FINANCIAL AND NON FINANCIAL PERFORMANCE EVALUATION OF

VODAFONE PLC
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Vodafone Group Plc (Vodafone) was founded as a subsidiary of Racal Electronics Plc
in 1984. It became independent of the company in 1991 then changed its name to
Vodafone Group Plc. Today, as a British multinational mobile network operator with
headquarters in Newbury, England, it is known as one of the world's leading
telecommunication companies by revenue.
It operates across the globe where it offers a range of communication services dealing
directly with consumers and offering services for businesses. Its consumer customers
are classified into prepaid and contract and its business customers range from small
office-home-office ('SoHo') and small-medium enterprises ('SMEs') to corporate and
multinational corporations ('MNCs'). Its products and services includes messaging,
voice, data, devices to help customers in meeting total communication needs and
fixed line solutions. In all, its customer base total 341.1 million proportionate
customers all over the globe (www.vodafone.com).
The company's vision is to become the world leader in communications
(www.vodafone.com).

In this paper, we look to evaluate the

performance of Vodafone for the periods ending
31st March 2009 and 2010. Evaluation will be
based on financial and non financial factors
including key ratios and SWOT analysis for a
more coherent outlook. Recommendations will
then be made based on the performance
analysis.
CALCULATION OF KEY RATIOS (all figures are
in m)

Profitability ratios
Gross profit margin: this is calculated by expressing the gross profit made in the year
over sales multiplied by 100.
2010
2009
(15,033/ 44,472)*100 = 33.80%
(15,175/ 41,017)*100 = 37.00%
Operating profit margin: calculated by expressing profit before interest and tax over
sales multiplied by 100.
2010
2009
(9,480/44,472)*100 = 21.32%
(5,857/41,017)*100 = 14.28%
Return on Capital Employed (ROCE): calculated by dividing profit before interest
and tax over total asset less current liabilities all multiplied by 100
2010
2009
(10,186/156,985-28,616)*100 = 7.93%
(6,608/152,699-27,947)*100 = 5.30%
Gearing: calculated by dividing long term debt over equity
2010
2009
(28632/90381)*100 = 31.7%

(31749/86162) = 36.8%
Liquidity: calculated as current asst over current liabilities and the acid test ratio
calculated as current asset less stock over current liabilities
2010
2009
(14,219/28,616) = 0.5
(14,219-433/28,616) = 0.48
(13,029/27,947) = 0.47
(13,029-412/27,947) = 0.45
Price earning (P/E): calculated as average share price for the period over earnings
per share (EPS); EPS is calculated as profit for the year over number of issued share
2010
2009
P/E: (132/16.11) = 8.19
(136/17.17) = 7.92
http://www.vodafone.com

EVALUATION OF THE RESULTS

FINANCIAL
Profitability ratio
Gross profit margin relates to the trading profit of a firm to its sales. Generally, it
should be steady year and year and any wide variation investigated (Cox and Fardon,
2007). In the case of Vodafone, there was a fall in this ratio from 2009 to 2010 from
37% to 33.8%. This fall can be attributed to the increase in cost of sales of 13.92%,
nearly twice as high as the increase in sales of 8.42%. Further investigation is need to
ascertain the increase in cost of sales.

On the contrary operating profit margin nearly doubled from 14.28% in 2009 to
21.32% in 2010. This margin highlights how effectively a firm has managed its cost of
operations. It would look like Vodafone has managed cost effectively; however the
increase is due to a fall in impairment loss of approximately 64% on goodwill. In
2009 there were a lot of adverse events e.g. economic down turn. Otherwise all cost
remained fairly the same only slightly higher in 2010.
ROCE increased from 5.3% to 7.93% in 2010. It is good as it reflects that Vodafone
has the ability to earn a return on all capital employed increasingly. Investors should
be happy in this respect as it means their investment is been put to good use. What
will be more helpful is a five year trend and knowing that the 7.93% is at least equal
to the return on a bank account (Cox and Fardon, 2007).

Gearing ratio
This ratio decreased by 13.9% to 31.75% in 2010. Long term borrowing fell 9.8% over
the period, mainly due to a sharp fall in other liabilities, while equity increased by
4.9%. Higher gearing means less secure equity capital; partly because repayment and
interest make debt costly and partly because strictly speaking it can be recalled at any
time. Although there is no clear standard to judge acceptable gearing level, when
gearing exceeds 100% it tends to worry investors (Cox and Fardon, 2007). Thus, in
this case Vodafone has done well although five years figures will give us a clearer
trend.

Liquidity/acid test ratio

Liquidity is the ability of a firm to pay off current obligation. Both the acid test and
current ratio increased from 2009 to 2010. However, both ratios fall short of the
rule-of-thumb that current ratio should be 2:1 (0.5 in 2010 and 0.47 in 2009) and
acid test 1:1 (0.48 in 2010 and 0.45 in 2009). It shows Vodafone is not liquid. This is
not a problem as such because in the telecommunications industry there are
relatively few current assets and this contributes to low current ratios (Costea, 2006).
For a meaningful conclusion a five year tread and industry average is needed.

P/E ratio
This ratio represents the market's view of the growth potential of the company, its
dividend policy and the degree of risk involved in the investment (Alexander, Britton
and Jorissen, 2007). High P/E ratio means investors have good feelings about the

factors mentioned, i.e. good growth opportunities, relatively safe earnings etc
(Brealey, Myers and Allen, 2008). In the case of Vodafone there has been an increase
in the ratio by 3.4% to 8.19 which highlights that investors are confident in the
company. Again five years trend and comparison to the industry average will give a
more meaningful conclusion.

