Vodafone 2005 Annual Report Download - page 31

Performance |29
Churn
Churn is calculated as total gross customer disconnections divided by average total
customers in the period. Stated churn figures are twelve month average figures.
Organic growth
The percentage movements in organic growth are presented to reflect operating
performance on a comparable basis. Where a subsidiary or associated undertaking
was newly acquired or disposed of in the current or prior year, the Group adjusts, under
organic growth calculations, the results for the current and prior year to remove the
amount the Group earned in both periods as a result of the acquisition or disposal of
subsidiary or associated undertakings. Where the Group increases, or decreases, its
ownership interest in an associated undertaking in the current or prior year, the Group’s
share of results for the prior year is restated at the current year’s ownership level. A
further adjustment in organic calculations excludes the effect of exchange rate
movements by restating the prior period’s results as if they had been generated at the
current period’s exchange rates. Management believes that these measures provide
useful information to assist investors in assessing the Group’s operating performance
from period to period.
Trading results
The following metrics are used in the discussion of trading results.
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.
Voice revenue
Voice revenue is service revenue related to the provision of voice services.
Non-voice service revenue
Non-voice service revenue includes, but is not limited to, all revenue related to the
provision of SMS and MMS, downloads, Internet browsing and other data services.
Messaging revenue
Messaging revenue includes all SMS and MMS revenue including wholesale messaging
revenue, revenue from the use of messaging services by Vodafone customers roaming
away from their home network and customers visiting the local network.
Data revenue
Data revenue includes all non-voice service revenue, excluding messaging revenue.
Other revenue
Other revenue comprises all non-service revenue, including, but not limited to,
equipment and accessory revenue and connection and upgrade fees.
Net other revenue
This measure is presented in the trading results for the mobile telecommunications
business and the Group’s key markets. Net other revenue excludes revenue relating to
acquisition and retention activities as such revenue is deducted from acquisition and
retention costs in the trading results. The Group believes that this basis of presentation
provides useful information for investors regarding trends in net subsidies with respect
to the acquisition and retention of customers and facilitates comparability of results
with other companies operating in the mobile telecommunications business.
Net acquisition costs
This measure comprises the total of connection fees, trade commissions and
equipment costs, net of related revenue, relating to new customer connections. This
performance indicator is commonly used in the mobile telecommunications industry
and by Vodafone management to compare net subsidies provided to acquire customers
to prior periods and internal forecasts. Management believes that this measure
provides useful information for investors regarding trends in net subsidies to acquire
customers for mobile telecommunications services from period to period.
Net retention costs
This measure comprises the total of upgrade fees, trade commissions, costs of loyalty
schemes and equipment costs, net of related revenue, relating to customer retention
and upgrades. This performance indicator is commonly used in the mobile
telecommunications industry and by Vodafone management to compare net subsidies
provided to retain customers to prior periods and internal forecasts. Management
believes that this measure provides useful information for investors regarding trends in
net subsidies to retain customers for mobile telecommunications services from period
to period.
Depreciation and amortisation
This measure includes the profit or loss on disposal of fixed assets but excludes
goodwill amortisation.
Critical Accounting Estimates
The Group prepares its Consolidated Financial Statements in accordance with UK
GAAP, the application of which often requires judgements to be made by management
when formulating the Group’s financial position and results. Under UK GAAP, the
directors are required to adopt those accounting policies most appropriate to the
Group’s circumstances for the purposes of giving a true and fair view and to review
them regularly. The Group also prepares a reconciliation of the Group’s revenue, net
loss and shareholders’ equity between UK GAAP and US GAAP.
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. Where it is considered that the Group’s US GAAP accounting policies differ
materially from the UK GAAP accounting policy, a separate explanation is provided.
The discussion below should also be read in conjunction with the Group’s disclosure of
material UK GAAP accounting policies, which is provided in note 2 to the Consolidated
Financial Statements, “Accounting policies”, on pages 82 to 84, and with the
description of the Group’s US GAAP accounting policies and other US GAAP related
disclosures provided on pages 126 to 136.
Management has discussed its critical accounting estimates and associated
disclosures with the Company’s Audit Committee.
Goodwill and intangible assets
The relative size of the Group’s goodwill and other intangible assets makes a number of
judgements surrounding the determination of their carrying value, and related
amortisation, critical to the Group’s financial position and performance.
At 31 March 2005, intangible assets, including goodwill attributable to the acquisition
of interests in associated undertakings, amounted to £99,718 million (2004: £111,773
million), and represented 82% (2004: 83%) of the Group’s total fixed assets. In
addition, a further £1,190 million of goodwill is charged against reserves (2004:
£1,190 million).
The charge for goodwill amortisation is included within operating profit as a separate
category of administrative expenses. The charge for amortisation of capitalised licence
and spectrum fees is included within cost of sales.