Vodafone Earnings Decline in FY2014 - Analyst Blog
May 20 2014 - 8:50AM
Zacks
Vodafone Group plc
(VOD) announced its results for the fiscal year ended Mar 31, 2014
on May 20.
The company reported adjusted
earnings per share of 17.54 pence (approximately 27.87 cents), down
12.8% year over year. The drop was due to lower adjusted operating
profit, offset by reduction in shares outstanding owing to the
company’s share buyback program.
The company recorded consolidated
revenues of £43.616 billion (approximately $69.3 billion), down
1.9% year over year on a reported basis and 3.5% on an organic
basis. Group service revenues (91% of total revenue) dropped 2.4%
year over year to £39.529 billion (approximately $62.82 billion) on
a reported basis and decreased 4.3% on an organic basis given the
impact of a challenging European economy coupled with rising
regulatory and competitive pressures.
Segment-wise
Results
Europe:
Revenues declined 2.1% on a reported basis but decreased 9.3% on an
organic basis year over year to £27.997 billion (approximately
$44.5 billion). The organic decline was due to poor economic
conditions in some markets, competitive pressure and the impact of
MTR cuts, partially offset by growth of mobile in-bundle revenues.
Service revenues in this segment were down 2.0% year over year on a
reported basis and dropped 9.1% on an organic basis to £25.977
billion (approximately $41.3 billion).
Africa, Middle East &
Asia Pacific (AMAP): Revenues from this segment
declined 2.9% on a reported basis given unfavorable foreign
exchange rate movements but grew 8.4% organically year over year to
£14.971 billion (approximately $23.80 billion). Service revenues
declined 4.7% on a reported basis and grew 6.1% organically year
over year to £13.087 billion (approximately $20.3 billion) driven
by customer additions and favorable pricing as well as increased
demand for data. Countries like India, Qatar, Ghana and Turkey as
well as Vodacom delivered strong results. This was offset by the
negative impact of MTR reductions, regulatory pressure and poor
market conditions in certain countries.
Subscriber
Trends
During fiscal 2014, Vodafone’s
total mobile subscriber base reached 433.681 million (79.9%
represented by prepaid). In Europe, the company lost 1.3 million
subscribers, bringing the region’s total customer base to 122
million. Africa, the Middle East & Asia Pacific added 9.1
million customers, taking the total subscription tally to 297.4
million.
Liquidity
Vodafone Group generated free cash
flow of £4.405billion (approximately $7billion), down 21.5% year
over year.The decrease in free cash flow results were due to
negative currency translation of the sterling against the South
African rand and the Indian rupee, offset by favourable changes in
the euro. Capital expenditure was £7.1billion (approximately $2.9
billion), up 13.3% from the year-ago period.
Dividend
The company’s board of directors
approved a dividend per share of 7.47 pence, bringing the total
dividend per share for the year to 11.00 pence, which is up 8% year
over year.
Guidance
For fiscal 2015, the company
expects EBITDA in the range of £11.4 billion to £11.9 billion, and
positive free cash flows. The company also projects a £19 billion
capital expenditure program of two years ending March 2016, which
will then normalise to 13–14% of annualised revenues in the
subsequent years.
Our Analysis
Despite the strong growth prospects
of Vodafone, we are concerned about a decline in service revenues
and subscriber count, particularly in the European continent.
Continued economic weakness, regulatory pressure, stiff
competition, reduction in mobile termination rates (MTRs) and
roaming prices proved detrimental to the company’s growth. However,
Vodafone’s strong performance in emerging markets can partially
offset the 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 is
considerably low, thus providing opportunities for deeper
penetration.
Vodafone currently has a Zacks Rank
#5 (Strong Sell).
Other Stocks
Other stocks worth considering
within this sector are Level 3 Communications Inc.
(LVLT), Telstra Corporation Limited (TLSYY) and
TalkTalk Telecom Group PLC (TKTCY). While Level 3
Communications and Telstra Corporation sport a Zacks Rank #1
(Strong Buy), TalkTalk Telecom has a Zacks Rank #2 (Buy)
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