Chief Executive’s review

“We are gaining or holding market share in most of our major markets and are leading our competitors in the drive to migrate customers to smartphones and data packages.”

Financial review of the year

We have performed well this year, combining a better operational performance with good strategic progress. Organic service revenue growth improved during the year, with a strong result from emerging markets and signs of renewed growth in some parts of Europe.

Customers have adopted data services in increasing numbers, as smartphones proliferate and the tablet market begins to take off. Our network investment is becoming a key differentiator, as we are leading the migration to smartphones in most of our European operations. Through this and our continued stronger commercial focus, we are growing our market share again in most of our markets.

However, markets remain competitive and the economic environment, particularly across southern Europe, is challenging. We continue to keep a tight rein on costs and working capital, allowing us to maintain our levels of investment while again delivering a strong free cash flow performance.

Group revenue for the year was up 3.2% to £45.9 billion, with Group service revenue up 2.1%(*) on an organic basis and up 2.5%(*) in Q4. Group EBITDA margin fell 1.1 percentage points, reflecting continuing weakness across southern Europe, higher growth in lower margin markets, and the increased investment in migrating customers to higher value smartphones. As a result, EBITDA fell 0.4% year-on-year.

Group adjusted operating profit rose 3.1% to £11.8 billion, at the top end of our guidance range after allowing for currency exchange rate movements and despite the additional costs incurred by Verizon Wireless’s iPhone launch. The main drivers were good growth in the Africa, Middle East and Asia Pacific region (‘AMAP’) and a strong performance from Verizon Wireless.

We recorded impairment charges of £6.1 billion relating to our businesses in Spain, Greece, Portugal, Italy and Ireland which were primarily driven by higher discount rates given sharply increased interest rates. The impairment in Spain represented approximately half of the total.

Free cash flow was £7.0 billion, at the top end of our medium-term guidance as a result of our continued financial discipline and a strong working capital performance. Capital expenditure was £6.2 billion, broadly flat on last year and in line with our target, as we focused on widening our data coverage and improving network performance.

Adjusted earnings per share was 16.75 pence, up 4.0% on last year, reflecting higher profitability and lower shares in issue as a result of the ongoing £2.8 billion buyback programme. The Board is recommending a final dividend per share of 6.05 pence, to give total dividends per share for the year of 8.90 pence, up 7.1% year-on-year.


Organic service revenue in Europe was down 0.4%(*) during the year and down 0.8%(*) in Q4. This represents a good recovery on last year (-3.8%)(*) and is the result of two different trends: the more stable economies of northern Europe (Germany, UK, Netherlands) were up 2.7%(*), while the rest of Europe was down 2.9%(*) as a result of the ongoing macroeconomic challenges. Data revenue growth continued to be strong, but was offset by continued voice price declines and cuts to mobile termination rates ('MTRs').

Organic EBITDA for Europe was down 3.7%(*) and the EBITDA margin fell 1.7 percentage points as a result of the decline in revenue, ongoing competitive activity and higher commercial costs as we accelerated smartphone adoption.


Organic service revenue growth in AMAP was 9.5%(*), accelerating through the year to a level of 11.8%(*) in Q4. Our two major businesses, India and Vodacom, reported growth of 16.2%(*) and 5.8%(*) respectively. Our performance in India has been driven by increasing voice penetration and a more stable pricing environment. In South Africa, Vodacom continues to be highly successful in promoting data services.

Organic EBITDA was up 7.5%(*) with EBITDA margin falling 0.6 percentage points(*). The two main factors behind the margin decline were the adverse impact from higher recurring licence fee costs in India and the change in regional mix from the strong growth in India.

Verizon Wireless

Our US associate, Verizon Wireless, has continued to perform strongly. Organic service revenue was up 5.8%(*) and EBITDA was up 6.7%(*), with good growth in customers and strong data take-up. In Q4, Verizon Wireless launched a CDMA version of the iPhone, ending the exclusivity of its main competitor. Our share of profits from Verizon Wireless amounted to £4.6 billion, up 8.5%(*).

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Delivering a more valuable Vodafone

In November 2010 we announced an updated strategy, designed to build on the progress made during my first two years as CEO. There are four main elements to the strategy to build a more valuable Vodafone:

  • Focus on key areas of growth potential;
  • Deliver value and efficiency from scale;
  • Generate liquidity or free cash flow from non-controlled interests; and
  • Apply rigorous capital discipline to investment decisions.

