Group exercised its underwritten put option over 22.0% of VEL following which, on 31 March 2011, the Group exercised its call option over the remaining 11.0% of VEL owned by the Essar Group. | |
| (9) | Share capital consists of 600 ordinary shares and one deferred share, of which 100% of the shares are held indirectly by Vodafone Group Plc. | |
| (10) | Trades as Vodafone Hungary Mobile Telecommunications Company Limited. | |
| (11) | 38.6% of the issued share capital of Vodafone Portugal-Comunicações Pessoais, S.A. is held directly by Vodafone Group Plc. |
Table of Contents
104 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
13. Investments in joint ventures
Principal joint ventures
At 31 March 2011 the Company had the following joint ventures carrying on businesses which affect
the profits and assets of the Group. Unless otherwise stated the Company’s principal joint ventures
all have share capital consisting solely of ordinary shares, which are indirectly held, and the
country of incorporation or registration is also their principal place of operation.
| Country of incorporation |
Percentage(1) | |||||||||||
| Name | Principal activity | or registration | shareholdings | |||||||||
Indus Towers Limited |
Network infrastructure | India | 25.2 | (2) | ||||||||
Polkomtel S.A.(3) |
Network operator | Poland | 24.4 | |||||||||
Vodafone Hutchison Australia Pty Limited(3) |
Network operator | Australia | 50.0 | |||||||||
Vodafone Fiji Limited |
Network operator | Fiji | 49.0 | (4) | ||||||||
Vodafone Omnitel N.V.(5) |
Network operator | Netherlands | 76.9 | (6) | ||||||||
Notes:
| (1) | Rounded to nearest tenth of one percent. | |
| (2) | Vodafone Essar Limited, in which the Group has a 59.9% equity interest, owns 42.0% of Indus Towers Limited. | |
| (3) | Polkomtel S.A. and Vodafone Hutchinson Australia Pty Limited have a year end of 31 December. | |
| (4) | The Group holds substantive participating rights which provide it with a veto over the significant financial and operating policies of Vodafone Fiji Limited and which ensure it is able to exercise joint control over Vodafone Fiji Limited with the majority shareholder. | |
| (5) | The principal place of operation of Vodafone Omnitel N.V. is Italy. | |
| (6) | The Group considered the existence of substantive participating rights held by the non-controlling shareholder provide that shareholder with a veto right over the significant financial and operating policies of Vodafone Omnitel N.V., and determined that, as a result of these rights, the Group does not have control over the financial and operating policies of Vodafone Omnitel N.V., despite the Group’s 76.9% ownership interest. |
Effect of proportionate consolidation of joint ventures
The following table presents, on a condensed basis, the effect on the consolidated financial
statements of including joint ventures using proportionate consolidation. The results of Vodacom
Group Limited are included until 18 May 2009 when it became a subsidiary and the results of
Safaricom Limited (‘Safaricom’) are included until 28 May 2008, at which time its consolidation
status changed from joint venture to associate. The results of Australia are included from 9 June
2009 following its merger with Hutchison 3G Australia and results from the 4.8% stake in Polkomtel
acquired during the 2009 financial year are included from 18 December 2008.
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Revenue |
7,849 | 7,896 | 7,737 | |||||||||
Cost of sales |
(4,200 | ) | (4,216 | ) | (4,076 | ) | ||||||
Gross profit |
3,649 | 3,680 | 3,661 | |||||||||
Selling, distribution and administrative expenses |
(1,624 | ) | (1,369 | ) | (1,447 | ) | ||||||
Impairment losses |
(1,050 | ) | — | — | ||||||||
Operating income and expense |
— | (12 | ) | — | ||||||||
Operating profit |
975 | 2,299 | 2,214 | |||||||||
Net financing costs |
(146 | ) | (152 | ) | (170 | ) | ||||||
Profit before tax |
829 | 2,147 | 2,044 | |||||||||
Income tax expense |
(608 | ) | (655 | ) | (564 | ) | ||||||
Profit for the financial year |
221 | 1,492 | 1,480 | |||||||||
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Non-current assets |
19,043 | 20,787 | ||||||
Current assets |
1,908 | 763 | ||||||
Total assets |
20,951 | 21,550 | ||||||
Total shareholders’ funds and total equity |
16,389 | 17,407 | ||||||
Non-current liabilities |
1,887 | 833 | ||||||
Current liabilities |
2,675 | 3,310 | ||||||
Total liabilities |
4,562 | 4,143 | ||||||
Total equity and liabilities |
20,951 | 21,550 | ||||||
Table of Contents
Vodafone Group Plc Annual Report 2011 105
Financials
14. Investments in associates
At 31 March 2011 the Company had the following principal associates carrying on businesses which
affect the profits and assets of the Group. The Company’s principal associates all have share
capital consisting solely of ordinary shares, unless otherwise stated, and are all indirectly held.
The country of incorporation or registration of all associates is also their principal place of
operation.
| Country of incorporation |
Percentage(1) | |||||||||||
| Name | Principal activity | or registration | shareholdings | |||||||||
Cellco Partnership(2) |
Network operator | US | 45.0 | |||||||||
Société Française du Radiotéléphone S.A. (‘SFR’)(3) |
Network operator | France | 44.0 | |||||||||
Safaricom Limited(4)(5) |
Network operator | Kenya | 40.0 | |||||||||
Notes:
| (1) | Rounded to nearest tenth of one percent. | |
| (2) | Cellco Partnership trades under the name Verizon Wireless. | |
| (3) | On 3 April 2011 the Group announced an agreement to sell its entire 44% interest in SFR. See note 32 for further information. | |
| (4) | The Group also holds two non-voting shares. | |
| (5) | At 31 March 2011 the fair value of Safaricom Limited was KES 61 billion (£456 million) based on the closing quoted share price on the Nairobi Stock Exchange. |
The Group’s share of the aggregated financial information of equity accounted associates is set out
below. The amounts for the year ended 31 March 2009 include the share of results in Safaricom from
28 May 2008, at which time its consolidation status changed from being a joint venture to an
associate.
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Share of revenue in associates |
24,213 | 23,288 | 19,307 | |||||||||
Share of result in associates |
5,059 | 4,742 | 4,091 | |||||||||
Share of discontinued operations in associates |
18 | 93 | 57 | |||||||||
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Non-current assets |
45,446 | 47,048 | ||||||
Current assets |
5,588 | 4,901 | ||||||
Share of total assets |
51,034 | 51,949 | ||||||
Non-current liabilities |
5,719 | 8,295 | ||||||
Current liabilities |
6,656 | 6,685 | ||||||
Non-controlling interests |
554 | 592 | ||||||
Share of total liabilities and non-controlling interests |
12,929 | 15,572 | ||||||
Share of equity shareholders’ funds in associates |
38,105 | 36,377 | ||||||
15. Other investments
Non-current other investments comprise the following, all of which are classified as
available-for-sale, with the exception of other debt and bonds, which are classified as loans and
receivables, and cash held in restricted deposits:
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Included within non-current assets: |
||||||||
Listed securities: |
||||||||
Equity securities |
1 | 4,072 | ||||||
Unlisted securities: |
||||||||
Equity securities |
967 | 879 | ||||||
Public debt and bonds |
3 | 11 | ||||||
Other debt and bonds |
72 | 2,355 | ||||||
Cash held in restricted deposits |
338 | 274 | ||||||
| 1,381 | 7,591 | |||||||
Included within current assets: |
||||||||
Government bonds |
610 | 388 | ||||||
Other |
64 | — | ||||||
| 674 | 388 | |||||||
At 31 March 2010 listed equity securities included £4,071 million in relation to the Group’s 3.2%
interest in China Mobile Limited which was sold in September 2010 for £4,264 million generating a
£3,019 million income statement gain, including income statement recognition of foreign exchange
rate gains previously recognised in equity.
Unlisted equity securities include a 26% interest in Bharti Infotel Private Limited through which
the Group has a 4.37% economic interest in Bharti Airtel Limited. Unlisted equity investments are
recorded at fair value where appropriate, or at cost if their fair value cannot be reliably
measured as there is no active market upon which they are traded.
For public debt and bonds and cash held in restricted deposits, the carrying amount approximates
fair value.
The short-term investments primarily consist of index linked gilts with less than six years to
maturity, which can be readily converted into cash via the gilt repurchase market and are held on
an effective floating rate basis.
Table of Contents
106 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
16. Inventory
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Goods held for resale |
537 | 433 | ||||||
Inventory is reported net of allowances for obsolescence, an analysis of which is as follows:
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
1 April |
120 | 111 | 118 | |||||||||
Exchange movements |
(1 | ) | 5 | 13 | ||||||||
Amounts (credited)/charged to the income statement |
(2 | ) | 4 | (20 | ) | |||||||
31 March |
117 | 120 | 111 | |||||||||
Cost of sales includes amounts related to inventory amounting to £5,878 million (2010: £5,268
million; 2009: £4,853 million).
17. Trade and other receivables
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Included within non-current assets: |
||||||||
Trade receivables |
92 | 59 | ||||||
Other receivables |
1,719 | 678 | ||||||
Prepayments and accrued income |
137 | 148 | ||||||
Derivative financial instruments |
1,929 | 1,946 | ||||||
| 3,877 | 2,831 | |||||||
Included within current assets: |
||||||||
Trade receivables |
4,185 | 4,008 | ||||||
Amounts owed by associates |
53 | 24 | ||||||
Other receivables |
1,606 | 1,122 | ||||||
Prepayments and accrued income |
3,299 | 3,448 | ||||||
Derivative financial instruments |
116 | 182 | ||||||
| 9,259 | 8,784 | |||||||
The Group’s trade receivables are stated after allowances for bad and doubtful debts based on
management’s assessment of creditworthiness, an analysis of which is as follows:
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
1 April |
929 | 874 | 664 | |||||||||
Exchange movements |
(30 | ) | (27 | ) | 101 | |||||||
Amounts charged to administrative expenses |
460 | 465 | 423 | |||||||||
Trade receivables written off |
(353 | ) | (383 | ) | (314 | ) | ||||||
31 March |
1,006 | 929 | 874 | |||||||||
The carrying amounts of trade and other receivables approximate their fair value. Trade and other
receivables are predominantly non-interest bearing.
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Included within “Derivative financial instruments”: |
||||||||
Fair value through the income statement (held for
trading): |
||||||||
Interest rate swaps |
1,292 | 1,031 | ||||||
Foreign exchange swaps |
99 | 132 | ||||||
| 1,391 | 1,163 | |||||||
Fair value hedges: |
||||||||
Interest rate swaps |
654 | 965 | ||||||
| 2,045 | 2,128 | |||||||
The fair values of these financial instruments are calculated by discounting the future cash flows
to net present values using appropriate market interest and foreign currency rates prevailing at 31
March.
Table of Contents
Vodafone Group Plc Annual Report 2011 107
Financials
18. Cash and cash equivalents
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Cash at bank and in hand |
896 | 745 | ||||||
Money market funds |
5,015 | 3,678 | ||||||
Other |
341 | — | ||||||
Cash and cash equivalents as presented in the statement
of financial position |
6,252 | 4,423 | ||||||
Bank overdrafts |
(47 | ) | (60 | ) | ||||
Cash and cash equivalents as presented in the statement
of cash flows |
6,205 | 4,363 | ||||||
Bank balances and money market funds comprise cash held by the Group on a short-term basis with
original maturity of three months or less. The carrying amount of cash and cash equivalents
approximates their fair value.
19. Called up share capital
| 2011 | 2010 | |||||||||||||||
| Number | £m | Number | £m | |||||||||||||
Ordinary shares of
113/7
US cents each
allotted, issued and
fully
paid:(1)(2) |
||||||||||||||||
1 April |
57,809,246,732 | 4,153 | 57,806,283,716 | 4,153 | ||||||||||||
Allotted during the year |
1,876,697 | — | 2,963,016 | — | ||||||||||||
Cancelled during the year |
(1,000,000,000 | ) | (71 | ) | — | — | ||||||||||
31 March |
56,811,123,429 | 4,082 | 57,809,246,732 | 4,153 | ||||||||||||
Notes:
| (1) | The concept of authorised share capital was abolished under the Companies Act 2006, with effect from 1 October 2009, and consequential amendments to the Company’s articles of association removing all references to authorised share capital were approved by shareholders at the 2010 annual general meeting. | |
| (2) | At 31 March 2011 the Group held 5,233,597,599 (2010: 5,146,112,159) treasury shares with a nominal value of £376 million (2010: £370 million). The market value of shares held was £9,237 million (2010: £7,822 million). During the year 150,404,079 (2010: 149,298,942) treasury shares were reissued under Group share option schemes. |
Allotted during the year
| Nominal | Net | |||||||||||
| value | proceeds | |||||||||||
| Number | £m | £m | ||||||||||
UK share awards and option scheme awards |
35,557 | — | — | |||||||||
US share awards and option scheme awards |
1,841,140 | — | 3 | |||||||||
Total for share awards and option
scheme awards |
1,876,697 | — | 3 | |||||||||
Table of Contents
108 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
20. Share-based payments
The Company currently uses a number of equity settled share plans to grant options and shares to
its directors and employees.
The maximum aggregate number of ordinary shares which may be issued in respect of share options or
share plans will not (without shareholder approval) exceed:
| • | 10% of the ordinary share capital of the Company in issue immediately prior to the date of grant, when aggregated with the total number of ordinary shares which have been allocated in the preceding ten year period under all plans; and |
| • | 5% of the ordinary share capital of the Company in issue immediately prior to the date of grant, when aggregated with the total number of ordinary shares which have been allocated in the preceding ten year period under all plans, other than any plans which are operated on an all-employee basis. |
Share options
Vodafone Group executive plans
No share options have been granted to any directors or employees under the Company’s discretionary
share option plans in the year ended 31 March 2011.
There are options outstanding under a number of plans: the Vodafone Group 1998 Executive Share
Option Scheme and the Vodafone Group 1988 Company Share Option Scheme, the Vodafone Group 1999
Long-Term Stock Incentive Plan and the Vodafone Global Incentive Plan. These options are normally
exercisable between three and ten years from the date of grant. The vesting of some of these
options is subject to satisfaction of performance conditions. Grants made to US employees are made
in respect of ADSs.
Vodafone Group Sharesave Plan
The Vodafone Group 2008 Sharesave Plan and its predecessor, the Vodafone Group 1998 Sharesave
Scheme, enable UK staff to acquire shares in the Company through monthly savings of up to £250 over
a three or five year period, at the end of which they also receive a tax free bonus. The savings
and bonus may then be used to purchase shares at the option price, which is set at the beginning of
the invitation period and usually at a discount of 20% to the then prevailing market price of the
Company’s shares.
Share plans
Vodafone Group executive plans
Under the Vodafone Global Incentive Plan awards of shares are granted to directors and certain
employees. The release of these shares is conditional upon continued employment and for some awards
achievement of certain performance targets measured over a three year period.
Vodafone Share Incentive Plan
The Vodafone Share Incentive Plan enables UK staff to acquire shares in the Company through monthly
purchases of up to £125 per month or 5% of salary, whichever is lower. For each share purchased by
the employee, the Company provides a free matching share.
Movements in ordinary share options and ADS options outstanding
| ADS options | Ordinary share options | |||||||||||||||||||||||
| 2011 | 2010 | 2009 | 2011 | 2010 | 2009 | |||||||||||||||||||
| Millions | Millions | Millions | Millions | Millions | Millions | |||||||||||||||||||
1 April |
1 | 1 | 1 | 266 | 334 | 373 | ||||||||||||||||||
Granted during the year |
— | — | — | 4 | 13 | 7 | ||||||||||||||||||
Forfeited during the year |
— | — | — | (1 | ) | (2 | ) | (11 | ) | |||||||||||||||
Exercised during the year |
— | — | — | (72 | ) | (47 | ) | (16 | ) | |||||||||||||||
Expired during the year |
— | — | — | (26 | ) | (32 | ) | (19 | ) | |||||||||||||||
31 March |
1 | 1 | 1 | 171 | 266 | 334 | ||||||||||||||||||
Weighted average exercise price: |
||||||||||||||||||||||||
1 April |
$15.07 | $15.37 | $18.15 | £1.41 | £1.41 | £1.42 | ||||||||||||||||||
Granted during the year |
— | — | — | £1.14 | £0.94 | £1.21 | ||||||||||||||||||
Forfeited during the year |
— | — | — | £1.10 | £1.50 | £1.47 | ||||||||||||||||||
Exercised during the year |
— | — | — | £1.33 | £1.11 | £1.09 | ||||||||||||||||||
Expired during the year |
— | — | — | £2.25 | £1.67 | £1.55 | ||||||||||||||||||
31 March |
$14.82 | $15.07 | $15.37 | £1.32 | £1.41 | £1.41 | ||||||||||||||||||
Table of Contents
Vodafone Group Plc Annual Report 2011 109
Financials
Summary of options outstanding and exercisable at 31 March 2011
| Outstanding | Exercisable | |||||||||||||||||||||||
| Weighted | Weighted | |||||||||||||||||||||||
| average | average | |||||||||||||||||||||||
| Weighted | remaining | Weighted | remaining | |||||||||||||||||||||
| Outstanding | average | contractual | Exercisable | average | contractual | |||||||||||||||||||
| shares | exercise | life | shares | exercise | life | |||||||||||||||||||
| Millions | price | Months | Millions | price | Months | |||||||||||||||||||
Vodafone Group savings related and Sharesave Plan: |
||||||||||||||||||||||||
£0.01 – £1.00 |
12 | £0.94 | 28 | — | — | — | ||||||||||||||||||
£1.01 – £2.00 |
8 | £1.19 | 34 | — | — | — | ||||||||||||||||||
| 20 | £1.03 | 31 | — | — | — | |||||||||||||||||||
Vodafone Group executive plans: |
||||||||||||||||||||||||
£1.01 – £2.00 |
3 | £1.63 | 5 | 3 | £1.63 | 5 | ||||||||||||||||||
Vodafone Group 1999 Long-Term Stock Incentive Plan: |
||||||||||||||||||||||||
£0.01 – £1.00 |
42 | £0.90 | 15 | 42 | £0.90 | 15 | ||||||||||||||||||
£1.01 – £2.00 |
106 | £1.52 | 28 | 106 | £1.52 | 28 | ||||||||||||||||||
| 148 | £1.35 | 24 | 148 | £1.35 | 24 | |||||||||||||||||||
Other share option plans: |
||||||||||||||||||||||||
£1.01 – greater than £3.01 |
— | £2.47 | 11 | — | £2.47 | 11 | ||||||||||||||||||
Vodafone Group 1999 Long-Term Stock Incentive Plan: |
||||||||||||||||||||||||
$10.01 – $30.00 |
1 | $14.82 | 18 | 1 | $14.82 | 18 | ||||||||||||||||||
Fair value of options granted
| Ordinary share options | ||||||||||||
| 2011 | 2010 | 2009 | ||||||||||
Expected life of option (years) |
3-5 | 3-5 | 3-5 | |||||||||
Expected share price volatility |
27.5-27.6 | % | 32.5-33.5 | % | 30.9-31.0 | % | ||||||
Dividend yield |
5.82 | % | 6.62 | % | 5.04 | % | ||||||
Risk free rates |
1.3-2.2 | % | 2.5-3.0 | % | 4.9 | % | ||||||
Exercise price |
£1.14 | £0.94 | £1.21 | |||||||||
The fair value of options granted is estimated at the date of grant using a lattice-based option
valuation model which incorporates ranges of assumptions for inputs as disclosed above.
Share awards
Movements in non-vested shares during the year ended 31 March 2011 are as follows:
| Global AllShare Plan | Other | Total | ||||||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||||||
| average fair | average fair | average fair | ||||||||||||||||||||||
| value at | value at | value at | ||||||||||||||||||||||
| Millions | grant date | Millions | grant date | Millions | grant date | |||||||||||||||||||
1 April 2010 |
34 | £1.15 | 340 | £1.05 | 374 | £1.06 | ||||||||||||||||||
Granted |
— | — | 126 | £1.07 | 126 | £1.07 | ||||||||||||||||||
Vested |
(15 | ) | £1.30 | (66 | ) | £1.40 | (81 | ) | £1.38 | |||||||||||||||
Forfeited |
(2 | ) | £1.08 | (30 | ) | £0.97 | (32 | ) | £0.97 | |||||||||||||||
31 March 2011 |
17 | £1.02 | 370 | £1.00 | 387 | £1.00 | ||||||||||||||||||
Other information
The weighted average grant date fair value of options granted during the 2011 financial year was
£0.27 (2010: £0.26; 2009: £0.39).
The total fair value of shares vested during the year ended 31 March 2011 was £113 million (2010:
£100 million; 2009: £84 million).
The compensation cost included in the consolidated income statement in respect of share options and
share plans was £156 million (2010: £150 million; 2009: £128 million) which is comprised entirely
of equity-settled transactions.
The average share price for the year ended 31 March 2011 was 159.5 pence (2010: 132 pence).
Table of Contents
110 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
21. Capital and financial risk management
Capital management
The following table summarises the capital of the Group:
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Cash and cash equivalents |
(6,252 | ) | (4,423 | ) | ||||
Borrowings |
38,281 | 39,795 | ||||||
Other financial instruments |
(2,171 | ) | (2,056 | ) | ||||
Net debt |
29,858 | 33,316 | ||||||
Equity |
87,561 | 90,810 | ||||||
Capital |
117,419 | 124,126 | ||||||
The Group’s policy is to borrow centrally using a mixture of long-term and short-term capital
market issues and borrowing facilities to meet anticipated funding requirements. These borrowings,
together with cash generated from operations, are loaned internally or contributed as equity to
certain subsidiaries. The Board has approved three internal debt protection ratios being: net
interest to operating cash flow (plus dividends from associates); retained cash flow (operating
cash flow plus dividends from associates less interest, tax, dividends to minorities and equity
dividends) to net debt; and operating cash flow (plus dividends from associates) to net debt. These
internal ratios establish levels of debt that the Group should not exceed other than for relatively
short periods of time and are shared with the Group’s debt rating agencies being Moody’s, Fitch
Ratings and Standard & Poor’s. The Group complied with these ratios throughout the financial year.
Financial risk management
The
Group’s treasury function provides a centralised service to the Group for funding, foreign
exchange, interest rate management and counterparty risk management.
Treasury operations are conducted within a framework of policies and guidelines authorised and
reviewed by the Board, most recently on 1 February 2011. A treasury risk committee comprising of
the Group’s Chief Financial Officer, Group General Counsel and Company Secretary, Corporate Finance
Director and Director of Financial Reporting meets at least annually to review treasury activities
and its members receive management information relating to treasury activities on a quarterly
basis. The Group accounting function, which does not report to the
Group Corporate Finance Director,
provides regular update reports of treasury activity to the Board. The Group’s internal auditor
reviews the internal control environment regularly.
The Group uses a number of derivative instruments for currency and interest rate risk management
purposes only that are transacted by specialist treasury personnel. The Group mitigates banking
sector credit risk by the use of collateral support agreements.
Credit risk
The Group considers its exposure to credit risk at 31 March to be as follows:
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Bank deposits |
896 | 745 | ||||||
Cash held in restricted deposits |
338 | 274 | ||||||
Government bonds |
610 | 388 | ||||||
Money market fund investments |
5,015 | 3,678 | ||||||
Derivative financial instruments |
2,045 | 2,128 | ||||||
Other investments — debt and bonds |
75 | 2,366 | ||||||
Trade receivables |
4,277 | 4,067 | ||||||
Other receivables |
3,325 | 1,800 | ||||||
| 16,581 | 15,446 | |||||||
The Group invests in UK index linked government bonds on the basis that they generate a swap return
in excess of £ LIBOR and are amongst the most creditworthy of investments available.
Money market investments are in accordance with established internal treasury policies which
dictate that an investment’s long-term credit rating is no lower than single A. Additionally, the
Group invests in AAA unsecured money market mutual funds where the investment is limited to 10% of
each fund.
In respect of financial instruments used by the Group’s treasury function, the aggregate credit
risk the Group may have with one counterparty is limited by firstly, reference to the long-term
credit ratings assigned for that counterparty by Moody’s, Fitch Ratings and Standard & Poor’s and
secondly, as a consequence of collateral support agreements introduced from the fourth quarter of
2008. Under collateral support agreements the Group’s exposure to a counterparty with whom a
collateral support agreement is in place is reduced to the extent that the counterparty must post
cash collateral when there is value due to the Group under outstanding derivative contracts that
exceeds a contractually agreed threshold amount. When value is due to the counterparty the Group is
required to post collateral on identical terms. Such cash collateral is adjusted daily as
necessary.
In the event of any default ownership of the cash collateral would revert to the respective holder
at that point. Detailed below is the value of the cash collateral, which is reported within
short-term borrowings, held by the Group at 31 March 2011:
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Cash collateral |
531 | 604 | ||||||
The majority of the Group’s trade receivables are due for maturity within 90 days and largely
comprise amounts receivable from consumers and business customers. At 31 March 2011 £2,233 million
(2010: £2,111 million) of trade receivables were not yet due for payment. Total trade receivables
consisted of £2,852 million (2010: £2,709 million) relating to the Europe region and £1,425 million
(2010: £1,358 million) relating to the Africa, Middle East and Asia Pacific region. Accounts are
monitored by management and provisions for bad and doubtful debts raised where it is deemed
appropriate.
Table of Contents
Vodafone Group Plc Annual Report 2011 111
Financials
The
following table presents ageing of receivables that are past due and are presented net of
provisions for doubtful receivables that have been established.
| 2011 | 2010 | |||||||
| £m | £m | |||||||
30 days or less |
1,561 | 1,499 | ||||||
Between 31
– 60 days |
100 | 119 | ||||||
Between 61
– 180 days |
85 | 155 | ||||||
Greater than 180 days |
298 | 183 | ||||||
| 2,044 | 1,956 | |||||||
Concentrations of credit risk with respect to trade receivables are limited given that the Group’s
customer base is large and unrelated. Due to this management believes there is no further credit
risk provision required in excess of the normal provision for bad and doubtful receivables. Amounts
charged to administrative expenses during the year ended 31 March 2011 were £460 million (2010:
£465 million, 2009: £423 million) (see note 17).
The Group’s investments in preferred equity and a subordinated loan received as part of the
disposal of Vodafone Japan to SoftBank in the 2007 financial year were disposed of during the year.
The Group has a receivable of £1,488 million (2010: £nil) in relation to the second tranche of
consideration receivable in relation to the disposal.
As discussed in note 28 the Group has covenanted to provide security in favour of the Trustee of
the Vodafone Group UK Pension Scheme in respect of the funding deficit in the scheme. The security
takes the form of an English law pledge over UK index linked government bonds.
Liquidity risk
At 31 March 2011 the Group had €4.2 billion and US$4.2 billion syndicated committed undrawn bank
facilities and US$15 billion and £5 billion commercial paper programmes, supported by the €4.2
billion and US$4.2 billion syndicated committed bank facilities,
available to manage its liquidity.
The Group uses commercial paper and bank facilities to manage short-term liquidity and manages
long-term liquidity by raising funds in the capital markets.
€4.2 billion of the syndicated committed facility has a maturity date of 1 July 2015 and US$4.2
billion has a maturity of 9 March 2016 which may be extended by a further year if agreed by those
banks who have participated in the facility. Both facilities have remained undrawn throughout the
financial year and since year end and provide liquidity support.
The Group manages liquidity risk on long-term borrowings by maintaining a varied maturity profile
with a cap on the level of debt maturing in any one calendar year, therefore minimising refinancing
risk. Long-term borrowings mature between one and 26 years.
Liquidity is reviewed daily on at least a 12 month rolling basis and stress tested on the
assumption that all commercial paper outstanding matures and is not reissued. The Group maintains
substantial cash and cash equivalents which at 31 March 2011 amounted to £6,252 million (2010:
£4,423 million).
Market risk
Interest rate management
Under the Group’s interest rate management policy, interest rates on monetary assets and
liabilities denominated in euros, US dollars and sterling are maintained on a floating rate basis
except for periods up to six years where interest rate fixing has to be undertaken in accordance
with treasury policy. Where assets and liabilities are denominated in other currencies interest
rates may also be fixed. In addition, fixing is undertaken for longer periods when interest rates
are statistically low.
At 31 March 2011 71% (2010: 36%) of the Group’s gross borrowings were fixed for a period of at
least one year. For each one hundred basis point fall or rise in market interest rates for all
currencies in which the Group had borrowings at 31 March 2011 there would be a reduction or
increase in profit before tax by approximately £30 million (2010: increase or reduce by £165
million) including mark-to-market revaluations of interest rate and other derivatives and the
potential interest on outstanding tax issues. There would be no material impact on equity.
Foreign exchange management
As Vodafone’s primary listing is on the London Stock Exchange its share price is quoted in
sterling. Since the sterling share price represents the value of its future multi-currency cash
flows, principally in euro, US dollars and sterling, the Group maintains the currency of debt and
interest charges in proportion to its expected future principal multi-currency cash flows and has a
policy to hedge external foreign exchange risks on transactions denominated in other currencies
above certain de minimis levels. As the Group’s future cash flows are increasingly likely to be
derived from emerging markets it is likely that more debt in emerging market currencies will be
drawn.
As such, at 31 March 2011 130% of net debt was denominated in currencies other than sterling (55%
euro, 47% US dollar and 28% other) while 30% of net debt had been purchased forward in sterling in
anticipation of sterling denominated shareholder returns via dividends and share buybacks. This
allows euro, US dollar and other debt to be serviced in proportion to expected future cash flows
and therefore provides a partial hedge against income statement translation exposure, as interest
costs will be denominated in foreign currencies. Yen debt is used as a hedge against the value of
yen assets as the Group has minimal yen cash flows.
Table of Contents
112 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
21. Capital and financial risk management continued
Under the Group’s foreign exchange management policy foreign exchange transaction exposure in Group
companies is generally maintained at the lower of €5 million per currency per month or €15 million
per currency over a six month period. In addition, a US dollar denominated financial liability
arising from the options granted over the Essar Group’s interests in Vodafone Essar in the 2008
financial year and as discussed on page 51, was held by a legal entity with a euro functional
currency. A 14% (2010: 12%) change in US$/€ exchange rates would have a £436 million (2010: £393
million) impact on profit or loss in relation to this financial instrument.
The Group recognises foreign exchange movements in equity for the translation of net investment
hedging instruments and balances treated as investments in foreign operations. However, there is no
net impact on equity for exchange rate movements as there would be an offset in the currency
translation of the foreign operation.
The following table details the Group’s sensitivity of the Group’s operating profit to a
strengthening of the Group’s major currencies in which it transacts.
The percentage movement applied to each currency is based on the average movements in the previous
three annual reporting periods. Amounts are calculated by retranslating the operating profit of
each entity whose functional currency is either euro or US dollar.
| 2011 | ||||
| £m | ||||
Euro 4%
change — Operating profit |
230 | |||
US dollar
13% change — Operating profit |
594 | |||
At 31 March 2010 sensitivity of the Group’s operating profit was analysed for euro 12% change and
US dollar 15% change, representing £804 million and £617 million respectively.
Equity risk
The Group has equity investments, primarily in Bharti Infotel Private Limited, which is subject to
equity risk. See note 15 to the consolidated financial statements for further details on the
carrying value of this investment. The Group disposed of its 3.2% interest in China Mobile Limited
on 10 September 2010.
Fair value of financial instruments
The table below sets out the valuation basis of financial instruments held at fair value by the
Group at 31 March 2011.
| Level 1(1) | Level 2(2) | Total | ||||||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
| £ m | £ m | £ m | £ m | £ m | £ m | |||||||||||||||||||
Financial assets: |
||||||||||||||||||||||||
Derivative financial instruments: |
||||||||||||||||||||||||
Interest rate swaps |
— | — | 1,946 | 1,996 | 1,946 | 1,996 | ||||||||||||||||||
Foreign exchange contracts |
— | — | 99 | 132 | 99 | 132 | ||||||||||||||||||
Interest rate futures |
— | — | 31 | 20 | 31 | 20 | ||||||||||||||||||
| — | — | 2,076 | 2,148 | 2,076 | 2,148 | |||||||||||||||||||
Financial investments available-for-sale: |
||||||||||||||||||||||||
Listed equity securities(3) |
1 | 4,072 | — | — | 1 | 4,072 | ||||||||||||||||||
Unlisted equity securities(3) |
— | — | 703 | 623 | 703 | 623 | ||||||||||||||||||
| 1 | 4,072 | 703 | 623 | 704 | 4,695 | |||||||||||||||||||
| 1 | 4,072 | 2,779 | 2,771 | 2,780 | 6,843 | |||||||||||||||||||
Financial liabilities: |
||||||||||||||||||||||||
Derivative financial instruments: |
||||||||||||||||||||||||
Interest rate swaps |
— | — | 395 | 365 | 395 | 365 | ||||||||||||||||||
Foreign exchange contracts |
— | — | 153 | 95 | 153 | 95 | ||||||||||||||||||
| — | — | 548 | 460 | 548 | 460 | |||||||||||||||||||
Notes:
| (1) | Level 1 classification comprises financial instruments where fair value is determined by unadjusted quoted prices in active markets for identical assets or liabilities. | |
| (2) | Level 2 classification comprises where fair value is determined from inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Fair values for unlisted equity securities are derived from observable quoted market prices for similar items. Derivative financial instrument fair values are present values determined from future cash flows discounted at rates derived from market sourced data. | |
| (3) | Details of listed and unlisted equity securities are included in note 15 “Other Investments”. |
Table of Contents
Vodafone Group Plc Annual Report 2011 113
Financials
22. Borrowings
Carrying value and fair value information
| 2011 | 2010 | |||||||||||||||||||||||
| Short-term | Long-term | Short-term | Long-term | |||||||||||||||||||||
| borrowings | borrowings | Total | borrowings | borrowings | Total | |||||||||||||||||||
| £m | £m | £m | £m | £m | £m | |||||||||||||||||||
Financial liabilities measured at amortised cost: |
||||||||||||||||||||||||
Bank loans |
2,070 | 5,872 | 7,942 | 3,460 | 4,183 | 7,643 | ||||||||||||||||||
Bank overdrafts |
47 | — | 47 | 60 | — | 60 | ||||||||||||||||||
Redeemable preference shares |
— | 1,169 | 1,169 | — | 1,242 | 1,242 | ||||||||||||||||||
Commercial paper |
1,660 | — | 1,660 | 2,563 | — | 2,563 | ||||||||||||||||||
Bonds |
2,470 | 16,046 | 18,516 | 1,174 | 12,675 | 13,849 | ||||||||||||||||||
Other liabilities(1)(2) |
3,659 | 1,023 | 4,682 | 3,906 | 385 | 4,291 | ||||||||||||||||||
Bonds in fair value hedge relationships |
— | 4,265 | 4,265 | — | 10,147 | 10,147 | ||||||||||||||||||
| 9,906 | 28,375 | 38,281 | 11,163 | 28,632 | 39,795 | |||||||||||||||||||
Notes:
| (1) | At 31 March 2011 amount includes £531 million (2010: £604 million) in relation to collateral support agreements. | |
| (2) | Amounts at 31 March 2011 includes £3,190 million (2010: £3,405 million) in relation to the options disclosed in note 12. |
Banks loans include a ZAR 3.5 billion loan borrowed by Vodafone Holdings SA Pty Limited (‘VHSA’),
which directly and indirectly owns the Group’s interest in Vodacom Group Limited. VHSA has pledged
its 100% equity shareholding in Vodafone Investments SA (‘VISA’), which holds a direct 20.1% equity
shareholding in Vodacom Group Limited, as security for its loan obligations. The terms and
conditions of the pledge mean that should VHSA not meet all of its loan payment and performance
obligations, the lenders may sell the equity shareholding in its subsidiary VISA at market value to
recover their losses, with any remaining sales proceeds being returned to VHSA. Vodafone
International Holdings B.V. has also guaranteed this loan with recourse only to the VHSA shares it
has pledged. The terms and conditions of the security arrangement mean the lenders may be able to
sell these respective shares in preference to the VISA shares held by VHSA. An arrangement has been
put in place where the Vodacom Group Limited shares held by VHSA and VISA are held in an escrow
account to ensure the shares cannot be sold to satisfy the pledge made by the Company. The maximum
collateral provided is ZAR 3.5 billion, being the carrying value of the bank loan at 31 March 2011
(2010: ZAR 4.85 billion). Bank loans also include INR 262 billion of loans held by Vodafone Essar
Limited (‘VEL’) and its subsidiaries (the ‘VEL Group’). The VEL Group has a number of security
arrangements supporting certain licences secured under the terms of tri-party agreements between
the relevant borrower, the department of telecommunications, Government of India and the agent
representing the secured lenders and certain share pledges of the shares under VEL. The terms and
conditions of the security arrangements mean that should members of the VEL Group not meet all of
their loan payment and performance obligations, the lenders may sell the pledged shares and enforce
rights over the certain licences under the terms of the tri-party agreements to recover their
losses, with any remaining sales proceeds being returned to the VEL Group. Each of the eight legal
entities within the VEL Group provide cross guarantees to the lenders in respect to debt contracted
by the other seven.
