Vodafone 2006 Annual Report Download - page 11

Vodafone Group Plc Annual Report 2006 9
3G brings an enhanced mobile experience to our customers, who want more speed,
greater personalisation and richer content, and provides the platform for our future
growth. For consumers, we launched mobile TV capability during the year and will
further enhance our music offering during 2006 with the launch of Vodafone Radio DJ,
a personalised, interactive radio service streamed to both 3G phones and PCs.
For our business customers, we increased the number of mobile email solutions and
range of email devices available. 3G broadband through HSDPA technology was
launched in the year offering an enhanced data experience through greater speeds than
3G and faster access to the network. This will improve our already successful Vodafone
Mobile Connect offering for laptop users, who have more choice with mobile capability
now being built in to the laptop.
Another key part of delighting our customers is measuring customer satisfaction
and brand preference. With rising customer expectations and a tougher competitive
environment, we are pleased that we continue to outperform our principal competitors
in terms of customer satisfaction and that customers continue to show preference
for the Vodafone brand.
The second strategic area of focus has been leveraging our scale and scope which
delivers benefits through our One Vodafone programme, details of which we set
out last year.
We are beginning to deliver real benefits in network supply chain management, as
standardised designs lead to a reduced number of vendors and better terms. Our shared
service platforms, which centrally host services such as Vodafone live!, are also now
established.
Our strategic goals are ultimately designed to deliver shareholder value. With respect
to Japan, given the relative competitive position of the business there, the reduced
prospects for superior long term returns and an attractive offer from SoftBank, we
decided to sell our 97.7% stake based on a value for the business of £8.9 billion.
The sale completed in April, with Vodafone receiving £6.9 billion in cash, £6.0 billion of
which we are returning to shareholders as part of the £9.0 billion special distribution.
Rapidly changing environment
Overall, we have performed strongly during the last year, meeting our expectations and
delivering on our strategic objectives. We have continued to outperform our principal
competitors on revenue and EBITDA growth, as well as customer satisfaction. We have
established a strong brand around our customer base and increased returns to shareholders
significantly. However, our marketplace is changing and we need to change to ensure we
can leverage our unique position and continue to outperform our competitors.
There are several key drivers to the changing environment. Competition is increasing not
only from established mobile operators but also from new entrants, particularly mobile
virtual network operators (MVNOs). There are also new types of competitor. Established
fixed line operators are increasingly combining fixed and mobile service offerings. In
addition, internet based companies are extending their services to include
telecommunications. All of these factors are putting pressure on pricing.
The regulatory environment also remains challenging, with continued regulator-imposed
rate reductions on incoming calls across many markets, ongoing pressure to provide
access to MVNOs to our networks and a high level of focus on the costs of roaming.
Developments in technology also mean that our customers have far more choice and
have changing communication needs, but at the same time they demand simplicity
and value for money. In addition to the core benefits of mobility, customers want greater
personalisation, faster data speed and richer applications through services centred on
the home and the office.
Finally, our growth historically has principally come from developed markets, particularly
in Europe. With average penetration now around 100%, these markets are maturing and
delivering lower growth. Whilst growth in these markets has slowed, significant growth
is now coming from emerging markets where average penetration is below 30%. This
is creating greater diversity between our markets than previously. Transactions over
the last year in Turkey, South Africa, India and Romania have combined with existing
operations in markets such as Egypt to provide us now with greater exposure to this
growth potential.
Developing our strategy
These factors require our strategy to evolve so that we can continue to maintain
our strong performance and deliver value to customers and shareholders. We have
established five key strategic objectives:
•In Europe, to focus on both cost reduction and revenue stimulation;
•To deliver strong growth in emerging markets;
•To satisfy our customer needs and extend our current mobile only offering by
innovating and delivering total communications solutions;
•To actively manage our portfolio to maximise returns; and
•To align our financial policies regarding capital structure and shareholder returns
to support our strategy.
Strategy
We have updated our strategy
to reflect our changing environment
0246810
Adjusted operating profit
£bn
2005
2006
8.4
9.4
+13%
05 1015202530
Revenue
£bn
2005
2006
26.7
29.4
+10%
02468
Free cash flow
£bn
2005
2006
6.6
6.4
-3%