Vodafone Group Plc Financial Analysis Report 2018

Introduction

This report will contain financial analysis of Vodafone with their competitor BT, to evaluate their success and failures.

Vodafone is a British multinational, listed company and among the FTSE top 100 companies with the headquarters located in London. Currently, operates in more than 40 countries, having a strong presence in the Europe, UK, Africa, United States and Asia. Vodafone continues to be differentiating from their competitors, by investing in network infrastructure, to enable them to continue to offer services like Mobile, Fixed and TV (Vodafone annual report 2018). The sustainable business focused on their commercial objectives enabling them to meet their customers need and build a sustainable future.

BT is also a British multinational company with their headquarters located in London. BT are one of the competitor of Vodafone. BT provides services worldwide, this includes providing range of services such as TV sports broadband, mobile communications, Web hosting, IT Support and Fix-Line broadband in more than 180 countries (BT annual report 2018). BT’s major assets and operations held in United Kingdom.

(Vodafone annual report, 2018)

Financial Performance Analysis

Vodafone Plc Gross Margin

Vodafone, gross margin declined by 2.2% between 2016/17 to 2017/18. This is due, to the change in accounting policy from IAS 8 to IFRS 15 on 1^st April 2018 and impact of foreign exchange saw European revenue decline by 1.3%. While BT revenue declined only by 1%, but remain steady. Vodafone deconsolidation of Netherlands Vodafone and creation of joint venture of subsidiary Vodafone Ziggo saw revenues decline 4.1 %( Vodafone annual report 2018). Although BT decrease in revenue by 2% and enterprise businesses down 5% saw BT gross margin slide slight (BT annual report 2018). According to the research, Vodafone and BT hit hard by price competition forcing to cut down on prices (Independent 2018).

Reuters (2018) predicts Vodafone Plc revenue will be record high in 2019, estimated to be £48,399. While BT revenue will also go towards the same direction. This supported by Statista, (2018) the telecommunication industry expects to achieve record high revenues of € 1.2 trillion by 2019, because of high demands in technology.

 (Statista, 2018)

Operating profit margin (OPM)

Vodafone operating profits between 2016/17 to 2017/18 increased from £3,725m to £4,299m up 5.4%. While, BT Plc operating profits fall from £4,135 2017 to £3,991. Vodafone sustained operating profits driven by improved EBIT up by 21.6% and reduction of €0.2 billion maintenance costs. This also resulted in dividend paid up by 2%, indication of growth in future profits (Vodafone annual report 2018). In addition, Market screener (2018) supports that Vodafone profits will increase to £5833m by 2021. However, Vodafone half-year results reported a loss in operating profits followed by 3.5m impairment loss and increase in costs by 0.3m (vodafone.com 2018). Decrease in BT operating profits reflects, higher labour and pensions costs up by 3% accordance with higher inflation, as well as one-off investment charge of £763m, saw operating profits slide down, which do not reflects the actual true picture of the company if looking at the profitability overall. (BT Plc annual report 2018). This supported by the fact gross profit margin on decline by 1%. However, BT operating profits look set to increase, following the half-year results reported adjusted profits up 2% (BT.com 2018).

ROCE

Vodafone ROCE between 2016/17 to 2017/18 improved slightly from 10.04% to 10.23%.while BT ROCE between 2016/17 to 2017/18 moved from 13.79% to 14.82%. Vodafone ROCE largely driven, by the growth in organic EBITDA, and lower capital add-ons (down 4.6% reflecting 15.7% of total revenues). Furthermore, the level of debt in India during 2017/18 stood at €7.7 billion down from €8.7 billion, this shows a decrease in debt finance (Vodafone Plc annual report 2018).BT ROCE improved was due to the sale of outdated non-current and current assets worth £3,022m, improving efficiency and utilisations of assets(BT annual report 2018). Vodafone ROCE will decline in future, as second quarter results reported a fall in revenue of £5.5m and a loss on disposal of £6.8 billion, as well as 3.5m impairment, this indicates increase in investment in future (BBC News). On the other hand, BT net debt increased by £1,600m in the second quarter in 2018, due to poor credit rating, making it harder to arrange loans at lower interest rates, this will cause gearing to go up in future because of more borrowings at higher interest rates (Williams, 2017).   (ASK teacher to have look)