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Vodafone shares drop as it posts slowdown in first quarter organic service revenue

Vodafone continues to expect full-year underlying organic adjusted earnings (EBITDA) growth of 1-5%
Tough competition in Italy, Spain and India dragged on Vodafone's revenues

Fierce competition in Italy, Spain and India led to a slowdown in first-quarter organic service revenue for Vodafone Group PLC (LON:VOD).

The company said organic service revenue increased 0.3% under its new IAS 18 accounting basis in the quarter ended June 30.

Under the old IFRS 15 basis, organic service revenue rose 1.1%, slowing from the 1.6% growth recorded the same period a year ago.

Shares edged down 1.3% to 175p in mid-morning trading.

Growth driven by Europe and emerging markets 

Outgoing boss Vittorio Colao said ongoing momentum in Germany, a recovery in the UK and good growth in Africa, Middle East and the Asia Pacific region helped to mitigate tough trading in Italy and Spain along with a price war in India.

“Our commercial performance was solid, with further broadband market share gains in Europe, a record number of customers adopting our converged propositions, and the continued success of our world-leading internet of things platform,” he said.

Colao said Vodafone has received conditional approval from the Department of Telecoms for the merger of Vodafone India and Idea Cellular, which is expected to be completed in August and will “unlock sUBStantial synergies”.

READ: Vodafone shares drop as UBS cuts target price and predicts slowdown in growth

He added: “The group's overall performance (including good progress in reducing absolute operating costs for the third year running) provides us with the confidence to reiterate our outlook for the year.”

Vodafone maintains full-year guidance

Vodafone left its forecast for the year unchanged at underlying organic adjusted earnings (EBITDA) growth of 1-5% and free cash flow pre-spectrum of at least €5.2bn.

George Salmon, equity analyst at Hargreaves Lansdown, said: “The long-standing problems with telecoms is that consumers want a better deal every time they renew a contract, and there’s little to differentiate between providers other than the price they charge. That means competition between networks can be fierce. Unfortunately, that’s something Vodafone is finding out the hard way, with pricing in Spain being reassessed as a result of extra competition, and the Indian business on the cusp of being combined with a rival in an effort to front up to new challenges."

Still, there are some silver linings, he said, pointing to growth in emerging markets and more European customers taking on multiple services from the group. 

"Bundling TV, phone and broadband together is Vodafone’s solution to the age-old problem of customer retention, so investors will be keeping a keen eye on progress in from here on," he added. 

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