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Vodafone Group Plc plans to retain a £2.1-billion ($3.19 billion) dividend from US venture Verizon Wireless rather than returning it to shareholders as it reported the first full-year revenue decline since 2005.
Verizon will use the cash - the third dividend since the partnership with Verizon Communications Inc restarted payments in 2012 - to pay for wireless spectrum and fund its business, the Newbury, England-based company said today. Revenue for the 12 months through March fell 4.2 per cent to £44.4 billion.
Service sales fell 4.2 per cent in the three months ended March 2013, the third straight quarterly decline as customers in Europe cut their mobile plans. Analysts had estimated a 4.4 per cent drop on average, data compiled by Bloomberg showed.
Cost cutting
Verizon Wireless's profit contributed £6.4 billion to Vodafone for the year, an increase of 30.5 per cent, highlighting the unit's importance as partner Verizon Communications moves toward a buyout of the stake.
Verizon dividend
Verizon Wireless said last week that it would pay its partners a dividend, which is seen as a negotiating tactic for Verizon Communications as it's the only way either partner can get money out of the wireless venture, of $7 billion. Vodafone, which has returned Verizon dividends to shareholders in the past, will be paid $3.15 billion next month.
Vodafone said operating profit excluding some items may rise as much as 6.9 per cent this year as Verizon Wireless grows. Operating profit excluding some items will be £12 billion to £12.8 billion in the 12 months ending in March 2014, the company said. Analysts projected £12 billion, according to the average of estimates compiled by Bloomberg.
Vodafone rose 0.4 per cent to 198.4 pence at 1:37 pm in London. The stock had gained 28 per cent this year before today.
Ordinary dividend
Vodafone increased its ordinary dividend by 7 per cent for the full year, according to the statement.
"The board remains focused on balancing ongoing shareholder remuneration with the long-term investment needs of the business, and going forward aims at least to maintain the ordinary dividend per share at current levels," the company said in the statement.
Adjusted operating profit rose 9.3 per cent to £12 billion in the 12 months ending in March 2013, beating the £11.7 billion estimated by analysts on average.
To combat costs, Vodafone has trimmed European operations, closing stores and saying it may cut almost 2,000 jobs in Italy, Spain and Germany to counter service-revenue declines.
"We see a significant opportunity in unifying network and IT management across multiple markets, in further centralising and standardising procurement, and in offshoring more business functions to shared service centres," Vodafone said in the statement. The company's target is to cut European operating expenses from these and other programs by £300 million in the 2014 financial year.
Bright spots
Investors, including Leon Cappaert from KBC Asset Management in Brussels and Ralph Brook-Fox, a fund manager at Ignis Asset Management, have said they're ready for a deal to wind up the nearly 14-year partnership and expect to see the majority of the proceeds returned to shareholders.
A bright spot for Vodafone has been the performance of its newer markets in Africa, Asia and West Asia. The company's African venture Vodacom Group Ltd, South Africa's largest wireless operator, said yesterday that full-year profit jumped 23 per cent as more customers bought smartphones.
The venture is 65 per cent owned by Vodafone and surpassed the company's UK unit in terms of profit in 2010 and its Spanish division the following year. Vodacom plans to expand into as many as three new countries by the end of next year, Chief Executive Officer Shameel Joosub said in an interview.
"We've cracked the African model" Joosub said at the company's Johannesburg headquarters. "Our formula is working. We're a lot more confident today in terms of accessing new markets and pursuing those opportunities."
