Vodafone 2009 Annual Report Download - page 11

Vodafone Group Plc Annual Report 2009 9
November 2008 revised strategy
Drive operational performance
Vodafone aims to improve execution in existing businesses through
customer value enhancement and cost reduction.
Value enhancement involves maximising the value of existing
customer relationships, not just the revenue. This approach shifts
away from unit based tariffs to propositions that deliver much more
value to customers in return for greater commitment, incremental
penetration of the account or more balanced commercial costs. This
requires a more disciplined approach to commercial costs to ensure
investment is focused on those customers with higher lifetime
value. Customer value enhancement replaces the previous focus on
revenue stimulation.
The Group has established a significant number of initiatives which
are expected to reduce current operating costs by approximately
£1 billion per annum by the 2011 financial year, to help offset the
pressures from cost inflation and the competitive environment and to
enable investment in growth opportunities. As a result, on a like for
like basis, Vodafone is targeting broadly stable operating costs in
Europe and for operating costs to grow at a lower rate than revenue in
emerging markets between the 2008 and 2011 financial years. Capital
intensity is expected to be around 10% over this period in Europe
and to trend to European levels in emerging markets over the
longer term.
Pursue growth opportunities in total communications
Regarding growth opportunities, the three target areas are mobile
data, enterprise and broadband. Vodafone has already made significant
progress on mobile data, with annual revenue of £3 billion, 26% higher
on an organic basis than that of a year ago, but the opportunity remains
significant as the proportion of the customer base that regularly uses
data services is only around 10% in Europe. In the enterprise segment,
Vodafone has a strong position in core mobile services, mainly
amongst larger corporations. The aim is to build upon this position and
expand into the broader communications market, serving small and
medium sized businesses with converged fixed and mobile products
and services and to continue to increase the Group’s penetration of
multinational accounts. In fixed broadband, the Group has a presence
in all of its European markets and 4.6 million customers globally.
Vodafone continues to adopt a market by market approach focused
on the service, rather than the technology, and targeted at enterprise
and high value consumers as a priority.
Execute in emerging markets
Vodafone is already represented in a number of attractive emerging
markets. The Group’s principal focus is now on execution in these
markets, particularly in India, Turkey and the existing African footprint,
following the acquisition of a controlling interest in Vodacom based in
South Africa. Where possible, Vodafone will also seek to maximise the
mobile data opportunity. While new markets are of interest, Vodafone
will be cautious and selective on future expansion. The primary focus
will remain on driving results from the existing footprint.
Strengthen capital discipline
The Group is focused on generating £5 billion to £6 billion of free cash
flow per annum, excluding licence and spectrum and any potential
CFC tax settlement. In terms of cash deployment, the priority is to
invest in existing businesses, expand in the growth areas of mobile
data, enterprise and broadband and acquire, where appropriate, new
spectrum to support voice and data traffic growth.
Beyond this, the Group will aim to enhance returns to shareholders,
primarily by increasing dividends. In November 2008, the Board
adopted a progressive dividend policy where dividend growth reflects
the underlying trading and cash performance of the Group. The Group
remains committed to the current low single A long term average
credit rating.
After investing in existing business and returns to shareholders, the
Group will consider opportunities to reshape the portfolio. In emerging
markets, the focus is on execution rather than expansion. In addition,
the Group’s current capital structure implies that any significant
acquisition would likely need to be funded through portfolio disposals.
Vodafone supports in-market consolidation, such as the recent
agreement to merge the Australian assets of Vodafone and Hutchison
3G Australia to form a 50:50 joint venture.
“We are confident
that our strategy is
appropriate for the
current operating
environment”
Vittorio Colao
Chief Executive
Executive summary
Focus on free cash flow generation and execution Progress
Drive operational performance – Value enhancement
– Cost reduction
– Launched new products in a number of markets, which offer
customers more value in return for increased commitment
– Accelerated £1 billion cost reduction programme; expect
to achieve 65% in 2010
Pursue growth opportunities
in total communications
– Mobile data
– Enterprise
– Broadband
– Expanded range of data devices with the BlackBerry Storm,
iPhone and netbooks with built-in broadband
– Revenue growth of 9% in Vodafone Global Enterprise
– 1 million new fixed broadband customers; closing base of 4.6 million
Execute in emerging markets – Delivery in existing markets
– Selective expansion/
cautious approach
– Nationwide footprint in India
– Commenced operations in Qatar since year end
– Acquired Gateway in Africa to strengthen total communications portfolio
Strengthen capital discipline – Shareholder returns
– Clear priorities for
surplus capital
– Returned over 87% of free cash flow before licence and spectrum
payments to shareholders in the 2009 financial year
– In-market consolidation through merger of Vodafone Australia
with Hutchison 3G Australia