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LONDON (Alliance News) - Vodafone Group PLC saw its shares rise Tuesday after it said its multi-billion pound investments into improving its 3G networks and building faster 4G networks was starting to pay off, with more data being shifted over its networks.
The mobile giant said data traffic was up 77% in the first half, but that accelerated to 80% growth in the second quarter, driven by 4G in Europe and 3G in India.
That helped drive a 5.5% increase in its earnings before interest, tax, depreciation and amortisation in its first half, causing it to narrow its guidance for the full-year towards the top end of its previous expectation.
Vodafone now expects earnings before interest, tax, depreciation and amortisation for the current financial year, ending March 2015, to be between GBP11.6 billion and GBP11.9 billion, and free cash flow to be positive after all capital expenses, excluding its acquisition of Grupo Corporative Ono SA in March. At the time of its full-year results in May, the company had guided an EBITDA range between GBP11.4 billion and GBP11.9 billion for the year.
For the half year the telecoms giant posted Ebitda of GBP5.88 billion, up from GBP5.58 billion in the previous year, as revenue rose to GBP20.75 billion from GBP19.06 billion, helped by its acquisition of Kabel Deutschland, Ono, and the consolidation of 100% of its Italian business.
The company raised its interim dividend to 3.60 pence, up from 3.53 pence in the previous year.
Stripping out acquisitions and at constant currency, group service revenue fell 2.8%, as it continued to suffer in southern Europe where economies remain weak. However, a 1.5% fall in the second quarter was a big improvement compared with the 4.2% fall in the first quarter, as its commercial performance improved and it saw a lower impact from mobile termination rate cuts.
"There is growing evidence of stabilisation in a number of our European markets, supported by improvements in our commercial execution and very strong demand for data," Chief Executive Vittorio Colao said in a statement.
Vodafone is investing GBP19 billion in its network upgrades, and said it is not yet half way through the programme it has dubbed "Project Spring".
Mobile network deployment is 40% complete, but European 4G coverage is up to 59%, and it now has 10.5 million 4G customers across the group.
Vodafone said it expects its investments to lead to further improvements in its network performance, and "customer perception" in the coming quarters, which it hopes will boost average revenue per user, and help customer churn in the medium term.
The company also added 3.9 million customers to its Vodafone Red mobile plans. It launched Vodafone Red across India in its second quarter, taking the number of markets in which these mobile packages are available to 21.
Vodafone said its transition from a predominantly mobile company to a "unified communications provider" is well advanced, with a fixed broadband customer base of 11.2 million.
Vodafone said it plans to launch residential broadband services in the UK in spring 2015 and is planning to use the infrastructure it acquired with Cable & Wireless Worldwide to launch these UK services.
Vodafone posted a pretax profit of GBP406 million for the half year, down from GBP1.51 billion a year before, due to a big uptick in administrative costs including a GBP637 million charge related to amortisation and brand intangibles for acquired assets.
Jefferies kept its Hold rating for Vodafone, saying cooling competition in Italy and stronger data growth in India had allowed Vodafone to tighten its guidance. Jefferies believes that Vodafone's second half results will be a "sterner test" as it must sustain the improvement in revenue trends against a backdrop of stabilising commercial spending.
Deutsche Bank, which has a Buy rating on the stock, said Vodafone's revenue should recover as economies improve and regulatory drag eases. It noted that whilst there are risks from competition in markets like the UK, the bulk of businesses out-performed and Vodafone's exposure to improving markets is likely to outweigh riskier ones.
Shares in Vodafone are trading up 6.6% at 221.65 pence Tuesday, the top gainer in the FTSE 100.
By Hana Stewart-Smith; hanassmith@alliancenews.com; @HanaSSAllNews
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