Vodafone Group plc
) announced its interim management statement for the third
quarter ended Dec 31, 2013 on Feb 6.
The company recorded consolidated revenue of £10.977 billion
(approximately $17.8 billion), which was down 3.6% year over year
on a reported basis and 4.3% on an organic basis. Group service
revenues (91% of total revenue) dropped 3.3% year over year to
£9.856 billion (approximately $15.95 billion) on a reported basis
and decreased 4.8% on an organic basis given the impact of a
challenging European economy along with rising regulatory and
Despite recording a year-over-year revenue decline, the
company's share price saw an uptrend and closed 43 cents higher
than the opening at $36.67 on
Revenues declined 3.1% on a reported basis but decreased 10.1% on
an organic basis year over year to £7.1 billion (approximately
$11.5 billion). The organic decline was due to poor economic
conditions in some markets, competitive pressure and the impact
of MTR cuts, partially offset by growth of mobile in-bundle
revenues. Service revenues in this segment were up 2.7% year over
year on a reported basis but dropped 9.6% on an organic basis to
£6.5 billion (approximately $10.5 billion).
Africa, Middle East & Asia Pacific (AMAP):
Revenues from this segment declined 6% on a reported basis given
unfavorable foreign exchange rate movements but grew 7.5%
organically year over year to £3.7 billion (approximately $5.9
billion). Service revenues declined 6.1% on a reported basis and
grew 5.5% organically year over year to £3.2 billion
(approximately $5.2 billion) driven by customer additions and
favorable pricing as well as increased demand for data. Countries
like India, Qatar, Ghana and Turkey as well as Vodacom delivered
strong results. This was offset by the negative impact of MTR
reductions, regulatory pressure and poor market conditions in
During the three-month period under review, Vodafone's total
mobile subscriber base reached 419.4 million (79.8% represented
by prepaid). In Europe, the company lost 347,000 subscribers,
bringing the region's total customer base to 122 million. Africa,
the Middle East & Asia Pacific added 8.3 million customers,
taking the total subscription to 297.4 million.
Vodafone Group generated free cash flow of £1.031 billion
(approximately $1.7 billion), down 14.2% year over year. Capital
expenditure was £1.8 billion (approximately $2.9 billion), up
14.2% from the corresponding year-ago period.
For the full year, the company maintains its projection for
adjusted operating profit of £5 billion and free cash flow in the
range of £4.5-£5.0 billion.
Transaction with Verizon Communications Inc.
On Sep 2 2013, Vodafone announced its agreement to sell its
45% interest in Verizon Wireless to Verizon Communication for a
total consideration of US$130 billion or £79 billion. The
proceeds would be divided in a cash consideration of $58.9
billion (£35.9 billion) and $60.2 billion (£36.7 billion) in
Verizon shares. Further the company would receive $5.0 billion
(£3.1 billion) in Verizon loan notes, $3.5 billion (£2.1 billion)
as Verizon's 23% minority interest in Vodafone Italy and $2.5
billion (£1.5 billion) as transfer of Vodafone's net liabilities
in Verizon Wireless to Verizon.
Despite the strong growth prospects of Vodafone, we are
concerned about a decline in service revenues and subscriber
count, particularly in the European Continent. Continued economic
weakness, regulatory pressure, stiff competition, reduction in
mobile termination rates (MTRs) and roaming prices were
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 is considerably low,
providing opportunities for deeper penetration.
Vodafone, which operates with other European carriers like
), currently has a Zacks Rank #4 (Sell).
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