Vodafone Service Revenue Beats Estimates on Europe Recovery

  • Service revenue in the second quarter rose 1.2 percent
  • Company forecasts annual Ebitda of up to 12 billion pounds

Vodafone Group Plc, the second-largest mobile-phone company by customers, reported service revenue that rose more than analysts estimated as markets in Europe recovered. The stock climbed.

Service revenue, the money Newbury, England-based Vodafone gets from customers’ plans and traffic on its network, rose 1.2 percent in the second quarter through September, the company said Tuesday. That compared with an average 0.8 percent increase predicted by analysts, according to data compiled by Bloomberg. The figure excludes the impact of acquisitions and currency fluctuations.

Vodafone is getting a boost from rebounding markets in Europe, which had been battered by price wars and high unemployment, as well as a surge in demand for mobile data in Africa and India. Chief Executive Officer Vittorio Colao has reshuffled his management team and committed billions in new network spending in the past few years as he attempts to improve the company’s service and add new products such as TV and high-speed Internet.

“This is an important turning point,” Colao said on a call with reporters. “Our financial performance is beginning to reflect the positive impact” of the company’s network-investment program and demand for high-speed broadband and mobile data worldwide.

Vodafone shares rose 4.1 percent to 223.20 pence at 8:52 a.m. in London, erasing their losses for the year through Monday.

Forecast Changed

Vodafone updated its forecast for the fiscal year, saying it expects earnings before interest, taxes, depreciation and amortization of 11.7 billion pounds ($17.7 billion) to 12 billion pounds. That lifted the bottom-end of its Ebitda forecast from 11.5 billion pounds.

Ebitda in the first half of the year declined 1.7 percent to 5.79 billion pounds. Excluding currency changes and acquisitions, Ebitda grew 1.9 percent.

The company also said it will begin reporting in euros, switching away from pounds, starting in April 2016. The company gets a large proportion of its revenue from countries using the euro, including Germany, Italy and Spain.

European Challenge

The rate of service revenue decline in Europe slowed for a fifth consecutive quarter, with sales falling 1 percent as demand for data helped to offset price competition. Seven out of Vodafone’s 13 countries in Europe increased service revenue in the first half. Mobile revenue declined 2.3 percent in the quarter, while the smaller fixed-lined business, which offers TV and Internet access, grew 3.1 percent.

The company’s talks with John Malone’s Liberty Global Plc fell apart in September. Malone’s operations in Europe would’ve helped Vodafone accelerate its plans to add cable and Web customers. Colao’s drive to add more fixed customers across Europe has resulted in those businesses accounting for more than a quarter of service revenue in the region.

Now that those talks are over, the company will focus on adding infrastructure for fixed service in countries such as Spain, Portugal and Germany, Colao said.

“The discussions with Liberty were about certain assets and about integrating fixed and mobile in certain markets and they didn’t lead to a deal,” Colao said. “Plan A continues to deliver.”

In the U.K., Vodafone’s home market, the company’s biggest competitors are merging. Telefonica SA’s O2 and CK Hutchison Holdings Ltd.’s Three will combine to become the biggest mobile operator next year. Former home-phone monopoly BT Group Plc is buying wireless carrier EE to create the biggest converged operator.

Indian IPO

In Vodafone’s African, Middle Eastern and Asia-Pacific operations service revenue rose 6.7 percent last quarter. The company has 332.7 million customers in the region and their data usage almost doubled in the first half of the year.

Vodafone is considering an initial public offering of shares in its Indian unit and will make a decision sometime next fiscal year, Colao said. The market, where Vodafone has more than 180 million customers, is one of the fastest growing in the world. The company is assessing the impact of new wireless operator Reliance Jio Infocomm Ltd., due to start service next month, before it sells shares later in 2016, people familiar with the matter have said.

In Africa, Vodafone’s Johannesburg-based unit Vodacom Group Ltd. increased first-half profit by 6 percent on rising demand for data. Vodacom, 65 percent owned by Vodafone, said Monday it would start selling video-on-demand service and has expanded its music-streaming deal with Paris-based Deezer SA.

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