Final Results - Part Two
Vodafone Group Plc
24 May 2005
PART 2
VODAFONE GROUP PLC
PRELIMINARY RESULTS
MOBILE TELECOMMUNICATIONS - REVIEW OF OPERATIONS
In October 2004, the Group announced changes to the regional structure of its
operations, effective from 1 January 2005. The following results are presented
in accordance with the new regional structure.
GERMANY
Financial highlights Year ended 31 March
-------------------- 2005 2004 % change
£m £m £ €
Turnover(1) 5,684 5,536 3 5
-------- --------
Trading Voice services 4,358 4,254 2 4
results Non-voice services 962 895 7 9
-------- --------
Total service
revenue 5,320 5,149 3 5
Net other revenue (1) 122 155 (21) (20)
Interconnect costs (734) (725) 1 3
Other direct costs (314) (334) (6) (4)
Net acquisition
costs(1) (348) (367) (5) (3)
Net retention
costs(1) (330) (321) 3 5
Payroll (409) (390) 5 7
Other operating
expenses (668) (675) (1) 1
-------- --------
EBITDA 2,639 2,492 6 8
Depreciation and
amortisation(2) (976) (751) 30 32
-------- --------
Total Group
operating profit (2) 1,663 1,741 (4) (3)
-------- --------
EBITDA margin 46.4% 45.0%
KPIs Closing Customers
('000) 27,223 25,012 9
Average monthly
ARPU €24.9 €25.9 (4)
(1) Turnover includes revenue of £242 million (2004: £232 million) which has
been excluded from other revenue and deducted from acquisition and retention
costs in the trading results
(2) Before goodwill amortisation
See page 38 for definition of terms
Vodafone has built on its strong position in the German mobile market following
the successful launch of 3G services. The EBITDA margin improved compared to the
previous year and continues to represent the highest of all mobile network
operators.
A 9% growth in the average customer base compared to the prior year was the main
driver of the 5% increase in service revenue in local currency. Customer growth
was strong as a result of successful and competitively priced, but low subsidy,
offerings which had a dilutive effect on ARPU. The offerings included partner
cards, which offer a second SIM card without a handset to contract customers at
a low monthly cost to the customer, and SIM only prepaid promotions, which
attracted a substantial proportion of prepaid customers in the second half of
the financial year. ARPU, and consequently service revenue growth, in the second
half of the financial year was also impacted by a reduction in the mobile call
termination rate from 14.3 eurocents to 13.2 eurocents in December 2004. A
further cut to 11.0 eurocents in December 2005 has also been agreed with
Deutsche Telekom.
Non-voice service revenue increased due to the success of non-messaging data
offerings, the revenue from which increased by 85% in local currency to £163
million. In the consumer segment, the number of Vodafone live! active devices
increased by 105% over the financial year to 4,845,000 at 31 March 2005 and, in
the business segment, there were strong sales of Vodafone Mobile Connect 3G/GPRS
data cards. Demonstrating Vodafone's lead in the 3G market in Germany, there
were 358,000 registered 3G devices at 31 March 2005.
Cost control facilitated the improvement in the EBITDA margin by 1.4 percentage
points over the prior year to 46.4%. A higher proportion of prepaid additions,
particularly in the second half of the financial year, and lower contract
subsidies led to net acquisition costs decreasing by 3% in local currency in
spite of an 8% increase in gross customer additions. Lower loyalty scheme costs
were offset by higher upgrade costs, particularly in the second half of the
financial year following increased activity through indirect channels, and
consequently net retention costs increased by 5%. Other operating expenses and
direct costs remained relatively stable compared to the prior year.
The commencement of depreciation and amortisation on the 3G network and licence,
following launch of services in the second half of the previous financial year,
reduced operating profit before goodwill amortisation, with licence
amortisation contributing to the largest share of this reduction.
