Vodafone 2005 Annual Report Download - page 8

Chief Executive’s Review
6|Strategy
Delivering operational performance
Our results are built on the base of a strong overall Group operational performance that
has delivered on all our key targets.
Organic growth of 12% in proportionate customers was driven by particularly strong
performances in the year in Germany, Spain and the US. Customer growth has again
been the driver for the increase in revenue but, as average customer spend has
reduced, this led to growth in Group mobile revenue of 4%, or 5% on an organic basis.
Group revenue increased by 2% to £34.1 billion. Removing the effect of acquisitions
and disposals and adverse foreign exchange movements, organic revenue growth
was 6%.
Cash flow generation continues to be robust, reflecting the underlying strength of our
operations and financial structure. Operating cash flow increased by £0.4 billion to
£12.7 billion, driven by higher revenue. Free cash flow for the year was £7.8 billion,
compared to £8.5 billion last year that included one-off items amounting to £0.8 billion.
This strong cash flow supports our significant increases in shareholder returns this year.
This past financial year we added a further £5.1 billion of fixed assets, primarily in
respect of our mobile network infrastructure. This amount is only slightly higher than the
prior year, even though we continue to invest significantly in our 3G networks.
Our operating performance in Europe remains robust. In the US, Verizon Wireless has
performed exceptionally well, delivering impressive financial performance across all
metrics. We have a productive working relationship with our partner, Verizon
Communications, and believe that we will continue to benefit from our investment in
Verizon Wireless as we go forward.
We face challenges in Japan, where we are half way through a two year plan to
turnaround our business. This plan has three main objectives: to improve the
attractiveness of 3G handsets and content in that market, to increase the effectiveness
of our distribution channels and to improve the coverage of our 3G network.
Japan remains a strategically important mobile market for us and is a significant profit
generator for the Group, contributing £0.8 billion of operating profit before goodwill
amortisation in the last year. However, the pace of change and advanced state of 3G
there requires additional focus to improve our competitive position. Together with our
three main objectives, we have strengthened the management team and remain
focused on a successful execution of our recovery plan.
As we look forward, we see both greater opportunities and greater challenges. The
potential for growth in voice and data is significant. However, penetration levels in many
of our markets are now reaching saturation and competition is intensifying through
existing network operators and the introduction of many more low cost operators and
resellers. Greater choice in the market place is leading to rising customer demands.
We are also seeing continued regulatory led termination rate reductions.
In this environment, we see winners and losers. We believe Vodafone is uniquely
positioned to succeed through our scale and scope and the customer focus of all our
employees. To achieve this success, we are focused on the execution of the six
strategic goals that we outlined last year; delighting our customers, leveraging our
scale and scope, expanding market boundaries, building the best global team, being a
responsible business and providing superior shareholder returns.
Delighting our customers
Focus on customer needs
A core strategic goal is delighting our customers. Vodafone has nearly 155 million
proportionate customers around the world, all with the common need to communicate
with friends, family and colleagues wherever they are. Within this common need, our
customers have different communication requirements. Some may need constant and
real time access to their email. Others may want to download music and games.
Others just want to talk. However, all of our customers desire simplicity and
transparency. Vodafone aims to deliver increasing value to its customers by creating
innovative services that meet these different needs, supported by world class customer
service.
Arun Sarin Chief Executive
Delivering operating performance
Delighting our customers
Implementing One Vodafone
Increasing shareholder returns
Executing our strategy
This has been another successful year for Vodafone. We closed the year with
nearly 155 million proportionate customers, having generated £7.8 billion of free
cash flow from £12.7 billion of operating cash flow. Cash shareholder returns
increased to £6 billion as we doubled the dividend and purchased £4 billion of our
shares. We also launched 3G for consumers and firmly established our One
Vodafone plan – key drivers for our future growth.