24th May 2005 07:01
Vodafone Group Plc24 May 2005 PART 3 VODAFONE GROUP PLCPRELIMINARY RESULTS ASIA PACIFIC Financial highlights Year ended 31 March-------------------- 2005 2004 % change £m £m £ YenTurnover Japan(1) 7,396 7,850 (6) (2) Other Asia Pacific 1,142 1,052 9 Less: intra-segment turnover (7) (6) 17 -------- -------- 8,531 8,896 (4) -------- --------Total Groupoperating Japan 758 1,045 (27) (25)profit(2) Other Asia Pacific(3) 192 167 15 -------- -------- 950 1,212 (22) -------- --------Japan----- Tradingresults Voice services 4,404 4,790 (8) (4) Non-voice services 1,206 1,350 (11) (7) -------- -------- Total service revenue 5,610 6,140 (9) (5) Net other revenue(1) 21 20 5 9 Interconnect costs (482) (519) (7) (4) Other direct costs (251) (414) (39) (37) Net acquisition costs(1) (641) (677) (5) (2) Net retention costs(1) (716) (607) 18 23 Payroll (186) (186) - 4 Other operating expenses (1,380) (1,519) (9) (5) -------- -------- EBITDA 1,975 2,238 (12) (8) Depreciation and amortisation(2) (1,217) (1,193) 2 6 -------- -------- Total Group operating profit(2) 758 1,045 (27) (25) -------- -------- EBITDA margin 26.7% 28.5%KPIs Closing Customers ('000) 15,041 14,951 1 Monthly average ARPU Yen6,148 Yen6,725 (9) (1) Turnover for Japan includes revenue of £1,765 million (2004: £1,690 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 Japan Vodafone continues to encounter difficult market conditions in Japan due to thestrength of competitor offerings, specifically in 3G customer propositions. Arecent strengthening of the management team and the ongoing transformation planare intended to improve Vodafone's competitive position and financialperformance over the mid to long term. Local currency turnover for the year ended 31 March 2005 fell marginallycompared to the prior year, with a 5% decrease in service revenue partiallyoffset by an increase in equipment and other revenue. Service revenue declinedfollowing a reduction in ARPU, partially offset by an increase in the averagecustomer base. The ARPU erosion was caused by the loss of higher value customers, through thelack of a competitive 3G offering during the financial year, together with theadverse impact of lower termination charges caused by changes to the regulatoryenvironment from 1 April 2004 and a total ban on using mobile phones whilstdriving from 1 November 2004. The average customer base grew 4% over the financial year, although market sharedeclined from 18.4% at 31 March 2004 to 17.3% at 31 March 2005. Prepaidcustomers comprised 11% of closing customers, up from 9% at 31 March 2004. By 31March 2005, Vodafone had 798,000 devices registered to use 3G data services inJapan. Non-voice service revenue decreased by 7% over the comparative period, primarilydue to the loss of higher value customers, who generally use more data services,and the increased proportion of prepaid customers, who can only access basicdata services. A new flat rate data tariff for 3G customers was introduced inthe winter and is anticipated to improve the competitiveness of the dataproposition. EBITDA margin fell by 1.8 percentage points to 26.7% for the year ended 31 March2005, principally due to the ARPU dilution, the continued focus on customerretention and the migration of existing customers to 3G service offerings. Theimpact of these issues has been partially offset by a decrease in other directcosts due to a lower provision for slow moving handset stocks in the year ended31 March 2005, and other operational efficiencies. The increase in payroll costswas largely due to one-off charges of approximately £25 million associated witha voluntary redundancy programme in the first half of the financial year, whichwas part of the transformation plan noted below, offset by lower ongoing costsin the second half of the financial year. Operating profit was impacted byincreased depreciation charges following 3G network roll out and the disposal ofassets in relation to the integration of regional systems. During the financial year, Japan completed the majority of the consolidation ofits regional structure, with the integration of key business systems nowcomplete. The integration of billing and IT systems is a longer term, and morecomplex project and is ongoing. Overall, Japan has improved its cost structurethrough reductions in general overheads and the effective utilisation of darkfibre. The Group has strengthened its management team in Japan through the appointmentof Shiro Tsuda and Bill Morrow during the year. Formerly Senior Executive VicePresident at NTT DoCoMo, Inc., Shiro Tsuda brings considerable experience of themobile telecommunications industry, together with an extensive knowledge of theJapanese business and consumer markets. Bill Morrow has gained significantexperience through various global leadership positions within the Vodafone Groupfor the last eight years and was formerly President of Japan Telecom. In the year ending 31 March 2006, management will focus on enhancing customersatisfaction, through an improved handset portfolio, targeted new productofferings, improvements in both network coverage and capacity and a renewedfocus on business customers. In addition, cost reductions are expected throughleveraging the Group's global scale and scope. With these measures it