Vodafone finals

Vodafone Group PLC is engaged in providing voice and data communications services for both consumers and business customers, with a significant presence in Europe, the Middle East, Africa and the Asia Pacific region.  I have a holding in my income portfolio (epic code: VOD).

 

 

Vodafone announced their final results today, that in summary underlined the continuing challenges in their European markets and, the substantial impact on their finances of the sale of their Verizon Wireless stake that gives the company the breathing space to tackle those European issues. 

 

Revenue increased by 0.8% to £38.3bn and if we include the share of associate revenue declined by 1.9% to £43.6bn.  EBITDA at £12.8bn declined by 5.4% and adjusted operating profit declined by 37.4% to £7.9bn.

 

The statutory operating loss was -£3.9bn after allowing for discontinued operations' profits (£3.2bn), impairment charges for Germany, Spain, Portugal, Czech Republic and Romania (-£6.6bn) and various other charges including amortisation of intangibles and restructuring costs (-£2bn), compared to a -£2.2bn loss last year.

 

EPS from continuing operations was 41.77p, although a loss of -31.21p if we exclude the deferred tax asset, compared to a loss of -15.66p last year.

 

As expected there was a final dividend of 7.47p, giving total dividends per share of 11.0p an increase of 8% on last year.

 

Free cash flow was a negative -£1.8bn, although net debt decreased substantially by £13.1bn to £19.1bn due to the proceeds from the sale of Vodafone's stake in Verizon Wireless.  This has reduced gearing from 45% to 27% and debt/EBITDA from 2.4x last year to 1.5x, this should provide Vodafone with the financial capacity to improve its position in the difficult European market.  

 

For the financial year 2015 management expect EBITDA to be in the range of £11.4bn to £11.9bn and free cash flow to be positive, after all capex, but before spectrum and restructuring costs.  They expect their total capex programme to be around £19bn (including Project Spring) in the two years to March 2016 and have stated that they Intend to grow dividends per share.

Vodafone are making some big investments in its network, with the intention of creating "clear blue water" between them and their competition on service and support.  This is likely to hurt results and free cash flow (that's real FCF not some management adjusted figure) over the next two years, but if successful will provide superior returns for investors.  Meanwhile the 5.2% yield makes it an attractive income share, providing they do not slip up with Project Spring along the way.