Vodafone keeps Verizon payout after European weakness

Vodafone will not payout dividends to its US arm to compensate for a slump in its performance in southern Europe

Vodafone posted the largest ever fall in its main revenue measure on Tuesday, forcing it to keep a dividend from its healthy US arm to compensate for a slump in southern Europe.
The world's second largest mobile operator, at the centre of intense speculation as to whether it will sell its stake in US business Verizon Wireless in one of the world's largest deals, said it had also been hit hard by regulatory cuts and the timing of last year's leap year.
Rapid growth in Verizon, a solid performance in emerging markets and cost cuts however helped the group to offset some of the weakness and report slightly better than expected profit and earnings per share.
Shares in the group were flat in early trading.
"We have faced headwinds from a combination of continued tough economic conditions, particularly in Southern Europe, and an adverse European regulatory environment," Chief Executive Vittorio Colao said.
"Thanks to further strong progress this year in our key areas of strategic focus ... and an excellent performance from Verizon Wireless, we have achieved good growth in adjusted operating profit and adjusted earnings per share."
The company will keep a 2.1 billion pound dividend payment from Verizon rather than returning it to shareholders.
Colao declined to comment on whether he would consider a sale of his 45 percent stake in the Verizon Wireless business, merely saying that he had nothing new to report on a transaction that could total $120 billion.
Majority owner Verizon Communications, which has made little secret of its wish to buy out its British partner, has ramped up the pressure in recent months, saying that it believed it could buy the asset in a tax-efficient way.
The full-year results highlighted the dilemma for Colao, with Verizon growing at a rapid rate compared with assets in the core European markets that have now struggled for several years.
Vodafone posted a 4.2 percent quarterly fall in organic service revenue, broadly in line with forecasts but significantly worse than the 2.6 percent it recorded in the third quarter and the largest quarterly drop since the company started using the measurement in 2003.
The steepest falls came from southern Europe, where operators are cutting prices to win business from struggling consumers. In Italy service revenue fell 12.8 percent, while in Spain it was down 11.5 percent.
The group also took a 1.8 billion pounds impairment charge on its business in Italy, taking the total writedowns for Spain and Italy for the year to 7.7 billion pounds.
Having completed a three year dividend programme that guaranteed 7 percent growth per year, Vodafone said it now aims at least to maintain the ordinary dividend per share at current levels.
Full year margins on core earnings were down 0.5 percentage points on an organic basis to 29.9 percent, from 33.1 percent just three years ago.
"The situation in southern Europe remains one of disappointment, where a service revenue decline was compounded by a writedown in both Spain and Italy," said Richard Hunter, head of Equities at Hargreaves Lansdown Stockbrokers.
"The question of the Verizon stake remains at the top of the agenda for investors, although Vodafone's decision hitherto to stay put continues to reap measurable rewards, quite apart from the value of its stake appreciating by the year."
Overall the group posted its first fall in full-year sales since 2005, down 4.2 percent to 44.4 billion pounds ($67.6 billion), while core earnings fell 3.1 percent to 13.3 billion pounds.
Its adjusted operating profit however was above guidance, up 9.3 percent to 12 billion pounds.
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