2012

Financial Analysis

By Asra Isar

By Asra Isar

Introduction Vodafone Group Plc. is one of the world's largest mobile companies providing a wide range of services including voice, messaging, data and fixed broadband. How it works:

Vodafone provides better coverage due to its increasing number of base station sites. (Strateg , (!"#!$, %vailable from: Vodafone %nnual &eport !"#! (%ccessed #! September !"#!$$.

't also has leading robust '( s stems to create a )single view* of our customers across the Group which lin+s together all customer activit and information on various sales channels , online, retail and contact centres. (Strateg , (!"#!$, %vailable from: Vodafone %nnual &eport !"#! (%ccessed #! September !"#!$$.

(heir -G networ+ has been reconfigured to run on ."" /01 fre2uenc spectrum instead of !#"" /01, which enables the radio signal to travel longer distances and provides better indoor coverage. (Strateg , (!"#!$, %vailable from: Vodafone %nnual &eport !"#! (%ccessed #! September !"#!$$.

'nvestment in high capacit bac+haul using ethernet, microwave and optical fibre transmission e2uipment b Vodafone supports high speed data capabilit across its networ+. (Strateg , (!"#!$, %vailable from: Vodafone %nnual &eport !"#! (%ccessed #! September !"#!$$.

Vodafone has deplo ed more single radio access networ+ (3&%45$ base station sites, which comprise of !G, -G and 6G technolog in one single unit, that deliver energ operating cost savings of up to 6"7 to traditional &%4 units as compared to three different, and more expensive units. (Strateg , (!"#!$, %vailable from: Vodafone %nnual &eport !"#! (%ccessed #! September !"#!$$.

(he online self8care service has been extended from P9 to smartphones and tablets in #: of Vodafone5s mar+ets so that its customers can view their billing information, their usage and information about their price plan, across an of their connected devices. (Strateg , (!"#!$, %vailable from: Vodafone %nnual &eport !"#! (%ccessed #! September !"#!$$.

;sing more online capabilities, has allowed <:7 of Vodafone5s customers in =urope to receive an electronic bill which saves mone and also helps the environment. (Strateg , (!"#!$, %vailable from: Vodafone %nnual &eport !"#! (%ccessed #! September !"#!$$. Services:

Vodafone5s customers en>o a range of services including simple voice calls, text and picture messaging, and data services such as mobile internet browsing, social networ+ing sites, downloading applications (3apps5$ and sending emails via smartphones. Vodafone has launched a range of services designed to support data usage on smart devices and build longer term relationships with customers. (hese services include: Vodafone 9loud: 't automaticall uploads or saves customers5 photos and videos to the cloud which can then be retrieved from an device. (Strateg ,( !"#!$, %vailable from: Vodafone %nnual &eport !"#! (%ccessed #! September !"#!$$. Vodafone 9ontacts: 't is another cloud based solution that bac+s up customers5 phone contacts, so all their numbers are alwa s safe. (Strateg , (!"#!$, %vailable from: Vodafone %nnual &eport !"#! (%ccessed #! September !"#!$$. Vodafone Protect: (his service locates lost or stolen phones and laptops, and wipes the content to +eep them secure. (Strateg , (!"#!$, %vailable from: Vodafone %nnual &eport !"#! (%ccessed #! September !"#!$$.

Vodafone Guardian: Vodafone Guardian helps protect children, with smartphones, against unwanted communication, promote responsible use of mobile technolog , and help parents control how their children5s use smartphones. (Strateg , (!"#!$, %vailable from: Vodafone %nnual &eport !"#! (%ccessed #! September !"#!$$. Vodafones business scope:

Vodafone operates in over -" countries with a significant presence in =urope, the /iddle =ast, %frica, %sia Pacific and the ;nited States through the 9ompan 's subsidiar underta+ings, >oint ventures,

associated underta+ings and investments. (http:??www.vodafone.com?content?index?about?about@us?where.html$ 't first emerged in ;A in #.B< and has expanded to cover !C7 of ;A5s mar+et. (Dhere we are heading, (!"#!$, %vailable from: Vodafone %nnual &eport !"#! (%ccessed #! September !"#!$$.

