24th May 2005 07:01
Vodafone Group Plc24 May 2005 PART 2 VODAFONE GROUP PLCPRELIMINARY RESULTS MOBILE TELECOMMUNICATIONS - REVIEW OF OPERATIONS In October 2004, the Group announced changes to the regional structure of itsoperations, effective from 1 January 2005. The following results are presentedin 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 4results 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 followingthe successful launch of 3G services. The EBITDA margin improved compared to theprevious year and continues to represent the highest of all mobile networkoperators. A 9% growth in the average customer base compared to the prior year was the maindriver of the 5% increase in service revenue in local currency. Customer growthwas strong as a result of successful and competitively priced, but low subsidy,offerings which had a dilutive effect on ARPU. The offerings included partnercards, which offer a second SIM card without a handset to contract customers ata low monthly cost to the customer, and SIM only prepaid promotions, whichattracted a substantial proportion of prepaid customers in the second half ofthe financial year. ARPU, and consequently service revenue growth, in the secondhalf of the financial year was also impacted by a reduction in the mobile calltermination rate from 14.3 eurocents to 13.2 eurocents in December 2004. Afurther cut to 11.0 eurocents in December 2005 has also been agreed withDeutsche Telekom. Non-voice service revenue increased due to the success of non-messaging dataofferings, the revenue from which increased by 85% in local currency to £163million. In the consumer segment, the number of Vodafone live! active devicesincreased by 105% over the financial year to 4,845,000 at 31 March 2005 and, inthe business segment, there were strong sales of Vodafone Mobile Connect 3G/GPRSdata cards. Demonstrating Vodafone's lead in the 3G market in Germany, therewere 358,000 registered 3G devices at 31 March 2005. Cost control facilitated the improvement in the EBITDA margin by 1.4 percentagepoints over the prior year to 46.4%. A higher proportion of prepaid additions,particularly in the second half of the financial year, and lower contractsubsidies led to net acquisition costs decreasing by 3% in local currency inspite of an 8% increase in gross customer additions. Lower loyalty scheme costswere offset by higher upgrade costs, particularly in the second half of thefinancial year following increased activity through indirect channels, andconsequently net retention costs increased by 5%. Other operating expenses anddirect 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 licenceamortisation 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 6results 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 onhigh value customers, through targeted retention initiatives. Notwithstandingmarket penetration levels of over 100%, driven by the effect of customers havingmore than one SIM and increased competition, Vodafone had good customer growth,with gross additions higher than in the previous year, and only a slightincrease in churn to 17.2%. Total turnover grew by 7%, when measured in local currency, reflecting the risein service revenue that was driven by an 8% increase in the average customerbase. ARPU remained stable despite a slight reduction in activity levels. Strongpromotional campaigns, such as fixed price phone calls for voice users orunlimited text messaging, after paying for the first text message per day, inreturn for up front subscription fees, significantly stimulated usage, withminutes of use increasing by 12% and the number of text messages sent increasingby 11%. Non-voice service revenue grew by 19%, with revenue from non-messaging dataofferings increasing to £87 million, representing an 85% increase in localcurrency. Vodafone live! active devices increased by 169% to 2,751,000 at 31March 2005. In the business segment, Vodafone continued to increase its marketshare, with a 10% growth in the customer base and continuing net inflow ofcustomers through mobile number portability. Strong revenue growth for thissegment 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 ofthe financial year. The EBITDA margin grew by 0.6 percentage points to 53.2% and remained thehighest of the Group's European operations, despite competitive pressurefollowing new market entrants offering high subsidies. A lower proportion ofdirect and other operating costs more than offset increased targeted retentioninvestments. Operating profit, before goodwill amortisation and exceptionalitems, 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 4results 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 customerbase and revenue whilst maintaining EBITDA margin through the execution of astructured 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 prioryear, including Singlepoint (4U) Limited. Service revenue rose by 7%, driven byan 8% increase in the average customer base over the prior financial year. ARPUwas broadly stable for the financial year, with increases in non-voice servicerevenue and the impact of service provider acquisitions being offset bytermination rate cuts and reduced activity levels. From 1 September 2004,Vodafone, along