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(Bloomberg) — Vodafone Group Plc shares fell after fiscal third quarter results revealed a further softening in its German operations.
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Organic service revenue in the country fell by 6.4% in the quarter, the company said in a statement on Tuesday. That was below the 5.3% drop estimated by analysts in a survey compiled by Bloomberg. Vodafone said its earnings from the country are now expected to be lower in the second half of the year than in the first partly due to a “more challenging” mobile market.
Shares in the the Newbury, England-based company fell 7.1% to 65p at 11:42 a.m. in London.
Della Valle is struggling to revive the company’s share price despite delivering many of the key parts of her turnaround plan. She sold off underperforming businesses in Italy and Spain, and got UK authorities’ approval to merge local operations with CK Hutchison Holdings Ltd.’s Three to become the largest mobile operator in the country by revenue.
Germany, which accounted for 34% of Vodafone’s revenue and has been impacted by a law that barred housing associations from bundling TV packages with rent, has been a persistent weak spot for the company. The company lost half of its TV customers as a result of the change, as it predicted.
It is a “transitional year” for the German business, Vodafone Chief Executive Officer Margherita Della Valle told reporters on a call Tuesday. The impact of the legal change will be over by the next fiscal year.
“Investors want to see the Germany turnaround playing into the financials,” Della Valle said. “It takes time for this to happen.”
What Bloomberg Intelligence Says:
“Management now sees worsening German Ebitda in 2H vs. 1H, after it dragged a slowdown in 3Q group Ebitda growth to 2.2% amid rising mobile rivalry, limited broadband turnaround and slow 1&1 migration. This isn’t derailing reiterated full year guidance but defers the unit’s recovery.”
– Erhan Gurses, Industry Analyst
Vodafone German View Worsens Amid 3Q Group-Sales Beat: React
Increased competitiveness in Germany’s mobile market pressured Vodafone on another front. Discounting from competitors like Telefonica SA’s O2 and budget brand 1&1, particularly around the holiday period, will impact profitability in the segment, the company said.
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