Vodafone 2005 Annual Report Download - page 34

Operating and Financial Review and Prospects continued
32 |Performance
change tariffs. An increase in the time period would extend the period over which
revenue is recognised.
Presentation
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 turnover 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 a disclosed agent, revenue is
recognised on a net basis, with turnover representing the margin earned.
US GAAP
For the period to 30 September 2003, the Group applied US Staff Accounting Bulletin
(“SAB”) No. 101, “Revenue Recognition in Financial Statements”, which resulted in the
Group’s connection revenue being accounted for in a different way to that prescribed
under UK GAAP and described above. SAB 101 specifies that performance is viewed
from the perspective of the customer and takes place over the estimated life of the
customer relationship.
Deferring connection revenue and associated costs over the estimated life of the
customer relationship, using the methodology required under SAB 101, resulted in the
Group’s revenue for the 2003 financial year being reduced by £1,760 million. Profits
were materially unaffected by this adjustment as a broadly equal amount of costs was
also deferred.
For all new contracts entered into from 1 October 2003, the Group has adopted the
requirements of EITF Issue 00-21, “Accounting for Revenue Arrangements with Multiple
Deliverables”. The adoption of EITF 00-21 substantially aligned the Group’s US GAAP
revenue recognition policy with UK GAAP.
As contracts entered into before 1 October 2003 are accounted for in accordance with
SAB 101, the related deferred connection revenue, and related costs, will continue to be
recognised over the remaining life of the customer relationship. For the 2005 financial
year, the Group’s revenue under US GAAP increased by £1,223 million (2004: £188
million), as a result of following the methodology under SAB 101 to 30 September 2003
and EITF 00-21 thereafter. At 31 March 2005, deferred revenue accounted for in
accordance with SAB 101 amounted to £2,344 million (2004: £3,737 million).
Allowance for bad and doubtful debts
The allowance for bad and doubtful debts reflects management’s estimate of losses
arising from the failure or inability of the Group’s customers to make required
payments. The estimate is based on the ageing of customer accounts, customer credit
worthiness and the Group’s historical write-off experience.
Changes to the allowance may be required if the financial condition of the Group’s
customers was to improve or deteriorate. An improvement in financial condition may
result in lower actual write-offs.
Historically, changes to the estimate of losses have not been material to the Group’s
financial position and results.
Foreign Currency Translation
The Company publishes its Consolidated Financial Statements in pounds sterling.
However, the majority of the Company’s subsidiary and associated undertakings report
their turnover, costs, assets and liabilities in currencies other than pounds sterling and
the Company translates the turnover, costs, assets and liabilities of those subsidiary
and associated undertakings into pounds sterling when preparing its Consolidated
Financial Statements. Consequently, fluctuations in the value of pounds sterling versus
other currencies could materially affect the amount of these items in the Consolidated
Financial Statements, even if their value has not changed in their original currency.
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 EU
Member States which have adopted the euro as their currency, “yen”or “¥”, the
currency of Japan, and “US dollars”, “$”, “cents”or “¢”, the currency of the
United States.
At / year ended 31 March Change
Currency (=£1) 2005 2004 %
Average:
Euro 1.47 1.44 2
Yen 198.2 191.5 3
US dollar 1.84 1.69 9
At 31 March:
Euro 1.46 1.50 (3)
Yen 202.4 191.2 6
US dollar 1.89 1.84 3
Merely for convenience, this Annual Report contains translations of certain pounds
sterling amounts into US dollars at specified rates. These translations should not be
construed as representations that the pounds sterling amounts actually represent such
US dollar amounts or could be converted into US dollars at the rate indicated or at any
other rate. Unless otherwise indicated, the translations of pounds sterling into US
dollars have been made at $1.8888 per £1.00, the Noon Buying Rate in the City of
New York for cable transfers in sterling amounts as certified for customs purposes by
the Federal Reserve Bank of New York (the “Noon Buying Rate”) on 31 March 2005.
The Noon Buying Rate on 23 May 2005 was $1.8288 per £1.00.
The following table sets out, for the periods and dates indicated, the period end,
average, high and low Noon Buying Rates for pounds sterling expressed in US dollars
per £1.00, to two decimal places.
Years ended
31 March Period end Average High Low
2001 1.42 1.47 1.60 1.40
2002 1.42 1.43 1.48 1.37
2003 1.58 1.54 1.65 1.43
2004 1.84 1.69 1.90 1.55
2005 1.89 1.85 1.96 1.75
Month High Low
November 2004 1.91 1.83
December 2004 1.95 1.91
January 2005 1.91 1.86
February 2005 1.92 1.85
March 2005 1.93 1.86
April 2005 1.92 1.87
May 2005(1) 1.91 1.82
Note:
(1) In respect of May 2005, for the period from 1 May to 23 May 2005, inclusive.
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 2005.