British mobile phone giant Vodafone Group Plc (VOD) has announced key performance indicators for the first quarter of fiscal 2012. In its interim statement for the quarter, the carrier reported consolidated revenues of £11.66 billion ($19.09 billion), representing a 3.5% year-over-year growth. On an organic basis, group revenue upped 2.3% from the year-ago quarter. Vodafone does not report earnings in its quarterly filing.
Group service revenue (93% of total revenue) increased 1.5% year over year on an organic basis to £10.86 billion ($17.72 billion). On reported basis, group service revenue climbed 2.6% year over year.
Consolidated data revenue was £1.5 billion ($2.44 billion), up 27% year over year (24.5% on organic basis), boosted by strong smartphone and mobile Internet sales. Messaging revenue grew 7.4% (5.3% organically) to £1.3 billion ($2.12 billion) from the year-ago quarter while voice revenue dropped 3.5% on a reported and 4.2% on an organic basis to £6.69 billion ($10.91 billion).
Fixed-line services increased 8.7% year over year (6.4% on organic basis) to £899 million ($1.47 billion) driven by healthy broadband subscriber accretion.
Segment Results
Europe
Revenues for the European segment increased 2.2% year over year (down 0.3% on an organic basis) to £8.1 billion ($13.2 billion). Service revenue in Europe inched up 1.2% but slid 1.3% organically as growth in Germany, the UK, the Netherlands and Turkey continued to more than compensate decreases across southern and other central European markets.
Africa, Middle East and Asia Pacific
The Africa, Middle East and Asia Pacific revenue climbed 6.9% year over year (9.4% organically) to £3.43 billion ($5.6 billion). Service revenue increased 8.7% year over year on an organic basis, driven by strong growth in India and Vodacom.
Liquidity
Vodafone’s net debt reduced to £23.1 billion in the reported quarter from £30 billion at the end of fiscal 2011.
The company generated free cash flow of £1.25 billion ($2.04 billion) and invested £1.21 billion ($1.97 billion) in its business. During the quarter, Vodafone invested primarily in the deployment of 4G long-term evolution network in Germany and network improvement in Vodacom.
Guidance
Vodafone reiterated its fiscal 2012 guidance. Management expects EBITDA margin to decline at a lower rate compared to fiscal 2011 as a result of falling revenue in Southern Europe. Adjusted operating profit is expected in the range of £11.0 billion to £11.8 billion.
Free cash flow is expected in the range of £6.0 billion to £6.5 billion and capital expenditure is likely to remain same as last year, assuming a stable currency value.
Our Analysis
We believe Vodafone remains well positioned for strong performance based on increased market share gains in emerging markets, such as Eastern Europe, Asia, India and Africa,coupled with successful smartphone and data services.
Vodafone’s new growth strategy and exiting stake of minority holdings will give it a relatively better position than its peers Verizon Communications (VZ) and AT&T Inc. (T).
However, persistent revenue decline in southern European operations, lower expected margins arising from the sale of minority stakes, regulatory pressure, stiff competition and reductions in mobile termination rates keep us on the sidelines.
We are currently maintaining our long-term Neutral rating on Vodafone. For the short term (1–3 months), the stock retains a Zacks #3 (Hold) Rank.
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