LONDON (Thomson Financial) - Vodafone Group Plc. said its full-year revenue
will come in at the bottom of its outlook range due to economic weakness and its
performance in the first quarter
While posting in-line first-quarter revenue growth, the mobile operator said
lower-than-expected equipment revenue is also likely to take its toll on the
full-year outlook, which is forecast to come in at the bottom of its target of
39.8 billion to 40.7 billion pounds.
Shares in the world's largest mobile phone company by revenue plummeted on
the news, dropping 15.28 percent to 126.40 pence at 12:12 p.m.
Vodafone said its group revenue for the three months ending June 3 rose 19.1
percent, or 1.7 percent on an organic basis, compared to the same quarter last
year to 9.8 billion pounds. Revenues in Europe were driven by a strong foreign
exchange.
"Notwithstanding this more challenging operating environment, we continue to
benefit from a diversity of assets and services, with strong revenue growth in
EMAPA and another good quarter of data revenue growth offsetting weakness in
Spain," said chief executive Arun Sarin.
Overall revenue was bolstered by continued growth in the Eastern Europe,
Middle East, Africa & Asia and Pacific (EMAPA) region as revenue climbed 9.2
percent on an organic level and 30.5 percent including acquisitions and
disposals.
But lower growth in Egypt and Romania, as well as the inclusion of Turkey in
the calculation, meant revenue in the EMAPA region was not as strong as the
previous quarter, despite a strong contribution from India.
Vodafone generates about a quarter of its revenues from the EMAPA region
thanks to a series of acquisitions in emerging markets, including the $10.7
billion buy of a controlling stake in India's Hutchison Essar last year.
The mobile operator said Vodafone Essar added 5.1 million customers in the
quarter out of total of 49.2 million customers in India and 122.6 million in the
region.
The strategy to expand into developing markets was spearheaded by outgoing
CEO Arun Sarin, who will leave the mobile operator at the end of July. He will
be replaced by Vittorio Colao.
Vodafone added revenues in Europe in the first quarter were weaker,
declining by 0.2 percent on an organic basis, as a slowdown in customer spending
in Spain hit the group's bottom line. Vodafone added 1.3 million new mobile
customers in the quarter, in line with the previous quarter.
In reaction, Collins Stewart downgraded its rating on the stock from 'buy'
to 'hold', adding the resilient UK and Spanish telecoms market "look to have
finally cracked". Spain and the United Kingdom both account for 13 percent of
Vodafone Group revenues, with Spanish organic revenues falling 2.5 percent in
the first quarter.
"We would expect the whole sector to trade down on the back of Vodafone's
numbers, with Telefonica especially weak... Vodafone has kicked off the telco
results season with a reminder that nothing is immune," said Mark James at
Collins Stewart.
The drop in the Spanish market reflects a lower take-up among immigrants,
SMEs and economically sensitive sectors, said analysts at Citi.
But analysts agreed the news from Vodafone was not all bad, highlighting the
stock's defensive qualities, dividend yield and strength in emerging markets.
"The strong cashflows which the company enjoys provides it with a very
positive market consensus, although this may come under some pressure following
today's guidance," said Richard J Hunter at Hargreaves Lansdown.
Cazenove said the revised full-year outlook implies a downgrade of perhaps 1
to 2 percent but stressed the shares have stayed broadly flat against a 4
percent decline in the All-Share index, prior to Tuesday's announcement.
"This strong performance is comparable to the European sector and reflects,
at least in part, the sector's defensive characteristics," said Cazenove. It
added the group has an attractive profile in terms of exposure to mobile data
growth and emerging markets.
lorraine.turner@thomsonreuters.com
lht/kf1/lht/ms1
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