Vodafone tops forecasts as eyes turn to new CEO Arun Sarin

Vodafone Group Plc, the world's largest mobile phone company by revenue, beat expectations with a 26 per cent rise in annual core earnings on Tuesday as chief executive Chris Gent prepared to bow out.

The strong underlying performance -- the final testament to one of the most respected CEOs in the industry -- was helped in part by currency effects. Vodafone generates half its earnings in the euro zone but reports results in pounds, and the euro has surged in value over the past year.

But the group's shares fell 3.6 per cent to 121 pence by mid afternoon. Analysts put the fall down to scant company guidance for the new year and profit-taking. Vodafone's shares touched a fresh year high of 128.5p in early trade.

"There were very few negatives in the analyst meeting, and the results were strong across the board," said Mark James, telecom analyst at Nomura.

"They aren't giving much of an outlook. But we have this limbo land between Chris Gent's departure and (successor) Arun Sarin's arrival. In the intervening period, they are reluctant to give much guidance as Sarin may have different views."

Proportionate earnings before interest, tax, depreciation and amortisation, which includes contributions from subsidiaries that are not fully owned, rose to £12.68 billion ($20.8 billion) in the year to March 31, at the top end of forecasts. Proportionate revenue climbed 14 per cent to £33.9 billion.

Vodafone, which six months ago forecast EBITDA growth of over 15 per cent for 2003-2004, said it still expected customer growth to top 10 per cent, similar revenue growth and forecast 'better proportionate EBITDA growth than revenue growth.'

After writing off goodwill on acquisitions orchestrated by Gent in over six years at the top, the group made an annual pre-tax loss of £6.2 billion -- half last year's loss.

Vodafone, which has almost 120 million customers around the globe, said free cash flow in the year to March 2004 would be "somewhat higher" than the £5.2

Calling for cash-backs

A combination of relatively low debts and dividends is raising investor pressure on Vodafone to buy back some shares or return cash to shareholders.

"At some point, the money should come back to us. We'll have to wait and see what happens after Chris Gent goes," said John Hayes, fund manager at F&C Management in London.

Sarin has kept a very low profile to date, but he has been doing the rounds and meeting investors. Shareholders such as Hayes, who is hoping to meet him next week, are hoping he will clarify a policy about cash-backs over the next few weeks.

Gent, who hands the reins to respected Indian-born American Sarin after the annual shareholder meeting on July 30, said Vodafone would look at buy-backs in two to three years, but keep its powder dry for acquisitions before then.

Vodafone, whose customer base has grown to 119.7 million, raised total dividends by 15 per cent to 1.6929 pence per share and promised to increase payout ratios in coming years. Net debt climbed 15 per cent to £13.8 billion.

Gent also reaffirmed Vodafone's commitment to Verizon Wireless, the largest US mobile phone company and one of the last major assets in which Vodafone has a minority stake.

In its key countries, Vodafone reported continued growth in average revenue per user to £292 in Britain, but a flattening in Germany and Italy at 313 euros and 347 euros, respectively.

The growth of non-voice revenue is a key part of Vodafone's strategy, and higher speed, new-generation services should play an important part by making video clips and enhanced games possible on mobile phones.

Data revenue, currently generated almost entirely by text messages, totalled 14.6 per cent of service revenue in the year to the end of March. But it hit 15.6 per cent in March alone and Vodafone expects the data figure to top 20 per cent in 2004.

Vodafone noted that Finance Director Ken Hydon was due to retire in July 2005.

Additional reporting by Kirstin Ridley and Camila Reed