Tuesday 19 June 2018

Vodafone revenues knocked by stronger euro and changes to Netherlands operations

The decline was pinned on the ‘negative impact from the deconsolidation of Vodafone Netherlands; and foreign exchange rate movements.

Vodafone
Vodafone

By Kalyeena Makortoff, Press Association City Correspondent

Vodafone revenues took a tumble in the third quarter as a stronger euro and the creation of a new joint venture in the Netherlands took their toll.

The telecoms company reported a 3.6% drop in total group revenue to 11.8 billion euros (£10.3 billion) over the three months to December 31, hit by a drop in both its European and Africa, Middle East & Asia Pacific (AMAP) divisions, which fell 2.8% and 5.6%, respectively.

The decline was pinned on the “negative impact from the deconsolidation of Vodafone Netherlands” following the creation of its joint venture VodafoneZiggo, as well as foreign exchange rate movements.

Analysts said the company was suffering the effects of a stronger euro, which meant foreign currency income from international operations had a smaller impact on its euro-denominated earnings.

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Vodafone outlook

When stripped of those impacts, organic service revenues grew 1.1% to 10.2 billion euros (£8.9 billion) but still marked a slowdown from the 1.3% growth booked in the previous quarter.

Growth in its European business also slowed due to the “drag” from regulation and UK handset financing, Vodafone said.

But it added that quarterly trading was in line with its expectations and reiterated forecasts for a 10% jump in full-year underlying earnings to between 14.75 billion euros and 14.95 billion euros (£12.9 billion to £13 billion), on an organic basis.

Group chief executive Vittorio Colao said: ‘‘We have maintained good commercial momentum in the third quarter. Data usage continues to grow strongly, and we have now passed the 100 million 4G customer milestone.

“We made strong progress with our fixed and convergence strategy, achieving our best ever quarter for customer growth in high speed broadband in Europe.”

He added that the performance of its African Vodacom operations helped to offset “a more promotional quarter” in some European countries like Spain, while it continued to make progress in its merger with India’s Idea Cellular, despite the country’s “intense” competitive and regulatory environment.

But that was not enough to boost shares, with Vodafone trading lower by 1.8% or 4.05p at 220.55p in morning trading.

Laith Khalaf, a senior analyst at Hargreaves Lansdown, said it was worth noting that Vodafone “actually posted modest revenue growth” when discounting the impact of the euro and Netherlands consolidation.

“The new mobile roaming regulations and a shift towards SIM-only contracts have proved a drag on Vodafone’s performance in Europe.

“Growth in developing countries looks promising though, where many of these markets have leap-frogged fixed-line phone networks and moved straight on to mobile as a primary means of communication,” he added.

“Operations in Africa, the Middle East and Asia now make up around a quarter of Vodafone’s sales, and, with revenues growing at 6.8%, compared to 0.3% in Europe, these markets will add significant spice to Vodafone’s future.”

The company is also in a position to capitalise on growing demand for mobile data.

“However, monetising the data needs of the smartphone generation is more tricky, which is why Vodafone is trying to tempt customers to upgrade through “more for more” propositions,” Mr Khalaf said, with the telecoms provider now expanding its reach into the fixed broadband market.

“Customers tend to be stickier if they take out more than one service, which is why Vodafone is looking to broaden its appeal to consumers.”

Press Association

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