Vodafone said it saw steady reco very in Europe in the group’s financial third quarter to the end of December 2014, with a return to growth in the UK and strong progress on its 4G network deployments across the continent.
Indeed, Jefferies analysts noted that Q3 revenue trends were slightly ahead of consensus estimates, although the analysts warned that the “the variance is attributable to unusually strong results from carrier services, a lumpy product line.”
In terms of outlook, Vodafone said the performance of the group remains in line with its expectations. “Consequently we remain on target to deliver EBITDA for the 2015 financial year 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. It added the guidance excludes cable operator Ono in Spain.
In organic terms, group revenue was 0.7% higher at £10.88 billion in the Q3 period, while service revenue was 0.4% lower at £9.789 billion. In Europe, service revenue declined by 2.7% to £6.626 billion, while in Africa, Middle East and Asia Pacific (AMAP) revenue was up 5.9% at £3.062 billion – largely thanks to 15% revenue growth in India and 11.8% growth in Turkey.
The company said it had returned to growth in the UK with a 0.9% increase in revenue to £1.53 billion. However, the company is set to face a new challenge here after BT on Thursday said it had agreed definitive terms to buy EE from Orange and Deutsche Telekom for £12.5 billion.
“Having reported improved numbers in the UK market, Vodafone must now confront the fact that, with today’s BT’s EE acquisition news plus Telefonica’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. The onus therefore is o n Vodafone to step up its efforts to become a triple or quad play operator in its home market,” said Bengt Nordstrom, CEO of independent mobile strategy consultancy Northstream.
In Germany, Q3 revenue was down by just 1% at £1.97 billion. Italy and Spain continued to show stronger revenue declines of 7.4% and 8.9% respectively amid challenging market conditions.
Jefferies said aggressive price points are emerging again in Italy, with 3 Italia launching an unlimited voice/SMS tariff including 1GB of data for €10. In Spain, the analysts said there is still little evidence of price-conscious attitudes softening.
Vodafone Group CEO Vittorio Colao said the group 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. Our recent cable acquisitions continue to perform well, with good progress made on integration [of Kabel Deutschland in Germany and Ono in Spain],” Colao added.
Vodafone highlighted the progress it had made to date with its Project Spring investment programme, noting that its mobile build was 50% complete with 65% 4G coverage in Europe. 4G services are now available in 18 markets with 13.7 million customers across the group.
Nordstrom commented that it’s also becoming increasingly obvious that Vodafone has historically underinvested in its networks in Germany, Spain, Italy and the UK.
“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 said.
