Vodafone reported what is being described as its biggest ever fall in full-year sales, as the operator also said it was happy with its Verizon Wireless stake and would reinvest the latest Verizon dividend payment of £2.1 billion (€2.45 billion) to counter weaknesses in Southern Europe.
In its results for the financial year to the end of March 2013, the group said revenue fell 4.2 per cent to £44.4 billion (€51.9 billion) while EBITDA fell 3.1 per cent to £13.3 billion. The company added that the adjusted operating profit was above guidance, up 9.3 per cent at £12.0 billion. Reuters said the contribution from Verizon Wireless and cost cuts elsewhere helped Vodafone to offset the increasing economic and regulatory pressures in Europe.
In a statement on the results, Vodafone CEO Vittorio Colao said the results were hit by a combination of continued tough economic conditions, particularly in Southern Europe, where revenue fell by 11.6 per cent, and an adverse European regulatory environment.
"The macroeconomic environment in Southern Europe has been very challenging, and European regulation continues to depress returns in the industry, rather than incentivise investment," he said.
The industry had hoped to get some hints from the CEO on what the group might do with its 45 per cent stake is US operator Verizon Wireless, particularly against the background that Verizon Communications is reported to be working on a $100 billion deal for the stake it does not own in the operator.
But Colao remained upbeat on the Verizon Wireless business, and said he would not bow to pressure to do any deal, Reuters reported. The CEO noted that the Verizon Wireless "continued to achieve strong growth in revenue, EBITDA, cash flow and market share".
According to Reuters, Colao said he and his chief lieutenant, CFO Andy Halford, are happy holders of the stake, and the situation would only change when they received an offer that was preferable to the existing structure, in terms of dividends received and tax paid. The company said the £2.1 billion ($3.2 billion) dividend paid by Verizon Wireless for the last financial year would be retained in the business.
"We are in a very comfortable situation, we have an ownership of an asset that delivers a pretty important amount of value to our shareholders, which also has liquidity, and is in a country which has a fantastic market structure, with a company that is the leader," Reuters quoted Colao as saying. "It is a pretty good position to be in. [But] if an offer comes that is more advantageous than the current situation, then of course we will look at it."
Nevertheless, Vodafone remains under considerable pressure across its business, with particularly steep revenue declines in Italy (12.8 per cent) and Spain (11.5 per cent). The group also took a £1.8 billion impairment charge on its business in Italy, taking total writedowns for Spain and Italy for the year to £7.7 billion.
Bloomberg noted that a bright spot has been the performance of Vodafone's newer markets in Africa, Asia and the Middle East. The company's African venture Vodacom has already reported a 23 per cent increase in full-year profits, and said it plans to begin operating in three additional countries by the end of 2014 as it seeks to bring data services and smartphones to new markets, according to Bloomberg.
On the general group's strategy, Colao said he was pleased with progress made so far by the Vodafone Red tariff plans, and said Vodafone Red is now in 14 markets and had 4.1 million customers at 12 May 2013. The goal now is to reach 10 million Vodafone Red customers by March 2014, and extend the 3G footprint at 43.2 Mbps and LTE coverage across the group's five major European markets to around 80 per cent and 40 per cent, respectively, by March 2015.
The company also said further progress had been made on data, with organic revenue growth of 13.8 per cent and European contract smartphone penetration of 54.8 per cent, up 9.9 percentage points year-on-year.
Colao further pointed to advancements in the company's plan to be able to offer converged fixed and mobile services under a single plan, highlighting the recent deal to use Deutsche Telekom's VDSL network in Germany, the acquisition of Cable & Wireless Worldwide and TelstraClear, and increased fibre deployments in Spain and Portugal.
"I remain very excited about our longer term prospects, as customer appetite for high speed data grows rapidly, and companies look to embed mobility into their corporate strategies," said Colao in the results statement. "The launch of Vodafone Red has been very successful, providing a solid underpinning for future revenue…Our new targets for high-speed mobile network coverage…combined with our growing capabilities in next-generation fixed-line access, strengthen our Vodafone 2015 strategy."
In separate reports on developments in the UK market, Vodafone has delayed the rollout of its LTE services there until September as it awaits the launch of an iPhone 5 that is compatible with its LTE frequencies, according to the Guardian. At present, the iPhone 5 will only work on the 1800 MHz spectrum used currently by EE for LTE services.
A spokesperson for the UK operator confirmed that LTE in the UK would be launched by "the end of the summer," but stressed that Colao said specifically that he was not making a connection between the 4G launch and any speculation about an iPhone.
Meanwhile other reports also said Vodafone UK has cancelled its nine-year wholesale mobile service relationship with BT, and has pulled out of current talks on securing a future wholesale deal that would allow the former UK incumbent to enter the mass-market consumer mobile market via an MVNO arrangement. Reuters reported that the Vodafone/BT deal was cancelled once Vodafone acquired rival fixed-line business Cable & Wireless Worldwide, but Vodafone had been in the running to win a new contract with BT.
O2 is seen as the most likely candidate for a future wholesale mobile relationship with BT, largely based on the past links between the two companies.
- see this Vodafone statement
- see this Reuters article
- see this Bloomberg article
- see this separate Bloomberg article
- see this third Bloomberg article
- see this Guardian article
- see this separate Reuters article
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