with other UK mobile network operators, excluding the thirdgeneration operator, reduced termination rates by approximately 30%, impactingservice revenue in the second half of the financial year. The impact of thetermination rate cut was to reduce service revenue for the financial year by 3percentage points. Increased acquisition and retention activity and the success of new tariffs andservices, especially those targeted at corporate and business segments, drovecustomer 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 March2005, reflecting higher levels of prepaid customer self upgrades, consistentwith market trends. In the first half of the financial year, an agreement wasreached to provide wholesale services to BT and at 31 March 2005, 119,000 BTcustomers, reported as one registered customer, were connected to the Vodafonenetwork under this agreement. Non-voice service revenue grew by 23%, with non-messaging data revenueincreasing by 81% to £142 million, mainly due to the success of serviceofferings such as Vodafone live!, Vodafone Mobile Connect data cards andBlackBerry from Vodafone. At 31 March 2005, the number of Vodafone live! activedevices rose to 3,443,000. In the business segment, there were strong sales ofVodafone Mobile Connect 3G/GPRS data cards. The EBITDA margin was 33.8% for the year ended 31 March 2005, slightly up on theprior year as increased investment in acquisition and retention activity wasoffset by a relative reduction in interconnect costs following the cut intermination rates and operational efficiencies from the execution of thestructured plan announced in the prior financial year. The key elements of thisplan are to sustainably differentiate and segment the customer base allowingmore effective targeted marketing and to drive lower costs whilst positioningthe organisation for the future. Under the drive to lower costs, Vodafone hascontinued to consolidate call centres, simplify its network and IT platforms andreduce support costs. Net other revenue and other direct costs both increased as a result ofnon-Vodafone customers acquired as part of service provider acquisitions in theprior year. Other direct costs increased further due to higher content costsassociated with the increased data revenue. Operating profit before goodwillamortisation and exceptional items was impacted by the factors above and by anincrease in both depreciation and licence amortisation charges, primarily due tothe commencement of 3G services towards the end of the previous financial year. Recent independently-audited tests have shown that Vodafone has the best callsuccess 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 12operating Other EMEA 2,608 2,439 7profit(2)(3) -------- -------- 3,383 3,142 8 -------- --------Spain-----Trading Voice services 2,558 2,191 17 19results 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. Afocus on acquiring high value customers, targeted promotions encouragingincreased usage and improved customer satisfaction contributed to local currencyservice revenue growth of over 20%, despite a reduction in termination rates of10.5% on 1 November 2004 required by the regulator. In local currency, turnover increased by 24%, due principally to a 22% increasein service revenue. A successful customer acquisition strategy, including afocus on customers transferring from other operators, led to an 11% increase inthe average customer base. Loyalty programmes and promotional activity resultedin a reduction in churn levels from 23.6% for the year ended 31 March 2004 to21.9% for the 2005 financial year. An ongoing marketing campaign encouragingcustomers to switch from prepaid to contract contributed to the proportion ofcontract 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 a10% increase in ARPU. Non-voice service revenue for the year increased by 46%, with messagingremaining the principal driver of the increase. Text messaging volumes increased27% year on year, primarily due to promotions stimulating increased messagingper customer. The success of service offerings such as Vodafone live! andVodafone Mobile Connect data cards led to non-messaging data revenue increasingby 201% in local currency to £65 million. The number of Vodafone live! activedevices rose to 2,992,000. Strong growth in customer additions, principally in the first half of the yearrelative to the previous financial year, and the increased proportion of newcontract customers, led to increased acquisition costs and contributed to thereduction in the EBITDA margin of 1.6 percentage points to 34.7%. Interconnectcosts increased due to higher usage offset by the impact of the termination ratecut in November and promotions in the second half of the year focusing on callsto other Vodafone and fixed-line numbers which incur relatively lowerinterconnect costs. Operating profit before goodwill amortisation was impactedby the increased acquisition costs and the rise in depreciation and amortisationcharges mainly due to the commencement of 3G services. Other EMEA subsidiaries Controlled venture customers for the Group's operations in the Other EMEAregion, 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 inservice revenue, as a result of the 12% higher average controlled