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Financial Strategy and Governance, A case study of Vodafone Group

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Table of Contents
Executive summary.....................................................................................................................................2
Financial Analysis and Growth Analysis.....................................................................................................4
Ratio Analysis.............................................................................................................................................4
The BCG Matrix for Vodafone....................................................................................................................9
Vodafone Current financial strategy..........................................................................................................13
Proposed financial strategy........................................................................................................................14
Corporate governance................................................................................................................................15
Conclusion.................................................................................................................................................17
References.................................................................................................................................................18
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Executive summary

This report evaluates Vodafone's current financial strategy and recommends financial

strategies that might be implemented in the future. This, on the other hand, began with an

assessment of the stage of the company's life cycle. An analysis of the firm's financial results

showed that the company is in a cash cow phase, where it has a low market growth but still

maintains a large market share. The company's current financial strategies include debt reduction

and the acquisition of industry rivals and related businesses ( Rockson, 2021). Despite its stated

intention to reduce debt, the company, according to the essay, still relies on debt to fund the

majority of its acquisitions. The company's stock price has dropped significantly over the last

four years. This could be explained by the high level of debt, which discourages investors, the

significant drop in dividends, and the decline in the company's overall performance. This report's

best financial strategy should be equity financing. The board has the independence and expertise

needed to carry out the strategy. In light of the board's wide range of expertise and experience in

various fields, it is evident that the proposed financial strategies can be effectively evaluated and

implemented by the board directors (Rockson, (2021).

Introduction

According to Dianova and Nahumury (2019), a company's primary goal is to maximize

the wealth of its owners. This necessitates implementing methods aimed at compensating

investors for the risks they have taken by making the best use of their resources. In corporate

strategy, having a strong financial plan that is matched with the firm's stage in the company life

cycle is the most important consideration (Thakkar, 2019). Maturity-to-decline firms have

different financial strategies than growth-stage companies. As a result, determining the

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company's current stage in the business life cycle is crucial. As cited by Scherer and Voegtlin,

the BCG matrix may be used to determine an entity's life cycle stage and so influence its

financial strategy. However, Rockson, (2021) adds that a solid corporate governance framework

is required to formulate and execute a comprehensive plan. To build a strong financial plan,

organizations need a board of directors with expertise. An independent board of directors can

develop a robust internal control system to guarantee that suggested initiatives are thoroughly

examined and executed, according to Rockson, (2021). When making vital choices like funding,

this is especially true.

Financial Analysis and Growth Analysis

Measurement of shareholder wealth generation is based on a variety of factors. Return on

equity (ROE) is the most prevalent. In addition to looking at things like profits per share and

dividend growth, shareholders also look at other metrics to assess the performance of their

investments (Tóth et al., 2021). The Return on Equity (ROE) for Vodafone was far better

managed than BT. In reality, between 2009 and 2013, the average return on equity was 23.58

percent, far more than any other telecom business. However, Vodafone's ROE has dropped

significantly in 2013. Vodafone's dividend also rose at a respectable pace. Since 2009, Vodafone

has consistently raised its dividend growth rate. Even in 2013, dividend growth was unchanged

when it made a very little profit. Over the last five years, the average dividend growth rate was

6.29 percent, which was higher than the industry average. But the main issue for investors was

that the company's profits per share growth were steadily decreasing owing to difficult business

circumstances (Kumar, Ranjan and Singh, 2011).

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Ratio Analysis

Liquidity Measures

The current and quick ratios are introduced to measure Vodafone's ability to pay its debts.

Table 1 shows that the Quick Ratio will reach 0.55 in 2021, a significant increase. In the Current

Ratio, a similar pattern was discovered (Srivastava and Prakash, 2011). The rapid expansion

plans of Vodafone may put it in jeopardy, even though it has enhanced its capacity to deal with

its current liability. To raise money, it's possible that approved long-term loans and stock capital

can be used.

Table 1

2018 2019 2020 2021

Quick ratio 0.31 0.37 0.39 0.55

Current ratio 0.42 0.48 0.50 0.63

Debt To Equity Analysis of vodafone

Vodafone Group's debt-to-equity ratio is one of several basic indicators in a valuation

research module that aids investors in finding firms selling at inflated or undervalued valuations.

