Tuesday 17 May 2016 7:32 am

Vodafone raises dividends as it predicts better things to come

Vodafone's share price rose in early trading this morning, after the telecoms giant reported further declines in its final results for the year – but forecast a turnaround to come in 2017. 

The figures

Group revenues fell three per cent to £40.9bn in the 12 months to 31 March, while group services revenues dropped 3.5 per cent to £37.2bn. Organic revenues grew 2.3 per cent, however. 

Adjusted operating profits fell 11.1 per cent to £3.12bn, while operating profit slumped 30 per cent to £1.38n. 

Vodafone made a loss from continuing operations of £3.8bn, with EBITDA down 2.5 per cent. 

However the telecoms giant is recommending a final dividend per share of 7.77p, up two per cent on last year, giving total dividends per share of 11.45p.

Why it's interesting

These top line figures might give investors little to cheer just yet but Vodafone is confident about the year to come. It is predicting organic EBITDA growth in the range of three to six per cent, or €15.7 – 16.2bn – an acceleration on this year's figures. 

It also expects there to be a greater amount of free cash flow of at least €4bn, compared with €3.2bn this year as its expenditure on the major initiative Project Spring winds down. 

And most importantly for investors, Vodafone is pledging its intention to "grow dividends per share annually, relative to a 2016 'baseline' of 14.48 eurocents per share, demonstrating confidence in future cash flow generation".

What Vodafone said

Vittorio Colao, group chief executive, said: ''This has been a year of strong execution for the group, returning to organic growth in both revenue and EBITDA for the first time since 2008. We achieved the first quarter of positive revenue growth in Europe since December 2010 while growth in AMAP accelerated with strong performance in South Africa, Turkey and Egypt. EBITDA margins also grew year-on-year, supported by our cost efficiency programmes.

"We have now successfully concluded our Project Spring organic investment programme. This has transformed the quality of our technology, enhancing our customers' experience and enabling us to expand our Enterprise services. We are pleased to be the leader or co-leader in mobile network quality tests and Net Promoter Scores in the majority of our markets. We have also posted a record quarter of net additions in fixed as our convergence strategy continues to accelerate.

"We will continue to invest in our customer excellence programmes in both mobile and converged services. I am confident we will sustain our positive momentum in the coming year, allowing us to maintain attractive returns for our shareholders.''

What analysts said

Steve Clayton, head of equity research at Hargreaves Lansdown, said: "The times they are a changing in the European telecoms market, as EU regulators have clamped down on roaming charges, and providers play Game of Thrones in terms of merger activity, as they try to capitalise on the new opportunity presented by ‘quadplay’ packages. Against this backdrop Vodafone has continued to invest in service, not just coverage, but to try and keeps its customers amongst fierce competition.

"A return to growth in a Germany and Italy has helped to offset the relatively flat picture in Europe overall. The UK remains a laggard, where Vodafone has seen its position marginalised by the likes of BT. Emerging markets saw strong gains as fast-growing countries like India and Turkey, where its common for mobile phones to be the primary form of communication, because fixed line infrastructure never got built.

"Vodafone’s efforts are still not really translating into revenue growth. Project Spring came and went, with billions invested, but precious little evidence has so far emerged of revenues growing as a result. But it is not all bad news, Vodafone continues to pay a strong dividend and had investors reinvested those dividends over the last 10 years, they would have enjoyed a double digit annual return on their investment."

In short

Vodafone may have finally turned the corner. 

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