British mobile phone giant
Vodafone Group Plc
(
VOD
) reported adjusted earnings of £0.1491 per share (or earnings per
ADS of $2.38) for fiscal 2012 (ended March 31, 2012). The earnings
missed the Zacks Consensus Estimate of $2.51 and decreased 11% from
the last year.
The lackluster results were due to higher taxes and weaker
operations in Europe. Profitability at Vodafone was impacted by its
strategy to exit minority holdings. These included the sale of
stakes in the French joint ventureSFR, Poland's Polkomtel, China
Mobile and the Japanese wireless operator Softbank Corporation.
Consolidated revenue inched up 1.2% year over year to £46.417
billion ($74.109 billion), outpacing the Zacks Consensus Estimate
of $73.178 billion. The outperformance was driven by increased data
services and market penetration of voice services in emerging
markets. The growth was partially offset by regulatory issues,
ongoing competitive pressures and challenging economic
conditions.
More than half of the revenue growth was organic (up 2.2%) and
came largely from emerging markets. Group service revenue (93.1% of
total revenue) grew 0.3% (1.5% on an organic basis) year over year
to £42.885 billion ($68.47 billion).
Consolidated data revenue climbed 22.2% to £6.23 billion ($9.95
billion). Messaging and fixed-line revenue increased 3.8% and 6.3%
to £5.28 billion ($8.42 billion) and £3.62 billion ($5.78 billion),
respectively. Other service revenue was £2.06 billion ($3.29
billion) in 2012, up 7.6% year over year. However, voice revenue
dropped 5.6% to £25.69 billion ($41.02 billion).
Adjusted operating profit fell 2.4% year over year to £11.532
billion ($18.41 billion) in 2012. Organically, it grew 2.5% on
strong performance by Verizon Wireless.
Segment Results
Europe
Revenues for the European segment grew 0.5% year over year and
slipped 0.1% on an organic basis to £32.181 billion ($51.38
billion). Service revenue in Europe also slid 0.6% and 1.1%
organically to £29.91 billion ($47.75 billion) as growth in
Germany, the UK, the Netherlands and Turkey was offset by declines
across southern European markets, in particular Italy, Spain and
Greece.
Africa, Middle East and Asia Pacific
The Africa, Middle East and Asia Pacific revenue climbed 4.2%
and 8.4% organically year over year to £13.87 billion ($22.14
billion). Service revenue increased 8% year over year on an organic
basis, driven by strong data and subscriber growth in India,
Vodacom, Ghana and Qatar, and return to growth in Egypt that was
partially offset by weak performances in Australia and New
Zealand.
Subscriber Trends
During the fourth quarter, Vodafone added roughly 6.6 million
new mobile connections across its operations, bringing the total
subscriber base to 404.69 million (80.5% represented by prepaid).
Vodacom continued to be a key driver of subscriber growth with net
addition of 4.37 million customers, contributing 62% to total net
addition in the Asia Pacific & Middle East segment.
In Europe, the company lost 1.41 million subscribers, bringing
the region's total customer base to 148.5 million at the end of
March 2012. Africa, Middle East & Asia Pacific added 8.0
million customers, taking the total subscription to 256.2
million.
Liquidity
Vodafone's net debt reduced to £24.42 billion at the end of
fiscal 2012 from £29.86 billion at the end of fiscal 2011.
The company generated free cash flow of £6.1 billion, down 13.4%
year over year but within the guidance range of £6.0-£6.5 billion.
Capital expenditure increased 2.3% year over year to £6.36
billion.
Dividends
During 2012, Vodafone paid a special dividend of £0.04 per share
to its shareholders, including the dividend of Verizon Wireless, a
joint venture between Vodafone and
Verizon Communications Inc.
(
VZ
).
The company will pay a final dividend of £0.0647 on August 1, to
shareholders of record as of June 8. The dividend represents a 7.0%
increment year over year, marking the company's target of minimum
7% dividend growth per annum by March 2013.
Guidance
Vodafone issued its fiscal 2013 guidance. Management expects
consolidated EBITDA margin decline to improve due to continued
healthy growth and operating leverage in Africa, Middle East and
Asia Pacific, and improving cost control in Europe. Adjusted
operating profit is expected in the range of £11.1 billion to £11.9
billion.
Free cash flow is expected to remain stable in the range of £5.3
billion to £5.3 billion, excluding any dividend received from
Verizon Wireless.
Our Take
Coupled with successful smartphone and data services adoption,
we believe Vodafone is well positioned for the upcoming year
through the expansion into emerging markets such as Eastern Europe,
Asia, India and Africa as well as enlarging growth in enterprise
segments. Additionally, the company will continue to focus on
increasing rewards to its shareholders.
Nevertheless, Vodafone continues to face declines in service
revenue and subscriber count, particularly in Italy and Spain, due
to weakness in the economy, a harsh regulatory backdrop and stiff
competition from larger rivals like Verizonand
AT&T Inc.
(
T
). Reductions in mobile termination rates would also pose a major
threat to the stock.
We are currently maintaining our long-term Neutral
recommendation on Vodafone. For the short term (1-3 months), the
stock retains a Zacks #3 (Hold) Rank.
AT&T INC (T): Free Stock Analysis Report
VODAFONE GP PLC (VOD): Free Stock Analysis
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