Vodafone 2008 Annual Report Download - page 39

Germany
Adjusted operating profit fell by 10.1% at constant exchange rates, primarily
due to the reduction in voice revenue. Total costs decreased at constant
exchange rates, mainly as a result of an 11.2% fall in interconnect costs, which
benefited from the termination rate cuts, and a 10.1% reduction in other direct
costs, mainly from fewer handset sales to third party distributors and lower
content costs than the 2007 financial year. Operating expenses fell by 2.7% at
constant exchange rates, reflecting targeted cost saving initiatives, despite the
growing customer base. Acquisition costs rose by 7.6% at constant exchange rates
due to a higher volume of gross additions and the launch of a fixed broadband
offer, while retention costs increased by 5.1% at constant exchange rates due
to a higher cost per upgrade from an increased focus on higher value customers.
Italy
Adjusted operating profit decreased by 0.1%, or 1.4% on an organic basis, primarily
as a result of the fall in voice revenue due to the regulatory cancellation of top
up fees. On an organic basis, total costs fell as higher interconnect and acquisition
costs were offset by a 15.8% fall in other direct costs after achieving lower prepaid
airtime commissions and a 7.4% reduction in operating expenses as a result of
the release of the provision for brand royalty payments following agreement
of revised terms. Interconnect costs increased by 6.2% on an organic basis,
reflecting the growth in outgoing voice minute volumes, partially offset by a
higher proportion of calls and messages to Vodafone customers, while acquisition
costs rose by 18.7% on an organic basis due to the investment in the business and
higher value consumer contract segments.
Spain
Spain generated growth of 16.5% in adjusted operating profit, or 14.4% on
an organic basis, due to the increase in service revenue, partially offset by a
28.3% rise on an organic basis in retention costs driven by the higher volume of
upgrades and cost per contract upgrade. The proportion of contract customers
within the total closing customer base increased by 3.2 percentage points to
58.0%. Acquisition costs decreased by 9.0% on an organic basis following the
reduction in gross additions. Interconnect costs were flat on an organic basis
as the benefit from termination rate cuts was offset by the higher volumes of
outgoing voice minutes. Operating expenses increased by 4.0% on an organic
basis but fell as a percentage of service revenue as a result of good cost control.
UK
Although service revenue grew by 5.8%, adjusted operating profit fell by 15.7%
as a result of the rise in total costs, partially offset by a £30 million VAT refund.
The UK business continued to invest in acquiring new customers in a highly
competitive market, leading to a 13.1% increase in acquisition costs. Interconnect
costs increased by 12.0% due to the 19.0% growth in outgoing mobile minutes,
reflecting growth in the customer base and larger bundled offers. The 7.1%
increase in other direct costs was due to cost of sales associated with the growing
managed solutions business and investment in content based data services.
Operating expenses increased by 6.0%, although remained stable as a percentage
of service revenue, with the increase due to a rise in commercial operating costs
in support of sales channels and customer care activities and a £35 million charge
for the restructuring programmes announced in March 2008, with savings
anticipated for the 2009 financial year.
Arcor
Adjusted operating profit increased by 25.5% at constant exchange rates, due
to the growth in service revenue, which exceeded increases in the cost base.
Other direct costs rose by 27.2% at constant exchange rates, largely driven by
higher access line fees from the expanding customer base, which also resulted in
an 8.7% increase at constant exchange rates in interconnect costs. The residual
cost base was relatively stable.
Other Europe
In Other Europe, adjusted operating profit fell by 1.2%, or 4.2% on an organic
basis, largely driven by a 20.7% fall at constant exchange rates in the share of
results of associates following increased acquisition and retention costs and
higher interest and tax charges, which more than offset a 6.5% rise in revenue at
constant exchange rates. The growth in adjusted operating profit of subsidiaries
was primarily driven by increases in Portugal and the Netherlands of 20.2% and
13.2%, respectively, at constant exchange rates, resulting from the growth in
service revenue, as well as good cost control in Portugal. These more than offset
the 7.1% fall at constant exchange rates in Greece, where results were affected
by a decline in service revenue, increased retention and marketing costs and a
regulatory fine.
Vodafone Group Plc Annual Report 2008 37