Vodafone Group Public Limited (VOD) Q1 2013 Interim Management Statement Call July 20, 2012 4:30 am ET Executives Andrew N. Halford - Chief Financial Officer, Executive Director and Member of Executive Committee Vittorio Colao - Chief Executive Officer, Executive Director and Chairman of Executive Committee Stephen Charles Pusey - Chief Technology Officer, Executive Director and Member of Executive Committee Michel Combes - Director, Member of Executive Committee and Chief Executive of Europe Region Nicholas Jonathan Read - Chief Executive Officer of Asia-Pacific & Middle East Region Analysts Timothy Boddy - Goldman Sachs Group Inc., Research Division Robert Grindle - Deutsche Bank AG, Research Division Nick Delfas - Morgan Stanley, Research Division Andrew Beale - Arete Research Services LLP Justin Funnell - Crédit Suisse AG, Research Division Simon Weeden - Citigroup Inc, Research Division Akhil Dattani - JP Morgan Chase & Co, Research Division Stephen Howard - HSBC, Research Division James Britton - Nomura Securities Co. Ltd., Research Division Paul Marsch - Berenberg Bank, Research Division Jeremy A. Dellis - Jefferies & Company, Inc., Research Division Darren Ward - Echelon Research & Advisory LLP Ottavio Adorisio - Societe Generale Cross Asset Research Antoine Pradayrol - Exane BNP Paribas, Research Division Nick Lyall - UBS Investment Bank, Research Division Maurice Patrick - Barclays Capital, Research Division Presentation Operator
So let me start on Slide 3, highlights of the quarter. Group service revenue grew 0.6%, which is just over 2% excluding MTRs. This growth is slightly less than the previous quarter due firstly to the boost in the prior quarter from the extra day in this leap year. This was roughly 1%, as well as continuing difficult conditions in a number of our European markets, offset by strong momentum from our AMAP region. Data grew by 17% driven by the increase in smartphone penetration, which is now nearly 29% in Europe.In enterprise, growth slowed this quarter to 0.1% as competitive and macro pressures in Europe deteriorated, offset by accelerating growth from AMAP. We continue to see a healthy demand for enterprise services in fixed and data, and our VGE business continues to grow strongly. In Verizon Wireless, service revenue grew over 8% during the quarter, and the results they reported yesterday continue to highlight their very strong wireless performance and cash flow generation. We also continue to generate strong cash flows. Today, we reported GBP 0.9 billion of free cash flow for the quarter, which has contributed to the lower net debt of GBP 22.7 billion. We are now very close to completing the GBP 6.8 billion share buyback program. Finally, we have made a number of moves during the quarter to enhance our network and build our business. We have announced the acquisitions of fixed line assets in the U.K. and New Zealand and signed or extended a number of network sharing agreements in Europe and Australia. Vittorio will touch on these later. On to Slide 4. Here you can see our regional performance for the quarter. Europe declined 1.6% on an organic basis. However, once we remove the impact of regulated voice termination rate cuts, Europe was flat. Some of our markets in Europe remain very challenging, and in particular, we saw a deterioration of trends in Italy during the quarter, which I will explore in more detail shortly. In AMAP, growth of 6.1% increases to 7.9% when the MTR impact is excluded. Momentum in AMAP continues to come from growth in customers and data.
For the group, overall, the regulatory impact represented 1.7 percentage points of lower growth in the quarter. Of course, this has also partially reduces our costs. During the quarter, we saw further voice MTR cuts in Spain, the U.K., South Africa and New Zealand. The growth in data and fixed revenues continues, although messaging has now moved into negative growth territory along with voice revenues. CapEx for the quarter was GBP 1.1 billion, and free cash flow, as I mentioned earlier, was GBP 0.9 billion. I'll cover these in more detail later.On Slide 5, let's take a closer look at the service revenues from our individual operating companies, and I will select a few countries to discuss in more detail. Ghana continues to leave the group with the highest growth. Whilst this is a small country in the overall context of the group, we are very proud of the performance in Ghana. Turkey continues to demonstrate operational excellence with strong growth across all segments. We have seen strong competition in all consumer segments in the market, but we have delivered particularly well in mobile Internet, which has driven date revenue growth of 69%. Turkey now has 18% smartphone penetration, up 9 percentage points from a year ago. In the enterprise segment, following the acquisition of Koc.net, we have been able to launch a range of innovative propositions in the Total Communications arena. India grew at 16% in the quarter with competitive intensity increasing in a number of circles. ARPU continues to grow due to increased penetration of the new pricing plans alongside greater customer activity. The consumer protection regulations launched in the quarter have had a negative impact on revenue performance. We continue to wait for details of the new telecoms policy to be confirmed, which have been delayed until the summer this year.
The Vodacom Group delivered service revenue growth of just under 6%, with growth of nearly 40% coming from the international businesses and healthy customer growth for the group. In South Africa, data growth remained strong at 10% in the quarter with the growth in data users and usage offsetting the intense data pricing competition. Active data users now represent 46% of the customer base in South Africa.Germany. Against the backdrop of continuing GDP growth, German service revenues grew 4%. There was no MTR impact this quarter. ARPU growth of 4% was supported by the increase in smartphone penetration, which in turn delivered strong data growth of 20% and messaging growth of 8%. We continue to execute well in enterprise with strong growth coming from the mobile and fixed segments. On to LTE. We now have 193,000 customers, including 20,000 LTE mobile customers and household coverage in Germany of approximately 35%. Read the rest of this transcript for free on seekingalpha.com