Vodafone's Data Barometer

Vodafone Group plc (NYSE: VOD) beat analysts' expectations with its first-half financials released today, though goodwill writedowns of £6.837 billion (US$10.85 billion) still left the global giant with a net loss of £4.336 billion ($6.88 billion) (see Vodafone H1 Beats Expectations).

Pre-tax profits during the first half of the financial year to September 30 of £4.25 billion ($6.75 billion) are up by 41 percent on the previous year. It recorded £2.878 billion ($4.57 billion) of free cash flow from turnover that was up by 67 percent from a year ago at £14.898 billion ($23.65 billion). Vodafone's shares on the London Stock Exchange finished at 109.4 pence, up 12.5 percent on the previous day's closing price of 98.5 pence.

Analysts, on average, had predicted pre-tax profits of about £3.25 billion ($5.16 billion). The sharp rise in turnover is due to the inclusion of figures from the company's Japanese operations, mobile operator J-Phone Co. Ltd. and fixed carrier Japan Telecom.

The goodwill charges are related to acquisitions made in the past few years. Although the company does not split out the total charge, a Vodafone spokeswoman says the figure is accumulated goodwill from the carrier's purchases of companies in Germany, Ireland, Japan, Spain, and the U.S.

Mobile subscriber figures are up 12.5 percent in the past 12 months to 107.5 million; the net loss was less than half that recorded in the same period a year ago; and net debt has been reduced to £10.7 billion ($17 billion).

Telecom analysts at Lehman Brothers describe the results as "excellent," adding that the figures strongly suggest "that Vodafone is well placed to benefit from any recovery in market trends." They note that the European operations are "performing strongly," particularly D2 Vodafone in Germany, where net subscriber additions and "substantial increases in ARPU" were recorded. While the press release offers plenty of "transparency" of the figures and the contributions of the various mobile operations, there are a few particular items that we find interesting. Its capital expenditure for the first half was £2.7 billion ($4.3 billion), and it expects to spend slightly more in the second half to take the total year's capex to £5.5 billion ($8.74 billion), which is 8 percent lower than its previous forecast of £6 billion ($9.53 billion). In addition, say the Lehman folk in a research note, "no further growth is expected during [the next financial year starting April 2003]. We currently forecast the global mobile infrastructure market to fall by at least 10 percent in 2003, and would caution that there is still likely scope for further capex cuts from Vodafone, especially given a rather opaque statement today regarding 3G network rollouts." The "opaque statement" refers to Vodafone's contention that the "development and rollout of the Group’s 3G networks remains an important element of its data strategy. A Group-wide 3G programme management team has been put in place to oversee the project. To date, the Group has achieved its initial operating target of having commenced internal user field trials in five European networks as well as in Japan. Over the next 12 months the Group intends to have its 3G infrastructure technically ready and operational in major markets, with Japan being the first of the Group’s networks to launch in December 2002." Ready and operational sounds as if Vodafone will be doing its best to keep the rollout to the minimum required to meet its license obligations, which may not be the best of news for the infrastructure vendors. In the meantime, Vodafone will be looking to derive as much experience and revenue from its existing data service capabilities, especially following the recent launch of its Live! service (see Vodafone Goes Live!). And it's not as if there isn't room for growth here. As you can see from the table below, the percentage of revenue from data services that are not SMS is still very low. The exception is Japan, which is displaying the sort of levels that Vodafone will be hoping its other key territories can achieve -- 11.4 percent of revenues from Internet data, with 18.1 percent of all revenues coming from non-voice services. The table also shows that there is growth in Internet data service revenue in the other main territories -- and, with picture messaging, a greater range of handsets, and a wider range of data options being marketed via the Live! service now available in the High Street, data revenues are sure to rise in the coming quarters.

Table 1: Data Revenues as % of Mobile Revenues:
12 Months to Sept 30, 2002

Country Messaging data Internet data Total data
Northern Europe
U.K. 12.20% 1.00% 13.20%
Others 8.00% 0.40% 8.40%
TOTAL 10.40% 0.70% 11.10%
Central Europe
Germany 14.70% 0.70% 15.40%
Others 7.30% 0.60% 7.90%
Total 10.40% 0.70% 11.10%
Southern Europe
Italy 9.80% 0.30% 10.10%
Others 8.20% 0.10% 8.30%
Total 9.10% 0.20% 9.30%
United States 0.20% 0.60% 0.80%
No other Americas data
Japan 6.70% 11.40% 18.10%
Others 7.30% 0.30% 7.60%
Total 6.80% 9.20% 16.00%
Middle East/Africa 3.50% N/A 3.50%
Proportionate group total 8.00% 2.10% 10.10%
Source: Vodafone Group

While the table above shows averages from the past 12 months, the table below shows figures just from the month of September 2002. It's clear that the percentages are creeping in the right direction. And boy, do they like text messaging in Germany!

Table 2: Data Revenues as % of Mobile Revenues:
Sept 2002 (month only)

Country Messaging data Internet data Total data
Northern Europe
U.K. 12.70% 1.10% 13.80%
Others 8.80% 0.60% 9.40%
TOTAL 11.00% 0.90% 11.90%
Central Europe
Germany 15.40% 0.80% 16.20%
Others 7.60% 0.90% 8.50%
Total 11.00% 0.90% 11.90%
Southern Europe
Italy 10.00% 0.40% 10.40%
Others 9.00% 0.30% 9.30%
Total 9.50% 0.30% 9.80%
United States 0.30% 0.70% 1.00%
No other Americas data
Japan 7.40% 12.80% 20.20%
Others 8.10% 0.40% 8.50%
Total 7.50% 10.20% 17.70%
Middle East/Africa 3.30% N/A 3.30%
Proportionate group total 8.60% 2.40% 11.00%
Source: Vodafone Group

Unstrung will come back to these tables in future financial quarters as Vodafone -- a true barometer of mobile data growth as it has so many operational units around the world (mobile operations in 28 countries, though not all with majority ownership) -- updates its figures. — Ray Le Maistre, European Editor, Unstrung www.unstrung.com
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