2007 Financial Year Compared to the 2006 Financial Year
Europe
Revenue
Revenue decreased slightly by 0.6% for the year ended 31 March 2007, consisting of a 1.4% organic increase in revenue, offset by a 0.5 percentage point adverse impact from exchange rate movements and a 1.5 percentage point decrease resulting from the disposal of the Group’s operations in Sweden in January 2006. The organic revenue growth was mainly due to the increase in organic service revenue.
Service revenue growth was 0.1% for the Europe region. Organic growth of 2.0% was driven by a 7.7% increase in the average mobile customer base, together with a 17.0% increase in total voice usage and 27.1% reported growth in data revenue, driven by innovative products and services, successful promotions and competitive tariffs in the marketplace, although in turn organic growth was largely offset by the downward pressure on voice pricing and termination rate cuts in certain markets. The estimated impact of termination rate cuts and other adjustments on the growth in service revenue and revenue is shown below.
| Reported growth % |
Impact of exchange rates Percentage points |
Impact of disposal Percentage points |
Organic growth % |
Estimated impact of termination rate cuts and other adjustments(1) on revenue growth % |
Growth excluding these items % |
|
|---|---|---|---|---|---|---|
| Service revenue | ||||||
| Germany | (4.4) | 0.5 | – | (3.9) | 3.4 | (0.5) |
| Italy | (2.1) | 0.6 | – | (1.5) | 5.1 | 3.6 |
| Spain | 12.4 | 0.7 | – | 13.1 | 5.2 | 18.3 |
| UK | 2.5 | – | – | 2.5 | 0.5 | 3.0 |
| Arcor | 8.7 | 0.8 | – | 9.5 | – | 9.5 |
| Other Europe | (7.6) | 0.4 | 7.3 | 0.1 | 4.7 | 4.8 |
| Europe | 0.1 | 0.5 | 1.4 | 2.0 | 3.5 | 5.5 |
| Revenue – Europe | (0.6) | 0.5 | 1.5 | 1.4 | 3.2 | 4.6 |
| Note: | |
|---|---|
| (1) | Revenue for certain arrangements is presented net of associated direct costs. |
Customer growth in the region was strong in most markets, including 21.7% and 16.9% growth in the closing contract customer base in Spain and Italy, respectively. The UK reported a 7.7% growth in the closing contract base following a much improved performance in the second half of the 2007 financial year. Contract churn across the region was stable or falling in most markets due to the continued focus on retention and longer contract terms being offered, while prepaid churn rose due to intensified competition and customer self-upgrades. Prepaid markets remained vibrant, with prepaid net additions accounting for around 65% of the total net additions reported for the region.
Within the Europe region, Spain and Arcor contributed strong service revenue growth, partly offset by declines in Germany, Italy and Other Europe. In Spain, despite the increasing challenge in the marketplace from existing competitors, the launch of a fourth operator and branded resellers, service revenue growth of 13.1% at constant exchange rates was achieved. This growth was mainly due to a 14.2% increase in the average mobile customer base in the period following successful promotions and competitive tariffs, particularly in relation to contract customers, which at 31 March 2007 account for 54.8% of the customer base, compared to 49.6% at 31 March 2006. Arcor also achieved strong growth in service revenue compared to the 2006 financial year, driven primarily by a 60.0% increase in fixed broadband customers to 2,081,000 customers, with the launch of new competitive tariffs leading to particularly good growth since January 2007. Despite high competition and structural price declines, service revenue growth in the UK accelerated throughout the 2007 financial year, driven by a higher contract customer base and increased usage resulting from refreshed tariff offerings. In Other Europe, reported service revenue decreased by 7.6%, while underlying service revenue increased by 4.8% following an increase in the average mobile customer base, and particularly strong growth in messaging and data revenue in the Netherlands and Portugal where new tariffs and Vodafone Mobile Connect data card initiatives proved particularly successful.
Germany and Italy reported declines in service revenue at constant exchange rates of 3.9% and 1.5%, respectively, largely as a result of termination rate cuts. Underlying service revenue in Italy grew by 3.6%, with acceleration in the second half of the year due in particular to increasing messaging and voice volumes, achieved through new tariffs and offers targeted to specific segments, and despite the revenue loss incurred in March 2007 following the Italian Government’s decision to eliminate the top up fee on prepaid cards. In Germany, underlying service revenue declined slightly as a result of the intensely competitive market in Germany and the launch of new tariffs in October 2006.
