Question

Vodafone is based in the United Kingdom. Selected data from Vodafone’s 2012 annual report follows (pounds in millions).

		2012		2011		2010
Revenues		$46,417		$45,884		$44,472
Gross profit %		32.04%		32.84%		33.80%
Operating profit		11,187		5,596		9,480
Net cash flow less capital expenditures		8,459		9,173		9,145
Net earnings		7,003		7,870		8,618

In its 2012 annual reports, Vodafone states, " Our leading performance is based on 3 core strengths. The successful implementation of our strategy to generate liquidity or free cash flow from non-conrolled interest.'

(a) Compute the percentage change in sales, operating profit, net cash flow less capital expenditures, and net earnings from year to year for the years presented.

(b) Evaluate Vodafone's performance. Which trend seems most favorable? Which trend seems least favorable? What are the implications of these trends for vodafone's strategy? Explain.

Answer 1

a.

	2012	2011	2010
% change in sales	1.16 %	3.18 %	-
% change in operating profit	99.91 %	- 40.97 %	-
% change in net cash flows less capital expenditures	- 7.78 %	0.31 %	-
% change in net earnings	- 11 %	- 8.68 %	-

b. Vodafone's performance in terms of profitability has not been commendable. Net earnings have been decreasing year on year between 2010 and 2012. There was a tepid growth in free cash flows in 2011, followed by a sharp decrease in 2012.

Sales growth has been very modest in 2012 as compared to 2011. Operating profits which had plummeted by 41 % in 2011, has seen a very healthy rebound in 2012. If we ignore the abnormal operating profit performance in 2011, the percentage increase in operating profit in 2012 as compared to 2010 was 18%. That is favorable.