To compare this ratio to the competitors in the industry is really useful and indicates how well the company is keeping the operating cost down and therefore keeping the revenues from the sale within the company. It’s better to have it as large as possible, i. e. the company is keeping the revenues within the company which results in better outcome.
If we would see big increase in operating cost of a company it would have major impact on it so Vodafone does well by keeping the gross profit margin about the same over the years, though is it decreasing slightly.Vodafone is doing better than their competitors and it’s interesting to see that the gross profit margin is decreasing by all of the companies, though just a little by France Telecom. That could mean that the competition is getting stronger with lower price for services that the companies offer which results in lower revenues. In Vodafone’s annual report in 2008 is the following stated as part of their strategy: ‘Competition and regulation in Europe are placing significant pressure on pricing. In order to offset these pressures, the Group’s strategy is to drive additional revenue and reduce costs.’ (Vodafone Group Plc, 2008a) So if they manage to obtain their goals, by drive additional revenue and reduce cost, it should help theim keeping the revenues within the company.
Vodfone (2008b) states on its website that they ‘will be the communications leader in an increasingly connected world’. So to do so they have to expand all the time and get into new markets and expand on markets they are currently operating on. To do that they have to merge with and take over companies. Through theyear they have been active in doing that.Vodafone’s expansion can be best looked by see how much the customer base worldwide has increased. In a press release 4 November 2000 Vodafone stated that the customer base was over 65. 75 millions (Vodafone, 2000), but they are around 269 millions today. It’s increase of 384% in 8 years, which is enormous.
Vodafone have over the years tried to expand by going into emerging market and in May 2007 they entered into the Indian market with full power. (Vodafone, 2008b)The Indian market Vodafone had gone into the Indian market to little extent by buying a 5. 6% stake in Bharti Airtel Ltd in October 2005. But Vodafone didn’t come with full force into the Indian market until they acquired 67% stake in a friendly acquisition of India’s Hutchinson Essar Limited, India’s fourth largest mobile operator in May 2007. Vodafone paid $11. 1 billion to buy a majority stake in the company and added over 34millions of customers to its customer base. Chief executive of Vodafone, Arun Sarin, said in an interview with BBC that the acquisition was: ‘clear evidence of how we are executing our strategy of developing our presence in emerging markets.’ (BBC News, 2007) In July the same year Vodafone sold its 5.
6% equity stake in Bharti Airtel Ltd for $1. 6 billionto prevent a conflict of interest. The Vodafone brand was then launched in September 2007. (Vodafone 2005, 2007) 6. 1. 2 AT;T in USA In New York Times 17 March 2004 was a news about that Vodafone was seen as favoured buyer of AT;T wireless: AT;T Wireless, the nation’s third-largest wireless telephone operator, appears to be leaning toward a buyout offer from the Vodafone Group of Britain, executives close to the talks said last night.
‘ (Richtel ; Ross, 2004) This acquisition was seen as further expansion on the US market and the market was regarded as less saturated than many markets in Europe and Asia, offering strong growth potential. But Cinculare Wireless won an acution for smaller rival AT;T with a $41 billion offer that edged out Vodfone’s interest and they withdrew from the auction and stated in a press release in that: ‘it was no longer in its shareholder’s best interests to continue discussions.’ (Vodafone, 2004) Cinculares wireless’deal was the largest all cash offer in history and would had been one of the biggest acquisition Vodafone had gone into.
The picture above shows the share price movements of Vodafone’s share in Londont Stock Exchange from end of December 2004 – October 2008 on the blue line and the FTSE 100 on the red line. For that period the return for the share price in vodafone is -16. 10% but FTSE 100’s rate of return is -10. 44%.In 2005 Vodafone’s share prece has far worse rate of return than FTSE 100 and biggest reason for that was a fall in share price of around 10% because it gave a disapointing outlook for the future (see below). From the end of year 2006 we can see that Vodafone’s share price moves in line with FTSE 100 but on a bit bigger scale. Considering Vodafone’s beta of 0.
93, according to Reuters, that’s very rational that Vodafone’s share price moves in line with FTSE 100. Taking a closer look at the first real drop in price, in November 2005.15 November Vodafone made an announcement about the result for the six montsh to 30 September 2005. Despite good result for the six months and a promise to increase dividend payout the share price dropped from 143 to 129. 95 on the day, a staggering 9. 6%.
The reason for that was: ‘caution from the company came as it said higher levels of mobile phone usage and the greater impact of lower termination rates – calls connected to other networks – were likely to reduce the rate of revenues growth.’ (Evans, 2005) It’s interesting to see the market react as it did although the six months results were good and also anouncement about a rice in dividend payout. In the announcement were both good and bad news but the market only reacted to the bad news. 3 March 2006 Vodafone made an announcement because of speculation regarding its struggling Japanese subsidiary: ‘Vodafone confirms it is in discussions regarding a potential sale of a controlling interest in Vodafone Japan to SoftBank.These discussions may or may not lead to a transaction.
‘ (Vodafone, 2006b) After this announcement the market reacted and the the share price rose by 8. 4% within the day. (BBC News, 2006) In an interim management statement for the quarter ended 30 June 2008 there was stated: ‘As a result of the first quarter performance and recent economic weakness together with lower than expected equipment revenue.
‘ (Vodafone Group Plc, 2008b)