VODAFONE GROUP PUBLIC LTD CO - 20-F - 20040609 - LIQUIDITY_CAPITAL
Liquidity and Capital Resources
Cash flows
The major sources of Group liquidity over the three years ended 31 March 2004 have been cash generated from operations, borrowings through long term and short term issuance in the capital markets, borrowings drawn from
committed bank facilities, asset disposals and, for the year ended 31 March 2002 only, the proceeds from a share issuance. 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. Additionally, the Group has a put option in relation to its interest in Verizon Wireless which, if exercised, could provide material cash inflow. Please
see
“
Option agreements
”
.
The Group
’
s liquidity and working capital may be affected by a material decrease in cash flow due to factors such as increased
competition, litigation, timing of tax payments and the resolution of outstanding tax issues, regulatory rulings, delays in development of new services and networks, inability to receive expected revenues from the introduction of new services,
reduced dividends from associates and investments or dividend payments to minority shareholders. See
“
Risk Factors
”
, above. The Group is also party to a number of option agreements that may result in a cash outflow if exercised. Option agreements are discussed further in
“
Option agreements
”
at the end of this section.
Wherever possible, surplus funds in the Group (except in Albania, Egypt and Hungary) are transferred to the centralised treasury department through repayment of borrowings, deposits and dividends. These are then
on-lent or contributed as equity to fund Group operations, used to retire external debt or invested externally.
Increase in cash in the year
During the year ended 31 March 2004, the Group
increased its net cash inflow from operating activities by 11% to £12,317 million and generated £1,069
million of net cash flow, as analysed in the following
table.
The Group holds its cash and liquid investments in accordance with the counterparty and settlement risk limits of the Board approved treasury policy. The main forms of liquid investments at 31 March 2004 were
collateralised deposits, money market funds and euro commercial paper.
Year ended
Year ended
31 March
31 March
2004
2003
£m
£m
Net cash inflow from operating
activities (Note 28)
12,317
11,142
Purchase of intangible fixed assets
(21
)
(99
)
Purchase of tangible fixed assets
(4,508
)
(5,289
)
Disposal of tangible fixed assets
158
109
Net capital expenditure on intangible
and tangible fixed assets
(4,371
)
(5,279
)
7,946
5,863
Dividends from joint ventures
and associated undertakings
1,801
742
Taxation
(1,182
)
(883
)
Interest on group debt
31
(475
)
Dividends from investments
25
15
Dividends paid to minority interests
(100
)
(91
)
Net cash outflow for returns on
investments and servicing of finance
(44
)
(551
)
Free cash flow
8,521
5,171
Other net capital expenditure and
financial investment
104
(80
)
Net cash outflow from acquisitions and
disposals
(1,312
)
(4,880
)
Equity dividends paid
(1,258
)
(1,052
)
Management of liquid resources
(4,286
)
1,384
Net cash outflow from financing
(700
)
(150
)
Increase in cash in the year
1,069
393
Capital expenditure and financial investment
The decrease in net cash outflow for capital expenditure
and financial investment from £5,359 million for the year ended 31 March 2003 to £4,267
million for the year ended 31 March 2004 was due primarily to the timing of cash
payments for tangible fixed assets.
During the year ended 31 March 2004, £21 million was spent on intangible assets, principally in respect of additional GSM spectrum in Italy. The Group
’
s expenditure on tangible fixed assets reduced by £781 million to £4,508 million during the 2004 financial year, including approximately £1.5 billion spent on 3G network infrastructure.
The Group expects capitalised tangible fixed asset additions to be approximately £5 billion in the next financial year. Incremental expenditure on 3G infrastructure in the 2005 financial year is expected to
represent approximately 35% of total capital expenditure, and is expected to be financed through operating cash flows and existing borrowing facilities.
Dividends from associated undertakings and dividends 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 companies and Vodafone has no rights to receive dividends, except where specified within certain of the companies
’
shareholders
’
agreements. Similarly, the Group does not have existing obligations under shareholders
’
agreements to pay
dividends to minority interest partners of Group subsidiaries, except as specified below.
Included in the dividends received from joint ventures and associated undertakings was an amount of £671 million received from Verizon Wireless. Until April 2005, Verizon
Wireless
’
distributions are determined by the terms of the partnership agreement distribution policy and comprise income distributions
and tax distributions. After the current distribution policy expires, tax distributions will continue and a new distribution policy is expected to be set by the Board of Representatives of Verizon Wireless. In making such policy determinations, the
Board shall take into account relevant facts and circumstances including, without limitation, the financial performance and capital requirements of Verizon Wireless. Current projections forecast that tax distributions will not be sufficient to cover
the US tax liabilities arising from the Group
’
s partnership interest until 2015, and in the absence of additional distributions above the level of tax distributions
during this period, this will result in a net cash outflow for the Group. Under the terms of the partnership agreement, the Board has no obligation to provide for additional distributions above the level of the tax distributions.
Pursuant to changes in shareholder agreements that were effected in December 2003, from 1 January 2004 SFR commenced making scheduled quarterly dividend payments. During the year ended 31 March 2004, cash dividends
totalling £802 million were received in respect of SFR
’
s earnings during the 2002 and 2003 financial years.
Verizon Communications has an indirect 23.1% shareholding in Vodafone Italy and, under the terms of the shareholders
’
agreement, can
request dividends to be paid, provided that such dividend would not impair the financial condition or prospects of Vodafone Italy including, without limitation, credit ratings. For the year ended
31 March 2004, Verizon Communications represented
that it had no intention of requesting a dividend. Should circumstances change
and dividends be paid in later periods, this may result in material cash outflows.
At 31
March 2004, Vodafone Italy had cash on deposit with Group companies of £3,201
million.
Acquisitions and disposals
Net cash outflow from acquisitions and disposals
of £1,312 million in the 2004 financial year arose primarily in respect
of the business acquisitions of additional stakes in certain existing European
subsidiary undertakings and the acquisition of three UK independent service providers,
partially offset by the disposal of Japan Telecom. The acquisitions are described
in more detail under
“
Business Overview
–
History and Development of the Company
”
and
“
Business Overview
–
Mobile Telecommunications
”
above.
An analysis of the main transactions in the year ended 31 March 2004 is shown below.
£m
Acquisitions:
Vodafone Portugal
(410
)
Vodafone Netherlands
(144
)
Vodafone Greece
(815
)
Singlepoint
(417
)
Other acquisitions
(278
)
Net cash acquired with subsidiary undertakings
10
Disposals:
Japan Telecom
966
Other disposals
34
Net cash disposed of with subsidiary undertakings
(258
)
(1,312
)
Share purchase programme
When considering how increased returns to shareholders can be provided in the form of dividends and share purchases, the Board reviews the free cash flow, anticipated cash requirements and gearing of the Group.
On 18 November 2003, the directors decided to introduce a share purchase programme and allocated £2.5 billion to this programme. Shares have been
purchased on market on the London Stock Exchange in accordance with shareholder
approval obtained at the Annual General Meeting (
“
AGM
”
)
in July 2003 and which expires at the conclusion of the Company
’
s AGM on 27 July 2004. The maximum share price payable for
any share purchase is no greater than 105% of the average of the middle market
closing price of the Company
’
s share price on the London Stock Exchange for the five business
days immediately preceding the day on which any shares were contracted to be
purchased. Purchases are made only if accretive to EPS, before goodwill amortisation
and exceptional items. In accordance with the Companies (Acquisition of Own
Shares) (Treasury Shares) Regulations 2003 issued on
1
December
2003, shares purchased are held in treasury.
For the period from 1 December 2003 to 31 March 2004, 800 million shares for a total consideration of £1.1 billion, including stamp duty and broker commissions, were purchased. The average share price paid,
excluding transaction costs, was 135.3 pence, compared with the average volume weighted price over the same period of 137.5 pence.
The Board intends to decide the amount to allocate to the share purchase programme on an annual basis at the end of each financial year. In addition to the £1.1 billion already expended, £3 billion of
shares are planned to be purchased during the next year, starting in early June 2004, subject to maintenance of credit ratings, superseding the £2.5 billion announced in November 2003. Because shareholder approval to purchase shares expires on
27 July 2004, this amount is subject to receiving renewed shareholder approval on 27 July 2004 at the AGM. In addition to ordinary market purchases, the Company currently plans to purchase shares over its close periods by selling short dated put
options, subject to receiving shareholder approval at the AGM, and by placing irrevocable purchase instructions, both prior to the start of a close period.
Further details of shares purchased under the
programme during the 2004 financial year are shown in note 23.
From 1 April 2004 through to 8 June 2004, 189.5
million shares for a total consideration of £242 million, including stamp
duty and broker commissions, were purchased.
Funding
As a result of the cash flow items discussed above
and £144 million of foreign exchange movements, the Group
’
s
consolidated net
debt position at 31 March 2004 decreased to £8,488 million, from £13,839
million at 31 March 2003. This represented approximately 10% of the Group
’
s
market capitalisation at 31 March 2004 compared with 18% at 31 March 2003. Average
net debt at month end accounting dates over the twelve month period ended 31
March 2004 was £11,164 million, and ranged between £8,488 million and £13,839
million during the year.
A further analysis of net debt, including a full maturity analysis, can be found in notes 18 and 19 to the Consolidated Financial Statements.
The Group remains committed to maintaining a solid credit profile, as currently demonstrated by its stable credit ratings of P-1/F1/A-1 short term and A2/A/A long term from Moody
’
s, Fitch Ratings and Standard & Poor
’
s, respectively. Credit ratings are not a recommendation to
purchase, hold or sell securities, in as much as ratings do not comment on market price or suitability for a particular investor, and are subject to revision or withdrawal at any time by the assigning rating organisation. Each rating should be
evaluated independently.
The Group
’
s credit ratings enable it to have access to a wide range of debt finance including commercial paper, bonds and committed bank
facilities.
Commercial paper programmes
The Group currently has US and euro commercial
paper programmes of $15 billion and £5 billion, respectively, which are available to be used to meet short term liquidity requirements and which were undrawn at 31
March 2004 and 31 March 2003. The commercial paper facilities are supported by $10.4 billion (£5.7
billion) of committed bank facilities, comprised of a $5.5 billion Revolving
Credit Facility that matures in June 2004, but which can be extended for one
year, and a $4.9 billion Revolving Credit Facility that matures in June 2006.
As at 31 March 2004, no amounts had been drawn under either facility.
Operating
and Financial Review and Prospects
continued
Bonds
The Group has a €15 billion Medium Term Note programme and a $12 billion US shelf programme, both of which are used to meet medium to long
term funding requirements. At 31 March 2004, amounts of €9.2 billion and $nil, respectively, were in issue from these programmes.
The following table provides a summary of the Group
’
s bond issues, each of which have been undertaken since 1 April 2003 for general
corporate purposes, including working capital.
Bond issues during 2004
financial year
10 April 2003
$500m 5.375% bond with maturity 30 January 2015
€
500m
5.125% bond with maturity 10 April 2015
€
250m
4.625% bond with maturity 31 January 2008
4 June 2003
£150m 6.25% bond with maturity
10 July 2008
€
750m
5.0% bond with maturity 4 June 2018
26 June 2003
$500m 4.625% bond with maturity 15 July 2018
22 September 2003
$1,000m 5.0% bond with maturity 16 December 2013
4 December 2003
£250m 5.625% bond with maturity
4 December 2025
On 22 April 2003, Vodafone Americas,
Inc. cancelled the following bonds after repurchase by tender:
Bond buy backs in the
2004 financial year
$137.8m of $200m 6.35% bond with maturity
2005
$182.3m of $400m 7.50% bond with maturity 2006
$249.8m of $500m 6.65% bond with maturity 2008
DEM 308.4m of DEM 400m bond with maturity 2008
With respect to the US dollar bonds, a total cash payment of $658 million was made to acquire 68.9%, 45.6% and 50.0% of the 2005, 2006 and 2008 issues respectively. The DEM bond repurchase resulted in a total cash
payment of €175 million to acquire 77.1% of the issue.
As at 31 March 2004, the Group had a total of £12,428 million of capital market debt in issue.
Committed facilities
The following table summarises the committed bank facilities currently available to the Group.
Committed Bank Facilities
Amounts drawn
29 November 2001
¥225 billion term credit facility,
maturing
15 January 2007, entered
into by Vodafone
Finance K.K.
The facility was drawn down
in full on 15 October
2002. The
facility is available for general
corporate
purposes, although amounts drawn
must
be on-lent to Vodafone Group Plc.
26 June 2003
$5.5 billion 364-day Revolving
Credit
Facility, maturing 25 June
2004 with
an option to extend for
one year.
No drawings have been made against this
facility.
The facility supports
the Group’ s commercial
paper
programmes and may be used to fund
working
capital requirements.
26 June 2003
$4.9 billion Revolving Credit Facility,
maturing
26 June 2006.
No drawings have been made against this
facility.
The facility supports the
Group’ s commercial
paper programmes
and may be used for general
corporate
purposes including acquisitions.
Under the terms and conditions of the $10.4 billion bank facilities, lenders have the right, but not the obligation, to cancel their commitments and have outstanding advances repaid no sooner than 30 days after
notification of a change of control of the Company. The facility agreements provide for certain structural changes that do not affect the obligations of the Company to be specifically excluded from the definition of a change of control. This is in
addition to the rights of lenders to cancel their commitment if the Company has committed an event of default.
Substantially the same terms and conditions apply
in the case of Vodafone Finance K.K.
’
s
¥
225 billion term
credit facility, although the change of control provision is applicable to any
guarantor of borrowings under the term credit facility. As of
31
March
2004, the Company was the sole guarantor.
In addition, Vodafone Japan has fully drawn bilateral facilities totalling
¥
12.1 billion (£63 million). These bilateral bank
facilities expire at various dates up to January 2007.
Furthermore, certain of the Group’s subsidiary undertakings are funded by external facilities which are non-recourse to any member of the
Group other than the borrower, due to the level of country risk involved. These facilities may only be used to fund their operations. Vodafone Egypt has a partly drawn syndicated bank facility of EGP 2.0 billion (£176
million) that fully expires in September 2007, Vodafone Hungary has a partly
drawn syndicated bank facility of €350 million (£234 million),
drawn in or swapped into Hungarian forints, that fully expires in December 2008
and Vodafone Albania has committed facilities of €85 million (£57
million) that expire at various dates up to and including
October 2012.
In aggregate, the Group has committed facilities of approximately £7,366 million, of which £5,793 million was undrawn at 31 March 2004.
The Group believes that it has sufficient funding for its expected working capital requirements. Further details regarding the maturity, currency and interest rates of the Group
’
s gross borrowings at 31 March 2004 are included in note 19 to the Consolidated Financial Statements.
Financial assets and liabilities
Details of the Group
’
s treasury management and policies are set out below in
“
Quantitative and Qualitative Disclosures About Market Risk
”
. Analyses of financial assets and liabilities, including the maturity profile of
debt, currency and interest rate structure, are included in notes 18 and 19 to the Consolidated Financial Statements.
Contractual obligations
A summary of the Group
’
s principal contractual financial obligations is shown below. Further details on the items included can be found
in the notes to the Consolidated Financial Statements.
Payments due by
period £m (years)
Contractual obligations
Total
<1 year
1-3 years
3-5 years
>5 years
Short term debt
2,054
2,054
–
–
–
Long term debt
12,224
–
3,256
1,698
7,270
Operating lease commitments
2,737
586
661
474
1,016
Capital commitments
866
866
–
–
–
Purchase commitments
957
890
39
10
18
Preference shares
875
12
–
–
863
Total contractual cash obligations
19,713
4,408
3,956
2,182
9,167
An analysis of the Group
’
s commitments under short and long term debt is shown in note 19 and commitments under operating leases in note
26 to the Consolidated Financial Statements.