When the true value of vodafone group exceeds the market price, we propose that investors

purchase the stock (Wei, 2019). There are no other options. Increased interest costs may be a

consequence of a company's aggressive borrowing to fund its expansion, as seen by a high debt-

to-equity ratio. Earnings or growth might be affected by this. D/E ratios might show whether a
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corporation uses financial leverage to the maximum extent. It measures how well a firm is using

borrowed funds to leverage the capital that its founders have put up. According to the company's

filing, vodafone group plc has a debt-to-equity ratio of 1.249 percent. This is 99.08% lower than

the Communication sector and 98.96% lower than the Telecom Services sector. All UK stocks

have a debt-to-equity ratio of 97.44 percent, greater than that of the corporation (Salvioni, and

Astor, 2013).

The debt-to-equity ratio has been negative over the previous five years, as shown below

(205.37 percent). Compared to the average industry ratio of 43.98 percent, the current ratio has

been 40.67 percent during the previous five years (Scherer, A.G. and Voegtlin, 2020)
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Vodafone debt-equity ratio graph

cash-flow statement analysis

As a report on the company's cash management, the cash-flow statement summarizes the

company's activities and investment sources and any cash outflows associated with the business's

operation and investments, if any (Kalam, 2020). Vodafone's free cash flow growth over the last

four years has been 22.05 percent, compared to the industry average of 21.23 percent (Kalam,

2020).
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Income statement analysis

During a reporting period, the income statement shows the financial performance. A

company's performance is evaluated by analyzing its revenue, costs, and net profit or loss.

Alternatively, it's known as the profit and loss statement (P&L). According to the table below,

revenue growth has averaged 6.18 percent over the previous five years, while industry growth

has averaged -0.88 percent. Net income has decreased by 334.73 percent over the previous five

years, compared to an industry average of a loss of 570.14 percent (Sternberg, 1998).

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The BCG Matrix for Vodafone

Vodafone's BCG Matrix will assist the company in executing business-level initiatives

across its many divisions and subsidiaries (Sternberg, 1998). The BCG Matrix for Vodafone's

key business divisions will be mapped out.

Stars

The financial services strategic business unit is one of Vodafone's brightest BCG

matrices. It engages in activities that have the potential for future expansion. This SBU generates

a significant amount of money for Vodafone. Vodafone must purchase into the rest of the supply

chain in order to become more self-sufficient (Sternberg, 1998). This Strategic business unit has

a lot of potential, and this will help it increase its profitability. Vodafone's BCG matrix includes

a star for the company's No. one product Strategic business unit, which is also the company's

most profitable product. A huge market opportunity exists since customers demand products like
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this and others like it. For this SBU, Vodafone should follow a product development strategy that

involves doing research and development to come up with new features for the product

(Filatotchev and Toms, 2006). Adding more consumers and boosting income will help

Vodafone.

Vodafone's BCG matrix considers this business unit to be a shining star since it has a 20

percent market share in its niche. In addition, it's the most often used item in this classification.

By 2020, the market is expected to have grown by 5%, which indicates that the growth rate will

continue to be robust (Filatotchev and Toms, 2006). In order to get into the market, Vodafone

needs take use of its current services. For example, the corporation might enhance its distribution

methods in order to better serve markets that are now under-serviced. Vodafone's revenue will

increase as a consequence.

Cash Cows

Vodafone's BCG matrix includes the supplier managerial service strategic business unit

as a cash cow. Over the years, Vodafone has made a large amount of money. Although Vodafone

has a large market share, some firms decide to handle their suppliers instead of outsourcing them

(Filatotchev, and Toms, 2006). We propose that Vodafone suspend future investment in this

company and continue to run it as long as it is profitable.

The company's No. 3 brand strategic business unit is a cash cow in Vodafone's BCG

matrix. This product has a 25 percent market share, making it a game changer. Furthermore,

Vodafone dominates this market (Filatotchev and Toms, 2006). This is a pattern that has

emerged in recent years. Vodafone is the dominant player in this market. Consequently, the
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company has to spend in R&D to maintain its brand current. Consequently, the market will

increase and this cash cow will rise to prominence. As a consequence, Vodafone's overall sales

would increase.

