Operating results
2009 financial year compared to the 2008 financial year
Europe(1)
| Germany | Italy | Spain | UK | Other | Eliminations | Europe | % change | |||
|---|---|---|---|---|---|---|---|---|---|---|
| £m | £m | £m | £m | £m | £m | £m | £ | Organic | ||
| Year ended 31 March 2009 | ||||||||||
| Revenue | 7,847 | 5,547 | 5,812 | 5,392 | 5,329 | (293) | 29,634 | 13.6 | (2.1) | |
| Service revenue | 7,535 | 5,347 | 5,356 | 4,912 | 5,029 | (293) | 27,886 | 14.1 | (1.7) | |
| EBITDA | 3,058 | 2,424 | 1,897 | 1,219 | 1,824 | − | 10,422 | 7.6 | (7.0) | |
| Adjusted operating profit | 1,728 | 1,734 | 1,323 | 235 | 1,611 | − | 6,631 | 6.8 | (8.2) | |
| EBITDA margin | 39.0% | 43.7% | 32.6% | 22.6% | 34.2% | 35.2% | ||||
| Year ended 31 March 2008 | ||||||||||
| Revenue | 6,866 | 4,435 | 5,063 | 5,424 | 4,583 | (290) | 26,081 | |||
| Service revenue | 6,551 | 4,273 | 4,646 | 4,952 | 4,295 | (287) | 24,430 | |||
| EBITDA | 2,667 | 2,158 | 1,806 | 1,431 | 1,628 | − | 9,690 | |||
| Adjusted operating profit | 1,490 | 1,573 | 1,282 | 431 | 1,430 | − | 6,206 | |||
| EBITDA margin | 38.8% | 48.7% | 35.7% | 26.4% | 35.5% | 37.2% | ||||
Note:
- (1)
- The Group revised its segment structure during the year. See note 3 to the consolidated financial statements.
Revenue increased by 13.6%, with favourable euro exchange rate movements contributing 14.3 percentage points of growth and mergers and acquisitions activity, primarily Tele2, contributing a further 1.4 percentage point benefit. The organic decline in revenue of 2.1% was a result of a 1.7% decrease in service revenue and a decline in equipment revenue, reflecting lower volumes.
The impact of merger and acquisition activity and foreign exchange movements on revenue, service revenue, EBITDA and adjusted operating profit are shown below:
| Organic growth % |
M&A activity pps |
Foreign exchange pps |
Reported growth % |
|
|---|---|---|---|---|
| Revenue – Europe | (2.1) | 1.4 | 14.3 | 13.6 |
| Service revenue | ||||
| Germany | (2.5) | (0.1) | 17.6 | 15.0 |
| Italy | 1.2 | 4.7 | 19.2 | 25.1 |
| Spain | (4.9) | 2.5 | 17.7 | 15.3 |
| UK | (1.1) | 0.3 | − | (0.8) |
| Other | (1.2) | 0.4 | 17.9 | 17.1 |
| Europe | (1.7) | 1.4 | 14.4 | 14.1 |
| EBITDA | ||||
| Germany | (2.7) | (0.2) | 17.6 | 14.7 |
| Italy | (6.4) | 1.2 | 17.5 | 12.3 |
| Spain | (10.5) | (0.5) | 16.0 | 5.0 |
| UK | (15.3) | 0.5 | − | (14.8) |
| Other | (4.9) | (0.1) | 17.0 | 12.0 |
| Europe | (7.0) | 0.2 | 14.4 | 7.6 |
| Adjusted operating profit | ||||
| Germany | (1.2) | (0.4) | 17.6 | 16.0 |
| Italy | (6.5) | (0.5) | 17.2 | 10.2 |
| Spain | (10.6) | (1.9) | 15.7 | 3.2 |
| UK | (47.1) | 1.6 | − | (45.5) |
| Other | (5.3) | 1.1 | 16.9 | 12.7 |
| Europe | (8.2) | (0.3) | 15.3 | 6.8 |
Service revenue declined by 1.7% on an organic basis, reflecting a gradual deterioration over the year and a 3.3% decrease in the fourth quarter, with favourable trends in Italy more than offset by deteriorating trends in other markets, in particular Spain and Greece. The impact of the economic slowdown in Europe on voice and messaging revenue, including from roaming, ongoing competitive pricing pressures and lower termination rates were not fully compensated by increased usage arising from new tariffs and promotions and strong growth in data revenue.
