Vodafone’s earnings will fall next year due to its major £19bn network investment programme, the operator warned, as it announced it’s the results for the year to 31 March 2014.
The operator has also been hit by poor performance in Europe, offsetting better news in emerging markets.
Vodafone wrote down the value of its assets in Germany, Spain, Portugal, Czech Republic and Romania by £6.6bn and said core earnings in 2015 would fall due to the investment programme, which includes the £7bn Project Spring investment programme.
The operator recorded impairments of £6.6bn and record falls in underlying revenue in the last 18 months due to mounting competition and regulatory changes in Europee and a fall in calls made by European consumers during the recession.
In the UK falls in enterprise and prepaid revenues and MTR cuts have sees Vodafone UK’s service revenue decrease 4.4% in the period. Vodafone’s Red Plan went some way to offsetting the decline, which helped drive a rise of 0.6% in consumer contracts. This compared favourably to rivals EE and O2 which have reported contract net additions falls in the same period.
The operator said mobile in-bundle revenue increased 0.6% with a greater penetration of Vodafone Red plans into the customer base, with nearly 2.7 million customers at 31 March 2014, offset pricing pressures. Conversely mobile out-of-bundle declined 7.2%, primarily driven by lower prepaid revenue.
Vodafone UK also reported that its drive into 4G services had seen over 637,000 4G contract sales by 31 March 2014, significantly smalller than rivals O2 and EE reporting around 1 million and 3 million 4G customers respectively since launching LTE services.
Vodafone UK also reported ‘significant progress’ delivered in network performance, particularly in London, under the Project Spring network investment programme.
Vodafone UK promised growth in the sales pipeline of CWW, which it acquired last year. It said an accelerated integration programme would help see CWW revenue increases in 2015.
Overall Vodafone UK’s EBITDA declined 9.8%, driven by lower revenue and a 1.0% decline in the EBITDA margin which the operator said was a result of higher customer investment under the programme.
Analysts said it would take time for Vodafone to turn its performance around in Europe. Kester Mann, analyst at CCS Insight said: 'Vodafone remains very much under pressure in Europe with Germany and the UK a challenge - it is no longer just Vodafone's southern European markets that are struggling. Vodafone has some way to go to turn around its European performance, however the £19bn investment programme over two years will take time to filter through to its financial performance.'
Mann added that in the UK Vodafone's rise in contract net additions was ' a good trend, up compared to the same period last year and ahead of competitors O2 and EE. However they are a long way behind rivals on 4G but with the focus on network investment this is an area I would expect to see some improvement on going forward.'
Announcing the results, Vittorio Colao, Vodafone chief executive (pictured), said: ‘It has been a year of substantial strategic progress. The sale of our Verizon Wireless stake has rewarded shareholders for their support, and enabled the acceleration of our strategy through the acquisition of KDG, the pending acquisition of Ono and our Project Spring investment programme.
'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. 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.
He added: 'I am confident about the future of the business given the growth prospects in data, emerging markets, enterprise and unified communications. We have commenced our Project Spring two-year investment programme which will accelerate our plans to establish stronger network and service differentiation for our customers. I expect the first signs of this to become evident later this year, with wider 4G coverage in Europe and 3G coverage in emerging markets, improved network performance and increased customer advocacy. While cash flow will be depressed during this investment phase, our intention to continue to grow dividends per share annually demonstrates our confidencein strong future cash flow generation.'