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26 Vodafone Group Plc Annual Report 2010
Operating results continued
Net financing costs
2010 2009
£m £m
Investment income 716 795
Financing costs (1,512) (2,419)
Net financing costs (796) (1,624)
Analysed as:
Net financing costs before dividends
from investments (1,024) (1,480)
Potential interest charges arising on settlement
of outstanding tax issues(1) (23) 81
Dividends from investments 145 110
Foreign exchange(2) (1) 235
Equity put rights and similar arrangements(3) (94) (570)
Interest on settlement of German tax claim(4) 201 –
(796) (1,624)
Notes:
(1) Excluding interest on settlement of German tax claim.
(2) Comprises foreign exchange differences reflected in the income statement in relation to certain
intercompany balances and the foreign exchange differences on financial instruments received
as consideration in the disposal of Vodafone Japan to SoftBank in April 2006.
(3) Primarily represents foreign exchange movements and accretion expense. Further details of
these options are provided on page 44.
(4) See “Taxation” below for further details.
Net financing costs before dividends from investments decreased from £1,480
million to £1,024 million primarily due to the impact of significantly lower interest
rates given our preference for floating rate borrowing, partially offset by the 13.4%
increase in average net debt being offset by changes in the currency mix of debt. At
31 March 2010 the provision for potential interest charges arising on settlement of
outstanding tax issues was £1,312 million (31 March 2009: £1,635 million).
Taxation
The effective tax rate was 0.6% (2009: 26.5%). This rate was lower than our weighted
average statutory tax rate principally due to the impact of the agreement of the
German write down losses (see note 6 to the consolidated financial statements) and
also the ongoing benefits from our internal capital structure.
Income tax expense includes a credit of £2,103 million arising from the German tax
authorities’ decision that €15 billion of losses booked by a German subsidiary in 2001
are tax deductible. The credit includes benefits claimed in respect of prior years as
well as the recognition of a deferred tax asset for the potential use of losses in future
tax years.
Earnings per share
Adjusted earnings per share decreased by 6.2% to 16.11 pence for the year ended
31 March 2010 due the prior year tax benefit discussed on page 32. Basic earnings
per share increased to 16.44 pence primarily due to the impairment losses of £5,900
million in relation to Spain, Turkey and Ghana in the prior year compared to net
impairment losses of £2,100 million in the current year and the income tax credit
arising from the German tax settlement discussed above.
2010 2009
£m £m
Profit attributable to equity shareholders 8,645 3,078
Pre-tax adjustments:
Impairment losses, net 2,100 5,900
Other income and expense (114) –
Non-operating income and expense 10 44
Investment income and financing costs(1) (106) 335
1,890 6,279
Taxation (2,064) (300)
Adjusted profit attributable to equity shareholders 8,471 9,057
Weighted average number of shares outstanding Million Million
Basic 52,595 52,737
Diluted 52,849 52,969
Note:
(1) See notes 1 and 2 in “Net financing costs”.