Vodafone's Revenue Rises 3.2% in FY2010/11 As Southern European Operations Hit Margins

Vodafone has reported that in the full fiscal year ending 31 March 2011 revenue rose 3.2% year-on-year (y/y) to GBP45.884 billion (USD73.559 billion), while earnings before interest, tax, depreciation and amortisation (EBITDA) dropped by 0.4% y/y to GBP14.670 billion and the EBITDA margin dropped 1.1% y/y to 32.0%. Within Vodafone’s GBP42.738-billion group service revenue, there was a 0.4% y/y decrease in Europe to GBP30.097 billion, while revenues from Asia, Middle East and Asia Pacific (AMAP) rose by 9.5% y/y to GBP12.292 billion. The group was hit by an impairment charge of GBP6.15 billion from its European operations, much of which came from Spain, caused by higher discount rates and increased interest rates. However, the group also benefited from the sales of non-controlling stakes in China Mobile, Japan’s Softbank and France’s SFR, which helped to transfer GBP6.8 billion to share buyback programmes.

Outlook and Implications

• Asian Growth Offsets European Struggles: Vodafone slowed the rate of revenue loss from its European operations in 2011 to -0.4% from -3.8% in 2009 as it benefited from the macroeconomic recovery in northern European markets. However, economic difficulties and intense competition in Greece, Spain and Italy dragged down European results, as did cuts to mobile termination rates (MTRs) across the region. The group’s performance in the emerging AMAP markets was stronger, with Vodacom yesterday (16 May) reporting 9% annual revenue growth on the back of strong mobile data performance, while Vodafone’s decision last month to increase its stake in Indian joint-venture (JV) Vodafone Essar was vindicated to an extent by 16.2% y/y service revenue growth in the country (see Sub-Saharan Africa: 16 May 2011: Vodacom Reports 9% Y/Y Increase to 43.5 Mil. African Mobile Subscribers and India: 1 April 2011: Vodafone Buys Out Essar Stake in Indian Joint Venture). Vodafone’s US associate, Verizon Wireless, reported 5.8% y/y service revenue growth on the back of strong data revenue increases as it ended AT&T’s iPhone monopoly (see United States: 12 January 2011: Verizon Confirms iPhone on Sale from Next Month, Ending AT&T Monopoly).

• Mobile Data A Key Driver of Growth: In common with many rival operators, Vodafone has reaped the benefits of strong mobile data growth and expects the trend to continue in the future. Revenues from data services grew 26.4% y/y to GBP5.1 billion, equating to 12% of total group revenues. Vodafone has noted that this is the first year in which the increase in data revenues has exceeded the decline in voice revenues. Smartphone uptake has helped to drive mobile data growth, with European smartphone penetration up to 18.7% as of 31 March 2011 from 11.6% in the previous year, while chief executive officer Vittorio Colao has emphasised his expectation that tablet devices will drive medium-term growth. However, the growth of mobile data services also increases network capacity pressure, to which end Vodafone is continuing to migrate customers from unlimited data packages to tiered offerings, while also highlighting its commitment to improving service quality.

• Future Plans: Vodafone has indicated that it is keen to continue the mobile data drive in 2011 and beyond in emerging markets, where data user penetration is low, as well as the developed European markets in which smartphone use is rising, while it will also endeavour to encourage data roaming. More broadly, the group’s strategy of divesting non-controlling assets will continue in Poland, where the sale of Polkomtel is well under way, while it is also keen to encourage dividend payments from Verizon Wireless for the first time in over five years (see Poland: 16 May 2011: Polkomtel's Revenues Drop 4% Y/Y in Q1, Shortlist of Bidders Down to Four).