The fair value and carrying value of the Group’s short-term borrowings is as follows:
| Sterling equivalent | ||||||||||||||||||||||||
| nominal value | Fair value | Carrying value | ||||||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
| £m | £m | £m | £m | £m | £m | |||||||||||||||||||
Financial liabilities measured at amortised cost |
7,316 | 9,910 | 7,425 | 10,006 | 7,436 | 9,989 | ||||||||||||||||||
Bonds: |
2,444 | 1,113 | 2,463 | 1,124 | 2,470 | 1,174 | ||||||||||||||||||
5.875% euro 1.25 billion bond due June 2010 |
— | 1,113 | — | 1,124 | — | 1,174 | ||||||||||||||||||
US dollar floating rate note due June 2011 |
171 | — | 171 | — | 171 | — | ||||||||||||||||||
5.5% US dollar 750 million bond due June 2011 |
467 | — | 471 | — | 478 | — | ||||||||||||||||||
1% US dollar 100 million bond due August 2011 |
45 | — | 45 | — | 45 | — | ||||||||||||||||||
Euro floating rate note due January 2012 |
1,144 | — | 1,146 | — | 1,148 | — | ||||||||||||||||||
US dollar floating rate note due February 2012 |
306 | — | 306 | — | 306 | — | ||||||||||||||||||
5.35% US dollar 500 million bond due February 2012 |
311 | — | 324 | — | 322 | — | ||||||||||||||||||
Short-term borrowings |
9,760 | 11,023 | 9,888 | 11,130 | 9,906 | 11,163 | ||||||||||||||||||
Table of Contents
114 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
22. Borrowings continued
The fair value and carrying value of the Group’s long-term borrowings is as follows:
| Sterling equivalent | ||||||||||||||||||||||||
| nominal value | Fair value | Carrying value | ||||||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
| £m | £m | £m | £m | £m | £m | |||||||||||||||||||
Financial liabilities measured at amortised cost: |
||||||||||||||||||||||||
Bank loans |
5,728 | 4,149 | 5,872 | 4,183 | 5,873 | 4,183 | ||||||||||||||||||
Redeemable preference shares |
1,027 | 1,174 | 1,054 | 1,098 | 1,169 | 1,242 | ||||||||||||||||||
Other liabilities |
1,022 | 385 | 1,023 | 385 | 1,022 | 385 | ||||||||||||||||||
Bonds: |
14,581 | 11,455 | 15,578 | 11,961 | 16,046 | 12,675 | ||||||||||||||||||
US dollar floating rate note due June 2011 |
— | 230 | — | 230 | — | 230 | ||||||||||||||||||
5.5% US dollar 750 million bond due June 2011 |
— | 494 | — | 518 | — | 524 | ||||||||||||||||||
Euro floating rate note due January 2012 |
— | 1,158 | — | 1,157 | — | 1,161 | ||||||||||||||||||
US dollar floating rate note due February 2012 |
— | 329 | — | 329 | — | 329 | ||||||||||||||||||
5.35% US dollar 500 million bond due February 2012 |
— | 329 | — | 351 | — | 352 | ||||||||||||||||||
3.625% euro 1,250 million bond due November 2012 |
1,104 | 1,113 | 1,125 | 1,157 | 1,132 | 1,149 | ||||||||||||||||||
6.75% Australian dollar 265 million bond due January 2013 |
171 | 160 | 173 | 161 | 176 | 167 | ||||||||||||||||||
Czech krona floating rate note due June 2013 |
19 | 19 | 19 | 19 | 19 | 19 | ||||||||||||||||||
Euro floating rate note due September 2013 |
751 | 757 | 752 | 756 | 752 | 758 | ||||||||||||||||||
5.0% US dollar 1,000 million bond due December 2013 |
623 | 658 | 676 | 704 | 667 | 718 | ||||||||||||||||||
6.875% euro 1,000 million bond due December 2013 |
883 | 891 | 970 | 1,024 | 922 | 936 | ||||||||||||||||||
Euro floating rate note due June 2014 |
1,104 | 1,113 | 1,099 | 1,099 | 1,105 | 1,114 | ||||||||||||||||||
4.15% US dollar 1,250 million bond due June 2014 |
778 | 823 | 826 | 856 | 802 | 852 | ||||||||||||||||||
4.625% sterling 350 million bond due September 2014 |
350 | — | 367 | — | 382 | — | ||||||||||||||||||
4.625% sterling 525 million bond due September 2014 |
525 | — | 551 | — | 544 | — | ||||||||||||||||||
5.125% euro 500 million bond due April 2015 |
442 | 445 | 475 | 496 | 470 | 475 | ||||||||||||||||||
5.0% US dollar 750 million bond due September 2015 |
467 | — | 506 | — | 512 | — | ||||||||||||||||||
3.375% US dollar 500 million bond due November 2015 |
311 | 329 | 317 | 327 | 312 | 330 | ||||||||||||||||||
6.25% euro 1,250 million bond due January 2016 |
1,104 | — | 1,230 | — | 1,139 | — | ||||||||||||||||||
2.875% US dollar 600 million bond due March 2016 |
374 | — | 371 | — | 371 | — | ||||||||||||||||||
5.75% US dollar 750 million bond due March 2016 |
467 | — | 523 | — | 532 | — | ||||||||||||||||||
4.75% euro 500 million bond due June 2016 |
442 | — | 463 | — | 487 | — | ||||||||||||||||||
5.625% US dollar 1,300 million bond due February 2017 |
809 | — | 897 | — | 920 | — | ||||||||||||||||||
5.375% sterling 600 million bond due December 2017 |
600 | — | 638 | — | 629 | — | ||||||||||||||||||
5% euro 750 million bond due June 2018 |
663 | 668 | 697 | 721 | 689 | 694 | ||||||||||||||||||
8.125% sterling 450 million bond due November 2018 |
450 | — | 550 | — | 488 | — | ||||||||||||||||||
4.375% US dollar 500 million bond due March 2021 |
311 | — | 307 | — | 309 | — | ||||||||||||||||||
7.875% US dollar 750 million bond due February 2030 |
467 | 494 | 591 | 589 | 759 | 814 | ||||||||||||||||||
6.25% US dollar 495 million bond due November 2032 |
308 | 326 | 332 | 328 | 425 | 453 | ||||||||||||||||||
6.15% US dollar 1,700 million bond due February 2037 |
1,058 | 1,119 | 1,123 | 1,139 | 1,503 | 1,600 | ||||||||||||||||||
Bonds in fair value hedge relationships: |
3,962 | 9,395 | 4,199 | 10,085 | 4,265 | 10,147 | ||||||||||||||||||
4.625% sterling 350 million bond due September 2014 |
— | 350 | — | 367 | — | 388 | ||||||||||||||||||
4.625% sterling 525 million bond due September 2014 |
— | 525 | — | 550 | — | 532 | ||||||||||||||||||
2.15% Japanese yen 3,000 million bond due April 2015 |
23 | 21 | 24 | 22 | 23 | 22 | ||||||||||||||||||
5.375% US dollar 900 million bond due January 2015 |
560 | 592 | 616 | 636 | 621 | 650 | ||||||||||||||||||
5.0% US dollar 750 million bond due September 2015 |
— | 494 | — | 529 | — | 543 | ||||||||||||||||||
6.25% euro 1,250 million bond due January 2016 |
— | 1,113 | — | 1,278 | — | 1,168 | ||||||||||||||||||
5.75% US dollar 750 million bond due March 2016 |
— | 494 | — | 536 | — | 556 | ||||||||||||||||||
4.75% euro 500 million bond due June 2016 |
— | 445 | — | 477 | — | 503 | ||||||||||||||||||
5.625% US dollar 1,300 million bond due February 2017 |
— | 856 | — | 919 | — | 960 | ||||||||||||||||||
5.375% sterling 600 million bond due December 2017 |
— | 600 | — | 634 | — | 628 | ||||||||||||||||||
4.625% US dollar 500 million bond due July 2018 |
311 | 329 | 327 | 328 | 338 | 349 | ||||||||||||||||||
8.125% sterling 450 million bond due November 2018 |
— | 450 | — | 553 | — | 487 | ||||||||||||||||||
5.45% US dollar 1,250 million bond due June 2019 |
778 | 823 | 850 | 857 | 823 | 849 | ||||||||||||||||||
4.65% euro 1,250 million bond January 2022 |
1,104 | 1,113 | 1,115 | 1,129 | 1,114 | 1,145 | ||||||||||||||||||
5.375% euro 500 million bond June 2022 |
442 | 445 | 470 | 481 | 505 | 525 | ||||||||||||||||||
5.625% sterling 250 million bond due December 2025 |
250 | 250 | 258 | 254 | 284 | 285 | ||||||||||||||||||
6.6324% euro 50 million bond due December 2028 |
44 | 45 | 68 | 64 | 57 | 54 | ||||||||||||||||||
5.9% sterling 450 million bond due November 2032 |
450 | 450 | 471 | 471 | 500 | 503 | ||||||||||||||||||
Long-term borrowings |
26,320 | 26,558 | 27,726 | 27,712 | 28,375 | 28,632 | ||||||||||||||||||
During the year ended 31 March 2011 fair value hedge relationships relating to bonds with nominal
value US$2,800 million (£1,743 million), €1,750 million (£1,546 million) and £1,925 million were
de-designated.
Fair values are calculated using quoted market prices or discounted cash flows with a discount rate
based upon forward interest rates available to the Group at the reporting date.
Table of Contents
Vodafone Group Plc Annual Report 2011 115
Financials
Maturity of borrowings
The maturity profile of the anticipated future cash flows including interest in relation to the
Group’s non-derivative financial liabilities on an undiscounted basis, which, therefore, differs
from both the carrying value and fair value, is as follows:
| Redeemable | Loans in fair | |||||||||||||||||||||||||||
| Bank | preference | Commercial | Other | value hedge | ||||||||||||||||||||||||
| loans | shares | paper | Bonds | liabilities | relationships | Total | ||||||||||||||||||||||
| £m | £m | £m | £m | £m | £m | £m | ||||||||||||||||||||||
Within one year |
1,881 | 52 | 1,670 | 3,292 | 3,766 | 203 | 10,864 | |||||||||||||||||||||
In one to two years |
528 | 52 | — | 2,009 | 191 | 203 | 2,983 | |||||||||||||||||||||
In two to three years |
2,510 | 52 | — | 2,919 | 60 | 203 | 5,744 | |||||||||||||||||||||
In three to four years |
321 | 52 | — | 3,251 | 60 | 763 | 4,447 | |||||||||||||||||||||
In four to five years |
885 | 52 | — | 3,613 | 901 | 195 | 5,646 | |||||||||||||||||||||
In more than five years |
1,825 | 1,240 | — | 7,725 | — | 4,752 | 15,542 | |||||||||||||||||||||
| 7,950 | 1,500 | 1,670 | 22,809 | 4,978 | 6,319 | 45,226 | ||||||||||||||||||||||
Effect of discount/financing rates |
(8 | ) | (331 | ) | (10 | ) | (4,293 | ) | (249 | ) | (2,054 | ) | (6,945 | ) | ||||||||||||||
31 March 2011 |
7,942 | 1,169 | 1,660 | 18,516 | 4,729 | 4,265 | 38,281 | |||||||||||||||||||||
Within one year |
3,406 | 93 | 2,572 | 1,634 | 3,983 | 510 | 12,198 | |||||||||||||||||||||
In one to two years |
858 | 56 | — | 3,008 | 145 | 510 | 4,577 | |||||||||||||||||||||
In two to three years |
847 | 56 | — | 1,712 | 156 | 510 | 3,281 | |||||||||||||||||||||
In three to four years |
1,852 | 56 | — | 2,671 | — | 510 | 5,089 | |||||||||||||||||||||
In four to five years |
138 | 56 | — | 2,152 | 31 | 1,977 | 4,354 | |||||||||||||||||||||
In more than five years |
598 | 1,370 | — | 6,009 | 68 | 9,983 | 18,028 | |||||||||||||||||||||
| 7,699 | 1,687 | 2,572 | 17,186 | 4,383 | 14,000 | 47,527 | ||||||||||||||||||||||
Effect of discount/financing rates |
(56 | ) | (445 | ) | (9 | ) | (3,337 | ) | (32 | ) | (3,853 | ) | (7,732 | ) | ||||||||||||||
31 March 2010 |
7,643 | 1,242 | 2,563 | 13,849 | 4,351 | 10,147 | 39,795 | |||||||||||||||||||||
The maturity profile of the Group’s financial derivatives (which include interest rate and foreign
exchange swaps), using undiscounted cash flows, is as follows:
| 2011 | 2010 | |||||||||||||||
| Payable | Receivable | Payable | Receivable | |||||||||||||
| £m | £m | £m | £m | |||||||||||||
Within one year |
14,840 | 15,051 | 13,067 | 13,154 | ||||||||||||
In one to two years |
631 | 829 | 929 | 938 | ||||||||||||
In two to three years |
724 | 882 | 1,083 | 974 | ||||||||||||
In three to four years |
667 | 770 | 1,040 | 932 | ||||||||||||
In four to five years |
619 | 690 | 868 | 816 | ||||||||||||
In more than five years |
3,715 | 4,592 | 7,607 | 5,912 | ||||||||||||
| 21,196 | 22,814 | 24,594 | 22,726 | |||||||||||||
The currency split of the Group’s foreign exchange derivatives, all of which mature in less than
one year, is as follows:
| 2011 | 2010 | |||||||||||||||
| Payable | Receivable | Payable | Receivable | |||||||||||||
| £m | £m | £m | £m | |||||||||||||
Sterling |
— | 10,198 | — | 8,257 | ||||||||||||
Euro |
11,422 | 2,832 | 8,650 | 3,177 | ||||||||||||
US dollar |
13 | 387 | 1,545 | 55 | ||||||||||||
Japanese yen |
2,164 | 23 | 548 | 21 | ||||||||||||
Other |
727 | 832 | 1,485 | 755 | ||||||||||||
| 14,326 | 14,272 | 12,228 | 12,265 | |||||||||||||
Payables and receivables are stated separately in the table above as settlement is on a gross
basis. The £54 million net payable (2010: £37 million net receivable) in relation to foreign
exchange financial instruments in the table above is split £153 million (2010: £95 million) within
trade and other payables and £99 million (2010: £132 million) within trade and other receivables.
The present value of minimum lease payments under finance lease arrangements under which the Group
has leased certain of its equipment is analysed as follows:
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Within one year |
14 | 21 | ||||||
In two to five years |
45 | 47 | ||||||
In more than five years |
6 | 7 | ||||||
Table of Contents
116 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
22. Borrowings continued
Interest rate and currency of borrowings
| Total | Floating rate | Fixed rate | Other | |||||||||||||
| borrowings | borrowings | borrowings(1) | borrowings(2) | |||||||||||||
| Currency | £m | £m | £m | £m | ||||||||||||
Sterling |
2,831 | 906 | 1,925 | — | ||||||||||||
Euro |
12,361 | 4,198 | 8,163 | — | ||||||||||||
US dollar |
16,030 | 9,488 | 3,352 | 3,190 | ||||||||||||
Japanese yen |
807 | 807 | — | — | ||||||||||||
Other |
6,252 | 2,920 | 3,332 | — | ||||||||||||
31 March 2011 |
38,281 | 18,319 | 16,772 | 3,190 | ||||||||||||
Sterling |
3,022 | 3,022 | — | — | ||||||||||||
Euro |
14,244 | 9,429 | 4,815 | — | ||||||||||||
US dollar |
15,195 | 7,329 | 4,461 | 3,405 | ||||||||||||
Japanese yen |
2,605 | 2,605 | — | — | ||||||||||||
Other |
4,729 | 4,105 | 624 | — | ||||||||||||
31 March 2010 |
39,795 | 26,490 | 9,900 | 3,405 | ||||||||||||
Notes:
| (1) | The weighted average interest rate for the Group’s sterling denominated fixed rate borrowings is 5.7% (2010: n/a). The weighted average time for which these rates are fixed is 5.4 years (2010: n/a). The weighted average interest rate for the Group’s euro denominated fixed rate borrowings is 4.3% (2010: 5.3%). The weighted average time for which the rates are fixed is 3.8 years (2010: 3.4 years). The weighted average interest rate for the Group’s US dollar denominated fixed rate borrowings is 5.4% (2010: 5.5%). The weighted average time for which the rates are fixed is 9.7 years (2010: 12.3 years). The weighted average interest rate for the Group’s other currency fixed rate borrowings is 9.2% (2010: 10.1%). The weighted average time for which the rates are fixed is 2.0 years (2010: 1.5 years). | |
| (2) | Other borrowings of £3,190 million (2010: £3,405 million) are the liabilities arising under options over direct and indirect interests in Vodafone Essar. |
The figures shown in the tables above take into account interest rate swaps used to manage the
interest rate profile of financial liabilities. Interest on floating rate borrowings is generally
based on national LIBOR equivalents or government bond rates in the relevant currencies.
At 31 March 2011 the Group had entered into foreign exchange contracts to decrease its sterling, US
dollar and other currency borrowings above by £10,198 million and amounts equal to £374 million and
£105 million respectively, and to increase its euro and Japanese yen currency borrowings above by
amounts equal to £8,590 million and £2,141 million respectively.
At 31 March 2010 the Group had entered into foreign exchange contracts to decrease its sterling
currency borrowings above by £8,257 million and to increase its euro, US dollar, Japanese yen and
other currency borrowings above by amounts equal to £5,473 million, £1,490 million, £527 million
and £730 million respectively.
Further protection from euro and US dollar interest rate movements is provided by interest rate
swaps. At 31 March 2011 the Group had euro denominated interest rate swaps covering the period
March 2011 to September 2015 for an amount equal to £883 million and US dollar denominated interest
swaps covering the period March 2011 to September 2015 for an amount equal to £641 million. The
average effective rate which has been fixed is 1.23% for euro denominated interest rate swaps and
1.73% in relation to US dollar denominated interest rate swaps.
The Group has entered into euro and US dollar denominated interest rate futures. The euro
denominated interest rate futures cover the periods September 2011 to December 2011, December 2011
to March 2012, March 2012 to June 2012 and June 2012 to September 2012 for amounts equal to £2,083
million, £833 million, £7,185 million and £6,811 million respectively. Additional cover is provided
for the period March 2013 to March 2014 and March 2015 to March 2016 for average amounts for each
period equal to £2,006 million and £2,331 million respectively. The US dollar denominated interest
rate futures cover the periods June 2011 to September 2011, June 2013 to September 2013 and
September 2013 to December 2013 for amounts equal to £3,601 million, £1,923 million and £833
million respectively. The average effective rate which has been fixed is 2.87% for euro denominated
interest rate futures and 1.33% for US dollar denominated interest rate futures.
The Group has entered into interest rate futures to alter the level of protection against interest
rate movements during some futures periods. During the period June 2016 to December 2016 euro
denominated interest rate swaps will reduce the level of fixed rate debt in the Group by an amount
equal to £833 million. US dollar denominated futures will reduce the level of fixed rate debt
during the period March 2016 to March 2019 for an amount equal to £321 million. US dollar
denominated interest rate futures will reduce the level of fixed rate debt during the periods
September 2012 to December 2012 and December 2013 to March 2014 for amounts equal to £4,487 million
and £1,282 million respectively.
At 31 March 2010 the Group had entered into euro and US dollar denominated interest rate futures.
The euro denominated interest rate futures cover the period June 2010 to September 2010, September
2010 to December 2010 and December 2010 to March 2011 for amounts equal to £7,888 million, £8,461
million and £4,067 million respectively. The average effective rate which has been fixed is 1.27%.
The US dollar denominated interest rate futures cover the period June 2010 to September 2010,
September 2010 to December 2010 and December 2010 to March 2011 for amounts equal to £3,197
million, £2,582 million, and £1,119 million respectively. The average effective rate which has been
fixed is 0.86%.
Borrowing facilities
At 31 March 2011 the Group’s most significant committed borrowing facilities comprised two bank
facilities which remained undrawn throughout the period of €4,150 million (£3,666 million) and
US$4,170 million (£2,596 million) both expiring between four and five years (2010: two bank
facilities of US$4,115 million (£2,709 million) and US$5,025 million (£3,308 million)), a US$650
million (£405 million) bank facility which expires in more than five years (2010: US$650 million
(£428 million)), a ¥259 billion (2010: ¥259 billion (£1,821 million)) term credit facility expired
during the period, two loan facilities of €400 million (£353 million) and €350 million (£309
million) both expiring between two and five years (2010: two loan facilities of €400 million (£356
million) and €350 million (£312 million) and a loan facility of €410 million (£362 million) which
expires in more than five years (2010: €410 million (£365 million)). The €400 million and €350
million loan facilities were fully drawn on 14 February 2007 and 12 August 2008 respectively and
the €410 million facility was drawn on 30 July 2010.
Under the terms and conditions of the €4,150 million and US$4,170 million bank facilities, lenders
have the right, but not the obligation, to cancel their commitment 30 days from the date of
notification of a change of control of the Company and have outstanding advances repaid on the last
day of the current interest period.
The facility agreements provide for certain structural changes that do not affect the obligations
of the Company to be specifically excluded from the definition of a change of control. This is in
addition to the rights of lenders to cancel their commitment if the Company has committed an event
of default.
The terms and conditions of the €400 million loan facility are similar to those of the US dollar
bank facilities, with the addition that, should the Group’s Turkish operating company spend less
than the equivalent of US$800 million on capital expenditure, the Group will be required to repay
the drawn amount of the facility that exceeds 50% of the capital expenditure.
The terms and conditions of the €350 million loan facility are similar to those of the US dollar
bank facilities, with the addition that, should the Group’s Italian operating company spend less
than the equivalent of €1,500 million on capital expenditure, the Group will be required to repay
the drawn amount of the facility that exceeds 18% of the capital expenditure.
The terms and conditions of the €410 million loan facility are similar to those of the US dollar
bank facilities, with the addition that, should the Group’s German fixed line operation, spend less
than the equivalent of €824 million on capital expenditure, the Group will be required to repay the
drawn amount of the facility that exceeds 50% of the capital expenditure.
Table of Contents
Vodafone Group Plc Annual Report 2011 117
Financials
In addition to the above, certain of the Group’s subsidiaries had committed facilities at 31
March 2011 of £7,152 million (2010: £5,759 million) in aggregate, of which £667 million (2010:
£1,647 million) was undrawn. Of the total committed facilities £2,137 million (2010: £1,139
million) expires in less than one year, £3,719 million (2010: £2,880 million) expires between two
and five years, and £1,296 million (2010: £1,740 million) expires in more than five years.
Redeemable preference shares
Redeemable preference shares comprise class D and E preferred shares issued by Vodafone Americas,
Inc. An annual dividend of US$51.43 per class D and E preferred share is payable quarterly in
arrears. The dividend for the year amounted to £58 million (2010: £56 million). The aggregate
redemption value of the class D and E preferred shares is US$1.65 billion. The holders of the
preferred shares are entitled to vote on the election of directors and upon each other matter
coming before any meeting of the shareholders on which the holders of ordinary shares are entitled
to vote. Holders are entitled to vote on the basis of twelve votes for each share of class D or E
preferred stock held. The maturity date of the 825,000 class D preferred shares is 6 April 2020.
The 825,000 class E preferred shares have a maturity date of 1 April 2020. The class D and E
preferred shares have a redemption price of US$1,000 per share plus all accrued and unpaid
dividends.
23. Post employment benefits
Background
At 31 March 2011 the Group operated a number of pension plans for the benefit of its employees
throughout the world, which vary depending on the conditions and practices in the countries
concerned. The Group’s pension plans are provided through both defined benefit and defined
contribution arrangements. Defined benefit schemes provide benefits based on the employees’ length
of pensionable service and their final pensionable salary or other criteria. Defined contribution
schemes offer employees individual funds that are converted into benefits at the time of
retirement.
The Group operates defined benefit schemes in Germany, Ghana, Greece, India, Ireland, Italy,
Turkey, the United Kingdom and the United States. Defined contribution pension schemes are
currently provided in Australia, Egypt, Greece, Hungary, Ireland, Italy, Kenya, Malta, the
Netherlands, New Zealand, Portugal, South Africa, Spain and the United Kingdom. The Group’s
principal defined benefit pension scheme in the United Kingdom was closed to new entrants from 1
January 2006 and closed to future accrual by current members on 31 March 2010.
Income statement expense
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Defined contribution schemes |
130 | 110 | 73 | |||||||||
Defined benefit schemes |
4 | 50 | 40 | |||||||||
Total amount charged to the income statement (note 31) |
134 | 160 | 113 | |||||||||
Defined benefit schemes
The principal actuarial assumptions used for estimating the Group’s benefit obligations are set
out below:
| 2011(1) | 2010(1) | 2009(1) | ||||||||||
| % | % | % | ||||||||||
Weighted average actuarial assumptions used at 31 March: |
||||||||||||
Rate of inflation |
3.1 | 3.5 | 2.6 | |||||||||
Rate of increase in salaries |
2.9 | 4.6 | 3.7 | |||||||||
Rate of increase in pensions in payment and deferred pensions |
3.1 | 3.5 | 2.6 | |||||||||
Discount rate |
5.6 | 5.7 | 6.3 | |||||||||
Expected rates of return: |
||||||||||||
Equities |
8.2 | 8.5 | 8.4 | |||||||||
Bonds(2) |
5.1 | 5.1 | 5.7 | |||||||||
Notes:
| (1) | Figures shown represent a weighted average assumption of the individual schemes. | |
| (2) | For the year ended 31 March 2011 the expected rate of return for bonds consisted of a 5.3% rate of return for corporate bonds (2010: 5.5%; 2009: 6.1%) and a 3.6% rate of return for government bonds (2010: 4.0%; 2009: 4.0%). |
The expected return on assets assumptions are derived by considering the expected long-term
rates of return on plan investments. The overall rate of return is a weighted average of the
expected returns of the individual investments made in the group plans. The long-term rates of
return on equities are derived from considering current risk free rates of return with the addition
of an appropriate future risk premium from an analysis of historic returns in various countries.
The long-term rates of return on bonds are set in line with market yields currently available at
the statement of financial position date.
Mortality assumptions used are consistent with those recommended by the individual scheme actuaries
and reflect the latest available tables, adjusted for the experience of the Group where
appropriate. The largest scheme in the Group is the UK scheme and the tables used for this scheme
indicate a further life expectancy for a male/female pensioner currently aged 65 of 23.5/24.3 years
(2010: 22.3/25.4 years, 2009: 22.0/24.8 years) and a further life expectancy from age 65 for a
male/female non-pensioner member currently aged 40 of 27.0/26.6 years (2010: 24.6/27.9 years, 2009:
23.2/26.0 years).
Measurement of the Group’s defined benefit retirement obligations are particularly sensitive to
changes in certain key assumptions including the discount rate. An increase or decrease in the
discount rate of 0.5% would result in a £156 million decrease or a £178 million increase in the
defined benefit obligation respectively.
Charges made to the consolidated income statement and consolidated statement of comprehensive
income (‘SOCI’) on the basis of the assumptions stated above are:
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Current service cost |
12 | 29 | 46 | |||||||||
Interest cost |
95 | 77 | 83 | |||||||||
Expected return on pension assets |
(103 | ) | (76 | ) | (92 | ) | ||||||
Curtailment/settlement |
— | 20 | 3 | |||||||||
Total included within staff costs |
4 | 50 | 40 | |||||||||
Actuarial
losses recognised in the SOCI |
(190 | ) | 149 | 220 | ||||||||
Cumulative actuarial losses recognised in the SOCI |
306 | 496 | 347 | |||||||||
Table of Contents
118 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
23. Post employment benefits continued
Fair value of the assets and present value of the liabilities of the schemes
The amount included in the statement of financial position arising from the Group’s obligations
in respect of its defined benefit schemes is as follows:
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Movement in pension assets: |
||||||||||||
1 April |
1,487 | 1,100 | 1,271 | |||||||||
Exchange rate movements |
(2 | ) | (10 | ) | 50 | |||||||
Expected return on pension assets |
103 | 76 | 92 | |||||||||
Actuarial (losses)/gains |
(6 | ) | 286 | (381 | ) | |||||||
Employer cash contributions |
24 | 133 | 98 | |||||||||
Member cash contributions |
5 | 12 | 15 | |||||||||
Benefits paid |
(51 | ) | (45 | ) | (45 | ) | ||||||
Other movements |
(2 | ) | (65 | ) | — | |||||||
31 March |
1,558 | 1,487 | 1,100 | |||||||||
Movement in pension liabilities: |
||||||||||||
1 April |
1,690 | 1,332 | 1,310 | |||||||||
Exchange rate movements |
(4 | ) | (15 | ) | 69 | |||||||
Arising on acquisition |
— | — | 33 | |||||||||
Current service cost |
12 | 29 | 46 | |||||||||
Interest cost |
95 | 77 | 83 | |||||||||
Member cash contributions |
5 | 12 | 15 | |||||||||
Actuarial (gains)/losses |
(196 | ) | 435 | (161 | ) | |||||||
Benefits paid |
(51 | ) | (79 | ) | (45 | ) | ||||||
Other movements |
(3 | ) | (101 | ) | (18 | ) | ||||||
31 March |
1,548 | 1,690 | 1,332 | |||||||||
An analysis of net assets/(deficits) is provided below for the Group’s principal defined benefit
pension scheme in the UK and for the Group as a whole.
| UK | Group | |||||||||||||||||||||||||||||||||||||||
| 2011 | 2010 | 2009 | 2008 | 2007 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||||||||||||||||
| £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | |||||||||||||||||||||||||||||||
Analysis of net assets/(deficits): |
||||||||||||||||||||||||||||||||||||||||
Total fair value of scheme assets |
1,180 | 1,131 | 755 | 934 | 954 | 1,558 | 1,487 | 1,100 | 1,271 | 1,251 | ||||||||||||||||||||||||||||||
Present value of funded scheme
liabilities |
(1,127 | ) | (1,276 | ) | (815 | ) | (902 | ) | (901 | ) | (1,488 | ) | (1,625 | ) | (1,196 | ) | (1,217 | ) | (1,194 | ) | ||||||||||||||||||||
Net
assets/(deficit) for funded schemes |
53 | (145 | ) | (60 | ) | 32 | 53 | 70 | (138 | ) | (96 | ) | 54 | 57 | ||||||||||||||||||||||||||
Present value of unfunded scheme
liabilities |
— | — | (8 | ) | — | — | (60 | ) | (65 | ) | (136 | ) | (93 | ) | (98 | ) | ||||||||||||||||||||||||
Net assets/(deficit) |
53 | (145 | ) | (68 | ) | 32 | 53 | 10 | (203 | ) | (232 | ) | (39 | ) | (41 | ) | ||||||||||||||||||||||||
Net
assets/(deficit) are analysed as: |
||||||||||||||||||||||||||||||||||||||||
Assets |
53 | — | — | 32 | 53 | 97 | 34 | 8 | 65 | 82 | ||||||||||||||||||||||||||||||
Liabilities |
— | (145 | ) | (68 | ) | — | — | (87 | ) | (237 | ) | (240 | ) | (104 | ) | (123 | ) | |||||||||||||||||||||||
It is expected that contributions of £28 million will be paid into the Group’s defined benefit
retirement schemes during the year ending 31 March 2012. The assets of the scheme are held in an
external trustee administered fund.
Actual return on pension assets
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Actual return on pension assets |
97 | 362 | (289 | ) | ||||||||
Analysis of pension assets at 31 March is as follows: |
% | % | % | |||||||||
Equities |
61.6 | 59.6 | 55.6 | |||||||||
Bonds |
36.5 | 37.5 | 41.9 | |||||||||
Property |
0.3 | 0.3 | 0.4 | |||||||||
Other |
1.6 | 2.6 | 2.1 | |||||||||
| 100.0 | 100.0 | 100.0 | ||||||||||
The schemes have no direct investments in the Group’s equity securities or in property currently
used by the Group.
Table of Contents
Vodafone Group Plc Annual Report 2011 119
Financials
History of experience adjustments
| 2011 | 2010 | 2009 | 2008 | 2007 | ||||||||||||||||
| £m | £m | £m | £m | £m | ||||||||||||||||
Experience adjustments on pension liabilities: |
||||||||||||||||||||
Amount |
23 | 8 | 6 | (5 | ) | (2 | ) | |||||||||||||
Percentage of pension liabilities |
1 | % | — | — | — | — | ||||||||||||||
Experience adjustments on pension assets: |
||||||||||||||||||||
Amount |
(6 | ) | 286 | (381 | ) | (176 | ) | 26 | ||||||||||||
Percentage of pension assets |
— | 19 | % | (35 | %) | (14 | %) | 2 | % | |||||||||||
24. Provisions
| Asset | ||||||||||||
| retirement | Other | |||||||||||
| obligations | provisions | Total | ||||||||||
| £m | £m | £m | ||||||||||
1 April 2009 |
361 | 545 | 906 | |||||||||
Exchange movements |
(7 | ) | (6 | ) | (13 | ) | ||||||
Arising on acquisition |
— | 20 | 20 | |||||||||
Amounts capitalised in the year |
40 | — | 40 | |||||||||
Amounts charged to the income statement |
— | 259 | 259 | |||||||||
Utilised in the year — payments |
(3 | ) | (157 | ) | (160 | ) | ||||||
Amounts released to the income statement |
— | (37 | ) | (37 | ) | |||||||
Other |
(21 | ) | — | (21 | ) | |||||||
31 March 2010 |
370 | 624 | 994 | |||||||||
Exchange movements |
(4 | ) | (12 | ) | (16 | ) | ||||||
Amounts capitalised in the year |
4 | — | 4 | |||||||||
Amounts charged to the income statement |
— | 300 | 300 | |||||||||
Utilised in the year — payments |
(8 | ) | (193 | ) | (201 | ) | ||||||
Amounts released to the income statement |
— | (59 | ) | (59 | ) | |||||||
Other |
(47 | ) | 66 | 19 | ||||||||
31 March 2011 |
315 | 726 | 1,041 | |||||||||
Provisions have been analysed between current and non-current as follows:
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Current liabilities |
559 | 497 | ||||||
Non-current liabilities |
482 | 497 | ||||||
| 1,041 | 994 | |||||||
Asset retirement obligations
In the course of the Group’s activities, a number of sites and other assets are utilised which
are expected to have costs associated with exiting and ceasing their use. The associated cash
outflows are generally expected to occur at the dates of exit of the assets to which they relate,
which are long-term in nature.
Other provisions
Included within other provisions are provisions for legal and regulatory disputes and amounts
provided for property and restructuring costs. The Group is involved in a number of legal and other
disputes, including notification of possible claims. The directors of the Company, after taking
legal advice, have established provisions after taking into account the facts of each case. The
timing of cash outflows associated with legal claims cannot be reasonably determined. For a
discussion of certain legal issues potentially affecting the Group, refer to note 28. The
associated cash outflows for restructuring costs are substantially short-term in nature. The timing
of the cash flows associated with property is dependent upon the remaining term of the associated
lease.
Table of Contents
120 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
25. Trade and other payables
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Included within non-current liabilities: |
||||||||
Other payables |
80 | 76 | ||||||
Accruals and deferred income |
329 | 379 | ||||||
Derivative financial instruments |
395 | 361 | ||||||
| 804 | 816 | |||||||
Included within current liabilities: |
||||||||
Trade payables |
4,453 | 3,254 | ||||||
Amounts owed to associates |
23 | 17 | ||||||
Other taxes and social security payable |
1,140 | 998 | ||||||
Other payables |
520 | 650 | ||||||
Accruals and deferred income |
8,409 | 9,064 | ||||||
Derivative financial instruments |
153 | 99 | ||||||
| 14,698 | 14,082 | |||||||
The carrying amounts of trade and other payables approximate their fair value. The fair values of
the derivative financial instruments are calculated by discounting the future cash flows to net
present values using appropriate market interest and foreign currency rates prevailing at 31 March.
