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Vodafone a top FTSE 100 riser after first quarter service revenue growth accelerates

Vodafone has left its full year guidance unchanged after adding more broadband and mobile customers in the first quarter
Vodafone says its cost efficiency programme is on track

Vodafone Group plc (LON:VOD) was one of the biggest risers on the FTSE 100 today after a well-received first quarter trading update, which revealed a 2.2% increase in organic service revenue to €11.5bn. 

Organic service revenue, adjusted for currency movements and the restructuring the business, was supported by growth in all its operations, excluding the India and UK markets. In fourth quarter, organic service revenue increased 1.5%. 

Reported revenue, which includes foreign exchange headwinds and the impact of deconsolidating its Netherlands business, fell 3.3% to €11.4bn.

READ: Vodafone's signal boosted by price target hikes from both Deutsche Bank and Berenberg

Vodafone sold its Netherlands subsidiary to T-Mobile Nederland late last year as a concession to European Union regulators in order to gain approval for a merger of its Dutch operations with Liberty Global’s Netherlands cable company, Ziggo.

In March, the company also agreed to combine its India operations with local provider Idea Cellular amid a mobile price war in the nation. The merger is expected to be completed in 2018 and Vodafone will own 45.1% of the combined group while Aditya Birla Group, Idea’s parent company, will own 26%.

Vodafone excluded its India business from the total quarterly revenue amount but said services revenue in the nation fell 13.9% due to competitive pricing, triggered by India’s richest man, Mukesh Ambani, and his new operator Reliance Jio. However, Vodafone said quarterly trends are “stabilising” and it is seeing an improvement in average revenue per user (APRU) in the low-value segment, mitigating pricing pressure in the mid and high-value segments.

UK service revenue drops, Italy and Spain deliver strong performance

Closer to home, UK service revenue declined 2.7%, slowing from the 4.8% decrease in the fourth quarter as APRU grew in consumer mobile on price increases and as carrier services recovered.

"While these latest results show that Vodafone is operating a relatively stable business in many foreign markets, the impact of Brexit on its UK operations is already being felt," said Matthew Kendall, chief telecoms analyst at The Economist Intelligence Unit.

"Although the rate of UK revenue decline slowed in this quarter, the falling value of the pound and the adverse impact of the abolition of EU roaming charges are areas of concern for its domestic business going forward."

In Germany, service revenue growth slowed to 0.6% from 1.2% the previous quarter, in part due to lower mobile wholesale revenues. Italy continued to deliver a strong performance with service revenue up 3.2%, compared to 2.8% in the fourth quarter, while Spain achieved a 1.6% rise following a 1.3% gain in the prior three months.

The Africa, Middle East and Asia Pacific region saw service revenue jump 10.0%, driven by robust growth in Turkey and Egypt.

"Rising competition has seen India hit a significant speedbump, jolting Vodafone to the extent that it took a multi-billion euro write-down and split the Indian operation from the wider group," said George Salmon, equity analyst at Hargreaves Lansdown.

 "While Vodafone is still feeling the effects of this body blow, first quarter results paint a far more favourable picture of the European businesses."

Vodafone adds mobile and broadband customers

Vodafone said it now has 83.5 million customers for 4G mobile date across its 22 countries, adding 8.8 million in the first quarter.

For its broadband services, it added 300,000 customers in the quarter, bringing the total to 15 million.

Its Enterprise business, which provides telecommunications and IT services to large corporations, saw revenues rise 1.5% after a 2.0% increase in the fourth quarter, boosted by its Internet of Things platform 

Vodafone reiterates full year estimates 

Vodafone said its first quarter results were in line with expectations and left its guidance for 2018 unchanged.

“In addition, we are executing our 'Fit for Growth' cost efficiency programme in line with our plans,” said chief executive Vittorio Colao.

“Overall, this performance gives us confidence in reiterating our outlook for the year."

Shares rose 1.31% to 226.60p in late afternoon trading. 


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