Vodafone Reports Decline in German Market

By Paul Sandle

LONDON (Reuters) – Vodafone reported a significant decline in its major market, Germany, during its second quarter, affected by new laws regarding TV sales and increased competition in the enterprise sector, causing shares to drop by 4.5% on Tuesday.

However, the British telecommunications company noted that growth in Turkey, Africa, and other European markets helped cushion the customer losses in Germany, contributing to revenue growth in the first half of the financial year and keeping it on target to meet full-year forecasts.

Vodafone's shares fell to a three-month low of 69 pence in early trading.

CEO Margherita Della Valle stated that Vodafone had achieved aligned overall results and implemented strategies to restore growth in Germany following the TV sales transition. She emphasized that such a significant transformation would require time, but acknowledged that the trajectory is positive and mentioned the installation of new management in Germany.

For the first half, Vodafone posted service revenue of 15.1 billion euros ($16.1 billion), a 4.8% organic increase, and a 3.8% growth in adjusted core earnings to 5.4 billion euros, meeting market expectations.

In Germany, service revenue dropped by 6.2% in the second quarter compared to a 1.5% decline in the first quarter.

The recent law change, which ended bulk TV sales to apartment blocks, was primarily responsible for the revenue decline, compounded by rising competition in the enterprise sector, reported finance director Luka Mucic.

As a result of the July law change, Vodafone lost 4.5 million of its 8.5 million TV customers in apartment buildings, along with 88,000 broadband customers during the half.

Mucic indicated that the revenue impact from the law change in the current quarter is expected to mirror the 3.8 percentage points loss experienced in the second quarter, before beginning to lessen in the fourth.

Della Valle also mentioned that the approvals for her proposed deals to sell Vodafone Italia to Swisscom and to merge Vodafone UK with Hutchison's Three UK are nearing completion. The UK's Competition and Markets Authority indicated last week that it believes the deal could enhance competition.

Vodafone reaffirmed its guidance to achieve core earnings of around 11 billion euros and adjusted free cash flow of at least 2.4 billion euros for the full year.

($1 = 0.9403 euros)