(Bloomberg) -- Vodafone Group Plc reported disappointing service revenue in Germany, its biggest market, after regulators barred some bundling of TV packages with rent and the telecommunications company lost millions of customers.
Vodafone had warned that it would lose millions of customers after Germany barred housing associations from bundling TV packages with rent. The company said it ended up losing more than half of its households on such contracts, retaining 4 million out of 8.5 million before the change.
Service revenue fell 6.2% in the quarter ending in September, the UK-based company said in a statement on Tuesday. That compared to the average 6.1% decline forecast from analysts in a Bloomberg survey.
Vodafone’s shares dropped 3.4% to 70.50 pence at 10:12 a.m. in London, the biggest intraday decline since Aug. 5. The stock has risen 2.8% so far this year.
Vodafone is managing the TV law change in Germany and “the outcome is exactly in line with our original expectations,” Chief Executive Officer Margherita Della Valle told reporters on Tuesday.
The company’s other markets helped boost overall sales in the first half of the year. Service revenue rose 1.7% to €15.1 billion ($16.1 billion) in the half ending in September, the company said in the statement. That compared with €15.1 billion on average projected by analysts surveyed by Bloomberg.
Della Valle is implementing a turnaround plan that includes selling off unprofitable businesses in Italy and Spain and an anticipated merger with CK Hutchison Holdings Ltd.’s Three in the UK. That deal looks set to gain regulatory approval next month without major remedies, creating the largest mobile operator in the UK by revenue.
Proceeds from the asset sales helped boost profit in the half. Vodafone said it got €5.4 billion in cash from selling its Spanish unit and disposing of a stake in the venture that controls its Vantage mobile tower businesses. It also sold an 18% stake in Indus Towers Ltd.
What Bloomberg Intelligence Says:
Vodafone’s slightly better-than-expected 4.2% growth in organic service revenue and 2.5% Ebitdaal gain in fiscal 2Q reflected broad-based growth, with the exception of Germany (42% of Ebitda). The latter showed turnaround progress, delivering a return to postpaid net adds and narrower broadband net losses, while navigating the peak of a TV regulation headwind. That underscores the reiteration of full-year guidance which, along with improving customer satisfaction scores, underlines our expectation for an acceleration in profit gains starting next year.
— Erhan Gurses, BI telecoms analyst
Profit rose to €1.22 billion in the first half from a loss of €155 million in the same period a year earlier. Adjusted earnings before interest, taxes, depreciation and amortization after leases declined less than 1% to €5.4 billion, in line with analysts’ estimates.
Organic service revenue in Africa, which accounts for almost a fifth of the company’s total, rose 9.9% in the half. Vodafone was able to raise prices in South Africa and interest in the company’s financial services app, Vodafone Cash, helped add users in Egypt.
Germany, where Vodafone makes 36% of its group revenue and 42% of its adjusted Ebitdaal, is the most closely watched market for investors. Vodafone Chief Financial Officer Luka Mucic said on the call with journalists the impact of the law change there will “taper off” with “modest improvements” in the last quarter of the fiscal year.
(Updates with CEO and CFO comments starting in fifth paragraph.)
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