Southern Europe crisis hits Vodafone results

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Southern Europe crisis hits Vodafone results

Revenue growth slows amid deterioration in Italy and Spain, but emerging markets and data keep the firm robust

By CAROLINE GABRIEL

Published: 9 February, 2012

READ MORE: Financial | Europe | Vodafone Group | Infrastructure

The economic crisis in southern Europe hit Vodafone's fiscal third quarter, which ended in December, and a slowdown in revenue growth disappointed analysts.

Nevertheless, Vodafone maintained its guidance for the full year, saying in its statement that "we expect to continue to face challenging market conditions, but remain confident of executing well". Despite "further deterioration" in southern Europe, CEO Vittorio Colao said the strategy of investing in emerging markets over recent years had paid off, since the "broad geographic mix is delivering a resilient overall performance". Other strong points were mobile data and enterprise services.

Emerging markets were key to the small service revenue growth which Vodafone did achieve - excluding currency swings and acquisitions, this was 0.9% year-on-year, compared to 1.3% in Q211, and the figure was £10.61bn. Analysts had hoped for 1.1%. Vodafone expects its quarterly service revenue (excluding handset sales) to continue to grow at rates between 1% and 4% for the next three years.

The best performing countries were Turkey, with 23.5%, India on 20% and the South African Vodacom unit on 8%. By contrast, the more robust European markets achieved only slight growth, with the UK on 1.1% and Germany 0.7%. And in the southern region, Italy was down by 4.9% and Spain by 8.8%. There was "continued strong growth" for US joint venture Verizon Wireless, where organic service revenue increased by 6.8%.

Vodafone's data revenue grew by 21.8% on an organic basis, led by increased smartphone penetration, and this now accounts for 14.8% of the total, up from 12.1% a year ago. Total group revenue was up 1.6% organically to £11.62bn, though with disposals included it would have fallen by 2.3%. The cellco does not report a quarterly profit figure.

Looking forward, the company said it expected its adjusted operating profit to be in the range of £11.4bn to £11.8bn, and said its EBITDA margin would decline at a lower rate than in the previous financial year. Capital expenditure during the period was £1.5bn, 5.2% down year-on-year, but in the fiscal year to date, capex is up 3.6% on the prior year, to £4.1bn, because of investments in Vodacom's transmission network and the German LTE roll-out. Vodafone also spent £1bn on spectrum, primarily in Italy and Greece.