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LONDON (Alliance News) - Vodafone PLC Tuesday beat earning and revenue expectations in its recently ended financial year, boosted by one-off gains and acquisitions, and delivered a return to organic growth in its fourth quarter as it saw "increasing signs of stabilisation" in many of its European markets and increasing demand for data.
For the year to end-March, Vodafone reported earnings before interest, tax, depreciation and amortisation of GBP11.92 billion, up from GBP11.08 billion a year before, and beating analyst expectations of GBP11.87 billion. However on an organic basis, excluding mergers and acquisitions and at constant currency, Ebitda fell 6.9% due to revenue declines in Europe during the year.
Ebitda was boosted by one-off interconnect settlements in the UK and Egypt, and stripping out this GBP135 million gain, Ebitda was GBP11.78 billion, falling short of consensus expectations.
This was on group revenue of GBP42.22 billion, increased from GBP38.35 billion a year before, and ahead of analyst expectations of GBP41.89 billion.
Vodafone had guided Ebitda in the range of GBP11.6 billion to GBP11.9 billion, excluding its acquisition of Grupo Corporative Ono SA.
Group organic service revenue declined 1.6% for the year as a whole. However, organic service revenue returned to growth in the fourth quarter, rising 0.1%, which Vodafone attributed to steady recovery in Europe and continued good growth in Africa, the Middle East and Asia.
In Europe, organic service revenue fell 4.7% for the year, due to continued pressures from competition, regulation, and the macroeconomic environment. However, in Africa, the Middle East and Asia organic service revenue rose 5.8% on continued growth in most of its major markets.
Service revenue excludes revenue from selling handsets, and includes all revenue related to the provision of ongoing services.
Vodafone reported strong demand for data products, with data volumes up 81% in the fourth quarter compared to the previous year.
The company said it had continued to make good progress with its GBP19 billion investment programme 'Project Spring', with 63% of its mobile network build plans completed. The company's European 4G footprint has increased to 72%, compared to 32% in September 2013, it said.
It expects to to see "clear improvements in network performance" delivered by Project Spring by the end of its current financial year, which should reduce customer churn, and help stabilise average revenue per user when combined with strong growth in data usage. However, cash flow will continue to be depressed in the year to due to high levels of investment, Vodafone said.
The integration of its acquisitions of Kabel Deutschland and Ono are on track, Vodafone said, with synergies in line with its expectations.
For its current financial year Vodafone is guiding Ebitda in the range of between GBP11.5 billion and GBP12.0 billion, and to be free cash flow positive after all capital expenditure, before mergers and acquisitions, spectrum and restructuring costs.
Total capital expenditure is expected to be around GBP8.5 billion to GBP9.0 billion.
Vodafone proposed a final dividend of 7.62 pence per share, taking its total dividend for the year to 11.22 pence, up from 11.0 pence a year before. The company reiterated its intention to increase its full-year dividend annually, which it said demonstrates its confidence for future cash flow generation.
"With the assets and skills we have today, further enhanced by the completion of Project Spring, we will be strongly positioned to provide ever improving services to customers and seize these opportunities," said Chief Executive Vittorio Colao in a statement.
On a call with journalists, Colao said that BT Group PLC's acquisition of EE Ltd needs to be watched "with extreme care", as competition in the UK market needs to remain healthy. BT submitted its case to the Competition and Markets Authority on Monday, appealing for a fast track to a phase 2 investigation.
Colao said he was willing to "vocally" address the deal, and suggested that BT and EE would need to release some spectrum, and EE should release Hutchison Whampoa Ltd, which owns the Three network, from their network sharing joint-venture.
Colao declined to comment on speculation that Vodafone might make a bid for Virgin Media owner Liberty Global PLC.
Shares in Vodafone are trading down 2.7% at 227.90 pence Tuesday morning, the second biggest faller in the FTSE 100.
Michael van Dulken, head of research at Accendo Markets, said that despite a "multiple of available positives", investors seem to be focusing on a 19% fall in adjusted operating profits excluding exceptional costs, and a more cautious outlook than expected as it presses ahead with network investment.
Meanwhile, Nomura said it believes the market is likely to be left somewhat disappointed by the results, as tangible benefits from Project Spring are not evident at the group level, and Vodafone's Ebitda guidance is marginally below consensus expectations.
By Hana Stewart-Smith; hanassmith@alliancenews.com; @HanaSSAllNews
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