International food strategic business segment of Vodafone's BCG matrix generates most

of its revenue. Despite a change in customer tastes, this company's business unit holds a tenth of

the market share (Sternberg, 1998). As a result of the change in trends, the market's growth rate

has decreased. Vodafone will have to make a significant investment to keep this important

business area afloat. If Vodafone loses money and turns become a dog, it should abandon this

critical business division.

Question Marks

The strategic business unit for local foods at Vodafone is marked with a question mark on

the BCG matrix. Customers are putting increasing importance on locally based items in current

market trends. Because of this, the market is expanding at a rapid pace (Chen, Wang and Wang,

2018). A minor percentage of this market is thus held by Vodafone. In order to come up with

cutting-edge features, Vodafone needs invest in R&D. The company's core business unit will be

a moneymaker in the future thanks to this product development strategy.

According to the BCG matrix, the company's No. 4 product strategic business unit is up

for grabs. There is a lot of room for growth in this main business unit's market. The previou s

several years have seen a loss for this crucial industry category, though. Research and

development teams have likewise been unable to innovate with it (Chen, Wang and Wang,
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2018). It is in Vodafone's best interest to depart the market and prevent any more financial

losses.

The strategic business unit for confectionary in Vodafone's BCG matrix is marked with a

question mark. The confectionery industry has seen consistent growth during the previous

several decades. Even yet, Vodafone only has a small portion of this attractive market. The poor

sales of Vodafone may be attributed to its limited market penetration and distribution in this

industry. Focusing on market penetration is the best way for Vodafone to get its products into the

hands of consumers. This move will turn Vodafone's strategic business section into a cash cow

(Sternberg, 1998).

Dogs

In Vodafone's BCG matrix, the plastic bags strategic business unit is a dog. Losses have

continued to mount for this critical part of the corporation over the last five years (Sternberg,

1998). It operates in a market that is in decline because of environmental concerns. Vodafone's

losses will be minimized if it sells up this critical business sector.

Brand strategic business unit is a dog in Vodafone's BCG matrix. In the last five years,

this market segment has seen a drop. The company is also losing money in this critical business

sector. Environmental advancements, however, may lead to a growth in the business in the

future. With the right amount of investment, Vodafone can convert its struggling business into a

cash cow. Vodafone will be able to reap the benefits if the market expands in the future

(Sternberg, 1998).
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The strategic business unit for synthetic fiber products in Vodafone's BCG matrix is a

dog. Due to a decrease in demand for these products, Vodafone has been in the red for the last

three years. This product has a very small percentage of the market (less than 5%). Vodafone

may contemplate selling its critical business section in order to avert more losses.

If you look at the BCG matrix, Vodafone's strategic business unit for artificially-flavored

products is a dog. These products were only just released, thus there was a lot riding on their

success. However, as more people grow concerned about their health, they are avoiding artificial

flavorings in their products. The market share held by Vodafone is minuscule. This product

should be returned to Vodafone in accordance with the advice of the manufacturer.

Vodafone Current financial strategy.

A company's financial strategy focuses primarily on acquiring and utilizing financial

resources. The primary goal is to make sure that the company's current and future financial

commitments are met with enough and regular funding. Accounting, cost structure analysis,

profit estimation, and other financial operations are all part of the financial strategy. Resources,

usage, and financial management are all addressed in the financial plan (Noh, 2018). By aligning

financial management with corporate and business goals, it aims to provide a company with a

competitive edge. Vodafone's current financial strategy is heavily reliant on borrowing money.

According to many experts, debt financing occurs when a company generates funds by selling

debt products, most often in the form of bonds or bank loans (Chen, Wang and Wang, 2018).

Financial leverage is a common term for this kind of finance. For the money, the institutions or

people become guarantors and promise to pay back the loan's principal and interest.
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Vodafone's goal is to supply the company with reliable, cost-effective capital for

financing. Long-term and short-term capital market offerings and borrowing facilities are used to

finance the Group's current borrowing strategy (Chen, Wang and Wang, 2018). Vodafone may

decide to borrow on a non-recourse basis in certain developing markets. Short-term financing

needs are provided by Vodafone's commercial paper program, which is largely used to finance

long-term debt. The corporation uses derivatives and collateral support agreements to manage

currency and interest rate risk and to lessen the credit risk of banking counterparties.

