30th May 2006 10:00
Vodafone Group Plc30 May 2006 The following replaces the strategy update announcement released today at 07.01under RNS number 7210D Forward-looking statements have been added all other textremains the same. 30 May 2006 Strategy Update from Vodafone Vodafone today sets out five key strategic objectives, which have been developedin the context of the changing landscape in the mobile industry and which drawon the Group's strengths. Notable changes in the environment include customersincreasingly seeking products and services which meet their total communicationsneeds, a greater desire for simplicity and value, the emergence of newtechnologies, intensifying price competition and regulatory pressure. Theobjectives also reflect the differing growth rates that Vodafone is experiencingin different regions of the world. The five strategic objectives are: • Reduce costs and stimulate revenues in Europe • Deliver strong growth in emerging markets • Innovate and deliver on customers' total communications needs • Actively manage the portfolio to maximise returns • Align capital structure and shareholder returns policy to strategy To recognise the different areas of focus throughout the business, as previouslyannounced, Vodafone has organised its operations around three principal businessunits: • Europe, headed by Bill Morrow , and including all of Vodafone's Western European controlled businesses • Eastern Europe, Middle East, Africa, Asia Pacific and affiliates ("EMAPA"), headed by Paul Donovan, containing all of Vodafone's other businesses, including its emerging market portfolio • New Businesses, headed by Thomas Geitner, with responsibility for the delivery of new communication services which address the converging areas of mobile, broadband and the internet. Today Vodafone is outlining its approach to deliver on these five key strategicobjectives in a series of presentations. Cost reduction and revenue stimulation in Europe The key areas of focus for the Europe region will be cost reduction and revenuestimulation, reflecting a more mature mobile marketplace. In driving cost reduction, Vodafone will build on its existing One Vodafoneprogramme, in addition to implementing further methods of reducing its costsincluding outsourcing, advancing its shared services efforts and reducingoverheads. In line with this approach, Vodafone has taken the decision tooutsource its IT Application Development and Maintenance activities with likelysavings of approximately 25-30% within 3 to 5 years against current annual costsof £560 million. Further initiatives include the centralisation of NetworkSupply Chain Management activities, with expected savings of 8% within 2 years,against a £3.3 billion annual external spend today. Also, Vodafone's regionalconsolidation of its data centres is expected to provide savings of 25-30%within 3-5 years, against a £320 million annual cost today. Group overheads will also be reduced, resulting in operating expenditure savingsand an expected reduction of more than 400 positions in the corporate centre andensuring an appropriate balance between Group and local management ofactivities. Regarding revenue stimulation, Vodafone aims to drive additional usage of voiceand data services within its existing, sizable European base of customers. Avariety of services are currently being rolled out as part of this effort, withhigh value customers being migrated from prepaid to contract plans, theintroduction of "family plans" designed to stimulate greater usage, greaterpromotion of its Vodafone Passport roaming plans and the introduction of tariffswhich encourage customers to utilise their mobile devices more extensivelywithin their home and/or office. Deliver strong growth in emerging markets Emerging markets are expected to generate an increasing proportion of Vodafone'sgrowth in the next few years. Mobile penetration remains low in many fastgrowing emerging economies. Vodafone has targeted significant growth in these markets and outperformanceagainst the original business cases for recent acquisitions. In itsrestructuring announcement, Vodafone highlighted the benefits of establishing adedicated business unit focused on capturing growth in these markets. Vodafonewill today highlight the robust performance of its emerging market portfoliowith its continued strong growth profile. Innovate and deliver on our customers' total communications needs In the context of changing customer requirements and the growing convergence ofmobile, broadband and the internet, Vodafone's third strategy objective will beto innovate and deliver on customers' total communications needs. A thirdbusiness unit, "New Businesses" has been established to lead this effort. Vodafone's New Businesses unit will focus initially on three streams ofactivity, which together will be known as "Mobile Plus" and will allow Vodafoneto target new sources of revenue. The first stream is focused on extendingVodafone's service offerings in the home and at the office to meet customers'growing voice and broadband data service needs, including the provision of DSL.Vodafone Germany has today announced that it will launch bundled homezoneproducts with DSL access provided by Arcor, in the third quarter of the currentfinancial year. The second stream is focused on the integration of the mobile,PC and the internet at the application level, offering seamless interoperabilityof services. The third area of focus seeks to introduce advertising basedservices and business models that customers will view as the most appealing andacceptable. Vodafone believes that its mobile centric approach in satisfying customers'total communications needs will deliver competitive advantage in the marketplaceas it focuses on customers' two basic preferences - for mobility andpersonalisation. Vodafone has already launched initial offerings in this areaincluding Vodafone Zuhause in Germany and Vodafone Casa in Italy, which featureattractive homezone calling and data services. Further services will beintroduced over time. Vodafone Mobile Plus offerings will benefit from theupgrade of Vodafone's 3G networks to HSDPA, which features greater capacity andhigher data rates, the availability of complementary new broadband technologiesincluding DSL and the