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Vodafone Misses Earnings and Rev

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VODAFONE GROUP PLC (VOD - Free Report) reported its financial results for the year ending Mar 31, 2013. The company reported earnings per share of 15.65 pence (25 cents), missing the Zacks Consensus Estimate of $2.48. Earnings per share improved 5.0% year over year from 14.91 pence (24 cents) in fiscal 2012 backed by higher adjusted operating profit and a lower number of shares outstanding.

Consolidated revenues of £44.445 billion ($70.26 billion) dropped 1.4% year over year on an organic basis and 4.2% on a reported basis. Revenues also missed the Zacks Consensus Estimate of $71.5 billion.

Group service revenues (92% of total revenue) decreased 1.9% year over year on an organic basis to £40.942 billion ($64.7 billion). On a reported basis, group service revenues dropped 4.5% year over year. The decline resulted primarily from lower revenues from European operations, regulatory issues and competitive pressures that restricted growth in the emerging markets.

On an organic basis, consolidated data revenues were £6.7 billion ($10.6 billion), up 13.8% year over year, boosted by strong smartphone and mobile Internet sales. Messaging revenues fell 10.8% to £4.708 billion ($7.1 billion) from the prior year. Voice revenues dropped 12.6% to £22.462 billion ($35.5 billion) while fixed-line revenues rose 29.6% year over year to £4.688 billion ($7.4 billion). Other service revenues were £2.382 billion ($3.8 billion) in fiscal 2013, up 13.4% year over year.

Segment Results

Northern and Central Europe Service: Revenues increased 2.7% year over year on a reported basis to £7.857 billion ($12.4 billion) driven by growth in Enterprise revenues. Service revenues increased 2.8% year over year on a reported basis but dropped 0.2% on an organic basis to £18.768 billion ($29.7 billion).

Southern Europe: Revenues of £10.522 billion ($16.6 billion) were down 16.0% on a reported basis and 10.8% on an organic basis from the prior year. Service revenues decreased 16.7% year over year on a reported basis and 11.6% on an organic basis to £9.635 billion ($15.2 billion). The decline was due to reductions in interconnection charges, pricing pressures and macroeconomic weakness that offset growth in data revenues. Declining revenues from countries like Italy and Spain were also responsible for this slump.

Africa, Middle East & Asia Pacific (AMAP): Revenues from this segment dropped 2.9% on a reported basis but climbed 4.3% organically year over year to £13.466 billion ($21.3 billion). Service revenue fell 3.2% year over year on a reported basis but grew 3.9% on an organic basis to £12.345 billion ($19.5 billion) driven by strong data and subscriber growth in India, Vodacom, Ghana and Qatar, and Egypt partially offset by weak performances in Australia and New Zealand.

Subscriber Trends

During the year under review, Vodafone’s total subscriber base reached 403.875 million (79.6% represented by prepaid). In Northern and Central Europe, the company lost 1.6 million subscribers, bringing the region’s total customer base to 93.979 million at the end of Mar 2013. In Southern Europe the company lost 829,000 customers, bringing the total to 50.9 million. Africa, Middle East & Asia Pacific lost 1.6 million customers, resulting in total subscription of 258.36 million.


Vodafone Group generated free cash flow of £5.6 billion ($8.8 billion), down 8.1% year over year. Capital expenditure was £6.266 billion ($9.9 billion), down 1.6% from the prior year.


The company’s board of directors approved a dividend per share of 6.92 pence, representing growth of 7.0% year over year. The dividend will be paid on Aug 7, to shareholders of record on Jun 14.


For fiscal 2014, management expects adjusted operating profit of £12.0 billion to £12.8 billion. Free cash flows are expected around £7.0 billion, including £2.1 billion dividend received from Verizon Wireless of Verizon Communications (VZ - Free Report) .

Going forward, management expects EBITDA margin of the company excluding M&A and restructuring costs to register marginal decline on a year-over-year basis due to the ongoing weak macroeconomic environment in Europe.

Our Analysis

Despite the strong growth prospects of Vodafone, we are concerned about a decline in service revenues and subscriber counts, particularly in European continent. Continued economic weakness, regulatory pressure, stiff competition, reductions in mobile termination rates (MTRs) and roaming prices remained detrimental to the company’s growth. However, Vodafone’s strong growth in emerging markets can partially offset challenging market conditions and provide a high profit margin given lower infrastructural costs. Further, the company is increasingly making efforts to shift toward more data centric services as the level of data services in these markets remain considerably low, providing opportunities for deeper penetration.  

Vodafone, which competes with other European telecom companies like France Telecom and Telecom Italia S.p.A (TI - Free Report) , currently has a Zacks Rank #3 (Hold).

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