Vodafone hit by weak southern Europe

LONDON Thu Feb 9, 2012 4:59pm IST

A customer walks past the Vodafone logo in a shopping mall in Prague February 7, 2012. REUTERS/David W Cerny

A customer walks past the Vodafone logo in a shopping mall in Prague February 7, 2012.

Credit: Reuters/David W Cerny

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LONDON (Reuters) - Vodafone, the world's largest mobile phone operator, missed quarterly revenue forecasts on Thursday as increasingly tough trading in Spain and Italy overshadowed solid performances in emerging markets and northern Europe.

The British-based group is the latest in a procession of companies to warn that austerity-hit consumers and businesses in southern Europe were cutting back spending.

Spirits group Diageo highlighted weakness in parts of Europe on Thursday, while car brand Audi said it was relying on the United States and China for growth as Europe grapples with a sovereign debt crisis.

In a sign of how seriously Vodafone is taking instability in financial markets, the group said it had for some time been moving all spare cash in its operating businesses back into Britain each evening to minimise its exposure to each market.

Vodafone, which kept its outlook for the year unchanged, said group organic service revenue from the provision of ongoing services to customers was up 0.9 percent, compared with an analyst forecast of 1.1 percent.

The group, the first major European telco operator to report results, said revenues were hit by weaker consumer confidence in Spain, Italy and also Britain, while corporate clients had cut back on travelling in the last three months of the year.

Overall, however, the group benefited from strong growth in India and Turkey and continued demand by customers for internet data services, prompting analysts to say that Vodafone would perform ahead of its peers.

"Our view remains that Vodafone is the best of a bad bunch,"

Liberum analyst Mark James said.

"Better value, better run and more shareholder friendly than most of the European telco incumbents where we remain negative. We would expect Southern European telcos to trade weaker today. But there is little here to make Vodafone trade much better."

At 6:15 a.m. ET, Vodafone shares were up 0.3 percent at 174.9 pence, broadly in line with the STOXX Europe 600 telecoms index. Telecom Italia shares were down 1.3 percent.

European organic service revenue was slightly worse than expected, down 1.7 percent as the financial squeeze on consumers in Italy, Spain and Greece pulled down better performances in the two big northern markets of Britain and Germany.

Analysts had been expecting Europe to be down by 1.4 percent. Service revenue in Britain was up 1.1 percent, slipping from the 2.5 percent growth in the second quarter, while Germany improved to be up 0.7 percent.

INCREASING PRESSURE

The Spanish market which has previously been characterized by high prices for consumers was slightly improved but still down 8.8 percent. Italy, however, deteriorated further to be down 4.9 percent compared with a fall of 3 percent in the previous quarter.

Chief Executive Vittorio Colao said he did not expect Italy to become as bad as Spain for Vodafone, because prices in Italy were already much lower and the cost structure healthier. But he said he expected problems there to last for some time.

The company did not give a specific trading figure for Greece, but it has also been hit hard by the pressures on consumer spending.

Vodafone announced earlier this week it had pulled out of merger talks with smaller rival Wind Hellas in Greece. The group said it would now explore options to share networks or other forms of cooperation.

Espirito Santo analyst Will Draper said the figures were slightly below the consensus published by Vodafone a few weeks ago. However, he said the company had cautioned in recent days that trading had toughened in southern Europe, so it should not come as too much of a surprise.

Balancing out southern Europe, growth within the faster-growing division of Africa, Middle East and Asia Pacific, known as AMAP, was 7.6 percent - solid but slightly below the forecast of 8.3 percent.

Vodafone Finance Director Andy Halford said the group was still happy with its outlook for the full year as stronger trading in the first half would enable it to hit its medium-term target of 1-4 percent group organic service revenue growth.

($1 = 0.6322 British pounds)

(Editing by Mark Potter)

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