Vodafone 2008 Annual Report Download - page 52

Operating Results continued
Adjusted operating profit
The impact of acquisitions, disposal and exchange rates on adjusted operating
profit is shown below.
Impact of Impact of
exchange acquisitions
Organic rates and disposal(1) Reported
growth Percentage Percentage growth
% points points %
Adjusted operating profit
Eastern Europe 49.2 (7.6) (37.1) 4.5
Middle East, Africa and Asia 18.5 (16.9) 31.1 32.7
Pacific 25.4 (11.8) – 13.6
EMAPA 27.4 (8.7) (1.3) 17.4
Note:
(1) Impact of acquisitions and disposal includes the impact of the change in consolidation status
of Bharti Airtel from a joint venture to an investment.
Adjusted operating profit increased by 17.4%. On an organic basis, growth was 27.4%,
as the acquisitions and stake increases led to the rise in acquired intangible asset
amortisation reducing reported growth in operating profit. These acquisitions,
combined with the continued expansion of network infrastructure in the region,
including 3G and HSDPA upgrades, resulted in higher depreciation charges.
Organic growth in adjusted operating profit was driven by a strong performance
in Romania, Egypt, South Africa and the Group’s associated undertaking in the US.
Eastern Europe
Interconnect costs increased by 46.3%, or 23.8% on an organic basis, principally
as a result of the higher usage in Romania. An ongoing regulatory fee in Turkey
amounting to 15% of revenue increased other direct costs compared to the 2006
financial year.
Acquisition costs fell as a percentage of service revenue throughout most of
Eastern Europe, with increased investment in the direct distribution channel in
Romania resulting in lower subsidies on handsets. Retention costs decreased as
a percentage of service revenue, but increased on an organic basis due to a focus
on retaining customers through loyalty programmes in response to the increasing
competition in Romania, which had a positive impact on contract and prepaid churn.
Operating expenses increased by 1.0 percentage point as a percentage of service
revenue, primarily as a result of inflationary pressures in Romania and investment
in Turkey.
Middle East, Africa and Asia
Interconnect costs increased by 45.0%, or 26.8% on an organic basis, due to the
usage stimulation initiatives throughout the region.
Acquisition costs remained stable as a percentage of service revenue, while
retention costs increased, principally due to increased investment in retaining
customers in Egypt ahead of the launch of services by a new operator after
31 March 2007 and in South Africa in response to the introduction of mobile
number portability during the 2007 financial year, with the provision of 3G and
data enabled device upgrades for contract customers and a loyalty point scheme.
Operating expenses remained stable as a percentage of service revenue.
Pacific
The improved profitability in Australia was more than offset by the lower
profitability in New Zealand resulting from the increased cost of telecommunications
service obligation regulation, the impact of the acquisition of ihug and adverse
foreign exchange rates.
Acquisition and retention costs increased as a percentage of service revenue
due to the investment in higher value customers in Australia, which also had
a favourable impact on contract churn and were partially offset by savings in
network costs and operating expenses.
Associates
2007
% change
Verizon
Verizon
Wireless Other Total Wireless
Share of result of associates £m £m £m £ $
Operating profit 2,442 167 2,609 15.6 22.9
Interest (179) 2 (177) (12.3) (7.0)
Tax (125) (39) (164) 7.8 14.6
Minority interest (61) – (61) 1.7 6.7
2,077 130 2,207 19.9 27.6
2006
Verizon
Wireless Other Total
Share of result of associates £m £m £m
Operating profit 2,112 263 2,375
Interest (204) 1 (203)
Tax (116) (72) (188)
Minority interest (60) – (60)
1,732 192 1,924
% change
Verizon Wireless (100% basis) 2007 2006 £ $
Total revenue (£m) 20,860 18,875 10.5 17.4
Closing customers (’000) 60,716 53,020
Average monthly ARPU ($) 52.5 51.4
Blended churn 13.9% 14.7%
Mobile non-voice service
revenue as a percentage of
mobile service revenue 14.4% 8.9%
Verizon Wireless produced another year of record growth in organic net additions,
increasing its customer base by 7.7 million in the year ended 31 March 2007.
The performance was particularly robust in the higher value contract segment
and was achieved in a market where the estimated closing mobile penetration
reached 80%.
The strong customer growth was achieved through a combination of higher gross
additions and improvements in Verizon Wireless’ customer loyalty, with the latter
evidenced through lower levels of churn. The 15.4% growth in the average mobile
customer base combined with a 2.1% increase in ARPU resulted in a 17.8%
increase in service revenue. ARPU growth was achieved through the continued
success of data services, driven predominantly by data cards, wireless email and
messaging services. Verizon Wireless’ operating profit also improved due to
efficiencies in other direct costs and operating expenses, partly offset by a higher
level of customer acquisition and retention activity.
Verizon Wireless continued to lay the foundations for future data revenue growth
through the launch of both CDMA EV-DO Rev A, an enhanced wireless broadband
service, and broadcast mobile TV services during the first calendar quarter of
2007. In addition, Verizon Wireless consolidated its spectrum position during
the year with the acquisition of spectrum through the Federal Communications
Commission’s Advanced Wireless Services auction for $2.8 billion.
The Group’s share of the tax attributable to Verizon Wireless for the year ended
31 March 2007 relates only to the corporate entities held by the Verizon Wireless
partnership. The tax attributable to the Group’s share of the partnership’s pre-tax
profit is included within the Group tax charge.
The Group’s other associated undertakings in EMAPA have been impacted by
intense competition and reduction in termination rates, similar to the experiences
of the Group’s controlled businesses in the Europe region, which have had a
negative impact on revenue. The Group disposed of its associated undertakings
in Belgium and Switzerland on 3 November 2006 and 20 December 2006,
respectively, for a total cash consideration of £3.1 billion. Results are included
until the respective dates of the announcement of disposal.
50 Vodafone Group Plc Annual Report 2008
Vodafone – Performance