Vodafone Revs Continue to Fall


Vodafone Group Plc (VOD) reported its financial results for third quarter 2013.  

Consolidated revenues of £11.4 billion ($18.29 billion) dropped 1.8% year over year on an organic basis and dropped 2% on a reported basis. Group service revenue (91.1% of total revenue) decreased 2.6% year over year on an organic basis to £10.4 billion ($16.7 billion).

On a reported basis, group service revenue dropped 2.2% year over year. The decline resulted primarily from lower revenues from European operations, regulatory issues and competitive pressures that restricted growth in the emerging markets.

On an organic basis, consolidated data revenues were £1.7 billion ($2.7 billion), up 12.8% year over year, boosted by strong smartphone and mobile Internet sales. Messaging revenue fell 7.9% to £1.2 billion ($1.9 billion) from the year-ago quarter.

Voice revenues dropped 6.8% to £5.5 billion ($8.8 billion) and Fixed line revenues dipped 0.8% year over year to £1.3 billion ($2.1 billion). Other service revenues were £659 million ($1.1 billion) in the quarter, up 14.2% year over year.

On a reported basis, Data, Fixed line and Other service revenues rose 7.1%, 44.8% and 29.5%, respectively. Voice and Messaging revenues dipped 11.9% and 11.7%, respectively.

Segment Results

Northern and Central Europe : Revenues increased 5.2% on a reported basis but decreased 0.8% on an organic basis year over year to £5.2 billion ($8.4 billion). The organic decline remains affected by poor economic conditions in some markets, pricing pressures and the impact of MTR cuts, partially offset by data revenue growth. Service revenues in this segment were up 5.9% year over year on a reported basis but dropped 0.9% on an organic basis to £4.8 billion ($7.7 billion).

Southern Europe: Revenues of £2.6 billion ($4.2 billion) were down 16.0% on a reported basis and 10.8% on an organic basis from the prior-year quarter. Service revenues decreased 17.0% on reported basis and 11.9% on an organic basis year over year to £2.3 billion ($3.8 billion).

The decline was due to reductions in interconnection charges, pricing pressures and macroeconomic weakness that offset the growth in data revenues. Declining revenues from countries like Italy and Spain were also responsible for this slump.

Africa, Middle East & Asia Pacific (AMAP): Revenues from this segment dropped 0.1% on a reported basis but climbed 3.3% organically year over year to £3.5 billion ($5.6 billion). Service revenue dipped 0.4% year over year on a reported basis but grew 2.7% on an organic basis to £3.1 billion driven by strong data and subscriber growth in India, Vodacom, Ghana and Qatar, and Egypt partially offset by weak performances in Australia and New Zealand.

Subscriber Trends

During the quarter under review, Vodafone’s total subscriber base reached 403.3 million (79.7% represented by prepaid). In Europe, the company lost 1.5 million subscribers, bringing the region’s total customer base to 145 million at the end of Dec 2012. Africa, Middle East & Asia Pacific lost 2.5 million customers, taking down the total subscription to 258.4 million.


Vodafone Group generated free cash flow of £1.2 billion, down 18% year over year in the stated quarter. Capital expenditure was £1.5 billion, up 2.3% from the year-ago quarter.


Vodafone reiterated its fiscal 2013 guidance. Management expects consolidated EBITDA margin declines to improve. Adjusted operating profit is expected in the upper half of the range of £11.1 billion to £11.9 billion.

Free cash flow is expected in the lower half of the range of £5.3 billion to £5.8 billion, excluding £2.4 billion dividend received from Verizon Wireless, a subsidiary of  Verizon Communications Inc. (VZ).

Other Stocks

Other stocks worth considering in this sector include Cellcom Israel Ltd. (CEL), which has a Zacks Rank #1 (Strong Buy) and SK Telecom Co. Ltd. (SKM) with a Zacks Rank #2 (Buy).

Our Analysis

Despite strong growth prospects of Vodafone, we are concerned about a decline in service revenues and subscriber counts, particularly in European Continent. Continued economic weakness, regulatory pressure, stiff competition, reductions in mobile termination rates (MTRs) and roaming prices remained detrimental to the company’s growth.

However, Vodafone’s strong growth in emerging markets can partially offset challenging market conditions and provide a high profit margin given lower infrastructural costs. Further, the company is increasingly making efforts to shift toward more data centric services as the level of data services in these markets remain considerably low, providing opportunities for deeper penetration.  

Vodafone currently has a Zacks Rank #3 (Hold).

Read the Full Research Report on VOD

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