ITALY
Financial highlights Year ended 31 March
-------------------- 2005 2004 % change
£m £m £ €
Turnover (1) 5,565 5,312 5 7
-------- --------
Trading Voice services 4,548 4,380 4 6
results
Non-voice services 780 669 17 19
-------- --------
Total service revenue 5,328 5,049 6 7
Net other revenue (1) 19 13 46 38
Interconnect costs (913) (874) 4 6
Other direct costs(3) (302) (306) (1) -
Net acquisition
costs(1) (93) (76) 22 23
Net retention costs(1) (97) (64) 52 55
Payroll (323) (301) 7 10
Other operating
expenses (659) (646) 2 4
-------- --------
EBITDA 2,960 2,795 6 8
Depreciation and
amortisation(2) (703) (652) 8 10
-------- --------
Total Group
operating profit
(2)(3) 2,257 2,143 5 7
-------- --------
EBITDA margin 53.2% 52.6%
KPIs Closing Customers
('000) 22,502 21,137 6
Average monthly
ARPU €29.9 €30.1 (1)
(1) Turnover includes revenue of £218 million (2004: £250 million) which has
been excluded from other revenue and deducted from acquisition and retention
costs in the trading results
(2) Before goodwill amortisation
(3) Before exceptional items
See page 38 for definition of terms
Vodafone continued to perform robustly in Italy despite aggressive competition,
through strong market positioning driven by innovative promotions and a focus on
high value customers, through targeted retention initiatives. Notwithstanding
market penetration levels of over 100%, driven by the effect of customers having
more than one SIM and increased competition, Vodafone had good customer growth,
with gross additions higher than in the previous year, and only a slight
increase in churn to 17.2%.
Total turnover grew by 7%, when measured in local currency, reflecting the rise
in service revenue that was driven by an 8% increase in the average customer
base. ARPU remained stable despite a slight reduction in activity levels. Strong
promotional campaigns, such as fixed price phone calls for voice users or
unlimited text messaging, after paying for the first text message per day, in
return for up front subscription fees, significantly stimulated usage, with
minutes of use increasing by 12% and the number of text messages sent increasing
by 11%.
Non-voice service revenue grew by 19%, with revenue from non-messaging data
offerings increasing to £87 million, representing an 85% increase in local
currency. Vodafone live! active devices increased by 169% to 2,751,000 at 31
March 2005. In the business segment, Vodafone continued to increase its market
share, with a 10% growth in the customer base and continuing net inflow of
customers through mobile number portability. Strong revenue growth for this
segment was supported by a higher proportion of non-voice service revenue,
partially driven by sales of Vodafone Mobile Connect data cards.
Following the successful launch of consumer 3G services in November 2004,
customers had registered 665,000 3G devices on Vodafone's network by the end of
the financial year.
The EBITDA margin grew by 0.6 percentage points to 53.2% and remained the
highest of the Group's European operations, despite competitive pressure
following new market entrants offering high subsidies. A lower proportion of
direct and other operating costs more than offset increased targeted retention
investments. Operating profit, before goodwill amortisation and exceptional
items, was impacted by higher depreciation and licence amortisation charges.
UNITED KINGDOM
Financial highlights Year ended 31 March
-------------------- 2005 2004 % change
£m £m
Turnover(1) 5,065 4,782 6
-------- --------
Trading Voice services 3,672 3,522 4
results Non-voice services 826 674 23
-------- --------
Total service revenue 4,498 4,196 7
Net other revenue(1) 177 146 21
Interconnect costs (771) (752) 3
Other direct costs (367) (325) 13
Net acquisition costs(1) (388) (333) 17
Net retention costs(1) (391) (321) 22
Payroll(3) (389) (387) 1
Other operating expenses(3) (657) (616) 7
-------- --------
EBITDA(3) 1,712 1,608 6
Depreciation and amortisation(2) (737) (510) 45
-------- --------
Total Group operating profit(2)(3) 975 1,098 (11)
-------- --------
EBITDA margin 33.8% 33.6%
KPIs Closing Customers ('000) 15,324 14,095 9
Average monthly ARPU £25.5 £25.8 (1)
(1) Turnover includes revenue of £390 million (2004: £440 million) which has
been excluded from other revenue and deducted from acquisition and retention
costs in the trading results
(2) Before goodwill amortisation
(3) Before exceptional items
See page 38 for definition of terms
In an intensively competitive market, Vodafone achieved growth in the customer
base and revenue whilst maintaining EBITDA margin through the execution of a
structured plan to drive revenue and tighten control of operating expenses.
