PRESS RELEASE: Fitch Revises Vodafone's Outlook to Stable; Affirms at 'A-'

21st Jun 2010 08:02

The following is a press release from Fitch Ratings: Fitch Ratings-London-21 June 2010: Fitch Ratings has today revised Vodafone Group Plc's Outlook to Stable from Negative, whilst affirming the company's Long-term Issuer Default Rating (IDR) and senior unsecured ratings at 'A-', and its Short-term IDR at 'F2.' The revision of the Outlook to Stable and the affirmation of Vodafone's ratings reflects an expectation of a more stable organic revenue trend during the financial year to March 2011, and continued efforts to manage costs and working capital. Despite slowing revenue growth in emerging markets, free cash flow generation (before spectrum costs) from Vodafone's operations in developing countries should improve over the medium-term as capital intensity reduces. Fitch has previously indicated that a Vodafone rating downgrade could be triggered by a short-term spike in total adjusted net debt/operating EBITDAR above 3.0x. With the increasing relevance of dividends from associates, Fitch believes using funds from operations (FFO) adjusted net leverage is also an appropriate measure to judge leverage, which at end March 2010 was 2.9x. Vodafone's ratings could also be pressured if FFO/adjusted net leverage rises above 3.0x, without evidence that the company could reduce debt to meet Fitch's expectations of the metric decreasing to 2.5x by March 2013. "Vodafone has been able to mitigate the impact of revenue declines on free cash flow with a renewed focus on financial discipline," says Damien Chew, a Director in Fitch's European Telecoms, Media and Technology team. "Continued network and spectrum investments should enable the company to benefit from increased demand for higher-quality mobile data services, whilst the expectation of more substantial dividend payments by Verizon Wireless starting in 2012 should also help strengthen Vodafone's credit profile in the medium-term." In the year to March 2010, Vodafone delivered better-than-expected free cash flow due to cost cutting efforts and working capital improvements, partly offsetting declines in organic revenue of 2.3%. While Fitch expects these efforts to continue in the current financial year, deleveraging in FY10/11 is expected to be limited due to spectrum costs in the FY10/11 financial year, which have come in higher than Fitch's initial expectations, mainly due to a highly competitive auction in India. Even though Vodafone reports in sterling, most of its revenue is earned in euro and in emerging markets with US dollar related currencies. Recent foreign exchange movements (euro weakness and USD strength relative to GBP) should be broadly neutral for Vodafone's leverage metrics. Liquidity at Vodafone remains good. Vodafone had GBP4.42bn of cash and cash equivalents on its balance sheet at the end of March 2010, as well as GBP388m of liquid index-linked UK government bonds and over USD10bn equivalent of undrawn committed facilities. This compares with GBP2.56bn in outstanding commercial paper at the end of March 2010, and GBP9bn of debt due before end December 2012. Applicable criteria, 'Corporate Rating Methodology', dated 27 November, 2009, are available at www.fitchratings.com. Contact: Damien Chew, London, Tel: +44 (0) 20 7682 7603, Michael Dunning +44 (0) 20 7417 6343. Media Relations: Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364, Email: [email protected]. Additional information is available at www.fitchratings.com. Related Research: Corporate Rating Methodologyhttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=489018 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. (END) Dow Jones Newswires June 21, 2010 03:02 ET (07:02 GMT)