is hopedthat Vodafone will be more agile and commercially driven when facing mobilenumber portability in the Japanese market in the next financial year. In the first half of the year, the Group increased its effective shareholding inVodafone K.K. to 98.2% and its stake in Vodafone Holdings K.K. to 96.1% for atotal consideration of £2.4 billion. On 1 October 2004, the merger of VodafoneK.K. and Vodafone Holdings K.K. was completed, resulting in the Group holding a97.7% stake in the merged company, Vodafone K.K. Other Asia Pacific subsidiaries In the Australian market, value promotions and strategic changes in the tariffstructures led to Vodafone increasing market share, turnover and profitability.ARPU also increased, despite falling prices, due to increased usage. In August2004, Vodafone announced an agreement with another Australian telecommunicationscarrier to share 3G network equipment to reduce the total cost of ownership ofthe 3G network and increase speed to market. This is expected to lead to thelaunch of 3G services in October 2005. In New Zealand, turnover and market share improved over the year as a result ofenhanced customer propositions. The EBITDA margin also increased as reducedequipment costs offset the effect of increased interconnection costs as theproportion of activity to non-Vodafone networks increased. The launch of a highspeed network upgrade by competitors in the second half of the financial yearhas intensified competition in the market. Vodafone is expected to launch 3Gservices in July 2005. Other Asia Pacific China Mobile, in which the Group has a 3.27% stake, and which is accounted foras an investment, grew its customer base by 42% over the year to 213,874,000 at31 March 2005, including 26,831,000 customers added as a result of acquisitions.Dividends totalling £18 million were received from China Mobile during the year. Changes to the regional structure From 1 April 2005, Vodafone Japan reports directly to the Chief Executive whilstthe Group's other operations in Asia Pacific form part of an extended OtherEurope, Middle East and Africa region, which will in future be referred to asOther Mobile Operations. Other Operations Financial highlights Year ended 31 March-------------------- 2005 2004 % change £m £m Turnover Germany 1,108 1,002 11 Asia Pacific - 1,126 -------- -------- 1,108 2,128 (48) -------- --------Total Group operating Germany 66 (58)profit/(loss)(1) Other EMEA (37) (1) Asia Pacific - 79 -------- -------- 29 20 45 -------- -------- (1) Before goodwill amortisation The Group's other operations comprise interests in fixed line telecommunicationsbusinesses in Germany (Arcor) and France (Cegetel). Germany In local currency, Arcor's turnover increased by 14%, primarily due to customerand usage growth, partially offset by tariff decreases in a competitive market.Arcor strengthened its position as the main competitor to the incumbent fixedline market leader during the year, growing contract ISDN voice (direct access)customers by 83% to 712,000 and contract DSL (broadband internet) customers by169% to 455,000 in the year ended 31 March 2005. Market share in the fastgrowing broadband and direct access markets more than doubled in the year to 7%and 6%, respectively. Revenue growth and further cost efficiencies generated asignificantly improved EBITDA margin and increased cash flow. Other EMEA The Group's associated undertaking, Cegetel, focused on increasing its share ofthe fast growing DSL market, growing its DSL customer base by 566,000 to 841,000in the year, which has led to higher acquisition costs and adversely impactedoperating profit. Asia Pacific The Group disposed of its interests in Japan Telecom during the previousfinancial year and ceased consolidating the results of this business from 1October 2003. Global Services One Vodafone The One Vodafone initiatives are targeted at achieving £2.5 billion of annualpre-tax operating free cash flow improvements in the Group's controlled mobilebusinesses by the year ending 31 March 2008 ("2008 financial year"). The Groupalso expects mobile capital expenditure in the 2008 financial year to be 10% ofmobile revenue as a result of the initiatives. These targets, and the analysisbelow, have been prepared on the basis of UK GAAP. Cost initiatives are anticipated to generate improvements of £1.4 billion, witha further £1.1 billion from revenue initiatives. Of the £1.4 billion of costsavings, £1.1 billion relates to savings in operating expenses, being payrolland other operating expenses, and tangible fixed asset additions. The remainingcost saving, of £0.3 billion, relates to handset procurement activities. TheGroup expects that, in the 2008 financial year, the aggregate of mobileoperating expenses and tangible fixed asset additions will be broadly similar tothose for the year ended 31 March 2004, assuming no significant changes inexchange rates and after adjusting for acquisitions and disposals. Revenue enhancement initiatives are expected to deliver benefits equivalent toat least 1% additional revenue market share for the Group's controlled mobilebusinesses in the 2008 financial year compared with the 2005 financial year. TheGroup will measure the revenue benefits in its five principal controlled marketscompared to its established