Vodafone Reports Annual ResultsVodafone Reports Annual Results

Vodafone reports 7 percent revenue growth and loss per share of 27.66 pence

May 30, 2006

6 Min Read

NEWBURY, U.K. -- Financial performance:

  • Group revenue of £29.4 billion from continuing operations, with organic growth(1) of 7.5%. Mobile telecommunications revenue increased to £28.1 billion, with organic growth of 6.7%

  • Adjusted basic earnings per share(1) increased by 13.0% to 10.11 pence. Basic loss per share was 27.66 pence. Loss before taxation for the year was £14.9 billion after impairment charges of £23.5 billion

  • Free cash flow(1) of £6.4 billion and net cash inflow from operating activities up 10.3% to £10.2 billion, after net taxation paid of £1.7 billion



Operational highlights:

  • Net proportionate customer additions of 21.5 million in the year

  • Closing proportionate customer base of 170.6 million, with organic growth of 14.9% in the year

  • Non-messaging data revenue grew by 61.2% to £0.8 billion, with organic growth of 60.4%

  • Mobile voice usage increased by 24.6% to 178.3 billion minutes, with organic growth of 18.9%



Increasing returns to shareholders:

  • Total dividends per share increased by 49%, to 6.07 pence, with a final dividend per share of 3.87 pence, giving a dividend pay out ratio of 60% and a total pay out of £3.7 billion for the financial year

  • £6.5 billion expended on the share purchase programme in the 2006 financial year, reducing shares in issue by 7.5%

  • £9 billion to be returned to shareholders in the 2007 financial year in the form of a “B” share arrangement, including an additional £3 billion announced today

  • Total returns to shareholders announced over the year of £19.2 billion



Arun Sarin, Chief Executive, commented:

“Vodafone has met or exceeded expectations, outperforming its competitors in an increasingly challenging marketplace. We have restructured the Group and updated our strategy and we will seize the opportunities provided by new technologies to continue delivering innovative services to our customers.

In the past year, we have announced returns of £10.2 billion to shareholders through dividends and buybacks and the dividend pay out ratio has been increased to 60% of earnings. We have also committed to a further £9 billion return via a “B” share arrangement. We will continue to focus on delivering value and superior returns to shareholders.”

CHIEF EXECUTIVE’S STATEMENT

Vodafone has delivered another year of robust financial performance against a backdrop of increasing competition and ongoing regulation, meeting or exceeding expectations for revenue, margin and free cash flow and declaring returns to shareholders of over £19 billion.

We have further enhanced our unique customer franchise through adding a net 22 million organic proportionate mobile customers in the year, taking the total proportionate base to over 170 million. This represents organic growth of 15%, with strong performances across all regions. We continue to drive product innovation and deliver value to customers by stimulating usage and revenue across our base through offerings such as Vodafone Zuhause in Germany, Stop the Clock in the UK and Vodafone Passport.

We also reached our 10 million 3G target ahead of plan before the end of March. Excluding Japan, we closed the year with 7.7 million devices, generating over 5% of total Group revenue during the year. With coverage now approaching 60%, our 3G networks, which are being further enhanced with the launch of HSDPA, provide us with a very important platform for delivering high quality and innovative services to our customers. The first tangible evidence of HSDPA usage is likely to come from our laptop users, either using Vodafone Mobile Connect or through built-in capability.

Organic proportionate mobile revenue growth of 9% reflects the breadth of our footprint. Strong performances in Spain, the US and our emerging markets helped offset lower growth in several of our more established markets, as the impact of higher penetration and increasing competition took effect. Despite these pressures, we continue to outperform substantially all of our principal competitors. EBITDA margins were slightly down year on year on an organic proportionate mobile basis.

During the last financial year, we sought to optimise our portfolio of assets, either disposing of assets where we believed we could not earn a superior return or investing in businesses we believe Vodafone can create substantial additional value for shareholders. The most significant transaction saw the sale of Vodafone Japan for an enterprise fair value of £8.9 billion announced in March. This is an attractive price and will result in £6 billion of the cash proceeds from the sale being returned directly to shareholders as part of a larger £9 billion cash return we are announcing today. Vodafone also announced acquisitions during the year in the Czech Republic, Romania, India, South Africa and Turkey, which enable us to increase our exposure to fast growing emerging markets. We are confident that we can deliver value through these acquisitions and they are all already exceeding the plans we made at the time of making our purchase decision.

However, alongside issues such as competition and regulation, our environment is changing. Our customers’ needs are evolving as technology changes provide far greater choice in services. Furthermore, we are seeing changes to the competitive landscape as not only incumbent operators are seeking to offer fixed mobile convergence, but also new internet based players are seeking to expand their communications offerings. We need to ensure we continue to leverage Vodafone’s unique customer franchise and continue to outperform our competitors.

The result of these new realities is that Vodafone has five key strategic objectives to deliver. First, in our more mature European markets to focus on both cost reduction and revenue stimulation. Second, to capture strong growth in emerging markets. Third, to meet customers’ needs by extending our current mobile only offering to deliver total communications solutions. Fourth, to actively manage our portfolio to maximise returns and, fifth, continue to align our financial policies regarding capital structure and shareholder returns to our strategy.

Vodafone continues to execute on its One Vodafone programme and remains on track to deliver the benefits of scale. As a result of our review of strategy, we are reiterating our expectation for revenue market share gains, continuing to target 10% capital efficiency and introducing a separate operating expense target.

As a result, we are announcing a new dividend policy with a targeted 60% payout of adjusted earnings per share and are therefore declaring a final dividend of 3.87 pence, bringing the full year dividend to 6.07 pence. In the future, we expect to grow dividends per share in line with underlying earnings per share. Linked also to our strategy, we have announced our new target of a low single A credit rating, one notch below our existing target rating. This provides greater flexibility to increase leverage and, in addition to the £6 billion return of cash from the Japan sale, we are returning a further £3 billion to shareholders. The total £9 billion will be returned via a B share arrangement shortly after our AGM. We currently have no plans for further share purchases or other one off returns to shareholders.

With no let up in intensity in recent months, the operating environment will remain challenging. We see organic growth for next year in proportionate mobile revenue in the range of 5% to 6.5% with underlying proportionate organic mobile EBITDA margins around 1 percentage point lower than the 2006 financial year. Free cash flow is expected to be in the range of £5.2 billion to £5.7 billion before around £1.2 billion of tax payments, with interest, from settling long standing disputes, giving an expected range of £4.0 billion to £4.5 billion for reported free cash flow.

Vodafone is well positioned to deliver on its strategy. Our regional scale, strong brand and unrivalled customer reach provides a significant opportunity to deliver value to both our customers and shareholders.

Vodafone Group plc (NYSE: VOD)

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