Turnover increased by 6%, comprising underlying growth of 1% and growth of 5%
attributable to the acquisition of a number of service providers in the prior
year, including Singlepoint (4U) Limited. Service revenue rose by 7%, driven by
an 8% increase in the average customer base over the prior financial year. ARPU
was broadly stable for the financial year, with increases in non-voice service
revenue and the impact of service provider acquisitions being offset by
termination rate cuts and reduced activity levels. From 1 September 2004,
Vodafone, along with other UK mobile network operators, excluding the third
generation operator, reduced termination rates by approximately 30%, impacting
service revenue in the second half of the financial year. The impact of the
termination rate cut was to reduce service revenue for the financial year by 3
percentage points.
Increased acquisition and retention activity and the success of new tariffs and
services, especially those targeted at corporate and business segments, drove
customer growth in the financial year. Contract churn improved from 24.9%
for the year ended 31 March 2004 to 22.7% for the year ended 31 March 2005,
although blended churn of 29.7% was in line with the previous year. In addition,
total customer activity levels fell from 91% at 31 March 2004 to 89% at 31 March
2005, reflecting higher levels of prepaid customer self upgrades, consistent
with market trends. In the first half of the financial year, an agreement was
reached to provide wholesale services to BT and at 31 March 2005, 119,000 BT
customers, reported as one registered customer, were connected to the Vodafone
network under this agreement.
Non-voice service revenue grew by 23%, with non-messaging data revenue
increasing by 81% to £142 million, mainly due to the success of service
offerings such as Vodafone live!, Vodafone Mobile Connect data cards and
BlackBerry from Vodafone. At 31 March 2005, the number of Vodafone live! active
devices rose to 3,443,000. In the business segment, there were strong sales of
Vodafone Mobile Connect 3G/GPRS data cards.
The EBITDA margin was 33.8% for the year ended 31 March 2005, slightly up on the
prior year as increased investment in acquisition and retention activity was
offset by a relative reduction in interconnect costs following the cut in
termination rates and operational efficiencies from the execution of the
structured plan announced in the prior financial year. The key elements of this
plan are to sustainably differentiate and segment the customer base allowing
more effective targeted marketing and to drive lower costs whilst positioning
the organisation for the future. Under the drive to lower costs, Vodafone has
continued to consolidate call centres, simplify its network and IT platforms and
reduce support costs.
Net other revenue and other direct costs both increased as a result of
non-Vodafone customers acquired as part of service provider acquisitions in the
prior year. Other direct costs increased further due to higher content costs
associated with the increased data revenue. Operating profit before goodwill
amortisation and exceptional items was impacted by the factors above and by an
increase in both depreciation and licence amortisation charges, primarily due to
the commencement of 3G services towards the end of the previous financial year.
Recent independently-audited tests have shown that Vodafone has the best call
success rate of all mobile networks in Britain.
OTHER EUROPE, MIDDLE EAST AND AFRICA
Financial highlights Year ended 31 March
-------------------- 2005 2004 % change
£m £m £ €
Turnover Spain 3,261 2,686 21 24
Other EMEA 5,402 4,983 8
Less: intra-segment
turnover (49) (42) 17
-------- --------
8,614 7,627 13
-------- --------
Total Group Spain 775 703 10 12
operating Other EMEA 2,608 2,439 7
profit(2)(3) -------- --------
3,383 3,142 8
-------- --------
Spain
-----
Trading Voice services 2,558 2,191 17 19
results Non-voice services 405 282 44 46
-------- --------
Total service
revenue 2,963 2,473 20 22
Other revenue(1) 2 3 (33) (22)
Interconnect costs (540) (477) 13 15
Net other direct
costs (263) (201) 31 33
Net acquisition
costs(1) (246) (146) 68 71
Net retention
costs(1) (172) (137) 26 27
Payroll (138) (146) (5) (3)
Other operating
expenses (473) (393) 20 22
-------- --------
EBITDA 1,133 976 16 18
Depreciation and
amortisation(2) (358) (273) 31 33
-------- --------
Total Group
operating profit(2) 775 703 10 12
-------- --------
EBITDA margin 34.7% 36.3%
KPIs Closing Customers
('000) 11,472 9,705 18
Average monthly
ARPU €34.5 €31.4 10
(1) Turnover for Spain includes revenue of £296 million (2004: £210 million)
which has been excluded from other revenue and deducted from acquisition and
retention costs in the trading results
(2) Before goodwill amortisation
(3) Before exceptional items
See page 38 for definition of terms
Spain
In Spain, Vodafone continued to deliver strong growth throughout the year. A
focus on acquiring high value customers, targeted promotions encouraging
increased usage and improved customer satisfaction contributed to local currency
service revenue growth of over 20%, despite a reduction in termination rates of
10.5% on 1 November 2004 required by the regulator.
