Tuesday, 19 May 2009

Vodafone results reflect challenging environment

I’ve just got off a call with Andy Halford, CFO of Vodafone about the financial results for the year ending 31 March. Overall revenue growth of 15.6% to £41 billion, with EBITDA up 10% at £14.5 billion looks really good but the acquisition of its Indian subsidiary and exchange rate fluctuations have played merry hell with their results. Pro forma revenue, including India, was up 1.3%. EBITDA margin fell from 37.1% to 35.3%. To break the figures down by region a little:
  • Europe: organic revenue down 1.7% reflecting economic issues and increased competition. EBITDA down 1.1 percentage points.
  • Africa and Eastern Europe: Organic revenue of only 3.9%. Strong revenue growth at Vodacom offset by problems in Romania and Turkey, the sick man of Vodafone.
  • Asia-Pac and Middle East – 19% pro forma increase in revenue, but lower growth expected in future and a reduced EBITDA margin.
  • Verizon Wireless – Revenue up 10.5%. Now contributing 30% of the group’s adjusted profit. It seems the decision to hold on to VZW has been vindicated.
  • Data revenue - increased from £2.1 billion to £3 billion, accounting for 8% of revenue, up from 6.4% the previous year. Notable because of the changing mix of subscribers, i.e. proportionately more revenue coming from emerging markets.

So, the figures don't look that great, but, the prospects are actually quite reasonable, with some interesting initiatives. At least, they’re talking the right language: acceleration of the £1bn cost reductions announced last year, new roaming business unit to exploit opportunities at a group level, new mobile data application development initiatives, extension of SuperFlat tariffs (which seem particularly appropriate to the current environment) to markets beyond Germany, and looking to exploit strength in the enterprise space.

As noted in my post yesterday, Vodafone needs to leverage its scale. It’s been good at doing that in terms of branding, but not much on the services side. It’s a shame it’s taken so long, but better late than never.

A few other issues also cropped up during discussions. It’s wait-and-see on LTE and they’re pleased to benefit from the learnings of Verizon when they deploy next year. There are no acquisition plans although they’ll keep an eye out. There aren’t many really distressed assets out there to hoover up although. they might look at opportunities as they come up. More focus on moves that can create value independent of acquisition, e.g. merger with 3 Australia.

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