Vodafone Group plc is British multinational telecommunication with is headquarters in London, it is one of the world’s leading telecommunication companies. Vodafone supplies a range of services such as data across mobile and fixed networks, voice and messaging and connects all customers together.
They have mobile licenses in all the countries, they operate and fixed licenses in several markets.
With voice, Vodafone provides mobile voice communications, and this is the largest proportion of their revenue. Messaging allows customers to send and receive messages using mobile devices.
They are located all over the world, in regions such as Asia Pacific, United States, Middle East, Europe and Africa that spans to about 25 countries. Vodafone has been around since 1984, and it has grown over the years through mergers and acquisitions. (Vodafone Group, 2019).
Principal Financial Risks
One of the financial risks Vodafone faces is the global economic disruption. Vodafone as an international business, has the tendency to operate in several countries and currencies, thus changes to world economic conditions will have an impact on them. Any major economic disruption may end in reduced outlay power for their customers and impact their ability to access capital markets. A relative strengthening or weakening of the foremost currencies during which they interact may impact their gain or profit.
With this, the potential impact it can have on the business is economic instability and after reductions in the company and consumers spending or impact on capital markets could confine or make limit their refinancing choices. As a result, the companies operating profit will be sensitive to either a relative strengthening or weakening of the major currencies in which they operate. (Vodafone Group, 2018)
Another financial risk is the allocation of the group’s capital. Vodafone is failing to maximize returns to shareholders because of the inefficient use of capital. The capital of the group is not been used effectively. That means there is a risk of Vodafone failing to deliver long-term value to their shareholders if they are unable to manage their capital efficiently and favorably merge strategic acquisitions and disposal. (Vodafone Group, 2018)
Also, there is a risk of major tax disputes for Vodafone. They might not sufficiently resolve the major tax disputes they have. They operate in many areas of authority around the world and occasionally they have disputes on their amount of tax due. When this happens, it ends up exposing them to important additional tax liabilities which then affects the profit of the business. (Vodafone Group Plc, 2012).
Lastly, the increase in competition is reducing their market share and profitability. Vodafone is facing severe competition especially with their competitors who are both mature in the market and new entrants in the market, all this competitor is trying to secure also a share of the customer base.
Competition can reduce the rate at which Vodafone adds new customers or decreases in the size of their market share and therefore a decline in their average revenue per customer. The position Vodafone is that they are difficulties acquiring new customers and retaining existing customers. (Vodafone Group Plc, 2012).
Vodafone Group data and relevant reports
A DIAGRAM SHOWING THE TOTAL REVENUE OF VODAFONE GROUP FROM 2008-2018
From the data it can be seen that from year 2008 the revenue of the company kept on increasing but fell in year 2012 with a revenue of £38.82 billion and in the next year, which is 2013 slightly decreased to a £38.04, and in year 2014 it rose a little. This movement kept on happening until in 2016 where they had their highest sales revenue. This happened because in that year they invested in faster networks which boosted their demand in Europe since then the revenue has been slightly stable.
A DIAGRAM SHOWING THE VODAFONE GROUP REVENUE BY COUNTRIES
From the data, Germany contributes a lot to Vodafone’s revenue. And the United Kingdom’s revenue has decreased from 2016 as well as other Europe countries. Spain is stable there hasn’t been any improvement or a decline. Italy is making progress. Vodacom which is based in South Africa has improved over the years from 2016. Other AMAP countries revenue fell in 2018 but they were doing well in 2016 and 2017.
