May 21 (Bloomberg) -- Vodafone Group Plc plans to retain a a 2.1 billion-pound ($3.19 billion) dividend from U.S. 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 percent to 44.4 billion pounds.
Verizon Communications, which has said it’s interested in buying Vodafone’s 45 percent stake in the venture, has increased pressure on its partner, telling analysts recently that $100 billion is a fair price for Vodafone’s holding. Vodafone is a “happy holder” of Verizon Wireless, Chief Financial Officer Andy Halford said at a press conference in London today.
“Today’s results underline the stalemate between Vodafone and Verizon with regards to Verizon Wireless with both companies dependent on its free cash flow,” Robin Bienenstock, an analyst at Sanford C. Bernstein, said in a note to investors.
Service sales fell 4.2 percent 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 percent drop on average, data compiled by Bloomberg showed.
Chief Executive Officer Vittorio Colao is cutting jobs and expenses on the continent to support profit. Vodafone wrote down 7.7 billion pounds on operations in Spain and Italy last fiscal year as the economies’s outlook worsened and competition rose. To revive growth, the company is building out a fast fiber network in Spain and Portugal, and it has announced infrastructure-sharing deals with rivals in Germany and Spain.
“The hope is that the quarter we’ve had will be the low,” said Guy Peddy, a London-based analyst at Macquarie Group Ltd. “Given the outlook for those economies, I would say that the operating dynamics in those markets are still going to be challenging.”
Verizon Wireless’s profit contributed 6.4 billion pounds to Vodafone for the year, an increase of 30.5 percent, highlighting the unit’s importance as partner Verizon Communications moves toward a buyout of the stake.
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.
Some of the Verizon Wireless payment will go for frequency auctions in India, South Africa, the Czech Republic and Hungary. In February, Vodafone paid the most of the U.K. auction winners, spending 791 million pounds for fourth-generation mobile spectrum.
Vodafone said operating profit excluding some items may rise as much 6.9 percent this year as Verizon Wireless grows. Operating profit excluding some items will be 12 billion pounds to 12.8 billion pounds in the 12 months ending in March 2014, the company said. Analysts projected 12 billion pounds, according to the average of estimates compiled by Bloomberg.
Vodafone rose 1.2 percent to 199.90 pence at the close of trading in London. The stock has gained 29 percent this year. Verizon Communications dropped 0.9 percent to $52.27 at 1:47 p.m. in New York.
Vodafone increased its ordinary dividend by 7 percent 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 percent to 12 billion pounds in the 12 months ending in March 2013, beating the 11.7 billion pounds 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 centralizing and standardizing procurement, and in offshoring more business functions to shared service centers,” Vodafone said in the statement. The company’s target is to cut European operating expenses from these and other programs by 300 million pounds in the 2014 financial year.
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 the Middle East. The company’s African venture Vodacom Group Ltd., South Africa’s largest wireless operator, said yesterday that full-year profit jumped 23 percent as more customers bought smartphones.
The venture is 65 percent owned by Vodafone and surpassed the company’s U.K. 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.”
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