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Vodafone checks revenue decline

Vodafone's hefty investments in 'quad-play' and '4G' are starting to offset weakness in Europe
May 19, 2015

EE, O2, Three and many other telecom companies are teaming up to upgrade their networks and offer 'quad-play' bundles of TV, broadband and both fixed-line and mobile telephony. But so far Vodafone (VOD) has held onto its autonomy, banking instead on developing markets, acquisitions and network investments to offset weakness in Europe.

IC TIP: Hold at 227p

Whether that strategy is working remains unclear. The storied mobile operator's underlying revenues edged upward in the final quarter for the first time in three years. But for the full year they were still down 1.6 per cent. And the bottom line fared even worse, with adjusted group cash profits down 7 per cent to £11.9bn.

Six per cent growth in mobile users and surging data usage drove underlying full-year service revenues up 7 per cent in Asia, the Middle East and Asia Pacific (AMAP). Moreover, increasing numbers of contract customers and rising data demand improved second-half trading in several of Vodafone's key European markets. However, full-year regional sales slid 4 per cent amid fierce competition, regulation and a lukewarm economy.

Capital spending soared 46 per cent to £9.2bn as Vodafone ploughed money into 'Project Spring', its two-year, £19bn investment programme. In the space of 18 months it has more than doubled its high-speed '4G' network coverage in Europe to 72 per cent. Broader coverage has enabled it to quadruple its 4G customer base to 20.2m.

Vodafone did take some steps to realise its quad-play ambitions. Its TV and broadband customer bases in Europe swelled to 9.1m and 11.3m respectively. It also shelled out €7.2bn (£5.2bn) on leading Spanish cable operator Ono, netting 1.9m customers and a high-speed network that can reach 7m homes. Management are confident that the launch of consumer broadband and TV in the UK this year will fuel further gains.

Prior to these results, broker Jefferies expected pre-tax profit of £2.16bn, giving EPS of 5.13p, rising to £2.84bn and 6.76p in the year to March 2017 (2014-15: £2.26bn and 5.45p).

VODAFONE (VOD)
ORD PRICE:227pMARKET VALUE:£60bn
TOUCH:227-228p12-MONTH HIGH:246pLOW: 179p
DIVIDEND YIELD:4.9%PE RATIO:11
NET ASSET VALUE:249p*NET DEBT:33%

Year to 31 MarTurnover (£bn)Pre-tax profit (£bn)Earnings per share (p)Dividend per share (p)**
201145.99.5027.98.90
201238.84.1412.39.52
2013† (restated)38.0-3.48-15.710.19
201438.3-5.2742.111.0
201542.21.1021.511.22
% change+10-121-49+2

Ex-div:11 Jun

Payment:05 Aug

*Includes intangible assets of £43.5bn, or 164p a share

**Excludes special dividends of 4p in 2012 and 172.94¢ in 2014

†Restated to reflect disposal of Verizon Wireless