Vodafone owns -<7 mar+et share in German due to customers who are lo al to its fixed broadband services. (Dhere we are heading, (!"#!$, %vailable from: Vodafone %nnual &eport !"#! (%ccessed #! September !"#!$.

=ven with recession imminent across =urope, Vodafone5s flexible cost structure and low handset subsidies have made it manageable for Vodafone to +eep its overall profitabilit in 'tal . (he mar+et for Vodafone in Spain, however, has declined due to cutbac+ in spending. (Dhere we are heading, (!"#!$, %vailable from: Vodafone %nnual &eport !"#! (%ccessed #! September !"#!$.

'ndia and %frica are the emerging mar+ets that are of interest to Vodafone due to the growing need of mobile internet and data services respectivel . (Dhere we are heading, (!"#!$, %vailable from: Vodafone %nnual &eport !"#! (%ccessed #! September !"#!$.

(he largest mar+et share is provided b Veri1on Direless in ;S, with 6<7 controlling interest, mainl because of greater usage of mobile data services. (Dhere we are heading, (!"#!$, %vailable from: Vodafone %nnual &eport !"#! (%ccessed #! September !"#!$.

Overall performance (he ma>or component for Vodafone5s profitabilit is an increased demand in mobile data and internet services as well as improvements in -G technologies and innovative solutions. 0owever, higher investments in smartphone b consumer, competition and macroeconomic variables have had a negative impact on the revenue. (his has increased the Group5s revenue onl slightl b #.!7. (he %/%P region which consists of %frica, /iddle =ast and %sia Pacific showed an increase in revenue b B7 attributable to 'ndia5s growing customer base as well as Eatar, Ghana and Vodacom in %frica. Dhereas =urope exhibited decline in revenue

which was mostl offset b improved performance in German , ;A, 4etherlands and (ur+e . (Fperating &esults, (!"#!$, %vailable from: Vodafone %nnual &eport !"#! (%ccessed #! September !"#!$.

Financial Analysis

"#$" %I&'I(I)* A)IOS +urrent atio ".B-&uick ".:.. Operatin, +as- Flow ".<-". A+)IVI)* A)IOS Inventory )urnover C#.C:eceivables )urnover 6.C6# .ayables )urnover !.#"6 Fi/ed Asset )urnover !.-." )otal Asset )urnover ".-#. %0V0 A10 A)IOS (ebt to 02uity ".:.: (ebt atio ".6-. . OFI)ABI%I)* A)IOS !et .rofit 3ar,in ".#<"B 1ross .rofit 3ar,in ".-!" OA "."6B# O0 "."B<# 0.S ".#-B .40 "."B#-

!ame

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atio Analysis: 9urrent &atio: (he figures from !"#" to !"#! show an increasing trend. (his specifies that Vodafone5s li2uidit is improving as well as its abilit to pa short term debt.

Euic+ &atio: Since this ratio does not include inventor which is wh the 2uic+ ratio is lower than the current ratio. 0owever, Vodafone5s highl li2uid assets have increased from !"#" to !"#! which indicates the abilit to pa its current liabilit has improved. Fperating 9ash Glow: (his ratio shows that Vodafone5s current debt is not entirel covered b its cash from operations and it needs to generate more cash from its operations as cash is how bills are paid off. 'nventor (urnover: 'nventor turnover has decreased graduall which means that it either has excess inventor with a rate of return of 1ero or if it is high compared to industr averages then it implies either strong sales or ineffective bu ing. &eceivables (urnover: (his ratio is also declining steadil which implies that most of its sales get tied up in accounts receivable and this trend is increasing. Vodafone will have to improve its collection polic for its customers to ensure the timel collection of imparted credit that is not earning interest for the firm. Pa ables (urnover: Since the turnover ratio is falling from one period to another, this is a sign that Vodafone is ta+ing longer to pa off its suppliers than it was before. Gixed %sset (urnover: (here is an upward trend in this ratio which specifies that Vodafone is graduall increasing its investment in fixed assets to generate revenues. Dhen companies ma+e these large investments, investors watch this ratio in following ears to see how effective the investment in the fixed assets was. (otal %sset (urnover: Vodafone5s efficienc to use its assets to generate sales or revenue is increasing ever ear. (his also indicates that the compan 5s profit margin is decreasing. 0owever this trend should not continue for long. Hebt to =2uit : Vodafone5s debt to e2uit ratio is increasing which means that it is financing its growth with debt. (his can result in volatile earnings as a result of the additional interest expense. Hebt &atio: Hebt ratio is less than #, but rising ever ear, indicates that Vodafone has more assets than debt.