In local currency, turnover increased by 24%, due principally to a 22% increase
in service revenue. A successful customer acquisition strategy, including a
focus on customers transferring from other operators, led to an 11% increase in
the average customer base. Loyalty programmes and promotional activity resulted
in a reduction in churn levels from 23.6% for the year ended 31 March 2004 to
21.9% for the 2005 financial year. An ongoing marketing campaign encouraging
customers to switch from prepaid to contract contributed to the proportion of
contract customers rising from 43% at 31 March 2004 to 47% at 31 March 2005.
This, along with usage stimulation promotions and initiatives, has resulted in a
10% increase in ARPU.
Non-voice service revenue for the year increased by 46%, with messaging
remaining the principal driver of the increase. Text messaging volumes increased
27% year on year, primarily due to promotions stimulating increased messaging
per customer. The success of service offerings such as Vodafone live! and
Vodafone Mobile Connect data cards led to non-messaging data revenue increasing
by 201% in local currency to £65 million. The number of Vodafone live! active
devices rose to 2,992,000.
Strong growth in customer additions, principally in the first half of the year
relative to the previous financial year, and the increased proportion of new
contract customers, led to increased acquisition costs and contributed to the
reduction in the EBITDA margin of 1.6 percentage points to 34.7%. Interconnect
costs increased due to higher usage offset by the impact of the termination rate
cut in November and promotions in the second half of the year focusing on calls
to other Vodafone and fixed-line numbers which incur relatively lower
interconnect costs. Operating profit before goodwill amortisation was impacted
by the increased acquisition costs and the rise in depreciation and amortisation
charges mainly due to the commencement of 3G services.
Other EMEA subsidiaries
Controlled venture customers for the Group's operations in the Other EMEA
region, other than Spain, increased by 12% in the year to 31 March 2005.
Turnover increased by 8%, with the primary driver being an 8% increase in
service revenue, as a result of the 12% higher average controlled venture
customer base, partially offset by cuts in termination rates across the region.
Non-voice service revenue grew strongly over the prior financial year to
represent 13.2% of service revenue for the year ended 31 March 2005. In Greece,
local currency service revenue grew by 14% due to a 4% increase in the average
customer base, higher voice usage and a strong rise in non-voice service
revenue. Visitor revenue also increased due to a national roaming agreement with
Greece's fourth mobile operator and high usage during the Olympic Games. Service
revenue growth in Portugal was 11% in local currency, driven by a 7% increase in
the average customer base and good improvements in non-voice revenue and visitor
revenue, due in part to the UEFA Euro 2004 football tournament and a
particularly strong start in 3G, partially offset by lower termination rates.
Service revenue in Ireland increased by 10%, in local currency, primarily as a
result of additional voice usage. Intense competition restricted growth in local
currency service revenue in the Netherlands to 1% and contributed to a 4%
decline in Sweden.
Operating profit before goodwill amortisation increased by 7% over the prior
financial year, following increased turnover partially offset by higher
depreciation charges, primarily due to the launch of 3G services.
On 12 January 2005, the Group completed the acquisition of the remaining 7.2%
shareholding in Vodafone Hungary from Antenna Hungaria Rt. with the effect that
Vodafone Hungary became a wholly-owned subsidiary of the Group. On 26 January
2005, Telecom Egypt acquired a 16.9% stake in Vodafone Egypt from the Group,
reducing the Group's controlling stake to 50.1%. The transaction followed the
completion of an agreement with the Egyptian Government for the purchase of
additional spectrum.
EMEA associates
Associates in EMEA increased their average customer bases by 20% in the year,
with particularly strong growth in markets with relatively low penetration rates
such as those in Eastern Europe and Africa. This customer growth generated an
increase in operating profit before goodwill amortisation of 6%.