Expansion and purchase of rivals and similar firms, such as Vantage Towers, are

alternative options. Vodafone's first debt funding may have resulted from the company's

dedication to responding to increased customer demand by implementing a rapid growth

strategy. By spending heavily on its supply chain, Vodafone achieved this fit. Even while debt

financing is wonderful in certain sectors, it cannot be disputed that this money will provide larger

returns if utilized wisely and only for positive results (Nalwaya, and Vyas, 2014).

I looked at Vodafone's liquidity ratios and operational expenses to see whether the

company's debt financing had been effectively used during the previous four fiscal years. It is

clear from the statistics that Vodafone has good liquidity ratios and is well-positioned to meet its

short-term financial obligations (Kalam, 2014). Despite this, company expenses have risen faster

than profits. The following are some drawbacks of using debt financing: Debt financing's key

negative is that it requires the corporation to make regular monthly payments of interest and

principal. It's been shown that many companies have cash flow issues, which might make it more

difficult to make monthly payments (Kalam, 2014). Late and missed payments are usually met

with stiff penalties, including late fees and collateral loss.

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Proposed financial strategy.

The Finance Strategy at Vodafone should largely focus on the current market. Equity

financing is the most effective financial option. According to several scholars, Equity financing

is the process of raising funds via the sale of company stock. If you acquire stock in a

corporation, you may also purchase the company's rights (Gompers, and Lerner, 2003). It is the

selling of common stock, share warrants, preferred stock financing, and other equity instruments

that some analysts define as equity financing. As a result of not requiring repayment of the loan,

this financial approach is critical to the company's success. Even if the business does not make a

profit in the first instance, the corporation does not have to pay interest on a monthly loan. As a

result, management will have more leeway to invest more of their growing company's funds.

Debt financing has its drawbacks, including having to share ownership and work together

with others, which may lead to friction and conflict. For this reason, raising capital through stock

is the most time-consuming method currently available. Legal compliance and various other

costs, including charges for brokerage, a merchant financial institution, underwriting fees, a slew

of extra fees, and guarantee fees, are typically required (Chen, Wang and Wang, 2018).

Corporate governance

According to publicly available information, Vodafone complied with the Combined

Code rules during the fiscal year that concluded on March 31, 2021 (Kuznetsova et al.,2018). In

addition, Vodafone ensures that its executives and staff behave honestly and ethically in all

countries where they conduct business.

Board structure and organization

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The board of directors of the company is composed of 15 members. There are four

executive directors and nine non-executive directors, and the Chairman. The Board of Directors

meets at least eight times a year, and the sessions are organized to allow for free debate.

Discussions on strategy, trading, financial performance, and risk management are open to all

directors (Monks, and Minow, 2011). The chairman and CEO have distinct duties and

responsibilities to prevent a single individual from wielding unchecked authority. All current

non-executive directors are also guaranteed to be completely impartial and have no conflicts of

interest with their responsibilities. The non-executive directors are supplied with briefings and

material regularly to help them carry out their responsibilities. Non-executive members will

provide thorough presentations at Board meetings on important issues or new prospects for the

organization (Scherer, and Voegtlin, 2020). Because the Board is confident in each member's

abilities as a director of a publicly-traded firm, it has appointed them to their current positions.

Internal control

The Board of Directors has fully implemented Turnbull Guidance Internal Control.

Combined Code Guidance for Directors for the year under review and up to the annual report's

approval date, as revised (Lagasio, and Cucari, 2019). Using these processes, which are regularly

reviewed, the company was able to detect, assess, and manage any substantial risks.

Relation with Shareholders

To ensure that investors are effectively communicated with and board members

understand shareholder concerns, the company's Chairman plays a key role (Wajeeh, and
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Muneeza, 2012). The company's investor relations program is designed to keep investors

informed about the company's progress.

Conclusion.

Despite Vodafone's impressive annual sales, just a tiny part of those earnings are

profitable. This study reveals that Vodafone's debt financing, bad customer profile, growth plan,

18 rising operational expenditures, and harsh competition may have contributed to this. If the

firm can concentrate on its corporate mission better, it will be able to retain its current level of

success.
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