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Vodafone H1 results: good work on 3G, but the outlook rattles the market |
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| 17
November , 2005 |
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Furthermore, minutes of use (MOU) grew by 17% and non-messaging data was up by nearly 30%. But EBITDA did not perform so well, growing by just 3% to reduce the margin from nearly 40% a year ago to 38%. Comment: It's not because of the current numbers that the markets didn't react well. It's because of the outlook. The rest of the 2006 financial year contains no surprises, and guidance has been reiterated with mobile revenue growth at 6-9% for the full year. But the 2007 outlook predicts a tougher market, with the effects of termination rate cuts taking their toll on revenue growth, particularly in Germany and Italy. Consequently, Vodafone is expecting lower organic revenue growth in 2007 than in 2006 and lower margins, even after accounting for the expected positive effects of the One Vodafone programme. The problem is exemplified by the change in MOU compared to the change in voice revenues. Minutes were up by 17%, organic voice revenues were up just 4%. So it's not pretty, and the markets are right to be concerned, but with EBITDA margins of 46% and 54% in the two operations expected to be worst hit (Germany and Italy, respectively), it seems that Vodafone ought to be able to accommodate a slight decline without it being catastrophic. Moreover, there is other, rather better, news from Vodafone that should encourage us to retain perspective, at least in terms of market development. 3G users increased by 60% to nearly 5m, up from 3.2m in June. The user base is now expected to double in the Christmas quarter and break through the 10m mark. This is having a positive effect on data revenues, particularly non-messaging data. It has taken time for this to become significant, but with current growth at 30%, non-messaging data now accounts for 6.4% of service revenues and contributes nearly £1bn. What's more, 3G users now account for over 6% of revenues, and the uplift in ARPU of a migrating user is between 10-15%. If Vodafone can keep this up (no mean challenge admittedly), the outlook for the 3G business is rather more encouraging. Vodafone is also working hard on its retention and acquisition strategies. Expenditure is up 15% year-on-year, and now accounts for nearly 25% of group costs. Although one-third of this expenditure is in Japan, where Vodafone continues to have to work extremely hard, it bodes well in terms of maintaining the quality of the subscriber base. This is critical if Vodafone is to fight the effects of the termination rate declines that have worried the investors. Finally, a sigh of relief from our colleagues at Wireless Intelligence who track all the wireless market metrics. Vodafone has changed the way it reports its market performance indicators, whereby KPIs such as ARPU and churn used to be reported as 12-month rolling figures. They are now presented for the given quarter only, which allows for far more meaningful comparisons against the majority of other operators that report on a discrete quarterly basis. About time too!
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Europe
: Vodafone shares are down by over 10% after the company reported
its H1 results to September 2005. The headline numbers are good enough.
Group revenues of £18.3bn are up by over 6% organically, and
the proportionate customer base is up 13% to 171m.