Vodafone 2008 Annual Report Download - page 38

Italy
Service revenue increased by 0.6%, as a 7.9% fall in voice revenue was offset by
17.2% and 38.8% increases in messaging and data revenue, respectively, all at
constant exchange rates, as well as the contribution from the Tele2 acquisition
in the second half of the year. On an organic basis, service revenue fell by 2.0%.
The regulatory cancellation of top up fees and reduction in termination rates led
to the fall in voice revenue but were partially mitigated by a 20.1% rise in outgoing
voice usage, benefiting from a 23.2% increase in average consumer and business
contract customers, successful promotions and initiatives driving usage within the
Vodafone network, and elasticity arising from the top up fee removal. The success
of targeted promotions and tariff options contributed to the 31.8% growth in
messaging volumes, while the increase in data revenue was driven by a 108.0%
growth in registered mobile PC connectivity devices.
Spain
Spain delivered service revenue growth of 9.7%, with 6.6% growth in voice
revenue and 32.2% growth in data revenue, all at constant exchange rates, as
well as the contribution from the Tele2 acquisition in the second half of the year.
Organic growth in service revenue was 8.1%, with lower organic growth of 5.8%
in the second half of the year resulting from a slowing average customer base
in an increasingly competitive market. Outgoing voice and messaging revenue
benefited from the 9.1% growth in the average customer base and an increase
in usage volumes of 13.8% and 12.7%, respectively, driven by various usage
stimulation initiatives. A 101.1% increase in registered mobile PC connectivity
devices led to the increase in data revenue.
UK
The UK recorded service revenue growth of 5.8%, with an 8.9% increase in
the average customer base, following the success of the new tariff initiatives
introduced in September 2006. Sustained market performance and increased
penetration of 18 month contracts, leading to lower contract churn for the year,
contributed to the growth in the customer base. Voice revenue remained stable
as the lower prices were offset by a 16.6% increase in total usage. Messaging
revenue increased by 21.4% following a 36.7% rise in usage, driven by the higher
take up of messaging bundles. Growth of 29.8% was achieved in data revenue
due to improved service offerings for business customers and the benefit of
higher registered mobile PC connectivity devices.
Arcor
Arcor generated an 8.5% increase in service revenue at constant exchange rates,
principally driven by the growth in fixed broadband customers. Arcor’s own
customers increased from 2.1 million to 2.4 million in the financial year and
an additional 0.2 million customers were acquired through Vodafone Germany,
bringing the closing German fixed broadband customer base to 2.6 million.
The volume increase more than offset pricing pressure in the market. Revenue
also benefited from strong growth in Arcor’s carrier business, including that with
Vodafone Germany, which lowered overall Group costs.
Other Europe
Other Europe had service revenue growth of 6.9%, or 2.4% on an organic basis,
with strong organic growth in data revenue of 44.0%. Portugal and the Netherlands
delivered service revenue growth of 7.2% and 9.0%, respectively, at constant
exchange rates, both benefiting from strong customer growth. These were mostly
offset by a 6.2% decline in service revenue in Greece at constant exchange rates,
which arose from the impact of termination rate cuts in June 2007 and the
cessation of a national roaming agreement in April 2007.
Adjusted operating profit
The impact of acquisitions and exchange rate movements on Europe’s adjusted
operating profit is shown below:
Impact of
exchange Impact of
Organic rates acquisitions Reported
growth Percentage Percentage growth
% points points %
Adjusted operating profit
Germany (10.1) 3.5 – (6.6)
Italy (1.4) 3.7 (2.4) (0.1)
Spain 14.4 4.3 (2.2) 16.5
UK (15.7) – – (15.7)
Arcor 25.5 6.1 – 31.6
Other Europe (4.2) 3.5 (0.5) (1.2)
Europe (1.5) 3.4 (1.1) 0.8
Adjusted operating profit increased by 0.8% for the year ended 31 March 2008,
with a decline of 1.5% on an organic basis, with the difference primarily due to
favourable exchange rate movements. Adjusted operating profit included the
benefit from the release of a provision following a revised agreement in Italy
related to the use of the Vodafone brand and related trademarks, which is offset
in common functions. Adjusted operating profit was also impacted by higher
interconnect, acquisition and retention costs and the impact of the Group’s
increasing focus on fixed line services, including the acquisition of Tele2 in Italy
and Spain.
Interconnect costs rose by 8.5%, or by 4.1% on an organic basis, as the higher
volume of outgoing calls to other networks more than offset the cost benefit
obtained from termination rate cuts throughout the region. The main increases
were recorded in the UK and Italy, partially offset by a decline in Germany.
Other direct costs grew by 7.8%, although only 1.3% on an organic basis, as
increases in the UK and Arcor were partially offset by a reduction in Germany.
A 10.3%, or 6.0% organic, rise in acquisition costs resulted from increases across
most of the region, reflecting the continued focus on attracting higher value
contract and business customers, particularly in the UK and Italy. Acquisition
costs per customer increased across the region, with the exception being
Germany due to a higher proportion of wholesale and prepaid connections.
Retention costs increased by 13.8%, or by 10.1% on an organic basis, largely
driven by higher costs in Spain, with smaller increases occurring across the
rest of the region.
Operating expenses were flat on an organic basis, as a result of the successful
control of costs and the benefit from the release of the brand royalty provision.
Various initiatives were implemented at both central and local levels. Central
initiatives included the consolidation and optimisation of data centres,
restructuring within central functions, continued migration from leased lines
to owned transmission and further renegotiation of contracts relating to various
network operating expenses. Locally there were restructuring programmes in
Germany and Italy and, more recently, in the UK.
Depreciation and other amortisation was 3.4% higher, or broadly stable on an
organic basis, as the additional charges resulting from the acquisition of Tele2
operations in Italy and Spain and unfavourable exchange rate movements were
partially offset by savings from lower capital expenditure and the consolidation
and optimisation of data centres.
36 Vodafone Group Plc Annual Report 2008
Vodafone – Performance
Operating Results continued