Vodafone milking US cash cow but southern Europe struggles

Britain's biggest mobile company, Vodafone, is finding life tough in southern Europe but the cash keeps rolling in from the US.

In the 12 months to the end of March, group revenue rose 1.2% to £46.4bn, slightly ahead of forecasts of £46.3bn.

Earnings before interest, tax, depreciation and amortisation (EBITDA) were down 1.3% from a year earlier at £14.5bn while the EBITDA margin eased 0.8 percentage points to 31.2%.

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Stripping out acquisitions and currency movements, operating profit at £11.5bn, was up 2.5%.

For the coming year Vodafone expects adjusted operating profit to be in the range of £11.1bn to £11.9bn, reflecting the weaker euro offset by continued growth at Verizon Wireless, the US mobile outfit in which Vodafone has a 45% stake.

That stake yielded a whopping £4.9bn in 2011/2012.

The problem for Vodafone is, unsurprisingly, in southern Europe where the firm has already recognised an impairment of £4bn on the value of its businesses in Italy, Spain, Portugal and Greece.

Vodafone says cash flows from those countries will be lower and that it will have to increase discount rates to tempt in customers struggling in the bitter winds of the sovereign debt crisis.

The total dividend payout for the year has been increased to 9.52p up 7% on the prior year and excluding the special dividend of 4p paid when Verizon restarted its own dividend programme.

Vodafone still has some major challenges. It has made a £1bn bid for Cable and Wireless Worldwide, which would make it the second biggest fixed line network operator in the UK, but some shareholders say the price is too high.

In India, Vodafone is being pursued for $2.6bn in capital gains tax, following its purchase of a controlling stake in Hutchison Essar in 2007.

But with revenues coming in better than expected and Verizon the gift that keeps on giving, Vodafone shares were up 1.9% at 10:37.

BS