competitors. Incremental pre-tax operating free cashflow of £1.1 billion per annum is anticipated from these benefits, with themajority expected to be derived from enhanced handset offerings in addition toimproved customer management and roaming. The One Vodafone programme continues to make progress in delivering the benefitsof global scale and scope to the Group. Activity in the 2005 financial year hasbeen to establish the internal structure, organisation and detailed plans foreach area to deliver the One Vodafone targets. The programme has focused on thefollowing six key initiatives: • The Group's aim for the network and supply chain management initiative is to exploit the benefits of the Group's scale beyond the current centralised supply chain. Harmonisation of network design and planning along with standardisation of network equipment specifications across suppliers is expected to reduce maintenance costs and increase purchasing options. Sharing of best practice across operating companies has already led to cost savings from the replacement of leased lines with owned fixed optical fibre capacity and microwave links. • The service delivery platform initiative is aimed at consolidating European development and operations. Hosting centres in Germany and Italy are already operational and the Group's European mobile operating subsidiaries are expected to begin migrating their service delivery platforms over the next 18 months. Development activities are to be consolidated into Germany, Italy, the UK and the US. • The Group has focused its plans for information technology delivery on the development of a roadmap towards the consolidation of billing and customer relationship management systems. This is expected to be a longer term project and is expected to deliver benefits over a number of years. A key theme is the identification of best practice and implementing this across existing systems. • The development of an end-to-end terminals delivery process from initial design to delivery to customer, incorporating benefits from greater volumes of customised handsets, is intended to reduce time to market, through consolidation of platforms and streamlined testing programmes and to generate cost savings. These savings are expected to arise primarily from standardised handsets and accessories, through better management of volumes across Europe and efficiencies in logistics. The availability of a common portfolio of 3G handsets following the launch of Vodafone live! with 3G in November 2004 is an early example of success. • The customer management initiative aims to implement consistent segment and value based customer management across the Group to improve customer retention and satisfaction and, therefore, reduce churn. • Finally, providing Vodafone's customers with better value when they travel abroad, as well as generating the best value inter-operator tariffs for the Group, are the key goals of the roaming initiative. The Group also expects to centralise certain support activities for roaming. The launch of the Vodafone Travel Promise in May 2005 is a key step in delivering better value for our customers when travelling abroad. The objective for the 2006 financial year is to begin implementation of theseplans and deliver benefits in each area, although some initiatives will be moreadvanced than others. Significant benefits are expected in the 2007 financialyear, with the full targets expected to be met in the 2008 financial year. Vodafone live! Vodafone live!, the Group's integrated communications and multimediaproposition, initially launched in October 2002, has continued to grow strongly.The proposition, targeted primarily at the young adult ("young active fun")segment, has been launched in six new markets since 31 March 2004, bringing thetotal number of countries now offering Vodafone live! to 22, comprising 15controlled networks, 4 of the Group's associated companies and 3 PartnerNetworks. New markets added in the 2005 financial year include Malta, Austria,Belgium, Croatia and Slovenia. There were 30.9 million Vodafone live! activedevices, including 12.8 million in Japan, on controlled networks at 31 March2005, with an additional 3.2 million devices connected in the Group's associatedcompanies. The Group has continued to develop its Vodafone live! proposition by offering anew range of services, content, handsets and tariffs. The design of the Vodafonelive! portal, through which customers can access a range of online services -games, ringtones, news, sports and information - has been enhanced and animproved search function has made it easier for customers to find and purchasecontent. Over 23 new handsets have been added to the Vodafone live! portfolio, with anincreased emphasis on exclusive and customised devices. The new handsets addedhave offered improved imaging capability across the range, better connectivity,with a significant proportion of devices now offering 'Bluetooth', and increasedmemory card storage to enable customers to save content on their devices. Vodafone live! with 3G In November 2004, the Group launched Vodafone live! with 3G across 13 marketswith an initial portfolio of 10 devices. At 31 March 2005, there were 2.1million devices on controlled networks capable of accessing the Vodafone live!with 3G portal. 