Capital commitments shown in the table above are estimated to represent approximately 17% of the Group
’
s total capital expenditure in the
2005 financial year and are primarily related to network infrastructure. Purchase commitments predominantly comprise commitments for handsets.
The above table of contractual obligations excludes potential cash outflows of up to £2.6 billion in relation to additional investments in Japan that were announced on
25 May 2004 (see note 33 to the Consolidated Financial Statements), commitments in respect of options over interests in Group businesses held by minority shareholders (see
“
Option agreements
”
) and obligations to pay dividends to minority shareholders (see
“
Dividends from associated undertakings and dividends to minority interests
”
). Disclosures required by FASB
Interpretation No. 45,
“
Guarantor
’
s Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others
”
, are provided in note 27 to the Consolidated Financial Statements.
Option agreements
Potential cash inflows
As part of the agreements entered into upon the formation of Verizon Wireless, the Company entered into an Investment Agreement with Verizon Communications, formerly Bell Atlantic Corporation, and Verizon Wireless.
Under this agreement, dated
3 April 2000, the Company has the right to require Verizon Communications or Verizon Wireless to acquire interests in the Verizon Wireless partnership from the Company with an aggregate market value of up to $20
billion during certain periods up to August 2007, dependent on the value of the Company
’
s 45% stake in Verizon Wireless. This represents a further potential source of
liquidity to the Group.
Exercise of the option may occur in either one or both of two phases. The Phase I option may be exercised during the period commencing 30 days before and ending 30 days after 10 July 2004 and provides for the aggregate
amount paid to not exceed $10 billion. The Phase II Option may be exercised during the periods commencing 30 days before and ending 30 days after any one or more of 10 July 2005, 10 July 2006 and 10 July 2007. The Phase II Option also limits the
aggregate amount paid to $20 billion, less any amounts paid under Phase I, and caps the payments under single exercises to $10 billion. Determination of the market value of the Company
’
s interests will be by mutual agreement of the parties to the transaction or, if no such agreement is reached within 30 days of the valuation date, by appraisal. If an initial public offering takes place and the common stock trades
in a regular and active market, the market value of the Company
’
s interest will be determined by reference to the trading price of common stock.
Potential cash outflows
In respect of the Group
’
s interest in the Verizon Wireless partnership, an option granted to Price Communications, Inc. by Verizon
Communications is exercisable at any time up to and including 15 August 2006. The option gives Price Communications, Inc. the right to exchange its preferred limited partnership interest in Verizon Wireless of the East LP for either equity of
Verizon Wireless (if an initial public offering of such equity occurs), or common stock of Verizon Communications. The option exercise would result in an exchange for shares at a fixed value of $1.113 billion plus a preferred allocation of profits
from Verizon Wireless of the East LP on a quarterly basis, but not to exceed 2.9151% per annum. If the exercise occurs, Verizon Communications has the right, but not the obligation, to contribute the preferred interest to the Verizon Wireless
partnership, diluting the Group
’
s interest. However, the Group also has the right to contribute further capital to the Verizon Wireless partnership in order to maintain
its percentage partnership interest at the level just prior to the exercise of the option. Such amount would not exceed $1 billion.
Pursuant to an August 1999 shareholder agreement concerning the formation of Vodafone Hungary, Antenna was granted a put option in respect of its interest in Vodafone Hungary. On 7 October 2002 this put option was
amended. The amended option gives Antenna the right, but not the obligation, to sell its remaining interest to the Group should its total interest be diluted below 10% of the capital of Vodafone Hungary as a result of a capital increase. The option
price is the lower of fair market value or contributed capital plus accretion at the lower of inflation or Budapest interbank offered rate plus 1%. Antenna currently holds a 12.1% interest in Vodafone Hungary.
On 26 November 2002, an option was granted to France Telecom that gives it the right, but not the obligation, to buy 43,561,703 shares (representing a 10.85% stake) in Vodafone Greece at a price of
€
14.29
per share, following the purchase by the Group of 58,948,830 shares in Vodafone
Greece from France Telecom. France Telecom may exercise this option (in whole
or in part) at any time until maturity on 29 November 2004. Furthermore, the
option will expire when none of France Telecom’s exchangeable notes (maturing
on 29 November 2004) with regard to Vodafone Greece remain outstanding. On exercise
of the option, the Group would pay in cash the excess of the Vodafone Greece
share price over
€
14.29
per share. At 31
March 2004, Vodafone Greece’s share price was
€
6.00
per share and the Company is in the process of de-listing its shares, following
its tender offer and market purchases resulting in an increase of the Group’s
consolidated shareholding to 99.4%.
On 27 November 2003, Vodafone Jersey Holdings Ltd was granted a call option over 20% of the issued ordinary share capital of MTC Vodafone (Bahrain) BSCC. The option is exercisable in two tranches. Tranche one is
exercisable at par at any time on or after 28 December 2004 but before 28 December 2007. Tranche two is exercisable at par plus 20% at any time on or after 28 December 2007 but before 28 December 2009.
On 31 December 2003, as part of the restructuring
described within “History and Development of the Company”, the Group’s
associate investment, SFR, granted a put option to SNCF over its 35% shareholding
in Cegetel. SNCF may exercise the put option, consisting of 4,982,353 shares,
at any time during the period 1 January 2007 to 31 March 2010 and SNCF has been
granted a value floor for the option of an aggregate amount equal to the sum
of EUR 183
million plus such amount of interest as has accrued at the euro overnight index
average rate on the sum of
€
32 million between 31 December 2003 and the date on which the
transfer of the SNCF shareholding to SFR occurs. Furthermore, the option exercise may be accelerated in certain circumstances. Reciprocally, SNCF has granted SFR a call option over the 35% stake, which may be exercised at any time between 1 April
2010 and 30 June 2013.
As part of ongoing discussions and negotiations with Telecom Egypt, in which it would acquire a minority stake in Vodafone Egypt and enter into a Joint Venture with the Vodafone Group, it has been agreed in principle
to grant a put option to Telecom Egypt
Operating and
Financial Review and Prospects
continued
over its direct and indirect stake in Vodafone Egypt. The option will give Telecom Egypt the right to put its shares back to the Group at fair market value. If agreed, this right is expected to remain for as long as
the Group owns in excess of 20% of Vodafone Egypt. Telecom Egypt acquired 8.6% of Vodafone Egypt in December 2003 and is expected to acquire a further 16.9% from the Group in 2004, thereby enabling it to contribute 25.5% of Vodafone Egypt shares to
a 50:50 joint venture with the Group.
Off-balance sheet arrangements
The Group does not use off-balance sheet special purpose entities as a source of liquidity or for other financing purposes. Please refer to notes 26 and 27 to the Consolidated Financial Statements for a discussion of
the Group
’
s off-balance sheet arrangements.
Quantitative and Qualitative Disclosures About Market Risk
The Group
’
s treasury function provides a centralised service to the Group for funding, foreign exchange, interest rate management and
counterparty risk management. Treasury operations are conducted within a framework of policies and guidelines authorised and reviewed annually by the Company
’
s Board of
directors, most recently on 20 January 2004. A Treasury Risk Committee, comprising of the Group
’
s Financial Director, Company Secretary, Treasurer, Financial Controller
and Director of Financial Reporting, meets quarterly to review treasury activities and management information relating to treasury activities. In accordance with the Group treasury policy a quorum for meetings is four members and either the
Financial Director or Company Secretary must be present at each. The Group accounting function provides regular update reports of treasury activity to the Board of directors. The Group uses a number of derivative instruments that are transacted, for
risk management purposes only, by specialist treasury personnel. The Group
’
s internal auditors review the internal control environment regularly. There has been no
significant change during the financial year, or since the end of the year, to the types of financial risks faced by the Group or the Group
’
s approach to the management
of those risks.
Funding and liquidity
The Group
’
s policy is to borrow centrally, using a mixture of long term and short term capital market issues and borrowing facilities, to
meet anticipated funding requirements. These borrowings, together with cash generated from operations, are on-lent or contributed as equity to certain subsidiaries. The Board of directors has approved three debt protection ratios, being: net
interest to operating cash flow (plus dividends from associated undertakings); retained cash flow (operating cash flow plus dividends from associated undertakings less interest, tax, dividends to minorities and equity dividends) to net debt; and
operating cash flow (plus dividends from associated undertakings) to net debt. For each of these ratios, net debt includes financial guarantees and redeemable preference shares.
These internal ratios establish levels of debt that the Group should not exceed other than for relatively short periods of time and are shared with Moody
’
s, Fitch Ratings and Standard & Poor
’
s.
Interest rate management
The Group
’
s main interest rate exposures are to euro and yen and, to a lesser extent, US dollar and sterling interest rates. Under the
Group
’
s interest rate management policy, interest rates on monetary assets and liabilities are maintained on a floating rate basis, unless the forecast interest charge
for the next eighteen months is material in relation to forecast results, in which case interest rates are fixed. In addition, fixing shall be undertaken for longer periods when interest rates are statistically low. The term structure of interest
rates is managed within limits approved by the Board, using derivative financial instruments such as swaps, futures, options and forward rate agreements.
At the end of the year, 20% (2003: 9%) of the Group’s
gross borrowings were fixed for a period of at least one year. A one hundred
basis point rise in market interest
rates for all currencies in which the Group
had borrowings at 31 March 2004 would adversely affect profit before taxation
by approximately £21 million. The interest rate management policy has
remained unaffected by the acquisitions completed during the financial year.
Note 19 to the Consolidated Financial Statements contains analysis of the Group’s currency and interest profile
of financial liabilities.
Foreign exchange management
Foreign currency exposures arising from known future external transactions above certain de minimis levels are hedged, including those resulting from the repatriation of international dividends and loans. Forward
foreign exchange contracts are the derivative instrument most used for this purpose.
Although the Group reports its balance sheet in sterling, which is the principal currency for most transactions undertaken in its shares, it does not hedge its foreign currency balance sheet exposure for three reasons.
First, the Group believes its shareholders principally value its shares by discounting its estimated future sterling and foreign currency cash flows and converting to sterling at appropriate rates where necessary. Secondly, the Group manages the
currency of its net debt according to banded multiples of those currencies
’
operating cash flows, adjusted for dividends and share purchases. As such, at 31 March 2004,
119% of net debt were denominated in currencies other than sterling (59% euro, 57% yen and 3% US dollar) and 19% of net debt had been purchased forward in sterling in anticipation of sterling denominated shareholder returns via share purchases and
dividends. This allows debt to be serviced in proportion to anticipated cash flows and therefore provides a partial hedge against profit and loss account translation exposure, as interest costs will be denominated in foreign currencies. Thirdly,
certain overseas businesses have foreign currency acquisition goodwill allocated whilst other assets do not, therefore making balance sheet comparisons difficult. A relative weakening in the value of sterling against certain currencies of countries
where the Group operates has resulted in a currency translation adjustment charge of £5,292 million to Group reserves in the year ended 31 March 2004 (2003: £9,039 million credit).
When the Group
’
s international net earnings for 2004 are retranslated using a 10% strengthening/weakening of sterling against all
exchange rates, the 2004 total Group operating loss would be reduced/increased by £451 million (2003: £595 million).
Counterparty risk management
Cash deposits and other financial instrument transactions give rise to credit risks on the amounts due from counterparties. The Group regularly monitors these risks and the credit ratings of its counterparties and, by
policy, limits the aggregate credit and settlement risk it may have with one counterparty. While these counterparties may expose the Group to credit losses in the event of non-performance, it considers the possibility of material loss to be
acceptable because of these control procedures. Additional information is set out in notes 19 and 20 to the Consolidated Financial Statements.
Trend Information and Outlook
Seasonality
The Group
’
s financial results and cash flows have not, historically, been subject to significant seasonal trends between the first and
second half of the financial year, though there are a number of offsetting trends.
Traditionally, the Christmas period sees a higher volume of customer connections, contributing to higher equipment and connection revenues in the second half of the financial year. Ongoing airtime revenues also
demonstrate signs of seasonality, with revenues generally lower during February, which is a shorter than average month, and revenues from roaming charges higher during the summer months as a result of increased travel by customers.
There is no assurance that these trends will continue in the future.
Outlook
For the year ending 31 March 2005
In the coming year, on an organic basis, the Group anticipates high single-digit average proportionate mobile customer growth, leading to growth in Group turnover the 2005 financial year compared to the 2004 financial
year.
The ongoing impact of the commercial launch of 3G services is expected to increase depreciation and amortisation by around £0.6 billion in the 2005 financial year.
Factors that may affect the Group
’
s future tax charge include the absence of one-off restructuring benefits, the resolution of open
issues, future planning opportunities, corporate acquisitions and disposals, and changes in tax legislation and rates.
For the 2005 financial year, total capitalised fixed asset additions are expected to be around £5 billion, slightly higher than the £4.8 billion for the year ended 31 March 2004, mainly due to deferred
investment from that year.
Free cash flow is expected to be around £7 billion, lower than in the 2004 financial year, due to:
–
the
inclusion in that year of:
•
£0.6 billion of one-off receipts from hedging instruments; and
•
£0.2 billion of free cash flow from the fixed line business in Japan which has been sold,
–
together
with higher cash expenditure expected in the 2005 financial year on:
•
approximately £1 billion
of additional capital expenditure, mainly due to the unwinding of capital
creditors; and
•
tax payments, which are expected
to be under £2 billion.
Non-GAAP
Information
In presenting and discussing the Group
’
s reported results, free cash flow is calculated and presented on the basis of methodologies other
than in accordance with UK GAAP.
The Group believes that it is both useful and necessary to communicate this non-GAAP measure to investors and other interested parties, for the following reasons:
–
this statement allows the Company and external parties to evaluate the Group
’
s liquidity and the cash generated by
the Group
’
s operations. Free cash flow does not include cash flows relating to acquisitions and disposals or financing activities and so reflects the cash available for
such activities, to strengthen the balance sheet or to provide returns to shareholders in the form of dividends or share repurchases;
–
it facilitates comparability of results with other companies; and,
–
it is useful in connection with discussion with the investment analyst community and the debt rating agencies.
A reconciliation of net cash flow inflow from operating activities, the closest equivalent GAAP measure, to free cash flow, is shown below:
Years ended 31 March
2004
2003
2002
2001
2000
£m
£m
£m
£m
£m
Net cash inflow from operating activities
12,317
11,142
8,102
4,587
2,510
Purchase of intangible fixed assets
(21
)
(99
)
(325
)
(13,163
)
(185
)
Purchase of tangible fixed assets
(4,508
)
(5,289
)
(4,145
)
(3,698
)
(1,848
)
Disposal of tangible fixed assets
158
109
75
275
294
Dividends received from joint ventures and associated undertakings
1,801
742
139
353
236
Taxation
(1,182
)
(883
)
(545
)
(1,585
)
(325
)
Net cash outflow for returns on investments and servicing of finance
The business of the Company is managed by its Board of directors. The Company
’
s Articles of Association provide that, until otherwise
determined by ordinary resolution, the number of directors will not be less than three.
Biographical details of the directors and senior management are as follows:
Directors
Chairman
Lord MacLaurin of Knebworth, DL
, aged 67, has been a member of the Board of directors since January 1997. He is Chairman of the Nominations and Governance Committee and a
member of the Remuneration Committee. Lord MacLaurin was Chairman of Tesco Plc from 1985 to 1997 and has been a director of Enterprise Oil Plc, Guinness Plc, National Westminster Bank Plc and Whitbread Plc.
Deputy Chairman
Paul Hazen,
aged 62, has been a member of the Board of directors since June 1999 and became Deputy Chairman and the Board
’
s nominated senior
non-executive director in May 2000. He is Chairman of the Audit Committee and
a member of the Nominations and Governance Committee. He became a director
of AirTouch in April 1993. In 2001, he retired as Chairman and Chief Executive
Officer
of Wells Fargo & Company and its principal subsidiary, Wells Fargo Bank,
NA. Paul Hazen is also a director of Safeway, Inc., Willis Group Holdings Limited,
Xstrata AG and
E.piphany and he is Chairman of Accel-KKR.
