Vodafone's growth drops on India, UK slowdown

Vodafone posted a sharp drop in quarterly organic growth as weak trading in Italy and unexpected slowdowns in Britain and India hit the world’s largest mobile operator.

Vodafone shares were down 1.6 percent in early trading while European rivals Deutsche Telekom and France Telecom also slipped as investors digested the update from the operator widely regarded as the strongest in the sector.

“It is not a disaster. It is just a slight miss,” Espirito Santo analyst Will Draper said.

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“The UK has shrunk, Italy has missed our numbers and the emerging markets growth is still pretty good but it has also clearly slowed in Turkey, India and South Africa.”

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While Vodafone has outperformed peers in the past year, tough conditions across Europe forced it to cut its medium-term outlook and write down the value of assets by 4 billion pounds in May, as customers sought to save money by making fewer calls and deferring handset upgrades.

The group reiterated its outlook on Friday and said it would embark on a new wave of cost cuts, which analysts welcomed as a sign the group would protect its earnings.

Vodafone posted group service revenue of 9.98 billion pounds in its first quarter to end-June, up 0.6 percent compared with a forecast for 0.9 percent. That was down from 2.3 percent growth in the group’s fourth quarter, which benefited from the extra leap year day.

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Vodafone said it was hit by weak consumer confidence in Italy and Spain, the poor economy and increasing competition in Britain and a slight slowdown in India. Its corporate unit was also hit by less demand from small and medium sized businesses across Europe.

India posted a slowdown from a strong fourth quarter where it had good year-on-year customer growth, while its infrastructure unit of Indus Towers also slowed.

Service revenue grew by 16.2 percent in the three months to the end of June, 4.9 percentage points lower.

“Despite the difficult market conditions, particularly in southern Europe, we continue to make progress in the key areas of data, enterprise and emerging markets, while maintaining tight control of our cost base,” Chief Executive Vittorio Colao said.

In the first quarter, organic service revenue growth in Europe was down 1.6 percent while the emerging markets division was up 6.1 percent.

“Vodafone results provided few surprises but a reminder (if we needed one) that wireless revenues are cyclical and that with the exception of Vodafone’s largest European market, Germany, the macroeconomic environment is very tough,” Bernstein analyst Robin Bienenstock said in a note.

“Vodafone confirmed full year guidance, which we think the company are still well placed to achieve even with a slight softening of results.”

Reuters