May 21, 2013 9:11 am

Vodafone to retain £2.1bn Verizon dividend

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Vodafone is to plough back a £2.1bn dividend from US telecoms group Verizon into its business rather than offer shareholders a windfall, after the UK mobile operator reported its biggest annual fall in service revenues in five years.

Vittorio Colao, chief executive, blamed weakness in southern European markets for revenues for the year to March 31 falling to £44.4bn, down 4.2 per cent – or £2bn – from the previous year.

“We have faced headwinds from a combination of continued tough economic conditions, particularly in southern Europe, and an adverse European regulatory environment,” he said.

Vodafone has been one of the biggest victims of Europe’s lacklustre mobile markets, which have come under intense competitive and regulatory pressure.

It blamed regulatory cuts to mobile termination rates – wholesale charges to rival providers for connecting calls – as well as the continued decline in voice revenues.

Andy Halford, chief financial officer, said the effect of mobile termination rate cuts had been more severe in the past quarter. “The macroeconomic environment is what is hurting us most, especially in southern Europe.”

Conditions in that region were so dismal that Vodafone was forced to book a £7.7bn impairment relating to its businesses in Italy and Spain, where service revenues contracted 12.8 per cent and 11.5 per cent, respectively.

“The reason for it is largely the economic environment. It is an exercise that we have to do each half year,” said Mr Halford.

Mr Colao declined to confirm speculation that Vodafone was poised to sell its 45 per cent stake in Verizon. “Verizon Wireless is a fantastic asset that generates a lot of cash.

“If we have to update the market, then we will.”

Verizon has been increasingly vocal this year about its desire to buy out Vodafone from the joint venture, a stake that Goldman Sachs analysts have valued at $115bn post-tax.

Vodafone said that the £2.1bn Verizon dividend was “to be retained in the business for general business purposes, including spectrum costs” – a move that quashes speculation of a new share buyback scheme after the current programme expires in July.

For the 12 months to March 31, Vodafone reported that pre-tax profit slipped from £9.6bn to £3.3bn. Excluding the impact of exceptional charges, adjusted operating profit rose 9.3 per cent year on year to £12bn.

Diluted earnings per share contracted from 13.65p to 0.87p, and a final dividend of 6.92p was proposed compared with 6.47p last year, bringing the total payout for the year to 10.19p, up 7 per cent.

In London, Vodafone shares closed 1.2 per cent higher at 199.9p on Tuesday.

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