Vodafone results strong, but takes hit in fragmented India

Vodafone reported its 2010 guidance was exceeded today, with revenue trends to improve in the fourth quarter, pushed up by mobile data, enterprise and roaming, plus fixed broadband in Europe.

Vodafone reported that Group revenue increased by 8.4% to £44.5 billion. Group service revenue increased by 8.9% to £41.7 billion. Q4 organic service revenue fell 0.2%, a second successive quarterly improvement.

However, the business took a hit in India of £2.3 billion due to escalating spectrum costs and fierce competition in the market. The increased competition has been sparked by the Indian government, which has been handing out licenses to many more operators since Vodafone’s entry into the region. CEO, Vittorio Colao, branded the flurry of operators entering the Indian market the result of nonsensical rules that are causing a fragmentation of the market.

Although Vodafone’s operational performance in India since acquisition in 2007 has been strong, the award of six new national licences in the market one year after Vodafone’s entry and the resulting intense price competition have led to an impairment charge of £2.3 billion, partially offset by a £0.2 billion reversal related to Turkey.

Europe service revenue declined 3.5% to £28.3 billion. In Q4 service revenue declined 1.7%, an improvement on Q3. Strong revenue growth continued in data and fixed broadband.

In mobile, improvements were driven by data, enterprise and roaming, with voice usage and price trends broadly similar to the previous quarter. Vodafone’s proportionate mobile customer base was 341 million with 8.5 million net additions during Q4.

However, Africa and Central Europe service revenue declined 1.2% to £7.4 billion. In Q4 service revenue increased by 2.4%, a 2.9 percentage point improvement on Q3, driven by strong revenue growth in Turkey (+31.3%) and continued growth at Vodacom (+4.6%).

Asia Pacific and Middle East service revenue increased by 9.8% to £6.1 billion. In Q4 service revenue increased by 5.0%, lower than the previous quarter due to the start-up of Indus Towers in Q1 2009. India again generated quarter on quarter revenue growth. Its customer base now exceeds 100 million.

Group EBITDA was £14.7 billion, up 1.7%. The EBITDA margin declined in line with expectations.

Verizon Wireless, the US joint venture with Verizon Communications in which Vodafone has a 45% stake, posted another set of strong results for the financial year with service revenue growth of 6.3%.

Adjusted operating profit was £11.9 billion using guidance assumptions, exceeding revised guidance. On a reported basis, adjusted operating profit was £11.5 billion.

Adjusted earnings per share was 16.11 pence with growth impacted by the inclusion of a tax benefit and associated interest credit in the prior year. Excluding this benefit adjusted earnings per share increased by 6.6%.

Free cash flow grew 26.5% to £7.2 billion, exceeding guidance and reflecting the benefits of a working capital improvement programme. Capital investment was maintained at prior year levels.

The Company stated: “In Europe we targeted commercial investment in high value and data customers, increased our range of value enhancement products and improved our device portfolio to increase competitiveness; in India we increased revenue market share; and the impact of our turnaround strategy is now evident in Turkey.

“Data revenue exceeded £4 billion for the first time, up 19.3%, with increased take up of data-enabled smartphones across Europe. The Group’s active data users now exceed 50 million.

“Fixed line revenue grew by 7.9%(*) to £3.3 billion with strong broadband customer growth and increased market share. The Group’s fixed broadband customer base is now 5.6 million.

“We have launched integrated services for enterprise customers across Europe. Vodafone Global Enterprise delivered organic revenue growth and now has a customer base of over 550 multinational businesses.

“Our £1 billion cost savings programme was delivered one year ahead of schedule, partially used to finance growth initiatives and volume increases. New two-year £1 billion cost programme, announced in November 2009, is now under execution.”

Vittorio Colao, chief executive, commented: “Vodafone’s financial results exceeded our upgraded guidance on all measures. Revenue trends have improved again in Q4 driven by growth in mobile data and fixed broadband. Cost reduction targets were delivered ahead of schedule enabling commercial reinvestment to improve market share and further strengthen our technology platforms. Free cash flow of £7.2 billion and confidence in Vodafone’s prospects have enabled us to increase dividends by 7% and to target 7% per annum growth in total dividends per share for the next three years. We are creating a stronger Vodafone, which is positioned to return to revenue growth during the 2011 financial year, as economic recovery should benefit our key markets.”

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