Intense price competition and weak consumer spending on the continent left Vodafone (VOD) little choice but to write down the value of its European operations by £6.6bn. It also guided towards cash profits as low as £11.4bn this year - down from £12.8bn - citing hefty network investments. Investors sent the mobile operator's shares down 4 per cent.
European service revenues account for about 60 per cent of Vodafone's total sales, so the region's performance is key. Unfortunately, organic service revenues there slumped 9 per cent to £26bn, dragged down by double-digit declines in the troubled consumer markets of Italy and Spain. Adjusted operating profits followed suit, falling by more than 30 per cent across Europe - and more than halving in Spain.
There was better news further afield. Strip out currency effects and service revenues from India climbed 13 per cent as Vodafone added over 14 million customers in the country. That drove an 83 per cent increase in adjusted operating profits. Moreover, Vodafone has begun its £7bn network investment scheme, 'Project Spring', with ramped-up network investments in India and Germany.
Vodafone also added two new contacts to its phone book. It bought Kabel Deutschland and Spain's Ono for about €7bn (£5.7bn) apiece in a bid to buttress its flagging European mobile business with fixed-line, TV and broadband - a so-called "quad-play" strategy. It seems to be working: Vodafone's bundled mobile sales grew about 8 per cent in its fourth quarter to account for over half of mobile service revenues.
However, the buying spree will disappoint any hopes that Vodafone will be sold off. That's a dwindling prospect in light of potential suitor AT&T's agreement to buy satellite-TV specialist DirecTV this week - not to mention the rumpus over Pfizer's bid for AstraZeneca (AZN).
Broker JP Morgan Cazenove expects pre-tax profits of £2.1bn this year, giving EPS of 5.9p, rising to £2.7bn and 7.2p in 2015-16.
| VODAFONE (VOD) | ||||
|---|---|---|---|---|
| ORD PRICE: | 209p | MARKET VALUE: | £55bn | |
| TOUCH: | 208-209p | 12-MONTH HIGH: | 252p | LOW: 178p |
| DIVIDEND YIELD: | 5.3% | PE RATIO: | 5 | |
| NET ASSET VALUE: | 268p* | NET DEBT: | 19% | |
| Year to 31 Mar | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p)** |
|---|---|---|---|---|
| 2010 | 44.5 | 8.7 | 16.4 | 8.31 |
| 2011 | 45.9 | 9.5 | 15.2 | 8.90 |
| 2012 | 46.4 | 9.6 | 13.7 | 9.52 |
| 2013† (restated) | 38.0 | -3.5 | -15.7 | 10.19 |
| 2014 | 38.3 | -5.3 | 42.1 | 11.0 |
| % change | +1 | - | - | +8 |
Ex-div: 11 Jun Payment: 6 Aug †Restated to reflect the Verizon disposal *Includes intangible assets of £47bn, or 177p a share **Excludes special dividends of 4p in 2010 and 172.94¢ in 2014 | ||||
