Vodafone's 4.3% Rise in Full-Year Revenue Dented by Poor Results in European Operations   

Global mobile operator Vodafone has announced a 4.3% rise in full-year revenues for the financial year ending 31 March 2007, thanks to steady growth in its emerging market operations. The U.K. mobile giant posted revenues of £31.1 billion (US$61.86 billion), compared to revenues of £29.35 billion a year ago. Unlike the previous year, when an impairment charge led to the company announcing a loss of £17.23 billion—the biggest loss in British corporate history, Vodafone's loss in the 2006/2007 financial year shrank to £4.81 billion on the back of improved returns from its non-European operations (see World: 30 May 2006: Vodafone Hit by Asset Write-Down, Unveils New Strategy).

In Europe, mobile revenues in Germany and Italy fell 5.4% and 2.7% respectively, while the U.K. figure achieved a marginal growth of 1.5%. The group's Spanish operations maintained its double-digit revenue growth, notching up an impressive 12.6% growth in the year. Overall, though, the Spanish growth and a 9.2% rise in revenue at the German fixed-line unit, Arcor, were not enough to avoid a 0.7% drop in revenue from the group's Western European footprint. In contrast, Vodafone's subsidiaries and joint ventures recorded an impressive 42.2% rise in revenue with Turkey, Egypt, Romania and South Africa performing creditably well. Total revenues from the group's EMAPA (Eastern Europe, Middle East, Africa, Asia/Pacific, and Affiliates) division for the year were 14.3%, underlying the importance of the EMAPA division in the group's overall profitability.

Similarly, Vodafone's operational indices continued to improve in the year under review. The group's proportionate customer base rose 21% to 206.4 million, safeguarding the group's position as the largest mobile operator in the world outside China. The company achieved an even more impressive success with its mobile data services, with data revenues growing at 30.1% and accounting for 18.3% of total group revenue. Data services accounted for 17% of total group revenues a year ago. Vodafone's registered 3G customer base and mobile connect data card more than doubled in the year to 15.9 million and 1.4 million, respectively.

Outlook and Implications

Boosting Profitability: In a bid to boost profitability across all its operations, Vodafone has launched several initiatives aimed at streamlining its operations and improving its fortunes. Following on from its new strategy adopted at the peak of the fallout of the record losses in 2006, the group moved swiftly to outsource its IT application development and maintenance operations to IBM and EDS. Soon afterwards, the group also announced major outsourcing deals with Ericsson and Accenture. Similarly, Vodafone made a hasty move towards data consolidation by completing the centralisation of network supply-chain management and building a groupwide Shared Service Centre in Hungary in April 2007. The group has also announced initiatives to share its network with other operators in both Spain and the United Kingdom. In its emerging market operations, the company announced an eye-catching launch of low-cost mobile handsets earlier this month (see World: 22 May 2007: Vodafone Launches Own-Brand, Low-Cost Handsets, 18 April 2007: Vodafone Awards Global ERP Deal to Accenture, 10 April 2007: Ericsson Wins "Spare Parts" Managed Services Deal with Vodafone and 6 October 2006: Vodafone Dials IBM, EDS in Billion-Dollar Outsourcing Deal).

Beyond Mobile Voice: At the core of Vodafone's new strategy is the company's quest to expand beyond its current remit as a mobile voice operator. With regulatory pressures—such as the European Union (EU)'s mobile-roaming cut and the abolition of top-up charges in Italy—adversely affecting its voice revenues, the group anticipates that diversification represents the surest guarantee of continued success. The company has already achieved impressive results with its mobile data services with its Vodafone Live! portal proving particularly popular. The group is tacitly reviewing its "walled garden" approach, and is increasingly partnering with content providers such as Google, eBay, YouTube and MySpace, amongst others. Interestingly, Vodafone is expanding into the fixed-telecoms turf. It already offers a "Home Zone" mobile service to about 5 million customers, enabling subscribers to make mobile calls at home or in the office for the price of a fixed call. The company now offers DSL broadband services in five countries and has even pledged not to stringently abide by its "asset-light" strategy. Perhaps that explains the group's reported interest in the Spanish broadband providers, Ya.com and Jazztel (see Spain: 14 May 2007: Vodafone Acquires Deutsche Telekom's Spanish Unit and United Kingdom: 13 November 2006: Vodafone Unveils Plans for UK Broadband Offer).

Acquisitions and Divestments: Although Vodafone has remained resolutely an expanding company, several decisions in the past financial year threatened to undermine the fabric of the company. Vodafone has remained essentially the rampaging colossus of the mobile world, snapping up assets wherever they emerge. But that record has come at a dire cost with the company accused of overpaying for many of its foreign acquisitions. The company's new posture suggests it is no longer a "blank-cheque" player in the acquisition market. In the past year, the company's only major acquisition, apart from raising its stakes in existing operations, was the acquisition of the Indian mobile operator, Hutchison Essar. Instead, the company has sold its 25% stakes in both Belgium's Proximus and Switzerland's Swisscom Mobile, quit the Japanese market, and has reportedly come under pressure from both Verizon and Vivendi to sell its stake in Verizon Wireless and SFR respectively. Although speculation has emerged that a streamlined Vodafone could become vulnerable to a takeover by the likes of AT&T, Vodafone is likely to continue its quest to redistribute its assets from low-growth operations in developed markets to high-growth operations in emerging markets (see Switzerland: 19 December 2006: Vodafone Sells 25% Stake in Swisscom Mobile to Swisscom and Europe: 25 August 2006: Belgacom Buys Vodafone Stake in Proximus, Sells Stake in Neuf Cegetel).