Vodafone blames accountants and currency for revenue slump

Vodafone has pointed the finger at new accounting rules and fluctuating FX as the reason for a 4.9% decline in revenues over the last three months.

Total revenues across the group stood at €10.9 billion, a year-on-year decrease of 4.9% for the quarter, though the team has stated competition has impacted the fortunes of the business. Italy and Spain are the new headaches for the business, though India took a significant sting with revenues down 22%; the merger with Idea cannot come soon enough.

“The Group’s organic service revenue growth slowed during the first quarter, in line with expectations,” said CEO Vittorio Colao. “The majority of our operations performed well, with ongoing momentum in Germany, further underlying recovery in the UK and continued good growth in AMAP, all of which helped to offset increased competition in Italy and Spain.”

At least in India the team might be able to get back onto the front foot before too long. The merger with Idea Cellular has been given conditional approval from the Department of Telecoms, with the hope this deal might be able to close before the end of August. India has been a bit quieter in recent months, though with the combined business offloading assets to build a war chest to tackle Jio, it is a market which could hit the headlines once again.

While we do not consider ourselves accounting experts, Vodafone’s move from the IAS 18 to IFRS 15 accounting standards does seem to have negatively impacted the business. The difference between the two relates to revenues derived from customer contracts, with the proportion of ARPU relating to the recovery of handset subsidies being the main variance. Under IAS 18, these revenues were realised over time, though with IFRS 15, it is all recognised up-front.

Looking at the more positive side of the business, Vodafone has said the growth engines of the business are all performing relatively well. Mobile data grew 57% over the period, with users now consuming 3.3 GB of data per month on average. ARPU is still under pressure due to shifts towards SIM-only and multi-SIM family deals, though this pressure should lessen as the trends take greater grips.

Fixed and convergence also looks promising. Across the group, broadband subscriptions increased by 128,000, while convergence customers increased by 289,000. As a result of these increases, fixed service revenue across Europe increased by 4%. The final growth engine is Enterprise, which now accounts for 30% of the total revenues across the group. The IoT business saw a boost of 12.6%, partly due to the 32% increase in connections.

Vodafone is not in the worst position imaginable, though with Colao heading towards the exit before too long, the new CEO will be faced with an European market which is looking increasingly stagnant. Competition in Spain, a mundane UK and Iliad’s entry into Italy will make the remainder of 2018 a challenging time.