NON FINANCIAL
SWOT analysis forms the basis of this section. Analysis of the financial statement and
research by datamonitor show that there has been little change in the SWOT of
Vodafone between 2009 and 2010 (see appendix 1).

Strengths
Vodafone has strong international brand recognition. in an age where branding is
key element of marketing this is a key strength. In 2009, in Brand finance global
ranking, the Vodafone brand came 8th as most valuable brand. In 2010 it moved up
to 7th position. It has developed a set of guidelines, to enable the consistent use of
the Vodafone brand, in areas such as advertising, retail, online and merchandising
and ensured it has a strong customer focus. The company also has extensive global
reach and diversified revenue base. It has equity interests in over 30 countries and
over 40 partner markets worldwide. It operates in three geographic regions - Europe,
Africa and Central Europe, Asia Pacific and Middle East and also has an investment
in the United States. This reduces business risk and provides synergy. Furthermore,
it is a leader in its markets meaning it understands its market.

Weaknesses
The company continues to be a part of legal proceedings which eats into the
company's profits. In 2004, Vodafone 2, one of the subsidiaries initiated a legal
action to an enquiry by HMRC with regard to the UK tax treatment of its
Luxembourg holding company, Vodafone Investments Luxembourg SARL ('VIL'),
under the CFC Regime. The enquiry is ongoing and a provision of 2.2bn has been
and was made in 2010 and 2009 accounts. This event shows Vodafone as an
irresponsible company trying to evade taxation.

Opportunities

Strong growth has been forecast for the mobile advertising market with mobile
phones becoming the centre of digital convergence. Indeed, compounded growth
forecast for the USA alone is 70% for 2008-2013. This is good news for Vodafone as
it has been focusing here in recent times and thus, offers the potential to increase
revenue in the future.
The penetration of third generation technology (3G) has been increasing in recent
times. It allows service providers to provide many services including mobile TV and
VoD. The penetration rate of 3G in advanced economies is forecast to increase from
nearly 30% to 60% between 2008 and 2013. At present Vodafone is an active leader
in this market and thus is taking advantage of this.

Threats
The telecommunication industry is highly competitive. In addition technology is
constantly changing and if one is not careful one can be out of competition.
Competition is also very high because markets are becoming saturated and thus
marketing is shifting towards customer retention rather than acquisition. This is
particularly so in the European market where Vodafone generates considerable
revenue.

RECOMMENDATION
Comparing the company's performance over a 2year period with the ratios can result
in a highly inaccurate conclusion. For instance, is the fall in gross profit a one off
occurrence within five years or has it been falling only rising in 2009 and falling
again in 2010. If this is the case then there is a big problem. This being the case, it is
recommended that the company develop the analysis over 5 years for more
informative conclusion. This is not to say that the one off occurrence in gross profit
margin does not need attention. Also although the company may be doing well it may
be below industry standards and thus industry average is needed to ensure this is not
so and if it is then the company will know where to work on. This is particularly the
case for Vodafone's liquidity. The company is not liquid. Is this in line with industry
average? Perhaps further liquidity test is needed.
It is also recommended that the sharp rise in cost of sales is investigated. A
breakdown of the cost is needed to know which element(s) is the culprit to determine
what can be done about it.

CONCLUSION
Overall Vodafone performed better in 2010 than it did in 2009. This should be
commended as the economic environment has not been all that favourable. The
company was profitable improving in both its operating profit margin and ROCE
with the exception of gross profit margin falling. This has been commented on above.
Improvement in the ROCE showed Vodafone to have made extensive use of capital
employed. It has kept its gearing level under control and according to the price
earnings ratio, investors are confident about the future prospect of the company and
this is reflected in the increase in current share price of the company as is in
appendix one.

Once again Vodafone can be commended for maintaining and building on its
strength; extending global reach, maintaining its lead and increasing its brand value.
This has definite impact on its ability to improve its profitability and do well despite
performing in a mature, highly competitive environment with a dire climate. It is
rather unfortunate that none of its strength or opportunities can eradicate or
minimise its weakness. Vodafone needs to take care when calculating and
recognising tax ensuring that it has proper internal controls to ensure all rules and
regulations are adhered to as fully as possible.

References:
Alexander, D., Britton, A. and Jorissen, A. (2007) International Financial Reporting
and Analysis, London Thomson Learning.
Brealey, R. A., Stewart, C. M. and Allen, F. (2008), Principles of Corporate Finance
Singapore: McGraw-Hill.
Costae, Adrian 'The Analysis of the Telecommunication Sector by means of Data
Mining Technique,' 2006, Journal of Applied Quantitative Methods, pp.144-150
Cox, D. (2007) Accounting: the basics of financial and management accounting.
Worcester: Osborne Books Ltd
DATAMONITOR (2009) SWOT analysis, April 2009. London; DATAMONITOR
http://www.lse.co.uk/SharePrice.asp?shareprice=VOD&share=vodafone_grp

http://www.vodafone.com/etc/medialib/agm_09.Par.22820.File.dat/VF_Annual
%20Report_2009.pdf
http://www.vodafone.com/etc/medialib/agm_10.Par.86506.File.dat/vf_ar2010.pdf
London Stock Exchange (2010), 3 months Vodafone Share Graph. London Stock
Exchange, Accessed 11 August 2010.
Vodafone Group Plc. (2009) Annual Report For the year ended 31st March 2009,
Vodafone Accessed 10 August 2010.
Vodafone Group Plc. (2010) Annual Report For the year ended 31st March 2010,
Vodafone Accessed 10 August 2010.