Vodafone share price: Currency headwinds bite into FY revenue

Vodafone (LON:VOD) has updated investors on its full-year performance this morning, revealing that forex movements had pressured its revenue.

**Highlights from the company statement:**
Group revenue for the year decreased by 3.0% to £41.0 billion primarily due to foreign exchange rate movements, with Group organic service revenue returning to growth (1.5%*, or 2.1%* excluding the impact of regulated mobile termination rate (‘MTR’) cuts). Improving organic service revenue growth of 2.5%* in Q4 reflected continued underlying improvement, but was also supported by a leap-year effect and certain accounting reclassifications. Organic service revenue trends in Europe recovered throughout the year, stabilising at 0.5%* in Q4 while growth in Africa, Middle East and Asia Pacific (‘AMAP’) accelerated to 8.1%*.

Group EBITDA declined 2.5% to £11.6 billion primarily due to foreign exchange rate movements, with organic EBITDA growing 2.7%*, a faster pace than revenues despite the increase in operating expenses as a result of Project Spring. The Group EBITDA margin stabilised at 28.3%. H2 EBITDA grew 3.6%*, faster than in the first half of the year reflecting better revenue performance and continued good cost control, including greater than anticipated synergy capture at Ono.

Adjusted operating profit fell by 11.1% to £3.1 billion as organic EBITDA growth was offset by the increase in depreciation and amortisation resulting from Project Spring, spectrum acquisitions and foreign exchange rate movements. Reported operating profit was £1.4 billion, impacted by a goodwill impairment in relation to Romania of £0.45 billion, which reflects increased competitive intensity.

The Group’s underlying tax rate for the year ended 31 March 2016 was 28.8%. Certain non-recurring items had a material impact on the adjusted effective tax rate, which was 15.1% in the year. These include a benefit of 18.4% following the restructuring and simplification of our Indian business, partially offset by a tax cost of 4.6% due to the reduction in the UK corporation tax rate (which resulted in a decrease in the value of our UK capital allowances). We now have £22 billion of deferred tax assets.

Adjusted earnings per share from continuing operations fell 9.2% to 5.04 pence, mainly reflecting the decline in adjusted operating profit.

Free cash flow1 was £1.0 billion (2015: £1.1 billion), suppressed by elevated capital expenditures for Project Spring. Total capital expenditure was £8.6 billion (2015: £9.2 billion), thereby completing our targeted 2-year outlay of £19 billion for the Project Spring investment programme. Actual spend was modestly lower than originally forecast, a result of capex synergies following the acquisition of Ono and favourable foreign exchange rate movements.

Net debt as at 31 March 2016 was £29.2 billion (2015: £22.3 billion). Net debt includes the impact of renewing or acquiring spectrum for a total cash cost in the year of £2.9 billion, including Germany (£1.4 billion), India (£0.6 billion), Turkey (£0.6 billion), Italy (£0.2 billion) and the UK (£0.1 billion). Additionally, foreign exchange losses of £2.0 billion were recognised on net debt as losses on the euro and rupee offset favourable exchange rate movements on the South African rand. Net debt at 31 March 2016 also includes liabilities of £4.1 billion (2015: £1.8 billion) relating to acquisitions or renewals of spectrum in India and £1.4 billion (2015: £1.3 billion) of liabilities relating to minority holdings in KDG.

The Board is recommending a final dividend per share of 7.77 pence, up 2.0% year-on-year, in line with our intention to increase the full year dividend per share annually. The total dividend per share for the year would therefore be 11.45 pence, also up 2.0% year-on-year.
Vittorio Colao, Group Chief Executive, commented:
”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.

Looking forward, 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.”
**More to follow…**
As of 07:06 BST, Tuesday, 17 May, Vodafone Group plc share price is 223.65p.