London: Vodafone Group Plc., the world’s largest mobile-phone company, announced on Tuesday that its full-year net loss has shrunk to £5.43 billion (Rs43,440 crore), down from a record loss of £21.9 billion a year earlier.
The company said it managed to cut losses with continued strong performance in emerging markets such as Turkey and India, but earnings slumped in Europe, where almost everyone has a mobile phone. The loss, however, was bigger than what the analysts predicted. Analysts had predicted a loss of £1.93 billion, the median of 16 estimates compiled by Bloomberg.
Vodafone chief executive officer Arun Sarin bought a controlling stake in India’s Hutchison Essar Ltd in May for $10.7 billion to make up for a slowdown in Europe.
“Europe is challenging and emerging markets continue to grow,” said Morten Singleton, an analyst at WestLB in London, who has a “hold” rating on Vodafone shares.
Sales rose 6% to £31.1 billion, missing the £31.4 billion average of 29 estimates compiled by Bloomberg.
Earnings before interest, tax, depreciation and amortization (Ebitda) rose 1.6% to £11.96 billion. Analysts had predicted Ebitda of £12.4 billion.
Shares of Vodafone rose after the company increased its full-year dividend by 11% to 6.76 pence a share. Vodafone shares rose as much as 3.6% to 156.8 pence. The stock rose 13% last year, compared with an 11% gain in the UK’s FTSE 100 Index.
“We are especially impressed with the dividend payout,” Jim McCafferty, head of research at Seymour Pierce in London, said in a note to investors. “There are few stocks in the FTSE 100 which offer such attractive dividend growth coupled with a high yield.” Revenue in fiscal 2008 will be between £33.3 billion to £34.2 billion with “adjusted operating profit” of £9.3 billion and £9.8 billion, Vodafone said on Tuesday.
Ebitda at Vodafone’s European business fell 4.6% to £9.33 billion from £9.79 billion as a drop in results in Germany and the UK failed to make up for gains in Spain.
Vodafone said its European markets will be “challenging” in fiscal 2008 and growth prospects at its emerging market business “remain strong” because of the potential for subscriber gains and the company’s Hutchison Essar purchase. The last year has “seen a further reshaping of Vodafone’s portfolio, with our acquisitions in Turkey and India further increasing the group’s exposure to exciting growth opportunities in emerging markets,” Sarin said.
Ebitda at Vodafone’s emerging markets business jumped 37% to £2.04 billion from £1.49 billion.
“They’ve demonstrated with Turkey they can make it extremely profitable,” Adam Steiner, head of research at SVG Capital Plc. in London, said before the report. SVG’s main holding is about 12 million Vodafone shares. “They can do it in India,” he said.
In April 2006, Sarin reorganized Vodafone into three units covering Europe, emerging markets and new technology. He outlined a five-point strategy about two months later aimed at reducing costs and increasing growth.
Vodafone said last year it would cut costs by as much as £264 million over three to five years by consolidating some technology services. It also said it would cut more than 400 jobs in the UK in addition to European cost cuts and emerging market expansion. Sarin promised that the company would boost innovation and would dispose off businesses where it doesn’t have control. Six months later, Vodafone announced that it might bid for a stake in India’s Hutchison Essar, the country’s fourth-biggest wireless company, to gain access to the world’s fastest-growing mobile market. Vodafone completed the purchase of a 67% stake for about $10.7 billion (Rs43,870 crore) in May.
Vodafone also bought Turkey’s Telsim Mobil Telekomunikasyon Hizmetleri AS for $4.55 billion last year. “We need to do whatever it takes to satisfy our customer needs,” Sarin had said last year.
Vodafone last month said it would expand its network in Turkey for the second year in a row at a rate of 30% in an effort to catch up with market leader Turkcell Iletisim Hizmetleri AS. The company lowered its forecast in December for capital spending to $850 million from the previous prediction of $1.2 billion, in an effort to “turn around” the Turkish unit.
The company had said in January that it had 200 million customers, compared with 191.6 million at the end of September. Some investors were skeptical of Sarin’s strategy and management last year.
At last year’s annual meeting, Sarin overcame opposition from shareholders representing 9.5% of the shares voted. Standard Life Plc., a British insurer, and Morley Fund Management Ltd, which together held about 3.8% of the company, voted against Sarin as a sign of dissatisfaction with the company’s strategy to counter slowing growth.
Sarin, whose compensation in fiscal 2006 rose 6.5% to £5.23 million, was approved by 84.9% of the shares voted at the July meeting.