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Included within “Derivative financial instruments”: |
||||||||
Fair value through the income statement (held for trading): |
||||||||
Interest rate swaps |
342 | 330 | ||||||
Foreign exchange swaps |
153 | 95 | ||||||
| 495 | 425 | |||||||
Fair value hedges: |
||||||||
Interest rate swaps |
53 | 35 | ||||||
| 548 | 460 | |||||||
26. Reconciliation of net cash flow from operating activities
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Profit for the financial year |
7,870 | 8,618 | 3,080 | |||||||||
Adjustments for: |
||||||||||||
Share-based payments |
156 | 150 | 128 | |||||||||
Depreciation and amortisation |
7,876 | 7,910 | 6,814 | |||||||||
Loss on disposal of property, plant and equipment |
91 | 101 | 10 | |||||||||
Share of result in associates |
(5,059 | ) | (4,742 | ) | (4,091 | ) | ||||||
Impairment losses |
6,150 | 2,100 | 5,900 | |||||||||
Other income and expense |
16 | (114 | ) | — | ||||||||
Non-operating income and expense |
(3,022 | ) | 10 | 44 | ||||||||
Investment income |
(1,309 | ) | (716 | ) | (795 | ) | ||||||
Financing costs |
429 | 1,512 | 2,419 | |||||||||
Income tax expense |
1,628 | 56 | 1,109 | |||||||||
(Increase)/decrease in inventory |
(107 | ) | 2 | 81 | ||||||||
(Increase)/decrease in trade and other receivables |
(387 | ) | (714 | ) | 80 | |||||||
Increase/(decrease) in trade and other payables |
1,060 | 1,164 | (145 | ) | ||||||||
Cash generated by operations |
15,392 | 15,337 | 14,634 | |||||||||
Tax paid |
(3,397 | ) | (2,273 | ) | (2,421 | ) | ||||||
Net cash flow from operating activities |
11,995 | 13,064 | 12,213 | |||||||||
Table of Contents
Vodafone Group Plc Annual Report 2011 121
Financials
27. Commitments
Operating lease commitments
The Group has entered into commercial leases on certain properties, network infrastructure,
motor vehicles and items of equipment. The leases have various terms, escalation clauses, purchase
options and renewal rights, none of which are individually significant to the Group.
Future minimum lease payments under non-cancellable operating leases comprise:
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Within one year |
1,225 | 1,200 | ||||||
In more than one year but less than two years |
958 | 906 | ||||||
In more than two years but less than three years |
746 | 776 | ||||||
In more than three years but less than four years |
638 | 614 | ||||||
In more than four years but less than five years |
602 | 512 | ||||||
In more than five years |
2,344 | 2,235 | ||||||
| 6,513 | 6,243 | |||||||
The total of future minimum sublease payments expected to be received under non-cancellable
subleases is £240 million (2010: £246 million).
Capital commitments
| Company and subsidiaries | Share of joint ventures | Group | ||||||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
| £m | £m | £m | £m | £m | £m | |||||||||||||||||||
Contracts placed for
future capital expenditure
not provided in the
financial
statements(1) |
1,786 | 1,800 | 338 | 219 | 2,124 | 2,019 | ||||||||||||||||||
Note:
| (1) | Commitment includes contracts placed for property, plant and equipment and intangible assets. |
The commitments of Cellco Partnership (‘Cellco’), which trades under the name of Verizon
Wireless, are disclosed within the consolidated financial statements of Cellco for the year ended
31 December 2010, which are included as an exhibit to our 2011 annual report on Form 20-F filed
with the SEC.
28. Contingent liabilities
| 2011 | 2010 | |||||||
| £m | £m | |||||||
Performance bonds |
94 | 246 | ||||||
Credit guarantees — third party indebtedness |
114 | 76 | ||||||
Other guarantees and contingent liabilities |
1,527 | 496 | ||||||
Performance bonds
Performance bonds require the Group to make payments to third parties in the event that the
Group does not perform what is expected of it under the terms of any related contracts or
commercial arrangements.
Credit guarantees — third party indebtedness
Credit guarantees comprise guarantees and indemnities of bank or other facilities including
those in respect of the Group’s associates and investments.
Other guarantees and contingent liabilities
Other guarantees principally comprise commitments to the India Supreme Court of INR 85 billion
(£1,188 million) in relation to the taxation matter discussed on page 122. The Group has pledged
money market funds (£1,387 million) for this guarantee.
The Group also enters into lease arrangements in the normal course of business which are
principally in respect of land, buildings and equipment. Further details on the minimum lease
payments due under non-cancellable operating lease arrangements can be found in note 27.
The Company has covenanted to provide security in favour of the Trustee of the Vodafone Group UK
Pension Scheme whilst there is a funding deficit in the scheme. The initial security was in the
form of a Japanese law share pledge over 400,000 class 1 preferred shares of ¥200,000 in BB Mobile
Corp. During the year, the Company and trustee agreed to replace the initial security with a charge
over UK index linked gilts (‘ILG’) held by the Company. A charge in favour of the Trustee was
agreed over ILG 2016 with a notional value of £100 million and ILG 2013 with a notional value of
£48.9 million. The security may be replaced either on a voluntary or mandatory basis. As and when
alternative security is provided, the Company has agreed that the security cover should include
additional headroom of 33%, although if cash is used as the security asset the ratio will revert to
100% of the relevant liabilities or where the proposed replacement security asset is listed on an
internationally recognised stock exchange in certain defined core jurisdictions, the trustee may
decide to agree a lower ratio than 133%.
Table of Contents
122 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
28. Contingent liabilities continued
Legal proceedings
The Company and its subsidiaries are currently, and may be from time to time, involved in a
number of legal proceedings, including inquiries from, or discussions with, governmental
authorities that are incidental to their operations. However, save as disclosed below, the Company
and its subsidiaries are not currently involved in any legal or arbitration proceedings (including
any governmental proceedings which are pending or known to be contemplated) which may have, or have
had in the 12 months preceding the date of the approval of this report, a significant effect on the financial
position or profitability of the Company and its subsidiaries. With the exception of the Vodafone 2
enquiry, due to inherent uncertainties, no accurate quantification of any cost, or timing of such
cost, which may arise from any of the legal proceedings outlined below can be made.
The Company was one of a number of co-defendants in four actions filed in 2001 and 2002 in the
Superior Court of the District of Columbia in the United States alleging personal injury, including
brain cancer, from mobile phone use. The Company is not aware that the health risks alleged in such
personal injury claims have been substantiated and vigorously defends such claims. In August 2007
the trial court dismissed all four actions against the Company on the basis of the federal
pre-emption doctrine. On 29 October 2009 the District of Columbia Court of Appeals ruled on the
plaintiffs’ appeal of the trial court’s dismissal of all claims in the action on the basis of the
federal pre-emption doctrine. The Court of Appeals has upheld the dismissal of most claims.
However, the decision permits the plaintiffs to continue any claims alleging i) injuries in respect
of mobile phones purchased before 1 August 1996 (the date of the Federal Communication Commission’s
Specific Absorption Rate standard (‘FCC standard’)); ii) injuries in respect of mobile phones
alleged not to have complied with the FCC standard; and iii) fraud and misrepresentation in respect
of the sale or marketing of mobile phones in question. The cases were returned to the trial court
to be adjudicated in accordance with the Court of Appeals’ decision and on 3 May 2010 plaintiffs in
the four actions filed amended complaints with the Superior Court.
The defendants filed a motion to
dismiss the amended complaints on 30 July 2010. The plaintiffs in these four actions have agreed to
dismiss the Company from the actions on jurisdiction grounds. However, the plaintiffs have reserved
the right to re-commence the actions against the Company if evidence supporting an assertion of
jurisdiction were to emerge. On 30 September 2010 the plaintiffs filed a stipulation for the
voluntary dismissal of the Company and the order granting the stipulation dismissing the Company
without prejudice was entered on the court record on 5 October 2010.
On 22 July 2010 the Company settled the Vodafone 2 CFC case with HMRC by agreeing to pay £1.25
billion (comprising £800 million in the 2011 financial year, with the balance to be paid in
instalments over the following five years) in respect of all outstanding CFC issues from 2001 to
date. It was also agreed that no further UK CFC tax liabilities will arise in the near future under
current legislation. Longer term, no CFC liabilities are expected to arise as a consequence of the
likely reforms of the CFC regime due to the facts established in this agreement.
Vodafone Essar Limited (‘VEL’) and Vodafone International Holdings B.V. (‘VIHBV’) each received
notices in August 2007 and September 2007 respectively, from the Indian tax authority alleging
potential liability in connection with alleged failure by VIHBV to deduct withholding tax from
consideration paid to the Hutchison Telecommunications International Limited group (‘HTIL’) in
respect of HTIL’s gain on its disposal to VIHBV of its interests in a wholly-owned subsidiary that
indirectly holds interests in VEL. Following the receipt of such notices, VEL and VIHBV each filed
writs seeking orders that their respective notices be quashed and that the tax authority take no
further steps under the notices. Initial hearings were held before the Bombay High Court and in the
case of VIHBV the High Court admitted the writ for final hearing in June 2008. In December 2008 the
High Court dismissed VIHBV’s writ. VIHBV subsequently filed a special leave petition to the Supreme
Court to appeal the High Court’s dismissal of the writ. On 23 January 2009 the Supreme Court
referred the question of the tax authority’s jurisdiction to seek to pursue tax back to the tax
authority for
adjudication on the facts with permission granted to VIHBV to appeal that decision back to the High
Court should VIHBV disagree with the tax authority’s findings. On 30 October 2009 VIHBV received a
notice from the tax authority requiring VIHBV to show cause as to why it believed that the tax
authority did not have competent jurisdiction to proceed against VIHBV for the default of
non-deduction of withholding tax from consideration paid to HTIL. VIHBV provided a response on 29
January 2010. On 31 May 2010 VIHBV received an order from the Indian tax authority confirming their
view that they did have jurisdiction to proceed against VIHBV as well as a further notice alleging
that VIHBV should be treated as the agent of HTIL for the purpose of recovering tax on the
transaction. VIHBV appealed this ruling to the Bombay High Court. On 8 September 2010 the Bombay
High Court ruled that the tax authority had jurisdiction to decide whether the transaction or some
part of the transaction could be taxable in India. VIHBV appealed this decision to the Supreme
Court on 14 September 2010. A hearing before the Supreme Court took place on 27 September 2010 at
which the Supreme Court noted the appeal and asked the tax authority to quantify any liability. On
22 October 2010 the Indian tax authority quantified the alleged tax liability and issued a demand
for payment of INR 112.2 billion (£1.6 billion) of tax and interest. VIHBV has contested the amount
of such demand both on the basis of the calculation and on the basis that no tax was due in any
event. On 15 November 2010 VIHBV was asked to make a deposit with the Supreme Court of INR 25
billion (£356 million) and provide a guarantee for INR 85 billion (£1,188 million) pending final
adjudication of the case, which request it duly complied with. The Supreme Court will now hear the
appeal on the issue of jurisdiction as well as on the challenge to quantification on 19 July 2011.
On 23 March 2011 VIHBV received a notice requesting it to explain why it should not be liable for
penalties of up to 100% of any tax found due for alleged failure to withhold. On 15 April 2011 the
Supreme Court, in response to an application made by VIHBV, allowed the Indian tax authority to
continue its investigations into the application of penalties but stayed the Indian tax authorities
from enforcing any liability until after the outcome of the Supreme Court hearing scheduled for 19
July 2011. After investigations, on 29 April 2011, the Indian tax authority raised an order
alleging penalties were due but noting that these will not be enforced in line with the Supreme
Court stay. In addition, the separate proceedings taken against VIHBV to seek to treat it as an
agent of HTIL in respect of its alleged tax on the same transaction have been deferred until the
outcome in the first matter is known. VEL’s case also continues to be stayed pending the outcome of
the VIHBV Supreme Court hearing. VIHBV believes that neither it nor any other member of the Group
is liable for such withholding tax, or is liable to be made an agent of HTIL; however, the outcome
of the proceedings remains uncertain and such proceedings may or may not dispose of the matter in
its entirety and there can be no assurance that any outcome will be favourable to VIHBV or the
Group.
In light of the uncertainty created by the Indian tax authority’s actions as set out above, VIHBV,
through its indirect wholly owned subsidiary Euro Pacific Securities Ltd, has sought confirmation
from the Authority for Advanced Rulings (‘AAR’) in India on whether tax should be withheld in
respect of consideration payable on the acquisition of Essar Group’s (‘Essar’) offshore holding in
VEL. A ruling from the AAR is expected by the end of May 2011 at the latest. The Group
does not believe that there is any legal requirement to withhold tax in respect of these
transactions but if, contrary to expectations, the AAR directs tax to be withheld, this amount is
anticipated to be approximately an additional US$1 billion.
Table of Contents
Vodafone Group Plc Annual Report 2011 123
Financials
29. Directors and key management compensation
Directors
Aggregate emoluments of the directors of the Company were as follows:
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Salaries and fees |
5 | 5 | 4 | |||||||||
Incentive schemes |
3 | 3 | 2 | |||||||||
Other benefits(1) |
1 | 1 | 1 | (2) | ||||||||
| 9 | 9 | 7 | ||||||||||
Notes:
| (1) | Includes the value of the cash allowance taken by some individuals in lieu of pension contributions. | |
| (2) | Includes the value of payments in respect of loss of office and relocation to the US. |
The aggregate gross pre-tax gain made on the exercise of share options in the year ended 31
March 2011 by directors who served during the year was £nil (2010: £1 million, 2009: £nil).
Further details of directors’ emoluments can be found in “Directors’ remuneration” on pages 62 to
73.
Key management compensation
Aggregate compensation for key management, being the directors and members of the Executive
Committee, was as follows:
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Short-term employee benefits |
18 | 21 | 17 | |||||||||
Post-employment benefits — defined contribution schemes |
1 | 1 | 1 | |||||||||
Share-based payments |
22 | 20 | 14 | |||||||||
| 41 | 42 | 32 | ||||||||||
30. Related party transactions
The Group’s related parties are its joint ventures (see note 13), associates (see note 14),
pension schemes, directors and Executive Committee members. Group contributions to pension schemes
are disclosed in note 23. Compensation paid to the Company’s Board and members of the Executive
Committee is disclosed in note 29.
Transactions with joint ventures and associates
Related party transactions with the Group’s joint ventures and associates primarily comprise
fees for the use of products and services including network airtime and access charges, and cash
pooling arrangements.
No related party transactions have been entered into during the year which might reasonably affect
any decisions made by the users of these consolidated financial statements except as disclosed
below. Transactions between the Company and its joint ventures are not material to the extent that
they have not been eliminated through proportionate consolidation or disclosed below.
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Sales of goods and services to associates |
327 | 281 | 205 | |||||||||
Purchase of goods and services from associates |
171 | 159 | 223 | |||||||||
Purchase of goods and services from joint ventures |
206 | 194 | 57 | |||||||||
Net interest receivable from joint ventures(1) |
(14 | ) | (44 | ) | (18 | ) | ||||||
Trade balances owed: |
||||||||||||
by associates |
52 | 24 | 50 | |||||||||
to associates |
23 | 17 | 18 | |||||||||
by joint ventures |
27 | 27 | 10 | |||||||||
to joint ventures |
67 | 40 | 33 | |||||||||
Other balances owed by joint ventures(1) |
176 | 751 | 311 | |||||||||
Note:
| (1) | Amounts arise primarily through Vodafone Italy, Vodafone Hutchison Australia and Indus Towers and represent amounts not eliminated on consolidation. Interest is paid in line with market rates. |
Amounts owed by and owed to associates are disclosed within notes 17 and 25. Dividends received
from associates are disclosed in the consolidated statement of cash flows.
Table of Contents
124 Vodafone Group Plc Annual Report 2011
Notes to the consolidated financial statements continued
30. Related party transactions continued
Transactions with directors other than compensation
During the three years ended 31 March 2011, and as of 16 May 2011, neither any director nor any
other executive officer, nor any associate of any director or any other executive officer, was
indebted to the Company.
During the three years ended 31 March 2011, and as of 16 May 2011, the Company has not been a party
to any other material transaction, or proposed transactions, in which any member of the key
management personnel (including directors, any other executive officer, senior manager, any spouse
or relative of any of the foregoing or any relative of such spouse) had or was to have a direct or
indirect material interest.
31. Employees
The average employee headcount during the year by nature of activity and by segment is shown
below. During the year the Group changed its organisation structure. The information on employees
by segment are presented on the revised basis, with prior years amended to conform to the current
year presentation.
| 2011 | 2010 | 2009 | ||||||||||
| Employees | Employees | Employees | ||||||||||
By activity: |
||||||||||||
Operations |
14,171 | 14,099 | 13,889 | |||||||||
Selling and distribution |
28,311 | 27,398 | 25,174 | |||||||||
Customer care and administration |
41,380 | 43,493 | 40,034 | |||||||||
| 83,862 | 84,990 | 79,097 | ||||||||||
By segment: |
||||||||||||
Germany |
12,594 | 13,507 | 13,788 | |||||||||
Italy |
6,121 | 6,207 | 6,247 | |||||||||
Spain |
4,389 | 4,326 | 4,354 | |||||||||
UK |
8,174 | 9,766 | 10,350 | |||||||||
Other Europe |
18,953 | 18,582 | 19,015 | |||||||||
Europe |
50,231 | 52,388 | 53,754 | |||||||||
India |
10,743 | 10,132 | 8,674 | |||||||||
Vodacom |
7,320 | 6,833 | 3,246 | |||||||||
Other Africa, Middle East and Asia Pacific |
10,896 | 10,887 | 9,525 | |||||||||
Africa, Middle East and Asia Pacific |
28,959 | 27,852 | 21,445 | |||||||||
Non-Controlled Interests and Common Functions |
4,672 | 4,750 | 3,898 | |||||||||
Total |
83,862 | 84,990 | 79,097 | |||||||||
The cost incurred in respect of these employees (including directors) was:
| 2011 | 2010 | 2009 | ||||||||||
| £m | £m | £m | ||||||||||
Wages and salaries |
2,960 | 3,045 | 2,607 | |||||||||
Social security costs |
392 | 415 | 379 | |||||||||
Share-based payments (note 20) |
156 | 150 | 128 | |||||||||
Other pension costs (note 23) |
134 | 160 | 113 | |||||||||
| 3,642 | 3,770 | 3,227 | ||||||||||
32. Subsequent events
SFR
On 3 April 2011 the Group announced an agreement to sell its entire 44% shareholding in SFR to
Vivendi for cash consideration of €7.75 billion (£6.8 billion). The Group will also receive a final
dividend from SFR of €200 million (£176 million) on completion of the transaction.
Subject to customary competition authority and regulatory approvals, the transaction is expected to
complete during the second calendar quarter of 2011.
At 31 March 2011 the SFR investment had a carrying value of £4.2 billion and was reported within
the Non-Controlled Investments and Common Functions segment.
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132 Vodafone Group Plc Annual Report 2011
Shareholder information
Financial
calendar for the 2012 financial year
Interim management statement
|
22 July 2011 | |||
Half-year financial results announcement
|
8 November 2011 | |||
Further details will be published at www.vodafone.com/investor as they become available.
Results announcements are available online at www.vodafone.com/investor — we do not
publish them in the press.
Dividends
Full details on the dividend amount per share can be found on page 47. Set out below is
information relevant to the final dividend for the year ended 31 March 2011.
Ex-dividend date
|
1 June 2011 | |||
Record date
|
3 June 2011 | |||
Dividend reinvestment plan last election date
|
15 July 2011 | |||
Dividend payment date(1)
|
5 August 2011 | |||
Note:
| (1) | Payment date for both ordinary shares and american depositary shares (‘ADSs’). |
Dividend payment methods
Currently holders of ordinary shares and ADSs can:
| • | have cash dividends paid direct to a bank or building society account; or | |
| • | elect to use the cash dividends to purchase more Vodafone ordinary shares under the dividend reinvestment plan (see below) or, in the case of ADSs, have the dividends reinvested to purchase additional Vodafone ADSs. |
ADS holders can, in addition to the above, have their cash dividends paid in the form of a cheque.
Holders of ordinary shares:
| • | resident in the UK automatically receive their dividends in pounds sterling provided that UK bank details have been provided to the Company; | |
| • | resident in the eurozone (defined for this purpose as a country that has adopted the euro as its national currency) automatically receive their dividends in euros provided that euro bank details have been provided to the Company; and |
| • | resident outside the UK and eurozone automatically receive dividends in pounds sterling by lodging UK bank account details but may elect to receive dividends in local currency into their bank account directly via our registrars’ global payments service. Visit www.investorcentre.co.uk for details, and terms and conditions. |
For dividend payments in euros, the sterling/euro exchange rate will be determined by us in
accordance with the Company’s articles of association, up to 13 business days prior to the payment
date.
We will pay the ADS depositary, BNY Mellon, its dividend in US dollars. The sterling/US dollar
exchange rate for this purpose will be determined by us up to ten New York and London business days
prior to the payment date. Cash dividends to ADS holders will be paid by the ADS depositary in US
dollars.
Further information about the dividend payments can be found at www. vodafone.com/dividends or,
alternatively, please contact our registrars or the ADS depositary, as applicable, for further
details.
Dividend reinvestment
We offer a dividend reinvestment plan which allows holders of ordinary shares, who choose to
participate, to use their cash dividends to acquire additional shares in the Company. These are
purchased on their behalf by the plan administrator through a low cost dealing arrangement.
For ADS holders BNY Mellon maintains a Global Buy DIRECT Plan which is a direct purchase and sale
plan for depositary receipts with a dividend reinvestment facility.
Telephone share dealing
A telephone share dealing service operated by our registrars is available for holders of
ordinary shares. The service is available from 8.00 am to 4.30 pm, Monday to Friday, excluding bank
holidays, on telephone number +44 (0)870 703 0084. Detailed terms and conditions are available on
request by calling the above number.
Registrars
and transfer office
If private shareholders have any enquiries about their holding of ordinary shares, such as a
change of address, change of ownership or dividend payments, they should contact our registrars
at the address or telephone number below. Computershare Investor Services PLC maintain the
Company’s share register and holders of ordinary shares can visit the registrars’ investor
centre at www.investorcentre.co.uk to view and update details of their shareholding.
ADS holders should address any queries or instructions regarding their holdings to the
depositary bank for the Company’s ADR programme at the address or telephone number below. At
www.bnymellon.com/shareowner ADS holders can view their account information, make
changes and conduct many other transactions.
The Registrars
|
Holders of ordinary shares resident in Ireland: | |
Computershare Investor Services PLC
|
Computershare Investor Services (Ireland) Limited | |
The Pavilions
|
PO Box 9742 | |
Bridgwater Road, Bristol BS99 6ZZ, England
|
Dublin 18, Ireland | |
Telephone: +44 (0)870 702 0198
|
Telephone: +353 (0)818 300 999 | |
www.investorcentre.co.uk/contactus
|
www.investorcentre.co.uk/contactus |
ADS depositary
BNY Mellon
BNY Mellon Shareowner Services
PO Box 358516
Pittsburgh, PA 15252-8516, US
Telephone: +1 800 233 5601 (toll free) or, for calls outside the US,
+1 201 680 6837 (not toll free) and enter company number 2160
Email: shrrelations@bnymellon.com
BNY Mellon
BNY Mellon Shareowner Services
PO Box 358516
Pittsburgh, PA 15252-8516, US
Telephone: +1 800 233 5601 (toll free) or, for calls outside the US,
+1 201 680 6837 (not toll free) and enter company number 2160
Email: shrrelations@bnymellon.com
Table of Contents
Vodafone Group Plc Annual Report 2011 133
Additional information
Internet share dealing
An internet share dealing service is available for holders of ordinary shares who want to buy
or sell ordinary shares. Further information about this service can be obtained from our registrars
on +44 (0)870 702 0198 or by logging onto www.computershare.com/dealing/uk.
Online shareholder services
We provide a number of shareholder services online at www.vodafone.com/
investor where shareholders may:
| • | register to receive electronic shareholder communications. Benefits to shareholders include faster receipt of communications, such as annual reports, with cost and time savings for the Company. Electronic shareholder communications are also more environmentally friendly; | |
| • | update registered address or dividend bank mandate instructions; | |
| • | view and/or download the 2011 annual report; | |
| • | check the current share price; | |
| • | calculate dividend payments; and | |
| • | use interactive tools to calculate the value of shareholdings, look up the historic price on a particular date and chart Vodafone ordinary share price changes against indices. |
Shareholders and other interested parties can also receive company press releases, including London
Stock Exchange announcements, by registering for Vodafone news via the website at
www.vodafone.com/media. Registering for Vodafone news will enable users to:
| • | access the latest news from their mobile; and | |
| • | have news automatically emailed to them. |
Annual general meeting (‘AGM’)
The twenty-seventh AGM of the Company will be held at The Queen Elizabeth II Conference Centre,
Broad Sanctuary, Westminster, London SW1P 3EE on 26 July 2011 at 11.00 a.m.
A combined review of the year and notice of AGM, including details of the business to be conducted
at the AGM, will be circulated to shareholders or can be viewed on our website at
www.vodafone.com/agm. Shareholders who have registered to receive communications
electronically will receive an email notification when the document is available to view on the
website.
The AGM will be transmitted via a live webcast which can be viewed on the website at
www.vodafone.com/agm on the day of the meeting and a recording will be available to view
after that date.
ShareGift
We support ShareGift, the charity share donation scheme (registered charity number 1052686).
Through ShareGift shareholders who have only a very small number of shares, which might be
considered uneconomic to sell, are able to donate them to charity. Donated shares are aggregated
and sold by ShareGift, the proceeds being passed on to a wide range of UK charities. Donating
shares to charity gives rise neither to a gain nor a loss for UK capital gains tax purposes and UK
taxpayers may also be able to claim income tax relief on the value of the donation.
ShareGift transfer forms specifically for our shareholders are available from our registrars,
Computershare Investor Services PLC, and even if the share certificate has been lost or destroyed,
the gift can be completed. The service is generally free. However, there may be an indemnity charge
for a lost or destroyed share certificate where the value of the shares exceeds £100. Further
details about ShareGift can be obtained from its website at www.ShareGift.org or at 17
Carlton House Terrace, London SW1Y 5AH (telephone: +44 (0)207 930 3737).
Asset Checker Limited
We participate in Asset Checker, the online service which provides a search facility for
solicitors and probate professionals to quickly and easily trace UK shareholdings relating to
deceased estates. For further information visit www.assetchecker.co.uk or call +44 (0)870
707 4004.
Share price history
Upon flotation of the Company on 11 October 1988 the ordinary shares were valued at 170 pence
each. When the Company was finally demerged on 16 September 1991 the base cost of Racal
Electronics Plc shares for UK taxpayers was apportioned between the Company and Racal Electronics
Plc for Capital Gains Tax purposes in the ratio of 80.036% and 19.964% respectively. Opening share
prices on 16 September 1991 were 332 pence for each Vodafone share and 223 pence for each Racal
share.
On 21 July 1994 the Company effected a bonus issue of two new shares for every one then held and
on 30 September 1999 it effected a bonus issue of four new shares for every one held at that date.
The flotation and demerger share prices therefore may be restated as 11.333 pence and 22.133 pence
respectively.
On 31 July 2006 the Group returned approximately £9 billion to shareholders in the form of a B
share arrangement. As part of this arrangement, and in order to facilitate historical share price
comparisons, the Group’s share capital was consolidated on the basis of seven new ordinary shares
for every eight ordinary shares held at this date. Share prices in the five year data table below
have not been restated to reflect this consolidation.
The closing share price at 31 March 2011 was 176.5 pence (31 March 2010: 152.0 pence). The closing
share price on 16 May 2011 was 168.3 pence.
The following tables set out, for the periods indicated, i) the reported high and low middle
market quotations of ordinary shares on the London Stock Exchange, and ii) the reported high and
low sales prices of ADSs on the New York Stock Exchange (‘NYSE’)/NASDAQ. The Company transferred
its ADSs from the NYSE to NASDAQ on 29 October 2009.
| London Stock | ||||||||||||||||
| Exchange | ||||||||||||||||
| Pounds per | NYSE/NASDAQ(1) | |||||||||||||||
| ordinary share | Dollars per ADS | |||||||||||||||
| Year ended 31 March | High | Low | High | Low | ||||||||||||
2007 |
1.54 | 1.08 | 29.85 | 20.07 | ||||||||||||
2008 |
1.98 | 1.36 | 40.87 | 26.88 | ||||||||||||
2009 |
1.70 | 0.96 | 32.87 | 15.30 | ||||||||||||
2010 |
1.54 | 1.11 | 24.04 | 17.68 | ||||||||||||
2011 |
1.85 | 1.27 | 32.70 | 18.21 | ||||||||||||
| London Stock | ||||||||||||||||
| Exchange | ||||||||||||||||
| Pounds per | NYSE/NASDAQ(1) | |||||||||||||||
| ordinary share | Dollars per ADS | |||||||||||||||
| Quarter | High | Low | High | Low | ||||||||||||
2009/2010 |
||||||||||||||||
First quarter |
1.33 | 1.11 | 20.08 | 17.68 | ||||||||||||
Second quarter |
1.44 | 1.12 | 23.85 | 18.25 | ||||||||||||
Third quarter |
1.45 | 1.32 | 24.04 | 21.10 | ||||||||||||
Fourth quarter |
1.54 | 1.32 | 23.32 | 21.32 | ||||||||||||
2010/2011 |
||||||||||||||||
First quarter |
1.53 | 1.27 | 23.79 | 18.21 | ||||||||||||
Second quarter |
1.65 | 1.36 | 25.80 | 20.71 | ||||||||||||
Third quarter |
1.80 | 1.57 | 28.52 | 28.84 | ||||||||||||
Fourth quarter |
1.85 | 1.67 | 32.70 | 26.34 | ||||||||||||
2011/2012 |
||||||||||||||||
First quarter(2) |
1.83 | 1.66 | 29.46 | 27.12 | ||||||||||||
| London Stock | ||||||||||||||||
| Exchange | ||||||||||||||||
| Pounds per | NASDAQ | |||||||||||||||
| ordinary share | Dollars per ADS | |||||||||||||||
| Month | High | Low | High | Low | ||||||||||||
November 2010 |
1.80 | 1.59 | 28.52 | 24.84 | ||||||||||||
December 2010 |
1.72 | 1.60 | 27.10 | 25.62 | ||||||||||||
January 2011 |
1.85 | 1.68 | 32.70 | 26.34 | ||||||||||||
February 2011 |
1.83 | 1.72 | 29.75 | 27.90 | ||||||||||||
March 2011 |
1.85 | 1.67 | 29.67 | 26.71 | ||||||||||||
April 2011 |
1.83 | 1.69 | 29.46 | 28.06 | ||||||||||||
May 2011(2) |
1.74 | 1.66 | 29.27 | 27.12 | ||||||||||||
Notes:
| (1) | The Company transferred its ADSs from the NYSE to NASDAQ on 29 October 2009. | |
| (2) | Covering period up to 16 May 2011. |
Table of Contents
134 Vodafone Group Plc Annual Report 2011
Shareholder information continued
Inflation and foreign currency translation
Inflation
Inflation has not had a significant effect on the Group’s results of operations and financial
condition during the three years ended 31 March 2011.
Foreign currency translation
The following table sets out the pounds sterling exchange rates of the other principal currencies
of the Group, being: “euros”, “€” or “eurocents”, the currency of the European Union (‘EU’) member
states which have adopted the euro as their currency, and “US dollars”, “US$”, “cents” or “¢”, the
currency of the US.
| 31 March | % | |||||||||||
| Currency (=£1) | 2011 | 2010 | change | |||||||||
Average: |
||||||||||||
Euro |
1.18 | 1.13 | 4.4 | |||||||||
US dollar |
1.56 | 1.60 | (2.5 | ) | ||||||||
At 31 March: |
||||||||||||
Euro |
1.13 | 1.12 | 0.9 | |||||||||
US dollar |
1.61 | 1.52 | 5.9 | |||||||||
The following table sets out, for the periods and dates indicated, the period end, average, high
and low exchanges rates for pounds sterling expressed in US dollars per £1.00.
| Year ended 31 March | 31 March | Average | High | Low | ||||||||||||
2007 |
1.97 | 1.89 | 1.98 | 1.74 | ||||||||||||
2008 |
1.99 | 2.01 | 2.11 | 1.94 | ||||||||||||
2009 |
1.43 | 1.72 | 2.00 | 1.37 | ||||||||||||
2010 |
1.52 | 1.60 | 1.70 | 1.44 | ||||||||||||
2011 |
1.61 | 1.56 | 1.64 | 1.43 | ||||||||||||
The following table sets out, for the periods indicated, the high and low exchange rates rates
for pounds sterling expressed in US dollars per £1.00.
| Month | High | Low | ||||||
November 2010 |
1.63 | 1.56 | ||||||
December 2010 |
1.59 | 1.54 | ||||||
January 2011 |
1.60 | 1.55 | ||||||
February 2011 |
1.63 | 1.60 | ||||||
March 2011 |
1.64 | 1.60 | ||||||
April 2011 |
1.67 | 1.61 | ||||||
Markets
Ordinary shares of Vodafone Group Plc are traded on the London Stock Exchange and in the form
of ADSs on NASDAQ. The Company had a total market capitalisation of approximately £86.4 billion at
16 May 2011 making it the second largest listing in The Financial Times Stock Exchange 100 index
and the 28th largest company in the world based on market capitalisation at that date.
ADSs, each representing ten ordinary shares, are traded on NASDAQ under the symbol ‘VOD’. The ADSs
are evidenced by ADRs issued by BNY Mellon, as depositary, under a deposit agreement, dated as of
12 October 1988, as amended and restated on 26 December 1989, 16 September 1991, 30 June 1999, 31
July 2006 and 30 July 2009 between the Company, the depositary and the holders from time to time
of ADRs issued thereunder.
ADS holders are not members of the Company but may instruct BNY Mellon on the exercise of voting
rights relative to the number of ordinary shares represented by their ADSs. See “Articles of
association and applicable English law — Rights attaching to the Company’s shares — Voting
rights” on page 135.
Shareholders at 31 March 2011
| Number of | % of total | |||||||
| Number of ordinary shares held | accounts | issued shares | ||||||
1 – 1,000 |
430,021 | 0.21 | ||||||
1,001 – 5,000 |
79,461 | 0.32 | ||||||
5,001 – 50,000 |
27,629 | 0.61 | ||||||
50,001 – 100,000 |
1,126 | 0.14 | ||||||
100,001 – 500,000 |
1,094 | 0.44 | ||||||
More than 500,000 |
1,636 | 98.28 | ||||||
| 540,967 | 100.00 | |||||||
Geographical analysis of shareholders
At 31 March 2011 approximately 46.9% of the Company’s shares were held in the UK, 30.2% in North
America, 14.4% in Europe (excluding the UK) and 8.5% in the rest of the world.
Major shareholders
BNY Mellon, as custodian of the Company’s ADR programme, held approximately 17% of the
Company’s ordinary shares of 113/7 US cents each at 16 May 2011 as nominee. The total
number of ADRs outstanding at 16 May 2011 was 886,242,945. At this date 1,369 holders of record of
ordinary shares had registered addresses in the US and in total held approximately 0.007% of the
ordinary shares of the Company. At 16 May 2011 the following percentage interests in the ordinary
share capital of the Company, disclosable under the Disclosure and Transparency Rules, (DTR 5),
have been notified to the directors:
| Shareholder | Shareholding | |||
Black Rock, Inc. |
6.00 | % | ||
Legal & General Group Plc |
3.59 | % | ||
The rights attaching to the ordinary shares of the Company held by these shareholders are
identical in all respects to the rights attaching to all the ordinary shares of the Company. The
directors are not aware, at 16 May 2011, of any other interest of 3% or more in the ordinary share
capital of the Company. The Company is not directly or indirectly owned or controlled by any
foreign government or any other legal entity. There are no arrangements known to the Company that
could result in a change of control of the Company.
Articles of association and applicable English law
The following description summarises
certain provisions of the Company’s articles of association and applicable English law. This
summary is qualified in its entirety by reference to the Companies Act 2006 of England and Wales
and the Company’s articles of association. Information on where shareholders can obtain copies of
the articles of association is provided under “Documents on display” on page 137.
The Company is a public limited company under the laws of England and Wales. The Company is
registered in England and Wales under the name Vodafone Group Public Limited Company with the
registration number 1833679.
All of the Company’s ordinary shares are fully paid. Accordingly, no further contribution of
capital may be required by the Company from the holders of such shares.
English law specifies that any alteration to the articles of association must be approved by a
special resolution of the shareholders.
Articles of association
Pursuant to the Companies Act 2006, the object clauses and other provisions which are contained in
a company’s memorandum of association are deemed to be contained in the company’s articles of
association unless they are removed by a special resolution of the company. If removed, the
company’s objects are unrestricted.
By a special resolution passed at the 2010 AGM the Company removed its object clause together with
all other provisions of its memorandum of association which, by virtue of the Companies Act 2006,
are treated as forming part of the Company’s articles of association.
Table of Contents
Vodafone Group Plc Annual Report 2011 135
Additional information
Directors
The Company’s articles of association provide for a Board of directors, consisting of not fewer
than three directors, who shall manage the business and affairs of the Company.
The directors are empowered to exercise all the powers of the Company subject to any restrictions
in the articles of association, the Companies Act (as defined in the articles of association) and
any special resolution.
Under the Company’s articles of association a director cannot vote in respect of any proposal in
which the director, or any person connected with the director, has a material interest other than
by virtue of the director’s interest in the Company’s shares or other securities. However, this
restriction on voting does not apply to resolutions i) giving the director or a third party any
guarantee, security or indemnity in respect of obligations or liabilities incurred at the request
of or for the benefit of the Company, ii) giving any guarantee, security or indemnity to the
director or a third party in respect of obligations of the Company for which the director has
assumed responsibility under an indemnity or guarantee, iii) relating to an offer of securities of
the Company in which the director is entitled to participate as a holder of shares or other
securities or in the underwriting of such shares or securities, iv) concerning any other company in
which the director (together with any connected person) is a shareholder or an officer or is
otherwise interested, provided that the director (together with any connected person) is not
interested in 1% or more of any class of the Company’s equity share capital or the voting rights
available to its shareholders, v) relating to the arrangement of any employee benefit in which the
director will share equally with other employees and vi) relating to any insurance that the Company
purchases or renews for its directors or any group of people including directors.
The directors are empowered to exercise all the powers of the Company to borrow money, subject to
the limitation that the aggregate amount of all liabilities and obligations of the Group
outstanding at any time shall not exceed an amount equal to 1.5 times the aggregate of the Group’s
share capital and reserves calculated in the manner prescribed in the articles of association
unless sanctioned by an ordinary resolution of the Company’s shareholders.
The Company can make market purchases of its own shares or agree to do so in the future provided it
is duly authorised by its members in a general meeting and subject to and in accordance with
Section 701 of the Companies Act 2006.
At each AGM all directors who were elected or last re-elected at or before the AGM held in the
third calendar year before the current year shall automatically retire. In 2005 the Company
reviewed its policy regarding the retirement and re-election of directors and, although it is not
intended to amend the Company’s articles of association in this regard, the Board has decided in
the interests of good corporate governance that all of the directors wishing to continue in office
should offer themselves for re-election annually.
Directors are not required under the Company’s articles of association to hold any shares of the
Company as a qualification to act as a director, although executive directors participating in
long-term incentive plans must comply with the Company’s share ownership guidelines. In accordance
with best practice in the UK for corporate governance, compensation awarded to executive directors
is decided by a remuneration committee consisting exclusively of non-executive directors.
In addition, as required by The Directors’ Remuneration Report Regulations, the Board has, since
2003, prepared a report to shareholders on the directors’ remuneration which complies with the
regulations (see pages 62 to 73). The report is also subject to a shareholder vote.
Rights attaching to the Company’s shares
At 31 March 2011 the issued share capital of the Company was comprised of 50,000 7% cumulative
fixed rate shares of £1.00 each and 51,577,525,830 ordinary shares (excluding treasury shares) of
113/7 US cents each.
Dividend rights
Holders of 7% cumulative fixed rate shares are entitled to be paid in respect of each financial
year, or other accounting period of the Company, a fixed cumulative preferential dividend of 7% per
annum on the nominal value of the fixed rate shares. A fixed cumulative preferential dividend may
only be paid out of available distributable profits which the directors have resolved should be
distributed. The fixed rate shares do not have any other right to share in the Company’s profits.
Holders of the Company’s ordinary shares may, by ordinary resolution, declare dividends but may not
declare dividends in excess of the amount recommended by the directors. The Board of directors may
also pay interim dividends. No dividend may be paid other than out of profits available for
distribution. Dividends on ordinary shares can be paid to shareholders in whatever currency the
directors decide, using an appropriate exchange rate for any currency conversions which are
required.
If a dividend has not been claimed for one year after the date of the resolution passed at a
general meeting declaring that dividend or the resolution of the directors providing for payment of
that dividend, the directors may invest the dividend or use it in some other way for the benefit of
the Company until the dividend is claimed. If the dividend remains unclaimed for 12 years after the
relevant resolution either declaring that dividend or providing for payment of that dividend, it
will be forfeited and belong to the Company.
Voting rights
The Company’s articles of association provide that voting on substantive resolutions (i.e. any
resolution which is not a procedural resolution) at a general meeting shall be decided on a poll.
On a poll, each shareholder who is entitled to vote and is present in person or by proxy has one
vote for every share held. Procedural resolutions (such as a resolution to adjourn a general
meeting or a resolution on the choice of Chairman of a general meeting) shall be decided on a show
of hands, where each shareholder who is present at the meeting has one vote regardless of the
number of shares held, unless a poll is demanded. In addition, the articles of association allow
persons appointed as proxies of shareholders entitled to vote at general meetings to vote on a show
of hands, as well as to vote on a poll and attend and speak at general meetings. The articles of
association also allow persons appointed as proxies by two or more shareholders entitled to vote at
general meetings to vote for and against a resolution on a show of hands.
Under English law two shareholders present in person constitute a quorum for purposes of a general
meeting unless a company’s articles of association specify otherwise. The Company’s articles of
association do not specify otherwise, except that the shareholders do not need to be present in
person and may instead be present by proxy to constitute a quorum.
Under English law shareholders of a public company such as the Company are not permitted to pass
resolutions by written consent.
Record holders of the Company’s ADSs are entitled to attend, speak and vote on a poll or a show of
hands at any general meeting of the Company’s shareholders by the depositary’s appointment of them
as corporate representatives with respect to the underlying ordinary shares represented by their
ADSs. Alternatively holders of ADSs are entitled to vote by supplying their voting instructions to
the depositary or its nominee who will vote the ordinary shares underlying their ADSs in accordance
with their instructions.
Employees are able to vote any shares held under the Vodafone Group Share Incentive Plan and ‘My
ShareBank’ (a vested nominee share account) through the respective plan’s trustees.
Holders of the Company’s 7% cumulative fixed rate shares are only entitled to vote on any
resolution to vary or abrogate the rights attached to the fixed rate shares. Holders have one vote
for every fully paid 7% cumulative fixed rate share.
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136 Vodafone Group Plc Annual Report 2011
Shareholder information continued
Liquidation rights
In the event of the liquidation of the Company, after payment of all liabilities and deductions in
accordance with English law, the holders of the Company’s 7% cumulative fixed rate shares would be
entitled to a sum equal to the capital paid up on such shares, together with certain dividend
payments, in priority to holders of the Company’s ordinary shares. The holders of the fixed rate
shares do not have any other right to share in the Company’s surplus assets.
Pre-emptive rights and new issues of shares
Under Section 549 of the Companies Act 2006 directors are, with certain exceptions, unable to allot
the Company’s ordinary shares or securities convertible into the Company’s ordinary shares without
the authority of the shareholders in a general meeting. In addition, Section 561 of the Companies
Act 2006 imposes further restrictions on the issue of equity securities (as defined in the
Companies Act 2006 which include the Company’s ordinary shares and securities convertible into
ordinary shares) which are, or are to be, paid up wholly in cash and not first offered to existing
shareholders. The Company’s articles of association allow shareholders to authorise directors for a
period specified in the relevant resolution to allot i) relevant securities generally up to an
amount fixed by the shareholders and ii) equity securities for cash other than in connection with a
pre-emptive offer up to an amount specified by the shareholders and free of the pre-emption
restriction in Section 561. At the AGM in 2010 the amount of relevant securities fixed by
shareholders under (i) above and the amount of equity securities specified by shareholders under
(ii) above were both in line with corporate governance guidelines. The directors consider it
desirable to have the maximum flexibility permitted by corporate governance guidelines to respond
to market developments and to enable allotments to take place to finance business opportunities as
they arise. In order to retain such maximum flexibility, the directors propose to renew the
authorities granted by shareholders in 2010 at this year’s AGM. Further details of such proposals
are provided in the 2011 notice of AGM.
Disclosure of interests in the Company’s shares
There are no provisions in the articles of association whereby persons acquiring, holding or
disposing of a certain percentage of the Company’s shares are required to make disclosure of their
ownership percentage although such requirements exist under rules derived from the Disclosure and
Transparency Rules (‘DTRs’).
The basic disclosure requirement upon a person acquiring or disposing of shares that are admitted
to trading on a regulated market and carrying voting rights is an obligation to provide written
notification to the Company, including certain details as set out in DTR 5, where the percentage of
the person’s voting rights which he holds as shareholder or through his direct or indirect holding
of financial instruments (falling within DTR 5.3.1R) reaches or exceeds 3% and reaches, exceeds or
falls below each 1% threshold thereafter.
Under Section 793 of the Companies Act 2006 the Company may, by notice in writing, require a person
that the Company knows or has reasonable cause to believe is, or was during the preceding three
years, interested in the Company’s shares to indicate whether or not that is correct and, if that
person does or did hold an interest in the Company’s shares, to provide certain information as set
out in the Companies Act 2006. DTR 3 deals with the disclosure by persons “discharging managerial
responsibility” and their connected persons of the occurrence of all transactions conducted on
their account in the shares of the Company. Part 28 of The Companies Act 2006 sets out the
statutory functions of the Panel on Takeovers & Mergers (the ‘Panel’). The Panel is responsible for
issuing and administering the Code on Takeovers & Mergers which includes disclosure requirements on
all parties to a takeover with regard to dealings in the securities of an offeror or offeree
company and also on their respective associates during the course of an offer period.
General meetings and notices
Subject to the articles of association, annual general meetings are held at such times and place as
determined by the directors of the Company. The directors may also, when they think fit, convene
other general meetings of the Company. General meetings may also be convened on requisition as
provided by the Companies Act 2006.
An annual general meeting needs to be called by not less than 21 days’ notice in writing. Subject
to obtaining shareholder approval on an annual basis, the Company may call other general meetings
on 14 days’ notice. The directors may determine that persons entitled to receive notices of
meetings are those persons entered on the register at the close of business on a day determined by
the directors but not later than twenty-one days before the date the relevant notice is sent. The
notice may also specify the record date, the time of which shall be determined in accordance with
the articles of association and the Companies Act 2006.
Shareholders must provide the Company with an address or (so far as the Companies Act 2006 allows)
an electronic address or fax number in the United Kingdom in order to be entitled to receive
notices of shareholders’ meetings and other notices and documents. In certain circumstances the
Company may give notices to shareholders by publication on the Company’s website and advertisement
in newspapers in the United Kingdom. Holders of the Company’s ADSs are entitled to receive notices
under the terms of the deposit agreement relating to the ADSs.
Under Section 336 of the Companies Act 2006 the annual general meeting of shareholders must be held
each calendar year and within six months of the Company’s year end.
Electronic communications
The Company has previously passed a resolution allowing it to communicate all shareholder
information by electronic means, including making such information available on the Company’s
website. Those shareholders who have positively elected for website communication (or are deemed to
have consented to receive electronic communication in accordance with the Companies Act 2006) will
receive written notification whenever shareholder documentation is made available on the website.
Variation of rights
If at any time the Company’s share capital is divided into different classes of shares, the rights
attached to any class may be varied, subject to the provisions of the Companies Act 2006, either
with the consent in writing of the holders of three quarters in nominal value of the shares of that
class or at a separate meeting of the holders of the shares of that class.
At every such separate meeting all of the provisions of the articles of association relating to
proceedings at a general meeting apply, except that i) the quorum is to be the number of persons
(which must be at least two) who hold or represent by proxy not less than one third in nominal
value of the issued shares of the class or, if such quorum is not present on an adjourned meeting,
one person who holds shares of the class regardless of the number of shares he holds, ii) any
person present in person or by proxy may demand a poll and iii) each shareholder will have one vote
per share held in that particular class in the event a poll is taken. Class rights are deemed not
to have been varied by the creation or issue of new shares ranking equally with or subsequent to
that class of shares in sharing in profits or assets of the Company or by a redemption or
repurchase of the shares by the Company.
Limitations on voting and shareholding
As far as the Company is aware there are no limitations imposed on the transfer, holding or voting
of the Company’s ordinary shares other than those limitations that would generally apply to all of
the shareholders. No shareholder has any securities carrying special rights with regard to control
of the Company.
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Vodafone Group Plc Annual Report 2011 137
Additional information
Documents on display
The Company is subject to the information requirements of the Exchange Act applicable to
foreign private issuers. In accordance with these requirements the Company files its annual report
on Form 20-F and other related documents with the SEC. These documents may be inspected at the
SEC’s public reference rooms located at 100 F Street, NE Washington, DC 20549. Information on the
operation of the public reference room can be obtained in the US by calling the SEC on
+1-800-SEC-0330. In addition, some of the Company’s SEC filings, including all those filed on or
after 4 November 2002, are available on the SEC’s website (www.sec.gov). Shareholders can
also obtain copies of the Company’s articles of association from our website at
www.vodafone.com/governance or from the Company’s registered office.
Material contracts
At the date of this annual report the Group is not party to any contracts that are considered
material to the Group’s results or operations except for its US$4.2 billion and €4.2 billion credit
facilities which are discussed under “Financial position and resources” on page 50.
Exchange controls
There are no UK government laws, decrees or regulations that restrict or affect the export or
import of capital, including but not limited to, foreign exchange controls on remittance of
dividends on the ordinary shares or on the conduct of the Group’s operations.
Taxation
As this is a complex area investors should consult their own tax advisor regarding the US
federal, state and local, the UK and other tax consequences of owning and disposing of shares and
ADSs in their particular circumstances.
This section describes, primarily for a US holder (as defined below), in general terms, the
principal US federal income tax and UK tax consequences of owning or disposing of shares or ADSs in
the Company held as capital assets (for US and UK tax purposes). This section does not, however,
cover the tax consequences for members of certain classes of holders subject to special rules
including officers of the Company, employees and holders that, directly or indirectly, hold 10% or
more of the Company’s voting stock.
A US holder is a beneficial owner of shares or ADSs that is for US federal income tax purposes:
| • | a citizen or resident of the US; | |
| • | a US domestic corporation; | |
| • | an estate, the income of which is subject to US federal income tax regardless of its source; or | |
| • | a trust, if a US court can exercise primary supervision over the trust’s administration and one or more US persons are authorised to control all substantial decisions of the trust. |
If a partnership holds the shares or ADSs, the US federal income tax treatment of a partner will
generally depend on the status of the partner and the tax treatment of the partnership. A partner
in a partnership holding the shares or ADSs should consult its tax advisor with regard to the US
federal income tax treatment of an investment in the shares or ADSs.
This section is based on the US Internal Revenue Code of 1986, as amended, its legislative history,
existing and proposed regulations thereunder, published rulings and court decisions, and on the tax
laws of the United Kingdom and the Double Taxation Convention between the United States and the
United Kingdom (the ‘treaty’), all as currently in effect. These laws are subject to change,
possibly on a retroactive basis.
This section is further based in part upon the representations of the depositary and assumes that
each obligation in the deposit agreement and any related agreement will be performed in accordance
with its terms.
Based on this assumption, for purposes of the treaty and the US-UK double taxation convention
relating to estate and gift taxes (the ‘Estate Tax Convention’), and for US federal income tax and
UK tax purposes, a holder of ADRs evidencing ADSs will be treated as the owner of the shares in the
Company represented by those ADSs. Generally exchanges of shares for ADRs and ADRs for shares will
not be subject to US federal income tax or to UK tax other than stamp duty or stamp duty reserve
tax (see the section on these taxes below).
Taxation of dividends
UK taxation
Under current UK tax law no withholding tax will be deducted from the dividends we pay.
Shareholders who are within the charge to UK corporation tax will be subject to corporation tax on
the dividends we pay unless the dividends fall within an exempt class and certain other conditions
are met. It is expected that the dividends we pay would generally be exempt.
A shareholder in the Company who is an individual resident for UK tax purposes in the United
Kingdom is entitled, in calculating their liability to UK income tax, to a tax credit on cash
dividends we pay on our shares or ADSs and the tax credit is equal to one-ninth of the cash
dividend.
US federal income taxation
Subject to the PFIC rules described below, a US holder is subject to US federal income taxation on
the gross amount of any dividend we pay out of our current or accumulated earnings and profits (as
determined for US federal income tax purposes). Dividends paid to a non-corporate US holder in tax
years beginning before 1 January 2013 that constitute qualified dividend income will be taxable to
the holder at a maximum tax rate of 15% provided that the ordinary shares or ADSs are held for more
than 60 days during the 121 day period beginning 60 days before the ex-dividend date and the holder
meets other holding period requirements. Dividends paid by us with respect to the shares or ADSs
will generally be qualified dividend income. A US holder is not subject to a UK withholding tax.
The US holder includes in gross income for US federal income tax purposes only the amount of the
dividend actually received from us and the receipt of a dividend does not entitle the US holder to
a foreign tax credit.
Dividends must be included in income when the US holder, in the case of shares, or the depositary,
in the case of ADSs, actually or constructively receives the dividend and will not be eligible for
the dividends-received deduction generally allowed to US corporations in respect of dividends
received from other US corporations. Dividends will be income from sources outside the United
States. For the purpose of the foreign tax credit limitation, foreign source income is classified
in one or two baskets and the credit for foreign taxes on income in any basket is limited to US
federal income tax allocable to that income. Generally the dividends we pay will constitute foreign
source income in the passive income basket.
In the case of shares, the amount of the dividend distribution to be included in income will be the
US dollar value of the pound sterling payments made determined at the spot pound sterling/US dollar
rate on the date of the dividend distribution regardless of whether the payment is in fact
converted into US dollars. Generally any gain or loss resulting from currency exchange fluctuations
during the period from the date the dividend payment is to be included in income to the date the
payment is converted into US dollars will be treated as ordinary income or loss. Generally the gain
or loss will be income or loss from sources within the United States for foreign tax credit
limitation purposes.
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138 Vodafone Group Plc Annual Report 2011
Shareholder information continued
Taxation of capital gains
UK taxation
A US holder may be liable for both UK and US tax in respect of a gain on the disposal of our shares
or ADSs if the US holder is:
| • | a citizen of the United States resident or ordinarily resident for UK tax purposes in the United Kingdom; | |
| • | a citizen of the United States who has been resident or ordinarily resident for UK tax purposes in the United Kingdom, ceased to be so resident or ordinarily resident for a period of less than five years of assessment and who disposed of the shares or ADSs during that period (a ‘temporary non-resident’), unless the shares or ADSs were also acquired during that period, such liability arising on that individual’s return to the UK; | |
| • | a US domestic corporation resident in the United Kingdom by reason of being centrally managed and controlled in the United Kingdom; or | |
| • | a citizen of the United States or a US domestic corporation that carries on a trade, profession or vocation in the United Kingdom through a branch or agency or, in the case of US domestic companies, through a permanent establishment and that has used the shares or ADSs for the purposes of such trade, profession or vocation or has used, held or acquired the shares or ADSs for the purposes of such branch or agency or permanent establishment. |
Under the treaty capital gains on dispositions of the shares or ADSs are generally subject to tax
only in the country of residence of the relevant holder as determined under both the laws of the
United Kingdom and the United States and as required by the terms of the treaty. However,
individuals who are residents of either the United Kingdom or the United States and who have been
residents of the other jurisdiction (the US or the UK, as the case may be) at any time during the
six years immediately preceding the relevant disposal of shares or ADSs may be subject to tax with
respect to capital gains arising from the dispositions of the shares or ADSs not only in the
country of which the holder is resident at the time of the disposition but also in that other
country (although, in respect of UK taxation, generally only to the extent that such an individual
comprises a temporary non-resident).
US federal income taxation
Subject to the PFIC rules described below a US holder that sells or otherwise disposes of our
shares or ADSs will recognise a capital gain or loss for US federal income tax purposes equal to
the difference between the US dollar value of the amount realised and the holder’s tax basis,
determined in US dollars, in the shares or ADSs. Generally a capital gain of a non-corporate US
holder that is recognised in tax years beginning before 1 January 2013 is taxed at a maximum rate
of 15% provided the holder has a holding period of more than one year. The gain or loss will
generally be income or loss from sources within the United States for foreign tax credit limitation
purposes. The deductibility of losses is subject to limitations.
Additional tax considerations
UK inheritance tax
An individual who is domiciled in the United States (for the purposes of the Estate Tax Convention)
and is not a UK national will not be subject to UK inheritance tax in respect of our shares or ADSs
on the individual’s death or on a transfer of the shares or ADSs during the individual’s lifetime,
provided that any applicable US federal gift or estate tax is paid, unless the shares or ADSs are
part of the business property of a UK permanent establishment or pertain to a UK fixed base used
for the performance of independent personal services. Where the shares or ADSs have been placed in
trust by a settlor they may be subject to UK inheritance tax unless, when the trust was created,
the settlor was domiciled in the United States and was not a UK national. Where the shares or ADSs
are subject to both UK inheritance tax and to US federal gift or estate tax, the estate tax
convention generally provides a credit against US federal tax liabilities for UK inheritance tax
paid.
UK stamp duty and stamp duty reserve tax
Stamp duty will, subject to certain exceptions, be payable on any instrument transferring our
shares to the custodian of the depositary at the rate of 1.5% on the amount or value of the
consideration if on sale or on the value of such shares if not on sale. Stamp duty reserve tax
(‘SDRT’), at the rate of 1.5% of the price or value of the shares, could also be payable in these
circumstances and on issue to such a person but no SDRT will be payable if stamp duty equal to such
SDRT liability is paid. A recent ruling by the European Court of Justice has determined that the
1.5% SDRT charge on issue to a clearance service is contrary to EU law. HMRC have indicated that
where new shares are first issued to a clearance service or to a depositary within the European
Union, the 1.5% SDRT charge will not be levied. However, to the extent that the clearance service
or depositary is located outside the European Union, HMRC have indicated that such charge would
still apply. In accordance with the terms of the deposit agreement, any tax or duty payable on
deposits of shares by the depositary or the custodian of the depositary will be charged to the
party to whom ADSs are delivered against such deposits.
No stamp duty will be payable on any transfer of our ADSs provided that the ADSs and any separate
instrument of transfer are executed and retained at all times outside the United Kingdom. A
transfer of our shares in registered form will attract ad valorem stamp duty generally at the rate
of 0.5% of the purchase price of the shares. There is no charge to ad valorem stamp duty on gifts.
SDRT is generally payable on an unconditional agreement to transfer our shares in registered form
at 0.5% of the amount or value of the consideration for the transfer, but is repayable if, within
six years of the date of the agreement, an instrument transferring the shares is executed or, if
the SDRT has not been paid, the liability to pay the tax (but not necessarily interest and
penalties) would be cancelled. However, an agreement to transfer our ADSs will not give rise to
SDRT.
PFIC rules
We do not believe that our shares or ADSs will be treated as stock of a passive foreign investment
company (‘PFIC’) for US federal income tax purposes. This conclusion is a factual determination
that is made annually and thus is subject to change. If we are treated as a PFIC, any gain realised
on the sale or other disposition of the shares or ADSs would in general not be treated as capital
gain unless a US holder elects to be taxed annually on a mark-to-market basis with respect to the
shares or ADSs. Otherwise a US holder would be treated as if he or she has realised such gain and
certain “excess distributions” rateably over the holding period for the shares or ADSs and would be
taxed at the highest tax rate in effect for each such year to which the gain was allocated. An
interest charge in respect of the tax attributable to each such year would also apply. Dividends
received from us would not be eligible for the preferential tax rate applicable to qualified
dividend income for certain non-corporate holders.
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Vodafone Group Plc Annual Report 2011 139
Additional information
History and development
The Company was incorporated under English law in 1984 as Racal Strategic Radio Limited
(registered number 1833679). After various name changes, 20% of Racal Telecom Plc capital was
offered to the public in October 1988. The Company was fully demerged from Racal Electronics Plc
and became an independent company in September 1991, at which time it changed its name to Vodafone
Group Plc.
Since then we have entered into various transactions which consolidated our position in the United
Kingdom and enhanced our international presence. The most significant of these transactions were as
follows:
| • | the merger with AirTouch Communications, Inc. which completed on 30 June 1999. The Company changed its name to Vodafone AirTouch Plc in June 1999 but then reverted to its former name, Vodafone Group Plc, on 28 July 2000; | |
| • | the acquisition of Mannesmann AG which completed on 12 April 2000. Through this transaction we acquired businesses in Germany and Italy and increased our indirect holding in SFR; | |
| • | through a series of business transactions between 1999 and 2004 we acquired a 97.7% stake in Vodafone Japan. This was then disposed of on 27 April 2006; and | |
| • | on 8 May 2007 we acquired companies with interests in Vodafone Essar for US$10.9 billion (£5.5 billion), following which we control Vodafone Essar. |
Other transactions that have occurred since 31 March 2008 are as follows:
19 May 2008 — Arcor: We increased our stake in Arcor for €460 million (£366 million) and now own
100% of Arcor.
17 August 2008 — Ghana: We acquired 70.0% of Ghana Telecommunications for cash consideration of
£486 million.
9 January 2009 — Verizon Wireless: Verizon Wireless completed its
acquisition of Alltel Corp. for approximately US$5.9 billion (£3.9 billion).
20 April 2009 — South Africa: We acquired an additional 15.0% stake in Vodacom for cash
consideration of ZAR 20.6 billion (£1.6 billion). On 18 May 2009 Vodacom became a subsidiary.
10 May 2009 — Qatar: Vodafone Qatar completed a public offering of 40.0%
of its authorised share capital raising QAR 3.4 billion (£0.6 billion). The shares
were listed on the Qatar Exchange on 22 July 2009. Qatar launched full
services on its network on 7 July 2009.
9 June 2009 — Australia: Vodafone Australia merged with Hutchison 3G
Australia to form a 50:50 joint venture, Vodafone Hutchison Australia Pty
Limited.
10 September 2010 — China Mobile Limited: We sold our entire 3.2%
interest in China Mobile Limited for cash consideration of £4.3 billion.
30/31 March 2011— India: The Essar Group exercised its underwritten put option over 22.0% of
Vodafone Essar Limited (‘VEL’), following which we exercised our call option over the remaining
11.0% of VEL owned by the Essar Group. The total consideration due under these two options is US$5
billion (£3.1 billion).
3 April 2011— SFR: We agreed to sell our entire 44% interest in SFR to Vivendi for a cash
consideration of €7.75 billion (£6.8 billion). We will also receive a final dividend from SFR of
€200 million (£176 million) on completion of the transaction which, subject to competition
authority and regulatory approvals, is expected during the second calendar quarter of 2011.
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140 Vodafone Group Plc Annual Report 2011
Regulation
Our operating companies are generally subject to regulation governing the operation of their
business activities. Such regulation typically takes the form of industry specific law and
regulation covering telecommunications services and general competition (antitrust) law applicable
to all activities.
The following section describes the regulatory frameworks and the key regulatory developments at
the global and regional level and in selected countries in which we have significant interests.
Many of the regulatory developments reported in the following section involve ongoing proceedings
or consideration of potential proceedings that have not reached a conclusion. Accordingly, we are
unable to attach a specific level of financial risk to our performance from such matters.
European Union (‘EU’)
The European Commission (the ‘Commission’) has begun to consult on the future scope and nature
of universal service provision in the EU. Current obligations generally involve the provision of a
fixed connection allowing access to voice and simple data services. In some countries those
operators responsible for providing universal services receive compensation from a fund to which we
and others are required to make a financial contribution. The Commission has indicated that it
would be reluctant to extend the scope of these funds to include very high speed broadband
deployment and that additional financing for such projects should instead be sought from general
taxation. The Commission has also published a broadband strategy which proposes that the European
Investment Bank offer support for broadband infrastructure projects which fulfil certain criteria.
Roaming
The current roaming regulation (the ‘roaming regulation’) entered into force in July 2009 and
requires mobile operators to supply voice and text roaming services under retail price caps.
Wholesale price caps also apply to voice, text and data roaming services. Caps are adjusted
(reduced) annually. The regulation expires in 2012 and the Commission is currently undertaking a
review to determine what should happen thereafter. The Commission expects to publish formal
proposals for the new roaming regulations during the summer of 2011. These will then be considered
by the European Parliament and Council of Ministers (the ‘Council’). In the meantime, the
Commission has indicated that there is widespread support for the continuation of some form of
regulation beyond 2012 and that this may extend to retail data services which are currently
excluded from regulation. The Commission has consulted on a variety of options for regulation
including a continuation of existing price caps, closer alignment of roaming prices to domestic
prices, or the implementation of various ‘structural’ solutions, such as the decoupling of roaming
services from domestic services, all of which would be intended to increase competition in either
the retail or the wholesale roaming markets.
Call termination
In June 2010 the body of European Regulators for Electronic Communications (‘BEREC’) concluded that
a move to ‘bill and keep’, in which no termination rates are payable between operators was “more
promising (than existing call termination arrangements) in the long-term”. In the meantime,
national regulators are required to take utmost account of the Commission’s existing recommendation
on the regulation of fixed and mobile termination rates published in 2009.
At 31 March 2011 the termination rates effective for our subsidiaries and joint ventures within the
EU, which differs from our Europe region, ranged from 3.00 eurocents per minute (2.64 pence) to
7.38 eurocents per minute (6.49 pence), at the relevant 31 March 2011 exchange rate.
Fixed network regulation
In September 2010 the Commission published a recommendation on the regulation of fibre ‘next
generation’ broadband access networks (the ‘NGA recommendation’), of which national regulators are
required to take utmost account. The Commission recommends that national regulators ensure
operators that have significant market power make unbundled access to fibre networks available to
competitors on a cost-oriented basis which reflects the risk profile of the investment.
Spectrum
In July 2009 the Council adopted the amended GSM directive allowing the use of the 900 MHz and 1800
MHz GSM bands for universal mobile telecommunications service (‘UMTS’) technology (‘refarming’)
and, in the future, other technologies. Member states were required to implement this by May 2010,
subject to the undertaking of a competition review by the national regulator.
In September 2010 the Commission published a proposed radio spectrum policy programme (‘RSPP’) for
consideration by the European Parliament and Council. The RSPP proposes that all member states
release 800 MHz spectrum for mobile broadband services by 1 January 2013 unless the Commission
agrees otherwise. It also provides guidance to national regulators to ensure that competition is
safeguarded when rights of use for existing spectrum are changed (e.g. through refarming) or when
new spectrum is assigned. Various amendments to the draft RSPP have been proposed by the European
Parliament and Council.
Europe region
Germany
Our current termination rate was reduced in December 2010 to 3.36 eurocents per minute, effective
until 30 November 2012.
The rates that access seekers have to pay in order to unbundle Deutsche Telekom’s VDSL network were
set by the national regulator in March 2010. We have appealed against these rates. The national
regulator obliged Deutsche Telekom to grant access to its projected fibre to the home access
network at ex post regulated rates in March 2011.
In May 2010 we acquired nationwide 15 year licences for 2x10 MHz of 800 MHz spectrum, 2x5 MHz of
2.1 GHz spectrum, 2x20 MHz of 2.6 GHz spectrum and 25 MHz of 2.6 GHz unpaired spectrum for a cost
of €1.4 billion (£1.2 billion).
Italy
In July 2008 the national regulator reduced our termination rate to 8.85 eurocents per minute, in
July 2009 to 7.70 eurocents per minute and in July 2010 to 6.60 eurocents per minute. Termination
rates will reduce to 5.30 eurocents per minute in July 2011. The national regulator is currently
consulting upon further reductions to 4.1 cents in January 2012 with further reductions to 0.98
cents by January 2015.
In November 2010 the Government entered into a memorandum of understanding with telecommunications
operators, including Vodafone, to jointly develop a plan for the deployment of next generation
fixed infrastructure in Italy.
In December 2010 the Italian regulator increased the monthly cost of an unbundled copper local loop
from €8.49 (which had applied until 1 May 2010) to €8.70 for the period 1 May to 31 December 2010,
to €9.02 for 2011 and to €9.28 for 2012, subject to Telecom Italia’s network meeting certain
quality thresholds. In February 2011 the national regulator approved the price increases for the
2011 wholesale products charge.
In January 2011 the national regulator launched a consultation on the obligations to be imposed on
Telecom Italia in relation to its fibre network. These proposals vary significantly from the
principles in the NGA recommendation described above as they do not require unbundled access where
there are or could be two competing networks. We have objected to these proposals.
Spain
The national regulator has adopted a glide path of termination rate reductions to 4.00 from October
2011 to April 2012.
The national regulator has adopted an immediate 7% increase in the price at which we and other
operators obtain unbundled copper local loops from Telefonica while it undertakes further analysis
of these costs.
Table of Contents
Vodafone Group Plc Annual Report 2011 141
Additional information
The national regulator has determined the net cost and industry contributions
corresponding to universal service contributions for 2007. Vodafone is required to contribute €14.9
million. We are currently appealing this decision.
In June 2010 the Spanish Ministry of Industry, Tourism and Commerce issued a wideranging
consultation on spectrum. In February 2011 the Government confirmed its plans under which operators
(including Vodafone) will return small amounts of their existing 900 MHz and 1800 MHz spectrum, the
remaining licences would be extended until 2030 and refarming would be allowed in these bands. A
tender process for the 2.6 GHz and 800 MHz bands will also be undertaken in the 2011 calendar year,
with the 800 MHz spectrum available for use from around 2015.
The national competition authority has commenced an investigation into the wholesale origination
and termination charges levied by all Spanish mobile operators for SMS services.
United Kingdom
Our regulated average termination rate is currently 2.98 pence per minute. The national regulator
has finalised the process to decide the rates that will apply from 1 April 2011 to 31 March 2015.
It has imposed a glidepath with annual adjustments that would see a reduction to 0.69 pence per
minute (plus inflation adjustment) in 2014 and 2015. The mobile network operators have until 16 May
2011 to appeal this decision.
All 2G licences have been modified to allow refarming to 3G. All 3G licences will also be made
indefinite rather than expiring in 2021.
The national regulator will carry out a competition assessment and consultation process to what
restrictions, if any, might be applied to participation in the auction of 800 MHz and 2.6 GHz
spectrum, which is expected to be conducted in early 2012.
As part of the conditions for clearance of the merger between Orange UK and T-Mobile UK, the
Commission has required them to dispose of 2x15 MHz of spectrum in the 1800 MHz band. If they fail
to do so, this spectrum will be included in the auction.
Other Europe
Albania
Vodafone Albania acquired the single 3G licence (2x15 MHz) for €31.4m in November 2010. Commercial
services were launched in January 2011.
Greece
The national regulator is currently consulting on the renewal/re-auction of existing 900 MHz
licences expiring in 2012.
Hungary
In October 2010 the Hungarian Parliament adopted a law which imposes a significant additional tax
burden on the telecommunications, retail and energy sectors. The law came into force in December
2010 and will apply until at least January 2013, although the Hungarian government has indicated
that it may be further extended. Vodafone prepaid 7,343,503,000 HUF (£24 million) in December 2010.
A large number of firms have asked the Commission to review the legality of the tax, which they are
currently doing.
Ireland
The national regulator has proposed auctioning all spectrum in the 900 MHz and 1800 MHz spectrum
bands at the same time as an auction of 800 MHz spectrum in 2011, with spectrum available in 2013.
In the meantime, Vodafone’s and O2’s 900 MHz licences will be renewed until the commencement of the
new licences in 2013.
Malta
The national regulator has concluded a process for the renewal/issue of all 900 MHz and 1800 MHz
spectrum which allows Vodafone to retain all but five MHz of its 900 and 1800 MHz spectrum for 15
years. Vodafone has also secured an additional 20 MHz of 1800 MHz spectrum.
Netherlands
Our termination rate reduced to 4.20 eurocents per minute in January 2011 following a cost model
analysis by the NRA which proposes reducing to 1.2 eurocents per minute by September 2012. This
decision is currently under appeal.
Auctions of 2.6 GHz spectrum concluded in April 2010. Vodafone acquired 2x10 MHz of 2.6 GHz of
spectrum for the reserve price of €200,000.
In February 2011 the Government announced plans to auction 800 MHz, 900 MHz, 1800 MHz, 2.1 GHz and
2.6 GHz spectrum in early 2012. It proposes to reserve two 800 MHz licences for new entrants.
Portugal
The national regulator has adopted a glide path of termination rate reductions from May 2010 to
take the rate from 6.50 eurocents per minute to 3.50 eurocents per minute by August 2011. The
national regulator is currently consulting on a cost modelling process to determine rates beyond
August 2011.
The spectrum auction in Portugal was delayed and is now expected in 2011 and will include a number
of spectrum bands including 800 MHz and 2.6 GHz.
The competition authority has started an investigation into certain retail pricing initiatives
undertaken by Vodafone in early 2011.
Romania
Proposals for the renewal of Vodafone’s 900/1800 MHz licences, which expire in December 2011, are
expected shortly.
In February 2011 Vodafone was fined €28 million by the competition authority in relation to an
alleged refusal to interconnect with another party in 2006. We appealed this decision in April
2011. Other enquiries remain ongoing. In April 2011 we were advised that new proceedings in
relation to termination rates and subsidies for handsets will be initiated.
Turkey
Our termination rates are currently set at 0.032 Lira per minute.
Africa,
Middle East and Asia Pacific region
India
The national regulator’s decision to reduce interconnection charges to Rs 0.20 per minute effective
1 April 2010 was successfully appealed to the appellate body. The national regulator launched a new
interconnect charges consultation process in April 2011 and has been directed by the appellate body
to implement new rates by June 2011.
