Vodafone's Gamble on Expansion Yields Growth -- WSJ
May 18 2016 - 3:03AM
Dow Jones News
By Stu Woo
LONDON -- Vodafone Group PLC's GBP19 billion expansion bet is
starting to pay off.
Vodafone, the world's second-largest mobile carrier, behind
China Mobile Ltd., on Tuesday reported its first full year of
organic growth in both revenue and core earnings since 2008. The
U.K.-based company said it was finally reaping benefits from
"Project Spring," its recently completed two-year, GBP19 billion
($27 billion) effort to improve and extend its network
infrastructure.
The mobile operator said revenue for its fiscal year ended in
March was GBP41 billion, down 3% compared with the previous year,
but in line with analysts' expectations. Vodafone attributed the
decline to foreign-exchange movements and said its organic revenue
growth, which excludes the impact of foreign exchange, was
2.3%.
Vodafone's full-year earnings before interest, taxes,
depreciation and amortization came to GBP11.6 billion, also in line
with analysts' expectations. Ebitda was down 2.5%, from the
previous year, and organic growth was 2.7%.
The company swung to a full-year loss of GBP3.8 billion, from a
profit of GBP5.9 billion a year earlier.
The markets applauded the organic growth, sending Vodafone
shares up 1.6% to GBP2.27 in afternoon trading in London.
"This has been a year of strong execution," Vodafone Chief
Executive Vittorio Colao said in a conference call.
Vodafone announced Project Spring in September 2013, at the same
time it said it was selling its 45% stake in Verizon Communications
Inc. for $130 billion. The company had said it would invest GBP19
billion from March 2014 to March 2016 to improve its mobile
networks and its customer service, which subscribers have long
griped about.
That has paid off, especially in Europe, where Vodafone's
revenue increased organically by 0.5% in the fourth quarter.
"Customers who want the best service are increasingly willing to
pay a premium for it," said Morningstar analyst Allan Nichols.
While Vodafone once focused on selling only mobile
subscriptions, it used Project Spring to add fixed lines for cable
television and broadband, especially in Germany. That enabled the
company to sell combo packages with both wireless and fixed-line
services.
Vodafone said it added 1.3 million new broadband customers in
the fiscal year and now has a total of 13.4 million.
Besides stabilizing revenue in what had been a declining market
in Europe, Vodafone saw big growth in its newer markets of Turkey
and South Africa. Service revenue in Turkey grew organically by
20%, while in South Africa, where the company operates under the
name Vodacom, service revenue grew 4.7% organically.
The growth came at a cost, and Vodafone indicated on Tuesday
that it would continue to spend heavily. It had previously expected
capital expenditures for its current fiscal year to decline from
the range of 20% of annual revenue during Project Spring to about
13% to 14%. The company said it now expected that figure to be
closer to 15% as it continues to improve its networks.
Analysts wondered if that figure could be even higher. "You're
digging holes in the ground and putting fiber there, which is a
costly endeavor, " said Bengt Nordström, a former telecom executive
who now runs the Swedish consultancy Northstream. "The upside is,
once you connect the customer, they're your customer for the next
20 to 30 years."
Write to Stu Woo at Stu.Woo@wsj.com
(END) Dow Jones Newswires
May 18, 2016 02:48 ET (06:48 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Vodafone (NASDAQ:VOD)
Historical Stock Chart
From Aug 2024 to Sep 2024
Vodafone (NASDAQ:VOD)
Historical Stock Chart
From Sep 2023 to Sep 2024