A DIAGRAM SHOWING THE SHARE PRICE OF VODAFONE GROUP FROM 2006-2018
From the data, Vodafone’s shares have fallen to their lowest level since 2014. There has been constant drop of the share price. From 2017 the share price has dropped by around 18%. Therefore, the company has become unpopular with investors. A lot do not want to invest with the company since their return will not be high. And it is expected to fall by 7% this year, aside that Vodafone plans to change the current CEO and this is weighing on investors mind. (Stephens, 2018)
Year Sales/Revenue (£m) Annual Profit/Loss (£m)
- 2018 46 571 2 788
- 2017 47 631 (6 079)
- 2016 49 810 (5 122)
- 2015 42 227 5 917
- 2014 38 346 59 420
- 2013 38 041 657
- 2012 46 417 7003
- 2011 45 884 7870
- 2010 44 472 8618
Regression Analysis: Revenue (£m) versus Profit/Loss (£m)
Analysis of Variance
- Source DF Adj SS Adj MS F-Value P-Value
- Regression 1 49146466 49146466 4.13 0.082
- Profit/Loss (£m) 1 49146466 49146466 4.13 0.082
- Error 7 83355202 11907886
- Total 8 132501668
- S R-sq R-sq(adj) R-sq(pred)
- 3450.78 37.09% 28.10% 0.00%
- Term Coef SE Coef T-Value P-Value VIF
- Constant 45513 1279 35.59 0.000
- Profit/Loss (£m) -0.1261 0.0621 -2.03 0.082 1.00
- Revenue (£m) = 45513 – 0.1261 Profit/Loss (£m)
- Fits and Diagnostics for Unusual Observations
- (£m) Fit Resid Std Resid
- 5 38346 38022 324 0.36 X
- 6 38041 45430 -7389 -2.30 R
- R Large residual
- X Unusual X
Regression Analysis- interpretation
A negative relationship can be observed between sales revenue and profit or loss for the year. The data of the two variables are collected from the 2010-2018 annual report and the regression line is drawn using the Minitab. The regression line is y= 45513-0.1261x. The R-sq is 37.09%, therefore 37.09% variation in the sales revenue(y) can be explained by the variation in the profit or loss(x) whiles the remaining 62.91% is due other factors. Since the coefficient of determinant is close to zero there is poor prediction.
Even though the regression showed a poor prediction, it can be seen from the table that over the years profit has drastically reduced. In 2010 profit was £8618m whiles in 2018 profit was £2788m and in 2014 it had a profit of £59420m. From the principle financial risk identified there has been an increase in competition thereby reducing their market share and profitability, meaning this risk has started affecting the company.
Limitation of my analysis
In my report there were several limitations to my analysis. Firstly, there was lack of data and reliable data for me to use which then limited the scope of my analysis. Relevant data and reports were hard to come by for Vodafone Group, and the ones seen were unreliable or not related to what I needed. Also, I do not think my explanation of the financial risk and analysis were of sound understating. It was also limited in length.
- Vodafone Group (2019). Visit the Vodafone corporate website. Online Vodafone.com. Available at: https://www.vodafone.com/content/index.html Accessed 9 Mar. 2019.
- Vodafone Group (2018). Annual Financial Report – RNS – London Stock Exchange. Online Londonstockexchange.com. Available at: https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/VOD/13664186.html Accessed 18 Mar. 2019.
- Vodafone Group (2018). The 2018 annual report of Vodafone. Online Vodafone.com. Available at: https://www.vodafone.com/content/annualreport/annual_report18/downloads/Vodafone-full-annual-report-2018.pdf Accessed 19 Mar. 2019.
- Statista (2019). Vodafone Group revenue 2008-2018 | Statistic. Online Statista. Available at: https://www.statista.com/statistics/241610/revenue-of-vodafone-since-2008/ Accessed 19 Mar. 2019.
- Vodafone Group Plc (2012). Principal risk factors and uncertainties. Online Vodafone.com. Available at: https://www.vodafone.com/content/annualreport/annual_report12/downloads/performance_vodafone_ar2012_sections/principal_risk_factors_and_uncertainties_vodafone_ar2012.pdf Accessed 20 Mar. 2019.
- IG. (2019). Vodafone: where next for the European telecoms giant? Online Available at: https://www.ig.com/uk/news-and-trade-ideas/shares-news/vodafone–where-next-for-the-european-telecoms-giant–180608 Accessed 28 Mar. 2019.
- Stephens, R. (2018). Why has the Vodafone Group plc share price fallen by 18% in the last year? – Investomania. online Investomania. Available at: https://investomania.co.uk/2018/08/why-has-the-vodafone-group-plc-share-price-fallen-by-18-in-the-last-year/ Accessed 28 Mar. 2019.