Vodafone slows revenue decline in Europe during Q3

Vodafone Group slowed the rate of organic revenue decline in Europe to 2.7 per cent in its financial third quarter to end-December, and noted that the UK market returned to revenue growth during the three-month period.

Vodafone CEO Vittorio Colao

Vodafone CEO, Vittorio Colao

After reporting a 5 per cent decrease in European service revenue in the quarter to the end of September, revenue in the region reached £6.6 billion (€8.8 billion/$10 billion) in the company's fiscal third quarter. Group revenue was slightly up in organic terms, rising 0.7 per cent to £10.8 billion, but group service revenue dropped by 0.4 per cent to £9.79 billion.

Revenue in Africa, Middle East and Asia Pacific (AMAP) continued to rise, increasing by 5.9 per cent to £3.06 billion. This was largely due to a 15 per cent revenue growth in India and 11.8 per cent growth in Turkey.

Jefferies International analysts noted that Vodafone's fiscal third-quarter revenue trends were slightly ahead of consensus estimates, but cautioned that "the variance is attributable to unusually strong results from carrier services, a lumpy product line."

Vodafone does not publish quarterly profit figures, but noted that the performance of the group remains in line with its expectations. "Consequently we remain on target to deliver EBITDA for the 2015 financial year [to the end of March] in the range of £11.6 billion to £11.9 billion, and expect free cash flow to be positive, after all capex," the company said.

The UK market stood out in the third quarter after it returned to revenue growth: here, revenue increased 0.9 per cent to £1.53 billion. However, the company is set to face greater challenges in this market after BT agreed definitive terms to buy mobile operator EE for £12.5 billion. This deal now faces 12 months of regulatory scrutiny, but if approved will create the market's largest converged fixed and mobile operator.

Bengt Nordstrom, CEO of independent mobile strategy consultancy Northstream, said the onus is now on Vodafone to step up its efforts to become a triple- or quad-play operator in its home market.

"Having reported improved numbers in the UK market, Vodafone must now confront the fact that, with BT's EE acquisition news [on Thursday] plus Telefónica's proposed sale of its O2 network in the UK to Hutchison Whampoa, it might end up as the UK's smallest operator in the UK--and a 'mobile only' operator at that," Nordstrom added.

In other Vodafone markets in Europe, revenue in Germany was down by 1 per cent at £1.97 billion. Italy and Spain saw revenues decline 7.4 per cent and 8.9 per cent respectively amid challenging market conditions.

Vodafone also provided updates on its Project Spring network investment programme: it said its mobile network build was 50 per cent complete and the company has now modernised 61,000 mobile sites, added a further 86,000 2G, 3G and 4G sites, and upgraded 50,000 sites to high-capacity backhaul since the build began. It said 4G coverage in Europe has improved to 65 per cent from 38 per cent a year ago; 4G services are now available in 18 markets with 13.7 million customers across the group.

The company also noted that the total amount of traffic carried over the group's network grew by 84 per cent year-on-year, with AMAP growing 110 per cent and Europe 67 per cent.

"The signs are that its Project Spring network upgrade is beginning to pay off, especially in Germany and the UK, but there is still some way to go," Nordstrom commented.

Vodafone Group CEO Vittorio Colao said the company had achieved another quarter of improving revenue trends in most of its major markets.

"Growth in India has accelerated again, driven by data. In Europe, improved commercial execution in both mobile and fixed over the last few quarters, combined with strong data demand and a more stable pricing environment, is supporting the steady recovery in the top line," said Colao.

The CEO also noted that the group is making good progress on integrating its recent cable acquisitions: in Germany, it has already started to use Kabel Deutschland's network for mobile backhaul and launched a fixed-mobile bundle in November. In Spain, a new organisational structure has been implemented and the relocation of Ono's headquarters and most of the regional offices is complete.

For more:
- see Vodafone's third-quarter results statement

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