Vodafone 2007 Annual Report Download - page 43

Vodafone Group Plc Annual Report 2007 41
Particularly strong customer growth was achieved in Eastern Europe and the
Middle East, Africa and Asia, where markets are typically less penetrated
than in Western Europe or the Pacific area.
Non-service revenue increased by 31.5%, or 28.9% on an organic basis,
primarily due to an increase in the level of gross additions in a number of
countries.
Eastern Europe
In Eastern Europe, service revenue grew by 76.1%, with the key driver of
growth being the acquisitions in the Czech Republic and Turkey, as well as
the stake increase in Romania. Good customer growth in all Eastern
European markets contributed to the organic service revenue growth.
Organic service revenue growth in Eastern Europe was principally driven by
Romania. As a result of the growth in the customer base and a promotional
offer of lower tariffs, which led to higher voice usage, local currency service
revenue in Romania grew by 29.3%, calculated by applying the Group’s
current equity interest to the whole of the 2006 financial year. The
continued expansion of 3G network coverage, the successful launch of 3G
broadband, together with introductory promotional offers, and increased
sales of Vodafone Mobile Connect data cards, resulted in data revenue
growth of 64.9% in local currency.
In the Czech Republic, a focus on existing customers, including a Christmas
campaign of free weekend text messages available to all existing as well as
new customers, and the success of a business offering allowing unlimited
on and off net calls within a customers’ virtual private network for a fixed
monthly fee, had a positive impact on gross additions and drove the
increase in average mobile customers. This led to growth of 11.1% in local
currency service revenue, calculated by applying the Group’s current equity
interest to the whole of the 2006 financial year.
Vodafone Turkey has performed ahead of the expectations the Group had at
the time of the completion of the acquisition, with customer numbers,
usage and adjusted operating profit ahead of plan. Improvements in
network reliability and coverage have contributed to strong customer
growth and allowed an increase in prepaid tariffs, resulting in service
revenue growth. Telsim was rebranded to Vodafone in March 2007, with the
launch of a new tariff with inclusive on and off net calls, a first for the
Turkish market.
Middle East, Africa and Asia
The service revenue growth of 43.5% in the Middle East, Africa and Asia
resulted primarily from the stake increases in South Africa in February 2006
and Egypt in December 2006, together with the acquisition of the Group’s
interest in Bharti Airtel in India in December 2005, offset by an adverse
movement in exchange rates. Strong organic growth was achieved in all
markets, particularly in Egypt and South Africa, driven by the 40.2% increase
in the average mobile customer base compared to the prior year.
Strong customer growth, driven by prepaid tariff reductions, the availability
of lower cost handsets and high customer satisfaction with the Vodafone
service, contributed to the 39.5% local currency service revenue growth
in Egypt.
Innovative new products and services, including a new hybrid tariff offering
guaranteed airtime credit every month with the ability to top up as required,
and successful promotions, led to an increase in the average mobile
customer base and 21.9% local currency organic service revenue growth in
A part of Vodafone’s strategy is to build on the Group’s track record of
creating value in emerging markets. Vodafone has continued to execute on
this strategy, with strong performances in the Czech Republic, Egypt,
Romania and South Africa.
The Group is successfully building its emerging markets portfolio through
acquisitions in Turkey and, subsequent to the year end, India. Since its
acquisition on 24 May 2006, Vodafone Turkey has shown a performance in
excess of the acquisition plan. The Group has made a further significant step
in delivering its strategic objective of delivering strong growth in emerging
markets with the acquisition on 8 May 2007 of companies with interests in
Hutchison Essar, a leading operator in the fast growing Indian mobile
market, following which the Group controls Hutchison Essar. The Group also
signed a memorandum of understanding with Bharti Airtel Limited (“Bharti
Airtel”), the Group’s former joint venture in India, on infrastructure sharing
and has granted an option to a Bharti group company to buy its 5.60%
direct interest in Bharti Airtel. On 9 May 2007, a Bharti group company
agreed to acquire the Group’s 5.60% direct interest in Bharti Airtel. Following
the completion of this sale, the Group will continue to hold an indirect stake
of 4.39% in Bharti Airtel.
In December 2006, the Group increased its equity interest in Vodafone
Egypt from 50.1% to 54.9%, positioning the Group to capture further growth
in this lower penetrated market. The Group also entered into a new strategic
partnership with Telecom Egypt, the minority shareholder in Vodafone
Egypt, to increase cooperation between both parties and jointly develop a
range of products and services for the Egyptian market.
EMAPA’s growth has benefited from the prior year acquisitions in the Czech
Republic and the stake in Bharti Airtel in India, as well as the stake increases
in Romania and South Africa and the current year acquisition in Turkey.
Bharti Airtel was accounted for as a joint venture until 11 February 2007,
following which the Group’s interest has been accounted for as an
investment.
Revenue
Total revenue increased by 41.4%, or 21.1% on an organic basis, driven by
organic service revenue growth of 20.4%. The impact of acquisitions,
disposal and exchange rates on service revenue and total revenue growth is
shown below.
Impact of
Impact of acquisitions
Organic exchange rates and disposal(1) Reported
growth Percentage Percentage growth
% points points %
Service revenue
Eastern Europe 20.0 (5.6) 61.7 76.1
Middle East, Africa and Asia 27.7 (17.7) 33.5 43.5
Pacific 10.0 (7.3) – 2.7
EMAPA 20.4 (10.9) 32.8 42.3
Total revenue
EMAPA 21.1 (11.2) 31.5 41.4
Note:
(1) Impact of acquisitions and disposal includes the impact of the change in consolidation status of
Bharti Airtel from a joint venture to an investment.
Organic service revenue growth was driven by the 30.2% organic increase in
the average mobile customer base and the success of usage stimulation
initiatives, partially offset by declining ARPU in a number of markets due to
the higher proportion of lower usage prepaid customer additions.
Mobile telecommunications KPIs
2007 2006
Eastern Middle East, Eastern Middle East,
Europe Africa & Asia Pacific EMAPA Europe Africa & Asia Pacific EMAPA
Closing customers (’000) 28,975 27,160 5,750 61,885 12,579 21,884 5,346 39,809
Average monthly ARPU £8.1 £7.3 £18.8 £10.8 £9.0 £19.7
Annualised blended churn (%) 28.1% 38.8% 38.7% 23.6% 34.6% 39.2%
Closing 3G devices (’000) 347 65 758 1,170 135 −281 416
Voice usage (millions of minutes) 39,658 37,449 11,371 88,478 13,302 18,300 9,811 41,413
See page 159 for definition of terms
PerformancePerformance