Vodafone returns to organic reveue growth but Project Spring disappoints
Final results from Vodafone showed a return to organic growth in the fourth quarter, with organic service revenue up 0.1%, beating consensus forecasts, but an expected profits bounce from its massive Project Spring investment were largely dashed.
The telecoms giant's service revenue growth of 6.0% in Africa, Middle East and Asia Pacific during the last three months of the year was enough to outweigh a 2.4% decline in Europe.
Chief executive Vittorio Colao said the company was seeing increasing signs of stabilisation in many of its European markets, supported its investments and very strong demand for data.
"In emerging markets, our good growth trend has continued, driven by rising data penetration and leading network quality and distribution."
For the full year, service revenues reached £38.5bn, up 9.4% at the reported level and down 1.6% at the organic, constant currency level, with group revenue up 10.1% at the reported level to £42.23bn, slightly ahead of forecasts.
With free cash flow of £1.1bn and capital expenditure up 45.7% to £9.2bn, a final dividend was proposed of per share of 7.62p, up 2%, for a total of 11.22p.
However, earnings before interest, tax, depreciation and amortisation (EBITDA) for the full year was down 6.9% to £11.9bn, despite a stronger second half in the first year of Project Spring.
While the project has expanded European 4G coverage to 70% of the company's footprint, while in India, the 3G footprint now reaches 90% of target areas, with 3G data revenue up 125% year-on-year in the fourth quarter, analysts were expecting more of a boost to EBITDA.
mobile gone ex growth? Vodafone revenue +10%, "organic service revenue -1.6%" EBITDA down 6.9% to £11.9bn yet capex up 45.7% to £9.2bn— Louise Cooper (@Louiseaileen70) May 19, 2015
On Project Spring, Colao said: "We have significant opportunities ahead of us, with only 13% of our European mobile customers using 4G, and our market share in fixed services only a fraction of our share in mobile."
For the 2016 financial year, management have set guidance for EBITDA of £11.5bn-£12bn, versus the consensus estimate of £11.9bn. Positive free cash flow is predicted after all capex, and before M&A, spectrum and restructuring costs.
"Although cash flow will continue to be depressed in the coming year given the high levels of investment, our intention to continue to grow dividends per share annually demonstrates our confidence in strong future cash flow generation," Colao added.
With Vodafone’s EBITDA guidance implying a flat organic performance in 2016 after eliminating FX and acquisition impacts, Nomura said "any expectations for an EBITDA bounce as Project Spring moves towards break-even have been dashed".
"Without tangible financial benefits from Project Spring evident at the group level, we believe the market is likely to leave somewhat disappointed by the FY15 disclosure."
Analyst Alex Joyner at Galvan said the Europe picture was improving and the small return to growth was "great news for investors".
"It looks like Vodafone may have turned a corner. ‘Project Spring’ is coming to fruition and there are still plenty of big opportunities in the TV and broadband space. There’s also a good chance Vodafone will use some of its hefty cash pile to jump on the M&A bandwagon we’ve seen so much of lately in the telecoms sector."