(Reuters) – Vodafone posted the largest ever fall in its main revenue measure on Tuesday, forcing it to keep a dividend from its healthy U.S. arm to compensate for a slump in southern Europe.
The world’s second largest mobile operator, at the center of intense speculation as to whether it will sell its stake in U.S. business Verizon Wireless in one of the world’s largest deals, said it had also been hit hard by regulatory cuts and the timing of last year’s leap year.
Rapid growth in Verizon, a solid performance in emerging markets and cost cuts however helped the group to offset some of the weakness and report slightly better than expected profit and earnings per share.
Shares in the group were flat in early trading.
“We have faced headwinds from a combination of continued tough economic conditions, particularly in Southern Europe, and an adverse European regulatory environment,” Chief Executive Vittorio Colao said.
“Thanks to further strong progress this year in our key areas of strategic focus … and an excellent performance from Verizon Wireless, we have achieved good growth in adjusted operating profit and adjusted earnings per share.”
The company will keep a 2.1 billion pound dividend payment from Verizon rather than returning it to shareholders.
Colao declined to comment on whether he would consider a sale of his 45 percent stake in the Verizon Wireless business, merely saying that he had nothing new to report on a transaction that could total $120 billion.
Majority owner Verizon Communications, which has made little secret of its wish to buy out its British partner, has ramped up the pressure in recent months, saying that it believed it could buy the asset in a tax-efficient way.
The full-year results highlighted the dilemma for Colao, with Verizon growing at a rapid rate compared with assets in the core European markets that have now struggled for several years.
Vodafone posted a 4.2 percent quarterly fall in organic service revenue, broadly in line with forecasts but significantly worse than the 2.6 percent it recorded in the third quarter and the largest quarterly drop since the company started using the measurement in 2003.
The steepest falls came from southern Europe, where operators are cutting prices to win business from struggling consumers. In Italy service revenue fell 12.8 percent, while in Spain it was down 11.5 percent.
The group also took a 1.8 billion pounds impairment charge on its business in Italy, taking the total writedowns for Spain and Italy for the year to 7.7 billion pounds.
Having completed a three year dividend program that guaranteed 7 percent growth per year, Vodafone said it now aims at least to maintain the ordinary dividend per share at current levels.
Full year margins on core earnings were down 0.5 percentage points on an organic basis to 29.9 percent, from 33.1 percent just three years ago.
“The situation in southern Europe remains one of disappointment, where a service revenue decline was compounded by a writedown in both Spain and Italy,” said Richard Hunter, head of Equities at Hargreaves Lansdown Stockbrokers.
“The question of the Verizon stake remains at the top of the agenda for investors, although Vodafone’s decision hitherto to stay put continues to reap measurable rewards, quite apart from the value of its stake appreciating by the year.”
Overall the group posted its first fall in full-year sales since 2005, down 4.2 percent to 44.4 billion pounds ($67.6 billion), while core earnings fell 3.1 percent to 13.3 billion pounds.
Its adjusted operating profit however was above guidance, up 9.3 percent to 12 billion pounds. ($1 = 0.6570 British pounds)
(Editing by Anna Willard)
Dollar firms as Fed suspense builds, shares off highs
(Reuters) – The dollar edged up, gold steadied and European shares held near five-year highs on Tuesday as investors look out for U.S. Federal Reserve signals on the future of its stimulus program.
Upbeat comments from Chicago policymaker Charles Evans have made Wednesday’s release of minutes of the U.S. central bank’s last meeting and Fed chairman Ben Bernanke’s testimony in Congress the same day the main focus for markets.
The usually dovish Evans said on Monday that as long as the recent pickup in the U.S. jobs market continued he was “open-minded” about slowing the Fed’s $85 billion a month bond-buying program, and he even mentioned the idea of simply halting it.
The dollar .DXY was up 0.25 percent against a basket of major currencies as mid-morning approached in Europe, although that was comfortably below its recent three-year high.
Economists expect Fed Chairman Bernanke to deliver a steady message on the bank’s policy when he speaks to U.S. Congress. But any hint that it plans to wind in its support in the coming months could unsettle markets used to a steady drip of stimulus.
Having hit a five-year high on Monday, top European shares .FTEU3 were 0.3 percent lower by 0815 GMT (4.15 a.m. EDT) as investors took the pre-Fed uncertainty as a cue to cash in on some of the recent sharp gains.
“With the economic numbers being pretty good in the States, there may be an easing back of QE (quantitative easing bond-buying stimulus) sooner rather than later,” said Berkeley Futures associate director Richard Griffiths.
“The DAX and Euro STOXX have moved ahead a lot more than the UK, so in the event of any profit-taking in the U.S., the European markets may drop just that little bit more.”
It was a similar story in the bond market, where safe-haven German Bund futures lost ground. If the Fed does slow its bond-buying it will effectively be a tightening of monetary policy and thereby push up benchmark bond yields.
YEN, METALS YO-YO
Currency and stock markets across Asia were largely subdued, although Japan’s Nikkei index managed to creep up to a fresh 5-1/2 year high and the yen gave back some of Monday’s minor gains.
The yen’s move came after Japan’s economy minister said his comments the previous day that the government was now satisfied with the level of the currency had been misinterpreted.
“The Japanese yen story is still very much the same as it has been all along,” said Societe Generale strategist Kit Juckes.
“Any correction in the dollar yen has been shallower than people who wanted big dips to make money out of could look for. And those who think it is a turn are being repeatedly thwarted.”
After a recent rollercoaster ride in precious metals, gold steadied around $1,390 an ounce, although the stronger dollar left it facing its eighth fall in nine sessions.
But silver fell as much as 2.2 percent to trade near the 2-1/2-year lows hit during a 6 percent slide on Monday, when an unidentified investor sold off a large holding.
The metal has fallen out of favor with investors recently as declining demand from the photovoltaic solar energy sector and a growth in mine supply tarnish the outlook.
Spot silver XAG= was down around 1.2 percent at $22.65 an ounce. It hit a session low earlier of $22.41, not far off the 2-1/2 year low of $20.84 on Monday.
(Editing by Hugh Lawson)
Related Links: