Business Context and Reporting Period
This Form 20-F covers the fiscal year ended March 31, 2002, for Vodafone Group Public Limited Company. The Group is the world's largest mobile telecommunications company by proportionate registered customers, operating in 28 countries across five continents. The reporting period was characterized by significant strategic realignment, major acquisitions (including controlling stakes in Japan Telecom and the J-Phone Group, and Eircell), and the continued rollout of the single "Vodafone" brand. The Group reached its 100 millionth customer milestone during the year.
Key Financial Metrics
| Metric | 2002 (£m) | 2001 (£m) | Change |
|---|---|---|---|
| Turnover | 22,845 | 15,004 | +52% |
| Operating Profit (before goodwill & exceptional items) | 7,044 | 5,204 | +35% |
| Total Group Operating Loss (after goodwill & exceptional items) | (11,834) | (6,989) | -69% |
| Profit/(Loss) on Ordinary Activities before Tax | (13,539) | (8,086) | -67% |
| Basic Earnings per Share (Adjusted) | 5.15p | 3.54p | +45% |
| Basic Earnings per Share (Reported) | (23.77p) | (16.09p) | -48% |
| Free Cash Flow | 2,365 | 2,365 | 0% |
| Net Debt | 12,034 | 6,722 | +79% |
Note: Reported figures are heavily impacted by non-cash goodwill amortisation (£13,470m) and exceptional impairment charges (£6,000m). Adjusted metrics reflect underlying operational performance.
Material Changes vs. Prior Period
- Revenue Growth: Turnover increased by 52% to £22.8 billion, driven by organic growth and the consolidation of new acquisitions (J-Phone, Japan Telecom, Eircell, and Airtel).
- Acquisitions: The Group acquired controlling interests in Japan Telecom (66.7%) and the J-Phone Group (effective 69.7%), Eircell (Ireland), and increased its stake in Airtel (Spain) to 91.6% (later 93.8%).
- Impairments: Exceptional operating costs of £5,408 million included a £5,100 million impairment charge related to Arcor, Cegetel, Grupo Iusacell, and Japan Telecom. An additional £900 million non-operating impairment was recorded for the China Mobile investment.
- Goodwill Amortisation: Increased to £13,470 million from £11,873 million due to new acquisitions and a full year of Mannesmann amortisation.
- Customer Base: Proportionate registered customers grew 22% to 101.1 million. Data revenues rose 87% to £2.1 billion, representing 11% of service revenues.
Guidance, Outlook, and Risks
- Outlook: Management expects net customer growth of just under 10% for the coming year, with a shift from volume growth to revenue growth driven by Average Revenue Per User (ARPU) improvements and data services. Data revenues are projected to reach 20% of service revenues by 2004.
- Capital Expenditure: Expected to increase by nearly £2 billion to approximately £6.0 billion in the 2003 financial year, with 30% allocated to 3G infrastructure. Free cash flow is expected to remain similar to the prior year despite higher capex.
- 3G Rollout: J-Phone Vodafone is expected to be the first to launch 3G services in late 2002, followed by major European markets.
- Risks: Key risks include intensifying competition leading to price declines, regulatory changes (particularly regarding roaming and termination charges), delays in 3G handset availability, and foreign exchange fluctuations (over 87% of operating profit originates outside the UK).
- Legal Proceedings: The Group is a defendant in four US actions alleging personal injury from mobile phone use; management states these are at an early stage and will be vigorously defended.
Investor Verification Checklist
- Impairment Validity: Verify the assumptions used in the £6,000 million impairment charge, particularly regarding Arcor and Japan Telecom, given the volatile telecom sector.
- Goodwill Amortisation Policy: Confirm the impact of upcoming US GAAP changes (SFAS 142) which will eliminate goodwill amortisation for future periods, significantly altering reported earnings.
- 3G Investment Returns: Assess the timeline and cost efficiency of the £1.8 billion incremental 3G infrastructure spend and the commercial readiness of 3G handsets.
- Regulatory Exposure: Monitor outcomes of EU and national regulator investigations into roaming charges and mobile termination rates, which could impact margins.
- China Mobile Investment: Track the performance of the China Mobile investment and the timing of expected dividend returns following the recent stake increase.