Vodafone Revenue Meets Estimates, CEO Says ‘We Can Do Better’

Thomas Seal, Bloomberg News

A Vodafone Group Plc logo sits on the company's 5G wireless exhibition stand at the Gamescom computer games industry event in Cologne, Germany, on Tuesday, Aug. 20, 2019. Gamescom is the world's largest gaming convention and runs from August 20 to 24. Photographer: Krisztian Bocsi/Bloomberg , Bloomberg

(Bloomberg) -- Vodafone Group Plc’s interim Chief Executive Officer Margherita Della Valle reiterated guidance but said the mobile and broadband group “can do better” after European sales shrank.

Group organic service revenue gained 1.8% to €9.52 billion ($10.4 billion) in the third quarter, the Newbury, England-based company said in a statement on Wednesday. That compared to the average 1.75% growth estimate from five analysts surveyed by Bloomberg. That’s a slowdown, marking the first time it’s dipped below 2% since fiscal 2021.

Sales were boosted from markets outside of Europe - particularly hyperinflation and price increases in Turkey, which makes up 4% of service revenue. It grew 53% in the quarter, and stripping it out would leave total service revenue growth at 0.5%, Vodafone said.

Key Insights

Vodafone is in leadership limbo after ousting Chief Executive Officer Nick Read in December, with Chief Financial Officer Della Valle at the helm in the interim. In the Wednesday update she said “there is more to do and our focus is to provide a better service to our customers, become a simpler business and deliver growth.”
Vodafone is cutting costs in the face of energy and labor inflation, while trying to turn around key markets like Germany, its biggest, where service revenues are declining. Jefferies analyst Jerry Dellis called a 8.7% fall in Spanish sales a “major disappointment.”
Management is also fielding strategic investors like United Arab Emirates-backed Emirates Telecommunications Group Company PJSC, known as e&, which has slowly increased its position to 12% and may be interested in Vodafone’s African assets. French billionaire Xavier Niel holds 2.5% and last year unsuccessfully bid on Vodafone’s Italian division.
Vodafone said it expects its deal with KKR & Co. and Global Infrastructure Partners to share control of its mast operating spinout Vantage Towers to close in the first half of the year. The joint venture with private equity is expected to hold 89.3% of Vantage.
Activist Elliott Investment Management disclosed a stake with 5.6% voting rights on Tuesday, which could complicate the transaction.

Market Context

Shares fell 2.6% to 90.70 pence at 8:17 a.m. in London trading.
Vodafone shares had fallen 28% in the 12 months through Tuesday, versus a 15% drop in the Stoxx 600 Telecommunications Index.
Of the 23 analysts surveyed by Bloomberg, 13 rate the stock Buy, 6 Hold and 4 Sell.

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