Executive directors
Arun Sarin,
Chief Executive, aged 49, has been a member of the Board of directors since June 1999 and is a member of the Nominations and Governance Committee. He was a
director of AirTouch from July 1995 and was President and Chief Operating Officer from February 1997 to June 1999. He was Chief Executive Officer for the United States and Asia Pacific region until 15 April 2000, when he became a non-executive
director. He was appointed Chief Executive after the AGM on 30 July 2003. Arun Sarin joined Pacific Telesis Group in San Francisco in 1984 and has served in many executive positions in his 20 year career in telecommunications. He has also served as
a director of The Gap, Inc., The Charles Schwab Corporation and Cisco Systems, Inc.
Julian Horn-Smith,
Group Chief Operating Officer, aged 55, has been a member of the Board of directors since June 1996. He was appointed Group Chief Operating Officer on 1
April 2001, having been Chief Executive of Vodafone
’
s Continental Europe businesses and a director of several of the Group
’
s overseas operating companies. He is responsible for ensuring the operating performance of Group businesses. Julian Horn-Smith is the Chairman of the Supervisory Board of Vodafone
Deutschland GmbH and is a non-executive director of Smiths Group Plc.
Peter Bamford,
Chief Marketing Officer, aged 50, has been a member of the Board of directors since April 1998. He is responsible for the full range of marketing and
commercial activities including brand, product development, content management, Partner Networks and global accounts. He is also responsible for the Group
’
s operations
in the UK & Ireland. Previously, he was Chief Executive, Northern Europe, Middle East & Africa Region. He was Managing Director of Vodafone UK until April 2001. Before joining Vodafone in 1997, Peter Bamford held senior positions with
Kingfisher Plc and Tesco Plc and was a director of WH Smith Plc.
Vittorio Colao,
Chief Executive, Southern Europe, Middle East and Africa Region, aged 42, joined the Board of directors on 1 April 2002. He has had responsibility for the
Group
’
s businesses in Southern Europe since April 2001. He spent the early part of his career at McKinsey & Co, where he was a Partner, before joining Omnitel
Pronto Italia S.p.A. as its Chief Operating Officer. In 1999, he became the Chief Executive Officer of
Omnitel Pronto Italia S.p.A. (now operating as Vodafone Italy). Vittorio Colao is currently a member of the Aspen Institute and non-executive director of RAS Insurance in Italy.
Thomas Geitner,
Chief Technology Officer, aged 49, has been a member of the Board of directors since May 2000. He is responsible for Group Technology & Business
Integration and will be leading the implementation of a standardised architecture for business processes, Information Technology and network systems. Prior to joining the Group, he was a member of the Management Board of RWE AG. Thomas Geitner is a
member of the Management Board of Vodafone Holding GmbH and Vodafone Deutschland GmbH and a member of the supervisory board of Singulus Technologies AG.
Ken Hydon,
Financial Director, aged 59, has been a member of the Board of directors since 1985. He is a Fellow of the Chartered Institute of Management Accountants, the
Association of Chartered Certified Accountants and the Association of Corporate Treasurers. He is a director of several subsidiaries of the Company and is a member of the Board of Representatives of the Verizon Wireless partnership in the United
States. Ken Hydon has recently been appointed a non-executive director of Reckitt Benckiser Plc and Tesco Plc. He will retire from the Board on conclusion of the AGM in 2005.
Non-executive directors
Dr. Michael Boskin,
aged 58, has been a member of the Board of directors since June 1999 and is a member of the Remuneration Committee and the Audit Committee. He was a
director of AirTouch from August 1996 to June 1999. He has been a Professor of Economics at Stanford University since 1971 and was Chairman of the President
’
s
Council of Economic Advisers from February 1989 until January 1993. Dr Boskin
is President and CEO of Boskin & Co., an economic consulting company, and
is also a director of Exxon Mobil Corporation, First Health Group Corp. and Oracle
Corporation.
Professor Sir Alec Broers,
aged 65, has been a member of the Board of directors since January 1998 and is a member of the Audit Committee and the Nominations and Governance
Committee. He is President of the Royal Academy of Engineering and a former Vice-Chancellor of Cambridge University. He spent many years with IBM and is a Fellow of the Royal Society, the Institute of Electrical Engineers and the Institute of
Physics. He is also a Foreign Associate of the US National Academy of Engineering. Professor Sir Alec Broers chairs the Vodafone Group Foundation and the Company
’
s UK
pension trustee company. On 1 May 2004, it was announced that Her Majesty the Queen intends to make him a Life Peer in recognition of his contribution to engineering and higher education.
John Buchanan,
aged 61, has been a member of the Board of directors since April 2003. He is a member of the Audit Committee and, solely for the purposes of relevant
legislation, is the Board
’
s appointed financial expert on that Committee. He retired from the Board of BP Plc in 2002 after six years as Group Chief Financial Officer
and executive director following a wide-ranging career with the company. He was a member of the United Kingdom Accounting Standards Board from 1997 to 2001. He is the senior independent director of BHP Billiton Plc and a non-executive director of
AstraZeneca Plc.
Penny Hughes,
aged
44, has been a member of the Board of directors since
September
1998, and is the Chairman of the Remuneration Committee. She has held posts with
The Coca-Cola Company, Next Plc and Body Shop International Plc. She has particular
expertise in marketing and has developed experience in many human resource areas,
including leadership development, motivation and retention. Penny Hughes is a
member of the advisory committee of Bridgepoint Capital Limited and is a non-executive
director of Scandinaviska Enskilda Banken
AB, Trinity Mirror Plc and The Gap, Inc.
Sir David Scholey CBE,
aged 68, has been a member of the Board of directors since March 1998. He is a member of the Nominations and Governance Committee and the Audit
Committee. He is Chairman of Close Brothers Group Plc, a non-executive director of Anglo American Plc and Chubb Corporation, USA and is an
adviser to UBS AG, Mitsubishi Corporation and IBCA-Fitch. Sir David was formerly a director of the Bank of England and a Governor of the British Broadcasting Corporation. He will retire from the Board on conclusion of
the AGM in 2005.
Professor J
ü
rgen Schrempp,
aged 59, has been a member of the Board of
directors since May 2000 and is a member of the Nominations and Governance Committee and Remuneration Committee. He has been Chairman of the Board of Management of DaimlerChrysler AG since 1998. From 1995 until 1998 he was Chairman of the Board of
Management of Daimler-Benz AG. He was a member of the Supervisory Board of Mannesmann AG until May 2000. Professor J
ü
rgen Schrempp serves on the supervisory board of
Allianz AG and is a member of the Board of directors of Richemont SA and Sasol Limited.
Luc Vandevelde,
aged 53, was appointed to the Board on 1 September 2003 and is a member of the Remuneration Committee. Chairman of Marks & Spencer Group Plc, one of the
UK
’
s leading retailers of clothing, foods, homeware and financial services, from 2000 to 2004, he was previously Chairman of Promodes, Vice Chairman of Carrefour, and
he had held senior European and international roles with Kraft General Foods. Luc Vandevelde is Executive Chairman of Change Capital Partners, a private equity fund, and is a non-executive director of Carrefour SA.
Senior Management
Members of the Group Executive Committee who are not also executive directors are regarded as senior managers of the Company. The Group Executive Committee comprises the executive directors, details of whom are shown
above, and the senior managers listed below. Tomas Isaksson was also a member of the Group Executive Committee until 1 April 2004, when he stepped down on taking up his appointment as Chief Executive of Vodafone Netherlands.
Further details of the Group Executive Committee can also be found under
“
Corporate Governance
–
Directors and Organisation
”
.
Brian Clark,
Chief Executive, Asia Pacific Region, aged 55, was appointed to this position, based in Japan, on 1 January 2003. He joined Vodafone in 1997. Prior to joining
Vodafone he was Managing Director and Chief Executive Officer of Telkom SA Limited, South Africa. He is also a non-executive director of National Australia Bank Limited.
Alan Harper,
Group Strategy Director, aged 47, joined Vodafone in 1995 as Group Commercial Director and he subsequently became Managing Director of Vodafone Limited, the UK
network operating company. He was appointed Group Strategy Director in July 2000. Prior to joining the Group he held the post of Business Strategy Director with Mercury One2One and senior roles with Unitel and STC Telecoms. He is also a member of
the Group Operations Committee and Group Policy Committee, a member of the Vodafone D2 Supervisory Board and Chairman of the Vodafone UK Foundation.
J
ü
rgen von Kuczkowski,
Chief Executive, Northern Europe Region, aged 63, was
appointed to this position on 1 July 2003. He was previously the Chief Executive, Central Europe Region. He joined Mannesmann Mobilfunk GmbH (now Vodafone D2 GmbH) in October 1990, initially as Director of Sales and Distribution, and he became Chief
Executive Officer in 1994.
Stephen Scott,
Group General Counsel and Company Secretary, aged 50, was appointed to this position in the Group in 1991, prior to which he was employed in the Racal Group
legal department, having moved into industry in 1980 from private law practice in London. He is a director of the Company
’
s UK pension trustee company and insurance
companies and is a member of the Group Policy Committee.
Phil Williams,
Group Human Resources Director, aged 53, was appointed to this position in the Group in 1989. In addition to his Human Resources responsibilities, he is the
senior Vodafone nominated director on the Board of Vodacom Group (Pty) Limited, the Group
’
s South African associate company. He is also a director of several Group
companies, a director of the Group Foundation and the UK pension trustee company. He is a member of the Group Policy Committee. Prior to joining the Group, he was Personnel Director with Costain and Burmah Castrol.
The Group is involved principally in the provision of mobile telecommunications services. A review of the development of the business of the Company and its subsidiary, joint venture and associated undertakings is
contained elsewhere in this Annual Report. Details of the Company
’
s principal subsidiary undertakings, associated undertakings and investments can be found in note 34
to the Consolidated Financial Statements.
Future developments
The Group is currently involved in the expansion and development of its mobile telecommunications and related businesses as described elsewhere in this Annual Report.
Corporate governance
The directors are committed to business integrity and professionalism. As an essential part of this commitment the Board supports high standards of corporate governance and its statement on corporate governance is set
out on pages 50 to 53 of this Annual Report. The
“
Board
’
s Report to Shareholders on
Directors
’
Remuneration
”
on pages 54 to 63 of this Annual Report will be proposed for
approval at the Company
’
s AGM on 27 July 2004.
Share capital
A statement of changes in the share capital of the Company is set out in note 22 to the Consolidated Financial Statements.
Purchase by the Company of its own shares
At the AGM of the Company held on 30 July 2003, shareholders gave the Company permission, until the conclusion of the AGM being held on 27 July 2004, to purchase up to 6,800,000,000 ordinary shares of the Company. A
resolution for permission for the Company to renew its authority to purchase its own shares will be proposed at the AGM of the Company to be held on 27 July 2004.
During the period from 1 December 2003 to 31 March 2004, the Company purchased 800 million ordinary shares at a weighted average price, excluding transaction costs, of 135.3p.
The Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 (
“
the Regulations
”
) allow companies to hold shares acquired by way of market purchase in treasury, rather than having to cancel them. The Regulations came into force on 1 December 2003. The directors may
use the authority to purchase shares and hold them in treasury (and subsequently sell or transfer them out of treasury as permitted in accordance with the Regulations) rather than cancel them, subject to institutional guidelines applicable at the
time. The shares purchased by the Company prior to 31 March 2004 are being held in treasury.
No dividends will be paid on shares whilst held in treasury and no voting rights will attach to the treasury shares.
Results and dividends
The consolidated profit and loss account is set out on page 69 of this Annual Report.
The directors have proposed a final dividend for the year of 1.0780 pence per ordinary share, payable on 6 August 2004 to shareholders on the register of members at close of business on 4 June 2004. An interim dividend
of 0.9535 pence per ordinary share was paid during the year, producing a total for the year of 2.0315 pence per ordinary share, a total of approximately £1,378 million. The
Company operates a dividend reinvestment plan, further details on which can be found on page 128 in this Annual Report.
Subsequent events
Details of material subsequent events are included in note 33 to the Consolidated Financial Statements included in this Annual Report.
Charitable contributions
During the year ended 31 March 2004, the Company
made cash charitable donations of £13.5 million to the Vodafone Group Foundation (2003: £10.0 million). In addition, operating companies donated a further
£7.2 million (2003: £4.2 million) to local Vodafone Foundations and a further £2.0 million (2003: £2.6 million) directly to a variety of causes. These donations total £22.7 million (2003: £16.8 million) and
include donations of £3.0 million (2003: £3.2 million) made as required
by the terms of certain network operating licences.
More details regarding the activities of the Vodafone Group Foundation and local Vodafone Foundations can be found in the Group
’
s
separate Corporate Social Responsibility (
“
CSR
”
) report.
Political donations
At the Annual General Meeting on 30 July 2003, the directors sought and obtained shareholders
’
approval to enable the Company to make
donations to EU Political Organisations or incur EU Political Expenditure, under the relevant provisions of the Political Parties, Elections and Referendums Act 2000 (
“
the Act
”
).
The approval given restricted such expenditure to an aggregate limit of £100,000
in the period of 12 months following the date of the Annual General Meeting.
Although the Company had, and has, no intention of changing its current policy
and practice of not making political donations and will not do so without the
specific endorsement of shareholders, the directors sought the
approval on a precautionary basis, to avoid any possibility of unintentionally
breaching the Act.
The Company has made no political donations during the year.
The directors propose, again on a precautionary basis, to seek a renewal of shareholders
’
approval at the AGM to be held on 27 July 2004.
The amount of the approval will again be restricted to £100,000 for a period of twelve months following the AGM.
Creditor payment terms
It is the Group
’
s policy to agree terms of transactions, including payment terms, with suppliers and, provided suppliers perform in
accordance with the agreed terms, it is the Group
’
s normal practice that payment is made accordingly.
The number of days outstanding between receipt of invoices and date of payment, calculated by reference to the amount owed to trade creditors at the year end as a proportion of the amounts invoiced by suppliers during
the year, was 29 days (2003: 24 days) in aggregate for the Group. The Company did not have any trade creditors at 31 March 2004.
Research and development
The Group continues to pursue an active research and development programme for the enhancement of mobile telecommunications. Full details as to the Group
’
s research and development programme and activities can be found under
“
Business Overview
–
Research and Development
”
.
Directors
’
interests in the shares of the Company
The
“
Board
’
s Report to Shareholders on
Directors
’
Remuneration
”
details the directors
’
interests in the shares of the Company.
Directors
’
interests in contracts
None of the current directors had a material interest in any contract of significance to which the Company or any of its subsidiary undertakings was a party during the financial year.
Employees
Please refer to
“
Employees
”
on page 64.
Corporate social responsibility
A summary of the Company
’
s
CSR approach is contained on pages 20 and 21 of the Annual Review & Summary
Financial Statement and on page 65 of this Annual Report. Further details are
contained in the Group
’
s CSR report.
Auditors
On 1 August 2003, Deloitte and Touche, the Company
’
s auditors, transferred its business to Deloitte and Touche LLP, a limited liability
partnership incorporated under the Limited Liability Partnership Act 2000. The Company
’
s consent has been given to treat the appointment of Deloitte and Touche as
extending to Deloitte and Touche LLP with effect from 1 August 2003 under the provisions of section 26(5) of the Companies Act 1989.
Following a recommendation by the Audit Committee, a resolution proposing the appointment of Deloitte and Touche LLP as auditors to the Company will be put to the AGM.