3G has enhanced the mobile experience with up to a ten-fold increase in portaland content download speeds, giving Vodafone live! customers access to a uniquerange of high quality content and communication services. Vodafone live! with 3Gcustomers can now experience news broadcasts, sports highlights, music videos,movie trailers and a host of other video content at a quality approaching thatof digital television. With the signing of an exclusive deal with TwentiethCentury Fox, Vodafone UK customers were also the first to experience a newgeneration of made-for-mobile TV and film content, so called "mobisodes".Several markets have already launched TV broadcast services and these will bedeveloped further in the coming year. The wide bandwidth of 3G supports accessto sophisticated 3D games and Vodafone has introduced a range of branded titles. The 3G service also supports full track music downloads which allow customers touse their phone to listen to music, choosing from a range that currentlyincludes over 500,000 music tracks. Vodafone has secured music from some of theworld's greatest artists through agreements with Sony BMG Music Entertainmentand for music from the catalogues of EMI and Warner Music. Customers can alsodownload live performance videos and stream clips direct to their mobilesthrough Vodafone's agreement with MTV. Business services The Vodafone Mobile Connect data card provides working mobility to customersaccessing email and company applications with access speeds up to 384 kilobitsper second when connected to a 3G network. The Vodafone Mobile Connect 3G/GPRSdata card has now been rolled out across 17 markets, including the Group'sassociated undertakings in France, Belgium and South Africa and the Group'sPartner Network operators in Austria, Bahrain and Finland. The product portfoliowas enhanced in the financial year with the launch of a quad-band data cardallowing customers to connect whilst travelling in the US and a data cardsupporting both GPRS and EDGE technology which provides high speed connectivityin a number of the Group's Partner Networks. Vodafone Mobile Connect data cardsare available in an increasing number of distribution channels and with agrowing range of service and price bundles. At 31 March 2005, there were 0.5million registered Vodafone Mobile Connect data cards on the Group's controllednetworks, including 0.3 million 3G/GPRS data cards. The Vodafone Wireless Office service, which offers fixed line functionality andthe freedom of mobility in a single handset solution on either a group/team or acompany-wide basis, was introduced into a further seven markets in the financialyear, bringing the total to 11. On 21 April 2005, the Group announced the roll out of push email, a serviceproviding real-time, secure and remote access to email, contacts and calendardirect to a range of business-focused mobile devices. New email, calendarappointments and contact details are automatically 'pushed' to the customer'sselected device and updates made on the device are automatically reflected onthe customer's PC. During the launch phase, the service will be supported byfour devices, with additional devices introduced in the coming months. Other initiatives In May 2005, the Group announced the launch of Vodafone Simply and the VodafoneTravel Promise. Vodafone Simply is a new service designed to provide an easy touse mobile solution for customers who want to use voice and text services withminimum complexity to keep in touch with family and friends. The serviceincludes a new, stylish and easy to use Vodafone Simply mobile phone, which hasbeen developed with the emphasis on only the most commonly used functions.The handset is aimed at people who do not want the extra features that most newphones offer. The Vodafone Travel Promise is a new roaming campaign, the firstelement of which is the Vodafone Passport price plan, an easy tounderstand voice roaming price plan which provides customers with greater priceclarity when using their mobile voice services abroad. For a one-offconnection fee per call, determined by the network operator, Vodafone Passportcustomers will be able to make voice calls at domestic rates when roaming onVodafone's controlled networks (excluding Egypt) and the networks of selectedassociated undertakings. In addition, when receiving calls abroad, customerswill pay the same connection fee, allowing them to talk for up to a maximum of60 minutes, for no additional charge. On 14 February 2005, Vodafone commenced field tests of the High Speed DownlinkPacket Access ("HSDPA") technology in Japan. HSDPA enables transmission speedsof up to two megabits per second ("2 Mbps"), though 14.4 Mbps can theoreticallybe achieved. At CeBIT, the major trade fair for IT and communication held in March 2005,Vodafone Germany launched Vodafone At Home, an alternative to a fixed linenetwork allowing private householders and home office users to replace theirexisting fixed line connection. The Group also demonstrated new mobile TVtechnology, a first prototype of an HSDPA data card and a number of newhandsets, including two Ferrari branded handsets jointly developed with Sharp. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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