The way ahead? - Vodafone

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90 Vodafone Group Plc Annual Report 2013 Consolidated income statement for the years ended 31 March 2013 2012 2011 Note £m £m £m Revenue A2 44,445 46,417 45,884 Cost of sales (30,505) (31,546) (30,814) Gross profit 13,940 14,871 15,070 Selling and distribution expenses (3,258) (3,227) (3,067) Administrative expenses (5,199) (5,075) (5,300) Share of result in associates 15 6,477 4,963 5,059 Impairment losses 12 (7,700) (4,050) (6,150) Other income and expense 11 468 3,705 (16) Operating profit 3 4,728 11,187 5,596 Non-operating income and expense 11 10 (162) 3,022 Investment income 6 305 456 1,309 Financing costs 6 (1,788) (1,932) (429) Profit before taxation 3,255 9,549 9,498 Income tax expense 7 (2,582) (2,546) (1,628) Profit for the financial year 673 7,003 7,870 Attributable to: – Equity shareholders 429 6,957 7,968 – Non-controlling interests 244 46 (98) 673 7,003 7,870 Basic earnings per share 8 0.87p 13.74p 15.20p Diluted earnings per share 8 0.87p 13.65p 15.11p Consolidated statement of comprehensive income for the years ended 31 March 2013 2012 2011 £m £m £m (Losses)/gains on revaluation of available-for-sale investments, net of tax (73) (17) 310 Foreign exchange translation differences, net of tax 362 (3,673) (2,132) Net actuarial (losses)/gains on defined benefit pension schemes, net of tax (198) (272) 136 Foreign exchange losses/(gains) transferred to the income statement 1 (681) (630) Fair value gains transferred to the income statement (12) – (2,192) Other, net of tax (4) (10) 19 Other comprehensive income/(loss) 76 (4,653) (4,489) Profit for the financial year 673 7,003 7,870 Total comprehensive income for the year 749 2,350 3,381 Attributable to: – Equity shareholders 604 2,383 3,567 – Non-controlling interests 145 (33) (186) 749 2,350 3,381 The accompanying notes are an integral part of these consolidated financial statements.
Overview Commentary on the consolidated income statement and statement of comprehensive income The consolidated income statement includes the majority of our income and expenses for the year with the remainder recorded in the statement of comprehensive income. Further details on the major movements in the year are set out below: Revenue Revenue fell by 4.2% to £44.4 billion. The decrease was primarily due to the negative impact of adverse foreign exchange rate movements, as much of the Group’s revenue is generated in currencies other than sterling, and the challenging economic conditions in southern Europe. Our operating results on pages 40 to 44 explain in more detail the geographical split of our revenue. Share of result in associates Share of results in associates increased 30.5% to £6.5 billion. This is primarily due to the strong performance of VZW, in which we have a 45% interest. For more information on what has driven the growth at VZW, see page 44. Impairment losses An impairment loss of £7.7 billion was recorded in relation to Italy and Spain, primarily driven by adverse performance against previous plans and adverse movements in discount rates. Note 12 provides more information on how we test for impairment. Other income and expense Other income and expense has decreased from a gain of £3.7 billion in the prior year to a gain of £0.5 billion this year. The decrease is primarily due to the £3.7 billion gain on disposal of the Group’s 44% interest in SFR and 24.4% interest in Polkomtel recognised in the prior year, whereas in the current year we recognised a gain on acquisition of CWW of £0.5 billion. Note 11 provides more information on our acquisitions and disposals. Income tax expense Our income tax expense was stable at £2.6 billion. Our adjusted effective tax rate, a non-GAAP measure used by management to measure the rate of tax on our adjusted profit before tax, continued to be in the mid‑twenties range and is calculated as set out below. 2013 2012 £m £m Income tax expense 2,582 2,546 Tax on adjustments to derive adjusted profit before tax 12 (242) Adjusted income tax expense 2,594 2,304 Share of associates’ tax 11 302 Adjusted income tax expense for calculating adjusted tax rate 2,605 2,606 Profit before tax 3,255 9,549 Adjustments to derive adjusted profit before tax 1 7,273 369 Adjusted profit before tax 10,528 9,918 Add: Share of associates’ tax and non-controlling interest 105 382 Adjusted profit before tax for calculating adjusted effective tax rate 10,633 10,300 Adjusted effective tax rate 24.5% 25.3% Note: 1 See “Earnings per share” opposite. Business review Performance Governance Financials The Group’s share of associates’ tax has fallen as a result of a greater share of the VZW profits being taxed at the partnership level. Additional information Earnings per share Basic earnings per share was 0.87 pence, a reduction of 12.87 pence from the prior year. This was driven by higher impairment losses in the current year, whilst the prior year benefited from a gain on disposal of our 44% interest in SFR and 24.4% interest in Polkomtel. Adjusted earnings per share, which is a non-GAAP measure used by management and which excludes the one-off items noted above together with items that we do not view as being reflective of our performance, was 15.65 pence, an increase of 5.0% compared to the prior year. The increase was primarily due to an increase in earnings on higher adjusted operating profit. Our calculation of the adjusted earnings on which we base our adjusted earnings per share calculation is set out below. Note 8 provides information on the number of shares. 2013 2012 £m £m Profit attributable to equity shareholders 429 6,957 Pre-tax adjustments: Impairment loss 7,700 4,050 Other income and expense 1 (468) (3,705) Non-operating income and expense (10) 162 Investment income and financing costs 51 (138) 7,273 369 Taxation 2 (12) 242 Non-controlling interests 6 (18) Adjusted profit attributable to equity shareholders 7,696 7,550 Notes: 1 Other income and expense for the year ended 31 March 2013 included a £473 million gain on acquisition of CWW. The year ended 31 March 2012 included a £3,419 million gain on disposal of the Group’s 44% interest in SFR and a £296 million gain on disposal of the Group’s 24.4% interest in Polkomtel. 2 Taxation for the year ended 31 March 2012 included a £206 million charge in respect of the disposal of the Group’s 24.4% interest in Polkomtel. The gain arising on our acquisition of CWW in the year ended 31 March 2013 and the disposal of our 44% interest in SFR in the 2012 financial year did not give rise to a tax charge. The impairment charges of £7,700 million and £4,050 million in the years ended 31 March 2013 and 2012 respectively did not result in any tax consequences. The consolidated statement of comprehensive income records all of the income and losses generated for the year. Total comprehensive income was over £0.7 billion, comprising a profit of £0.7 billion and other comprehensive income of £0.1 billion. Further details on the major movements in the year are set out below: Foreign exchange differences, net of tax Foreign exchange translation differences arise when we translate the results and net assets of our operating companies and associates, which transact their operations in foreign currencies including the euro, South African rand and Indian rupee, as well as US dollars for VZW, into our presentation currency of sterling. The net movement in foreign exchange rates resulted in a gain of £0.4 billion for the year. In the prior year there was a loss of £3.7 billion. Net actuarial (losses)/gains on defined benefit schemes We incurred a loss of £0.2 billion from the revaluation of the Group’s defined benefit pension schemes after comparing the outcomes to those anticipated by the Group’s actuary. In the prior year there was a loss of £0.3 billion. Foreign exchange losses/(gains) transferred to the income statement The prior year gains were a result of the recycling of foreign exchange losses on the disposal of our investments in SFR and Polkomtel. Profit for the financial year The reasons underlying the £6.3 billion decrease in profit for the financial year are provided above. The financial commentary on this page forms part of the business review and is unaudited. 91 Vodafone Group Plc Annual Report 2013
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