Vodafone Misses Revenue Estimates as European Business Keeps Shrinking

(Bloomberg) -- Vodafone Group Plc narrowly missed a consensus analyst forecast for third-quarter revenue after competition in southern Europe continued to bite and it cut prices in South Africa, sending its shares down as much as 2.7 percent.

• Service revenue fell 3.9 percent to 9.79 billion euros ($11.1 billion) in the three months to Dec. 31, narrowly below the average analyst forecast of 9.82 billion euros in a company-compiled survey. Organic service revenue rose 0.1 percent.

Key Insights

• Vodafone is sandwiched between big former monopolies and low-cost challengers in fiercely competitive markets and new CEO Nick Read is under pressure to stop its European business shrinking. In Europe, organic service revenue fell 1.1 percent.
• The carrier said there were “improving customer and financial trends in Italy, robust retail growth in Germany, reduced churn in Spain and a consistent performance in the U.K.”
• Goldman Sachs analysts noted the improved commercial trajectory in Italy and Spain but said a rebound to growth was unlikely to happen before next year.
• Vodafone needs regulators to clear its 18.4 billion-euro purchase of Liberty Global Plc assets in central Europe so it can better compete with Deutsche Telekom AG. It’s put its telecom towers into a separate business unit, which would make it easier to share masts with other carriers and cut costs.

Market Reaction

• The stock has fallen by more than a third over the past twelve months, compared to a 14 percent drop in the Stoxx 600 Telecommunications index. The stock was down 1.1 percent at 8:28 a.m. in London.
• The drop means Vodafone now offers a dividend yield of 9.5 percent. RBC analysts led by Wilton Fry say its dividend policy is “unsustainable.”

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• “Lower mobile contract churn across our markets and improved customer trends in Italy and Spain are encouraging, however these have not yet translated into our financial results, with a similar revenue trend in Europe to Q2,” Read said in the statement.
  NOTE: More on Vodafone trading statement

To contact the reporter on this story: Thomas Seal in London at tseal@bloomberg.net

To contact the editors responsible for this story: Rebecca Penty at rpenty@bloomberg.net, Thomas Pfeiffer

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