Vodafone says Germany, Spain and Italy drive sales growth

Vodafone says Germany, Spain and Italy drive sales growth

Spain, Germany and Italy helped Vodafone to produce stronger than expected first-quarter sales growth despite a drag from EU roaming charge cuts and a weak home market.

The world’s second-largest mobile operator said yesterday that Europe was stable, with three out of its four biggest markets doing well. Europe only returned to growth for Vodafone in the final quarter of 2015/2016 after five years of contraction due to sluggish economies in the region.

The notable exception was Britain, where Vodafone has been trying to fix problems encountered with a new billing system. The company also said it was too early to tell what Brexit would mean for Vodafone’s business.

Chief executive Vittorio Colao said the group was making good progress in Europe, led by Germany, Spain and Italy.

“We are focused on improving our performance in the UK,” he said.

Vodafone’s performance marked an eighth consecutive quarterly rise in its main growth measure – organic service revenue.

“This momentum should steadily raise confidence in the sustainability of the recent return to growth, and underpins our belief that this growth profile is now top-tier amongst the incumbent Telco universe,” JP Morgan Cazenove said in a note.

Shares in Vodafone topped the FTSE 100 gainers. They were trading up 4.5 per cent at 235.5 pence by 0958 London time.

Analysts at Citi said they saw the 2.2 per cent rise in organic revenue to €12.3 billion as a “modest beat”. “The solid progress in Germany and Spain is encouraging.”

Growth of 0.3 per cent in Europe beat analysts’ forecasts of a flat result. Sales in Britain fell 3.2 per cent, more than expected.

Africa, Middle East and Asia-Pacific (AMAP) grew by 7.7 per cent in the three months to end-June, also beating analyst forecasts for a seven per cent rise.

“Our growth momentum in AMAP remains strong, with excellent performance in South Africa, Turkey and Egypt and ongoing recovery in India,” Colao said.

He said a planned listing of Vodafone’s Indian operation would provide clarity on its value, giving it more flexibility to pursue options like a deeper tie-up with Liberty Global, although no talks were ongoing or were planned.

Vodafone has floated the idea of switching its home base to another European country after Britain voted to leave the EU last month.

Colao said it was too soon to have any clarity on this. “Our position is we continue to care a lot for the single digital market,” he said. “We believe pragmatic solutions will be found to make sure Britain does not get disadvantaged from not being part of it.”

Vodafone has switched to reporting in euros from pounds – reflecting the relatively bigger size of its combined eurozone businesses, which make up about half of its sales.

In the short term, the company was seeing more shifts in traffic on its networks from the threat of terrorism in some tourist markets, Colao said.

Holidaymakers from Britain and Germany have shifted from destinations like Turkey and North Africa this year in favour of perceived safer locations like Spain, holiday companies have said.

Vodafone is making less money from business and consumer calls when people travel after the EU cut charges at the end of April. Roaming charges will be abolished in June 2017.

But Colao said more than half of calls made when travelling were now included in bundles, a move that was boosting overall usage and helping to compensate for the roaming cuts.

The drag on revenue from roaming charges was 40 basis points in the quarter, although analysts at Mirabaud said they believed the changes would have a bigger impact in the second quarter.

Analysts had expected Vodafone to report organic service revenue growth of 1.9 per cent, against underlying growth of 1.8 per cent in the final quarter of 2015/16.

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