Vodafone surprises with bullish outlook
London - Vodafone, the world's largest mobile operator by revenue, issued a bullish outlook for 2012 on Tuesday after posting resilient full-year results boosted by customers upgrading to smartphones.
Analysts had expected the British firm to post a cautious outlook after recent weak trading updates from rivals, but instead Vodafone said it was gaining or holding market share in most of its major markets and leading the switch to higher tariff smartphones.
The group also posted a strong performance in its key emerging markets of India and South Africa and said the more stable economies in northern Europe had offset weakness in southern Europe.
Vodafone Chief Executive Vittorio Colao said the group also expected to pull further ahead in coming years as customers opt for the firm's superior network to access the Internet through phones such as Apple's iPhone while on the go.
"Continuing network investment is an important differentiator for Vodafone, improving the customer experience and giving us leadership in smartphone penetration and in customer take up of data plans," he said.
"We enter the new financial year well positioned to deliver further value to our shareholders." The group did note that it faced tough conditions in southern Europe and also expected regulatory cuts to continue to bite, but issued financial targets for 2012 in line with forecasts.
Analysts had been prepared for a weaker update from the British firm, after rivals posted weak results, with Telefonica reporting tough trading in Spain, Deutsche Telekom showing weakness in Europe and France Telecom showing intensifying competition in France.
The upbeat outlook followed solid financial results for 2010/11, with revenues of £45.9bn, up 3.2% and compared with a Reuters I/B/E/S poll of analysts predicting £45.5bn.
Core earnings were in line with forecasts, down 0.4%, but free cash flow was at the top of the range at £7.05bn, compared with a forecast of £6.7bn.
The closely watched metric of service revenue, which covers ongoing offerings such as voice, data, texts and internet access but not one-off costs like handsets, was also ahead of forecasts in the fourth quarter, up 2.5% on an organic basis and in line with third quarter growth.
European organic service revenue was down 0.4% during the year, compared with a fall of 3.8% last year, as more stable economies in northern Europe such as Britain, Germany and Netherlands offset weakness in southern Europe.
India reported growth of 16.2% and Vodacom Group [JSE:VOD], which operates in South Africa, the Democratic Republic of Congo and Tanzania, posted growth of 5.8%.
"The key thing is that the key free cash flow number, which drives the dividend for future years, is about 8% ahead," analyst Will Draper of Espirito Santo Investment Bank said.
"The guidance they've given out for this year, 11/12, looks reasonable. I would call these numbers very strong, probably about 1% ahead across the board."