Vodafone Group Plc - Trading Update.

·   

Group revenue of €11.0 billion, down by €0.8 billion due to the adoption of IFRS15, the sale of Qatar and FX headwinds

·   

Q3 organic service revenue growth (excluding UK handset financing, IAS 18 basis) of 0.1%** (Q2: 0.5%**); on an IFRS15 basis, growth was 0.4%* (Q2: 0.3%*)

·   

Similar performance to Q2 in Europe with service revenues -1.1%**, reflecting improving customer and financial trends in Italy, robust retail growth in Germany, reduced churn in Spain and a consistent performance in the UK

·   

Rest of World grew 4.9%* (Q2: 7.7%*), as a decline in South Africa was offset by good growth in other markets

·   

Robust commercial momentum across the Group: mobile contract churn reduced by 2.0 percentage points year-on-year; 747,000 mobile contracts and 341,000 broadband net additions, converged base up by 190,000 in Q3

·   

Intention to extend our existing UK network sharing agreement with Telefonica O2 to include 5G services

·   

Guidance reiterated: underlying organic adjusted EBITDA growth of c.3%; free cash flow (pre-spectrum) c.€5.4 billion

 

 

Quarter ended 31 December

 

 

2018

2017 

Reported

 

 

 

IFRS 15

IAS 181 

Growth

 

 

€m

€m 

%

 

Group revenue

10,996 

11,797 

(6.8)

 

 

Europe

8,145 

8,631 

(5.6)

 

 

Rest of the World2

2,547 

2,864 

(11.1)

 

 

 

 

 

 

 

 

 

2018

2017

IAS 18 Growth

 

 

IAS 18

IAS 18

Reported

Organic**

Alternative performance measures3

€m

€m

%

%

Group service revenue

9,787 

10,189 

(3.9)

0.1 

 

Europe

7,496 

7,649 

(2.0)

(1.1)

 

Rest of the World2

2,170 

2,338 

(7.2)

4.9 

Nick Read, Group Chief Executive, commented:

"We have executed at pace this quarter and have improved the consistency of our commercial performance. Lower mobile contract churn across our markets and improved customer trends in Italy and Spain are encouraging, however these have not yet translated into our financial results, with a similar revenue trend in Europe to Q2. We enjoyed good growth across our emerging markets with the exception of South Africa, which was impacted by our pricing transformation initiatives and a challenging macroeconomic environment. Overall, this performance underpins our confidence in our full year guidance.

We are moving to implement a radically simpler operating model and to accelerate our digital transformation, as demonstrated by the organisational changes we have announced in Spain and the UK. We are also assessing opportunities across our markets to improve asset utilisation through partnering. This week we announced the intention to extend our existing network sharing agreement with Telefonica O2 in the UK to include 5G services. This will enable us to deploy 5G services to more customers over a wider geographic area, and to do so at a lower cost. After these arrangements have been finalised, we also intend to explore opportunities to monetise our UK tower assets".

OPERATING REVIEW

Strategic progress

During Q3 the Group made further progress on its strategy to deepen customer engagement in each customer segment (Europe Consumer, Vodafone Business and Emerging Consumer), to accelerate digital transformation and to improve asset utilisation, in order to drive sustainable revenue and free cash flow growth.

Europe Consumer: Selling 'one more product' per customer, lowering churn through convergence

Europe Consumer service revenues excluding UK handset financing declined by 1.3%** in Q3 (Q2: -1.2%**). Excluding Spain and Italy, which were impacted by price competition, European Consumer service revenues grew by 2.4%**. Fixed grew 1.4%*, slower than in Q2 (3.0%*) following our strategic decision not to renew unprofitable football rights in Spain. Mobile declined by 2.4%** (Q2: -2.7%**).

We improved our commercial momentum during the quarter, particularly in Italy and Spain where competitive intensity moderated as the quarter progressed. This contributed to stable mobile prepaid portability in Italy, and to stable mobile contract and fixed portability in Spain, during the month of December.

In Q3 fixed contributed 29% of segment revenues. We added 226,000 broadband customers, including 414,000 NGN customers, and our converged base increased by 188,000. 34% of our broadband customers are now integrated into converged bundles, an increase of 5 percentage points compared to the prior year quarter. On a pro-forma basis for the acquisition of Liberty Global's cable assets in Germany and CEE (announced in May 2018), our leading NGN footprint covered 120 million households at the end of the period, of which 54 million are 'on-net' (including VodafoneZiggo).

In mobile, contract churn improved by 1.4 percentage points in Q3 compared to the same period last year, with single digit churn rates achieved in four markets. We added 184,000 contract customers, and data growth remained strong at 52%, with average smartphone usage increasing to 3.3 GB per month.

In Q3, Europe Consumer accounted for 49% of Group service revenues.

Outlook

Trading during the third quarter was in-line with management's expectations underlying the outlook statement for the 2019 financial year. The Group therefore confirms its expectation that organic adjusted EBITDA on an underlying basis (excluding settlements and UK handset financing, IAS 18 basis) will grow by around 3%, with free cash flow generation (pre-spectrum) of around €5.4 billion. Under IFRS 15, we expect our organic service revenue growth will be slightly higher and our absolute adjusted EBITDA will be slightly lower, primarily due to the elimination of the impact of UK handset financing under IAS 18, with no impact on FCF.