More gloom at Vodafone as service revenue slides in Europe

Vodafone’s interim CEO Margherita Della Valle had the unenviable task on Wednesday of delivering a disappointing set of quarterly financials.

Organic service revenue growth slowed to 1.8% in fiscal Q3 from 2.5% in the prior quarter and from 2.7% a year earlier. Voda’s biggest market, Germany, reported a 1.8% fall in service revenue due to customer losses. Stiff competition in Italy and Spain resulted in service revenue declines of 3.3% and 8.7% respectively.

It was offset slightly by growth in the UK – driven by rising prices and customer additions – and the rest of Europe, excluding Romania. Its South African operation Vodacom also did well, growing service revenue by 3.5% thanks to an increase in customers, and continued strong demand for data and mobile financial services.

“Although we’re continuing to target our financial guidance for the year, the recent decline in revenue in Europe shows we can do better,” said Della Valle, in a statement. “We need to do more for our customers by delivering quality connectivity in an easy way. We’ve already taken action, including simplifying our structure to give local markets full autonomy and accountability to make the best commercial decisions for their customers.”

When it published its fiscal Q2 results in November, Vodafone announced plans to cut costs by €1 billion. Della Valle on Wednesday said Vodafone has already launched initiatives that will get the company half way to reaching that target. Given reports last month claimed Vodafone is preparing to shed hundreds of jobs, it is pretty obvious what those initiatives are.

It’s fair to say Della Valle hasn’t had the easiest of tenures since taking on the role of interim CEO following Nick Read’s departure at the end of last year – and it’s only February.

This Is Money reported last month that activist shareholder Cevian Capital, which had been pushing Vodafone to slim down to boost its share price, has sold its remaining stake in the company, having apparently given up hope that the operator can turn things around.

Its exit came shortly after another activist shareholder, Coast Capital, threw in the towel, with founding partner James Rasteh telling Bloomberg he couldn’t see an attractive business model for Voda. Ouch.

To be fair to Vodafone, it has slimmed down a little. In January it finalised the sale of its operation in Hungary, for example. It also recently got the regulatory nod to offload its Ghana business.

Clearly that wasn’t enough for the hardcore activists, and now, vultures may or may not be circling.

Having paid $4.4 billion for a 9.8% stake in Vodafone last May, UAE-based e& upped its holding to 11% in December, and then again in January to 12%. The telco formerly known as Etisalat made no secret of the fact it considered Vodafone’s shares to be something of a bargain.

French businessman and telecoms tycoon Xavier Niel has also shown an interest in Vodafone. His investment vehicle Atlas Investissement acquired a 2.5% stake in September. On the face of it, his motivation appears to be the same as Cevian’s and Coast’s, in that he wants Vodafone to boost its share price by slimming down.

But given Niel controls one of Voda’s rivals in Italy, and given his appetite for entering new markets and shaking things up, his involvement in Vodafone is certainly something to keep an eye on.

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