In May 2010 we secured 20 year licences for 2x5 MHz of 3G spectrum in nine circles in the Indian
auction for a total price of INR 116.2 billion (£1.7 billion). These circles include Delhi, Mumbai,
Kolkata and a further three ‘A’ circles and three ‘B’ circles providing a footprint covering 66% of
VEL’s current revenue base. In May 2010 the national regulator made recommendations on the spectrum
management and licensing framework which includes far-reaching proposals for spectrum allocation
and pricing. In February 2011 the national regulator recommended a new spectrum valuation approach
for 1800 MHz spectrum. These recommendations will be reviewed by the Union Minister of
Communications and IT.
In September 2010 VEL’s appeal against the increase in 2G spectrum fees of 1% to 2% of adjusted
gross revenue (effective from 1 April 2010) was unsuccessful. VEL then appealed to the Supreme
Court in October 2010 and was granted a stay against the order increasing spectrum charges.
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142
Vodafone Group Plc Annual Report 2011
Regulation continued
South Africa
The national regulator may recommence the process for an auction of the 2.6 GHz and 3.5 GHz bands
during the 2012 financial year.
In October 2010 the national regulator published a regulation establishing a glide path for mobile
and fixed termination rates over the period to March 2014. The mobile termination rate will decline
from a peak/off-peak rate of ZAR 0.89/0.77 respectively to ZAR 0.40 per minute from 1 March 2013.
Other Africa, Middle East and Asia Pacific
Egypt
The national regulator set termination rates at 65% of each operator’s on-net retail revenue per
minute in September 2008. Mobinil obtained interim relief against this regulation and a final order
is awaited to clarify its application. On 28 January 2011, during a period of socio-political
unrest and demonstrations, the government ordered Vodafone and the two other licensed mobile
operators to temporarily suspend mobile services in certain areas. Vodafone subsequently restored
its voice network to its customers the following day, and data and SMS were unavailable for five
and nine days respectively.
New Zealand
Vodafone and Telecom New Zealand have been selected to share a NZ$285 million government grant to
roll-out and operate an open access fibre and wireless network in rural areas.
The national regulator has adopted a regulation which reduces termination rates from around 18
cents to 7.5 cents in May 2011, with further reductions to 4.0 cents from April 2012. SMS
termination rates are also regulated at 0.06 cents per SMS. The national regulator has indicated
that it will monitor the impact of these measures and of on-net/off-net retail pricing which it
believes to have inhibited competition.
Qatar
The price floor on retail services imposed in November 2009 on Vodafone by the national regulator
was removed in April 2010. In July 2010 the national regulator ruled that QTel had launched the
Virgin Mobile service illegally and required significant changes to be compliant. The national
regulator has launched a strategic review of the sector.
Licences
The table below summarises the most significant mobile licences held by our operating
subsidiaries and our joint venture in Italy at 31 March 2011. We present the licences by frequency
band since in many markets, including the majority of Europe, they can be used for a variety of
technologies including 2G, 3G and in the future LTE.
Mobile licences
| Country by region | 800 MHz expiry date | 900 MHz expiry date | 1800 MHz expiry date | 2.1 GHz expiry date | 2.6 GHz expiry date | |||||||||||||||
Europe |
||||||||||||||||||||
Germany |
December 2025 | December 2016 | December 2016 | December 2020 | December 2025 | |||||||||||||||
Italy |
n/a | February 2015 | February 2015 | December 2021 | n/a | |||||||||||||||
Spain |
n/a | February 2020 | July 2023 | April 2020 | n/a | |||||||||||||||
UK |
n/a | See note | (1) | See note | (1) | December 2021 | n/a | |||||||||||||
Albania |
n/a | June 2016 | June 2016 | December 2025 | n/a | |||||||||||||||
Czech Republic |
n/a | January 2021 | January 2021 | February 2025 | n/a | |||||||||||||||
Greece |
n/a | September 2012 | (2) | August 2016 | August 2021 | n/a | ||||||||||||||
Hungary |
n/a | July 2014 | (3) | July 2014 | (3) | December 2019 | (3) | n/a | ||||||||||||
Ireland |
n/a | May 2011 | December 2015 | October 2022 | n/a | |||||||||||||||
Malta |
n/a | May 2011 | May 2011 | August 2020 | n/a | |||||||||||||||
Netherlands |
n/a | March 2013 | March 2013 | December 2016 | May 2030 | |||||||||||||||
Portugal |
n/a | October 2021 | October 2021 | January 2016 | n/a | |||||||||||||||
Romania |
n/a | December 2011 | December 2011 | March 2020 | n/a | |||||||||||||||
Turkey |
n/a | April 2023 | — | April 2029 | n/a | |||||||||||||||
Africa, Middle East and Asia Pacific |
||||||||||||||||||||
| November 2014 — | November 2014 — | |||||||||||||||||||
India(4) |
n/a | December 2026 | December 2026 | September 2030 | n/a | |||||||||||||||
Vodacom: South Africa |
n/a | See note | (5) | See note | (5) | See note | (5) | n/a | ||||||||||||
Egypt |
n/a | January 2022 | January 2022 | January 2022 | n/a | |||||||||||||||
Ghana |
n/a | December 2019 | December 2019 | December 2023 | (6) | n/a | ||||||||||||||
New Zealand |
n/a | November 2031 | March 2021 | March 2021 | n/a | |||||||||||||||
Qatar |
n/a | June 2028 | June 2028 | June 2028 | n/a | |||||||||||||||
Notes:
| (1) | Indefinite licence with a one year notice of revocation. | |
| (2) | One third of the 900 MHz spectrum will expire in 2016. | |
| (3) | Options to extend these licences. | |
| (4) | India is comprised of 23 separate service area licences with a variety of expiry dates. Option to extend 900/1800 licences by ten years. Vodafone acquired 3G licences in nine of the service areas in May 2010. | |
| (5) | Vodacom’s South African spectrum licences are renewed annually. As part of the migration to a new licensing regime the NRA has issued Vodacom a service licence and a network licence which will permit Vodacom to offer mobile and fixed services. The service and network licences have 20 year duration and will expire in 2028. Vodacom also holds licences to provide 2G and/or 3G services in the Democratic Republic of Congo, Lesotho, Mozambique and Tanzania. | |
| (6) | The NRA has issued provisional licences with the intention of converting these to full licences once the NRA board has been reconvened. |
Table of Contents
Vodafone Group Plc Annual Report 2011 143
Additional information
Non-GAAP information
In the discussion of our reported financial position, operating results and cash flows,
information is presented to provide readers with additional financial information that is regularly
reviewed by management. However, this additional information presented is not uniformly defined by
all companies including those in the Group’s industry. Accordingly, it may not be comparable with
similarly titled measures and disclosures by other companies. Additionally, certain information
presented is derived from amounts calculated in accordance with IFRS but is not itself an expressly
permitted GAAP measure. Such non-GAAP measures should not be viewed in isolation or as an
alternative to the equivalent GAAP measure.
Adjusted EBITDA
Adjusted EBITDA is operating profit excluding share in results of associates, depreciation and
amortisation, gains/losses on the disposal of fixed assets, impairment losses and other operating
income and expense. We use adjusted EBITDA, in conjunction with other GAAP and non-GAAP financial
measures such as adjusted operating profit, operating profit and net profit, to assess our
operating performance. We believe that adjusted EBITDA is an operating performance measure, not a
liquidity measure, as it includes non-cash changes in working capital and is reviewed by the Chief
Executive to assess internal performance in conjunction with adjusted EBITDA margin, which is an
alternative sales margin figure. We believe it is both useful and necessary to report adjusted
EBITDA as a performance measure as it enhances the comparability of profit across segments.
Because adjusted EBITDA does not take into account certain items that affect operations and
performance, adjusted EBITDA has inherent limitations as a performance measure. To compensate for
these limitations, we analyse adjusted EBITDA in conjunction with other GAAP and non-GAAP operating
performance measures. Adjusted EBITDA should not be considered in isolation or as a substitute for
a GAAP measure of operating performance.
A reconciliation of adjusted EBITDA to the closest equivalent GAAP measure, operating profit, is
provided in note 3 to the consolidated financial statements on page 91.
Group adjusted operating profit and adjusted earnings per share
Group adjusted operating profit excludes non-operating income of associates, impairment losses
and other income and expense. Adjusted earnings per share also excludes amounts in relation to
equity put rights and similar arrangements and certain foreign exchange rate differences, together
with related tax effects. We believe that it is both useful and necessary to report these measures
for the following reasons:
| • | these measures are used for internal performance analysis; | |
| • | these measures are used in setting director and management remuneration; and | |
| • | they are useful in connection with discussion with the investment analyst community and debt rating agencies. |
Reconciliations of adjusted operating profit and adjusted earnings per share to the respective
closest equivalent GAAP measures, operating profit and basic earnings per share, are provided in
“Operating results” beginning on page 34.
Cash flow measures
In presenting and discussing our reported results, free cash flow and operating free cash flow
are calculated and presented even though these measures are not recognised within IFRS. We believe
that it is both useful and necessary to communicate free cash flow to investors and other
interested parties, for the following reasons:
| • | free cash flow allows us and external parties to evaluate our liquidity and the cash generated by our operations. Free cash flow does not include payments for licences and spectrum included within intangible assets, items determined independently of the ongoing business, such as the level of dividends, and items which are deemed discretionary, such as cash flows relating to acquisitions and disposals or financing activities. In addition, it does not necessarily reflect the amounts which we have an obligation to incur. However, it does reflect the cash available for such discretionary activities, to strengthen the consolidated statement of financial position or to provide returns to shareholders in the form of dividends or share purchases; | |
| • | free cash flow facilitates comparability of results with other companies although our measure of free cash flow may not be directly comparable to similarly titled measures used by other companies; | |
| • | these measures are used by management for planning, reporting and incentive purposes; and | |
| • | these measures are useful in connection with discussion with the investment analyst community and debt rating agencies. |
A reconciliation of cash generated by operations, the closest equivalent GAAP measure, to operating
free cash flow and free cash flow, is provided in “Financial position and resources” on page 48.
Other
Certain of the statements within the section titled “Chief Executive’s review” on pages 10 to
11 contain forward-looking non-GAAP financial information for which at this time there is no
comparable GAAP measure and which at this time cannot be quantitatively reconciled to comparable
GAAP financial information.
Certain of the statements within the section titled “Guidance” on page 44 contain forward-looking
non-GAAP financial information which at this time cannot be quantitatively reconciled to comparable
GAAP financial information.
Organic growth
All amounts in this document marked with an “(*)” represent organic growth which present
performance on a comparable basis, both in terms of merger and acquisition activity and foreign
exchange rates. We believe that “organic growth”, which is not intended to be a substitute for or
superior to reported growth, provides useful and necessary information to investors and other
interested parties for the following reasons:
| • | it provides additional information on underlying growth of the business without the effect of certain factors unrelated to the operating performance of the business; | |
| • | it is used for internal performance analysis; and | |
| • | it facilitates comparability of underlying growth with other companies, although the term “organic” is not a defined term under IFRS and may not, therefore, be comparable with similarly titled measures reported by other companies. |
Table of Contents
144 Vodafone Group Plc Annual Report 2011
Non-GAAP information continued
Reconciliation of organic growth to reported growth is shown where used, or in the table below:
| Organic | M&A | Foreign | Reported | |||||||||||||
| change | activity | exchange | change | |||||||||||||
| % | pps | pps | % | |||||||||||||
31 March 2011 |
||||||||||||||||
Group |
||||||||||||||||
Service revenue |
||||||||||||||||
H2 2011 |
2.5 | 0.2 | (1.5 | ) | 1.2 | |||||||||||
H1 2011 |
1.7 | 1.5 | 0.5 | 3.7 | ||||||||||||
Change |
0.8 | (1.3 | ) | (2.0 | ) | (2.5 | ) | |||||||||
Revenue |
2.8 | 0.8 | (0.4 | ) | 3.2 | |||||||||||
Service revenue |
2.1 | 0.9 | (0.6 | ) | 2.4 | |||||||||||
Service revenue for the quarter ended 31 March 2011 |
2.5 | 0.1 | (2.2 | ) | 0.4 | |||||||||||
Data revenue |
26.4 | 1.2 | (1.2 | ) | 26.4 | |||||||||||
Fixed line revenue |
5.2 | 1.7 | (3.5 | ) | 3.4 | |||||||||||
Emerging markets service revenue |
11.8 | 3.4 | 6.8 | 22.0 | ||||||||||||
Vodafone Global Enterprise revenue |
8 | — | 3 | 11 | ||||||||||||
Adjusted EBITDA |
(0.7 | ) | 1.4 | (1.1 | ) | (0.4 | ) | |||||||||
Adjusted operating profit |
1.8 | 2.5 | (1.2 | ) | 3.1 | |||||||||||
Europe |
||||||||||||||||
Service revenue |
||||||||||||||||
31 March 2010 |
(3.8 | ) | 0.1 | 4.6 | 0.9 | |||||||||||
31 March 2009 |
(1.7 | ) | 2.5 | 13.2 | 14.0 | |||||||||||
Change |
(2.1 | ) | (2.4 | ) | (8.6 | ) | (13.1 | ) | ||||||||
Service revenue for the six months ended 31 March 2011 |
(0.3 | ) | 0.2 | (3.5 | ) | (3.6 | ) | |||||||||
Service revenue for the quarter ended 31 March 2011 |
(0.8 | ) | 0.2 | (3.2 | ) | (3.8 | ) | |||||||||
Northern Europe service revenue growth |
2.7 | (1.2 | ) | (2.8 | ) | (1.3 | ) | |||||||||
Southern Europe service revenue growth |
(2.9 | ) | 1.2 | (3.5 | ) | (5.2 | ) | |||||||||
Enterprise revenue |
0.5 | 0.2 | (3.2 | ) | (2.5 | ) | ||||||||||
Germany — service revenue excluding the impact of termination rate cuts |
2.1 | — | (4.1 | ) | (2.0 | ) | ||||||||||
Germany — data revenue |
27.9 | — | (5.1 | ) | 22.8 | |||||||||||
Germany — enterprise revenue |
3.6 | — | (4.2 | ) | (0.6 | ) | ||||||||||
Italy — data revenue |
21.5 | — | (4.8 | ) | 16.7 | |||||||||||
Spain — data revenue |
14.8 | — | (4.8 | ) | 10.0 | |||||||||||
UK — data revenue |
28.5 | — | — | 28.5 | ||||||||||||
Greece — service revenue |
(19.4 | ) | — | (3.2 | ) | (22.6 | ) | |||||||||
Turkey — service revenue |
28.9 | 3.6 | 2.7 | 35.2 | ||||||||||||
Africa, Middle East and Asia Pacific |
||||||||||||||||
Service revenue for the quarter ended 31 March 2011 |
11.8 | (1.3 | ) | 0.7 | 11.2 | |||||||||||
Vodacom
— data
revenue(1) |
43.8 | 9.7 | 15.2 | 68.7 | ||||||||||||
South Africa — data revenue |
41.8 | 9.5 | 15.6 | 66.9 | ||||||||||||
Egypt — service revenue |
(0.8 | ) | — | (1.0 | ) | (1.8 | ) | |||||||||
Egypt — data revenue |
37.7 | — | (1.5 | ) | 36.2 | |||||||||||
Ghana — service revenue |
21.0 | — | 1.6 | 22.6 | ||||||||||||
Indus Towers — contribution to India service revenue growth |
1.7 | — | 0.1 | 1.8 | ||||||||||||
Percentage point reduction in adjusted EBITDA margin |
(0.6 | ) | 1.0 | (0.2 | ) | 0.2 | ||||||||||
Verizon Wireless |
||||||||||||||||
Revenue |
6.0 | — | 2.6 | 8.6 | ||||||||||||
Service revenue(2) |
5.8 | — | 2.6 | 8.4 | ||||||||||||
Adjusted EBITDA |
6.7 | (0.1 | ) | 2.7 | 9.3 | |||||||||||
Group’s share of result of Verizon Wireless |
8.5 | (0.1 | ) | 2.7 | 11.1 | |||||||||||
Table of Contents
Vodafone Group Plc Annual Report 2011 145
Additional information
| Organic | M&A | Foreign | Reported | |||||||||||||
| change | activity | exchange | change | |||||||||||||
| % | pps | pps | % | |||||||||||||
31 March 2010 |
||||||||||||||||
Group |
||||||||||||||||
Service revenue |
(1.6 | ) | 4.9 | 5.6 | 8.9 | |||||||||||
Data revenue |
19.3 | 6.9 | 6.8 | 33.0 | ||||||||||||
Fixed line revenue |
7.9 | 6.0 | 6.7 | 20.6 | ||||||||||||
Emerging markets service revenue |
7.9 | 31.3 | 7.9 | 47.1 | ||||||||||||
Europe |
||||||||||||||||
Service revenue |
(3.8 | ) | 0.1 | 4.6 | 0.9 | |||||||||||
Data revenue |
17.7 | — | 5.5 | 23.2 | ||||||||||||
Fixed line revenue |
7.5 | — | 6.3 | 13.8 | ||||||||||||
Enterprise revenue |
(4.8 | ) | — | 4.5 | (0.3 | ) | ||||||||||
Germany — service revenue for the quarter ended 31 March 2010 |
(1.6 | ) | — | (2.4 | ) | (4.0 | ) | |||||||||
Germany — mobile service revenue |
(5.0 | ) | — | 6.0 | 1.0 | |||||||||||
Germany — mobile service revenue for the quarter ended 31 March 2010 |
(1.8 | ) | — | (2.3 | ) | (4.1 | ) | |||||||||
Germany — fixed line revenue |
1.3 | — | 6.1 | 7.4 | ||||||||||||
Spain — service revenue for the quarter ended 31 March 2010 |
(6.2 | ) | — | (2.3 | ) | (8.5 | ) | |||||||||
UK — service revenue for the quarter ended 31 March 2010 |
(2.6 | ) | — | — | (2.6 | ) | ||||||||||
Greece — service revenue |
(14.5 | ) | — | 5.6 | (8.9 | ) | ||||||||||
Netherlands — service revenue |
3.0 | — | 6.4 | 9.4 | ||||||||||||
Portugal — service revenue |
(4.9 | ) | — | 6.1 | 1.2 | |||||||||||
Romania — service revenue |
(19.9 | ) | — | 5.2 | (14.7 | ) | ||||||||||
Romania — adjusted EBITDA |
(26.5 | ) | — | 4.7 | (21.8 | ) | ||||||||||
Turkey — service revenue for the quarter ended 31 March 2010 |
31.3 | — | 1.5 | 32.8 | ||||||||||||
Africa, Middle East and Asia Pacific |
||||||||||||||||
India — service revenue for the quarter ended 31 March 2010 |
6.5 | — | 0.1 | 6.6 | ||||||||||||
Indus Towers — contribution to India service revenue growth for the quarter ended 31 March 2010 |
0.3 | — | 0.1 | 0.4 | ||||||||||||
Vodacom — data revenue |
32.9 | 155.3 | 57.3 | 245.5 | ||||||||||||
Egypt — service revenue |
1.3 | — | 4.7 | 6.0 | ||||||||||||
Egypt — data and fixed line revenue |
64.2 | — | 4.4 | 68.6 | ||||||||||||
Verizon Wireless |
||||||||||||||||
Revenue |
5.0 | 11.8 | 5.5 | 22.3 | ||||||||||||
Service revenue |
6.3 | 11.7 | 5.6 | 23.6 | ||||||||||||
Adjusted EBITDA |
4.4 | 10.9 | 5.4 | 20.7 | ||||||||||||
Group’s share of result of Verizon Wireless |
8.0 | 2.5 | 5.6 | 16.1 | ||||||||||||
31 March 2009 |
||||||||||||||||
Group |
||||||||||||||||
Service revenue |
(0.3 | ) | 3.1 | 13.1 | 15.9 | |||||||||||
Data revenue |
25.9 | 0.7 | 17.1 | 43.7 | ||||||||||||
Fixed line revenue |
2.1 | 21.3 | 22.1 | 45.5 | ||||||||||||
Emerging markets service revenue(3) |
6.4 | 14.2 | 6.4 | 27.0 | ||||||||||||
Europe |
||||||||||||||||
Germany — service revenue |
(2.5 | ) | (0.1 | ) | 17.6 | 15.0 | ||||||||||
Italy — service revenue |
1.2 | 4.7 | 19.2 | 25.1 | ||||||||||||
Spain — service revenue |
(4.9 | ) | 2.5 | 17.7 | 15.3 | |||||||||||
UK — service revenue |
(1.1 | ) | 0.3 | — | (0.8 | ) | ||||||||||
Africa, Middle East and Asia Pacific |
||||||||||||||||
India — pro-forma revenue |
33 | 9 | 6 | 48 | ||||||||||||
Vodacom — service revenue |
13.8 | 2.1 | (5.2 | ) | 10.7 | |||||||||||
| Notes: | ||
| (1) | Data revenue in South Africa grew by 41.8%(*). Excluding the impact of reclassifications between messaging and data revenue during the year, data revenue grew by 35.9%(*). | |
| (2) | Organic growth rates include the impact of a non-cash revenue adjustment which was recorded to properly defer previously recognised data revenue that will be earned and recognised in future periods. Excluding this the equivalent growth rates for service revenue, revenue, adjusted EBITDA and the Group’s share of result in Verizon Wireless would have been 6.4%(*), 6.6%(*), 8.2%(*) and 10.8%(*) respectively. | |
| (3) | Excludes India, Ghana and Qatar as these were not owned for the full financial year. | |
Table of Contents
146 Vodafone Group Plc Annual Report 2011
Form 20-F cross reference guide
This annual report on Form 20-F for the fiscal year ended 31 March 2011 has not been approved
or disapproved by the SEC nor has the SEC passed judgement upon the adequacy or accuracy of this
document. The table below sets out the location in this document of the information required by SEC
Form 20-F.
| Item | Form 20-F caption | Location in this document | Page | ||||||||
| 1 | Identity of directors, senior management and advisers | Not applicable
|
— | ||||||||
| 2 | Offer statistics and expected timetable | Not applicable
|
— | ||||||||
| 3 | Key information | ||||||||||
| 3A Selected financial data | Selected financial data
|
151 | |||||||||
Shareholder information — Inflation and foreign currency translation
|
134 | ||||||||||
| 3B Capitalisation and indebtedness | Not applicable
|
— | |||||||||
| 3C Reasons for the offer and use of proceeds | Not applicable
|
— | |||||||||
| 3D Risk factors | Principal risk factors and uncertainties
|
45 to 46 | |||||||||
| 4 | Information on the Company | ||||||||||
| 4A History and development of the company | History and development
|
139 | |||||||||
Contact details
|
BC | ||||||||||
| 4B Business overview | About us
|
2 to 3 | |||||||||
Vodafone at a glance
|
4 to 5 | ||||||||||
Mobile telecommunications industry
|
8 to 9 | ||||||||||
Focus on key areas of growth potential — Mobile data
|
15 to 19 | ||||||||||
Focus on key areas of growth potential — Enterprise
|
22 | ||||||||||
Focus on key areas of growth potential — Total communications
|
23 | ||||||||||
Focus on key areas of growth potential — New services
|
24 | ||||||||||
Operating results
|
34 to 43 | ||||||||||
| 4C Organisational structure | Note 12 “Principal subsidiaries”
|
103 | |||||||||
Note 13 “Investments in joint ventures”
|
104 | ||||||||||
Note 14 “Investments in associates”
|
105 | ||||||||||
Note 15 “Other investments”
|
105 | ||||||||||
| 4D Property, plant and equipment | About us
|
2 to 3 | |||||||||
Financial position and resources
|
47 to 51 | ||||||||||
Sustainable business
|
30 to 31 | ||||||||||
| 4A | Unresolved staff comments | None
|
— | ||||||||
| 5 | Operating and financial review and prospects | ||||||||||
| 5A Operating results | Operating results
|
34 to 43 | |||||||||
Note 22 “Borrowings”
|
113 to 117 | ||||||||||
Shareholder information — Inflation and foreign currency translation
|
134 | ||||||||||
Regulation
|
140 to 142 | ||||||||||
| 5B Liquidity and capital resources | Financial position and resources — Liquidity and capital resources
|
48 to 51 | |||||||||
Note 21 “Capital and financial risk management”
|
110 to 112 | ||||||||||
Note 22 “Borrowings”
|
113 to 117 | ||||||||||
5C Research and development,
patents
and licences, etc
|
Focus on key areas of growth potential — Mobile data
|
17 | |||||||||
Note 4 “Operating profit”
|
92 | ||||||||||
Regulation — Licences
|
142 | ||||||||||
| 5D Trend information | Mobile telecommunications industry
|
8 to 9 | |||||||||
| 5E Off-balance sheet arrangements | Financial position and resources — Off-balance sheet arrangements
|
51 | |||||||||
Note 27 “Commitments”
|
121 | ||||||||||
Note 28 “Contingent liabilities”
|
121 to 122 | ||||||||||
| 5F Tabular disclosure of contractual obligations | Financial position and resources — Contractual obligations
and contingencies
|
47 | |||||||||
| 5G Safe harbor | Forward-looking statements
|
148 | |||||||||
| 6 | Directors, senior management and employees | ||||||||||
| 6A Directors and senior management | Board of directors and Group management
|
52 to 54 | |||||||||
| 6B Compensation | Directors’ remuneration
|
62 to 73 | |||||||||
| 6C Board practices | Corporate governance
|
55 to 61 | |||||||||
Directors’ remuneration
|
62 to 73 | ||||||||||
Board of directors and Group management
|
52 to 54 | ||||||||||
| 6D Employees | People
|
32 to 33 | |||||||||
Note 31 “Employees”
|
124 | ||||||||||
| 6E Share ownership | Directors’ remuneration
|
62 to 73 | |||||||||
Note 20 “Share-based payments”
|
108 to 109 | ||||||||||
| 7 | Major shareholders and related party transactions | ||||||||||
| 7A Major shareholders | Shareholder information — Major shareholders
|
134 | |||||||||
| 7B Related party transactions | Directors’ remuneration
|
62 to 73 | |||||||||
Note 28 “Contingent liabilities”
|
121 to 122 | ||||||||||
Note 30 “Related party transactions”
|
123 to 124 | ||||||||||
| 7C Interests of experts and counsel | Not applicable
|
— | |||||||||
Table of Contents
Vodafone Group Plc Annual Report 2011 147
Additional information
| Item | Form 20-F caption | Location in this document | Page | ||||||
| 8 | Financial information | ||||||||
| 8A Consolidated statements and other financial information | Financials
|
74 to 124 | |||||||
Audit report on the consolidated financial statements
|
79 | ||||||||
Note 28 “Contingent liabilities”
|
121 to 122 | ||||||||
Financial position and resources
|
47 to 51 | ||||||||
| 8B Significant changes | Subsequent events
|
A-1 to A-6 | |||||||
| 9 | The offer and listing | ||||||||
| 9A Offer and listing details | Shareholder information — Share price history
|
133 | |||||||
| 9B Plan of distribution | Not applicable
|
— | |||||||
| 9C Markets | Shareholder information — Markets
|
134 | |||||||
| 9D Selling shareholders | Not applicable
|
— | |||||||
| 9E Dilution | Not applicable
|
— | |||||||
| 9F Expenses of the issue | Not applicable
|
— | |||||||
| 10 | Additional information | ||||||||
| 10A Share capital | Not applicable
|
— | |||||||
10B
Memorandum and articles of association
|
Shareholder information — Articles of association and applicable English law
|
134 to 136 | |||||||
| 10C Material contracts | Shareholder information — Material contracts
|
137 | |||||||
| 10D Exchange controls | Shareholder information — Exchange controls
|
137 | |||||||
| 10E Taxation | Shareholder information — Taxation
|
137 to 138 | |||||||
| 10F Dividends and paying agents | Not applicable
|
— | |||||||
| 10G Statement by experts | Not applicable
|
— | |||||||
| 10H Documents on display | Shareholder information — Documents on display
|
137 | |||||||
| 10I Subsidiary information | Not applicable
|
— | |||||||
| 11 | Quantitative and qualitative disclosures about market risk | Note 21 “Capital and financial risk management”
|
110 to 112 | ||||||
| 12 | Description of securities other than equity securities | ||||||||
| 12A Debt securities | Not applicable
|
— | |||||||
| 12B Warrants and rights | Not applicable
|
— | |||||||
| 12C Other securities | Not applicable
|
— | |||||||
| 12D American depositary shares | ADR payment information |
||||||||
| 13 | Defaults, dividend arrearages and delinquencies | Not applicable
|
— | ||||||
| 14 | Material modifications to the rights of security holders and use of proceeds | Not applicable
|
— | ||||||
| 15 | Controls and procedures | Corporate governance
|
55 to 61 | ||||||
Directors’ statement of responsibility — Management’s report on internal control over financial reporting
|
75 | ||||||||
Audit report on internal controls
|
76 | ||||||||
| 16 | 16A Audit Committee financial expert | Corporate governance — Board committees
|
57 to 58 | ||||||
| 16B Code of ethics | Corporate governance
|
55 to 61 | |||||||
| 16C Principal accountant fees and services | Note 4 “Operating profit” Corporate governance — Auditor |
92 60 | |||||||
16D Exemptions from the listing standards for
audit committees
|
Not applicable
|
— | |||||||
16E Purchase of equity securities by the issuer and
affiliated purchasers
|
Financial position and resources
|
47 to 51 | |||||||
16F
Change in registrant’s certifying accountant
|
Not applicable
|
— | |||||||
| 16G Corporate governance | Corporate governance — US listing requirements
|
60 | |||||||
| 17 | Financial statements | Not applicable
|
— | ||||||
| 18 | Financial statements | Financials(1)
|
74 to 124 | ||||||
18A Separate financial statements required
by Rule 3-09 of Regulation S-X
|
Financials
|
B-1 | |||||||
18B Report of Independent Registered Public
Accounting Firm
|
Financials
|
B-30 | |||||||
| 19 | Exhibits | Filed with the SEC
|
Index to Exhibits | ||||||
Table of Contents
148 Vodafone Group Plc Annual Report 2011
Forward-looking statements
This document contains “forward-looking statements” within the meaning of the US Private
Securities Litigation Reform Act of 1995 with respect to the Group’s financial condition, results
of operations and businesses and certain of the Group’s plans and objectives.
In particular, such forward-looking statements include statements with respect to:
| • | the Group’s expectations regarding its financial and operating performance, including statements contained within the Chief Executive’s review on pages 10 to 11, the Group’s 7% dividend per share growth target contained on pages 6, 27, 44 and 48, and the guidance statement for the 2012 financial year and the medium-term guidance statement for the three financial years ending 31 March 2014 on page 44 of this document, and the performance of joint ventures, associates, including Verizon Wireless and VHA, other investments and newly acquired businesses; | |
| • | intentions and expectations regarding the development of products, services and initiatives introduced by, or together with, Vodafone or by third parties, including new mobile technologies, such as the introduction of 4G, the Vodafone M-Pesa money transfer system, tablets and an increase in download speeds and 3G sites; | |
| • | expectations regarding the global economy and the Group’s operating environment, including future market conditions, growth in the number of worldwide mobile phone users and other trends, including increased data usage; | |
| • | revenue and growth expected from the Group’s total communications strategy, including data revenue growth, and its expectations with respect to long-term shareholder value growth; | |
| • | mobile penetration and coverage rates, termination rate cuts, the Group’s ability to acquire spectrum, expected growth prospects in the Europe, Africa, Middle East and Asia Pacific regions and growth in customers and usage generally; | |
| • | expected benefits associated with the merger of Vodafone Australia and Hutchison 3G Australia; | |
| • | anticipated benefits to the Group from cost efficiency programmes; | |
| • | possible future acquisitions, including increases in ownership in existing investments, the timely completion of pending acquisition transactions and pending offers for investments, including licence acquisitions, and the expected funding required to complete such acquisitions or investments; | |
| • | expectations regarding the Group’s future revenue, operating profit, adjusted EBITDA margin, free cash flow, capital intensity, depreciation and amortisation charges, foreign exchange rates, tax rates and capital expenditure; | |
| • | expectations regarding the Group’s access to adequate funding for its working capital requirements and share buyback programmes, and the rate of dividend growth by the Group (including the Group’s 7% dividend per share growth target) or its existing investments; and | |
| • | the impact of regulatory and legal proceedings involving Vodafone and of scheduled or potential regulatory changes. |
Forward-looking statements are sometimes, but not always, identified by their use of a date in the
future or such words as “will”, “anticipates”, “aims”, “could”, “may”, “should”, “expects”,
“believes”, “intends”, “plans” or
“targets”. By their nature, forward-looking statements are
inherently predictive, speculative and involve risk and uncertainty because they relate to events
and depend on circumstances that will occur in the future. There are a number of factors that could
cause actual results and developments to differ materially from those expressed or implied by these
forward-looking statements. These factors include, but are not limited to, the following:
| • | general economic and political conditions in the jurisdictions in which the Group operates and changes to the associated legal, regulatory and tax environments; | |
| • | increased competition, from both existing competitors and new market entrants, including mobile virtual network operators; | |
| • | levels of investment in network capacity and the Group’s ability to deploy new technologies, products and services in a timely manner, particularly data content and services; | |
| • | rapid changes to existing products and services and the inability of new products and services to perform in accordance with expectations, |
| including as a result of third party or vendor marketing efforts; | ||
| • | the ability of the Group to integrate new technologies, products and services with existing networks, technologies, products and services; | |
| • | the Group’s ability to generate and grow revenue from both voice and non-voice services and achieve expected cost savings; | |
| • | a lower than expected impact of new or existing products, services or technologies on the Group’s future revenue, cost structure and capital expenditure outlays; | |
| • | slower than expected customer growth, reduced customer retention, reductions or changes in customer spending and increased pricing pressure; | |
| • | the Group’s ability to expand its spectrum position, win 3G and 4G allocations and realise expected synergies and benefits associated with 3G and 4G; | |
| • | the Group’s ability to secure the timely delivery of high quality, reliable handsets, network equipment and other key products from suppliers; | |
| • | loss of suppliers, disruption of supply chains and greater than anticipated prices of new mobile handsets; | |
| • | changes in the costs to the Group of, or the rates the Group may charge for, terminations and roaming minutes; | |
| • | the Group’s ability to realise expected benefits from acquisitions, partnerships, joint ventures, franchises, brand licences, platform sharing or other arrangements with third parties, particularly those related to the development of data and internet services; | |
| • | acquisitions and divestments of Group businesses and assets and the pursuit of new, unexpected strategic opportunities which may have a negative impact on the Group’s financial condition and results of operations; | |
| • | the Group’s ability to integrate acquired business or assets and the imposition of any unfavourable conditions, regulatory or otherwise, on any pending or future acquisitions or dispositions; | |
| • | the extent of any future write-downs or impairment charges on the Group’s assets, or restructuring charges incurred as a result of an acquisition or disposition; | |
| • | developments in the Group’s financial condition, earnings and distributable funds and other factors that the Board takes into account in determining the level of dividends; | |
| • | the Group’s ability to satisfy working capital requirements through borrowing in capital markets, bank facilities and operations; | |
| • | changes in foreign exchange rates, including particularly the exchange rate of pounds sterling to the euro and the US dollar; | |
| • | changes in the regulatory framework in which the Group operates, including the commencement of legal or regulatory action seeking to regulate the Group’s permitted charging rates; | |
| • | the impact of legal or other proceedings against the Group or other companies in the communications industry; and | |
| • | changes in statutory tax rates and profit mix, the Group’s ability to resolve open tax issues and the timing and amount of any payments in respect of tax liabilities. |
Furthermore, a review of the reasons why actual results and developments may differ materially from
the expectations disclosed or implied within forward-looking statements can be found under
“Principal risk factors and uncertainties” on pages 45 and 46 of this document. All subsequent
written or oral forward-looking statements attributable to the Company or any member of the Group
or any persons acting on their behalf are expressly qualified in their entirety by the factors
referred to above. No assurances can be given that the forward-looking statements in this document
will be realised. Subject to compliance with applicable law and regulations, Vodafone does not
intend to update these forward-looking statements and does not undertake any obligation to do so.
