Vodafone 2008 Annual Report Download - page 48

Operating Results continued
Voice revenue
Voice revenue decreased by 2.6%, or by 0.6% on an organic basis, with strong
growth in voice usage offset by pressures on pricing resulting from competition
and from termination rate cuts.
Across the Europe region, outgoing voice minutes increased by 20.7%, or by
22.3% on an organic basis, driven by the increased customer base and various
usage stimulation initiatives and competitive tariff ranges. In Germany, outgoing
voice usage increased by 35.7%, with continued success from the Vodafone
Zuhause product, which promotes fixed to mobile substitution in the home and
which achieved 2.4 million registered customers at 31 March 2007. Additionally,
new tariffs were launched in Germany in October 2006, which provided improved
value bundles for customers allowing unlimited calls to other Vodafone
customers and fixed line customers, all of which significantly contributed to
increasing outgoing voice usage. In Italy, the increase in outgoing voice usage of
12.1% was mainly driven by demand stimulation initiatives such as fixed price per
call offers and focus on high value customers and business customers. In Spain,
the improved customer mix and success of both consumer and business offerings
assisted in increasing outgoing voice usage by 34.2%. New and more competitive
tariffs launched in the UK in July 2006 and September 2006 and various
promotions specifically aimed at encouraging usage contributed to the 16.7%
increase in Vodafone UK’s outgoing voice usage.
Offsetting the organic growth in outgoing voice usage was the impact of pricing
pressures in all markets due to increased competition, which led to outgoing voice
revenue per minute decreasing by 16.8% in the year ended 31 March 2007.
Termination rate cuts were the main factor in the 7.4% decline in organic incoming
voice revenue, with all markets except the UK experiencing termination rate cuts
during the year. Announced termination rate cuts after 30 September 2006
included a cut of 7% to 11.35 eurocents per minute in Spain effective from
October 2006 and a 20% cut to 8.8 eurocents per minute in Germany effective
from November 2006. The impact of the termination rate cuts in the Europe
region was to reduce the average effective incoming price per minute by around
13% to approximately 7 pence. Further termination rate cuts of 0.87 eurocents
every six months occurred in Spain with effect from April 2007, reducing the rate
to 7.0 eurocents by April 2009, while in Italy reductions in July 2007 and July
2008 of 13% below the retail price index have also been announced.
The success of Vodafone Passport, a competitively priced roaming proposition
with over 11 million customers at 31 March 2007, contributed to increasing the
volume of organic roaming minutes by 15.8%. Around 50% of the Group’s roaming
minutes within Europe were on Vodafone Passport by 31 March 2007. Organic
roaming revenue increased by 1.2% as the higher usage was largely offset by
price reductions, due to increasing adoption of Vodafone Passport and also the
Group’s commitment to reduce the average cost of roaming in the EU by 40% by
April 2007 when compared to summer 2005.
Non-voice revenue
Messaging revenue increased by 3.1%, or by 4.6% on an organic basis, mainly due
to growth in Italy, Other Europe and particularly Spain and the UK, partly offset by
declines in Germany. In Spain, the increase was driven by the larger customer
base, while in the UK, SMS volumes increased by 25.0% following higher usage
per customer. The growth in Italy was driven by an increase in SMS usage of 9.5%,
with sharp acceleration in the second half of the 2007 financial year following
successful demand stimulation initiatives. In Germany, messaging volumes
declined, resulting from the attraction of bigger voice bundles and the fact that
promotional activity that had occurred relating to messaging in the 2006 financial
year was not repeated in the 2007 financial year.
Data revenue grew by 27.1%, or by 29.5% on an organic basis, with the growth
being stimulated by the 97.1% increase in registered 3G enabled devices on the
Group’s networks at 31 March 2007, encouraged by an expanded portfolio and
competitively priced offerings. Strong growth was experienced in all Europe’s
segments, though Germany demonstrated particularly strong growth of 50% as a
result of attractive tariff offerings, including flat rate tariff options, and the benefit
of improved coverage of the HSDPA technology enabled network, facilitating
superior download speeds for data services. Growth in Italy, Spain and the UK was
assisted by the expansion of HSDPA network coverage and increased penetration
of Vodafone Mobile Connect data cards, of which 74%, 64% and 53% were sold
during the 2007 financial year as HSDPA enabled devices in each of these markets
respectively. The launch of a modem which provides wireless internet access for
personal computers also made a positive contribution to data revenue. In Other
Europe, successful Vodafone Mobile Connect data cards initiatives in the
Netherlands and Portugal were the primary cause of growth in data revenue.
Fixed line revenue increased by 8.8%, mainly due to Arcor’s increased customer base.
Adjusted operating profit
Adjusted operating profit fell by 4.1%, or by 3.7% on an organic basis, with the
disposal of the Group’s operations in Sweden being the main cause of the decline.
The growth in operating expenses and other direct costs, including the charge in
relation to a regulatory fine in Greece of £53 million, also had an adverse effect
on adjusted operating profit.
Interconnect costs remained stable for the 2007 financial year, once the effect
of the disposal of Sweden was excluded, with the increased outgoing call volumes
to other networks offset by the cost benefit from the impact of the termination
rate cuts.
Reported acquisition and retention costs for the region decreased by 2.5%,
but remained stable on an organic basis, when compared to the 2006 financial
year. In Spain, the main drivers of the increased costs were the higher volumes
of gross additions and upgrades, especially with regard to the higher proportion
of contract gross additions, which were achieved with higher costs per customer
as competition intensified. In Italy, costs increased slightly due to an increased
focus on acquiring high value contract customers and an increased volume of
prepaid customers. In Germany, retention costs declined as the cost per upgrade
was reduced and volumes slightly decreased. The UK saw a reduction in retention
costs resulting from a change in the underlying commercial model with indirect
distribution partners, where a portion of commissions are now recognised in other
direct costs. Acquisition costs in Other Europe decreased, primarily as a result of
lower gross contract additions in Greece and a reduction in cost per gross addition
in the Netherlands.
Other direct costs increased by 14.9%, or by 16.7% on an organic basis, primarily
caused by the regulatory fine in Greece and commissions in the UK discussed
above. Arcor saw an increase in direct access charges primarily as a result of
having a higher customer base.
Operating expenses increased by 4.2%, or by 7.4% on an organic basis, primarily
caused by increased intercompany recharges, a result of the centralisation of data
centre and service platform operations, which were offset by a corresponding
reduction in depreciation expense, and a 14.3% increase in Spain’s operating
expenses at constant exchange rates as a result of the growth in this operating
company, but which only slightly increased as a percentage of service revenue.
Increased publicity spend in the UK, Italy and Greece, and restructuring costs in
Germany, the UK and Ireland, also adversely affected operating expenses during
the 2007 financial year.
46 Vodafone Group Plc Annual Report 2008
Vodafone – Performance