Vodafone 2010 Annual Report Download - page 8

6 Vodafone Group Plc Annual Report 2010
In a challenging economic environment our nancial results exceeded our guidance on all
measures, we increased our commercial focus, delivered our cost reduction targets ahead of
schedule and maintained strong capital investment levels.
Chief Executive’s review
Financial review of the year
2010 financial results were ahead of guidance on all measures. 
Increased revenue contribution from our targeted growth 
areas in data, fixed line and emerging markets.
Free cash flow generation of £7.2 billion, up 26.5%.

We have made significant progress in implementing our strategy. We
now generate 33% of service revenue from products other than mobile
voice reflecting the shift of Vodafone to a total communications provider.
In particular, mobile data and fixed broadband services continue to grow
while we increased the contribution being made by our operations in
emerging economies, primarily by gaining market share. We have
reduced costs and working capital to manage better in the recessionary
environment while maintaining investment in our networks.
As a result, Vodafone’s financial results are ahead of the guidance
range we issued in May 2009 and the upgraded guidance we issued in
February 2010. The Group generated free cash flow of approximately
£1 billion ahead of our medium-term target established in November
2008 even after adjusting for beneficial foreign exchange.
The economic situation has remained challenging throughout the year
affecting our business in several ways. In our more mature European
and Central European operations, voice and messaging revenue
declined and roaming revenue fell due to lower business and leisure
travel. In addition, enterprise revenue declined in Europe as our business
customers reduced activity and headcount. However, results in Africa
and India remained robust driven by continued, albeit lower, GDP
growth and increasing market penetration. During the course of the
financial year t he impact of the global slowdown on the Group’s f inancial
performance has diminished somewhat with Group service revenue
declining in the fourth quarter by only 0.2%(*), better than the preceding
three quarters and the second successive quarterly improvement.
In the full year Group revenue increased by 8.4% to £44.5 billion,
declining 2.3%(*) after excluding benefits from foreign exchange and
acquisitions. The Group’s EBITDA margin declined by 2.2 percentage
points to 33.1%, in line with our expectations, primarily as a result of
lower revenue in Europe and the greater weight of lower margin
operations in emerging economies. Group adjusted operating profit
was £11.5 billion, with a growing contribution from Verizon Wireless and
foreign exchange benefits offsetting weaker performance in Europe.
Group free cash flow was £7.2 billion, up 26.5%, benefiting from
significant improvements in working capital management and a
deferred dividend from Verizon Wireless. This exceptional level of cash
flow was generated whilst maintaining capital investment, developing
fixed broadband services in Europe, funding the turnaround in Turkey
and Ghana, and expanding in India.
At the year end we had 341 million proportionate mobile customers
worldwide.
Europe service revenue declined by 3.5%(*). Data and fixed line
revenue growth was strong but this was more than offset by ongoing
voice price reduction and lower volume growth in our core voice
products. Europe’s EBITDA margin declined by 1.0 percentage point,
at about the same rate as the previous year, reflecting lower revenue,
increased commercial activity, reduced cost and the increased
contribution from lower margin fixed broadband. Operating free cash
flow was strong at £8.2 billion.
Africa and Central Europe service revenue declined by 1.2%(*), with
good revenue growth at Vodacom and a much stronger result in
Turkey being offset by the impact of weaker economies in Central
Europe. The EBITDA margin declined by around 2 percentage points,
due to lower profitability in Turkey where we have focused on
investment in the network, distribution, driving market share and
brand visibility.
Asia Pacific and Middle East service revenue increased by 9.8%(*),
reflecting another strong contribution from India where service
revenue grew by 14.7%(*). During the 2010 financial year we attracted
32 million customers in India and in March we exceeded the 100
million customer mark. In a very competitive pricing environment we
were pleased to have confirmed our number two position in the
market. Since Vodafone’s entry into India in 2007, our performance has
been strong. We have gained about 1 percentage point per annum in
revenue market share, added 72 million customers, moved the
business into operating free cash flow generation and launched Indus
Vittorio Colao Chief Executive
Free cash flow
£7.2bn
up 26.5%