venturecustomer base, partially offset by cuts in termination rates across the region.Non-voice service revenue grew strongly over the prior financial year torepresent 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 averagecustomer base, higher voice usage and a strong rise in non-voice servicerevenue. Visitor revenue also increased due to a national roaming agreement withGreece's fourth mobile operator and high usage during the Olympic Games. Servicerevenue growth in Portugal was 11% in local currency, driven by a 7% increase inthe average customer base and good improvements in non-voice revenue and visitorrevenue, due in part to the UEFA Euro 2004 football tournament and aparticularly strong start in 3G, partially offset by lower termination rates.Service revenue in Ireland increased by 10%, in local currency, primarily as aresult of additional voice usage. Intense competition restricted growth in localcurrency 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 priorfinancial year, following increased turnover partially offset by higherdepreciation 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 thatVodafone Hungary became a wholly-owned subsidiary of the Group. On 26 January2005, 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 thecompletion of an agreement with the Egyptian Government for the purchase ofadditional 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 ratessuch as those in Eastern Europe and Africa. This customer growth generated anincrease in operating profit before goodwill amortisation of 6%. SFR, the Group's associated undertaking in France, reported strong growth inrevenue and operating profit before goodwill amortisation, principally as aresult of a 9% increase in average customers compared to the prior year. Usageof both voice and non-voice services grew in the period and SFR had a total of2.6 million Vodafone live! customers at 31 March 2005. SFR launched the VodafoneMobile Connect 3G/GPRS data card in May 2004 and Vodafone live! with 3G inNovember 2004 and it also markets BlackBerry from Vodafone products. Vodacom continued to grow both in South Africa and internationally through itsinterests in the Democratic Republic of the Congo, Lesotho, Mozambique andTanzania. Venture customers at 31 March 2005 totalled 15,482,000, an increase of5,757,000 over the previous year, including 2,645,000 customers in Vodacom'sinternational interests which were previously excluded from the Group's reportedcustomer base. In April 2005, Vodacom launched Vodafone live! with 3G in SouthAfrica, building on the successful launch of the Vodafone Mobile Connect 3G/GPRSdata card in December 2004. AMERICAS Financial highlights Year ended 31 March-------------------- 2005 2004 % change £m £m £ $Total Groupoperating Verizon Wireless 1,647 1,406 17 28profit/(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 itscompetitors, ranking first in customer net additions for the year ended 31 March2005. The total customer base increased by 17% in the financial year to45,452,000 at 31 March 2005. At 31 December 2004, US market penetration reachedapproximately 63%, with Verizon Wireless' market share at approximately 24%. In local currency, proportionate turnover increased by 23%, driven by the largercustomer base and an increase in ARPU. ARPU growth was generated primarily bycustomers migrating to higher access price plans as well as growth in dataproducts, 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 havecontinued 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 ofVerizon 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 reflectsincreased ARPU and further cost efficiencies. Verizon Wireless has achievedsustained cost containment, including the reduction of interconnection andleased line rates as well as other operating expense efficiencies. In localcurrency, the Group's share of Verizon Wireless' operating profit beforegoodwill amortisation increased by 28%. Verizon Wireless launched V CAST(SM), the first wireless consumer multimediabroadband service in the US, in February 2005 and BroadbandAccess, a data cardproduct 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 75million people at 31 December 2004 and has been growing steadily, with theintention to cover 150 million people by the end of 2005. Vodafone and Verizon Wireless are engaged in a number of joint projects to bringglobal services to their customers. Global Phone, which was launched last year,is the first device to incorporate CDMA and GSM technology and allows VerizonWireless customers to use their phone in more than 100 countries. An additionaljoint project enabled Verizon Wireless customers to send text messagesinternationally to customers of participating GSM carriers. Vodafone and VerizonWireless have also signed joint contracts with key media companies for theircontent and have several initiatives underway to further improve their serviceto multinational corporations. Verizon Wireless has recently substantially strengthened its spectrum positionwith the closing of the purchase of several key spectrum licences, includinglicences 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 ExchangeRelated Shares:
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