Home About Vodafone Investor Relations Media Relations Corporate Responsibility Foundation Sponsorship Innovation Careers

Register for news | Sitemap | Contact Us | Help Go

Search by

Investor Relations

About Vodafone Annual Report Structure and Management Strategy Financial Reports, other Filings Other Presentations Debt Information Annual General Meeting Investor Calendar Shareholder Services Share Price Analysts Coverage Press Releases Half Yearly Results

Strategy review
In May 2006, we formulated a five point strategy which served us well for more than two years. We have broadly maintained or improved share against our largest or reference competitors in most of our markets and delivered on our key cost targets. We have increased the share of revenue from non-core mobile services from 10% to 15% and we also successfully increased our exposure to higher growth markets. Our dividend policy resulted in an average annual increase of 11% in dividends and our capital structure policy has proved right for the business, particularly in the current market context. However, a number of challenges have evolved. Elasticity on core voice and messaging services remains below one, competitive and regulatory pressures continue to be strong, and recently we have not met our expectations in some markets. We are clearly entering into a more difficult macro economic environment. These factors led the Board to conclude that we should review whether the strategy established in May 2006 remained appropriate for the current environment. The fundamentals of Vodafone and our industry continue to be attractive; the sector leaders continue to be able to generate strong cash flow. In terms of revenue prospects, whilst prices are likely to continue to decrease in Europe, the scope for usage growth remains significant, as demonstrated in markets such as the US and India. Mobile data is also proving to be in high demand: effective communications drive productivity benefits, meaning businesses and individuals need more, not less, of our services. A greater range of data devices and portable computers, at increasingly lower costs, are enlarging the addressable market. On the cash cost side, only about a third of our operating costs are fixed, and about a quarter depend on growth in voice minutes and data traffic. We controlled these costs well over the last two years. The remaining component of costs, some 40%, is market driven, providing significant scope for us to adapt in the event of greater economic pressures. Overall, our current European capital intensity of around 10% of revenue already contains a component of investment for growth. Vodafone has three key attributes which strongly differentiate us from our competitors: firstly, our scale in technology with which we continue to drive network and IT savings through consolidation and centralisation of core activities; secondly, our strong presence in the enterprise market, in large corporates as well as in small and medium sized businesses; and finally, our brand, especially in consumer pull markets. Our strategy will now be focused on four key objectives: drive operational performance, pursue growth opportunities in total communications, execute in emerging markets and strengthen capital discipline.

We will drive operational performance through customer value enhancement, rather than revenue stimulation, and cost efficiency. Value enhancement involves maximising the value of our existing customer relationships, not just the revenue. We will shift our approach away from unit pricing and unit based tariffs to propositions that deliver much more value to our customers in return for greater commitment, incremental penetration of the account or more balanced commercial costs. This will require a more disciplined approach to commercial costs to ensure our investment is focused on those customers with higher lifetime value. In essence, we are confident that by targeting our offers, we can deliver more value to our customers and have a better financial outcome for Vodafone. Customer value enhancement replaces revenue stimulation. Cost efficiency requires us to continue to deliver scale benefits through optimisation of operating and capital expenditure. We have a significant number of cost programmes across the Group which we expect to reduce current operating costs by approximately 1 billion per annum by the 2011 financial year to offset the pressures from cost inflation and the competitive environment and to enable investment in revenue growth opportunities. As a result, on a like for like basis, we are targeting broadly stable operating costs in Europe and for operating costs to grow at a lower rate than revenue in EMAPA between the 2008 and 2011 financial years. Capital intensity is expected to be at or below 10% over this period in Europe and to trend to European levels in EMAPA over the longer term. On growth opportunities, the three target areas are Mobile data, Enterprise and Broadband. We have already made significant progress on mobile data, with annualised revenue of 2.8 billion, but the opportunity remains significant with the penetration of data devices still relatively low in Europe and almost nil in emerging markets. In enterprise, we have a strong position in core mobile services and we have built a solid presence in 18 months in multi-national accounts through Vodafone Global Enterprise. Our strategy is to leverage this strength to expand our offerings into the broader enterprise communications market locally, serving SoHo and SMEs

with shared platforms and services, supported by our local sales forces. For broadband, we continue to adopt a market by market approach focused on the service, rather than the technology, and targeted at enterprise and high value consumers as a priority. We are already represented in most of the key emerging markets where significant growth is expected in the coming years. Our principal focus now will be on execution in these markets, in particular in India, Turkey and our African footprint following our recent agreement to acquire control of Vodacom. We will also seek to maximise the mobile data opportunity. There are few potential large new markets of interest to us and we will be cautious and selective on future expansion. The final objective is capital discipline. We remain committed to our low single A rating target, which we consider to be appropriate in the current environment, and comfortable with our liquidity position. Our focus is on free cash flow generation and ensuring appropriate investment in our existing businesses. We see increasing dividends as the primary reward to shareholders. Given our credit rating and the current level of cash flow and dividends, this leaves limited debt capacity. We see in-market consolidation as a positive for our industry and we would support consolidation. As previously mentioned, our focus is principally on our existing emerging markets rather than expansion and any significant acquisition would likely need to be funded through portfolio disposals. We remain focused on value creation for our non-controlled assets. Verizon Wireless is one of the leading assets in an attractive market and we are increasingly cooperating on terminals, enterprise and future technology to deliver further value for the Group. Our updated strategy repositions us appropriately in the current environment. We need to improve execution in our existing businesses and deliver on our cost targets. We will pursue growth in total communications and focus on our existing emerging markets, with only selective and cautious footprint expansion. Finally, we must strengthen our approach to capital discipline. Our priority is free cash flow generation and we will continue to target 5 billion to 6 billion of free cash flow per annum, excluding licence and spectrum payments and any potential CFC tax settlement.

Webcast
more> Half-Year Financial Report for the six months ended 30 September 2008. View an on-demand webcast.

Webcast

Copyright Vodafone 2008.|

Privacy Policy | Terms & Conditions | Mobile Version