Vodafone 2007 Annual Report Download - page 8

6Vodafone Group Plc Annual Report 2007
Chief Executive’s Review
The past 12 months have been an important period for Vodafone. We
updated our strategy in 2006 to address changing customer needs, the
availability of new technologies, a growing demand for broadband services
and the greater growth potential of emerging markets. This new strategy is
positioning us well as competition and regulatory pressures increase and our
customers have greater choice in communications.
Operationally, we have grown new revenue streams across the Group and
implemented numerous programmes to significantly reduce our cost base.
Our emerging markets assets have continued to show strong growth and our
recent acquisition in India significantly increases our presence in high growth
markets. Our customer franchise was further strengthened both through
organic growth and acquisition and now exceeds 206 million proportionate
customers.
We have met or exceeded our stated financial expectations for the year in
all areas. Robust cash generation continues to support returns to our
shareholders, with dividends per share increasing by 11.4% to 6.76 pence
per share, representing a payout of 60% of our adjusted earnings per share.
We have made good progress executing our updated strategy throughout the
year and we are now beginning to realise some positive early results. We will
remain focused on executing our strategic objectives in the year ahead and
believe your business is well positioned to be the leader in the
communications industry.
Financial review
Statutory revenue increased by 6% to £31.1 billion, with organic revenue
growth of 4.3%. The Europe region, where competitive and regulatory
pressure is most intense, delivered organic revenue growth of 1.4%.
Continued strong progress in Spain, which delivered another year of double
digit revenue growth, offset year on year declines in Germany and Italy. The
market environment is challenging for all operators in Europe. However, we
have outperformed our principal competitors in Germany and Spain on
revenue and EBITDA growth, and have delivered a similar performance to our
principal competitor in Italy. In the UK, we revised our tariffs mid-way through
the year to improve our competitiveness and share of market growth. Our
EMAPA region produced strong growth, with organic revenue up 21.1% and
strong performances in many emerging markets.
While overall voice revenue remains under pressure, messaging and, in
particular data revenue, continue to show strong organic growth of 7% and
31% respectively. Data revenue reached £1.4 billion, primarily from business
services and the continued growth in the take up of 3G devices in our
customer base, which doubled to 15.9 million.
Our focus on profitable growth delivered a 4.2% organic increase in adjusted
operating profit, with 1.4% growth in total. Strong performances in the US,
Spain and a number of emerging markets offset declines in our other major
European markets.
We invested £4.2 billion in capital expenditure during the year and have now
achieved the core level of 3G and HSDPA coverage across our European
networks necessary for the wider uptake of high speed data services. Free
cash flow generation remained strong at £6.1 billion, although lower than last
year, primarily due to higher tax payments as expected.
We now have an unrivalled global customer reach, with over 206 million
proportionate customers across 25 countries, adding over 35 million customers
during the year. We completed the sale of our operation in Japan in April 2006
and of our minority interests in Belgium and Switzerland later in the year. In May
2006, we completed the acquisition of the assets of Telsim in Turkey and more
recently gained a controlling position in a leading Indian operator.
Delivering on our strategy
In May 2006, we introduced five new strategic objectives to ensure our
continued success. Our focus on executing this strategy throughout the year
has generated positive results across a number of areas.
Revenue stimulation and cost reduction in Europe
In Europe, our focus is to drive additional usage and revenue from core
mobile voice and messaging services and to reduce our cost base.
Central to stimulating revenue is driving mobile usage through larger minute
bundles, innovative tariffs, prepaid to contract migrations and targeted
promotions. We are also focused on leveraging our market leading position in
the business segment, which
represents 25% of our service
revenue in Europe. New tariff
options, such as free weekends,
have been launched in the UK and
Germany that stimulated usage
and in Italy we ran successful voice
and messaging promotions during
the year that increased revenue per customer. We also continued to perform
well in Spain, driving an increase in total voice minutes of around 30%.
However, pricing pressure is expected to remain strong in the year ahead and
improving price elasticity is core to our revenue stimulation objective in
Europe.
05 101520253035
Revenue (£bn)
2007
2006 29.4
31.1
+6.0%
0246810
Adjusted operating profit (£bn)
2007
2006 9.4
9.5
+1.4%
02468
Free cash flow (£bn)
2007
2006 6.4
6.1
–4.5%
We updated our strategy in 2006 and have made good
progress executing each strategic objective through-
out the year. We have met or exceeded our stated
financial expectations for the year in all areas and
your business is well positioned for the future.
Our strategic objectives
• Revenue stimulation and cost reduction in Europe
• Innovate and deliver on our customers’ total communications needs
• Deliver strong growth in emerging markets
• Actively manage our portfolio to maximise returns
• Align capital structure and shareholder returns policy to strategy
“We have launched
innovative offerings and are
lowering our cost structure
to position us well for the
future”