LONDON (Alliance News) - Vodafone Group PLC Friday confirmed its guidance for its current financial year, as it saw revenue fall 0.9% on a reported basis for its first quarter, but saw an improving trend in its organic service revenue in what it called a "good start to the year."
Shares in Vodafone are trading up 3.8% at 240.62 pence Friday morning, the best performer in the FTSE 100.
It attributed the decline in revenue to a 7.3 percentage point hit from foreign exchange movements, which offset a 3.1 percentage point boost from merger and acquisition activity. On an organic level, excluding mergers and acquisitions and at constant currency, revenue rose 3.3%.
Vodafone posted group revenue of GBP10.11 billion for the quarter to end-June, down from GBP10.20 billion a year before. Its closely-watched service revenue fell to GBP9.17 billion, down from GBP9.45 billion a year before, though this was slightly ahead of consensus analyst expectations of GBP9.15 billion. It said that, on an organic basis, service revenue rose 0.8% in the quarter.
This is an improvement from the 0.1% return to organic service revenue growth the company reported in the fourth quarter of its previous year. Service revenue comprises all revenue related to the provision of ongoing services, the company said.
At the time of its full-year results in May, Vodafone had guided earnings before interest, taxation, depreciation and amortisation of between GBP11.5 billion and GBP12.0 billion, and forecast it will be free cash flow positive after all capital expenditure, before mergers and acquisitions, spectrum and restructuring costs for its current financial year.
In Europe organic service revenue continued to recover, declining 1.5% in the quarter, compared to a 2.6% decline in the fourth quarter of the previous year, as a result of more stable pricing environments in many markets and positive contributions from its acquisitions of KDG and Ono in the previous year.
UK service revenue increased 0.2%, compared to a fall of 0.6% in the previous quarter, driven by new contract wins as customers increasingly take up 4G plans, which offset a fall in fixed service revenue. Vodafone launched its consumer broadband offering in the UK during the quarter, and will follow this with a full television launch before the end of the financial year.
In the Africa, Middle East and Asia Pacific region, service revenue rose 6.1% as a result of strong customer growth and the increasing take up of data usage. Strong growth in South Africa, Turkey, Egypt, and Ghana helped offset declines in New Zealand, Qatar and slower growth in India. India service revenue rose 6.9%, slower than the 11.7% growth Vodafone recorded in the previous quarter, mostly as a result of regulation on mobile call termination rates in the country.
Vodafone said it is continuing to hit milestones under its GBP19 billion network investment programme 'Project Spring', and said it is having a positive effect for customers, leading to falling contract churn in Europe and stabilising mobile average revenue per user trends in a number of "key markets."
"We have made a good start to the year. Our emerging markets have maintained their strong momentum and more of our European businesses are returning to growth, as customer demand for 4G and data takes off," said Chief Executive Officer Vittorio Colao in a statement.
"However, our markets are, as always, highly competitive and we therefore have to remain very focused on efficiency, cost control, and excellent value and service to customers, while continuing to deliver a good return for shareholders," Colao added.
Societe Generale reiterated its Sell rating for Vodafone following the first quarter update, saying that gradual improvements in Europe are likely to be negated by near-term headwinds in India.
Deutsche Bank cited the improvement in organic growth as important for earnings and free cash flow recovery expectations. Confidence in this recovery should lead to a re-rating of Vodafone shares over time, Deustche said.
Vodafone did not provide an update or detail on its talks with US cable company Liberty Global about a possible asset exchange, which were confirmed in June.
By Hana Stewart-Smith; hanassmith@alliancenews.com; @HanaSSAllNews
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