Vodafone share price down, returns to quarterly sales growth but full-year revenue still down

Vodafone Group Plc, the worlds second-biggest mobile operator, reported on Tuesday its first quarterly rise in service revenue in nearly three years, but full-year performance continued to show a pattern of declining sales in Europe.

The British telecoms group said organic service revenue rose 0.1% in the fourth fiscal quarter ended March 31st as more European customers sought 4G services and bundles of broadband, telecoms and television. This ended ten straight quarters of declines, spurring speculations that overall earnings could also find stable ground in fiscal year 2016.

The company, which took a heavy blow by lower consumer spending in its big European markets, predicted organic EBITDA growth for the next fiscal year, with a target range of £11.5 billion to £12.0 billion. It expects to generate positive free cash flow after all capital expenditure, but before M&A, spectrum and restructuring costs.

“It has been a year of continued progress, culminating with a return to organic growth in Q4,” said Vittorio Colao, Vodafones CEO. “We have seen increasing
signs of stabilisation in many of our European markets, supported by improvements in our commercial execution and very strong demand for data.”

The telecoms group also projected capex of £8.5 billion to £9.0 billion for FY2016, reflecting the second year of Project Spring investment. It has been pouring money to improve its mobile networks under the £7-billion Spring initiative, which is starting to drive growth in data usage and has quickened the adoption of 4G.

“Our Project Spring investment programme is on plan, delivering a significantly improved experience to customers,” Mr. Colao added. “In Europe, 4G coverage now extends to over 70% of our footprint, and voice quality and reliability have improved noticeably.”

However, 2014-2015 full-year performance was still downbeat as growth in emerging markets only partially offset contracting sales in Europe. Vodafone reported group revenue of £42.23 billion, down 0.8% when discounting M&A and currency movements. Organic service revenue slid 1.6% to £38.50 billion, of which Europe saw a 4.7% drop, while sales in emerging markets (AMAP) rose 5.8%.

Earnings before interest, tax, depreciation and amortization (EBITDA) fell by 6.9% on an organic basis to £11.92 billion, with second-half EBITDA falling 3.6%. The company also said it plans to increase its dividend annually after a proposed 2% hike in its final dividend for the year through March 2015 to 7.62 pence, reflecting confidence in future cash flow generation.

Improving conditions in some of its European markets proved supportive, while the telecoms group also benefited from consolidation among some of its rivals which effectively reduces competition. In the past few years, it acquired Kabel Deutschland in Germany, Ono in Spain and Cable & Wireless in the UK.

“The coming year will be another very important one for execution, as we complete the Project Spring build programme and continue the integration of KDG and Ono. At the same time, we will take further measures to stabilise ARPU as usage continues to grow strongly,” referring to average revenue per user.

Vodafone Group Plc traded 2.69% lower at GBX 227.80 per share at 09:24 GMT in London, marking a one-year increase of 4.90%. The company is valued at £62.07 billion. According to the Financial Times, the 24 analysts offering 12-month price targets for Vodafone Group Plc have a median target of GBX 242.50, with a high estimate of GBX 280.00 and a low estimate of GBX 130.00. The median estimate represents a 3.59% increase from the previous close of GBX 234.10.