In their assessment of the independence of the auditors and in accordance with the US Independence Standards Board Standard No. 1,
Independence Discussions with Audit
Committees
, the Audit Committee receives in writing details of relationships between Deloitte and Touche LLP and the Company that may have a bearing on their independence and receives confirmation that they
are independent of the Company within the meaning of the securities laws administered by the US Securities and Exchange Commission (
“
SEC
”
).
In addition, the Audit Committee pre-approves the audit fee after a review of both the level of the audit fee against other comparable companies, including those in the telecommunications industry, and the level and
nature of non-audit fees, as part of its review of the adequacy and objectivity of the audit process.
In a further measure to ensure auditor independence is not compromised, policies have been adopted to provide for the pre-approval by the Audit Committee of all permitted non-audit services by Deloitte and Touche LLP.
Should there be an immediate requirement for permitted non-audit services to be provided by Deloitte and Touche LLP which have not been pre-approved by the Audit Committee, the policies provide that the Group Audit Director will consult with the
Chairman of the Audit Committee for pre-approval.
In addition to their statutory duties, Deloitte and Touche LLP are also employed where, as a result of their position as auditors, they either must, or are best placed to, perform the work in question. This is
primarily work in relation to matters such as shareholder circulars, Group borrowings, regulatory filings and business acquisitions and disposals. Other work is awarded on the basis of competitive tender.
During the year Deloitte and Touche LLP charged £8 million (2003: £15 million) for non-audit assignments. An analysis of these fees can be found in note 5 to the Consolidated Financial Statements.
Major shareholders
The Bank of New York, as custodian of the Company
’
s American Depositary Receipt (
“
ADR
”
) programme, held approximately 11.6% of the Company
’
s
ordinary shares of $0.10 each at 24 May 2004 as nominee. The total number of ADRs outstanding at 24 May 2004 was 783,776,194. At this date, 1,049 holders of record of ordinary shares had registered addresses in the United States and in total held
approximately 0.005% of the ordinary shares of the Company. As at 24 May 2004, the following percentage interests in the ordinary share capital of the Company, disclosable under Part VI of the Companies Act 1985, have been notified to the
directors:
•
The Capital Group Companies, Inc.
5.60
%
•
Fidelity Management & Research Company
3.56
%
•
Legal & General Investment Management
3.47
%
•
Barclays PLC
3.28
%
The directors are not aware, as at 24 May 2004,
of any other interest of 3% or more in the ordinary share capital of the Company.
The Company is not directly or indirectly owned or controlled by any foreign
government or any other legal entity. There are no arrangements known to the
Company that could result in a change of control of the Company.
Going concern
After
reviewing the Group’ s and Company’ s
budget for the next financial year, and other longer term plans, the directors
are satisfied that, at the time of approving the financial statements, it is
appropriate to adopt the going concern basis in preparing the financial statements.
By Order of the Board
/s/ Stephen Scott
Stephen Scott
Secretary
25 May 2004
Introduction
The directors of the Company support high standards of corporate governance, which are critical to business integrity and to maintaining investors
’
trust in the Company. The Company
’
s Business Principles (the
“
Principles
”
) define its relationships with its stakeholders and govern how Vodafone conducts its business. Amongst other things, the Principles state
that the Company expects all its employees to act with honesty, integrity and fairness. The Company also promotes the Principles to its associate companies (where Vodafone holds a minority stake) and to its business partners and suppliers.
The Company
’
s ordinary shares are listed in the United Kingdom on the London Stock Exchange. As such, the Company is required to make a
disclosure statement concerning its application of the Principles of and compliance with the provisions of the Combined Code on corporate governance that is appended to the Financial Services Authority
’
s Listing Rules.
During the year, the Financial Reporting Council, which is responsible for maintaining the Combined Code, approved a revised Combined Code taking into account the recommendations of the Higgs Review of the role and
effectiveness of non-executive directors and a separate report by Sir Robert Smith in relation to Audit Committees.
The revised Combined Code became effective for companies
’
financial periods beginning on or after 1 November 2003, and therefore, for the
Company, will apply from the financial year which began on 1 April 2004.
For the financial year ended 31 March 2004, the directors confirm that the Company has been in compliance with the provisions of the Combined Code effective for that accounting period. The disclosures provided below
are nevertheless intended to provide the reader with an explanation of how the Company
’
s corporate governance practices measure against the revised Combined Code as if
it were currently in effect for the Company.
The Company
’
s American Depositary Shares (
“
ADSs
”
) are listed on the NYSE and the Company is therefore subject to the rules of the NYSE as well as US securities laws and the rules of the SEC.
Pursuant to recently revised NYSE corporate governance rules, Vodafone, as a foreign private issuer, is required to summarise significant differences between the corporate governance provisions of the NYSE applicable to US companies and the
corporate governance principles applicable to it and followed by it in the UK. In compliance with the new rules, the Company will provide an appropriate summary in its Annual Report for the year ending 31 March 2005. In July 2002, the US Congress
passed the Sarbanes-Oxley Act which, together with consequent adoption of new rules by the SEC, has introduced a number of changes to the corporate governance requirements on both US domestic companies and non-US registered issuers such as the
Company. During 2003, the Company established a Disclosure Committee with responsibility for reviewing and approving controls and procedures over the public disclosure of financial and related information, and other procedures necessary to enable
the Chief Executive and Financial Director to provide their Certifications of the Annual Report on Form 20-F that is filed with the SEC. The Company also adopted a corporate code of ethics for senior financial officers, separate from and additional
to the Principles. A copy of the code of ethics and the Principles are available on the Company
’
s website (www.vodafone.com). The Company has already begun the work
required to ensure compliance with section 404 of the Sarbanes-Oxley Act, which is required in its financial year ending 31 March 2006.
Directors and Organisation
The Company
’
s Board of directors presently consists of fifteen directors, fourteen of whom served throughout the year ended 31 March
2004. As at 31 March 2004, in addition to the Chairman, Lord MacLaurin, there were six executive directors and eight non-executive directors. The Deputy Chairman, Paul Hazen, is the nominated senior independent director and his role includes being
available for approach or
representation by directors or significant shareholders who may feel inhibited from raising issues with the Chairman. He is also responsible for conducting an annual review of the performance of the Chairman and, in
the event it should be necessary, convening an annual meeting of the non-executive directors.
Sir Christopher Gent retired as a director at the conclusion of the AGM on 30 July 2003. Dr John Buchanan and Luc Vandevelde joined the Board as non-executive directors on 1 April 2003 and 1 September 2003,
respectively. The Company considers all its present non-executive directors to be fully independent. The executive directors are Arun Sarin (Chief Executive), Julian Horn-Smith, Peter Bamford, Vittorio Colao, Thomas Geitner and Ken Hydon.
The Company
’
s Articles of Association provide that every director who was elected or last re-elected at or before the AGM held in the
third calendar year before the current year shall automatically retire. Accordingly, Peter Bamford, Julian Horn-Smith and Sir David Scholey will be retiring and, being eligible, will offer themselves for reelection at the Company
’
s AGM to be held on 27 July 2004. The Company
’
s Articles of Association also provide that every director
appointed to the Board since the last AGM shall retire. Therefore, Luc Vandevelde will retire and, being eligible, will offer himself for re-election.
Performance evaluation of the Board, its Committees and individual directors takes place on an annual basis and is conducted within the terms of reference of the Nominations and Governance Committee. The Chairman leads
the assessment of the non-executive directors, the Chief Executive reviews the executive directors and the senior independent director conducts the review of the performance of the Chairman. Each Board Committee undertakes a review of its work and
in relation to the performance of the Board, the Chairman invites suggestions from all directors as to ways in which the Board and its processes may be improved. A series of questionnaires is being developed to facilitate the evaluation processes
for the current and future years, each of which has been, and will in the future be, conducted without the assistance of external consultants.
This year particular attention was paid to the contributions made by directors requiring to offer themselves for re-election at the AGM and the Nominations and Governance Committee confirmed to the Board that the
performance of each such director continued to be effective and, therefore, the Company should support their re-election.
The Board met on eight occasions in the financial year to 31 March 2004. Individual directors
’
attendance was: Lord MacLaurin (8), Paul
Hazen (7), Arun Sarin (8), Julian Horn-Smith (8), Peter Bamford (7), Vittorio Colao (8), Thomas Geitner (8), Ken Hydon (8), Dr Michael Boskin (8), Professor Sir Alec Broers (8), Penny Hughes (8), Sir David Scholey (8), Dr John Buchanan (8) and
Professor J
ü
rgen Schrempp (6). Since Mr Vandevelde joined the Board there have been six Board meetings in the financial year and he attended five. In addition to the
regular Board meetings, there were a number of other meetings to deal with specific matters. Directors unable to attend a Board meeting because of another engagement, as was the case for four directors in the year, are nevertheless provided with all
the papers and information relevant for such meeting and are able to discuss issues arising in the meeting with the Chairman or the Chief Executive.
The Board provides the effective leadership and control required for a listed company. Actual financial results are presented to each meeting, together with reports from the executive directors in respect of their
areas of responsibility. The Chief Executive presents his report to each meeting which deals, amongst other things, with investor relations, giving Board members an opportunity to develop an understanding of the views of major investors. From time
to time, the Board receives detailed presentations from non-Board members on matters of significance or on new opportunities for the Group. Financial plans, including budgets and forecasts, are regularly discussed at Board meetings. The
non-executive directors periodically visit different parts of the Group and are provided with briefings and information to assist them in performing
their duties. The non-executive directors and the Chairman regularly meet without executives present.
The Board is confident that all its members have the knowledge, talent and experience to perform the functions required of a director of a listed company. On appointment, all directors are provided with appropriate
training and guidance as to their duties, responsibilities and liabilities as a director of a public and listed company and also have the opportunity to discuss organisational, operational and administrative matters with the Chairman, the Chief
Executive and the Company Secretary. When considered necessary, more formal training is provided.
The Board has a formal schedule of matters specifically referred to it for decision, including the approval of Group commercial strategy, major capital projects, the adoption of any significant change in accounting
policies or practices and material contracts not in the ordinary course of business. This schedule is reviewed periodically. It was last reviewed and updated by the Nominations and Governance Committee in March 2004 and its proposals were approved
by the Board in May 2004. The directors have access to the advice and services of the Company Secretary and have resolved to ensure the provision, to any director who believes it may be required in the furtherance of his or her duties, of
independent professional advice at the cost of the Company.
The executive directors, together with certain other Group functional heads and regional Chief Executives, meet on ten occasions each year as the Group Executive Committee under the chairmanship of the Chief Executive.
This Committee is responsible for the day-to-day management of the Group
’
s businesses, the overall financial performance of the Group in fulfilment of strategy, plans
and budgets and Group capital structure and funding. It also reviews major acquisitions and disposals.
Two management committees, the Group Operational Review Committee and the Group Policy Committee, oversee, together with the Group Executive Committee, the execution of the Board
’
s strategy and policy.
The Group Operational Review Committee, which meets ten times a year under the chairmanship of the Group Chief Operating Officer, comprises other executive directors, certain Group functional heads and regional Chief
Executives. This Committee is responsible for the operational performance and achievement of targets of the Group
’
s business, with a focus on the enhancement of voice
services and growth of non-voice services, new global products and services, brand development, technology and other cost and revenue synergies within the Group
’
s
regions.
The Group Policy Committee, which meets six times each year, is chaired by the Chief Executive. The Financial Director and the Group Chief Operating Officer, together with certain other Group functional heads, join him
on the Committee, which is responsible for the determination of policy and the monitoring of non-operational areas of activity which are important to the Group overall, including strategy, finance, human resources, legal, regulatory and corporate
affairs.
Committees of the Board
The standing Board committees are the Audit Committee,
the Nominations and Governance Committee and the Remuneration Committee. The
composition and terms of reference of these committees are published on the Company’s
website at www.vodafone.com. The Secretary to these standing Board Committees
is the Company Secretary or his nominee.
The Audit Committee, which met on five occasions in the year, is comprised of financially literate members having the necessary ability and experience to understand financial statements. The Committee is chaired by
Paul Hazen (5) and the other members of the Committee are Michael Boskin (5), Professor Sir Alec Broers*, Dr John Buchanan (4) and Sir David Scholey (4). There have been three meetings of the Committee since Professor Sir Alec Broers joined. Due to
other business commitments arranged before he joined the Committee, he attended one of these.
Solely for the purpose of fulfilling the requirements of the Sarbanes-Oxley Act of 2002 and the Combined Code, the Board has designated Dr John Buchanan as its financial expert on the Audit Committee. Further details
of Dr Buchanan can be found in
“
Directors and Senior Management
”
.
Under its terms of reference the Audit Committee is required, amongst other things, to oversee the relationship with the external auditors, to review the Company
’
s preliminary results, interim results and annual financial statements, to monitor compliance with statutory and listing requirements for any exchange on which the Company
’
s shares are quoted, to review the scope, extent and effectiveness of the activity of the Group Audit Department, to engage independent advisers as it determines is necessary and to
perform investigations. At least twice a year the Audit Committee meets separately with the external auditors and the Group Audit Director without management being present. Further details on the overseeing of the relationships with the external
auditors can be found under
“
Directors
’
Report
–
Auditors
”
.
The Nominations and Governance Committee (formerly the Nominations Committee) met three times in the year and is chaired by Lord MacLaurin (3). The other members of the Committee are Professor Sir Alec Broers (3), Arun
Sarin, Paul Hazen (3), Sir David Scholey (3) and Professor J
ü
rgen Schrempp (2). Arun Sarin has attended both of the meetings held since he joined the Committee. Sir
Christopher Gent was a member of the Committee prior to his retirement and attended the one meeting held prior to that date. The Committee, which provides a formal and transparent procedure for the appointment of new directors to the Board,
generally engages external consultants to advise on prospective Board appointees. This year, the Committee recommended the appointment of a further non-executive director. A detailed job profile was agreed by the Committee before external search
consultants were engaged to prepare a shortlist of potentially suitable candidates. Only after a rigorous interview process was the appointment recommended to the Board.
The Committee
’
s name was changed during the financial year to reflect its remit, which over time had come to include oversight and review
of general matters of corporate governance.
The Remuneration Committee met five times in the year. The Committee is chaired by Penny Hughes (5). The other members of the Committee are Lord MacLaurin (5), Michael Boskin (4) Professor J
ü
rgen Schrempp (4), and Luc Vandevelde.
Sir David Scholey was a member of the Committee until 16 September 2003 and attended both meetings held prior to that date. Mr Vandevelde joined the Committee on 16 September 2003 and attended the three meetings held
between that date and 31 March 2004. The
“
Board
’
s Report to Shareholders on
Directors
’
Remuneration
”
provides further information on this Committee.
Attendance is shown in brackets after each respective Committee member.
Internal Control and Disclosure Controls and Procedures
Introduction
The Board has established procedures that implement in full the Turnbull Guidance,
“
Internal Control: Guidance for Directors on the
Combined Code
”
, for the year under review and to the date of approval of the Annual Report. These procedures, which are subject to regular review, provide an ongoing
process for identifying, evaluating and managing the significant risks faced by the Group.
Responsibility
The Board has overall responsibility for the system of internal control. A sound system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only
provide reasonable and not absolute assurance against material misstatement or loss. The process of managing the risks
associated with social, environmental and ethical impacts is also discussed under
“
Corporate Social Responsibility and Environmental
Issues
”
.
Control structure
The Board sets the policy on internal control that is implemented by management. This is achieved through a clearly defined operating structure with lines of responsibility and delegated authority. The Group Executive
Committee, chaired by the Chief Executive, manages this on a day-to-day basis.
Written policies and procedures have been issued which clearly define the limits of delegated authority and provide a framework for management to deal with areas of significant business risk. These policies and
procedures are reviewed and, where necessary, updated at Group Policy Committee meetings, chaired by the Chief Executive.
Control environment
The Group
’
s operating procedures include a comprehensive system for reporting information to the directors. This system is properly
documented and regularly reviewed.
Budgets are prepared by subsidiary management and subject to review by both regional management and the directors. Forecasts are revised on a quarterly basis and compared against budget. When setting budgets and
forecasts, management identifies, evaluates and reports on the potential significant business risks.
The Group Operational Review Committee, the Group Executive Committee and the Board review management reports on the financial results and key operating statistics.
Emphasis is placed on the quality and abilities of the Group
’
s employees with continuing education, training and development actively
encouraged through a wide variety of schemes and programmes. The Group has adopted a set of values to act as a framework for its people to exercise judgement and make decisions on a consistent basis.
Directors are appointed to associated undertakings and joint ventures and attend the Board meetings and review the key financial information of those undertakings. Clear guidance is given to those directors on the
preparation that should take place before these Board meetings and their activity at the Board meeting. It is the Group
’
s policy that its auditors are appointed as
auditors of associated companies and joint ventures, where possible.
The acquisition of any business requires a rigorous analysis of the financial implications of the acquisition and key performance figures. A sensitivity analysis takes place of the key assumptions made in the analysis.
Post investment appraisals of the Group
’
s investments are conducted on a periodic and timely basis.
A Treasury Report is distributed electronically on a daily basis that reports on treasury borrowings and investments.
The Board reviews a half-yearly report detailing any significant legal actions faced by Group companies.
The Group Policy Committee monitors legal, environmental and regulatory matters and approves appropriate responses or amendments to existing policy.
Monitoring and review activities
There are clear processes for monitoring the system of internal control and reporting any significant control failings or weaknesses together with details of corrective action.
A formal annual confirmation is provided by the chief executive officer and chief financial officer of each Group company detailing the operation of their control systems and highlighting any weaknesses. Regional
management, the Audit Committee and the Board review the results of this confirmation.
The Chief Executive and the Financial Director undertake a review of the quality and timeliness of disclosures that includes formal annual meetings with the regional chief executives and the Disclosure Committee.
A Group Audit Department, reporting directly to the Audit Committee, undertakes periodic examination of business processes on a risk basis and reports on controls throughout the Group.
Reports from the external auditors, Deloitte & Touche LLP, on certain internal controls and relevant financial reporting matters, are presented to the Audit Committee and management.
Review of effectiveness
The directors, the Chief Executive and the Financial Director consider that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the
desired control objectives. The Group
’
s management is required to apply judgement in evaluating the risks facing the Group in achieving its objectives, in determining
the risks that are considered acceptable to bear, in assessing the likelihood of the risks concerned materialising, in identifying the Company
’
s ability to reduce the
incidence and impact on the business of risks that do materialise and in ensuring the costs of operating particular controls are proportionate to the benefit.
The directors, the Chief Executive and the Financial Director confirm that they have reviewed the effectiveness of the system of internal control and the disclosure controls and procedures through the monitoring
process set out above. The Chief Executive and the Financial Director have evaluated the disclosure controls and procedures as of the end of the period covered by this Annual Report. They are not aware of any significant weakness or deficiency in
the Group
’
s system of internal control. The directors, the Chief Executive and the Financial Director have concluded that the disclosure controls and procedures are
effective for the year under review and to the date of approval of the Annual Report.
During the period covered by this Annual Report, there were no changes in the Company
’
s internal controls over financial reporting or in
other factors that have materially affected or are reasonably likely to materially affect internal controls over financial reporting.
Relations with Shareholders
The Company holds briefing meetings with its major institutional shareholders in the UK, the US and in Continental Europe, usually twice each year after the interim results and preliminary announcement, to ensure that
the investing community receives a balanced and complete view of the Group
’
s performance and the issues faced by the Group. Telecommunications analysts of stockbrokers
are also invited to presentations of the financial results. The Company, through its Investor Relations team, responds to enquiries from shareholders.
The principal communication with private investors is through the provision of the Annual Review & Summary Financial Statement, the interim results and the AGM, an occasion which is attended by all the
Company
’
s directors and at which all shareholders present are given the opportunity to question the Chairman and the Board as well as the Chairmen of the Audit,
Remuneration and Nominations and Governance Committees. All substantive resolutions at the Company
’
s AGMs are decided on a poll. The poll is conducted by the
Company
’
s Registrars and scrutinised by Electoral Reform Services. The proxy votes cast in relation to all resolutions are disclosed to those in attendance at the
meeting and the results of the poll are published in national newspapers in the UK, the US and Ireland, on the Company
’
s website and announced via the regulatory news
service. Financial and other information is made available on the Company
’
s website, www.vodafone.com, which is regularly updated.
The composition and terms of reference of the Audit Committee is discussed under
“
Committees of the Board
”
.
During the year ended 31 March 2004 the principal activities of the Committee were as follows:
Financial Statements
The Committee considered reports from the Financial Director and the Group Financial Controller on the interim results, preliminary announcement and Annual Report. It also considered reports from the external auditors,
Deloitte & Touche LLP, on the scope and outcome of the review of interim results and annual audit.
The financial statements were reviewed in the light of these reports and the results of that review reported to the Board.
Risk Management and Internal Control
The Committee reviewed the process by which the Group evaluated its control environment and its risk assessment process, and the way in which significant business risks were managed. It also considered the Group Audit
department
’
s reports on the effectiveness of internal controls, significant frauds and any fraud that involved management or employees with a significant role in
internal controls.
The Committee also reviewed and approved arrangements by which staff could in confidence raise concerns about possible improprieties in matters of financial reporting or other matters. This was achieved through using
existing reporting procedures and introducing a website with a dedicated anonymous email feature.
External Auditors
The Committee reviewed the letter from Deloitte & Touche LLP confirming their independence and objectivity. It also reviewed and pre-approved the scope of non-audit services provided by Deloitte & Touche LLP to
ensure that there was no impairment of independence.
The Committee pre-approved the scope and fees for audit services provided by Deloitte & Touche LLP and confirmed the wording of the recommendations put by the Board to the shareholders on the appointment and
retention of the external auditors.
Private meetings were held with Deloitte & Touche LLP to ensure that there were no restrictions on the scope of their audit and to discuss any items the auditors did not wish to raise with management present.
Internal Audit
The Committee engaged in discussion and review of the Group Audit department
’
s audit plan for the year, together with its resource
requirements. Private meetings were held with the Group Audit Director.
Audit Committee Effectiveness
The Audit Committee conducts a formal review of its effectiveness annually and concluded this year that it was effective and able to fulfil its terms of reference.
Board’s
Report to Shareholders on Directors’ Remuneration
Introduction
The Board has delegated to the Remuneration Committee the assessment and recommendation of policy on remuneration for executive directors.
At the 2002 AGM, shareholders approved a new remuneration policy (“the Policy”) the key principles of which are as follows:
•
the expected value of total remuneration must be benchmarked against the relevant market;
•
a high proportion of total remuneration is to be delivered through performance-related payments;
•
performance measures must be balanced between absolute financial measures and sector comparative measures to achieve maximum alignment between executive and shareholder objectives;
•
the majority of performance-related remuneration is to be provided in the form of equity; and
•
share ownership requirements are to be applied to executive directors.
The current Policy was produced following extensive consultation with shareholders and institutional bodies in 2001 and 2002. In the two years since the Policy was introduced, the Chairman and the Chairman of the
Remuneration Committee have maintained proactive annual dialogue on remuneration matters with the Company’s major shareholders and relevant institutions. Extensive
consultations with shareholders were held again in 2003 and 2004. The objective of this dialogue is to provide information about the Company and its views on remuneration issues and to listen to shareholders’ opinions on any proposed adjustments to policy implementation.
The Remuneration Committee strives to ensure that the Policy provides a strong and demonstrable link between incentives and the Company’s
strategy and sets a framework for remuneration that is consistent with the Company’s scale and scope. As a result of this year’s review, the Remuneration Committee has concluded that the existing policy continues to serve the Company and shareholders well and will remain in place for the 2005 financial year. The
Committee has also reviewed the effectiveness of the current policy and is satisfied that the incentive plans have delivered, or are forecast to deliver, rewards that are consistent with the Company’s performance achievement.
At the 2004 AGM, shareholders will be invited to vote on the Board’s report to shareholders on directors’ remuneration. The chart that follows shows the performance of the Company relative to the FTSE100 index and the FTSE Global Telecommunications index, which are the most relevant indices
for the Company.
It should be noted that the performance of the Company shown by the graph is not indicative of vesting levels under the Company’s various
incentive plans.
Remuneration Committee
The Remuneration Committee consists of independent non-executive directors and the Company Chairman. Penny Hughes (Chairman), Dr Michael Boskin, Lord MacLaurin, and Professor Jürgen Schrempp all continue as members. Sir David Scholey stepped down from the Committee in September 2003. He was replaced by Luc Vandevelde who joined the Company as a non-executive
director on 1 September 2003.
The Board has considered whether or not it remains appropriate for the Company Chairman to continue to be a member of the Remuneration Committee. The conclusion is that the Chairman provides important contributions to
the work of the Committee, for example in his contact with shareholders and management, and therefore his membership remains appropriate.
The Chief Executive attends meetings of the Remuneration Committee, other than when his own remuneration is being discussed. The Remuneration Committee met on five occasions during the year.
The Remuneration Committee appointed and received advice from Towers Perrin (market data and advice on market practice and governance) and Kepler Associates (performance analysis and advice on performance measures and
market practice) and received advice from the Group Human Resources Director and the Group Compensation and Benefits Director. The advisers also provided advice to the Company on general human resource and compensation related matters.
Remuneration Policy
The Policy was approved by shareholders in July 2002. The Policy is set out below:
The overriding objective of the Policy
on incentives is to ensure that Vodafone is able to attract, retain and
motivate executives of the highest calibre essential to the successful
leadership and effective management of a global company at the leading
edge of the telecommunications industry.
To achieve this objective, Vodafone, from
the context of its UK domicile, takes into account both the UK regulatory
framework, including best practice in corporate governance, shareholder
views, political opinion and the appropriate geographic and nationality
basis for determining competitive remuneration, recognising that this
may be subject to change over time as the business evolves.
The total remuneration will be benchmarked
against the relevant market. Vodafone is one of the largest companies
in Europe and is a global business; Vodafone’s policy will be to provide executive directors with
remuneration generally at levels that are competitive with the largest
companies in Europe. A high proportion of the total remuneration will
be awarded through performance-related remuneration, with phased delivery
over the short, medium and long term. For executive directors, approximately
80% of the total expected remuneration will be performance-related. Performance
measures will be balanced between absolute financial measures and sector
comparative measures to achieve maximum alignment between executive and
shareholder objectives.
All medium and long term incentives are
delivered in the form of Vodafone shares and options. Executive directors
are required to comply with share ownership guidelines.
The structure of remuneration for executive directors under the Policy (excluding pensions) and the performance elements on which they are based is illustrated below:
The Policy’s key objective is to ensure that there is a strong linkage between pay and performance. This is achieved by approximately 80%
of the total package (excluding pensions) being delivered by performance linked short and long term incentive plans. Therefore, the only guaranteed payment to executive directors is their base salary.
The Remuneration Committee selects performance measures for incentive plans that provide the greatest degree of alignment with the Company’s strategic goals and that are clear and transparent to both directors and shareholders. The performance measures adopted incentivise both operational performance and share price growth.
Each element of the reward package focuses on supporting different Company objectives, which are illustrated below:
Element
Purpose
Performance Measure
Base salary
Reflects competitive market
salary level, role and individual achievement
Individual contribution
Annual deferred share bonus
Motivates achievement of annual business
KPIs, Provides incentive to co-invest and achieve medium term KPIs
Aligns
with Shareholders
EBITDA, Free cash flow, ARPU, Data % of
Total Service Revenues, Customer Satisfaction Adjusted EPS growth on share
deferral
Share Options
Incentivise earnings growth and creation
of share price growth Aligns with Shareholders
Adjusted EPS growth
Performance shares
Incentivise share price and dividend growth
Aligns with Shareholders
Relative Total Shareholder Return (TSR)
The Policy principles are cascaded, where appropriate, to employees in all subsidiary companies. Base salaries and short-term incentives are benchmarked against relevant peer companies in each market and are targeted
to deliver total cash that is at the upper quartile position in the relevant market. Incentive payments conditional on business performance are provided to employees at levels that are competitive in each local market.
Report on 2003/04 Executive Directors’
Remuneration and Subsequent Periods
Total remuneration levels
In accordance with the Policy, the Company benchmarks total remuneration levels against other large European domiciled companies, using externally provided pay data. Total remuneration for these purposes means the sum
of base salary and short, medium and long term incentives. The European focus was selected because Europe continues to be Vodafone’s major market and the Company is one
of the top ten companies in Europe by market capitalisation.
In 2003, award levels for the Chief Executive were set to deliver target total remuneration between the top 25% and the top 10% of the remuneration levels of other chief executives of large European companies. The
market position selected reflects Vodafone’s relative size in this region but recognises that Vodafone also has significant interests outside of the European region.
However, awards of performance-linked incentives were determined so that this positioning would only be attained if the Company meets exceptionally demanding performance. A similar approach has been taken for the 2005 financial year.
The total remuneration levels of other executive directors were set at approximately two-thirds of the Chief Executive level for the Group Chief Operating Officer and at approximately half of the Chief Executive level
for the other executive directors.
Components of executive directors’ remuneration
Overview
Executive directors receive base salary, annual deferred share bonus, long term incentives and pension benefits.
Vesting of all short, medium and long term incentives is dependent on the achievement of performance targets that are set by the Remuneration Committee prior to the awards being granted.
Base Salary
Salaries are reviewed annually with effect from 1 July and adjustments may be made to reflect competitive national pay levels, the prevailing level of salary reviews of employees within the Group, changes in
responsibilities and Group performance. External remuneration consultants provide data about market salary levels and advise the Committee accordingly. Pension entitlements are based only on base salary.
Incentive awards
Short/medium term incentive
Annual deferred share bonus
The purpose of the Vodafone Group Short Term Incentive Plan (“STIP”) is to focus and motivate executive directors to achieve annual business KPIs that will further the Company’s medium term objectives.
The STIP comprises two elements: a base award and an enhancement award. The base award is earned by achievement of one year KPI linked performance targets and is delivered in the form of shares. The enhancement award
of 50% of the number of shares comprised in the base award is earned by achievement of a subsequent two-year performance target following the initial twelve-month period. Release of both elements of the award after the three-year period is dependent
upon the continued employment of the participant.
The target base award level for the 2004 financial year was 100% of salary with a maximum of 200% of salary available for exceptional performance. Payments earned for the year total on average 109.75% of salary. The
bonus achievement for the year reflects strong Group performance as described in “Operating and Financial Review and Prospects”.
Board’s
Report to Shareholders on Directors’ Remuneration
continued
The Remuneration Committee reviews and sets the base award performance targets on an annual basis, taking into account business strategy. The performance measures for the 2004 financial year relate to EBITDA, free cash
flow, ARPU, data as a percentage of total service revenues, and customer satisfaction. The targets are not disclosed, as they would give clear indication of the Company’s business targets, which are commercially sensitive. For the 2005 financial year, the targets for data as a percentage of service revenues and ARPU will be replaced with a total service revenues target in order to provide clearer
focus on total revenue growth.
The vesting of the enhancement award shares is dependent upon the achievement of an EPS performance target. For the awards made in 2003, which will vest in July 2005, the performance target was that annual compound
growth in EPS, before goodwill amortisation and exceptional items, must exceed UK RPI growth by 5% per annum over the performance period.
The STIP awards made in July 2001 vested in July 2003. Details of STIP awards are given in the table on page 60.
