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.
Liquidity
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.
Guidance
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).
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