Table of Contents
Vodafone Group Plc Annual Report 2011 149
Additional information
Definition of terms
2G
|
2G networks are operated using global system for mobile (‘GSM’) technology which offer services such as voice, text messaging and basic data. In addition, all the Group’s controlled networks support general packet radio services (‘GPRS’), often referred to as 2.5G. GPRS allows mobile devices to access IP based data services such as the internet and email. | |
3G
|
A cellular technology based on wide band CDMA delivering voice and data services. | |
4G
|
4G or LTE technology offers even faster data transfer speeds than 3G/HSPA, increases network capacity and is able to deliver sustained customer throughputs of between 6-12 Mbps in real network conditions. | |
Acquisition costs
|
The total of connection fees, trade commissions and equipment costs relating to new customer connections. | |
ADR
|
American depositary receipts is a mechanism designed to facilitate trading in shares of non-US companies in the US stock markets. The main purpose is to create an instrument which can easily be settled through US stock market clearing systems. | |
ADS
|
American depositary shares are shares evidenced by american depositary receipts. ADSs are issued by a depositary bank and represent one or more shares of a non-US issuer held by the depositary bank. The main purpose of ADSs is to facilitate trading in shares of non-US companies in the US markets and, accordingly, ADRs which evidence ADSs are in a form suitable for holding in US clearing systems. | |
AGM
|
Annual general meeting. | |
ARPU
|
Service revenue excluding fixed line revenue, fixed advertising revenue, revenue related to business managed services and revenue from certain tower sharing arrangements divided by average customers. | |
Capital expenditure
|
This measure includes the aggregate of capitalised property, plant and equipment additions and capitalised software costs. | |
CDMA
|
Code-division multiple access refers to any of several protocols used in 2G and 3G communications. It allows numerous signals to occupy a single transmission channel, optimising availability of bandwidth. | |
Churn
|
Total gross customer disconnections in the period divided by the average total customers in the period. | |
Controlled and jointly
controlled
|
Controlled and jointly controlled measures include 100% for the Group’s mobile operating subsidiaries and the Group’s proportionate share for joint ventures. | |
Customer costs
|
Customer costs include acquisition costs, being the total of connection fees, trade commissions and equipment costs relating to new customer connections, and retention costs, being the total of trade commissions, loyalty scheme and equipment costs relating to customer retention and upgrades, as well as expenses related to ongoing commissions. | |
Depreciation and other
amortisation
|
This measure includes the profit or loss on disposal of property, plant and equipment and computer software. | |
Direct costs
|
Direct costs include interconnect costs and other direct costs of providing services. | |
DSL
|
A digital subscriber line which is a fixed line enabling data to be transmitted at theoretical peak speeds of up to 16 Mbps. | |
DTT
|
Digital terrestrial television. | |
Adjusted EBITDA
|
Operating profit excluding share in results of associates, depreciation and amortisation, gains/losses on the disposal of fixed assets, impairment losses and other operating income and expense. | |
EDGE
|
In most our networks we also provide an advanced version of GPRS called enhanced data rates for GSM evolution (‘EDGE’). This provides download speeds of over 200 kilobits per second (‘kbps’) to customers. | |
Emerging markets
|
India, Vodacom, Egypt, Turkey, Ghana, Qatar and Fiji. | |
Fixed broadband customer
|
A fixed broadband customer is defined as a physical connection or access point to a fixed line network. | |
FRC
|
Financial Reporting Council. | |
Free cash flow
|
Operating free cash flow after cash flows in relation to taxation, interest, dividends received from associates and investments and dividends paid to non-controlling shareholders in subsidiaries but before licence and spectrum payments and for the year ended 31 March 2011 other items in respect of: the UK CFC settlement, tax relating to the disposal of China Mobile Limited, the SoftBank disposal and the court deposit made in respect of the India tax case. | |
FSA
|
Financial Services Authority. | |
HSDPA
|
High speed downlink packet access is a wireless technology enabling theoretical network to mobile data transmission speeds of up to 43.2 Mbps. | |
HSPA
|
High speed packet access or third generation (‘3G’) is a wireless technology operating wideband code division multiple access (‘W-CDMA’) technology, providing customers with voice, video telephony, multimedia messaging and high speed data services. | |
Impairment
|
A downward revaluation of an asset. | |
‘in the cloud’
|
This means the customer has little or no equipment at their premises and all the equipment and capability is run from the Vodafone network instead. This removes the need for customers to make capital investment and instead they have an operating cost model with a recurring monthly fee. | |
Interconnect costs
|
A charge paid by Vodafone to other fixed line or mobile operators when a Vodafone customer calls a customer connected to a different network. | |
IP
|
Internet protocol (‘IP’) is the method by which data is sent from one computer to another on the internet. | |
LAN
|
A local area network supplies networking capability to a group of computers in close proximity to each other. | |
LTE
|
Long-term evolution (‘LTE’) is 4G technology which offers even faster data transfer speeds than 3G/HSPA, increases network capacity and is able to deliver sustained customer throughputs of between 6-12 Mbps in real network conditions. | |
Mark-to-market
|
Mark-to-market or fair value accounting refers to accounting for the value of an asset or liability based on the current market price of the asset or liability. |
Table of Contents
150 Vodafone Group Plc Annual Report 2011
Definition of terms continued
Mobile broadband
|
Also known as mobile internet (see below). | |
Mobile customer
|
A mobile customer is defined as a subscriber identity module (‘SIM’), or in territories where SIMs do not exist, a unique mobile telephone number, which has access to the network for any purpose, including data only usage, except telemetric applications. Telemetric applications include, but are not limited to, asset and equipment tracking, mobile payment and billing functionality, e.g. vending machines and meter readings, and include voice enabled customers whose usage is limited to a central service operation, e.g. emergency response applications in vehicles. | |
Mobile internet
|
Browser based access to the internet or web applications using a mobile device, such as a smartphone, connected to a wireless network. | |
Mobile termination rate (‘MTR’)
|
A per minute charge paid by a telecommunications network operator when a customer makes a call to another mobile or fixed line network operator. | |
MVNO
|
Mobile virtual network operators, companies that provide mobile phone services but do not have their own licence of spectrum or the infrastructure required to operate a network. | |
Net debt
|
Long-term borrowings, short-term borrowings and mark-to-market adjustments on financing instruments less cash and cash equivalents. | |
Net promoter score
|
Net promoter score (‘NPS’) is a customer loyalty metric used to monitor customer satisfaction. | |
Operating costs
|
Operating expenses plus customer costs other than acquisition and retention costs. | |
Operating expenses
|
Operating expenses comprise primarily of network and IT related expenditure, support costs from HR and finance and certain intercompany items. | |
Operating free cash flow
|
Cash generated from operations after cash payments for capital expenditure (excludes capital licence and spectrum payments) and cash receipts from the disposal of intangible assets and property, plant and equipment. | |
Organic growth
|
The percentage movements in organic growth are presented to reflect operating performance on a comparable basis, both in terms of merger and acquisition activity and foreign exchange rates. | |
Partner markets
|
Markets in which the Group has entered into a partner agreement with a local mobile operator enabling a range of Vodafone’s global products and services to be marketed in that operator’s territory and extending Vodafone’s reach into such markets. | |
Penetration
|
Number of SIMs in a country as a percentage of the country’s population. Penetration can be in excess of 100% due to customers’ owning more than one SIM. | |
Petabyte
|
A petabyte is a measure of data usage. One petabyte is a million gigabytes. | |
Pps
|
Percentage points. | |
Pro-forma growth
|
Pro-forma growth is organic growth adjusted to include acquired business for the whole of both periods. | |
Reported growth
|
Reported growth is based on amounts reported in pounds sterling as determined under IFRS. | |
RAN
|
Radio access network is part of a mobile telecommunication system which conceptually sits between the mobile phone and the base station. | |
Retention costs
|
The total of trade commissions, loyalty scheme and equipment costs relating to customer retention and upgrade. | |
Roaming
|
Allows our customers to make calls on other operators’ mobile networks while travelling abroad. | |
Service revenue
|
Service revenue comprises all revenue related to the provision of ongoing services including, but not limited to, monthly access charges, airtime usage, roaming, incoming and outgoing network usage by non-Vodafone customers and interconnect charges for incoming calls. | |
Smartphone devices
|
A smartphone is a mobile phone offering advanced capabilities including access to email and the internet. | |
Smartphone penetration
|
The number of smartphone devices divided by the number of registered SIMs, excluding data only SIMs. | |
Spectrum
|
The radio frequency bands and channels assigned for telecommunication services. | |
Tablet device
|
A tablet is a slate shaped, mobile or portable, casual computing device equipped with a finger operated touchscreen or stylus, for example, the Apple iPad. | |
Visitor revenue
|
Amounts received by a Vodafone operating company when customers of another operator, including those of other Vodafone companies, roam onto its network. | |
Wi-Fi
|
A Wi-Fi enabled device such as a smartphone can connect to the internet when within a range of a wireless network connected to the internet. |
Table of Contents
Vodafone Group Plc Annual Report 2011 151
Selected financial data
| At/for the year ended 31 March | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||
Consolidated income statement data (£m) |
||||||||||||||||||||
Revenue |
45,884 | 44,472 | 41,017 | 35,478 | 31,104 | |||||||||||||||
Operating profit/(loss) |
5,596 | 9,480 | 5,857 | 10,047 | (1,564 | ) | ||||||||||||||
Profit/(loss) before taxation |
9,498 | 8,674 | 4,189 | 9,001 | (2,383 | ) | ||||||||||||||
Profit/(loss) for the financial year from continuing operations |
7,870 | 8,618 | 3,080 | 6,756 | (4,806 | ) | ||||||||||||||
Profit/(loss) for the financial year |
7,870 | 8,618 | 3,080 | 6,756 | (5,222 | ) | ||||||||||||||
Consolidated statement of financial position data (£m) |
||||||||||||||||||||
Total assets |
151,220 | 156,985 | 152,699 | 127,270 | 109,617 | |||||||||||||||
Total equity |
87,561 | 90,810 | 84,777 | 76,471 | 67,293 | |||||||||||||||
Total equity shareholders’ funds |
87,555 | 90,381 | 86,162 | 78,043 | 67,067 | |||||||||||||||
Earnings per share(1) |
||||||||||||||||||||
Weighted average number of shares (millions) |
||||||||||||||||||||
— Basic |
52,408 | 52,595 | 52,737 | 53,019 | 55,144 | |||||||||||||||
— Diluted |
52,748 | 52,849 | 52,969 | 53,287 | 55,144 | |||||||||||||||
Basic earnings/(loss) per ordinary share (pence) |
||||||||||||||||||||
— Profit/(loss) from continuing operations |
15.20p | 16.44p | 5.84p | 12.56p | (8.94)p | |||||||||||||||
— Profit/(loss) for the financial year |
15.20p | 16.44p | 5.84p | 12.56p | (9.70)p | |||||||||||||||
Diluted earnings/(loss) per ordinary share |
||||||||||||||||||||
— Profit/(loss) from continuing operations |
15.11p | 16.36p | 5.81p | 12.50p | (8.94)p | |||||||||||||||
— Profit/(loss) for the financial year |
15.11p | 16.36p | 5.81p | 12.50p | (9.70)p | |||||||||||||||
Cash dividends(1)(2) |
||||||||||||||||||||
Amount per ordinary share (pence) |
8.90p | 8.31p | 7.77p | 7.51p | 6.76p | |||||||||||||||
Amount per ADS (pence) |
89.0p | 83.1p | 77.7p | 75.1p | 67.6p | |||||||||||||||
Amount per ordinary share (US cents) |
14.33c | 12.62c | 11.11c | 14.91c | 13.28c | |||||||||||||||
Amount per ADS (US cents) |
143.3c | 126.2c | 111.1c | 149.1c | 132.8c | |||||||||||||||
Other data |
||||||||||||||||||||
Ratio of earnings to fixed charges(3) |
5.7 | 3.6 | 1.2 | 3.9 | — | |||||||||||||||
Ratio of earnings to fixed charges deficit(3) |
— | — | — | — | (4,389 | ) | ||||||||||||||
| Notes: | ||
| (1) | See note 8 to the consolidated financial statements, “Earnings per share”. Earnings and dividends per ADS is calculated by multiplying earnings per ordinary share by ten, the number of ordinary shares per ADS. Dividend per ADS is calculated on the same basis. | |
| (2) | The final dividend for the year ended 31 March 2011 was proposed by the directors on 17 May 2011 and is payable on 5 August 2011 to holders of record as of 3 June 2011. The total dividends have been translated into US dollars at 31 March 2011 for purposes of the above disclosure but the dividends are payable in US dollars under the terms of the ADS depositary agreement. | |
| (3) | For the purposes of calculating these ratios, earnings consist of profit before tax adjusted for fixed charges, dividend income from associates, share of profits and losses from associates, interest capitalised, interest amortised and profits and losses on ordinary activities before taxation from discontinued operations. Fixed charges comprise one third of payments under operating leases, representing the estimated interest element of these payments, interest payable and similar charges, interest capitalised and preferred share dividends. | |
Table of Contents
152 Vodafone Group Plc Annual Report 2011
Notes
Table of Contents
| Vodafone, the Vodafone logo, Vodafone Mobile Broadband, The Vodafone Way, Vodafone Always Best Connected, TeleTu and Tele2, Vodafone TV, Vodafone WebBox, M-PESA, Vodafone One Net, Vodafone Sure Signal, Vodafone Mobile Connect and Vodacom are trade marks of the Vodafone Group. World of Difference and Mobiles for Good are trade marks of the Vodafone Foundation. RIM and BlackBerry are registered with the US Patent and Trademark Office and may be pending or registered in other countries. Microsoft, Windows Mobile and ActiveSync are either registered trade marks or trade marks of Microsoft Corporation in the US and/or other countries. Google, Google Maps and Android are trademarks of Google Inc. Apple, iPhone and iPad are trade marks of Apple Inc., registered in the US and other countries. Other product and company names mentioned herein may be the trade marks of their respective owners. The content of our website (www.vodafone.com) should not be considered to form part of this annual report or our annual report on Form 20-F. Copyright © Vodafone Group 2011 FSC www.fsc.org MIX From responsible sources FSC@ C018444 This report has been printed on Revive 75 Special Silk paper. The composition of the paper is 50% de-inked post consumer waste, 25% pre-consumer waste and 25% virgin wood fibre. It has been certified according to the rules of the Forest Stewardship Council (FSC). It is manufactured at a mill that has been awarded the ISO14001 certificate for environmental management. The mill uses pulps that are elemental chlorine free (ECF) and totally chlorine free (TCF) process and the inks used are all vegetable oil based. Printed at St Ives Westerham Press Ltd, ISO14001, FSC certified and CarbonNeutral®. Designed and produced by Addison, www.addison.co.uk |
Table of Contents
| Berkshire RG14 2FN England Registered in England No. 1833679 Telephone: +44 (0) 1635 33251 Fax: +44 (0) 1635 238080 www.vodafone.com Contact details Investor Relations Telephone: +44 (0) 7919 990230 Email: ir@vodafone.co.uk Website: www.vodafone.com/investor Media Relations Telephone: +44 (0) 1635 664444 Email: groupmediarelations@vodafone.com Website: www.vodafone.com/media Sustainability Email: sustainability@vodafone.com Website: www.vodafone.com/sustainability |
Table of Contents
Events occurring subsequent to the approval of the Company’s Annual Report on 17 May 2011
SFR
Further to the announcement dated 3 April 2011 (see note 32 to the consolidated financial
statements), and following clearance of the transaction by the relevant competition and regulatory
authorities, the Group announced on 16 June 2011 the completion of the disposal of its entire 44%
shareholding in SFR to Vivendi.
The Group received cash consideration of €7.75 billion (£6.8 billion) from Vivendi and a final
dividend from SFR of €200 million (£176 million). Vodafone and SFR have also entered into
a Partner Market agreement which will maintain their commercial co-operation.
Indian tax case
In light of the uncertainty created by the Indian tax authority’s actions set out in note 28
to the consolidated financial statements, Vodafone International
Holdings BV, through its
indirect wholly owned subsidiary, Euro Pacific Securities Ltd, has sought confirmation from the
Authority for Advanced Rulings (‘AAR’) in India on whether withholding tax is due in respect of
consideration payable on the acquisition of Essar Group’s offshore holding in Vodafone Essar
Limited. The hearing at the AAR has been further adjourned until 1 July 2011. The first possible
tax payment date will be 7 July 2011.
A-1
Table of Contents
Information
contained within this Annual Report on Form 20-F
The
following treasury shares, beneficial interests, share price history, shareholder
information and regulation information contained within the Annual Report on Form 20-F has been
updated to reflect the position as at 14 June 2011:
Treasury Shares
(Information as at the approval of the Company’s Annual Report on 17 May is disclosed on page 49 of
this Annual Report on Form 20-F)
Details of
the shares purchased to 14 June 2011 (inclusive), including those purchased under
irrevocable instructions, are as follows:
| Total number of | ||||||||||||||||
| shares purchased | Maximum value of | |||||||||||||||
| Average price paid | under share | shares that may yet | ||||||||||||||
| Number of shares | per share inclusive of | repurchase | be purchased under | |||||||||||||
| Date of share | purchased(1) | transaction costs | programme(2) | the programme(3) | ||||||||||||
| purchase | ‘000 | Pence | ‘000 | £m | ||||||||||||
September 2010 |
115,400 | 161.78 | 115,400 | 2,613 | ||||||||||||
October 2010 |
187,500 | 165.50 | 302,900 | 2,303 | ||||||||||||
November 2010 |
209,400 | 170.21 | 512,300 | 1,947 | ||||||||||||
December 2010 |
162,900 | 167.44 | 675,200 | 1,674 | ||||||||||||
January 2011 |
177,090 | 176.67 | 852,290 | 1,361 | ||||||||||||
February 2011 |
134,700 | 179.23 | 986,990 | 1,120 | ||||||||||||
March 2011 |
250,900 | 177.26 | 1,237,890 | 675 | ||||||||||||
April 2011 |
135,100 | 176.81 | 1,372,990 | 436 | ||||||||||||
May 2011 |
179,300 | 170.84 | 1,552,290 | 130 | ||||||||||||
June 1 to June 14,
2011 (inclusive) |
79,373 | 163.23 | 1,631,663 | — | ||||||||||||
Total |
1,631,663 | (4) | 171.60 | 1,631,663 | ||||||||||||
| Notes: | ||
| (1) | The nominal value of shares purchased is 113/7 US cents each. | |
| (2) | No shares were purchased outside the publicly announced share buyback programme. | |
| (3) | In accordance with the shareholder authority granted at the 2010 AGM. | |
| (4) | The total number of shares purchased represents 3.19% of our issued share capital at 14 June 2011. | |
The aggregate amount of consideration paid by the Company for the shares at 14 June 2011 was
£2,800 million.
A-2
Table of Contents
Beneficial interests
(Information
as at the approval of the Company’s Annual Report on 17 May is disclosed on page 73 of this Annual Report on Form 20-F)
The beneficial interests of directors and their connected persons in the ordinary shares of
the Company, which includes interests in the Vodafone Share Incentive Plan, but which excludes
interests in the Vodafone Group share options schemes, and the Vodafone Group short-term or
long-term incentives, are shown below:
| 1 April 2010 | ||||||||||||||||
| or date of | ||||||||||||||||
| 14 June 2011 | 16 May 2011 | 31 March 2011 | appointment | |||||||||||||
Sir John Bond |
370,677 | 370,677 | 370,677 | 357,584 | ||||||||||||
John Buchanan |
222,223 | 222,223 | 222,223 | 211,055 | ||||||||||||
Vittorio Colao |
2,307,663 | 2,307,663 | 2,307,663 | 1,575,567 | ||||||||||||
Andy Halford |
2,336,070 | 2,335,914 | 2,335,622 | 2,186,541 | ||||||||||||
Michel Combes |
670,745 | 670,589 | 670,297 | 392,223 | ||||||||||||
Stephen Pusey |
544,733 | 544,733 | 544,733 | 402,599 | ||||||||||||
Renee James(1) |
50,000 | 50,000 | 50,000 | — | ||||||||||||
Alan Jebson |
82,340 | 82,340 | 82,340 | 82,340 | ||||||||||||
Samuel Jonah |
55,350 | 55,350 | 55,350 | — | ||||||||||||
Gerard Kleisterlee(1) |
— | — | N/A | — | ||||||||||||
Nick Land |
35,000 | 35,000 | 35,000 | 35,000 | ||||||||||||
Anne Lauvergeon |
28,936 | 28,936 | 28,936 | 28,936 | ||||||||||||
Simon Murray (retired 27 July 2010) |
N/A | N/A | N/A | 246,250 | ||||||||||||
Luc Vandevelde |
89,030 | 89,030 | 89,030 | 72,829 | ||||||||||||
Anthony Watson |
115,000 | 115,000 | 115,000 | 115,000 | ||||||||||||
Philip Yea |
61,250 | 61,250 | 61,250 | 61,250 | ||||||||||||
| (1) | Non-executive directors appointed to the Board as follows: Renee James 1 January 2011, Gerard Kleisterlee 1 April 2011. |
At 31 March 2011 and during the period from 1 April 2011 to 14 June 2011, no director had any
interest in the shares of any subsidiary company. Other than those individuals included in the
table above who were Board members at 31 March 2011, members of the Group’s Executive Committee at
31 March 2011 had an aggregate beneficial interest in 2,755,152 ordinary shares of the Company. At
14 June 2011 the directors had an aggregate beneficial interest in 6,969,017 ordinary shares of the
Company and the Executive Committee members had an aggregate beneficial interest in 2,756,048
ordinary shares of the Company. None of the directors or the Executive Committee members had an
individual beneficial interest amounting to greater than 1% of the Company’s ordinary shares.
A-3
Table of Contents
Interests in share options of the company
At 14 June 2011 there had been no change to the directors’ interests in share options from 31
March 2011.
Other than those individuals included in the table above, at 14 June 2011, members of the Group’s
Executive Committee held options for 2,620,271 ordinary shares at prices ranging from 115.3 pence
to 167.8 pence per ordinary share, with a weighted average exercise price of 161.9 pence per
ordinary share exercisable at dates ranging from July 2008 to July 2017.
Sir John Bond, John Buchanan, Alan Jebson, Renee James, Samuel Jonah, Gerard Kleisterlee, Nick
Land, Anne Lauvergeon, Luc Vandevelde, Anthony Watson and Philip Yea held no options at 14 June
2011.
Share price history
(Information as at the approval of the Company’s Annual Report on 17 May is disclosed on page 133
of this Annual Report on Form 20-F)
The closing share price at 31 March 2011 was 176.5 pence (31 March 2010: 152.0 pence). The
closing share price on 14 June 2011 was 160.75 pence.
The following tables set out, for the periods indicated, i) the reported high and low middle market
quotations of ordinary shares on the London Stock Exchange and ii) the reported high and low sales
prices of ADSs on the New York Stock Exchange (“NYSE”)/NASDAQ. The Company transferred its ADSs
from the NYSE to NASDAQ on 29 October 2009.
| London Stock Exchange Pounds per | NYSE/NASDAQ(1) | |||||||||||||||
| ordinary share | Dollars per ADS | |||||||||||||||
| Year ended 31 March | High | Low | High | Low | ||||||||||||
2007 |
1.54 | 1.08 | 29.85 | 20.07 | ||||||||||||
2008 |
1.98 | 1.36 | 40.87 | 26.88 | ||||||||||||
2009 |
1.70 | 0.96 | 32.87 | 15.30 | ||||||||||||
2010 |
1.54 | 1.11 | 24.04 | 17.68 | ||||||||||||
2011 |
1.85 | 1.27 | 32.70 | 18.21 | ||||||||||||
| London Stock Exchange Pounds per | NYSE/NASDAQ(1) | |||||||||||||||
| ordinary share | Dollars per ADS | |||||||||||||||
| Quarter | High | Low | High | Low | ||||||||||||
2009/10 |
||||||||||||||||
First quarter |
1.33 | 1.11 | 20.08 | 17.68 | ||||||||||||
Second quarter |
1.44 | 1.12 | 23.85 | 18.25 | ||||||||||||
Third quarter |
1.45 | 1.32 | 24.04 | 21.10 | ||||||||||||
Fourth quarter |
1.54 | 1.32 | 23.32 | 21.32 | ||||||||||||
2010/11 |
||||||||||||||||
First quarter |
1.53 | 1.27 | 23.79 | 18.21 | ||||||||||||
Second quarter |
1.65 | 1.36 | 25.80 | 20.71 | ||||||||||||
Third quarter |
1.80 | 1.57 | 28.52 | 28.84 | ||||||||||||
Fourth quarter |
1.85 | 1.67 | 32.70 | 26.34 | ||||||||||||
2011/2012 |
||||||||||||||||
First quarter (2) |
1.79 | 1.59 | 29.46 | 25.73 | ||||||||||||
A-4
Table of Contents
| London Stock Exchange Pounds per | NYSE/NASDAQ(1) | |||||||||||||||
| ordinary share | Dollars per ADS | |||||||||||||||
| Month | High | Low | High | Low | ||||||||||||
November 2010 |
1.80 | 1.59 | 28.52 | 24.84 | ||||||||||||
December 2010 |
1.72 | 1.60 | 27.10 | 25.62 | ||||||||||||
January 2011 |
1.85 | 1.68 | 32.70 | 26.34 | ||||||||||||
February 2011 |
1.83 | 1.72 | 29.75 | 27.90 | ||||||||||||
March 2011 |
1.85 | 1.67 | 29.67 | 26.71 | ||||||||||||
April 2011 |
1.83 | 1.69 | 29.46 | 28.06 | ||||||||||||
May 2011 |
1.74 | 1.66 | 29.27 | 27.12 | ||||||||||||
June 2011(2) |
1.64 | 1.59 | 27.14 | 25.73 | ||||||||||||
| Notes: | ||
| (1) | The Company transferred its ADSs from the NYSE to NASDAQ on 29 October 2009. | |
| (2) | Covering period to 14 June 2011. | |
Shareholder information
(Information as at the approval of the Company’s Annual Report on 17 May is disclosed on page 134
of this Annual Report on Form 20-F)
Markets
Ordinary shares of Vodafone Group Plc are traded on the London Stock Exchange and in the form of
ADSs on NASDAQ. The Company had a total market capitalisation of approximately £82.3 billion at 14
June 2011, making it the second largest listing in The Financial Times Stock Exchange 100
index and the 29th largest company in the world based on market capitalisation at that date.
Geographical analysis of shareholders
At 31 March 2011 approximately 46.9% of the Company’s shares were held in the UK, 30.2% in North
America, 14.4% in Europe (excluding the UK) and 8.5% in the rest of the world.
Major shareholders
BNY Mellon, as custodian of the Company’s ADR programme, held approximately 17.45% of the Company’s
ordinary shares of 11 3/7 US cents each at 14 June 2011 as nominee. The total number of ADRs
outstanding at 14 June 2011 was 893,258,980. At this date 1,372 holders of record of ordinary
shares had registered addresses in the US and in total held approximately 0.007% of the ordinary
shares of the Company. At 14 June 2011 the following percentage interests in the ordinary share
capital of the Company, disclosable under the Disclosure and Transparency Rules, (DTR 5), have been
notified to the directors:
| Shareholder | Shareholding | |||
Black Rock, Inc. |
6.29 | % | ||
Legal & General Group Plc |
3.61 | % | ||
A-5
Table of Contents
The rights attaching to the ordinary shares of the Company held by these shareholders are
identical in all respects to the rights attaching to all the ordinary shares of the Company. The
directors are not aware, at 14 June 2011, of any other interest of 3% or more in the ordinary share
capital of the Company. The Company is not directly or indirectly owned or controlled by any
foreign government or any other legal entity. There are no arrangements known to the Company that
could result in a change of control of the Company.
Regulation
(Information as at the approval of the Company’s Annual Report on 17 May is disclosed on page 141
of this Annual Report on Form 20-F)
United Kingdom
Vodafone
and three other mobile operators appealed the national regulator’s final decision in
respect of the wholesale mobile voice call termination rates that will apply from 1 April 2011 to 31 March 2015. The matter
will now be considered by the UK Competition Commission whose final decision is expected in
February or March 2012.
A-6
Table of Contents
Cellco Partnership
(d/b/a Verizon Wireless)
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements
For the years ended
December 31, 2010, 2009 and 2008
(d/b/a Verizon Wireless)
Report of Independent Registered Public Accounting Firm
Consolidated Financial Statements
For the years ended
December 31, 2010, 2009 and 2008
B-1
Table of Contents
Cellco Partnership (d/b/a Verizon Wireless)
For the years ended December 31, 2010, 2009 and 2008 |
B-3 | |||
December 31, 2010 and 2009 |
B-4 | |||
For the years ended December 31, 2010, 2009 and 2008 |
B-5 | |||
For the years ended December 31, 2010, 2009 and 2008 |
B-6 | |||
| B-7-29 | ||||
| B-30 |
B-2
Table of Contents
Consolidated Statements of Income
Cellco Partnership (d/b/a Verizon Wireless)
Cellco Partnership (d/b/a Verizon Wireless)
| Years Ended December 31, | ||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2008 | |||||||||
Operating Revenue (including $94, $102 and $106 from affiliates) |
||||||||||||
Service revenue |
$ | 55,994 | $ | 53,497 | $ | 42,635 | ||||||
Equipment and other |
7,925 | 8,634 | 6,697 | |||||||||
Total operating revenue |
63,919 | 62,131 | 49,332 | |||||||||
Operating Costs and Expenses (including $1,696, $1,651 and $1,541
from affiliates) |
||||||||||||
Cost of service (exclusive of items shown below) |
8,342 | 7,722 | 6,015 | |||||||||
Cost of equipment |
11,423 | 12,222 | 9,705 | |||||||||
Selling, general and administrative |
18,727 | 18,289 | 14,220 | |||||||||
Depreciation and amortization |
7,458 | 7,347 | 5,405 | |||||||||
Total operating costs and expenses |
45,950 | 45,580 | 35,345 | |||||||||
Operating Income |
17,969 | 16,551 | 13,987 | |||||||||
Other Income (Expenses) |
||||||||||||
Interest expense, net |
(316 | ) | (1,141 | ) | (161 | ) | ||||||
Interest income and other, net |
90 | 71 | 265 | |||||||||
Income Before Provision for Income Taxes |
17,743 | 15,481 | 14,091 | |||||||||
Provision for income taxes |
(1,067 | ) | (797 | ) | (802 | ) | ||||||
Net Income |
$ | 16,676 | $ | 14,684 | $ | 13,289 | ||||||
Net income attributable to non-controlling interest |
295 | 286 | 263 | |||||||||
Net income attributable to Cellco Partnership |
16,381 | 14,398 | 13,026 | |||||||||
Net Income |
$ | 16,676 | $ | 14,684 | $ | 13,289 | ||||||
See Notes to Consolidated Financial Statements.
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Table of Contents
Consolidated Balance Sheets — As Adjusted
Cellco Partnership (d/b/a Verizon Wireless)
Cellco Partnership (d/b/a Verizon Wireless)
| As of December 31, | ||||||||
| (Dollars in Millions) | 2010 | 2009 | ||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 5,331 | $ | 607 | ||||
Receivables, net of allowances of $328 and $356 |
6,007 | 5,721 | ||||||
Due from affiliates, net |
126 | 58 | ||||||
Inventories, net |
1,072 | 1,373 | ||||||
Prepaid expenses and other current assets |
608 | 3,335 | ||||||
Total current assets |
13,144 | 11,094 | ||||||
Plant, property and equipment, net |
32,253 | 30,850 | ||||||
Wireless licenses |
72,843 | 72,005 | ||||||
Goodwill |
17,434 | 17,303 | ||||||
Other intangibles and other assets, net |
2,370 | 3,100 | ||||||
Total assets |
$ | 138,044 | $ | 134,352 | ||||
Liabilities and Partners’ Capital |
||||||||
Current liabilities |
||||||||
Short-term debt, including current maturities |
$ | 4,869 | $ | 2,998 | ||||
Due to affiliates |
— | 5,003 | ||||||
Accounts payable and accrued liabilities |
7,139 | 6,123 | ||||||
Advance billings |
2,090 | 1,695 | ||||||
Other current liabilities |
912 | 415 | ||||||
Total current liabilities |
15,010 | 16,234 | ||||||
Long-term debt |
11,634 | 18,661 | ||||||
Deferred tax liabilities, net |
10,514 | 10,593 | ||||||
Other non-current liabilities |
1,464 | 1,877 | ||||||
Total liabilities |
38,622 | 47,365 | ||||||
Partners’ capital |
||||||||
Capital |
97,399 | 84,863 | ||||||
Accumulated other comprehensive income |
61 | 136 | ||||||
Non-controlling interest |
1,962 | 1,988 | ||||||
Total Partners’ capital |
99,422 | 86,987 | ||||||
Total liabilities and Partners’ capital |
$ | 138,044 | $ | 134,352 | ||||
See Notes to Consolidated Financial Statements.
B-4
Table of Contents
Consolidated Statements of Cash Flows
Cellco Partnership (d/b/a Verizon Wireless)
Cellco Partnership (d/b/a Verizon Wireless)
| Years Ended December 31, | ||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2008 | |||||||||
Cash Flows from Operating Activities |
||||||||||||
Net income |
$ | 16,676 | $ | 14,684 | $ | 13,289 | ||||||
Adjustments to reconcile income to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
7,458 | 7,347 | 5,405 | |||||||||
Provision for uncollectible receivables |
746 | 696 | 507 | |||||||||
Provision for deferred income taxes |
65 | 147 | 176 | |||||||||
Changes in current assets and liabilities, net of the effects of
acquisition/disposition of businesses: |
||||||||||||
Receivables, net |
(1,076 | ) | (1,000 | ) | (1,032 | ) | ||||||
Inventories, net |
308 | (127 | ) | 60 | ||||||||
Prepaid expenses and other current assets |
(104 | ) | (42 | ) | (74 | ) | ||||||
Accounts payable and accrued liabilities |
1,505 | (607 | ) | (365 | ) | |||||||
Other operating activities, net |
(31 | ) | 830 | 181 | ||||||||
Net cash provided by operating activities |
25,547 | 21,928 | 18,147 | |||||||||
Cash Flows from Investing Activities |
||||||||||||
Capital expenditures (including capitalized software) |
(8,438 | ) | (7,152 | ) | (6,510 | ) | ||||||
Acquisition of businesses and licenses, net of cash acquired |
(332 | ) | (4,881 | ) | (10,277 | ) | ||||||
Proceeds from dispositions |
2,594 | — | — | |||||||||
Investment in debt obligations |
— | — | (4,766 | ) | ||||||||
Other investing activities, net |
(495 | ) | (29 | ) | (526 | ) | ||||||
Net cash used in investing activities |
(6,671 | ) | (12,062 | ) | (22,079 | ) | ||||||
Cash Flows from Financing Activities |
||||||||||||
Proceeds from affiliates |
— | — | 9,363 | |||||||||
Repayments to affiliates |
(5,005 | ) | (6,291 | ) | (3,891 | ) | ||||||
Net (decrease) increase in revolving affiliate borrowings |
— | (457 | ) | 307 | ||||||||
Issuance of long-term debt |
— | 9,223 | 10,324 | |||||||||
Repayment of long-term debt |
(5,016 | ) | (17,028 | ) | (1,505 | ) | ||||||
Distributions to partners |
(3,845 | ) | (3,138 | ) | (1,529 | ) | ||||||
Other financing activities, net |
(286 | ) | (795 | ) | (318 | ) | ||||||
Net cash (used in) provided by financing activities |
(14,152 | ) | (18,486 | ) | 12,751 | |||||||
Increase (decrease) in cash and cash equivalents |
4,724 | (8,620 | ) | 8,819 | ||||||||
Cash and cash equivalents, beginning of year |
607 | 9,227 | 408 | |||||||||
Cash and cash equivalents, end of year |
$ | 5,331 | $ | 607 | $ | 9,227 | ||||||
See Notes to Consolidated Financial Statements.
