Vodafone Says Service Revenue Rises on IPhone Demand
A member of staff holds an Apple iphone at a Vodafone store. Photographer: Chris Ratcliffe/Bloomberg
Vodafone Group Plc, the world’s largest mobile-phone company, unexpectedly returned to service revenue growth after a year and a half, riding demand for Apple Inc.’s iPhone in the U.K. and other markets.
Service revenue excluding currency swings and acquisitions in the three months ended June 30 rose 1.1 percent to 10.6 billion pounds ($16.2 billion), beating analyst’s estimates for a 0.4 percent drop. The company also said it will announce a new strategy in the fall focusing on its mix of assets and data use.
“Results are better than expected with the group returning to organic growth,” said Mandeep Singh, an analyst at Berenberg Bank in London. “Data revenue growth has accelerated.”
Vodafone, which had forecast a return to organic service revenue growth this year, started selling the data-hungry iPhone in the U.K. in January after initially missing out on offering the device. The Newbury, England-based company also has reduced expenses to counter declining sales in markets including Italy and Spain.
Vodafone’s shares rose as much as 3.8 pence, or 2.6 percent, to 152.85 pence in London and were up 2.1 percent at 9:19 a.m.
“The data bet is the right bet,” Chief Executive Officer Vittorio Colao, who took charge two years ago, said today on a conference call. “Two years down the road it’s about time to refresh and update” strategy, he said.
Strategy Review
The review will focus on the company’s data strategy and range of units. The company this week received a demand from investor Ontario Teachers’ Pension Plan calling for a re- examination of its acquisition record.
OTPP, which owns 0.42 percent in Vodafone has focused on Vodafone’s “disastrous” mergers and acquisitions after the company wrote down the value of its Indian acquisition by 2.3 billion pounds in May. The investor has demanded the resignation of Chairman John Bond and Deputy Chairman John Buchanan, saying that board changes are needed for a restructuring. OTPP, which voted against directors’ pay in 2007, said it won’t vote against the election of Colao.
Colao reiterated in June that he was reviewing the company’s holdings in French operator SFR and U.S. wireless operator Verizon Wireless. Vodafone hasn’t received a dividend from its 45 percent stake in Verizon Wireless since 2005. Vivendi SA, which owns 56 percent of SFR, has said it would be interested in buying Vodafone’s holding in France’s second- biggest mobile-phone operator.
‘Substantial Discount’
OTPP said Vodafone trades at a “substantial, persistent” discount to its asset value. Jerry Dellis, an analyst at Jefferies International said this week the enterprise value of Vodafone’s holdings may be as much as 129.8 billion pounds ($197 billion) including net debt. The company’s market value today is 79 billion pounds.
“We think that we will see a portfolio review and clearer commitment to change whether in the form of disposals or structural change,” Robin Bienenstock, an analyst at Sanford C Bernstein said today in a note to clients.
Colao, a former McKinsey & Co. partner who took over in July 2008, tweaked his predecessor Arun Sarin’s strategy. Under Sarin, Vodafone entered markets such as India and Turkey to counter a slowdown in Europe. Colao is pushing managers to eke out more profit from existing operations.
Service sales returned to growth in Germany, the company’s biggest market, and in the U.K. Sales declined 6.2 percent in Spain fell 2.5 percent in Italy. Service sales include voice, data, messaging and broadband. It excludes handsets and accessories.
Sales Growth
Total sales increased 4.8 percent to 11.3 billion pounds in the fiscal first quarter. The company confirmed its full-year forecast.
Separately, the company said today it agreed to settle a U.K. corporate tax case on taxation on its European units based outside the U.K. Vodafone will pay tax authorities a total of 1.25 billion pounds.
The settlement comprises 800 million pounds in the current financial year with the balance to be paid in installments over the following five years.
India has so far failed to become the emerging-market powerhouse the company had hoped for as the growth in the world’s second-largest wireless market attracted a flurry of global companies, eroding prices and pushing up license fees.
When Vodafone agreed to buy a 67 percent stake in Hutchison Essar Ltd. for $10.7 billion in 2007, it predicted “major contributions.” Instead, Vodafone in May booked a charge for the unit, citing “intense price competition.” Vodafone’s outlook for India soured a year after its entry, when six new national licenses were awarded.
Essar Agreement
In the first quarter, service sales rose 13.7 percent to 954 million pounds in India.
Vodafone’s India partner Essar Group has an option to sell its entire 33 stake in Vodafone Essar to Vodafone for $5 billion. The window to sell the stake opened in May for 12 months.
Vodafone said today it agreed to alter payments if Essar chooses to sell a part of its 33 percent stake at fair market value. In that case, Vodafone will pay Essar 510 million pounds to take into account costs for fast-Internet licenses.
Essar is considering an initial public offering for a stake in the companies’ local venture, four people familiar with the matter said on July 16.
Essar has invited banks to advise on options including selling part of its 33 percent stake in Vodafone Essar Ltd., the people said, declining to be identified because the discussions are confidential. A sale of a 10 percent stake may take place early next year, two of the people said.
A public listing of a part of Essar’s stake, “is their right, and we would support them, this was part of the original agreement,” Colao said today.
To contact the reporter on this story: Jonathan Browning in London jbrowning9@bloomberg.net.
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