Vodafone Profits Soar, but Warns of Troubled Outlook Ahead

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Vodafone has reported record profits for the past year despite a further decline in revenues, thanks to the disposal of its 45% stake in Verizon Wireless.

The company saw revenues for the year fall by 1.9 percent to £43.6 billion, while profits rocketed to £59.4 billion, thanks largely to a pre-tax gain of £45 billion from the Verizon Wireless sale, and the recognition of deferred tax assets of £19.3 billion.

The Group's emerging markets businesses have delivered strong organic growth this year. In particular, data usage in emerging markets is really taking off, providing further growth potential for the Group. This has however been offset by significant ongoing pressures in the European operations, from a combination of a weak macroeconomic environment, regulatory headwinds, and stiff competition. 

As a consequence, the company wrote down the value of its subsidiaries in Germany, Spain, Portugal, Czech Republic and Romania by £6.6 billion as those markets continued to struggle.

As a result, the underlying EBITDA fell by 5.4 percent to £12.8 billion. The underlying adjusted profit also fell, by 9.4 percent to £7.9 billion, 

Vodafone also expects EBITDA to fall this year, ending in the range of £11.4 billion to £11.9 billion, principally reflecting the impact of network investment and foreign exchange movements.

Vittorio Colao, Group Chief Executive, commented: "Our operational performance has been mixed. The Group's emerging markets businesses have performed strongly throughout the year: we have executed our strategy well and have successfully positioned ourselves for the rapid growth in data we are now witnessing. In Europe, where we continue to face competitive, regulatory and macroeconomic pressures, we have taken steps to improve our commercial performance, particularly in Germany and Italy, and are beginning to see encouraging early signs."

Group debt nearly halved to £13.7 billion.

Germany

Service revenue decreased 6.2%, with a slightly improving trend in Q4 compared to Q3. Performance for the year was driven by intense price competition in both the consumer and enterprise segments and an MTR cut effective from December 2012, with Vodafone particularly impacted due to our traditionally high ARPU.

Mobile in-bundle revenue increased 2.7% as a result of growth in integrated Vodafone Red offers, which was more than offset by a decline in mobile out-of-bundle revenue of 22.6%.

Italy

Service revenue declined 17.1% driven by the effect of the summer prepaid price war penetrating the customer base and the negative impact of MTR cuts effective from January and July 2013. Mobile in-bundle revenue grew 15.2% driven by the take-up of integrated prepaid plans.

UK

Service revenue decreased 4.4% principally driven by declines in enterprise and prepaid and a 1.9 percentage point impact from MTR cuts, partially offset by consumer contract service revenue growth. Mobile in-bundle revenue increased 0.6% as the positive impact of contract customer growth and greater penetration of Vodafone Red plans into the customer base, with nearly 2.7 million customers at 31 March 2014, offset pricing pressures. Mobile out-of-bundle declined 7.2%, primarily driven by lower prepaid revenue.

Spain

Service revenue declined 13.4%, as a result of intense convergence price competition, macroeconomic price pressure in enterprise and a MTR cut in July 2013. Service revenue trends began to improve towards the end of the year. As a result of a stronger commercial performance and lower customer churn from an improved customer experience, the contract customer base decline slowed during the year and the enterprise customer base remained broadly stable.

Other Europe

Service revenue declined 7.1% as price competition and MTR cuts resulted in service revenue declines of 5.6%, 8.4% and 14.1% in the Netherlands, Portugal and Greece respectively. However, Hungary and Romania returned to growth in H2, and all other markets apart from Portugal showed an improvement in revenue declines in Q4.

In the Netherlands, mobile in-bundle revenue increased by 3.4% driven by the success of Vodafone Red plans. In Portugal, the broadband customer base and fixed line revenues continued to grow as the fibre rollout gained momentum in a market moving strongly towards converged offers, whilst in Greece the customer base grew due to the focus on data. In Ireland, contract growth remained good in a declining market.

India

Service revenue increased 13.0%, driven by continued customer growth, data usage as well as improved voice pricing. Mobile customers increased by 14.2 million during the year yielding a closing customer base of 166.6 million at 31 March 2014.

Data usage grew 125% during the year, primarily resulting from a 39% increase in mobile internet users and a 67% increase in usage per customer. At 31 March 2014 active data customers totalled 52 million including 7 million 3G customers.

Vodacom

Service revenue grew 4.1% driven by strong growth in Vodacom's mobile operations outside South Africa. In South Africa, organic service revenue increased 0.3%, despite the adverse impact of an MTR cut, due to the strong growth in data revenues of 23.5% driven by higher smartphone penetration and the strong demand for prepaid bundles.

Other AMAP

Service revenue increased 2.8%, with growth in Turkey, Egypt, Qatar and Ghana being partially offset by declines in Australia and New Zealand.

Service revenue growth in Turkey was 7.9% after a 5.4 percentage point negative impact from voice and SMS MTR cuts effective from 1 July 2013. Mobile in-bundle revenue in Turkey grew 25% driven by higher smartphone penetration, the success of Vodafone Red plans and continued growth in enterprise.

In Egypt service revenue increased 2.6%, driven by the growth in the customer base, higher data usage and a successful pricing strategy. Service revenue growth in Qatar came as a result of strong net customer additions and the success of segmented commercial offers. In Ghana, service revenue grew 19.3%, driven by an increase in customers and higher data usage in both consumer and enterprise.

EBITDA grew 19.3% with a 3.1 percentage point improvement in EBITDA margin, with improvements in Turkey, Australia, Qatar and Ghana driven by the increase in scale and operating cost efficiencies, and with the contribution from Egypt, partially offset by a decline in New Zealand.

The joint venture in Australia experienced a service revenue decline of 9%.

Kenya's Safaricom, increased service revenue by 17.2% driven by a higher customer base and continued growth in M-Pesa.

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