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Table of Contents
Consolidated Statements of Changes in Partners’ Capital — As Adjusted
Cellco Partnership (d/b/a/ Verizon Wireless)
Cellco Partnership (d/b/a/ Verizon Wireless)
| Years Ended December 31, | ||||||||||||
| (Dollars in Millions) | 2010 | 2009 | 2008 | |||||||||
Partners’ Capital |
||||||||||||
Balance at beginning of year |
$ | 84,863 | $ | 73,387 | $ | 62,404 | ||||||
Cumulative effect of change in accounting for pension and
other post-employment benefits (Note 1) |
— | — | (23 | ) | ||||||||
Adjusted balance at beginning of year |
84,863 | 73,387 | 62,381 | |||||||||
Net income |
16,381 | 14,398 | 13,026 | |||||||||
Contributed capital |
— | (344 | ) | — | ||||||||
Distributions declared to partners |
(3,845 | ) | (2,582 | ) | (2,085 | ) | ||||||
Other |
— | 4 | 65 | |||||||||
Balance at end of year |
97,399 | 84,863 | 73,387 | |||||||||
Accumulated Other Comprehensive Income (Loss) |
||||||||||||
Balance at beginning of year |
136 | (93 | ) | (50 | ) | |||||||
Cumulative effect of change in accounting for pension and
other post-employment benefits (Note 1) |
— | — | 23 | |||||||||
Adjusted balance at beginning of year |
136 | (93 | ) | (27 | ) | |||||||
Unrealized (losses) gains on cash flow hedges, net |
(66 | ) | 175 | (53 | ) | |||||||
Defined benefit pension and postretirement plans |
(9 | ) | 54 | (13 | ) | |||||||
Other comprehensive (loss) income |
(75 | ) | 229 | (66 | ) | |||||||
Balance at end of year |
61 | 136 | (93 | ) | ||||||||
Total Partners’ Capital Attributable to Cellco Partnership |
97,460 | 84,999 | 73,294 | |||||||||
Non-controlling Interest |
||||||||||||
Balance at beginning of year |
1,988 | 1,692 | 1,681 | |||||||||
Net income attributable to non-controlling interest |
295 | 286 | 263 | |||||||||
Contributed capital |
— | 31 | — | |||||||||
Non-controlling interests in disposed/acquired company |
(34 | ) | 497 | — | ||||||||
Distributions |
(287 | ) | (280 | ) | (249 | ) | ||||||
Acquisitions of non-controlling partnership interests |
— | (240 | ) | — | ||||||||
Other |
— | 2 | (3 | ) | ||||||||
Balance at end of year |
1,962 | 1,988 | 1,692 | |||||||||
Total Partners’ Capital |
$ | 99,422 | $ | 86,987 | $ | 74,986 | ||||||
Comprehensive Income |
||||||||||||
Net income |
$ | 16,676 | $ | 14,684 | $ | 13,289 | ||||||
Other comprehensive (loss) income per above |
(75 | ) | 229 | (66 | ) | |||||||
Total Comprehensive Income |
$ | 16,601 | $ | 14,913 | $ | 13,223 | ||||||
Comprehensive income attributable to non-controlling interest |
$ | 295 | $ | 286 | $ | 263 | ||||||
Comprehensive income attributable to Cellco Partnership |
16,306 | 14,627 | 12,960 | |||||||||
Total Comprehensive Income |
$ | 16,601 | $ | 14,913 | $ | 13,223 | ||||||
See Notes to Consolidated Financial Statements.
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Notes to Consolidated Financial Statements
Cellco Partnership (d/b/a Verizon Wireless)
Cellco Partnership (d/b/a Verizon Wireless)
1. Description of Business and Summary of Significant Accounting Policies
Description of Business
Cellco Partnership (the “Partnership”), a Delaware general partnership doing business as Verizon
Wireless, provides wireless voice and data services and related equipment using one of the most
extensive and reliable wireless networks in the nation. Verizon Wireless continues to expand its
penetration of data services and offerings of data devices for both consumer and business
customers. The Partnership has one segment and operates domestically only. References to “our
Partners” refers to Verizon Communications, and its subsidiaries (“Verizon”), which owns 55% of the
Partnership, and Vodafone Group Plc, and its subsidiaries (“Vodafone”), which owns 45% of the
Partnership.
These consolidated financial statements include transactions between the Partnership and Verizon
and Vodafone (“Affiliates”) for the provision of services and financing pursuant to various
agreements (see Notes 7 and 11).
Consolidated Financial Statements and Basis of Presentation
The consolidated financial statements of the Partnership include the accounts of its majority-owned
subsidiaries and the partnerships in which the Partnership exercises control. Investments in
businesses and partnerships which the Partnership does not control, but has the ability to exercise
significant influence over operating and financial policies, are accounted for under the equity
method of accounting. Investments and partnerships which the Partnership does not have the ability
to exercise significant influence over operating and financial policies are accounted for under the
cost method of accounting. Equity and cost method investments are included in Deferred charges and
other assets, net in our consolidated balance sheets. All significant intercompany accounts and
transactions have been eliminated.
We have
evaluated subsequent events through June 16, 2011, the date these consolidated financial
statements were available to be issued.
During the second quarter of 2010, we recorded a one-time non-cash adjustment of $268 million
primarily to reduce wireless data revenues. This adjustment was recorded to properly defer
previously recognized wireless data revenues that were earned and recognized in future periods. As
the amounts involved were not material to our consolidated financial statements in the current or
any previous reporting period, the adjustment was recorded during the second quarter.
During 2010, we changed our accounting policy to immediately recognize actuarial gains and losses
for pension and other post-employment benefits in the year in which the gains and losses occur.
The cumulative effect of the change on Partners’ Capital as of January 1, 2008 was a decrease of
approximately $23 million, with the corresponding increase to Accumulated other comprehensive
income. This change was not material to our consolidated statements of income or consolidated
statement of cash flows in the current or any previous reporting periods presented.
Use of Estimates
We prepare our consolidated financial statements in accordance with U.S. generally accepted
accounting principles (“GAAP”), which require management to make estimates and assumptions that
affect reported amounts and disclosures. Actual results could differ from those estimates.
Examples of significant estimates include: the accounting for allowances for uncollectible accounts
receivable, unbilled revenue, fair values of financial instruments, depreciation and amortization,
the recoverability of intangible assets, goodwill and other long-lived assets, accrued expenses,
inventory
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reserves, unrealized tax benefits, valuation allowances on tax assets, contingencies and allocation
of purchase prices in connection with business combinations.
Revenue Recognition
The Partnership earns revenue by providing access and usage of its network, which includes voice
and data revenue. In general, access revenue is billed one month in advance and is recognized when
earned; the unearned portion is classified in Advance billings in the consolidated balance sheets.
Usage revenue is generally billed in arrears and recognized when service is rendered and included
in unbilled revenue, within Receivables, net in the consolidated balance sheets. Equipment sales
revenue associated with the sale of wireless devices and accessories is recognized when the
products are delivered to and accepted by the customer, as this is considered to be a separate
earnings process from the sale of wireless services. For agreements involving the resale of
third-party services in which we are considered the primary obligor in the arrangements, we record
revenue gross at the time of sale.
We report taxes imposed by governmental authorities on revenue-producing transactions between us
and our customers on a net basis.
Advertising Costs
Costs for advertising products and services as well as other promotional and sponsorship costs are
charged to Selling, general and administrative expense in the periods in which they are incurred.
Vendor Rebates and Discounts
The Partnership recognizes vendor rebates or discounts for purchases of wireless devices from a
vendor as a reduction of Cost of equipment when the related wireless devices are sold. Vendor
rebates or discounts that have been earned as a result of completing the required performance under
the terms of the underlying agreements but for which the wireless devices have not yet been sold
are recognized as a reduction of inventory cost. Advertising credits are granted by a vendor to the
Partnership as reimbursement of specific, incremental, identifiable advertising costs incurred by
the Partnership in selling the vendor’s wireless devices. These advertising credits are restricted
based upon a marketing plan agreed to by the vendor and the Partnership, and accordingly,
advertising credits received are recorded as a reduction of those advertising costs when recognized
in the Partnership’s consolidated statements of income.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of 90 days or less when purchased to be
cash equivalents. Cash equivalents are stated at cost, which approximates quoted market value, and
includes approximately $5,004 million and $192 million at December 31, 2010 and 2009, respectively,
held in money market funds that are considered cash equivalents.
Inventory
Inventory consists primarily of wireless equipment held for sale, which is carried at the lower of
cost (determined using a first-in, first-out method) or market. The Partnership maintained
inventory valuation reserves of $74 million and $106 million as of December 31, 2010 and 2009,
respectively, for obsolete and slow moving device inventory based on analyses of inventory agings
and changes in technology.
Capitalized Software
Capitalized software consists primarily of direct costs incurred for professional services provided
by third parties and compensation costs of employees which relate to software developed for
internal use either during the application stage or for upgrades and enhancements that increase
functionality. Costs are capitalized and amortized on a straight-line basis over their estimated
useful lives. Costs incurred in the preliminary project stage of development and maintenance are
expensed as incurred. For a discussion of our
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impairment policy for capitalized software costs, see “Valuation of Assets” below. Also see Note 3
for additional detail of capitalized non-network software reflected in our consolidated balance
sheets.
Plant, Property and Equipment
Plant, property and equipment primarily represents costs incurred to construct and expand capacity
and network coverage on Mobile Telephone Switching Offices and cell sites. The cost of plant,
property and equipment is depreciated over its estimated useful life using the straight-line method
of accounting. Periodic reviews are performed to identify any category or group of assets within
plant, property and equipment where events or circumstances may change the remaining estimated
economic life. This principally includes changes in the Partnership’s plans regarding technology
upgrades, enhancements, and planned retirements. Changes in these estimates resulted in an increase
in depreciation expense of $260 million, $319 million, and $228 million for the years ended
December 31, 2010, 2009, and 2008, respectively. Major improvements to existing plant and equipment
are capitalized. Routine maintenance and repairs that do not extend the life of the plant and
equipment are charged to expense as incurred. Leasehold improvements are amortized over the shorter
of their estimated useful lives or the term of the related lease.
Upon the sale or retirement of plant, property and equipment, the cost and related accumulated
depreciation or amortization is eliminated and any related gain or loss is reflected in the
consolidated statements of income in Selling, general and administrative expense.
Interest expense and network engineering costs incurred during the construction phase of the
Partnership’s network and real estate properties under development are capitalized as part of
plant, property and equipment and recorded as construction in progress until the projects are
completed and placed into service.
Valuation of Assets
Long-lived assets, including plant, property and equipment and intangible assets with finite lives,
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use
and eventual disposition of the asset. The impairment loss would be measured as the amount by which
the carrying amount of the asset exceeds the fair value of the asset.
Wireless Licenses
The Partnership’s principal intangible assets are licenses, which provide the Partnership with the
exclusive right to utilize certain radio frequency spectrum to provide wireless communication
services. While licenses are issued for only a fixed time, generally ten years, such licenses are
subject to renewal by the Federal Communications Commission (“FCC”). Renewals of licenses have
occurred routinely and at nominal costs, which are expensed as incurred. Moreover, the Partnership
has determined that there are currently no legal, regulatory, contractual, competitive, economic or
other factors that limit the useful life of the Partnership’s wireless licenses. As a result, the
wireless licenses are treated as an indefinite lived intangible asset, and are not amortized. The
Partnership reevaluates the useful life determination for wireless licenses at least annually to
determine whether events and circumstances continue to support an indefinite useful life.
The Partnership tests its wireless licenses for potential impairment annually, and more frequently
if indications of impairment exist. The Partnership evaluates its licenses on an aggregate basis,
using a direct income-based value approach. This approach estimates fair value using a discounted
cash flow analysis to estimate what a marketplace participant would be willing to pay to purchase
the aggregated wireless licenses as of the valuation date. If the fair value of the aggregated
wireless licenses is less than the aggregated carrying amount of the wireless licenses, an
impairment is recognized.
Interest expense incurred while qualifying activities are performed to ready wireless licenses for
their intended use is capitalized as part of wireless licenses. The capitalization period ends when
a license is substantially complete and the license is ready for its intended use.
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Goodwill
Goodwill is the excess of the acquisition cost of businesses over the fair value of the
identifiable net assets acquired. Impairment testing of goodwill is performed annually or more
frequently if indications of potential impairment exist. The impairment test for goodwill uses a
two-step approach, which is performed for our one reporting unit. Step one compares the fair value
of the reporting unit (calculated using a market approach and a discounted cash flow method) to its
carrying value. If the carrying value exceeds the fair value, there is a potential impairment and
step two must be performed. Step two compares the carrying value of the reporting unit’s goodwill
to its implied fair value (i.e., fair value of reporting unit less the fair value of the unit’s
assets and liabilities, including identifiable intangible assets). If the implied fair value of
goodwill is less than the carrying amount of goodwill, an impairment is recognized.
Fair Value Measurements
Fair value of financial and non-financial assets and liabilities is defined as an exit price,
representing the amount that would be received on the sale of an asset or paid to transfer a
liability in an orderly transaction between market participants. The three-tier hierarchy for
inputs used in measuring fair value, which prioritizes the inputs used in the methodologies of
measuring fair value for assets and liabilities, is as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities
Level 3 – No observable pricing inputs in the market
Financial assets and financial liabilities are classified in their entirety based on the lowest
level of input that is significant to the fair value measurements. Our assessment of the
significance of a particular input to the fair value measurements requires judgment, and may affect
the valuation of the assets and liabilities being measured and their placement within the fair
value hierarchy.
See Note 4 for further details on our fair value measurements.
Foreign Currency Translation
The functional currency for all of our operations is the U.S. dollar. However, we have transactions
denominated in a currency other than the local currency, principally debt denominated in Euros and
British Pounds Sterling. Gains and losses resulting from exchange-rate changes in transactions
denominated in a foreign currency are included in earnings.
Derivatives
The Partnership uses derivatives from time to time to manage the Partnership’s exposure to
fluctuations in the cash flows of certain transactions. We measure all derivatives at fair value
and recognize them as either assets or liabilities on our consolidated balance sheets. Our
derivative instruments are valued primarily using models based on readily observable market
parameters for all substantial terms of our derivative contracts and thus are classified as Level
2. Changes in the fair values of derivative instruments not qualifying as hedges or any ineffective
portion of hedges are recognized in earnings in the current period. Changes in the fair values of
derivative instruments used effectively as fair value hedges are recognized in earnings, along with
changes in the fair value of the hedged item. Changes in the fair value of the effective portions
of cash flow hedges are reported in other comprehensive income (loss) and recognized in earnings
when the hedged item is recognized in earnings.
Employee Benefit Plans
The Partnership maintains a defined contribution plan, the Verizon Wireless Savings and
Retirement Plan (the “Savings and Retirement Plan”), for the benefit of its employees.
The Savings and Retirement Plan includes both an employee savings and profit sharing component.
Under the employee savings component,
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employees may contribute a percentage of eligible compensation to the Savings and Retirement
Plan. Up to the first 6% of an employee’s eligible compensation contributed to the Savings and
Retirement Plan is matched 100% by the Partnership. Under the profit sharing component, the
Partnership may elect, at the sole discretion of the Human Resources Committee of the Board of
Representatives, to contribute an additional amount in the form of a profit sharing contribution to
the accounts of eligible employees. (See Note 6)
Long-Term Incentive Compensation
The Partnership measures compensation expense for all stock-based compensation awards made to
employees and directors based on estimated fair values. See Note 8 for further details.
Income Taxes
The Partnership is not a taxable entity for federal income tax purposes. Any federal taxable income
or loss is included in the respective partners’ consolidated federal return. Certain states,
however, impose taxes at the partnership level and such taxes are the responsibility of the
Partnership and are included in the Partnership’s tax provision. The consolidated financial
statements also include provisions for federal and state income taxes, prepared on a stand-alone
basis, for all corporate entities within the Partnership. Deferred income taxes are recorded using
enacted tax law and rates for the years in which the taxes are expected to be paid or refunds
received. Deferred income taxes are provided for items when there is a temporary difference in
recording such items for financial reporting and income tax reporting.
The Partnership uses a two-step approach for recognizing and measuring tax benefits taken or
expected to be taken in a tax return and provides disclosures regarding uncertainties in income tax
positions. The Partnership recognizes interest and penalties accrued related to unrecognized tax
benefits in income tax expense.
Concentrations
The Partnership relies on local and long-distance telephone companies, some of whom are related
parties (Note 11), and other companies to provide certain communication services. Although
management believes alternative telecommunications facilities could be found in a timely manner,
any disruption of these services could potentially have an adverse impact on our business, results
of operations and financial condition.
The Partnership depends upon various key suppliers to provide it, directly or through other
suppliers, with the equipment and services, such as switch and network equipment, handsets and
other devices and wireless data applications that are needed to operate the business. Most of our
handset and other device suppliers rely on Qualcomm Incorporated (“Qualcomm”) for the manufacture
and supply of the chipsets used in their devices. In addition, a small group of suppliers provide
nearly all of our network cell site and switch equipment and, in many instances, due to
compatibility issues, we must use the same supplier for both the cell site equipment and switches
in a given area of our network footprint. If any of our key network cell site and switch equipment
suppliers, or other suppliers, fail to provide equipment or services on a timely basis or fail to
meet our performance expectations, we may be unable to provide services to our customers in a
competitive manner or continue to maintain and upgrade our network. Because of the costs and time
lags that can be associated with transitioning from one supplier to another, our business could be
substantially disrupted if we were required to, or chose to, replace the products or services of
one or more major suppliers with products or services from another source, especially if the
replacement became necessary on short notice. Any such disruption could increase our costs,
decrease our operating efficiencies and have a material adverse effect on our business, results of
operations and financial condition.
No single customer receivable is large enough to present a significant financial risk to the
Partnership.
Recently Adopted Accounting Standards
The adoption of the following accounting standards and updates during 2010 did not result in a
significant impact to our consolidated financial statements:
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In January 2010, we adopted the accounting standard regarding consolidation accounting for variable
interest entities. This standard update requires an enterprise to perform an analysis to determine
whether the entity’s variable interest or interests give it a controlling interest in a variable
interest entity.
In January 2010, we adopted the accounting standard update regarding fair value measurements and
disclosures which requires additional disclosures regarding assets and liabilities measured at fair
value.
In December 2010, we adopted the accounting standard update regarding disclosures for finance
receivables and allowances for credit losses. This standard update requires that entities disclose
information at more disaggregated levels than previously required.
Recent Accounting Standards
On January 1, 2011, we prospectively adopted the accounting standard update regarding revenue
recognition for multiple deliverable arrangements. This method allows a vendor to allocate revenue
in an arrangement using its best estimate of selling price if neither vendor specific objective
evidence nor third party evidence of selling price exists. Accordingly, the residual method of
revenue allocation is no longer permissible. The adoption of this standard update is not expected
to have a significant impact on our consolidated financial statements.
On January 1, 2011, we prospectively adopted the accounting standard update regarding revenue
recognition for arrangements that include software elements. This requires tangible products that
contain software and non-software elements that work together to deliver the products essential
functionality to be evaluated under the accounting standard regarding multiple deliverable
arrangements. The adoption of this standard update is not expected to have a significant impact on
our consolidated financial statements.
2. Acquisitions and Dispositions
On August 23, 2010, the Partnership acquired the net assets and related customers of six
operating markets in Louisiana and Mississippi in a transaction with AT&T Inc. (AT&T) for cash
consideration of $235 million. These assets were acquired to enhance the Partnership’s network
coverage in these operating markets. The preliminary purchase price allocation primarily resulted
in $106 million of wireless licenses and $72 million in goodwill.
Acquisition of Alltel Corporation
On June 5, 2008, the Partnership entered into an agreement and plan of merger with Alltel
Corporation (“Alltel”), a provider of wireless voice and data services to consumer and business
customers in 34 states, and its controlling stockholder, Atlantis Holdings LLC, an affiliate of
private investment firms TPG Capital and GS Capital Partners, to acquire, in an all-cash merger,
100% of the equity of Alltel for cash consideration of $5,925 million. The Partnership closed the
transaction on January 9, 2009.
The Partnership has completed the appraisals necessary to assess the fair values of the tangible
and intangible assets acquired and liabilities assumed, the fair value of non-controlling
interests, and the amount of goodwill recognized as of the acquisition date.
The fair values of the assets acquired and liabilities assumed were determined using the income,
cost, and market approaches. The fair value measurements were primarily based on significant inputs
that are not observable in the market other than interest rate swaps (see Note 4) and long-term
debt assumed in the acquisition. The income approach was primarily used to value the intangible
assets, consisting primarily of wireless licenses and customer relationships. The cost approach was
used as appropriate for property, plant,
and equipment. The market approach was utilized in combination with the income approach for certain
acquired investments. Additionally, Alltel historically conducted business operations in certain
markets through non-wholly owned entities (“Managed Partnerships”). The fair value of the
non-controlling interests in these Managed Partnerships as of the acquisition date of approximately
$586 million was estimated by
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using a market approach. The fair value of the majority of the
long-term debt assumed and held was primarily valued using quoted market prices.
The following table summarizes the consideration paid and the allocation of the assets acquired,
including cash acquired of $1,044 million, and liabilities assumed as of the close of the
acquisition, as well as the fair value at the acquisition date of Alltel’s non-controlling
partnership interests:
| (dollars in millions) | ||||
Assets acquired |
||||
Current assets |
$ | 2,760 | ||
Plant, property and equipment |
3,513 | |||
Wireless licenses |
9,444 | |||
Goodwill |
16,242 | |||
Intangible assets subject to amortization |
2,391 | |||
Other acquired assets |
2,444 | |||
Total assets acquired |
36,794 | |||
Liabilities assumed |
||||
Current liabilities |
1,833 | |||
Long-term debt |
23,929 | |||
Deferred income taxes and other liabilities |
4,982 | |||
Total liabilities assumed |
30,744 | |||
Net assets acquired |
6,050 | |||
Non-controlling interest |
(458 | ) | ||
Contributed capital |
333 | |||
Total cash consideration |
$ | 5,925 | ||
Included in the above purchase price allocation is $2,064 million of net assets that were
subsequently divested as a condition of the regulatory approval as described below.
Wireless licenses have an indefinite life, and accordingly, are not subject to amortization. The
weighted average period prior to renewal of these licenses at acquisition was approximately 5.7
years. The customer relationships, included in Intangible assets subject to amortization are
being amortized using an accelerated method over 8 years, and other intangibles are being
amortized on a straight-line basis or an accelerated method over a period of 2 to 3 years. At the
time of the acquisition, goodwill of approximately $1,363 million was expected to be deductible for
tax purposes.
Pro Forma Information
The unaudited pro forma information presents the combined operating results of the Partnership and
Alltel, with the results prior to the acquisition date adjusted to include the pro forma impact of:
the elimination of transactions between the Partnership and Alltel; the adjustment of amortization
of intangible assets and depreciation of fixed assets based on the purchase price allocation; the
elimination of merger expenses and management fees incurred by Alltel; and the adjustment of
interest expense reflecting the assumption and partial redemption of Alltel’s debt and incremental
borrowing incurred by the Partnership to complete the acquisition of Alltel.
The unaudited pro forma results are presented for illustrative purposes only and do not reflect the
realization of potential cost savings, or any related integration costs. Certain cost savings may
result from the merger; however, there can be no assurance that these cost savings will be
achieved. These pro forma results do not
purport to be indicative of the results that would have actually been obtained if the merger had
occurred as of January 1, 2008, nor does the pro forma data intend to be a projection of results
that may be obtained in the future.
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The following unaudited pro forma consolidated results of operations assume that the acquisition of
Alltel was completed as of January 1, 2008:
| Year ended | ||||
| (dollars in millions) | December 31, 2008 | |||
Operating revenues |
$ | 58,572 | ||
Net income |
13,398 | |||
Consolidated results of operations reported for the year ended December 31, 2009 were not
significantly different than the pro forma consolidated results of operations assuming the
acquisition of Alltel was completed on January 1, 2009.
During the twelve months ended December 31, 2009, we recorded pretax charges of $88 million
primarily related to the Alltel acquisition that were comprised of acquisition related costs
recorded in Selling, general and administrative expense in the consolidated statements of income.
Alltel Divestiture Markets
As a condition of the regulatory approvals by the Department of Justice (“DOJ”)and the Federal
Communications Commission (“FCC”) to complete the acquisition of Alltel in January 2009, the
Partnership was required to divest overlapping properties in 105 operating markets in 24 states
(the Alltel Divestiture Markets). Total assets and total liabilities divested were approximately
$2.6 billion and $0.1 billion, respectively, principally comprised of network assets, wireless
licenses and customer relationships, and were included in Prepaid expenses and other current assets
and Other current liabilities, respectively, on the accompanying condensed consolidated balance
sheet at December 31, 2009.
On May 8, 2009, the Partnership entered into a definitive agreement with AT&T Mobility LLC (AT&T
Mobility), a subsidiary of AT&T, pursuant to which AT&T Mobility agreed to acquire 79 of the 105
Alltel Divestiture Markets, including licenses and network assets, for approximately $2.4 billion
in cash. On June 9, 2009, the Partnership entered into a definitive agreement with Atlantic
Tele-Network, Inc. (ATN), pursuant to which ATN agreed to acquire the remaining 26 Alltel
Divestiture Markets, including licenses and network assets, for $200 million in cash. During the
second quarter of 2010, the Partnership received the necessary regulatory approvals and completed
both transactions. Upon the completion of the divestitures, we recorded a tax charge of
approximately $201 million for the taxable gain on the excess of book over tax basis of the
goodwill associated with the Alltel Divestiture Markets.
Acquisition of Rural Cellular Corporation
On August 7, 2008, Verizon Wireless acquired 100% of the outstanding common stock and redeemed all
of the preferred stock of Rural Cellular Corporation (“Rural Cellular”) in a cash transaction
valued at approximately $1.3 billion. The final purchase price allocation primarily resulted in
$1.1 billion of wireless licenses and $0.9 billion in goodwill. Rural Cellular was a wireless
communications service provider operating under the trade name of “Unicel,” focusing primarily on
rural markets in the United States.
As part of its regulatory approval for the Rural Cellular acquisition, the FCC and DOJ required the
divestiture of six operating markets. On December 22, 2008, we exchanged assets acquired from Rural
Cellular and an additional cellular license with AT&T for assets having a total aggregate value of
approximately $0.5 billion.
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3. Wireless Licenses, Goodwill and Other Intangibles, Net
Wireless Licenses
The changes in the carrying amount of wireless licenses are as follows:
| (dollars in millions) | Wireless Licenses (a) | |||
Balance as of January 1, 2009 |
$ | 62,392 | ||
Acquisitions |
9,444 | |||
Capitalized interest on wireless licenses |
268 | |||
Reclassifications, adjustments and other(b) |
(99 | ) | ||
Balance as of December 31, 2009 |
72,005 | |||
Acquisitions |
178 | |||
Capitalized interest on wireless licenses |
657 | |||
Reclassifications, adjustments and other |
3 | |||
Balance as of December 31, 2010 |
$ | 72,843 | ||
| (a) | During the years ended December 31, 2010 and 2009, approximately $12.2 billion of wireless licenses were under development for commercial service for which we were capitalizing interest costs. In December 2010, a portion of these licenses were placed in service. Accordingly, approximately $3.3 billion of wireless licenses continue to be under development for commercial service. | |
| (b) | Reclassifications, adjustments and other during 2009 primarily includes the reclassification of wireless licenses associated with the pre-merger operations of the Partnership that are included in the Alltel Divestiture Markets (see Note 2) and included in Prepaid expenses and other current assets in the accompanying consolidated balance sheets. |
The Partnership evaluated its wireless licenses for potential impairment as of December 15, 2010
and December 15, 2009. These evaluations resulted in no impairment of the Partnership’s wireless
licenses.
During 2008, the Partnership was the winning bidder in the FCC’s auction of spectrum in the 700 MHz
band and paid the FCC $9,363 million to acquire 109 licenses in this band.
The average remaining renewal period of our wireless license portfolio was 6.9 years as of December
31, 2010.
Goodwill
The changes in the carrying amount of goodwill are as follows:
| (dollars in millions) | Goodwill | |||
Balance as of January 1, 2009 |
$ | 955 | ||
Acquisitions |
16,242 | |||
Reclassifications, adjustments and other(a) |
106 | |||
Balance as of December 31, 2009 |
17,303 | |||
Acquisitions |
131 | |||
Reclassifications, adjustments and other |
— | |||
Balance as of December 31, 2010 |
$ | 17,434 | ||
| (a) | Reclassifications, adjustments and other during 2009 includes adjustments to goodwill associated with the finalization of the Rural Cellular purchase accounting partially offset by the reclassification of goodwill associated with the pre-merger operations of the Partnership that are included in the Alltel |
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| Divestiture Markets (see Note 2) and included in Prepaid expenses and other current assets in the accompanying consolidated balance sheets. |
The Partnership completed its impairment test as of December 15, 2010 and December 15, 2009. These
tests resulted in no impairment of the Partnership’s goodwill.
Other Intangibles, net
Other intangibles, net are included in Other intangibles and other assets, net and consist of the
following:
| At December 31, 2010 | At December 31, 2009 | |||||||||||||||||||||||
| Gross | Accumulated | Net | Gross | Accumulated | Net | |||||||||||||||||||
| (dollars in millions) | Amount | Amortization | Amount | Amount | Amortization | Amount | ||||||||||||||||||
Customer lists (6 to 8 years) |
$ | 2,142 | $ | (905 | ) | $ | 1,237 | $ | 2,122 | $ | (497 | ) | $ | 1,625 | ||||||||||
Capitalized software (2 to 5 years) |
1,009 | (457 | ) | 552 | 879 | (377 | ) | 502 | ||||||||||||||||
Other (1 to 3 years) |
382 | (348 | ) | 34 | 397 | (235 | ) | 162 | ||||||||||||||||
Total(a) |
$ | 3,533 | $ | (1,710 | ) | $ | 1,823 | $ | 3,398 | $ | (1,109 | ) | $ | 2,289 | ||||||||||
| (a) | Based on amortizable intangible assets existing at December 31, 2010, the estimated amortization expense for the five succeeding fiscal years and thereafter is as follows: |
2011 |
$ | 565 | ||
2012 |
427 | |||
2013 |
344 | |||
2014 |
247 | |||
2015 |
181 | |||
Thereafter |
59 | |||
Total |
$ | 1,823 | ||
4. Fair Value Measurements
The following table presents the balances of assets measured at fair value on a recurring
basis as of December 31, 2010:
| (dollars in millions) | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: |
||||||||||||||||
Prepaid expense and other current assets: |
||||||||||||||||
Derivative contracts—Cross
currency swaps (Current) |
$ | — | $ | 7 | $ | — | $ | 7 | ||||||||
Other intangibles and other assets, net: |
||||||||||||||||
Derivative contracts—Cross currency
swaps (Non-current) |
$ | — | $ | 101 | $ | — | $ | 101 | ||||||||
Derivative contracts consist of cross currency swaps. Derivative contracts are valued using models
based on readily observable market parameters for all substantial terms of our derivative contracts
and thus are
B-16
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classified within Level 2. We use mid-market pricing for fair value measurements of our derivative
instruments.
We recognize transfers between levels of the fair value hierarchy as of the end of the reporting
period. There were no transfers within the fair value hierarchy during 2010.
Fair Value of Short-term and Long-term Debt
The fair value of our term note due to affiliates was determined based on future cash flows
discounted at current rates. The fair value of our short-term and long-term debt is determined
based on quoted market prices or future cash flows discounted at current rates. Our financial
instruments also include cash and cash equivalents, and trade receivables and payables. These
financial instruments are short term in nature and are stated at their carrying value, which
approximates fair value. The fair value of our term note due to affiliates and short-term and
long-term debt were as follows:
| At December 31, 2010 | At December 31, 2009 | |||||||||||||||
| Carrying | Fair | Carrying | Fair | |||||||||||||
| (dollars in millions) | Value | Value | Value | Value | ||||||||||||
Term notes due to
affiliates |
$ | — | $ | — | $ | 5,003 | $ | 5,008 | ||||||||
Short and long-term debt |
16,503 | 18,697 | 21,659 | 23,597 | ||||||||||||
Derivative Instruments
We have entered into derivative transactions to manage our exposure to fluctuations in foreign
currency exchange rates and interest rates. We employ risk management strategies which may include
the use of a variety of derivatives including cross currency swaps and interest rate swap
agreements. We do not hold derivatives for trading purposes.
We measure all derivatives, including derivatives embedded in other financial instruments, at fair
value and recognize them as either assets or liabilities on our consolidated balance sheets. The
derivative instruments discussed below are valued using models based on readily observable market
parameters for all substantial terms of our derivative contracts and thus are classified as Level
2. Changes in the fair values of derivative instruments not qualifying as hedges or any ineffective
portion of hedges are recognized in earnings in the current period. Changes in the fair values of
derivative instruments used effectively as fair value hedges are recognized in earnings, along with
changes in the fair value of the hedged item. Changes in the fair value of the effective portions
of cash flow hedges are reported in other comprehensive income (loss) and recognized in earnings
when the hedged item is recognized in earnings.
Cross Currency Swaps
We have entered into cross currency swaps designated as cash flow hedges to exchange approximately
$2.4 billion of British Pound Sterling and Euro denominated debt into U.S. dollars and to fix our
future interest and principal payments in U.S. dollars, as well as mitigate the impact of foreign
currency transaction gains or losses. The fair value of the cross currency swaps included in
Prepaid expenses and other current assets and Other intangibles and other assets, net was $7
million and $101 million at December 31, 2010, respectively. The fair value of the cross currency
swaps included in Other intangibles and other assets, net was $315 million at December 31, 2009.
For the years ended December 31, 2010 and 2009, a pretax $207 million loss and $310 million gain,
respectively, on the cross currency swaps has been recognized in Other comprehensive income, a
portion of which was reclassified to Interest income and other, net to offset the related pretax
foreign-currency transaction gain or loss on the underlying debt obligations.
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Alltel Interest Rate Swaps
As a result of the Alltel acquisition, the Partnership acquired seven interest rate swap agreements
with a notional value of $9.5 billion that paid fixed and received variable rates based on
three-month and one-month London Interbank Offered Rate (“LIBOR”) with maturities ranging from 2009
to 2013. During 2009, we settled all of these agreements for a gain that was not significant.
Changes in the fair value of these swaps were recorded in earnings through settlement.
Concentrations of Credit Risk
Financial instruments that subject us to concentrations of credit risk consist primarily of
temporary cash investments, trade receivables and derivative contracts. Our policy is to deposit
our temporary cash investments with major financial institutions. Counterparties to our derivative
contracts are also major financial institutions. The financial institutions have all been accorded
high ratings by primary rating agencies. We limit the dollar amount of contracts entered into with
any one financial institution and monitor our counterparties’ credit ratings. We generally do not
give or receive collateral on swap agreements due to our credit rating and those of our
counterparties. While we may be exposed to credit losses due to the nonperformance of our
counterparties, we consider the risk remote and do not expect the settlement of these transactions
to have a material effect on our results of operations or financial condition.
5. Non-controlling Interest
Non-controlling interests in equity of subsidiaries were as follows:
| At December 31, | ||||||||
| (dollars in millions) | 2010 | 2009 | ||||||
Verizon Wireless of the East LP |
$ | 1,179 | $ | 1,179 | ||||
Cellular partnerships |
783 | 809 | ||||||
Non-controlling interest in consolidated entities |
$ | 1,962 | $ | 1,988 | ||||
Verizon Wireless of the East LP
Verizon Wireless of the East LP is a limited partnership formed in 2002 and is controlled and
managed by the Partnership. Verizon held the non-controlling interest of Verizon Wireless of the
East LP at December 31, 2010 and 2009. Verizon is not allocated any of the profits of Verizon
Wireless of the East LP.
