Vodafone finals

Vodafone the second largest ( behind China Mobile) mobile telecoms company in the world. I have a holding in my income portfolio (epic code: VOD).

VOD announced their prelims. today.  No great surprises, but underscores the problems that the business has in Southern Europe - service revenue down there almost 17% to £9.6bn and an impairment charge (assets worth less than their book value) of £7.7bn.

In summary, Group revenue was down 4.2% to £44.4bn and down 1.4% on an organic basis. Adjusted operating profit was above the guidance they gave in early February, up 9.3% at £12.0bn. Adjusted EPS was up 5.0% at 15.65p.  These adjusted figures exclude the impairment charge for Southern Europe mentioned above.  Earnings reported (including all exceptional items) were £0.4bn compared to £7bn last year, although last year benefited from the sale of two associated companies for £3.7bn and suffered a £4.1bn impairment charge.  Dividends for the full year are 10.19p up 7%.

Free cash flow for the year was £1bn compared to £3.7bn last year.  Although in addition to this, associate dividends received were £4.8bn compared to £4bn last year.

It is clear that associate dividends (the majority being from Verizon Wireless [VW] in the USA) were critically important for the payment of dividends and share buy-backs totalling £6.4bn.  VW have declared a dividend payable in June and VOD's share will be £2.1bn, to be held within the company thereby reducing net debt, which stood at £33.8bn.  At this level the company's gearing is 47%, with debt at 2.5x EBITDA and operating cash flow covering at just 28% (although 42% if you include cash received from associates).  This is a much weaker position than they have been in previously and, their decision to retain the VW dividend rather than use it for special dividends or share buy-backs as in the past, is understandable.

CEO Colao has stated that the dividend policy going forward is to at least maintain the pay-out per share.  The growth in dividends over the past 5 years has been 7.1% pa. and the investment currently offers a yield of 5.1%, although the days of above inflation increases may be over, until an economic recovery is seen in Europe.