Vodafone interims improve as customers demand more data - UPDATE

Interim results from mobile telecoms group Vodafone showed evidence of growing stabilisation in its European markets, with the company now guiding towards the higher end of expectations for full-year earnings and revealing it will launch a UK residential broadband and TV service in spring 2015.Strong consumer demand for data helped revenues rise 8.9% in the six months to 30 September to £20.8bn, marginally ahead of forecast, with organic service revenue growth in the second quarter down 1.5%, better than the 2.6% fall forecast and much improved on the 4.2% in the first quarter.The FTSE 100 company said this improvement in service revenues was due to improved commercial performance in all key markets and a reduced impact from previous regulatory effects.Service revenue growth was still negative in Europe, with Germany down 3.4% but improved from the 4.9% fall in the first quarter, Italy down 9.7% from -16.1%; UK down 3.0% (-3.2%), Spain down 9.3% (-15.3%), with India up 13.2% (10.3%); and Vodacom in Africa up 0.3% (flat).Declaring a 2% hike in the interim dividend per share to 3.60p per share, chief executive Vittorio Colao hailed the encouraging progress during the quarter as Vodafone's £19bn 'Project Spring' investment programme expanded its 3G and 4G data coverage."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."He said customers were increasingly choosing to pay for more monthly data allowances in their contracts as a result of "the 4G experience"."Our markets continue to be highly competitive, and regulatory and macroeconomic risks remain. However, we are not yet half way through our investment programme, and there is still much more we will do to build a differentiated service for customers and improve perception," he added.Yet, he pointed out that only 6% of the company's customers were using 4G in Europe, with coverage across the continent reaching 90% in the next 18 months, giving Vodafone "a great opportunity to increase penetration, stimulate data usage and grow customer spend".Looking to the coming months, Colao said he expected Project Spring's continuing improvements in network performance and customer perception will become "more consistently evident" in key operational metrics such as reduced customer churn and average revenue per user (ARPU) and subsequently into revenue, profitability and cash flow.As a result he now expects earnings before interest, tax, depreciation and amortisation (EBITDA) for the full financial year to be in the range of £11.6bn to £11.9bn, and free cash flow to be positive, after all capital expenditure.Looking further ahead, Vodafone said it planned to launch a residential broadband service in spring 2015 using the fibre infrastructure acquired with the Cable & Wireless acquisition, which covers 60% of the UK, plus some of BT's infrastructure.Analysts at UBS hailed the results and top-line trends that were "notably stronger than expected". The bank said it saw the broadband launch as "a response to BT entering the UK mobile market".It has set its EBITDA forecast for the full year at £11.93bn and said: "We think this marks the low point for EBITDA after a step up in commercial investment/Project Spring spend and momentum should improve from here."Also noting a £5.5bn increase in recognized deferred tax assets, JPMorgan said the results demonstrated an "impressive" inflection in service revenue trends."With this underpinned by accelerating mobile data usage, a solid customer intake, stabilising ARPU trends, and falling churn, we are increasingly confident Vodafone could return to growth by mid-2015."