Vodafone reported an 8.0% rise in full-year revenue to €40.5bn. Service revenue rose 5.4% organically to €33.5bn.
Underlying cash profit (Adjusted EBITDAaL) grew 4.5% organically to €11.4bn. Underlying free cash flow rose €0.1bn to €2.6bn, and net debt ended the period at €25.4bn.
A final dividend of 2.3625 eurocents was announced, bringing the total for the year to 4.6125 eurocents, up 2.5%.
For the coming year, underlying cash profit is expected to be €11.9-12.2bn, with underlying free cash flow between €2.6-2.9bn.
The shares were down 3.1% in early trading.
Our view
We can nitpick some of Vodafone’s fourth-quarter metrics, and the market’s done just that. But taking a step back at what’s been a very busy 12 months, the turnaround is starting to take shape.
Sales in the telecom sector should be relatively robust, as broadband and mobile services are hardly optional. Yet, over the last decade, telecom giants have had to pump huge sums of cash into building out fibre networks and snapping up parts of the 5G spectrum. The main challenge has been the low sales growth relative to spending in telecoms compared to other sectors.
In response to several years of underperformance, Vodafone has evolved its strategy. There have been job cuts, the merger of its UK business with Three UK, and sales of the underperforming Spanish and Italian divisions.
Vodafone recently confirmed plans to buy the remaining 49% stake in VodafoneThree, its UK joint venture. The original agreement included an option to acquire the stake after three years, so moving after just one year suggests an accelerated timeline – which we think should be taken as a positive sign.
We welcome the changes, but this turnaround is far from complete.
Germany remains Vodafone’s toughest nut to crack. After hefty investment, the market has been slow to deliver, and execution missteps in recent years have compounded the challenge. Vodafone's branded business continues to struggle with both pricing and subscribers. And while top-line growth has shown signs of life overall, cash profits continue to fall. This remains a key area to get right.
Outside Europe, the Vodacom subsidiary has some exciting growth opportunities in Africa and has upgraded cash profit growth targets to double-digit rates over the next few years. Africa could become increasingly important as the region develops, and Vodafone's leading position in several markets means it's well-positioned to benefit.
Asset sales and a focus on debt reduction have improved the balance sheet in recent years. There’s still a lot of debt, but cash flows are good, and the more positive outlook means the dividend is seeing some attention. The £4.3bn cash cost for the VodafoneThree deal will increase debt, but just about within the group's leverage range, and we don’t think it’ll hinder plans to slowly grow the dividend. Though there are no guarantees.
All in all, then, while we think the portfolio changes and new strategy make sense, the valuation has already improved over the past year. And with growth hard to come by, we'll need to see sustained positive progress in key markets before getting too excited from here.
Environmental, social and governance (ESG) risk
The telecom industry is low/medium in terms of ESG risk. Data privacy and security is the most significant risk driver, not only because customers are increasingly concerned about privacy, but also because cybersecurity breaches can be costly. Product quality is another key risk, particularly given the networks they manage are considered critical infrastructure. Carbon emissions, human capital and business ethics are also risks worth monitoring.
According to Sustainalytics, Vodafone’s management of material ESG issues is strong.
Vodafone has a board-level ESG committee to oversee its ESG program and track key targets. Executive pay is partly based on ESG performance, with a 10% weight in long-term incentives. The company is certified for information security management, meeting industry best practices. Vodafone also has a third-party ethics hotline for anonymous reports and a specialist team for negotiations. However, the company has faced regulatory scrutiny and fines for quality and safety issues, indicating possible gaps in product governance.
Vodafone key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.