Vodafone hits send on upbeat results
The popularity of smartphones and a strong performance in emerging markets helped Vodafone to generate a rise in annual earnings.
Challenge: Vodafone admitted trading was tough in southern Europe
The mobile phone operator delivered a 9.5% increase in pre-tax profits to £9.5bn for the year to March 31. Group revenue was up 3.2% at £45.9bn.
The annual dividend was hiked 7.1% to 8.9p
Data revenues jumped by over a quarter to £5.1bn, representing 12% of group service revenues as use of smartphones increased rapidly.
Vodafone expects tablets, such as the iPad, to give the market a further boost and become mass market devices eventually.
UK revenues, in particular, grew strongly on the back of this trend and were also helped by customers switching from 'all-you-can-eat' packages to pricing plans that reflect data usage.
But the end of call termination charges, to be phased in gradually from next year, will have a 'significant negative impact' on UK revenue growth in 2012, the company acknowledged.
The Newbury-based firm saw a strong performance in emerging markets such as South Africa and India, which helped to offset tough trading conditions in southern European countries like Spain and Italy.
Vodafone took impairment charges of over £6.15bn last year for its businesses in the so-called PIIGS countries of Spain, Italy, Ireland, Greece and Portugal.
The mobile giant said it anticipated a lower outcome next year due to the challenging conditions in southern Europe and the absence of its French associate SFR, which it sold in April.
Guidance for profits at an underlying level in 2012 has been trimmed to a range of £11bn to £11.8bn.
That is below today's operating profit figure, which rose 3.1% to £11.8bn, at the top end of the firm's forecasts allowing for the cost of US partner Verizon Wireless's iPhone launch.
Chief executive Vittorio Colao said: 'We enter the new financial year in a strong position. We are gaining or holding market share in most of our major markets, and are leading our competitors in the drive to migrate customers to smartphones and data packages.'
Shares in Vodafone rose 3.7p to 171.95p in trading today.
View from the City
'Given the generally dismal results reported by European telcos in the first quarter of 2011, Vodafone's full year results were mercifully free of major new scares, with £7bn of free cash-flow well above guidance and consensus,' said Steve Malcolm of broker Evolution.
'However, the free cash flow beat was exclusively working capital driven and the mid-term guidance on margins and free cash flow implies market estimates are too high and will be heading south over the next few days.'
Graham Spooner, investment adviser at online broker The Share Centre, commented: 'The 7.1% rise in the final dividend and its efforts to strengthen its position in a challenging UK market means we continue to recommend Vodafone as a 'buy' for medium risk investors geared towards income.
'Investors will be keen to hear more about Vodafone's future sale of its 24.39% stake in Polkomtel and will be interested in the Verizon Wireless potential dividend that is expected in 2012.
'The world's largest mobile telecommunications company remains our preferred play in the sector that has continuing upward momentum.'
Mark James, telecom services analyst at financial research firm Liberum Capital, said: 'With 6% dividend yield, dividends growing at 7% per annum and £6.8bn being returned to shareholders via buybacks, shareholder returns at Vodafone look more secure than many of its peers in our view.'
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