Vodafone Wobbles on Outlook
Vodafone, the world's largest mobile operator by revenue, unveiled its first quarter key performance indicators today, and said revenues for the full financial year ending March 31, 2009, would come in at the low end of its previously forecast range of £39.8 billion (US$80 billion) to £40.7 billion ($82 billion), mainly due to economic weakness in certain key markets.
That outlook, plus signs of weakness in some key mature European markets, sent Vodafone's share price tumbling 14 percent on the London Stock Exchange to 128.45 pence.
But the operator said its operating profits will not be affected by the deteriorating economic situation this year because of its continued focus on cost reduction.
"We're seeing a greater impact from the current economic environment than previously envisioned," said outgoing CEO Arun Sarin, in his final results presentation to analysts today. "[We see] delays in handset replacement and lower than expected equipment revenues."
Vodafone reported first quarter revenues of £9.8 billion (US$19.6 billion), up 19.1 percent from £8.2 billion ($16.4 billion) in the same quarter last year. The year-on-year increase reflects favorable exchange rates, most notably the average euro-to-pound exchange rate compared with the same quarter last year.
But on an organic basis, which excludes recent acquisitions and disposals and assumes a constant exchange rate, revenues were up just 1.7 percent this quarter.
Vodafone added 8.5 million customers in the first quarter, bringing its total subscriber base to 269 million.
In Europe, revenues were up 15.5 percent, but on an organic, or like-for-like, basis European revenue was down 0.2 percent compared with the same quarter last year. The biggest contributor to that drop was the Spanish market, where service revenues fell 2.5 percent on a like-for-like basis. (See Table 1 for a breakdown of Vodafone's European service revenues by market.)
Vodafone noted a decline in customer spending in Spain in addition to a "challenging macro economic and competitive environment," which all contributed to the poor performance in this market.
The analyst team at Dresdner Kleinwort is not convinced the situation in Spain will be an isolated occurrence for Vodafone and is concerned that the economic woes in the country could soon spill over into other European markets.
"Management was unable to give detailed comfort over what has happened in Spain and while they made some arguments for it being a special case, there is the fear that other European countries could suffer from similar trends at similarly short notice," writes Dresdner analyst John Davies in a research note issued today.
In Germany, service revenues fell by 1.9 percent on an organic basis, mainly due to regulated -- and Vodafone-initiated -- price reductions. Messaging revenues in Germany fell 10 percent because of recently introduced tariffs that wipe out charges for text messages sent to other Vodafone customers.
Emerging markets growth slows
While Vodafone's emerging markets turned in the highest revenue growth for the operator in the first quarter, there are now signs that growth is slowing in some individual markets.
Revenue from Vodafone's EMAPA business unit -- including subsidiaries in Eastern Europe, Middle East, Africa, and Asia/Pacific, as well as Vodafone's affiliate Verizon Wireless and its investment in China Mobile Communications Corp. -- was £2.6 billion ($5.2 billion) in the first quarter, an increase of 9.2 percent on an organic basis. However, that wasn't as impressive as the 12.6 percent revenue hike reported for the previous quarter because of slower growth rates in Egypt, Romania, and Turkey. (See Vodafone Acquires Ghana Telecom and V'fone Receives Qatar License.)
The EMAPA business added 7.8 million customers during the first quarter.
Data still going strong
Data revenues for the group were up a whopping 50.6 percent to £664 million ($1.3 billion) this quarter, compared with £441 million ($883 million) a year ago. At constant exchange rates, though, the revenue growth is 29.4 percent. At the end of June, Vodafone had 6.7 million customers using "handheld business devices or mobile PC connectivity devices."
In Europe, the operator boasted an 84.1 percent increase in the number of mobile PC connectivity devices, and says this was driven by the introduction of new tariffs. Vodafone attributes some of the increase in customers to its Vodafone Mobile Connect USB modem offering for consumers. (See Carrier Scorecard: Vodafone and Table 2 for a breakdown of Vodafone's service revenues.)
After reporting results for what Sarin described as a "more challenging quarter" for Vodafone, he will hand the CEO baton to his deputy, Vittorio Colao, who takes the top executive post at the end of this month. (See Sarin Steps Down as Vodafone CEO and Sarin's Bumper Bonus.)
— Michelle Donegan, European Editor, Unstrung