I am pleased to say that we are making good progress in each area.

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Focus on five key areas of growth potential

Mobile data: data revenue was up 26.4%(*) year-on-year to £5.1 billion, and now represents 12.0% of Group service revenue. We have continued to increase the penetration of smartphones into our customer base as these are a key driver of data adoption.

Network quality is absolutely central to our data strategy and we have made further significant investments over the last 12 months to improve the speed and reliability of our coverage. Based on third party tests performed in 16 of our main 3G markets, we rank first for overall data performance in 13 markets.

Enterprise: revenue in the overall European enterprise segment was up 0.5%(*) year-on-year and represented 29.5% of our European service revenue. Within this, Vodafone Global Enterprise, which serves our multinational customers, delivered revenue growth of around 8%(*) thanks to some important customer wins and increased penetration of existing customer accounts. This market offers attractive growth opportunities, as multinationals and smaller companies alike look not only to manage costs but also to move to converged platforms and improve mobile connectivity for their workforces.

Emerging markets: the Group has an attractive level of exposure to emerging markets where penetration is lower and GDP growth higher than in the more mature markets of western Europe.

Total communications: we continue to develop our fixed line capabilities to meet our customers’ total communications needs beyond mobile connectivity. Revenue from our fixed line operations amounted to £3.4 billion, up 5.2%(*) year-on-year.

New services: machine-to-machine platforms (‘M2M’), mobile financial services and near-field communications, among other new services, all offer potential for incremental growth. During the year we made good progress in our M2M business and continued the growth and expansion of our mobile money transfer platform, which now has over 20 million customers and is currently being trialled in India.

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Deliver value and efficiency from scale

The current composition of the Group has enabled us to increase efficiency and achieve favourable comparable cost positions in many markets. During the year we also established a more formal relationship with Verizon to leverage our purchasing power across a wide range of suppliers.

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Generate liquidity or free cash flow from non-controlled interests

During the year we agreed disposals of our 3.2% stake in China Mobile Limited and our SoftBank interests for a total cash consideration of £7.4 billion. Subsequent to the year end, we announced the sale of our 44% holding in SFR, the number two mobile operator in France, to Vivendi, the majority shareholder, for £6.8 billion. These three transactions crystallised significant value for shareholders, with £6.8 billion of proceeds being committed to share buyback programmes.

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Applying rigorous capital discipline to investment decisions

We continue to apply capital discipline to our investment decisions. We apply rigorous commercial analysis and demanding hurdle rates to ensure that any investment or corporate activity will enhance shareholder returns. We will continue to undertake regular reviews of Vodafone’s entire portfolio to ensure that we optimise value for shareholders.

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Prospects for 2012 financial year

We enter the new financial year in a strong position. We are gaining or holding market share in most of our major markets, and are leading our competitors in the drive to migrate customers to smartphones and data packages. We will continue to focus on our key growth areas of data, enterprise and emerging markets, while maintaining investment in network quality and the development of new services.

However, we continue to face challenging macroeconomic conditions across our southern European footprint, and we expect further regulated cuts to mobile termination rates to have a negative impact of about 2.5 percentage points on service revenue growth in the 2012 financial year.

The Group EBITDA margin is expected to continue to decline, albeit at a lower rate than in the 2011 financial year. The main driver is the persistent revenue decline in some of our southern European operations.

Adjusted operating profit is expected to be in the range of £11.0 billion to £11.8 billion, reflecting the loss of our share of profits from SFR as a result of the disposal of our 44% interest.

Free cash flow is expected to be in the range of £6.0 to £6.5 billion, reflecting continued strong cash generation offset by the £0.3 billion reduction in dividends from SFR and China Mobile Limited in the 2012 financial year, and the more limited working capital improvements available going forward. Capital expenditure is expected to be at a similar level to last year on a constant currency basis.

We are well positioned to continue to deliver value to shareholders through the achievement of our medium-term targets for revenue, free cash flow and dividend growth; our commitment to investment in profitable growth areas; and our clear capital discipline.

Vittorio Colao
Chief Executive

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