The Group may, at its discretion, pay a cash sum of up to the value of the base award in the event that an executive director declines the share award. In these circumstances, the executive director will not be
eligible to receive the enhancement award or any cash alternative.
Long term incentives
Performance shares
Performance shares are awarded annually to executive directors. Vesting of the performance shares depends upon the Company’s relative TSR
performance. TSR measures the change in value of a share and reinvested dividends over the period of measurement. The Company’s TSR performance is compared to that of
other companies in the FTSE Global Telecommunications index over a three-year performance period. The Vodafone Group Plc 1999 Long Term Stock Incentive Plan is the vehicle for the provision of these incentive awards.
In 2003/04, the Chief Executive received an award of Performance shares with a face value of two times base salary; the Chief Operating Officer and other executive directors one and a half times their base
salary.
Performance shares will vest only if the Company ranks in the top half of the ranking table; maximum vesting will only occur if the Company is in the top 20%. Vesting is also conditional on underlying improvement in
the performance of the Company. Awards will only vest to the extent that the performance condition has been satisfied at the end of the three-year performance period. To the extent that the performance target is not met, the awards will be forfeit.
The following chart shows the basis on which the performance shares will vest:
The constituents of the FTSE Global Telecommunications index as at July 2003, (applicable to 2003 awards), excluding the Company, were:
Alltel
Olivetti
AT&T
Orange
AT&T Wireless Services
Portugal Telecom
BCE
Royal KPN
BellSouth
SBC Communications
BT Group
Singapore Telecommunications
China Mobile (Hong Kong)
Sprint Corp-FON Group
China Unicom
Swisscom
Deutsche Telekom
Telecom Italia
France Telecom
Telefonica
Japan Telecom
Telia Sonera
KDDI
Telstra Corp
Nextel Communications
TIM
Nippon Telegraph & Telephone
Verizon Communications
NTT DoCoMo
Previously disclosed performance share awards granted in 2000 vested in 2003. Details are given in the table on page 61.
Share options
Share options are granted annually to executive directors.
The exercise of the options is subject to the achievement of a performance condition set prior to grant. The Remuneration Committee determined that the most appropriate performance measure for 2003/04 awards was real
(in excess of UK RPI) growth in EPS, before goodwill amortisation and exceptional items. One quarter of the option award will vest for achievement of EPS growth of UK RPI + 5% p.a. rising to full vesting for achievement of EPS growth of RPI + 15%
p.a. over the performance period. In setting this target the Remuneration Committee has taken the internal long range plan and market expectations into account. The Committee’s advisers have confirmed that this EPS target is amongst the most demanding of those set by large UK based companies. The Remuneration Committee has decided that for 2004/05 grants, real EPS growth of 5-15% p.a. (over UK RPI) will
be replaced with absolute EPS growth of 8-18% p.a. The following chart illustrates the basis on which share options granted in 2003/04 will vest:
Options have a ten-year term and vesting will be after three years. For 2003 options performance may be measured again after years four and five from a fixed base year. The Committee, having considered this matter at
length and taking into account the evolving views of institutional investors, has decided to remove the performance re-test at year four, but to retain the performance re-test at year five, for 2004/05 grants. The Committee believes that for this
existing scheme, retaining the re-test with a stretching performance target compounding from a fixed base year will continue to incentivise performance over the longer term and this is in shareholders’ interests. The re-test will be reviewed again in 2005.
The price at which shares can be acquired on option exercise will be no lower than the market value of the shares on the day prior to the date of grant of the options (or than the average of the market values for the
immediately preceding month in respect of Vittorio Colao, who is domiciled in Italy). Therefore, scheme participants only benefit if the share price increases and vesting conditions are achieved. The Vodafone Group Plc 1999 Long Term Stock Incentive
Plan is the vehicle for the provision of these incentive awards.
In July 2003, the Chief Executive received an award of options with a face value of eight times base salary; the Chief Operating Officer and the other executive directors six times their base salary.
Illustration
To help shareholders understand the value of the package provided to the Chief Executive, the following chart illustrates the approximate pre-tax long term incentive gains to the Chief Executive that would be delivered
based on various Company growth, EPS and TSR performance scenarios. The chart illustrates that in order to gain value from the incentive plans, considerable shareholder value must be created.
For example, if the Company’s share price increases by over 50% from 145 pence to approximately 219 pence, the Company’s value increases by £50 billion, and there is 50% vesting of long term incentives, the Chief Executive would have a pre-tax gain of just under £5 million, representing less
than a tenth of 1% of the total increase in shareholder value.
The awards of performance shares and share options were made to executive directors following the 2003 Annual General Meeting on 30 July 2003. 2004 awards will be also be made following the AGM.
Awards are delivered in the form of ordinary shares of the Company. All awards are made under plans that incorporate dilution limits as set out in the Guidelines for Share Incentive Schemes published by the Association
of British Insurers. The current estimated dilution from subsisting awards, including executive and all-employee share awards, is approximately 2.1% of the Company’s
share capital at 31 March 2004 (2.0% as at 31 March 2003).
Share ownership guidelines
Executive directors participating in long term incentive plans must comply with the Company’s share ownership guidelines. These
guidelines, which were first introduced in 2000, require the Chief Executive to have a shareholding in the Company of four times base salary and other executive directors to have a shareholding of three times base salary.
It is intended that these ownership levels will be attained within five years from the director first becoming subject to the guidelines and be achieved through the retention of shares awarded under incentive
plans.
Pensions
Arun Sarin is provided with a defined contribution pension arrangement to which the Company contributes 30% of his base salary. The contribution is held in a notional fund outside of the Company pension scheme.
Sir Christopher Gent (until his retirement), Julian Horn-Smith, Ken Hydon and Peter Bamford, being UK-based directors, are contributing members of the Vodafone Group Pension Scheme, which is a UK scheme approved by the
Inland Revenue.
This Scheme provides a benefit of two-thirds of pensionable salary after a minimum of 20 years’ service, with a contingent
spouse’s pension of 50% of the member’s pension. The normal retirement age is 60, but
employees may retire from age 55 with a pension proportionately reduced to account for their shorter service but with no actuarial reduction. Pensions increase in payment by the lower of 5% per annum or the maximum amount permitted by the Inland
Revenue. Peter Bamford, whose benefits are restricted by Inland Revenue earnings limits, also participates in a defined contribution Vodafone Group Funded Unapproved Retirement Benefit Scheme (FURBS) to enable pension benefits to be provided on his
base salary above the earnings cap. The Company makes a contribution of 30% of base salary above the earnings cap.
In respect of Vittorio Colao, a contribution is made to a defined contribution plan for dirigenti in Italy, which includes the supplementary dirigenti contribution required under the national collective agreements.
Thomas Geitner is entitled to a defined benefit pension of 40% of salary from a normal retirement age of 60. On early retirement the pension may be reduced if he has accrued less than 10 years of board service, but will not be subject to actuarial
reduction. The pension increases in line with inflation and a spouse’s pension of 60% of his pension is payable.
All the plans referred to above provide for benefits on death in service.
Further details of the pension benefits earned by the directors in the year to 31 March 2004 can be found on page 60. Liabilities in respect of the pension schemes in which the executive directors participate are
funded to the extent described in note 32 to the Consolidated Financial Statements, “Pensions”.
Other remuneration matters
All-employee share incentive schemes
All Employee Share Plan
The Remuneration Committee has approved that an award of shares based on the achievement of performance conditions will be made to all employees in the Vodafone Group on 5 July 2004. This replaces previous practice of
granting share options to all Group employees. These awards have a dilutive effect of approximately 0.03%.
Sharesave Options
The Vodafone Group 1998 Sharesave Scheme is an Inland Revenue approved scheme open to all UK permanent employees.
The maximum that can be saved each month is £250 and savings plus interest may be used to acquire shares by exercising the related option. The options have been granted at up to a 20% discount to market value. UK
based executive directors are eligible to participate in the scheme and details of their participation are given in the table on page 62.
Share Incentive Plan
The Vodafone Share Incentive Plan (“SIP”) is an Inland
Revenue approved plan open to all UK permanent employees. Eligible employees may contribute up to £125 each month and the trustee of the plan uses the money to buy shares on their behalf. An equivalent number of shares is purchased with
contributions from the employing company. UK based executive directors are eligible to participate in the SIP and details of their share interests under these plans are given in the table on page 63.
Non-executive directors’ remuneration
The remuneration of non-executive directors is periodically reviewed by the Board, excluding the non-executive directors. Basic fee levels were increased in July 2003, the previous increase having been made in 2000. An
additional annual fee of £10,000 is payable for the responsibility of chairing a principal Board Committee (Audit,
Board’s
Report to Shareholders on Directors’ Remuneration
continued
Remuneration or Nominations and Governance). No increases are planned in 2004. Details of each non-executive director’s remuneration are
included in the table on page 59.
Non-executive directors do not participate in any incentive or benefit plans. The Company does not provide any contribution to their pension arrangements. The Chairman is entitled to the provision of a fully-expensed
car or car allowance.
Service contracts and appointments of directors
Executive directors
The Remuneration Committee has determined that, after an initial term that may be of up to two years duration, executive directors’
contracts should thereafter have rolling terms and be terminable on no more than one year’s notice. No payments should normally be payable on termination other than the
salary due for the notice period and such entitlements under incentive plans and benefits that are consistent with the terms of such plans.
Details of the contract terms of the executive directors follow:
Contract start date
Unexpired term*
Notice period
Arun Sarin
1 April 2003
Indefinite
One year from
1 April 2004
Peter Bamford
1 April 1998
Indefinite
One year
Vittorio Colao
22 July 1996
Indefinite
Up to one year
Thomas Geitner
5 June 2000
To 31 May 2005
Contract expires
31 May 2005
Julian Horn-Smith
4 June 1996
Indefinite
One year
Ken Hydon
1 January 1997
Indefinite
One year
*
until normal retirement age
At the time of his appointment to the Board, Thomas Geitner was employed under a fixed term five-year service contract with Mannesmann AG (now Vodafone Holding GmbH), which was the normal contract arrangement for
Mannesmann AG board members. Mr Geitner agreed in 2001, without recompense, to accept amended terms which provided that following the expiry of the current contract on 31 May 2005 the new contract would have a one year term.
Executive directors’ service contracts do not provide for termination payments that extend entitlements beyond payments due for the
remainder of the contract term.
In accordance with the National Collective Labour Agreement for dirigenti for industrial companies in Italy, Vittorio Colao is entitled to receive an end of service indemnity.
All the UK-based executive directors have, whilst in service, entitlement under a long term disability plan from which two-thirds of base salary would be provided until normal retirement date. In the event of
disability, Vittorio Colao is entitled to a lump sum payment of €207,000, whilst Thomas Geitner would receive his normal retirement pension based on his accrued
service.
Some executive directors hold positions in other companies as non-executive directors. The fees received in respect of the 2004 financial year and retained by directors were as follows:
Company in which non-executive
Fees Retained by the individual
directorship is held
in 2003/04 (£’000)
Arun Sarin
Cisco Systems, Inc
18.8
Vittorio Colao
RAS SpA
19.2
Thomas Geitner
Singulus Technologies AG
33.5
Julian Horn-Smith
Smiths Group Plc
36.6
Ken Hydon
Reckitt Benckiser Plc
13.3
Tesco Plc
6.3
*
Fees were retained in accordance with
Company policy
Chairman and non-executive directors
After completing an initial three-year term, in March 2003, the Chairman accepted the invitation of the Nominations and Governance Committee and the Board to continue in office. The appointment continues indefinitely
and may be terminated by either party on one year’s notice.
Non-executive directors including the Deputy Chairman, are engaged on letters of appointment that set out their duties and responsibilities. The appointment of non-executive directors may be terminated without
compensation.
The terms and conditions of appointment of non-executive directors are available for inspection by any person at the Company’s registered
office during normal business hours and at the Annual General Meeting (for 15 minutes prior to the meeting and during the meeting).
John Buchanan and Luc Vandevelde were appointed to the Board as non-executive directors with effect from 1 April 2003 and 1 September 2003 respectively. Both hold office on the same terms as other non-executive
directors.
Appointment of new Chief Executive and retirement of previous Chief Executive
Sir Christopher Gent formally stepped down as Chief Executive at the end of the AGM on 30 July 2003. To enable a smooth transition, he continued as an adviser until he retired from the Company on 31 December 2003. Sir
Christopher received no severance payment and his entitlements under the incentive and retirement plans in which he participated were determined by the standard rules applicable to retirement. All long term incentive awards under the current
remuneration policy and the previous global market-related policy provide for awards to be pro-rated for both time and performance in the event of retirement. Sir Christopher received no salary increase in the 2004 financial year, nor did he
participate in the short term incentive plan after
30 July 2003. No long term incentive awards were made to him during 2003/04. In accordance with the standard Rules of the Scheme he received an immediate pension based on his accrued benefit with no actuarial penalty
or any enhancement.
The Remuneration Committee agreed that ownership of Sir Christopher Gent’s company car would transfer to him on retirement. The taxable
value of the car is included in the benefits column of the Remuneration table.
Arun Sarin commenced employment as Chief Executive Designate on 1 April 2003. He became Chief Executive on 30 July 2003.
Arun Sarin was employed with a basic salary of £1.1 million. The incentives and benefits that formed the remainder of his remuneration package are consistent with the existing executive director remuneration
policy described previously and comparable in quantum to those received by Sir Christopher Gent for the year ended 31 March 2003. In accordance with the Company’s
normal policy it was agreed to meet the costs of Arun Sarin relocating to the UK and these costs are included in the benefits column of the Remuneration table.
Arun Sarin has entered into a service contract that can be terminated by the Company at the end of an initial term of two years or at any time thereafter on one year’s notice. Arun Sarin is required to give the Company one year’s notice if he wishes to terminate the
contract. There are no specific provisions for termination payments under the terms of the service contract.
The remuneration of the directors for the year to 31 March 2004 was as follows:
Salary/fees
Incentive schemes
Benefits
Total
2004
2003
2004
(1)
2003
2004
(2)
2003
2004
2003
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
Chairman
Lord MacLaurin
473
432
–
–
22
31
495
463
Deputy Chairman
Paul Hazen
124
105
–
–
–
–
124
105
Chief Executive
Sir Christopher Gent
425
1,270
429
1,586
11
40
865
2,896
Arun Sarin
1,100
65
1,217
–
879
–
3,196
65
Executive directors
Peter Bamford
733
691
722
843
34
31
1,489
1,565
Vittorio Colao
(3)
531
469
651
695
9
9
1,191
1,173
Thomas Geitner
(3)
644
556
673
694
35
23
1,352
1,273
Julian Horn-Smith
908
846
950
1,057
39
37
1,897
1,940
Ken Hydon
733
691
776
863
29
28
1,538
1,582
Non-executive directors
Dr Michael Boskin
80
65
–
–
–
–
80
65
Professor Sir Alec Broers
80
65
–
–
–
–
80
65
John Buchanan
80
–
–
–
–
–
80
–
Penny Hughes
90
72
–
–
–
–
90
72
Sir David Scholey
80
65
–
–
–
–
80
65
Professor Jürgen Schrempp
80
65
–
–
–
–
80
65
Luc Vandevelde
50
–
–
–
–
–
50
–
Former directors
(4)
541
–
–
–
313
510
854
510
6,752
5,457
5,418
5,738
1,371
709
13,541
11,904
Notes:
(1)
These figures are the cash equivalent value of the base share awards under the Vodafone Group Short Term Incentive Plan applicable to the year ended 31 March 2004. These awards are in relation to
the performance achievements above targets in EBITDA, before exceptional items, ARPU, free cash flow, data as a percentage of service revenues and customer satisfaction for the 2003/04 financial year.
