Business Watch: Vodafone’s Q4 results

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In these see-saw markets, steadily unspectacular results are just the kind of thing nervous investors salivate over: so the Square Mile awarded Vodafone with a big share price boost of six per cent on the back of the figures.

Not that it was all positive news from Newbury as Vittorio Colao delivered his first Christmas figures as chief executive.

Take the UK. Vodafone’s organic revenue here was down 0.7 per cent at less than £1.23 billion; rewind to the company’s cracking Christmas of 2007 and its UK arm was delivering growth of 5.9 per cent.

But, as Terrence Sinclair, telecoms analyst at Citigroup pointed out in a note to clients, that 0.7 per cent fall represents a better-than-expected improvement on the previous quarter when revenues in the UK were down 1.7 per cent.

For what it’s worth, Sinclair reckons Vodafone shares are a ‘buy’ and should be worth £1.80, versus £137.15 as stood on the day of the results.

The UK division added 449,000 net new customers over the quarter – slightly down on the 488,000 it gained during the Christmas quarter in 2007.

Vodafone UK’s average monthly revenues per user (ARPU) were down £1 to £21.50 year on year, with contract customer ARPU down £3 to £39.20 and prepay customers spending 50p less a month on average at £8.50.

That fall was not just call, text and data price erosion, it was also partly a function of the number of lower value 3G dongles being sold as the wireless broadband boom continues.

That said, the company’s UK prepay base is down from 60.5 per cent then to 58.8 per cent now, which means the quality of the customer base is a bit better.

And O2 may still have the iPhone but the BlackBerry Storm, made by Canada’s Research in Motion, appears to have gone down just as its name would suggest for Vodafone so far.

So it was a decent performance by Vodafone UK, particularly given the management turmoil it has experienced in recent years, with Guy Laurence starting not long before Christmas as its umpteenth new boss since the turn of the millennium.

The company is facing a tougher environment right across the continent. In 2007 it managed two per cent organic service growth in Europe over Christmas, but 2008 Christmas quarter revenues were down 1.4 per cent on the same basis.

That decline was higher than the previous quarter too, which the group said was largely due to lower average revenues per device, lower volumes and a further fall in revenue in Spain, where revenues tumbled 5.8 per cent on an organic basis.

Fortunately the strengthening euro meant Spain’s revenues, as measured in pounds sterling, rose 15 per cent. But there is no hiding the company’s problems there as it faces increasing competition, regulation and the dreaded ‘churn’.

“At a time of heightened economic worry, Vodafone’s result is pretty okay,” said Emeka Obiodu, senior analyst at advisory and consulting firm Ovum.

“The operator has managed to steady its business, and has avoided the sort of doom that was reported by the mobile handset maker.

“But it wasn’t all good news for Vodafone as Spain showed once again that the economic gloom is not yet over.”

Indeed. Some analysts are predicting a major cull among Vodafone staff this year as Colao presses on with his plans, which aim to reduce costs by £1 billion by March 2011.

Colao told reporters the cost cuts will continue, and would be wide spread, including network rationalisation, technology, logistics, and advertising.

IHS Global telecoms analyst Peter Boyland noted that Colao added ominously that this would “inevitably result in an impact on the headcount”, but had declined to give any further details.

Vodafone has already cut 150 jobs in Ireland in the last few months, and Boyland expects to see “significantly larger job losses in the next year”.

Meanwhile, the Vodafone group as a whole – including the emerging market operations – posted an increase in revenues in the quarter ending December 31 of 14.3 per cent to £10.5 billion, boosted by exchange rates.

Full article in Mobile News issue 432 (February 9, 2009)

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