opportunities for service creation based on IP technology. Actively manage Vodafone's portfolio to maximise returns Vodafone will seek to optimise its portfolio of assets, either disposing ofassets where it believes it cannot earn a superior return or investing inbusinesses where it believes it can create substantial additional value forshareholders. Vodafone envisages a lower level of merger and acquisition activity in thefuture. Where value adding opportunities arise to acquire mobile assets, strictcriteria will be applied. Firstly, targeted businesses should consolidateVodafone's presence in a local or regional market. Second, a clear path tocontrol will need to be identified. In addition, any acquisition must deliver an Investment Rate of Return exceedingthe local, risk adjusted, cost of capital by at least 200 basis points and thereturn on invested capital should exceed the local, risk adjusted, cost ofcapital within 3 to 5 years. Align capital structure and shareholder returns policy to strategy Some of Vodafone's businesses have entered a more mature phase, while severalothers are still exhibiting high growth. The Group will focus its operationalexecution based on the different profiles of its businesses. Consequently,financial policies have been set to reflect the balance of mature and growthbusinesses within the Group. As a result, Vodafone today announced an increased, 60% dividend payout ofadjusted earnings per share for FY05/06. Vodafone will continue to target a 60%payout in the future, with increases in dividends linked to the increase in itsunderlying earnings per share. Vodafone has also announced that it is targeting a low Single A credit rating asit aligns its capital structure to its evolved strategy. The result is thatVodafone is announcing a further one time, £3 billion return to shareholders,which will be combined with the existing £6 billion return announced as a resultof the sale of its Japanese business. This combined £9 billion will be returnedto shareholders via a B Share scheme and associated share consolidation inAugust 2006. As a result of this one time return and the new target creditrating, Vodafone has no current plans for further share purchases or otherone-off returns to shareholders. Financial impact As a result of focusing on its five key strategic objectives, Vodafoneanticipates the financial impact will be as follows: • In the Europe Region, Vodafone is targeting modest revenue growth over the medium term. As a result of its cost reduction initiatives, Vodafone is targeting flat operating expenditures in FY07/08 versus FY05/06. The net effect of this is that EBITDA margins are expected to decline slightly. However, with a capital expenditure-to-sales ratio of 10% in FY07/08, Vodafone continues to expect the Europe Region to generate considerable amounts of operating free cash flow. • In the EMAPA region, Vodafone expects to see continued strong top line growth for several years with EBITDA margins being broadly stable as increased investments in customer growth are largely offset by scale efficiencies. The capital expenditure to sales ratio is expected to initially remain above 10%, although it is expected to trend towards 10% in the medium to long term. • In the New Businesses area, Vodafone anticipates that its Mobile Plus strategy will account for approximately 10% of Group revenues in three to four years. Given an "infrastructure-light" approach, Vodafone expects modest levels of investment over the medium term. Vodafone is now targeting outperformance on its original One Vodafone plans: • Vodafone will continue through FY07/08 to measure the revenue performance of its key European operations by reference to targeting 1% revenue market share outperformance compared to principal competitors. • With regards to costs, Vodafone previously committed to the combined capex and opex expenses being at around FY03/04 levels in FY07/08 for the 16 One Vodafone operations. Vodafone has decided to split out the capex and opex target into two separate parts for the Europe Region. The Europe Region accounts for over 85% of the remaining One Vodafone cost base and is therefore a logical evolution of its previous target. • The updated targets for the European Region are, therefore, to hold FY07/ 08 opex flat against the FY05/06 results and, therefore, avoid a further £150-200million of future increases. Additionally, Vodafone will continue to target a 10% capex-to-sales efficiency, the result of which is that Vodafone expects to reduce FY07/08 capex by between £400-£500 million when compared to the current year. Commenting on today's announcement, Arun Sarin said: "Vodafone has a strong market position, outperforming its principal competitors.However we have been reviewing our strategy, given our continuing desire to meetour customers' changing requirements. I am encouraged by the opportunity tobroaden our range of services for our customers and our more focused efforts todrive cost reduction and revenue stimulation in Europe, while we capitalise ongrowth opportunities in our emerging market businesses. I believe we are wellpositioned to continue our success in a changing environment." - ends - For further information: Vodafone Group Investor Relations Media RelationsTel: +44 (0) 1635 664447 Tel: +44 (0) 1635 664444 High resolution photographs are available to the media free of charge atwww.newscast.co.uk. Video interviews with Arun Sarin, Chief Executive and Andy Halford, ChiefFinancial Officer are available from midday on www.vodafone.com andwww.cantos.com. The press release contains forward-looking statements which are subject to risksand uncertainties because they relate to future events. Some of the factorswhich may cause actual results to differ from these forward-looking statementscan be found by referring to the information contained under the heading"Forward-looking Statements" in our Preliminary Results Announcement for theyear ended 31 March 2006 and under the heading "Risk Factors" in our AnnualReport for the year ended 31 March 2005. The Preliminary Results Announcementand our Annual Report can be found on our website (www.vodafone.com). This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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