(2)
Benefits principally comprise cars and private health and disability insurance. For Arun Sarin, the figure includes £835,000 (gross) to cover the costs of relocating from the US to the UK. The
relocation expenses paid covered costs including legal expenses, stamp duty, transportation costs and other out-of-pocket costs in accordance with normal Company policy.
(3)
Salary and benefits for Vittorio Colao and Thomas Geitner have been translated at the average exchange rate for the year of €1.4442: £1 (2003:
€
1.5570: £1).
(4)
Under the terms of an agreement, Sam Ginn, a former director of the Company, provides consultancy services to the Group and is entitled to certain benefits. The estimated value of the benefits
received by him in the year to
31 March 2004 was £183,000, translated at the average exchange rate for the year of $1.6953: £1. From 31 July to 31 December 2003 Sir Christopher Gent provided
consultancy services to the Company and was entitled to certain benefits. On his retirement on 31 December 2003, his company car was transferred to him and the benefit value is included in the benefits column above. The total value of benefits
provided, including the value of the car, was £130,000.
The aggregate compensation paid by the Company to its senior management
(1)
as a group for services
in all capacities for the year ended 31 March 2004, is set out below. The aggregate number of senior management in the year ended 31 March 2004 was 6, compared to 7 in the year ended 31 March 2003.
2004
2003
£’000
£’000
Salaries and fees
2,341
2,502
Incentive schemes
(2)
2,415
5,430
Benefits
462
213
5,218
8,145
Notes:
(1)
Aggregate compensation for senior management is in respect of those individuals who were members of the Executive Committee as at, and for the year ended, 31 March 2004, other than executive
directors.
(2)
Comprises the incentive scheme information for senior management on an equivalent basis as that disclosed for directors in the table at the top of this page. Details of share incentives awarded to
directors and senior management are included in footnotes to the Short Term Incentive, Long Term Incentives and Share Options tables on pages 60 and 61.
Board’s
Report to Shareholders on Directors’ Remuneration
continued
Pensions
Pension benefits earned by the directors in the year to 31 March 2004 were:
Transfer value
Employer
Change in
Change in
of change in
Allocation/
Total accrued
Change in
transfer value
accrued
accrued
Contribution to
benefit at
accrued
Transfer
value
Transfer value
over year less
benefit in
benefit net of
Defined
31 March
benefit over
at 31 March
at 31 March
member
excess of
member
Contribution
2004
(1)
the year
(1)
2003
(2)
2004
(2)
contributions
inflation
contributions
Plans
Name of Director
£’000
£’000
£’000
£’000
£’000
£’000
£’000
£’000
Arun Sarin
–
–
–
–
–
–
–
330.0
Sir Christopher Gent
(3)
701.9
39.9
10,388.9
15,519.8
5,097.1
22.6
466.6
–
Peter Bamford
23.0
4.0
217.4
275.5
54.7
3.5
38.3
151.0
Vittorio Colao
(4)
–
–
–
–
–
–
–
5.5
Thomas Geitner
(4)
64.7
19.2
510.7
763.1
252.4
18.1
212.9
–
Julian Horn-Smith
480.3
83.2
5,962.4
7,498.8
1,506.3
72.8
1,106.9
–
Ken Hydon
476.6
52.0
7,864.1
9,129.0
1,240.3
40.9
758.9
–
Notes:
(1)
The pension benefits earned by the directors are those, which would be paid annually on retirement, on service to the end of the year, at the normal retirement age. Salaries have been averaged over
three years where necessary in order to compare with Inland Revenue regulations. The increase in accrued pension excludes any increase for inflation.
(2)
The transfer values have been calculated on the basis of actuarial advice in accordance with the Faculty and Institute of Actuaries
’
Guidance Note GN11. No director elected to pay additional voluntary contributions. The transfer values disclosed above do not represent a sum paid or payable to the individual director. Instead they represent a potential liability
of the pension scheme.
(3)
Sir Christopher Gent retired from the Board on 30 July 2003 and from the Company on 31 December 2003. In accordance with the standard Rules of the Scheme he received an immediate pension based on
his accrued benefit without actuarial reduction or any enhancement. The figures for 2003 and 2004 are not directly comparable due to different bases of calculation. The 2003 figure is based on service to date and payment at normal retirement age
(60). The 2004 figure reflects an additional year of service, an updated pensionable salary, changes in annuity values and immediate payment.
(4)
In respect of Thomas Geitner the amounts as at 31 March 2003 have been translated at the exchange rate at that date of €1.4486: £1. Other amounts in respect of Vittorio Colao and Thomas Geitner have been translated at the 31 March 2004 exchange rate of €1.4955:
£1.
In respect of senior management, the Group has made aggregate contributions of £484,808 into pension schemes.
Directors
’
interests in the shares of the Company
Short Term Incentive
Conditional awards of ordinary shares made to executive directors under the STIP, and dividends on those shares paid under the terms of the Company
’
s scrip dividend scheme and dividend reinvestment plan, are shown below. STIP shares which vested and were sold or transferred during the year ended 31 March 2004 are also shown below.
Shares conditionally
Shares
conditionally
awarded during the
Shares added
awarded
during the
year as enhancement
during the
Shares
sold or
Total interest
year
as base award in
shares in respect
year through
transferred
during the
in STIP at
respect
of 2002/2003
of 2002/2003
dividend
year
in respect of
1 April 2003
STIP
awards
STIP
awards
reinvestment
2000/2001
STIP awards
(1)
Total
interest in STIP as at 31 March 2004
Value at
Value at
In
In
Total
date of
date of
Total
respect
respect of
Number of
Number of
Total
number of
award
(2)(3)
award
(3)
number of
of base
enhancement
Base Award
enhancement
value
(4)
shares
Number
£’000
Number
£’000
shares
awards
shares
shares
shares
£’000
Sir Christopher Gent
793,202
–
–
–
–
5,950
532,768
266,384
–
–
–
Arun Sarin
–
–
–
–
–
–
–
–
–
–
–
Peter Bamford
1,058,209
704,311
843
352,155
422
15,515
–
–
1,420,127
710,063
2,743
Vittorio Colao
–
628,010
752
314,005
376
–
–
–
628,010
314,005
1,213
Thomas Geitner
306,570
219,470
263
109,735
131
4,494
–
–
426,846
213,423
824
Julian Horn-Smith
431,852
882,713
1,057
441,357
529
3,239
290,060
145,031
882,713
441,357
1,705
Ken Hydon
431,852
720,883
863
360,441
432
3,239
290,060
145,031
720,883
360,441
1,392
Notes:
(1)
Shares in respect of 2000/2001 STIP awards were transferred on 1 July 2003 and 21 November 2003.
(2)
Previously disclosed within directors
’
emoluments for the year ended 31 March 2003.
(3)
Value at date of award is based on the purchase price of the Company
’
s ordinary shares on 30 June 2003 of
119.75p.
(4)
The value at 31 March 2004 is calculated using the closing middle market price of the Company
’
s ordinary shares at 31
March 2004 of 128.75p.
The aggregate number of shares conditionally awarded during the year as base award and enhancement shares to the Company
‘
s senior
management, other than executive directors, is 1,634,000. For a description of the performance and vesting conditions, see
“
Short/medium term incentive
”
on page 55.
Long Term Incentives
Conditional awards of ordinary shares made to executive directors under the Vodafone Group Long Term Incentive Plan and Vodafone Group Plc 1999 Long Term Stock Incentive Plan, and dividends on those shares paid under
the terms of the Company
’
s scrip dividend scheme and dividend reinvestment plan, are shown below. Long Term Incentive shares that vested and were sold or transferred
during the year ended 31 March 2004 are also shown below.
Shares added
Shares
Shares sold or
during the
forfeited
transferred
Total interest in
year through
in respect of
in respect of
Long Term incentives
Shares conditionally awarded
dividend
2000/2001 and
2000/20001 and
Total interest in Long Term
at 1 April 2003
(1)
during the year
reinvestment
2002/03 awards
2002/03 awards
Incentives at 31 March 2004
Value at
date of
Total
award
(2)
Number of
value
(4)
Number
Number
£’000
Number
Number
Number
(3)
shares
£’ 000
Sir Christopher Gent
2,963,018
–
–
41,899
2,031,684
422,571
550,662
709
Arun Sarin
–
1,844,863
2,200
–
–
–
1,844,863
2,375
Peter Bamford
1,441,524
882,000
1,052
20,294
74,582
43,614
2,225,622
2,865
Vittorio Colao
694,022
648,868
774
10,175
–
–
1,353,065
1,742
Thomas Geitner
1,016,319
781,633
932
14,899
–
–
1,812,851
2,334
Julian Horn-Smith
1,822,879
1,080,000
1,288
25,886
74,583
43,613
2,810,569
3,619
Ken Hydon
1,441,524
882,000
1,052
20,294
74,582
43,614
2,225,622
2,865
Notes:
(1)
Restricted share awards under the Vodafone Group Long Term Incentive Plan and the Vodafone Group Plc 1999 Long Term Stock Incentive Plan.
(2)
The value of awards under the Vodafone Group Plc 1999 Long Term Incentive Plan is based on the purchase price of the Company
’
s ordinary shares on 30 July 2003 of 119.25p.
(3)
Shares in respect of 2000/2001 awards were sold or transferred on 1 July 2003 and 13 November 2003. The balance of Sir Christopher Gent
’
s 2002/03 share awards, following application of performance conditions and pro-ration in respect of service to retirement, were sold or transferred on 14 January 2004 and 8 April 2004.
(4)
The value at 31 March 2004 is calculated using the closing middle market price of the Company
’
s ordinary shares at 31
March 2004 of 128.75p.
The aggregate number
of shares conditionally awarded during the year to the Company‘s
senior management is 2,373,014 shares. For a description of the performance
and vesting conditions see “Long
term incentives” on
pages 56 and 57.
Share options
The following information summarises the directors
’
options under the Vodafone Group Plc Savings Related Share Option Scheme, the
Vodafone Group 1998 Sharesave Scheme, the Vodafone Group Plc Executive Share Option Scheme and the Vodafone Group 1998 Company Share Option Scheme, which are all Inland Revenue approved schemes. The table also summarises the directors
’
options under the Vodafone Group Plc Share Option Scheme, the Vodafone Group 1998 Executive Share Option Scheme, the AirTouch Communications, Inc. 1993 Long Term Stock Incentive
Plan and the Vodafone Group Plc 1999 Long Term Stock Incentive Plan, which are not Inland Revenue approved. No other directors have options under any of these schemes. Only under the Vodafone Group 1998 Sharesave Scheme may shares be offered at a
discount in future grants of options. For a description of the performance and vesting conditions see
“
Long term incentives
”
on pages 56 and 57.
Options held at
Options
Options
Weighted
1 April 2003
granted
exercised
Options
Options
average
Earliest
or date of
during
during
lapsed during
held at
exercise price at
date
Latest
appointment
(1)
the year
(1)
the year
the year
31 March 2004
31 March 2004
from which
expiry
Number
Number
Number
Number
Number
Pence
exercisable
date
Sir Christopher Gent
25,365,387
–
178,000
–
25,187,387
167.6
Jul 2001
Dec 2004
Arun Sarin
(2)(3)
11,250,000
7,396,164
–
–
18,646,164
154.0
Jun 1999
Jul 2013
Peter Bamford
12,204,753
3,739,677
–
–
15,944,430
155.1
Jul 2000
Jul 2013
Vittorio Colao
3,011,611
2,751,202
–
–
5,762,813
108.8
Jul 2004
Jul 2013
Thomas Geitner
11,196,479
3,373,582
–
–
14,570,061
160.7
Jul 2003
Jul 2013
Julian Horn-Smith
15,794,101
4,654,088
1,254,500
–
19,193,689
149.9
Jul 2001
Jul 2013
Ken Hydon
12,695,553
3,739,677
1,044,000
–
15,391,230
156.7
Jul 2001
Jul 2013
91,517,884
25,654,390
2,476,500
–
114,695,774
Notes:
(1)
The weighted average exercise price of options over shares in the Company granted during the year and listed above is 119.25 pence. The earliest date from which they are exercisable is July 2006 and
the latest expiry date is 29 July 2013. For a description of the performance and vesting conditions see
“
Long term incentives
”
on pages 56 and 57.
(2)
Some of the options held by Arun Sarin are held in the form of ADSs, each representing ten ordinary shares of the Company, which are traded on the New York Stock Exchange. The number of ADSs over
which Arun Sarin holds options is 1,125,000.
(3)
The terms of the share options granted over 11,250,000 shares in 1999 to Arun Sarin allow exercise until the earlier of the date on which he ceases to be a director of the Company and the seventh
anniversary of the respective dates of grant.
Board’s
Report to Shareholders on Directors’ Remuneration
continued
The aggregate number of options granted during the year to the Company
’
s senior management, other than executive directors, is
11,058,407. The weighted average exercise price of the options granted to senior management during the year is 119.25 pence. The earliest date from which they are exercisable is July 2006 and the latest expiry date is 29 July 2013. The weighted
average exercise price of options granted to US-based senior management has been translated at the average exchange rate for the year of $1.6953: £1.
Further details of options outstanding at 31 March 2004 are as follows:
Exercisable Market price
Exercisable Option price
greater than option price
(1)
greater than market price
(1)
Not yet exercisable
Weighted
Weighted
Weighted
average
Latest
average
Latest
average
Earliest date
exercisable
expiry
Options
exercise
expiry
Options
exercise
from which
Options held
price
date
held
price
date
held
price
exercisable
Number
Pence
Number
Pence
Number
Pence
Sir Christopher Gent
9,294,123
97.0
Dec 04
15,893,264
208.9
Dec 04
–
–
–
Arun Sarin
5,000,000
95.1
Jun 06
6,250,000
242.4
Jul 06
7,396,164
119.2
Jul 06
Peter Bamford
150,500
58.7
Jul 04
3,360,755
272.5
Jul 10
12,433,175
124.5
Jul 04
Vittorio Colao
–
–
–
–
–
–
5,762,813
108.8
Jul 04
Thomas Geitner
–
–
–
2,933,055
290.4
Jul 10
11,637,006
128.0
Jul 04
Julian Horn-Smith
–
–
–
3,136,455
280.4
Jul 10
16,057,234
124.4
Jul 04
Ken Hydon
–
–
–
3,235,255
279.8
Jul 10
12,155,975
123.9
Jul 04
14,444,623
34,808,784
65,442,367
Notes:
(1)
Market price is the closing middle market price of the Company
’
s ordinary shares at 31 March 2004 of
128.75p.
(2)
Some of Arun Sarin
’
s options are in respect of American Depositary Shares, each representing ten ordinary shares in
the Company, which are traded on the New York Stock Exchange. The number and option price have been converted into the equivalent amounts for the Company
’
s ordinary
shares, with the option price being translated at the average exchange rate for the year of $1.6953: £1.
The Company
’
s register of directors
’
interests (which is
open to inspection) contains full details of directors
’
shareholdings and options to subscribe. These options by exercise price were:
Options held at
1 April 2003
Options
Options
Options lapsed
Options
Option
or date of
granted during
exercised during
during
held at
price
appointment
the year
the year
the year
31 March 2004
Pence
Number
Number
Number
Number
Number
Vodafone Group Plc Executive Share Option Scheme
(Approved – 1988)
Vodafone Group Plc Share Option Scheme (Unapproved – 1988)
Vodafone Group 1998 Company Share Option Scheme (Approved)
Vodafone Group 1998 Executive Share Option Scheme (Unapproved)
58.70
2,627,000
–
2,476,500
–
150,500
155.90
1,520,500
–
–
–
1,520,500
255.00
764,000
–
–
–
764,000
282.30
1,522,500
–
–
–
1,522,500
Vodafone Group Plc Savings Related Share Option Scheme (1988)
Vodafone Group 1998 Sharesave Scheme
70.92
50,126
–
–
–
50,126
95.30
–
16,710
–
–
16,710
AirTouch Communications, Inc. 1993 Long Term Incentive Plan
(1)
95.12
5,000,000
–
–
–
5,000,000
Vodafone Group Plc 1999 Long Term Stock Incentive Plan
97.00
30,140,785
–
–
–
30,140,785
119.25
–
25,637,680
–
–
25,637,680
151.56
2,796,100
–
–
–
2,796,100
157.50
24,943,043
–
–
–
24,943,043
164.49
100,146
–
–
–
100,146
242.43
6,250,000
–
–
–
6,250,000
291.50
15,803,684
–
–
–
15,803,684
91,517,884
25,654,390
2,476,500
–
114,695,774
Note:
(1)
These share options are in respect of American Depositary Shares, each representing ten ordinary shares in the Company, which are traded on the New York Stock Exchange. The number and option price
have been converted into the equivalent amounts for the Company
’
s ordinary shares, with the option price being translated at the average exchange rate for the year of
$1.6953: £1.
