Vodafone returns to growth and beats forecasts

A strong performance in the fourth quarter helped Vodafone return to annual organic growth for the first time in eight years, with the final dividend also hiked 2% to celebrate completing its Project Spring investment programme.

Thanks to the best quarterly result in Europe for six years and acceleration in Africa, Middle East and Asia Pacific, organic service revenue grew 2.5% in the three months to 31 March, well ahead of the forecast 1.5%.

As it moves to reporting its finances in euros, group revenue hit €40.97bn, an organic increase of 2.3% over the year, with service revenue up 1.5% to €37.16bn.

Europe service revenues were down just 0.6% on an organic basis, helped by a 0.5% rise in the fourth quarter when AMAP surged 8.1% to deliver 6.9% growth for the full year.

For the full year, earnings before interest, tax, depreciation and amortisation climbed 2.5% to €11.6bn, which meant Vodafone returned to organic growth in both revenue and EBITDA for the first time since 2008.

At the pre-tax line there was a €3.82bn loss and a basic loss per share of 15.08p.

Adjusted earnings per share from continuing operations fell 9% to 5.04p and a proposed final dividend per share of 7.77p will give a total dividend per share of 11.45p.

Chief executive Vittorio Colao said it was a year of "strong execution" for the Vodafone that resulted in the return to organic growth.

"We achieved the first quarter of positive revenue growth in Europe since December 2010 while growth in AMAP accelerated with strong performance in South Africa, Turkey and Egypt."

He said EBITDA margins were also improved year-on-year thanks in main to cost efficiency programmes.

On the completion of the massive Project Spring programme, Colao said: "This has transformed the quality of our technology, enhancing our customers' experience and enabling us to expand our enterprise services. We are pleased to be the leader or co-leader in mobile network quality tests and net promoter scores in the majority of our markets. We have also posted a record quarter of net additions in fixed as our convergence strategy continues to accelerate."

2017 guidance

Looking forward, post-Spring capital intensity is now expected to be in the mid-teens as a percentage of annual revenue.

Other guidance for 2017, included organic EBITDA growth in the range of 3-6%, implying €15.7-16.2bn (£12.4-12.8bn).

Free cash flow after capex but before M&A, spectrum and restructuring costs is expected to reach at least €4.0bn (£3.2bn) next year.

With dividends to be declared in euros from now on, directors said the intention was to grow dividends per share annually relative to a 2016 'baseline' of 14.48 euro cents per share, which was felt demonstrated confidence in future cash flow generation.

Analyst comment

Steve Clayton at Hargreaves Lansdown noted that against a backdrop of Game of Thrones-fierce competition and M&A in Europe, Vodafone has continued to invest in service, not just coverage, looking to tap into the potential for customers to upgrade to 4G and the bigger data packages that normally follow.

"Vodafone’s efforts are still not really translating into revenue growth. Project Spring came and went, with billions invested, but precious little evidence has so far emerged of revenues growing as a result.

Clayton added: "But it is not all bad news, Vodafone continues to pay a strong dividend and had investors reinvested those dividends over the last ten years, they would have enjoyed a double digit annual return on their investment. Looking forward, the company is now carrying a lot of debt, but it remains committed to an annual dividend increase.”