News Column

Vodafone's plan for investment scares traders

May 21, 2014


VODAFONE led the FTSE 100 fallers yesterday after warning that crucial network investments would drag on its profits next year.

Chief executive Vittorio Colao said the company would have to "muscle up" in countries like the UK and Germany in order to better compete.

Vodafone said this additional investment would reduce its profits to between 11.4bn and 11.9bn next year, down from the core profits of 12.8bn it reported for 2014.

Shares fell 5.46 per cent to 205.3p after Vodafone also posted a 1.9 per cent drop in revenues to 43.6bn during the year to 31 March, due to the heightened competition across key European markets such as Italy and Germany.

Vodafone also reported a 6.6bn writedown on assets across Germany, Spain, Portugal, Czech Republic and Romania.

"Our operational performance has been mixed. The group's emerging markets businesses have performed strongly throughout the year: we have executed our strategy well and have successfully positioned ourselves for the rapid growth in data we are now witnessing," said Colao.

"In Europe, where we continue to face competitive, regulatory and macroeconomic pressures, we have taken steps to improve our commercial performance, particularly in Germany and Italy, and are beginning to see encouraging early signs."

Vodafone said it would offer a final dividend of 7.47p, giving a total dividend up eight per cent at 11p.

ANALYST VIEWS WHAT DID YOU MAKE OF VODAFONE'S FINANCIAL RESULTS? By Oliver Smith ROBERT GRINDLE ESPIRITO SANTO 2015 is an interesting one... as the company makes substantial investments in order to make a clearer distinction between the quality of its network and the competition. Should this be achieved, then alongside an improving macro environment Vodafone shares should benefit.

SIMON WEEDEN CITIGROUP We expect the weaker guidance for core profits to be taken negatively albeit free cash flow guidance is in line and the factors driving the year on year change in core profits including currency and the managed exit from certain mobile virtual network operator contracts as understandable.

AKHIL DATTANI JP MORGAN CAZENOVE With the AT&T bid for Direct TV eliminating remaining M&A hopes, and guidance concerns now quantified, key overhangs are clarified. The big picture remains Vodafone earnings should inflect materially. UK service revenues came in 0.9 per cent below consensus.

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Source: City A.M. (UK)