Details of the options exercised by directors of the Company in the year to 31 March 2004, are as follows:
Market price
Options exercised
at date
Gross
during the year
Option price
of exercise
pre-tax gain
(Number)
(Pence)
(Pence)
(£’ 000)
Sir Christopher Gent
178,000
58.7
118.75
106.9
Julian Horn-Smith
1,254,500
58.7
135.75
966.6
Ken Hydon
522,000
58.7
131.75
381.3
522,000
58.7
144.75
449.2
2,476,500
1,904.0
Note:
The aggregate gross pre-tax
gain made on the exercise of share options in the year by the above Company
’
s
directors was £1,903,983
(2003: £226,873). The closing middle market price of the Company
’
s
shares at the year end was 128.75p, its highest closing price in the year having
been 149.5p
and its lowest closing price having been 112.5p.
Beneficial interests
The directors
’
beneficial interests in the ordinary shares of the Company, which includes interests in the Vodafone Group Profit Sharing
Scheme and the Vodafone Share Incentive Plan, but which excludes interests in the Vodafone Group Share Option Schemes, the Vodafone Group Short Term Incentive or in the Vodafone Group Long Term Incentives, are shown below:
1 April 2003 or date of
24 May 2004
31 March 2004
appointment
Lord MacLaurin
92,495
92,495
94,495
Arun Sarin
(1)
4,832,560
4,832,560
4,832,560
Peter Bamford
290,894
290,518
258,336
Vittorio Colao
(2)
643,848
643,848
643,848
Thomas Geitner
12,350
12,350
12,350
Julian Horn-Smith
1,735,210
1,734,834
1,448,427
Ken Hydon
2,325,576
2,325,200
1,835,818
Paul Hazen
360,900
360,900
360,900
Dr Michael Boskin
212,500
212,500
212,500
Professor Sir Alec Broers
19,379
19,379
19,099
Dr John Buchanan
(3)
102,000
102,000
–
Penny Hughes
22,500
22,500
22,500
Sir David Scholey
50,000
50,000
50,000
Professor Jürgen Schrempp
–
–
–
Luc Vandevelde
(4)
20,000
20,000
–
Notes:
(1)
Arun Sarin also has a non-beneficial interest as the trustee of two family trusts, each holding 5,720 shares.
(2)
These shares were held in escrow and were released on 30 June 2003.
(3)
John Buchanan was appointed to the Board on 1 April 2003.
(4)
Luc Vandevelde was appointed to the Board on 1 September 2003.
Changes to the interests of the directors of the Company in the ordinary shares of the Company during the period 1 April 2004 to 24 May 2004 relate to shares acquired either through Vodafone Group Personal Equity Plans
or the Vodafone Share Incentive Plan. As at 31 March 2004, and during the period 1 April 2004 to 24 May 2004, no director had any interest in the shares of any subsidiary company.
Other than those individuals included in the table
above who were Board members as at 31 March 2004, members of the Group
’
s
Executive Committee, including Tomas Isaksson who was an Executive Committee
member until 1 April 2004, as at 31 March 2004, had an aggregate beneficial interest
in 1,717,284 ordinary shares of the Company. As at
24 May 2004, Executive Committee members at that
date had an aggregate beneficial interest in 1,717,994 ordinary shares of the
Company, none of whom had an individual beneficial interest amounting to greater
than 1% of
the Company
’
s
ordinary shares.
Interests in share options of the Company at 24 May 2004
At 24 May 2004, there had been no change to the directors
’
interests in share options from 31 March 2004.
Other than those individuals included in the table above, as at 24 May 2004 members of the Group
’
s Executive Committee at that date held
options for 35,509,322 ordinary shares at prices ranging from 48.3 pence to 291.5 pence per ordinary share, with a weighted average exercise price of 152.74 pence per ordinary share exercisable at dates ranging from July 1999 to July 2013, and
options for 1,008,381 ADSs at prices ranging from $13.65 to $58.6875 per ADS, with a weighted average exercise price of $25.33 per ADS, exercisable at dates ranging from March 2001 to July 2013.
Lord MacLaurin, Paul Hazen, Dr Michael Boskin, Professor Sir Alec Broers, Dr John Buchanan, Penny Hughes, Sir David Scholey, Professor J
ü
rgen Schrempp and Luc Vandevelde held no options at 24 May 2004.
Vodafone is committed to investing in world class people development to build a unified global team working efficiently across boundaries.
Employee involvement
The Board of director
’
s aim is that employees understand the Company
’
s strategy and are committed to the Vodafone Vision and Values.
The Values are:
•
Passion for customers. Vodafone
’
s customers have chosen to trust the Group. In return, the Group must strive to
anticipate and understand their needs and delight them with the Group
’
s service.
•
Passion for Vodafone people. Outstanding people working together make Vodafone exceptionally successful.
•
Passion for results. The Group is action-oriented and driven by a desire to be the best.
•
Passion for the world around us. Vodafone will help the people of the world to have fuller lives
–
both through the
services Vodafone provides and through the impact the Group has on the world around us.
Together, the Vision and Values provide a common understanding of where the Group is going and a common way of doing things. The Company is determined that they will flourish across every operating company, challenging
everyone to understand them, own them and contribute to their delivery and a range of initiatives have been introduced to ensure this.
The Board of directors places a high priority on effective employee communications to promote the Values and other important messages and a wide range of mechanisms is used to achieve this. These include roadshows,
management presentations, in-house publications, team briefings, e-mail, Intranet sites, employee focus groups and conferences.
During 2003, Vodafone conducted its first Group wide Employee Survey in order to measure the effectiveness of its communications initiatives and its standing as an employer. 84% of employees shared their views with the
Company and, as a result, the Board has initiated a Group level action plan with the following themes:
•
to communicate and bring the Vodafone strategy to life;
•
to ensure the world class development of Vodafone people; and
•
to consider how the Group might anticipate and better respond to the needs of its customers.
The survey will be conducted every two years to measure the Group
’
s progress.
Chief Executive, Arun Sarin, and Group Chief Operating Officer, Julian Horn-Smith, continued to host
“
Your Call
”
sessions at operating companies throughout the Group. These sessions were designed to demonstrate how the Vodafone Values are being lived across the business. Building on the success of
“
Your Call
”
, the next stage of the global roadshow programme is known as
“
Talkabout
”
and will visit every operating company during 2004.
“
Talkabout
”
will directly address two of the priorities for action identified by the Employee Survey. In
“
Talkabout Vodafone
”
Mr Sarin will discuss the shared vision for Vodafone
’
s future, meeting as wide an audience of Vodafone people as possible, listening to their views and talking about the issues that matter most to them. In the second strand,
“
Talkabout Business
”
, Mr Horn-Smith will address the business issues affecting each
company with a smaller audience drawn from the senior management team. The
“
Talkabout
”
programme provides the perfect opportunity to communicate strategic goals and priorities, discuss progress and exchange ideas about how Vodafone can serve its customers as a single, global team.
The Group has implemented a global team briefing process for effectively sharing information with employees on key performance indicators for the business and progress towards achieving its strategic objectives. Within
European subsidiaries,
employee representatives meet annually with representatives of the central management team in the Vodafone European Employee Consultative Council to discuss the progress of the Group and transnational issues.
Employee education, training and development
Employee development has been established as one of Vodafone
’
s key business goals. The Vodafone Global Campus provides the focus for
employee learning and development by supporting operating companies around the world to share best practice, collaborate and develop world-class development opportunities.
Employment policies
The Group
’
s employment policies are consistent with the principles of the United Nations Universal Declaration of Human Rights and the
International Labour Organisation Core Conventions and are developed to reflect local legal, cultural and employment requirements. High standards are maintained wherever the Group operates as Vodafone aims to ensure that the Group is recognised as
an employer of choice. Employees at all levels and in all companies are encouraged to make the greatest possible contribution to the Group
’
s success.
The Group considers its relations with its employees to be good.
Equal opportunities
Vodafone does not condone unfair treatment of any kind and operates an equal opportunities policy for all aspects of employment and advancement, regardless of race, nationality, sex, marital status, disability or
religious or political belief. In practice, this means that the Group will select the best people available for positions on the basis of merit and capability, making the most effective use of the talents and experience of people in the business,
providing them with the opportunity to develop and realise their potential.
The disabled
The directors are conscious of the special difficulties experienced by the disabled and a range of products has been developed for people with special needs. In addition, disabled people are assured of full and fair
consideration for all vacancies for which they offer themselves as suitable candidates and efforts are made to meet their special needs, particularly in relation to access and mobility. Where possible, modifications to workplaces have been made to
provide access and, therefore, job opportunities for the disabled. Every effort is made to continue the employment of people who become disabled, not only by the provision of additional facilities but also training where appropriate.
Health, safety and wellbeing
The directors remain committed to ensuring the health, safety and wellbeing of employees at work and apply high standards throughout the organisation in the management and control of operations. These standards are
designed to ensure that the Group properly safeguards those who work for it and those who may be affected by the Group
’
s business including customers, contractors and
local communities. Annually, each operating company reports health and safety performance to the Board.
A Group Health and Safety Council has been inaugurated under the leadership of the Group Health and Safety Director, and this is steering a coordinated, global strategy. The team of Health and Safety professionals
working within the Group has been further strengthened and better coordinated, sharing knowledge more efficiently.
A Group-wide health and safety audit in December 2003 showed improved scores overall compared with 2002, and particularly with reference to Operating Company emergency planning procedures and their regimes for working
safely at height. The results reflect implementation of the Group
’
s new global standards and the increase in best practice sharing around the Group.
Corporate Social Responsibility and Environmental Issues
Corporate Social Responsibility
Vodafone believes that mobile telecommunications has the potential to deliver wide social, economic and environmental benefits. It also recognises that there are some sensitive issues that need to be managed.
Addressing these risks and opportunities is at the heart of the Group
’
s CSR programme and fundamental to achieving Vodafone
’
s strategic goal of being a responsible business. A key focus of the last year has been the continued integration of CSR into core business processes.
The Executive Committee, chaired by the Chief Executive, receives reports on progress against the goal. Priority environmental and CSR-related initiatives are sponsored by an operating company chief executive officer
or senior Group executive and the Group Operational Review Committee monitors progress on these initiatives on a regular basis. CSR has also been included in the global development programme for directors and senior managers.
Understanding and responding to stakeholder views on relevant social and environmental issues is central to the Group
’
s CSR programme.
The Group engages on this subject directly with key stakeholders, including investors. This year, quantitative research on public and customer views as well as those of NGOs was completed across approximately 75% of the customer base, helping to
ensure the focus remains on priority issues and providing a basis for tracking perceptions of our performance over time.
Progress continues to be made on key initiatives. For example:
•
Operating company performance across the full range of CSR related activities, from management integration to specific progress on managing issues, is now reported quarterly alongside other business
performance metrics to the Group Operational Review Committee. This ensures that progress is reviewed at the highest level and it also facilitates benchmarking and exchange of good practice across the operating companies.
•
A CSR section has been built into the Group
’
s long range planning process. Key CSR risks are considered alongside
other business risks.
•
Two important initiatives that have moved forward significantly this year relate to the development of
‘
products and
services
’
that deliver specific social/environmental benefit and the
‘
responsible
marketing
’
of products and services. Both initiatives have moved through pilot stages and are now being progressed across the business.
•
Vodafone aims to help its customers make informed choices about their access to content and services and to support them in accessing the service environments they wish to have. This includes
supporting parents in defining appropriate access for younger users. A dedicated Content Standards team has developed policies and guidelines on adult content, instant messenger, video and audio messaging, games and
‘
chat rooms
’
.
•
This year, the Group Policy Committee approved Vodafone
’
s Code of Ethical Purchasing. The Code is being integrated
into the commercial arrangements with the Group
’
s major global suppliers by the Supply Chain Management function.
•
Unfortunately, the Group did not fully meet its commitment to develop CSR Guidelines for Network Deployment by March 2004. The wide range of planning and regulatory requirements across all of the
Group
’
s markets has made this a particularly complex task. However, this remains an important subject and will continue to be developed at the Group and operating
company level.
•
The Vodafone Group Foundation has implemented a programme of grant making activity in accordance with its mission statement. This year, seven new local foundations have been set up across the Group,
including associate companies, making a total of 19 foundations, supporting local communities at country level. An increased emphasis by the Foundation on partnerships with major NGOs and charities has resulted in more than 26 projects that address
global issues. Further
details of the Vodafone Group
Foundations
’
activities
are available in the CSR Report and on
www.vodafonefoundation.org
•
The Company has retained its position in both the FTSE4Good and Dow Jones Sustainability Indices.
This year has seen an increase in the level of independent assessment and assurance of the CSR programme and performance data. The scope of work for Deloitte & Touche LLP has been extended to cover certain
performance data procedures at selected operating companies. The assurance statement is published in the stand-alone CSR report. An independent review and benchmark of the CSR management system and processes for stakeholder engagement has also been
completed and is reported in the CSR report.
In addition to the Group report, operating companies in Italy, Greece, the Netherlands and Ireland have produced their own CSR publications tailored to specific audiences in those markets.
Environmental Issues
The Group continues to monitor and manage the impact of its activities on the environment and is committed to minimising these impacts in an appropriate manner. Over the last twelve months, progress has been made
across a series of projects that address significant environmental issues. These include addressing the concerns related to the perceived link between radio frequencies and health, the use of energy, the reuse and recycling of handsets and
accessories, the management of waste and the use of ozone depleting substances.
Progress includes:
•
Over the last 12 months, Vodafone has continued to promote best practice in relation to communication about radio frequency levels and all operating companies provide information on request. The
focus for this year has been on a review and restructure of the governance regime for this issue. A greater level of representation from across the Group helps deliver consistency in approach.
•
There has been an increase in the number of handset recycling schemes in place. These now cover 97% of the customer base.
•
Operating companies serving more than 90% of the Group
’
s customer base have developed formal energy efficiency
strategies.
•
An assessment of waste management practices in 12 operating companies is well advanced and is due for completion by June 2004.
The Group continues to monitor any scientific developments on radio frequency issues and supports independent research in this area at both international and national levels.
The Group commits to disclosing any information that comes to its knowledge that clearly demonstrates that any of its products and services breach internationally accepted safety standards or guidelines.
Further details of these initiatives, and progress against environment-related commitments made last year, are provided in the Company
’
s
2003/04 CSR Report and on www.vodafone.com/responsiblity.
United Kingdom company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and the Group as at the end of the
financial year and of the profit or loss of the Group for that period. In preparing those financial statements, the directors are required to:
•
select suitable accounting policies and apply them consistently;
•
make judgements and estimates that are reasonable and prudent;
•
state whether applicable accounting standards have been followed; and
•
prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business.
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that the
financial statements comply with the Companies Act 1985. They are also responsible for the system of internal control, for safeguarding the assets of the Company and the Group and, hence, for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
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