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Vodafone Europe saw another year of organic service revenue decline
While Vodafone Europe saw another year of organic service revenue decline this was more than offset by growth elsewhere. Vodafone therefore managed to increase its revenue and adjusted profit in the 2010/11 financial year despite significant headwinds.
The split in fortunes within the European economies is stark to see in Vodafone’s full-year results (year to 31st March 11). While the more stable economies of northern Europe (Germany, UK, Netherlands) generated 2.7% organic revenue service growth for Vodafone the rest of Europe saw a decline of 2.9% driven by Spain and Greece.
The bottom line is that Europe, Vodafone’s most important region, saw a slight decline in organic service revenue of 0.4%. However, this was a recovery from last year’s decline of 3.8%.
Furthermore, if the impact from the Mobile Termination Rate (MTR) changes was excluded growth in Europe would have been 2%. The MTR regulatory reforms in Europe have made the mobile industry less profitable while the group is also seeing voice price declines.
Vodafone has become much more than just Europe, though, with the regions outside of the continent - Africa, Middle East and Asia Pacific or AMAP as Vodafone calls it - performing well with organic services revenue of 9.5%. Thus overall Vodafone saw 2.1% organic service revenue growth in FY 10/11 thanks to the performance outside of Europe.
Key contributors to the weak performance in Europe were Spain and Greece while the key positive contributors in the AMAP regions were India and Vodacom in South Africa. The strength of India is encouraging given previous strong price competition.
Drilling down to the bottom line and a fall in EBITDA margins pushed group EBITDA down marginally. However, when associate income is taken into account adjusted operating profits increased by 1.8% on an organic basis and for adjusted earnings per share 4%.
This overall performance allowed Vodafone to increase the final dividend for the year by 7.1% bringing the total dividend for the year to 8.9 pence. The target is for 7% per annum dividend growth to 2013 helping to boost the yield which stands at 5.2% for the year just ended.
Vodafone’s recent focus has been on divesting stakes in various businesses. A result of this is guidance for lower reported results for the current year but if these were excluded last year Vodafone would show growth.
Vodafone is also undertaking a share buyback programme with the repurchase of £2.1bn of stock last year and aims to buyback £6.8bn in total. This is as the group has realised £14.2bn through the disposal of non-controlled interests. The stake in US firm Verizon remains but Vodafone may start receiving dividends from the investment this year.
This report was produced by Senior Research Analyst, Andrew Latto.
