LONDON (Alliance News) - Vodafone Group PLC confirmed its full-year profit guidance Tuesday, as it swung to a pretax profit in the half year ended September 30.
The company also raised its interim dividend and set out details for its Project Spring investment programme, originally announced when Vodafone sold its 45% interest in US joint venture Verizon Wireless for USD130 billion in September.
Vodafone proposed an interim dividend of 3.53 pence each, up 8.0% from GBP3.37 pence, while stating its intention to pay a full-year dividend of 11 pence provided the disposal of its stake in Verizon Wireless is completed in the first quarter of 2014.
Vodafone said it expects to deliver full-year adjusted operating profit of around GBP5 billion, with free cash flow between GBP4.5 billion and GBP5 billion.
The mobile telecommunications giant swung to a pretax profit of GBP1.5 billion in the recent six months from a pretax loss of GBP3.9 billion in the same period the previous year. It posted revenue of GBP19.1 billion, up from GBP18.6 billion in the previous year. Service revenue declined 2.3% to GBP17.5 billion.
Strong growth in emerging markets was offset by regulatory changes and challenging conditions in Europe, as pricing came under competitive pressure, Vodafone said.
Organic service revenue in Northern and Central Europe fell by 3.9% as growth in Turkey was offset by declines in the rest of the region, and by 15% in Southern Europe where both Italy and Spain saw declines. In Africa, the Middle East and Asia-Pacific region, organic service revenue grew 5.8%, as strong performances in India, Qatar, Ghana and Egypt were offset by declines in Australia and New Zealand. In India service revenue grew by 14%, and despite political instability Egypt saw revenue increase by 3.6%.
Earnings before interest, tax, depreciation and amortisation was GBP6.6 billion, down from GBP6.7 billion in the previous year.
The company posted service revenue growth of 7.5% from Verizon Wireless in the five months until it announced its sale.
Speaking to journalists Tuesday morning, Vodafone said that it had accelerated its Project Spring investment programme in preparation for Europe approaching a turning point, indicated by increased demand, an expected recovery of the economic environment, and increased focus on regulation.
The company gave details of the investment plan Tuesday, through which it plans to invest GBP7 billion over the next two financial years to strengthen its network. As a result of this investment Vodafone expects to generate an incremental cash flow of over GBP1 billion in 2019. Vodafone cautioned that this would hamper EBITDA by around GBP600 million in 2015 due to higher operating expenses, but would have a neutral impact on EBITDA by 2017.
The project includes investments of GBP3 billion in Europe to deliver deeper 3G coverage and capacity, as well as accelerating its 4G network build. In Africa, the Middle East and Asia-Pacific region, Vodafone will invest GBP1.5 billion to extend 3G coverage across major cities and key regions and establish a fibre optic network.
It will also invest around GBP1 billion in unified communications, which involves increasing its fibre optic network and improving its digital subscriber lines, Vodafone said. Following the establishment of its Enterprise division at the beginning of the year, Vodafone will invest GBP500 million into its enterprise product suite. This involves expanding the geographical reach of its Enterprise business, machine-to-machine services, and its cloud communications system Vodafone One. It will also bolster its hosting capability to build its carrier services business.
Finally, Vodafone said it intends to put GBP1 billion into enhancing its customer experience by increasing its retail presence in certain markets and upgrading existing retail stores. It also will improve its online platforms and account management service, mCare.
"Whilst trading conditions in Europe remain very tough at present, we are encouraged by the forecast return to economic growth over the next two years and the potential for a shift in regulatory focus to support greater industry investment and consolidation," said Chief Executive Vittorio Colao in a statement.
"Our Project Spring organic investment programme - now increased to GBP7 billion - will accelerate further our plans to establish stronger network and service differentiation for our customers."
Vodafone was quoted at 231.38 pence per share, up 2.1%, Tuesday mid-morning.
By Hana Stewart-Smith; hanassmith@alliancenews.com; @HanaSSAllNews
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