4et Profit /argin: (his ratio is declining which implies that Vodafone5s costs are increasing and hence it needs to control these costs in order to improve its profit margin otherwise even if its sales increase its earnings will decrease due to higher financing costs i.e. interest expense.

Gross Profit /argin: (his margin is also decreasing which indicates that raw material costs must be rising due resulting in higher 9ost of Goods Sold. &eturn on %ssets: Vodafone5s abilit to convert its investments into earnings is falling, which might be a concern to its investors as investor5s mone or investment is being used inefficientl to bring in earnings. &eturn on =2uit : Shareholders usuall watch this ratio as this ratio indicates how the shareholder5s mone is being used to earn net income. (his ratio is decreasing which means that Vodafone should be careful in utili1ing the shareholder5s mone in the future. =arnings per share: =PS of Vodafone is showing a downward trend which indicates that Vodafone5s earnings is at a declining trend and need to be loo+ed at because this ratio also indicates that profitabilit is decreasing. Price to =arnings &atio: Since this ratio is not considered as a good indicator of growth in earnings as earnings can be manipulated. 0owever b loo+ing at the historical P?= ratios of Vodafone, earnings are declining steadil . +onclusion: Vodafone needs to assess its decline in net income as well as its growing costs. 't needs to control its costs otherwise costs will continue to rise and it won5t be able to pa its debt because of less cash generated through its operations. (he recession ma be a contributing factor towards declining net profit which is visible in Spain, which is one of the mar+ets Vodafone is currentl operating in. 0owever, since Vodafone is good at innovating technolog it might be acceptable to sa that Vodafone ma find solution to control its costs through revolutioni1ing its businesses.

Anne/ure

atio +urrent

Formula 9urrent %ssets ?

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&eceivables$ ? 9urrent -B$?!6"!< Iiabilities 9ash Glows from

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atio Inventory )urnover eceivables )urnover

Formula 9FGS ? %verage 'nventor Sales ? %verage

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%ccounts &eceivables (#":66J.!<.$?! 9FGS8Keg inventor Jending

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(#<!-CJ#6C.B$?! (#6"B!J#6C.B$?! (#6"B!J#--.B$?!

.ayables )urnover inventor ? %verage %ccounts Pa ables Fi/ed Asset )urnover )otal Asset )urnover Sales ? %verage Gixed %ssets Sales ? %verage (otal (#-.<:CJ#<#!!"$ (#<#!!"J#<C.B<$? %ssets ?! ! (#<C.B<J#<!C..$?! 6C6#:? 6<BB6? 666:!? (!"C6!J#.!<"$?! 666:!?

(#BC<<J!"#B#$?! (!"#B#J!"C6!$?! 6C6#:? 6<BB6?

Biblio,rap-y: Vodafone Group Plc. (!"#!$. Vodafone %nnual &eport. %vailable from: http:??www.vodafone.com?content?index?investors?investor@information?annual@report.html (%ccessed #! September !"#!$. Vodafone Group Plc. (!"#!$. Dhere we are. %vailable from: http:??www.vodafone.com?content?index?about?about@us?where.html (%ccessed #! September !"#!$.