SFR, the Group's associated undertaking in France, reported strong growth in
revenue and operating profit before goodwill amortisation, principally as a
result of a 9% increase in average customers compared to the prior year. Usage
of both voice and non-voice services grew in the period and SFR had a total of
2.6 million Vodafone live! customers at 31 March 2005. SFR launched the Vodafone
Mobile Connect 3G/GPRS data card in May 2004 and Vodafone live! with 3G in
November 2004 and it also markets BlackBerry from Vodafone products.
Vodacom continued to grow both in South Africa and internationally through its
interests in the Democratic Republic of the Congo, Lesotho, Mozambique and
Tanzania. Venture customers at 31 March 2005 totalled 15,482,000, an increase of
5,757,000 over the previous year, including 2,645,000 customers in Vodacom's
international interests which were previously excluded from the Group's reported
customer base. In April 2005, Vodacom launched Vodafone live! with 3G in South
Africa, building on the successful launch of the Vodafone Mobile Connect 3G/GPRS
data card in December 2004.
AMERICAS
Financial highlights Year ended 31 March
-------------------- 2005 2004 % change
£m £m £ $
Total Group
operating Verizon Wireless 1,647 1,406 17 28
profit/(loss)(1) Other Americas - (13)
-------- --------
1,647 1,393 18
-------- --------
Verizon Wireless
----------------
Proportionate turnover 6,884 6,111 13 23
Proportionate EBITDA margin 37.3% 35.9%
KPIs Closing
customers ('000) 45,452 38,909 17
Average monthly ARPU $52.4 $50.3 4
Acquisition and
retention costs as a
percentage of service
revenue 12.9% 13.4%
(1) Before goodwill amortisation
See page 38 for definition of terms
Verizon Wireless
In a highly competitive US market, Verizon Wireless continued to outperform its
competitors, ranking first in customer net additions for the year ended 31 March
2005. The total customer base increased by 17% in the financial year to
45,452,000 at 31 March 2005. At 31 December 2004, US market penetration reached
approximately 63%, with Verizon Wireless' market share at approximately 24%.
In local currency, proportionate turnover increased by 23%, driven by the larger
customer base and an increase in ARPU. ARPU growth was generated primarily by
customers migrating to higher access price plans as well as growth in data
products, with data revenue increasing 131% over last year and representing 5.0%
of service revenue in the year.
Churn rates are amongst the lowest in the US wireless industry and have
continued to improve, falling from 20.5% in the prior financial year to 17.2%.
The low churn rate is attributable in part to the quality and coverage of
Verizon Wireless' network and the success of retention programmes such as the
'Worry Free Guarantee(R)', which includes the 'New Every Two(R)' plan.
The EBITDA margin increased from 35.9% last year to 37.3%, which reflects
increased ARPU and further cost efficiencies. Verizon Wireless has achieved
sustained cost containment, including the reduction of interconnection and
leased line rates as well as other operating expense efficiencies. In local
currency, the Group's share of Verizon Wireless' operating profit before
goodwill amortisation increased by 28%.
Verizon Wireless launched V CAST(SM), the first wireless consumer multimedia
broadband service in the US, in February 2005 and BroadbandAccess, a data card
product providing wide area broadband computer connectivity, in October 2003.
Both of these broadband offerings are delivered over Verizon Wireless'
Evolution-Data Optimized wide-area network which reached a population of 75
million people at 31 December 2004 and has been growing steadily, with the
intention to cover 150 million people by the end of 2005.
Vodafone and Verizon Wireless are engaged in a number of joint projects to bring
global services to their customers. Global Phone, which was launched last year,
is the first device to incorporate CDMA and GSM technology and allows Verizon
Wireless customers to use their phone in more than 100 countries. An additional
joint project enabled Verizon Wireless customers to send text messages
internationally to customers of participating GSM carriers. Vodafone and Verizon
Wireless have also signed joint contracts with key media companies for their
content and have several initiatives underway to further improve their service
to multinational corporations.
Verizon Wireless has recently substantially strengthened its spectrum position
with the closing of the purchase of several key spectrum licences, including
licences from NextWave and Qwest and its participation in the FCC's Auction 58,
which ended in February 2005.
This information is provided by RNS
The company news service from the London Stock Exchange
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