Vodafone 2009 Annual Report Download - page 43

Performance
Vodafone Group Plc Annual Report 2009 41
The Company provides returns to shareholders through dividends. The Company has
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 the Company will continue to pay
dividends semi-annually. In November 2008, the directors announced an interim
dividend of 2.57 pence per share, representing a 3.2% increase over last year’s
interim dividend.
In considering the level of dividends, the Board takes account of the outlook for
earnings growth, operating cash flow generation, capital expenditure requirements,
acquisitions and divestments, together with the amount of debt and share purchases.
In November 2008, the Board reviewed the previous dividend policy in the light of
recent foreign exchange rate volatility, the impact of amortisation of acquired
intangible assets and the current economic environment, following which it adopted
a progressive policy, where dividend growth reflects the underlying trading and cash
performance of the Group.
Accordingly, the directors announced a proposed final dividend of 5.20 pence per
share, representing a 3.6% increase over last year’s final dividend.
Liquidity and capital resources
The major sources of Group liquidity for the 2009 and 2008 financial years were cash
generated from operations, dividends from associated undertakings, and borrowings
through short term and long term issuances in the capital markets. The Group does
not use off-balance sheet special purpose entities as a source of liquidity or for other
financing purposes.
The Group’s 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.
The Group’s 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
minority shareholders. Please see the section titled “Principal risk factors and
uncertainties”, on pages 38 and 39. In particular, the Group continues to expect
significant cash tax payments and associated interest payments in relation to long
standing tax issues.
The Group is 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 Egypt and India) 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 Group operations, used to retire external
debt, invested externally or used to pay external dividends.
Cash ows
Free cash flow before licence and spectrum payments increased by 2.5% to
£5,722 million, despite a deferral of a US$250 million gross tax distribution from
Verizon Wireless to April 2009, as the increased cash generated by operations more
than offset higher capital expenditure, and taxation payments were lower than in the
prior year. Free cash f low was lower resulting from a £6 47 million payment representing
60% of the licence in Qatar, of which £530 million was funded by Vodafone Qatar’s
other shareholders.
Cash generated by operations increased by £1,345 million to £14,634 million, with
approximately 72% generated in the Europe region. Capital expenditure before
licence and spectrum payments increased by £1,575 million, primarily due to
network expansion in India and Turkey and in Europe due to accelerated investment
in broadband and higher speed capability on the Group’s networks to deliver an
improved customer experience. Increased capital expenditure in emerging markets
is increasingly being funded through cash generated by operations.
Payments for taxation decreased by £394 million, primarily due to lower settlements,
a lower weighted average statutory tax rate and structural benefits following
enhancements to the Group’s internal capital structure.
Dividends received from associated undertakings and investments fell by 20.1% to
£755 million, in line with expectations following acquisitions in Verizon Wireless and
SFR. Together with Verizon Communications Inc., the Group agreed to delay a
US$250 million gross tax distribution to April 2009. Both shareholders benefited by
enabling Verizon Wireless to minimise arrangement and duration fees applicable to
the bridge facility drawn to acquire Alltel. In addition, dividends from SFR were lower,
in line with expectations, following the agreement after SFR’s acquisition of Neuf
Cegetel that SFR would partially fund debt repayments by a reduction in dividends
between 2009 and 2011 inclusive.
Net interest payments increased by 5.5% to £1,168 million, primarily due to
unfavourable exchange rate movements impacting the translation of interest
payments into sterling. The interest payments resulting from the 28.2% increase in
average net debt at month end accounting dates was minimised due to changes in
the Group’s currency mix of net debt and significantly lower interest rates for debt
denominated in US dollars.
2009 2008
£m £m %
Cash generated by operations 14,634 13,289 10.1
Purchase of intangible fixed assets (1,764) (846)
Purchase of property, plant and equipment (5,204) (3,852)
Disposal of property, plant and equipment 317 39
Operating free cash flow 7,983 8,630 (7.5)
Taxation (2,421) (2,815)
Dividends from associated
undertakings and investments(1) 755 945
Dividends paid to minority shareholders
in subsidiary undertakings (162) (113)
Interest received 302 438
Interest paid (1,470) (1,545)
Free cash flow 4,987 5,540 (10.0)
Licence and spectrum payments(2) 735 40
Free cash flow before
licence and spectrum payments 5,722 5,580 2.5
Acquisitions and disposals(3) (1,330) (6,541)
Amounts received from minority
shareholders(4) 618 –
Put options over minority interests (4) (2,521)
Equity dividends paid (4,013) (3,658)
Purchase of treasury shares (963) –
Foreign exchange and other (8,371) (2,918)
Net debt increase (9,076) (10,098)
Opening net debt (25,147) (15,049)
Closing net debt (34,223) (25,147) 36.1
Notes:
(1) Year ended 31 March 2009 includes £303 million (20 08: £450 million) from the Group’s interest
in SFR and £333 million (2008: £414 million) from the Group’s interest in Verizon Wireless.
(2) Year ended 31 March 2009 includes £647 million in relation to Vodafone Qatar.
(3) Year ended 31 March 2009 includes net cash and cash equivalents paid of £1,240 million
(2008: £5,268 million) and assumed debt of £78 million (2008: £1,273 million), excluding
liabilities related to put options over minority interests which are shown separately. It also
includes a £12 million increase in net debt in relation to the change in consolidation status of
Safaricom from a joint venture to an associate.
(4) Year ended 31 March 2009 includes £591 million in relation to Vodafone Qatar.
Dividends from associated undertakings and to minority shareholders
Dividends from the Group’s associated undertakings are generally paid at the
discretion of the Board of directors or shareholders of the individual operating and
holding companies and Vodafone has no rights to receive dividends, except where
specified within certain of the companies’ shareholders’ agreements, such as with