Voice revenue
Voice revenue decreased by 2.6%, or by 0.6% on an organic basis, with strong growth in voice usage offset by pressures on pricing resulting from competition and from termination rate cuts.
Across the Europe region, outgoing voice minutes increased by 20.7%, or by 22.3% on an organic basis, driven by the increased customer base and various usage stimulation initiatives and competitive tariff ranges. In Germany, outgoing voice usage increased by 35.7%, with continued success from the Vodafone Zuhause product, which promotes fixed to mobile substitution in the home and which achieved 2.4 million registered customers at 31 March 2007. Additionally, new tariffs were launched in Germany in October 2006, which provided improved value bundles for customers allowing unlimited calls to other Vodafone customers and fixed line customers, all of which significantly contributed to increasing outgoing voice usage. In Italy, the increase in outgoing voice usage of 12.1% was mainly driven by demand stimulation initiatives such as fixed price per call offers and focus on high value customers and business customers. In Spain, the improved customer mix and success of both consumer and business offerings assisted in increasing outgoing voice usage by 34.2%. New and more competitive tariffs launched in the UK in July 2006 and September 2006 and various promotions specifically aimed at encouraging usage contributed to the 16.7% increase in Vodafone UK’s outgoing voice usage.
Offsetting the organic growth in outgoing voice usage was the impact of pricing pressures in all markets due to increased competition, which led to outgoing voice revenue per minute decreasing by 16.8% in the year ended 31 March 2007.
Termination rate cuts were the main factor in the 7.4% decline in organic incoming voice revenue, with all markets except the UK experiencing termination rate cuts during the year. Announced termination rate cuts after 30 September 2006 included a cut of 7% to 11.35 eurocents per minute in Spain effective from October 2006 and a 20% cut to 8.8 eurocents per minute in Germany effective from November 2006. The impact of the termination rate cuts in the Europe region was to reduce the average effective incoming price per minute by around 13% to approximately 7 pence. Further termination rate cuts of 0.87 eurocents every six months occurred in Spain with effect from April 2007, reducing the rate to 7.0 eurocents by April 2009, while in Italy reductions in July 2007 and July 2008 of 13% below the retail price index have also been announced.
The success of Vodafone Passport, a competitively priced roaming proposition with over 11 million customers at 31 March 2007, contributed to increasing the volume of organic roaming minutes by 15.8%. Around 50% of the Group’s roaming minutes within Europe were on Vodafone Passport by 31 March 2007. Organic roaming revenue increased by 1.2% as the higher usage was largely offset by price reductions, due to increasing adoption of Vodafone Passport and also the Group’s commitment to reduce the average cost of roaming in the EU by 40% by April 2007 when compared to summer 2005.
Non-voice revenue
Messaging revenue increased by 3.1%, or by 4.6% on an organic basis, mainly due to growth in Italy, Other Europe and particularly Spain and the UK, partly offset by declines in Germany. In Spain, the increase was driven by the larger customer base, while in the UK, SMS volumes increased by 25.0% following higher usage per customer. The growth in Italy was driven by an increase in SMS usage of 9.5%, with sharp acceleration in the second half of the 2007 financial year following successful demand stimulation initiatives. In Germany, messaging volumes declined, resulting from the attraction of bigger voice bundles and the fact that promotional activity that had occurred relating to messaging in the 2006 financial year was not repeated in the 2007 financial year.
Data revenue grew by 27.1%, or by 29.5% on an organic basis, with the growth being stimulated by the 97.1% increase in registered 3G enabled devices on the Group’s networks at 31 March 2007, encouraged by an expanded portfolio and competitively priced offerings. Strong growth was experienced in all Europe’s segments, though Germany demonstrated particularly strong growth of 50% as a result of attractive tariff offerings, including flat rate tariff options, and the benefit of improved coverage of the HSDPA technology enabled network, facilitating superior download speeds for data services. Growth in Italy, Spain and the UK was assisted by the expansion of HSDPA network coverage and increased penetration of Vodafone Mobile Connect data cards, of which 74%, 64% and 53% were sold during the 2007 financial year as HSDPA enabled devices in each of these markets respectively. The launch of a modem which provides wireless internet access for personal computers also made a positive contribution to data revenue. In Other Europe, successful Vodafone Mobile Connect data cards initiatives in the Netherlands and Portugal were the primary cause of growth in data revenue.
Fixed line revenue increased by 8.8%, mainly due to Arcor’s increased customer base.