Vodafone Group reported a return to net profit in its fiscal year to March, at EUR 536 million versus a loss of EUR 455 million a year ago. The company maintained its dividend at 9 cents a share and said it aims to keep that as a floor in the coming years, as it focuses on returning to growth in adjusted EBITDA and cash flow.
Adjusted EBITDA last year fell 3.3 percent to EUR 14.4 billion, a the low end of the operator's outlook, as the negative effects of the pandemic offset growth from the acquired Liberty Global assets. Revenues declined 2.6 percent to EUR 43.8 billion, hurt by the effects of Covid-19 on roaming and visitor revenue, as well as foreign exchange movements. Service revenue fell just 0.1 percent on an organic basis to EUR 37.1 billion.
Free cash flow, excluding spectrum, restructuring and integration costs, was down 11.9 percent to EUR 5.0 billion, meeting the group's guidance. The decline was due to lower EBITDA as well as increased investment during the pandemic. Net debt reached EUR 40.5 billion at year-end, down from EUR 42.0 billion a year ago thanks to the proceeds from the Vantage Towers IPO.
For the new year, the company targets a return to growth in adjusted EBITDA (which will be known as adjusted EBITDAal going forward) to EUR 15.0-15.4 billion, and the adjusted free cash flow should improve to at least EUR 5.2 billion.
Higher returns going forward
Vodafone said the past year's results show the resilience of its operating model and it's ready to move on to the next phase of its strategy. The medium-target will be mid single-digit growth in adjusted EBITDAal and free cash flow, as well as a ROCE greater than WACC, in order to grow returns to shareholders.
After optimising its portfolio to focus on converged connectivity services in Europe and mobile data and payments in Africa, Vodafone said it aims to deliver consistent revenue growth in both regions. Outlining its strategy for the years ahead, the company said growth will come from expanded services at Vodafone Business including IoT, a continued drive towards digital service channels, further penetration in financial services in Africa, and premium TV services in Europe.
Additional cost savings are expected from integrating its network and digital teams in Europe, including moving virtual network functions to the cloud, and streamlining its approach to product development and customer care in the European commercial teams. These programmes are a key part of its target to cut Europe and Common Function operating expenses by 20 percent by FY23 compared to FY18.
The growth strategy is underpinned by continued investment in expanding 5G and gigabit networks, with support also expected to come from state funds for broadband in the coming period of economic recovery. Vodafone said it will try to achieve returns above the local cost of capital in all its markets and when this doesn't work, consider whether it is the best owner of the assets and if there are any "value-creating alternatives".
Second quarter of service revenue growth
The latest results for the fiscal fourth quarter show an improving trend in service revenue, with a second consecutive quarter of growth at 0.8 percent to EUR 9.4 percent. This was driven by a positive performance in Germany and accelerating growth at Vodacom South Africa. The other major European markets remained in negative territory, led by a 7.8 percent fall in service revenue in Italy. On a reported basis, total revenues fell 0.9 percent to EUR 11.2 billion in Q4.
Vodafone ended the year with 269.8 million mobile customers, up by 3.2 million from a year earlier and 1.3 million more than in December. The share on postpaid contracts improved to 32.5 percent from 31.9 percent a year earlier. Fixed broadband subscribers rose by 1 million over the year to 24.5 million, TV subscribers were barely higher at 18.4 million, and fixed-mobile converged customers increased by 700,000 to 6.6 million at year-end.
