Vodafone Group has this morning released its financial statements for its 2011-12 trading year, showing relatively flat revenues and profits. A poor performance in Europe was offset by other sectors. Guy Daniels reports.
Flat profits – blame Europe’s economic mess. And if you’re a Vodafone shareholder, just be thankful it’s a global player, otherwise you’ll be crying into your cereal this morning.
Vodafone has just announced its financial results for the year ended 31 March 2012 and they show a relatively stable performance for the year. Group revenue of £46.4bn was up 1.2 per cent on £45.9bn for 2011, whereas group EBITDA was down 1.3 per cent to £14.5bn. Capex remained fairly constant at £6.3bn.
All eyes were on the revenue growth of Verizon Wireless, in which Vodafone owns 45 per cent. Service revenue from the US operator was up by 7.3 per cent over the course of the year, and Vodafone’s share of its profits was up 9.3 per cent to £4.9bn. Vodafone received a £2.9bn income dividend from Verizon Wireless, of which £2bn was paid out as a special dividend to Vodafone shareholders. Vodafone’s share of the net income of Verizon accounted for 42.2 per cent of the Group’s adjusted operating profit
The operator raised £14.8bn from disposals since September 2010, of which £6.8bn is committed to share buybacks. There was a gain on disposal of investments of £3.5 billion, which includes a £3.4bn gain on the sale of the group’s 44 per cent interest in SFR and a £0.1bn net gain on the sale of the 24.4 per cent interest in Polkomtel.
More worryingly, there were impairment charges of £4bn, relating to Vodafone’s businesses in Southern Europe – Portugal, Italy, Greece and Spain – uncharitably called the ‘PIGS’ by economic reporters, due to their recessionary woes. Vodafone said it incurred these charges to its balance sheets due to lower than expected cash flows and an increase in discount rates, “resulting from adverse changes in the economic environment”. Vittorio Colao, Vodafone Group Chief Executive, said:
“Group EBITDA margin fell 0.8 percentage points, as a result of continuing high levels of commercial costs associated with the migration to smartphones, and the difficult trading environment in Spain in particular. Group EBITDA was £14.5 billion, down 1.3% year-on-year, but flat organically before restructuring costs.”
Data revenue growth was up 22.2 per cent, and now accounts for 14.5 per cent of its total service revenues, whilst enterprise revenue growth was up a more modest 2.2 per cent – although it accounts for 23 per cent of total service revenues. There was also revenue growth in emerging markets, with India up 19.5 per cent, Vodacom (South Africa) up 7.1 per cent and Turkey up 25.1 per cent.
Colao says Vodafone’s focus on the key growth areas of data, emerging markets and enterprise is positioning the company well in a difficult macroeconomic environment:
“Our commercial performance and our ability to leverage scale continue to be strong, enabling us to gain or hold market share in most of our key markets, and reduce the rate of margin decline. Our robust cash generation and the dividend received from Verizon Wireless have enabled us to translate this operational success into good returns for shareholders.”
In Europe, organic service revenue was down 1.1 per cent year-on-year. However, when you exclude the impact of regulated cuts to mobile termination rates, Vodafone says revenue actually grew by 1.4 per cent. Vodafone also noted that smartphone penetration in Europe is now at 26.9 per cent, which is an increase of 8.3 per cent year-on-year. According to Colao:
“The tough macroeconomic and regulatory environment in much of Europe has made revenue growth in that region increasingly challenging. However, on a relative basis, we have held or gained share in most of our major markets, continuing last year’s trend.”
The operator says mobile data services offer “the single biggest growth opportunity for the mobile industry since the launch of voice services over 25 years ago”, and that network quality is key to its data strategy. For long-term growth potential, Vodafone is focused on emerging markets. There is further scope for voice services and data remains in its infancy – and as Vodafone states, “we expect most customers’ experience of the internet to be entirely mobile given the relative lack of fixed line infrastructure”.
The company also reports strong growth in M2M, driven by the automotive and utilities sectors, with M2M SIMs growing from 5.3 million to 7.8 million year-on-year. In mobile commerce, it continues to expand its M-Pesa mobile money transfer service, and now has 14.4 million active users in six markets.
Speaking to BBC News, Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said:
“Even though southern Europe threatened to spoil the party, Vodafone’s scale and reach won through. The results are in line with expectations and show particular strength in its preferred strategic areas, such as data and emerging markets.”
Vodafone also provided guidance for the 2013 financial year, expecting operating profit to be in the range of £11.1bn to £11.9bn, yet again reflecting the weaker euro offset by continued profit growth from Verizon Wireless. Vittorio Colao added:
“Our goal over the next three years is to continue to strengthen our technology and commercial platforms through reliable and secure high speed data networks, significantly enhanced customer service across all channels, and improved data pricing models.”
However, the company cautioned analysts that:
“Given larger regulatory reductions than previously envisaged, we now expect organic service revenue growth in the 2013 financial year to be slightly below our previous medium term guidance range.”
Vodafone had previously forecast annual revenue growth for FY13 of between 1 and 4 per cent.
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