EBITDA increased by 7.6%, with favourable euro exchange rate movements contributing 14.4 percentage points of growth and a 0.2 percentage point benefit from business acquisitions. The EBITDA margin declined 2.0 percentage points year on year, primarily driven by the downward revenue trend, the growth of lower margin fixed line operations, a brand royalty provision release included in the prior year in Italy and restructuring charges in a number of markets, which more than offset customer and operating cost savings.
Germany
The 2.5% organic decline in service revenue was consistent with the prior year, benefiting from higher penetration of the new SuperFlat tariff portfolio. Data revenue growth remained strong, reflecting increased penetration of PC connectivity services in the customer base. Fixed line revenue declined during the year, but grew 2.1% at constant exchange rates in the fourth quarter, as the customer base has now largely migrated to new, lower priced tariffs. The fixed broadband customer base increased by 15.9% during the year to 3.1 million at 31 March 2009, with an additional 154,000 wholesale fixed broadband customers. On 19 May 2008, the Group acquired a 26.4% interest in Arcor, following which the Group owns 100% of Arcor. The integration of the mobile business and the fixed line operations has progressed, with cost savings being realised according to plan.
EBITDA margin remained broadly stable at 39.0%, reflecting an improvement in the mobile margin which was offset by a decline in the fixed line margin, with the former due to a reduction in prepaid subsidies and an increase in the number of SIM only contracts. Operating expenses were also broadly stable with the prior year as a current year restructuring charge of €35 million (£32 million) was more than offset by non-recurring adjustments, including favourable legal settlements.
Italy
Organic service revenue growth was 1.2%, reflecting targeted demand stimulation initiatives, ARPU enhancing initiatives and strong growth in data revenue due to increased penetration of mobile PC connectivity devices, email enabled devices and mobile internet services. Organic fixed line revenue growth was 3.7%, supported by 278,000 fixed broadband customer net additions during the year as well as the benefit from the launch of Vodafone Station during the summer of 2008 and the continued good performance of Tele2.
EBITDA declined by 6.4% on an organic basis and EBITDA margin declined 5.1 percentage points at constant exchange rates, mainly due to a brand royalty provision release in the prior year. Excluding the impact of the brand royalty provision release and the impact of the acquisition of Tele2, the EBITDA margin was broadly stable, with an improvement in the mobile margin offsetting the decreased contribution of lower margin fixed line services.
Spain
Service revenue declined by 4.9% on an organic basis, with an 8.6% decline in the fourth quarter. Negative trends in the economic environment put strong pressure on usage in some customer segments and led to increased involuntary churn. Data revenue growth accelerated during the year, driven primarily by PC connectivity services and an improvement in media content revenue growth following a successful campaign in the fourth quarter. Fixed line revenue continued to grow, supported by the launch of Vodafone Station.
EBITDA decreased by 10.5% on an organic basis, as the decline in service revenue and the dilutive effect of the increased contribution of lower margin fixed line services outweighed benefits from cost cutting initiatives in customer and operating costs.
UK
Service revenue declined by 1.1% on an organic basis, primarily due to a decrease in voice revenue resulting from increased competition in a challenging economic environment, customer optimisation of out of bundle offers and lower roaming revenue. Wholesale revenue increased due to the success of the MVNO business, principally ASDA and Lebara. Data revenue growth was maintained, driven primarily by increased penetration of mobile PC connectivity and mobile internet services. The acquisition of Central Telecom, which provides converged enterprise services, was completed in December 2008.
The 15.3% organic decline in EBITDA, which included the impact of a £30 million VAT refund in the prior year, was primarily due to higher off network usage in messaging services and higher retention costs. The cost of retaining customers increased as a higher proportion of the contract base received upgrades in the current year following the expiration of 18 month contracts, which were introduced in 2006. Operating expenses grew, primarily due to the impact of the sterling/euro exchange rate on euro denominated intercompany charges; otherwise operating expenses were broadly stable year on year.
Other Europe
On an organic basis, service revenue decreased by 1.2% during the year and 5.0% in the fourth quarter, as growth in the Netherlands was more than offset by declines in Greece and Ireland, where the trends have deteriorated throughout the year. The Netherlands benefited from a rise in the customer base and strong growth in visitor revenue. Both Greece and Ireland were impacted by deteriorating market environments, which worsened in the fourth quarter, and substantial price reductions in prepaid tariffs, whilst Greece was also affected by termination rate cuts.
The fall in EBITDA margin of 1.3 percentage points at constant exchange rates was primarily driven by the service revenue decline and restructuring charges recorded in the fourth quarter in most countries.
The share of profit in SFR increased, reflecting the acquisition of Neuf Cegetel and foreign exchange benefits on translation of the results into sterling.