6. Supplementary Financial Information
Supplementary Balance Sheet Information
| At December 31, | ||||||||
| (dollars in millions) | 2010 | 2009 | ||||||
Receivables, Net: |
||||||||
Accounts receivable |
$ | 5,150 | $ | 4,953 | ||||
Other receivables |
866 | 842 | ||||||
Unbilled revenue |
319 | 282 | ||||||
| 6,335 | 6,077 | |||||||
Less: allowance for doubtful accounts |
(328 | ) | (356 | ) | ||||
Receivables, net |
$ | 6,007 | $ | 5,721 | ||||
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| Balance at | Additions | Balance at | ||||||||||||||
| beginning of | charged to | Write-offs, net of | end of the | |||||||||||||
| (dollars in millions) | the year | expense | recoveries | year | ||||||||||||
Accounts Receivable Allowances: |
||||||||||||||||
2010 |
$ | 356 | $ | 746 | $ | (774 | ) | $ | 328 | |||||||
2009 |
244 | 696 | (584 | ) | 356 | |||||||||||
2008 |
217 | 507 | (480 | ) | 244 | |||||||||||
| At December 31, | ||||||||
| (dollars in millions) | 2010 | 2009 | ||||||
Plant, Property and Equipment, Net: |
||||||||
Land |
$ | 262 | $ | 268 | ||||
Buildings (20-40 yrs.) |
9,481 | 8,849 | ||||||
Wireless plant and equipment (3-15 yrs.) |
45,293 | 40,862 | ||||||
Furniture, fixtures and equipment (5 yrs.) |
4,152 | 4,245 | ||||||
Leasehold improvements (5 yrs.) |
3,811 | 3,501 | ||||||
Construction-in-progress(b) |
2,431 | 1,979 | ||||||
| 65,430 | 59,704 | |||||||
Less: accumulated depreciation |
(33,177 | ) | (28,854 | ) | ||||
Plant, property and equipment , net(a) |
$ | 32,253 | $ | 30,850 | ||||
| (a) | Interest costs of $121 million and $88 million and network engineering costs of $393 million and $351 million were capitalized during the years ended December 31, 2010 and 2009, respectively. | |
| (b) | Construction-in-progress includes $919 million and $784 million of accrued but unpaid capital expenditures as of December 31, 2010 and 2009, respectively. |
| At December 31, | ||||||||
| (dollars in millions) | 2010 | 2009 | ||||||
Accounts Payable and Accrued Liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 4,003 | $ | 3,633 | ||||
Accrued payroll |
442 | 390 | ||||||
Related employee benefits |
1,424 | 945 | ||||||
Taxes payable |
529 | 516 | ||||||
Accrued commissions |
518 | 385 | ||||||
Accrued interest |
223 | 254 | ||||||
Accounts payable and accrued liabilities |
$ | 7,139 | $ | 6,123 | ||||
Supplementary Statements of Income Information
| For the Years Ended December 31, | ||||||||||||
| (dollars in millions) | 2010 | 2009 | 2008 | |||||||||
Service Revenue: |
||||||||||||
Voice revenue |
$ | 36,465 | $ | 37,483 | $ | 31,984 | ||||||
Data revenue |
19,529 | 16,014 | 10,651 | |||||||||
Total service revenue |
$ | 55,994 | $ | 53,497 | $ | 42,635 | ||||||
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Table of Contents
| For the Years Ended December 31, | ||||||||||||
| (dollars in millions) | 2010 | 2009 | 2008 | |||||||||
Advertising and Promotional Cost: |
$ | 1,801 | $ | 2,036 | $ | 1,779 | ||||||
Employee Benefit Plans: |
||||||||||||
Matching contribution expense |
$ | 217 | $ | 216 | $ | 185 | ||||||
Profit sharing expense |
108 | 94 | 103 | |||||||||
Depreciation and Amortization: |
||||||||||||
Depreciation of plant, property
and equipment |
$ | 6,771 | $ | 6,545 | $ | 5,258 | ||||||
Amortization of other intangibles |
687 | 802 | 147 | |||||||||
Total depreciation and amortization |
$ | 7,458 | $ | 7,347 | $ | 5,405 | ||||||
Interest Expense, Net: |
||||||||||||
Interest expense |
$ | (1,094 | ) | $ | (1,497 | ) | $ | (490 | ) | |||
Capitalized interest |
778 | 356 | 329 | |||||||||
Interest expense, net |
$ | (316 | ) | $ | (1,141 | ) | $ | (161 | ) | |||
Supplementary Cash Flows Information
| For the Years Ended December 31, | ||||||||||||
| (dollars in millions) | 2010 | 2009 | 2008 | |||||||||
Net cash paid for income taxes |
$ | 1,236 | $ | 384 | $ | 575 | ||||||
Interest paid, net of amounts capitalized |
284 | 738 | 90 | |||||||||
7. Debt
| (dollars in millions) | ||||||||||||||||
| At December 31, | ||||||||||||||||
| Interest Rates % | Maturities | 2010 | 2009 | |||||||||||||
Debt: |
||||||||||||||||
Notes payable and other |
3.75 - 5.55 | 2011 - 2014 | 7,000 | 7,000 | ||||||||||||
| 7.375 - 8.875 | 2011 - 2018 | 5,975 | 6,117 | |||||||||||||
| Floating | 2011 | 1,250 | 6,246 | |||||||||||||
Alltel notes |
6.50 - 7.875 | 2012 - 2032 | 2,315 | 2,334 | ||||||||||||
Unamortized discount, net of premium |
(37 | ) | (38 | ) | ||||||||||||
Total debt, including current maturities |
16,503 | 21,659 | ||||||||||||||
Less: current maturities |
4,869 | 2,998 | ||||||||||||||
Total long-term debt |
$ | 11,634 | $ | 18,661 | ||||||||||||
Term notes payable to Affiliate (a): |
||||||||||||||||
Promissory note |
Floating | 2010 | — | 5,003 | ||||||||||||
Total due to affiliates, including current
maturities |
— | 5,003 | ||||||||||||||
Less: current maturities |
— | 5,003 | ||||||||||||||
Total long-term due to affiliates |
$ | — | $ | — | ||||||||||||
| (a) | All affiliate term notes were payable to Verizon Financial Services LLC (“VFSL”), a wholly-owned subsidiary of Verizon. |
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Debt
Verizon Wireless Capital LLC, a wholly-owned subsidiary of the Partnership, is a limited liability
company formed under the laws of Delaware on December 7, 2001 as a special purpose finance
subsidiary to facilitate the offering of debt securities of the Partnership by acting as co-issuer.
Other than the financing activities as a co-issuer of the Partnership’s indebtedness, Verizon
Wireless Capital LLC has no material assets, operations or revenues. The Partnership is jointly and
severally liable with Verizon Wireless Capital LLC for co-issued notes, as indicated below.
Discounts, premiums, and capitalized debt issuance costs are amortized using the effective interest
method.
On June 28, 2010, the Partnership exercised its right to redeem the outstanding $1.0 billion of
aggregate floating rate notes due June 2011 at a redemption price of 100% of the principal amount
of the notes, plus accrued and unpaid interest through the date of redemption. These notes were
issued in June 2009.
During 2010, the Partnership repaid the remaining $4.0 billion of borrowings that were outstanding
under a three-year term loan facility that had an original maturity of September 2011. No
borrowings remain outstanding under this facility as of December 31, 2010 and this facility has
been cancelled.
During November 2009, the Partnership and Verizon Wireless Capital LLC completed an exchange offer
to exchange privately placed notes issued in November 2008, and February and May 2009 for new notes
with similar terms.
In May 2009, the Partnership and Verizon Wireless Capital LLC co-issued $1.3 billion aggregate
principal amount floating rate notes due 2011 and $2.8 billion aggregate principal amount 3.75%
notes due 2011 in a private placement resulting in cash proceeds of approximately $4.0 billion, net
of discounts and issuance costs. In May 2011, these notes matured and were repaid in full using
cash generated from operations.
In February 2009, the Partnership and Verizon Wireless Capital LLC co-issued $750 million aggregate
principal amount 5.25% notes due 2012 and $3.5 billion aggregate principal amount 5.55% notes due
2014 in a private placement resulting in cash proceeds of $4.2 billion, net of discounts and
issuance costs.
On January 9, 2009, the Partnership borrowed $12.4 billion under a $17.0 billion credit facility
(“Bridge Facility”) in order to complete the acquisition of Alltel and repay a portion of the
approximately $24 billion of Alltel debt assumed. The Partnership used cash generated from
operations and the net proceeds from the sale of notes in private placements issued in February
2009, May 2009 and June 2009, which are described above to repay the borrowings under the Bridge
Facility. The Bridge Facility and the commitments under the Bridge Facility were terminated.
After completion of the Alltel acquisition and repayments of Alltel debt, including repayments
through December 31, 2010, approximately $2.3 billion aggregate principal amount of Alltel
Corporation notes and Senior PIK toggle notes remain outstanding and held by third parties. The
Alltel Corporation notes are not guaranteed by the Partnership or by any subsidiary of Alltel and
are unsecured.
In August 2009, the Partnership repaid $444 million of borrowings that were outstanding under a
three-year term loan facility.
Term Notes Payable to Affiliate
Under the terms of a fixed rate promissory note with VFSL, the Partnership may borrow, repay and
re-borrow up to a maximum principal amount of $750 million. Amounts borrowed under this note bear
interest at a rate of 5.8% per annum. The fixed rate note matures August 1, 2013 and gives VFSL the
right to cancel this note and require settlement of the aggregate unpaid principal and interest
under this note on August 1,
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2011 or August 1, 2012. There were no outstanding borrowings under this note as of December 31,
2010 and 2009.
During 2009, we used cash generated from operations to repay all of the remaining borrowings under
a $2.4 billion floating rate promissory note payable to VFSL. During 2009, we used cash generated
from operations to repay $4.4 billion of a $9.4 billion floating rate promissory note payable to
VFSL, reducing the outstanding balance to $5.0 billion. During 2010, the Partnership repaid the
remaining $5.0 billion of this note and this note has been cancelled.
Debt Covenants
As of December 31, 2010, we are in compliance with all of our debt covenants.
Maturities of Long-Term Debt
Maturities of long-term debt outstanding at December 31, 2010 are as follows:
| Years | (dollars in million) | |||
2011 |
$ | 4,869 | ||
2012 |
1,550 | |||
2013 |
1,450 | |||
2014 |
3,500 | |||
2015 |
669 | |||
Thereafter |
4,502 | |||
8. Long-Term Incentive Plan
Verizon Wireless Long Term Incentive Plan (“Wireless Plan”)
The Wireless Plan provides compensation opportunities to eligible employees and other participating
affiliates of the Partnership. The plan provides rewards that are tied to the long-term performance
of the Partnership. Under the Wireless Plan, value appreciation rights (“VARs”) are granted to
eligible employees. As of December 31, 2010, all VARs were fully vested. We have not granted new
VARs since 2004.
VARs reflect the change in the value of the Partnership, as defined in the plan. Similar to stock
options, the valuation is determined using a Black-Scholes model. Once VARs become vested,
employees can exercise their VARs and receive a payment that is equal to the difference between the
VAR price on the date of grant and the VAR price on the date of exercise, less applicable taxes.
VARs are fully exercisable three years from the date of grant with a maximum term of 10 years. All
VARs were granted at a price equal to the estimated fair value of the Partnership, as defined in
the Wireless Plan, at the date of the grant.
The Partnership employs the income approach, a standard valuation technique, to arrive at the fair
value of the Partnership on a quarterly basis using publicly available information. The income
approach uses future net cash flows discounted at market rates of return to arrive at an estimate
of fair value, as defined in the plan.
The following table summarizes the assumptions used in the Black-Scholes model during the years
ended December 31, 2010, 2009 and 2008:
| 2010 | 2009 | 2008 | ||||||||||
| Ranges | Ranges | Ranges | ||||||||||
Risk-free rate |
0.14% – 0.88% | 0.15% – 1.63% | 0.6% – 3.3% | |||||||||
Expected term (in years) |
0.03 – 2.0 | 0.38 – 2.5 | 1.2 – 3.0 | |||||||||
Expected volatility |
31.05% – 47.56% | 35.37% – 61.51% | 33.9% – 58.5% | |||||||||
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The risk-free rate is based on the U.S. Treasury yield curve in effect at the measurement date.
Expected volatility was based on a blend of the historical and implied volatility of publicly
traded peer companies for a period equal to the VARs expected life, ending on the measurement date.
For the years ended December 31, 2010, 2009, and 2008, the intrinsic value of VARs exercised during
the period was $66 million, $178 million, and $554 million, respectively.
Cash paid to settle VARs for the years ended December 31, 2010, 2009, and 2008 was $67 million,
$169 million, and $549 million, respectively.
Awards outstanding at December 31, 2010, 2009 and 2008 under the Wireless Plan are summarized as
follows:
| Weighted Average | ||||||||||||
| Exercise Price | Vested | |||||||||||
| (shares in thousands) | VARs(a) | of VARs(a) | VARs(a) | |||||||||
Outstanding, January 1, 2008 |
60,412 | $ | 17.58 | 60,412 | ||||||||
Exercised |
(31,817 | ) | 18.47 | |||||||||
Cancelled/Forfeited |
(351 | ) | 19.01 | |||||||||
Outstanding, December 31, 2008 |
28,244 | 16.54 | 28,244 | |||||||||
Exercised |
(11,442 | ) | 16.53 | |||||||||
Cancelled/Forfeited |
(211 | ) | 17.63 | |||||||||
Outstanding, December 31, 2009 |
16,591 | 16.54 | 16,591 | |||||||||
Exercised |
(4,947 | ) | 24.47 | |||||||||
Cancelled/Forfeited |
(75 | ) | 22.72 | |||||||||
Outstanding, December 31, 2010 |
11,569 | $ | 13.11 | 11,569 | ||||||||
| (a) | The weighted average exercise price is presented in actual dollars; VARs are presented in actual units. |
The following table summarizes the status of the Partnership’s VARs as of December 31, 2010:
| VARs Vested & Outstanding(a) | ||||||||||||
| Weighted | ||||||||||||
| Average Remaining | Weighted | |||||||||||
| (shares in thousands) | Contractual Life | Average | ||||||||||
| Range of Exercise Prices | VARs | (Years) | Exercise Price | |||||||||
$8.74 - $14.79 |
9,407 | 2.72 | $ | 12.26 | ||||||||
$14.80 - $22.19 |
2,162 | 0.78 | 16.76 | |||||||||
Total |
11,569 | $ | 13.11 | |||||||||
| (a) | As of December 31, 2010 the aggregate intrinsic value of VARs outstanding and vested was $352 million. |
Verizon Communications Inc. Long Term Incentive Plan
The 2009 Verizon Communications Inc. Long-Term Incentive Plan (the Verizon Plan) permits the
granting of stock options, stock appreciation rights, restricted stock, restricted stock units,
performance shares, performance stock units and other awards to Partnership employees. The maximum
number of shares available for awards from the Verizon Plan is 119.6 million shares.
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Table of Contents
Restricted Stock Units
The Verizon Plan provides for grants of Restricted Stock Units (RSUs) that generally vest at the
end of the third year after the grant. The RSUs outstanding at January 1, 2010 are classified as
liability awards because the RSUs will be paid in cash upon vesting. The RSU award liability is
measured at its fair value at the end of each reporting period and, therefore, will fluctuate based
on the performance of Verizon common stock. The RSUs granted during 2010 are classified as equity
awards because these RSUs will be paid in Verizon common stock upon vesting. Compensation expense
for RSUs classified as equity awards is measured based on the market price of Verizon common stock
at the date of grant and is recognized over the vesting period. Dividend equivalent units are also
paid to participants at the time the RSU award is paid, and in the same proportion as the RSU
award.
The Partnership had approximately 4.3 million and 3.5 million RSUs outstanding under the Verizon
Plan as of December 31, 2010 and 2009, respectively.
Performance Stock Units
The Verizon Plan also provides for grants of Performance Stock Units (“PSUs”) that generally vest
at the end of the third year after the grant. As defined by the Verizon Plan, the Human Resources
Committee of the Board of Directors of Verizon determines the number of PSUs a participant earns
based on the extent to which the corresponding goals have been achieved over the three-year
performance cycle. All payments are subject to approval by the Verizon Human Resources Committee.
The PSUs are classified as liability awards because the PSU awards are paid in cash upon vesting.
The PSU award liability is measured at its fair value at the end of each reporting period and,
therefore, will fluctuate based on the price of Verizon’s stock as well as performance relative to
the targets. Dividend equivalent units are also paid to participants at the time that the PSU award
is determined and paid, and in the same proportion as the PSU award.
The Partnership had approximately 6.3 million and 5.2 million PSUs outstanding under the Verizon
Plans as of December 31, 2010 and 2009, respectively.
As of December 31, 2010, unrecognized compensation expense related to the unvested portion of the
Partnership’s RSUs and PSUs was approximately $101 million and is expected to be recognized over a
weighted-average period of approximately two years.
Stock-Based Compensation Expense
For the years ended December 31, 2010, 2009 and 2008, the Partnership recognized compensation
expense for stock based compensation related to VARs, RSUs and PSUs of $217 million, $169 million
and $19 million, respectively.
9. Income Taxes
Provision for Income Taxes
The provision for income taxes consists of the following:
| For the Years Ended December 31, | ||||||||||||
| (dollars in millions) | 2010 | 2009 | 2008 | |||||||||
Current tax provision: |
||||||||||||
Federal |
$ | 874 | $ | 356 | $ | 413 | ||||||
State and local |
128 | 294 | 213 | |||||||||
| 1,002 | 650 | 626 | ||||||||||
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Table of Contents
| For the Years Ended December 31, | ||||||||||||
| (dollars in millions) | 2010 | 2009 | 2008 | |||||||||
Deferred tax provision: |
||||||||||||
Federal |
1 | 335 | 217 | |||||||||
State and local |
64 | (188 | ) | (41 | ) | |||||||
| 65 | 147 | 176 | ||||||||||
Provision for income taxes |
$ | 1,067 | $ | 797 | $ | 802 | ||||||
A reconciliation of the income tax provision computed at the statutory tax rate to the
Partnership’s effective tax rate is as follows:
| For the Years Ended December 31, | ||||||||||||
| (dollars in millions) | 2010 | 2009 | 2008 | |||||||||
Income tax provision at the
statutory rate |
$ | 6,210 | $ | 5,418 | $ | 4,932 | ||||||
State income taxes, net of
U.S. federal benefit |
140 | 27 | 120 | |||||||||
Interest and penalties |
— | 28 | (8 | ) | ||||||||
Other |
183 | — | — | |||||||||
Partnership income not
subject to federal or state
income taxes |
(5,466 | ) | (4,676 | ) | (4,242 | ) | ||||||
Provision for income tax |
$ | 1,067 | $ | 797 | $ | 802 | ||||||
Deferred taxes arise because of differences in the book and tax bases of certain assets and
liabilities. The significant components of the Partnership’s deferred tax assets and (liabilities)
are as follows:
| December 31, | ||||||||||||
| (dollars in millions) | 2010 | 2009 | ||||||||||
Deferred tax assets: |
||||||||||||
Net operating loss carryforward |
$ | 62 | $ | 505 | ||||||||
Valuation allowance |
(23 | ) | (23 | ) | ||||||||
State tax deductions |
102 | 103 | ||||||||||
Other |
233 | 262 | ||||||||||
Total deferred tax assets |
$ | 374 | $ | 847 | ||||||||
Deferred tax liabilities: |
||||||||||||
Intangible assets |
$ | (9,384 | ) | $ | (9,555 | ) | ||||||
Plant, property and equipment |
(1,173 | ) | (1,452 | ) | ||||||||
Other |
(218 | ) | (116 | ) | ||||||||
Total deferred tax liabilities |
$ | (10,775 | ) | $ | (11,123 | ) | ||||||
Net deferred tax asset-current(a) |
$ | 113 | $ | 317 | ||||||||
Net deferred tax liability-non-current |
$ | (10,514 | ) | $ | (10,593 | ) | ||||||
| (a) | Included in prepaid expenses and other current assets in the accompanying consolidated balance sheets. |
At December 31, 2010, the Partnership had state net operating loss carryforwards of $1,377 million.
These net operating loss carryforwards expire at various dates principally from December 31, 2017
through December 31, 2025.
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Table of Contents
Unrecognized Tax Benefits
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| (dollars in millions) | 2010 | 2009 | 2008 | |||||||||
Balance as of January 1 |
$ | 506 | $ | 77 | $ | 67 | ||||||
Additions based on tax positions related
to the current year |
7 | 212 | 25 | |||||||||
Additions for tax positions of prior years |
8 | 222 | 16 | |||||||||
Reductions due to lapse of applicable
statute of limitations |
(8 | ) | (5 | ) | (14 | ) | ||||||
Settlements |
(120 | ) | — | (17 | ) | |||||||
Balance as of December 31 |
$ | 393 | $ | 506 | $ | 77 | ||||||
Upon the acquisition of Alltel on January 9, 2009, the Partnership recorded a liability of $222
million for unrecognized tax benefits. As of December 31, 2010, $183 million of this balance
remains. It is reasonably possible that the range of possible outcomes can change by a significant
amount and accordingly, an estimate of the range of possible outcomes cannot be made until issues
are further developed or examinations closed.
During the year, the Partnership’s subsidiaries settled and closed several examinations that
resulted in the release of approximately $120 million in previously unrecognized tax benefits. As
a result of the settlements, the Partnership’s subsidiaries paid approximately $42 million
including interest to satisfy the assessments. Additionally, the Partnership’s subsidiaries
released approximately $8 million in previously unrecognized tax benefits during the year resulting
from the lapse of the statute of limitations in several jurisdictions.
Included in the total unrecognized tax benefits balance as of December 31, 2010, is $240 million of
unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate. The
remaining unrecognized tax benefits relate to temporary items that would not affect the effective
tax rate.
The Partnership had approximately $38 million for the payment of interest and penalties accrued as
of December 31, 2010, relating to the $393 million of unrecognized tax benefits reflected above.
The Partnership or its subsidiaries file income tax returns in the U.S. federal jurisdiction, and
various state and local jurisdictions. The Partnership is generally no longer subject to U.S.
federal, state and local income tax examinations by tax authorities for years before 1997. The
Internal Revenue Service (IRS) is currently examining some of the Partnership’s subsidiaries. As a
result of the anticipated resolution of various income tax matters within the next twelve months,
the Partnership believes that it is reasonably possible that the unrecognized tax benefits may be
adjusted. An estimate of the amount of the change attributable to any such settlement cannot be
made at this time.
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10. Leases
As Lessee
The Partnership has entered into operating leases for facilities and equipment used in its
operations. Lease contracts include renewal options that include rent expense adjustments based on
the Consumer Price Index as well as annual and end-of-lease term adjustments. Rent expense is
recorded on a straight-line basis over the non-cancellable lease term which is generally determined
to be the initial lease term. Leasehold improvements related to these operating leases are
amortized over the shorter of their estimated useful lives or the non-cancellable lease term. For
the years ended December 31, 2010, 2009, and 2008, the Partnership recognized rent expense of
$1,363 million, $1,149 million, and $845 million, respectively, in Cost of service and $469
million, $504 million, and $391 million, respectively, in Selling, general and administrative
expense in the accompanying consolidated statements of income.
The aggregate future minimum rental commitments under non-cancellable operating leases, excluding
renewal options that are not reasonably assured for the periods shown at December 31, 2010, are as
follows:
| Operating | ||||
| (dollars in millions) | Leases | |||
| | | ||||
Years |
||||
2011 |
$ | 1,384 | ||
2012 |
1,210 | |||
2013 |
1,044 | |||
2014 |
894 | |||
2015 |
734 | |||
Thereafter |
4,263 | |||
Total minimum payments |
$ | 9,529 | ||
11. Other Transactions with Affiliates
In addition to transactions with Affiliates in Note 7, other significant transactions with
Affiliates are summarized as follows:
| For the Years Ended December 31, | ||||||||||||
| (dollars in millions) | 2010 | 2009 | 2008 | |||||||||
Revenue related to transactions with affiliated companies |
$ | 94 | $ | 102 | $ | 106 | ||||||
Cost of service(a) |
1,471 | 1,377 | 1,252 | |||||||||
Selling, general and administrative expenses(b) |
225 | 274 | 289 | |||||||||
Interest incurred(c) |
9 | 66 | 319 | |||||||||
| (a) | Affiliate cost of service primarily represents charges for long distance, direct telecommunication and roaming services provided by affiliates. | |
| (b) | Affiliate selling, general and administrative expenses include charges from affiliates for services provided, including insurance, leases, office telecommunications, and billing and lockbox services, as well as services billed from the Verizon Service Organization (“VSO”) and Verizon Corporate Services for functions performed under service level agreements. | |
| (c) | Interest costs of $7, $56 and $252 were capitalized in Wireless licenses and Plant, property and equipment, net in the years ended December 31, 2010, 2009 and 2008, respectively (See Notes 3 and 6). |
Receivable from Affiliates, Net
The net amounts due from or payable to affiliates as a result of services provided in the normal
course of business are presented in Due from affiliates, net within Current assets in the
consolidated balance sheets.
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Distributions to Affiliates
As required under the Partnership Agreement, we paid aggregate tax distributions of $3,845 million,
$3,138 million and $1,529 million to our Partners during the years ended December 31, 2010, 2009,
and 2008 respectively. In addition to our quarterly tax distribution to our Partners, our Partners
have directed us to make supplemental tax distributions to them, subject to our board of
representatives’ right to reconsider these distributions based on significant changes in overall
business and financial conditions. During the year ended December 31, 2010, we made supplemental
tax distributions in the aggregate amount of $667 million, which is included in the total
distribution paid above. Subsequent annual supplemental tax distributions in the amount of $667
million comprised of $300 million to Vodafone and $367 million to Verizon Communications in each of
2011 and 2012 are scheduled to be paid in equal quarterly installments during each of those years
on the same dates that the established regular quarterly tax distributions are made.
Through May 13, 2011, we paid tax distributions to our Partners of $1,434 million, including
aggregate tax distributions of $1,100 million as well as supplemental tax distributions of $334
million.
Additionally, in November 2008, we provided our Partners with the customary calculation of the
aggregate tax distribution of $556 million for the quarter ending September 30, 2008. With respect
to this tax distribution, however, Verizon Communications and Vodafone agreed to defer payment. On
April 23, 2009, we made payment of the deferred distribution in full (without interest, premium or
other adjustment) of the applicable amounts to our Partners, which is included in the total
distributions paid in 2009.
12. Accumulated Other Comprehensive Income
Comprehensive income consists of net income and other gains and losses affecting partners’
capital that, under GAAP, are excluded from net income. The components of Accumulated other
comprehensive income are as follows:
| December 31, | ||||||||||||
| (dollars in millions) | 2010 | 2009 | ||||||||||
Unrealized gains on cash flow hedges, net |
$ | 56 | $ | 122 | ||||||||
Defined benefit pension and postretirement plans |
5 | 14 | ||||||||||
Accumulated other comprehensive income |
$ | 61 | $ | 136 | ||||||||
13. Commitments and Contingencies
Bell Atlantic, now known as Verizon Communications, and Vodafone entered into an alliance
agreement to create a wireless business composed of both companies’ U.S. wireless assets, as
amended, which we refer to as the “Alliance Agreement”. The Alliance Agreement contains a
provision, subject to specified limitations, that requires Verizon and Vodafone to indemnify the
Partnership for certain contingencies, excluding PrimeCo Personal Communications L.P.
contingencies, arising prior to the formation of the Partnership.
The Partnership is subject to lawsuits and other claims, including class actions and claims
relating to product liability, patent infringement, intellectual property, antitrust, partnership
disputes, and relations with resellers and agents. The Partnership is also defending lawsuits filed
against the Partnership and other participants in the wireless industry alleging adverse health
effects as a result of wireless phone usage. Various consumer class action lawsuits allege that the
Partnership violated certain state consumer protection laws and other statutes and defrauded
customers through misleading billing practices or statements. These matters may involve
indemnification obligations by third parties and/or affiliated parties covering all or part of any
potential damage awards against the Partnership and/or insurance coverage.
All of the above matters are subject to many uncertainties, and outcomes are not predictable with
assurance. Consequently, the ultimate liability with respect to these matters as of December 31,
2010 cannot be ascertained. The potential effect, if any, on the consolidated financial statements
of the Partnership, in the period in which these matters are resolved, may be material.
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In addition to the aforementioned matters, the Partnership is subject to various other legal
actions and claims in the normal course of business. While the Partnership’s legal counsel cannot
give assurance as to the outcome of each of these other matters, in management’s opinion, based on
the advice of such legal counsel, the ultimate liability with respect to any of these actions, or
all of them combined, will not materially affect the consolidated financial statements of the
Partnership.
Verizon has entered into reimbursement agreements with third-party lenders that permit these
lenders to issue letters of credit to third parties on behalf of the Partnership and our
subsidiaries, including Alltel, following the acquisition of Alltel.
We have commitments primarily related to sponsorships and the purchase of network services,
equipment and software from suppliers totaling $44.9 billion. Of this total amount, $13.7 billion,
$14.0 billion, $17.0 billion, $0.1 billion and $0.1 billion are expected to be purchased in 2011,
2012, 2013, 2014 and 2015 and thereafter, respectively.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Representatives and Partners of
Cellco Partnership d/b/a Verizon Wireless:
Cellco Partnership d/b/a Verizon Wireless:
We have audited the accompanying consolidated balance sheets of Cellco Partnership and
subsidiaries d/b/a Verizon Wireless (the “Partnership”) as of December 31, 2010 and 2009,
and the related consolidated statements of income, cash flows and changes in partners’ capital for each
of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
New York, New York
February 28, 2011 (June 16, 2011 as to Notes 7 and 11)
February 28, 2011 (June 16, 2011 as to Notes 7 and 11)
B-30
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ADR Payment Information
Fees payable by ADR holders
The Bank of New York Mellon, the depositary, collects its fees for delivery and surrender of
ADRs directly from investors depositing shares or surrendering ADRs for the purpose of withdrawal
or from intermediaries acting for them. The depositary collects fees for making distributions to
investors, including in connection with the payment of dividends, by deducting those fees from the
amounts distributed or by selling a portion of distributable property to pay the fees. The
depositary may generally refuse to provide fee-attracting services until its fees for those
services are paid.
| Persons depositing or withdrawing | ||
| shares must pay: | For: | |
$5.00 (or less) per 100 ADRs (or
portion of 100 ADRs)
|
• Issuance of ADRs, including issuances
resulting from a distribution of shares or
rights or other property • Cancellation of ADRs for the purpose of
withdrawal, including if the deposit agreement
terminates |
|
$.02 (or less) per ADR (or portion
thereof). The current per ADR fee to
be charged for an interim dividend
is $0.01 per ADR and for a final
dividend is $0.02 per ADR.
|
• Any cash distribution to ADR registered
holders |
|
A fee equivalent to the fee that
would be payable if securities
distributed to you had been shares
and the shares had been deposited
for issuance of ADRs
|
• Distribution of securities distributed
to holders of deposited securities which are
distributed by the depositary to ADR registered
holders |
|
Registration or transfer fees
|
• Transfer and registration of shares on
our share register to or from the name of the
depositary or its agent when you deposit or
withdraw shares |
|
Expenses of the depositary
|
• Cable, telex, facsimile transmissions
and delivery expenses (when expressly provided
in the deposit agreement) • Converting foreign currency to US dollars |
|
Taxes and other governmental charges
the depositary or the custodian have
to pay on any ADR or share
underlying an ADR, for example,
stock transfer taxes, stamp duty or
withholding taxes
|
• As necessary |
|
Any charges incurred by the depositary or its agents for servicing the deposited securities |
• As necessary |
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Fees Payable By The Depositary To The Issuer
The depositary collects fees for the delivery and surrender of ADRs directly from investors
depositing shares or surrendering ADRs for the purpose of withdrawal or from intermediaries acting
for them. The depositary also collects fees for making distributions to investors (including on the
payment of dividends by the Company) by deducting those fees from the amounts distributed or by
selling a portion of distributable property to pay the fees. As set out above, pursuant to the
deposit agreement, the depositary may charge up to $0.02 per ADR in respect of dividends paid by
us. We have agreed with the depositary that any dividend fee collected by it is paid to us, net of
any dividend collection fee charged by it. We have agreed with the depositary that it will charge
$0.01 per ADR in respect of any interim dividend and $0.02 per ADR in respect of any final
dividend. As at 31 March 2011, we have received approximately $19.6 million arising out of fees
charged in respect of dividends paid.
We also have an agreement with the depositary that it will absorb any of its out-of-pocket
maintenance costs for servicing the holders of the ADRs up to $1 million per calendar year.
However, any of the depositary’s out-of-pocket maintenance costs which exceed the $1 million annual
aggregate limit will be reimbursed by us.
C-2
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SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and
that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| VODAFONE GROUP PUBLIC LIMITED COMPANY (Registrant) |
||||
| /s/ R E S Martin | ||||
| Rosemary E S Martin | ||||
| Group General Counsel and Company Secretary | ||||
Date: 17 June 2011
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Index to Exhibits to Form 20-F for year ended 31 March 2011
| 1.1 | Articles of Association, as adopted on June 30, 1999 and including all amendments made on July 25, 2001, July 26, 2005, July 25, 2006, July 24, 2007, July 29, 2008, July 28, 2009 and July 27, 2010, of the Company. | |
| 2.1 | Indenture, dated as of February 10, 2000, between the Company and Citibank, N.A. as Trustee, including forms of debt securities (incorporated by reference to Exhibit 4(a) of Amendment No. 1 to the Company’s Registration Statement on Form F-3, dated November 24, 2000). | |
| 2.2 | Agreement of Resignation, Appointment and Acceptance dated as of July 24, 2007, among the Company, Citibank N.A. and the Bank of New York (incorporated by reference to Exhibit 2.2 to the Company’s Annual Report of Form 20-F for the financial year ended March 31, 2008). | |
| 2.3 | Eighth supplemental Trust Deed dated July 10, 2009, between the Company and the Law Debenture Trust Corporation p.l.c. further modifying the provisions of the Trust Deed dated July 16, 1999 relating to a €30,000,000,000 Euro Medium Term Note Programme (incorporated by reference to Exhibit 2.3 to the Company’s Annual Report of Form 20-F for the financial year ended March 31, 2010). | |
| 4.1 | Agreement for US$4,675,000,000 7 year Revolving Credit Facility (subsequently increased by accession of further lenders to US$5,025,000,000), dated June 24, 2005, among the Company and various lenders, (incorporated by reference to Exhibit 4.2 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2006). | |
| 4.2 | Notice of cancellation dated March 7, 2011 in respect of the US$5,025,000,000 Revolving Credit Facility dated June 24, 2005. | |
| 4.3 | Agreement for US$4,015,000,000 5 year Revolving Credit Facility dated March 9, 2011, among the Company and various lenders. | |
| 4.4 | Lender Accession Agreement with Bank of China Limited, London Branch, effective as of March 17, 2011. | |
| 4.5 | Agreement for US$4,315,000,000 3 year Revolving Credit Facility dated 29 July 2008 among the Company and various lenders. (incorporated by reference to Exhibit 4.29 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2009). | |
| 4.6 | Notice of cancellation dated June 29, 2010 in respect of the US$4,315,000,000 Revolving Credit Facility dated July 29, 2008. | |
| 4.7 | Agreement for € 4,000,000,000 5 year Revolving Credit Facility dated July 1, 2010 among the Company and various lenders. | |
| 4.8 | Lender Accession Agreement with Bank of China Limited, London Branch, effective as of March 17, 2011. | |
| 4.9 | Vodafone Group Long Term Incentive Plan (incorporated by reference to Exhibit 4.5 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2001). |
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| 4.10 | Vodafone Group Short Term Incentive Plan (incorporated by reference to Exhibit 4.6 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2001). | |
| 4.11 | Vodafone Group 1999 Long Term Stock Incentive Plan (incorporated by reference to Exhibit 4.7 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2001). | |
| 4.12 | Vodafone Group 1998 Company Share Option Scheme (incorporated by reference to Exhibit 4.8 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2001). | |
| 4.13 | Vodafone Group 1998 Executive Share Option Scheme (incorporated by reference to Exhibit 4.9 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2001). | |
| 4.14 | Vodafone Group 2005 Global Incentive Plan (incorporated by reference to Exhibit 4.8 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2006). | |
| 4.15 | Service Contract of Andrew Halford (incorporated by reference to Exhibit 4.16 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2006). | |
| 4.16 | Agreement for Services for Sir John Bond (incorporated by reference to Exhibit 4.13 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2007). | |
| 4.17 | Letter of Appointment of Dr. John Buchanan (incorporated by reference to Exhibit 4.11 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2003). | |
| 4.18 | Letter of Appointment of Anne Lauvergeon (incorporated by reference to Exhibit 4.22 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2006). | |
| 4.19 | Letter of Appointment of Luc Vandevelde (incorporated by reference to Exhibit 4.22 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2004). | |
| 4.20 | Letter of Appointment of Anthony Watson (incorporated by reference to Exhibit 4.26 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2006). | |
| 4.21 | Letter of Appointment of Philip Yea (incorporated by reference to Exhibit 4.27 to the Company’s Annual Report for the financial year ended March 31, 2006). | |
| 4.22 | Service contract of Vittorio Colao (incorporated by reference to Exhibit 4.22 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2009). | |
| 4.23 | Letter of appointment of Alan Jebson (incorporated by reference to Exhibit 4.23 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2007). | |
| 4.24 | Letter of appointment of Nick Land (incorporated by reference to Exhibit 4.24 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2007). | |
| 4.25 | Letter of appointment of Simon Murray (incorporated by reference to Exhibit 4.25 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2008). | |
| 4.26 | Letter of Appointment of Sam Jonah (incorporated by reference to Exhibit 4.26 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2009). | |
| 4.27 | Service contract of Michel Combes (incorporated by reference to Exhibit 4.27 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2009). |
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| 4.28 | Service contract of Stephen Pusey (incorporated by reference to Exhibit 4.28 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2009). | |
| 4.29 | Letter of indemnification for Andy Halford (incorporated by reference to Exhibit 4.25 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2010). | |
| 4.30 | Letter of indemnification for Michel Combes (incorporated by reference to Exhibit 4.26 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2010). | |
| 4.31 | Letter of indemnification for Steve Pusey (incorporated by reference to Exhibit 4.27 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2010). | |
| 4.32 | Letter of indemnification for Dr. John Buchanan (incorporated by reference to Exhibit 4.28 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2010). | |
| 4.33 | Letter of indemnification for Philip Yea (incorporated by reference to Exhibit 4.29 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2010). | |
| 4.34 | Letter of indemnification for Luc Vandevelde (incorporated by reference to Exhibit 4.30 to the Company’s Annual Report on Form 20-F for the financial year ended March 31, 2010). | |
| 4.35 | Letter of Appointment of Renee James. | |
| 4.36 | Letter of Appointment of Gerard Kleisterlee. | |
| 7. | Computation of ratio of earnings to fixed charges for the years ended March 31, 2011, 2010, 2009, 2008, and 2007. | |
| 8. | The list of the Company’s subsidiaries is incorporated by reference to note 12 to the Consolidated Financial Statements included in the Annual Report. | |
| 12. | Rule 13a – 14(a) Certifications. | |
| 13. | Rule 13a – 14(b) Certifications. These certifications are furnished only and are not filed as part of the Annual Report on Form 20-F. | |
| 15.1 | Consent letter of Deloitte LLP, London. | |
| 15.2 | Consent letter of Deloitte LLP, New York. |