Vodafone on Tuesday revealed the biggest annual loss by a European company but sweetened the news for investors with a bigger dividend increase than expected.
The world’s largest mobile phone company booked a pre-tax loss of £14.85bn as the UK-based group unveiled plans to return an additional £3bn to investors – on top of the £6bn it had pledged to hand back following the sale in March of its Japan arm – and lifted its full-year dividend by 49 per cent.
Arun Sarin, chief executive, who has come under fire as the company operates against a backdrop of price erosion, regulatory pressures and increasing competition, on Tuesday set out a five-pronged strategy to drive growth. It included plans to attack fixed-line markets within a year, eventually moving into fully-fledged converged mobile and PC internet services and even advertising. The company will also increasingly manage its businesses on a per-country basis, and will outsource to reduce its £560m annual spend on IT by 25 to to 30 per cent in three to five years.
Vodafone will also cut 400 jobs in its corporate head office, mostly marketing, technology and back office roles.
Revenue from continuing operations was up 10 per cent at £29.35bn, while the group made pre-tax losses of £14.85bn, compared with profits of £7.4bn last year. The previous record loss for a European company was Deutsche Telekom’s €24.6bn deficit reported in 2002.
Vodafone’s operating losses were £14.08bn, compared with a profit the previous year of £7.88bn. That equates to a loss per share of 27.66p, compared with earnings of 8.12p.
Vodafone said it expected growth in mobile revenue to be in the range of 5 per cent to 6.5 per cent, lower than in 2006. It said this reflected the “increasingly intense competitive environment, continue regulatory reductions in termination rates and the one-off beneficial impact from the introduction of mobile-to-mobile termination rates in France in 2006.”
It added that proportionate mobile earnings before interest tax, depreciation and amortisation margins were expected to be about 1 percentage point lower than in 2006 on an organic basis. Again Vodafone cited pricing pressures, additional customer investment and changes in termination rates offsetting initiatives to drive further cost efficiencies, excluding the impact of any one-off business restructuring costs.
The board is recommending a final dividend of 3.87p, a 79.2 per cent increase on last year’s final dividend, which brings the total for the year to 6.07p, an increase of 49.1 per cent on last year’s total dividend.
Vodafone is under intense pressure from many shareholders. The rapid growth in developed markets which have characterised much of its history has slowed dramatically as mobile phone ownership in those regions reaches saturation point.
The shares rose as much as 3.6 per cent in early trade and by late morning were up 2.25p, or 1.9 per cent, at 122p.