Vodafone Predicts Profit at Upper End of Forecast

Vodafone Group Plc, the world’s biggest mobile-phone operator, predicted full-year operating profit at the upper end of its forecast, underpinned by revenue growth in the U.K. and a turnaround in India and Turkey.

Adjusted operating profit will be towards the upper end of the 11.8 billion pounds ($19.2 billion) to 12.2 billion pounds forecast range, Vodafone said in a statement today. Third-quarter service revenue rose more than analysts had expected.

Chief Executive Officer Vittorio Colao is pulling back from some markets to focus on high-growth data demand from smartphones such as Apple Inc.’s iPhone and make up for a drop in traditional voice offerings. The company started selling the iPhone in the U.K. in January last year after initially missing out on selling the device.

The U.K. is doing better than expected, and along with India and Turkey, was one of “the three jewels of the quarter,” Colao said today on a conference call with reporters. “Data remains central to our growth strategy.”

Service revenue excluding currency swings and acquisitions rose 2.5 percent to 10.96 billion pounds in the fiscal third quarter, beating the average analyst estimate of 2.4 percent growth. Service revenue increased by 32 percent in Turkey and 17 percent in India.

Service sales include revenue from voice, data, messaging and broadband offerings and exclude handsets and accessories. In the previous quarter, Vodafone posted a 2.3 percent increase. The company returned to growth in the quarter that ended June after a year and a half of declines.

iPhone Costs

The company said the forecast for adjusted operating profit excludes any impact from its U.S. venture Verizon Wireless starting to offer Apple’s iPhone. The venture, in which Vodafone owns 45 percent, will begin selling the iPhone this month, ending the exclusive hold of rival AT&T Inc. on the device in the U.S.

Vodafone dropped 0.5 percent to 176.15 pence as of 11:32 a.m. in London trading while the benchmark FTSE 100 U.K. index declined 0.4 percent.

“We expect a heavy take-up of iPhone sales for Verizon next quarter, which consequently is likely to impact disproportionately on margins, and in turn on Vodafone’s share of profit,” said Robin Bienenstock, an analyst at Sanford C. Bernstein.

The costs for starting iPhone sales in the U.S. may reduce the company’s earnings before interest and taxes by 200 million pounds to 250 million pounds, Saeed Baradar, Societe Generale SA’s telecommunications sales specialist, said in an e-mail.

Spanish Woes

Service revenue in Spain, where Vodafone in December replaced the CEO of the local unit, slumped 7.4 percent in the fiscal third-quarter.

“We are seriously rethinking the cost structures and how much money we are spending” in Spain, Colao said today on a conference call. Even after cutting prices by as much as 10 percent in the quarter, it’s “not generating enough stimulus,” he said.

Registered unemployment in Spain, which has Europe’s highest jobless rate, climbed the most in almost two years in January as the economy struggled to emerge from a recession. Spain’s government has slashed public wages, cut firing costs and increased the retirement age in a bid to convince investors it can bring the euro region’s third-largest budget deficit under control.

Cash For Investments

The company said it still predicts the full-year margin based on earnings before interest, taxes, depreciation and amortization to decline at a “substantially lower rate” in the full year compared with a year earlier.

Generating cash for investment in faster networks, Colao last year sold holdings in Japanese wireless operator Softbank Corp. for 3.1 billion pounds and a stake in China Mobile Ltd. for $6.5 billion. He is reviewing the company’s 44 percent holding in French mobile-phone operator SFR, which partner Vivendi SA wants to buy.

Vodafone Chief Financial Officer Andy Halford said today on a conference call that there is “no change” to the situation in France.

Vodafone, based in Newbury, England, has said it plans to increase the percentage of sales from smartphones in Europe to about 70 percent in the fiscal year ending March 2013 from 30 percent in 2010.

Tiered Pricing

Vodafone, which this quarter is switching to tiered pricing plans in its European markets based on the amount of data used and quality of service, must also compete with potentially disruptive competitors, according to analysts including Evolution Securities’ John McPate.

Hutchison Whampoa Ltd.’s Three, the smallest U.K. operator, in December started offering unlimited data plans for its customers.

Selling the stake in SFR may raise between 6 billion and 9 billion pounds, according to analysts’ estimates. Vivendi, which owns the rest of SFR, last week received a final $3.8 billion payment from General Electric Co. for its former 20 percent stake in NBC Universal entertainment group, stoking speculation that a deal on SFR may be close.

Vodafone is also considering a sale of its 24 percent holding in Polish mobile-phone operator Polkomtel SA. The owners are sending out a memorandum to potential bidders, according to one of the shareholders.