Vodafone is still in “active discussion” about a possible deal for its struggling Italian operation, while its largest market in Germany has seen its growth slow down.
The FTSE 100 Telecom Group posted a mixed trading update for the third quarter on Monday. Service revenue grew 4.7 percent in the three-month period ending December, which is the same as the second quarter. Growth in its UK market offset the lower contribution from the German market where growth slowed from 1.1 percent to 0.3 percent.
Vodafone’s Italy market was its worst performing major market. Service revenue fell by 1.3 percent and it is facing a price war on mobile phones.
Last month, Vodafone turned down a merger offer by Iliad – a smaller French competitor – in favor of exploring other options. The options include a deal with Fastweb, Swisscom’s Italian unit.
Margherita Dela Valle Margherita, Vodafone’s CEO, stated that the group is “engaged in real-time discussions” in Italy.
The Hong Kong-based conglomerate CK Hutchison owned Three. Last year, Vodafone agreed to merge the two businesses. The merger is still subject to a preliminary investigation from the Competition and Markets Authority. Also, Vodafone’s Spanish operations will be sold to Zegona Communications for €5 billion.
Vodafone is one the largest telecom groups in the world, but its heavy debt burden, high costs, and fierce competition on several markets have hindered it.
In April last year, Nick Read, Vodafone’s former chief financial officer, was replaced by Della Valle (58), the former finance chief of Vodafone. This was due to investor frustration over the speed of the revamp, which included the consolidation in certain countries to concentrate on the core Europe and Africa market.
On Monday, shares in Vodafone, which had fallen by around 25 percent in the last 12 months, fell another 1/4p or 0.26 percent to 68 1/2p at the London Stock Exchange.
Della Valle said in November at the company’s results for the second quarter that the revival “was starting to bear fruit”. On Monday, she welcomed “improved customer satisfaction as well as three consecutive quarters growth in service revenue in Europe”.
Della Valle explained that the decline in Germany was due to one-off gains in the prior quarter.
She said, “The commercial performance of the fixed and mobile network is improving. We have great offers on the market and are no longer facing churn in broadband.
In the UK service revenue increased by 5.2%, with growth in consumer and business unit partially offset by lower wholesale fixed revenue.
Citigroup analysts said that the update was in line with their expectations “though the slower growth in Germany could be a cause for concern”.
Berenberg analysts stated: “In talking to investors, one of the most common themes was dissatisfaction that there were no updates on Italian M&A. This disappointment is misplaced in our opinion. We believe that the first rule in corporate finance is not to announce your plans publicly in advance, as it will weaken the negotiation leverage with counterparties.
Vodafone Group Service Revenues grew by 2,5% excluding Turkey, a country gripped by hyperinflation.
The company reiterated its full-year forecast of a “broadly unchanged” adjusted profit of approximately €13,3 billion and free cashflows of approximately €3,3 billion.