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General

Vodafone Q2: growth in subscribers, enterprise can't halt revenue decline

Thursday 15 November 2012 | 15:22 CET | Background

Vodafone Netherlands suffered from a network disruption in April and regulatory effects (MTR cuts) in its fiscal first half, leading to a 2.3 percent fall in services revenues to EUR 944 million. On an organic basis (excluding acquisitions such as TeleSpectrum in April), revenues fell 1.9 percent. The decline in sales accelerated in Q2 to 2.6 percent year-on-year, from 1.9 percent in the first quarter of the fiscal year.

Total revenues for the first half fell 1.2 percent from a year earlier to EUR 1.014 billion. We estimate the mobile services revenue fell 2.6 percent to EUR 922 million, while fixed service revenues rose 17 percent to EUR 22 million. Other revenues (mainly handsets and BelCompany) rose 16 percent to EUR 70 million. EBITDA was down 1.5 percent to EUR 345 million, for a margin of 34.0 percent, little changed from 34.1 percent a year ago. The operating profit fell 16 percent to EUR 174 million. 

Capex rose by 13 percent to EUR 120 million, or 11.8 percent of revenues, up slightly from 10.3 percent last year. Operating cash flow was down 21 percent, and the free cash flow (EBITDA minus capex) fell 8.0 percent to EUR 225 million. 

More subscribers, lower usage, growth in fixed

The mobile base grew by 42,000 customers in the three months to September to 5.343 million. The proportion of prepaid fell to 34.3 percent from 37.4 a year earlier. Smartphone penetration surged to 54.4 percent, from 39.5 percent in September 2011. Of those with smartphones, 74.2 percent had a data subscription. This is down from 77.7 percent a year ago, perhaps due to the growing availability of Wi-Fi. 

Voice traffic fell slightly, down 0.5 percent to 2.8 billion minutes. This averaged out at 176 minutes per customer per month, down slightly from 181 minutes a year ago. ARPU of EUR 29 per month (EUR 40.7 for postpaid, 7.1 for prepaid) was down from EUR 30.6 in the year-earlier period. Vodafone also disclosed the number of fixed lines, including copper (xDSL) and fibre as well as consumer and business. These totaled 26,000, up by 2,000 from the previous quarter and 5,000 more than a year earlier. In addition to xDSL, Voafone offers FTTH on Reggefiber networks and FTTO, mainly in cooperation with Eurofiber.

Strategy update

Vodafone Group also gave an update on its strategy with new targets for the period to March 2015. The most important elements are listed below:

Vodafone 2015:

  • A scale data company;
  • A strong player in enterprise;
  • A leader in emerging markets;
  • A selective innovator in services;
  • A cost efficient organisation.
Consumer 2015:
  • Unlimited voice/SMS, larger data allowances;
  • Pricing radically simplified giving clear visibility of cost of ownership and lower complexity for IT and billing;
  • Additional features: improved access to technical support, attractive roaming packages, shared data plans, early handset upgrades, storage and back-up in the cloud, device security;
  • Develop low-cost smartphones for emerging markets.
Enterprise 2015:
  • Create a group-wide unit in 50 countries;
  • Enhance product offering to large and medium-sized businesses;
  • VGE (for MNCs) to expand its remit;
  • Develop Vodafone One Net (convergence) for SME;
  • M2M;
  • Cloud;
  • Hosting.
Network 2015:
  • HSPA+, LTE, high capacity backhaul;
  • Video-standard data service across footprint in Europe.
Operations 2015:
  • Simplify business model both across and within countries, eliminate legacy structures, reduce non customer-facing costs, move towards more standardised offerings to speed up and co-ordinate time to market for new propositions and services;
  • Unify network and IT management across multiple markets, further centralise and standardise procurement, offshore more business functions to shared service centres;
  • Opex savings Europe GBP 300 mln in 2014.

Conclusion

Despite more customers and growth in the enterprise market, revenues were lower. Whereas Vodafone was previously the exception on the Dutch market with positive sales growth, it now appears unable to escape the decline in voice and SMS revenues. However, its performance is still somewhat better than T-Mobile and KPN. From a financial viewpoint, little is wrong, with the margins maintaining a good level. The focus on the enterprise market is positive, as this could help make up for the contraction in voice and SMS revenue. More acquisitions certainly cannot be ruled out. And based on the group's new strategic plans, the rationalisation of the company, at multiple levels, will continue. This should also provide a boost to growth when better times return. What's unclear is when that will happen, as the trend is still negative. 

Telecompaper's latest Dutch Mobile Operators report will be published 16 November, covering all the market developments from the past quarter.



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