VODAFONE lifted its annual earnings target yesterday as the mobile operating giant revealed signs of stabilisation in its tough mature European markets.
Growing demand for faster 4G services and early benefits from its continuing £19 billion investment programme helped restrict the fall in the group’s interim service revenues to 1.5 per cent in the three months to end-September.
That compared with a fall in service revenues, which exclude items like handset sales and currency movement, of 4.2 per cent in the previous trading quarter and near 4 to 5 per cent declines in the last six quarters.
“There is growing evidence of stabilisation in a number of our European markets,” Vodafone chief executive Vittorio Colao said. “Our two-year investment programme is well underway, and customers are beginning to see the benefits.
The firm, traditionally a pure mobile player, has embarked on a programme to either build or buy fixed-line super-fast broadband networks across Europe to enable it to compete with rivals offering mobile contracts alongside television, broadband or fixed-line deals.
Colao said Vodafone would launch a consumer broadband offering with a TV package in Britain supported by its Cable & Wireless fibre network. It will also use the BT network for those areas where it does not have its own infrastructure.
The group’s shares jumped by more than 5 per cent yesterday, one of the biggest FTSE 100 index risers, as Colao guided the City to underlying earnings between £11.6bn and £11.9bn for the year to end-March 2015.
The bottom end of the range was previously £11.4bn, although the figure is a long way short of last year’s £12.8bn. Service revenues in the UK were down 3.1 per cent over the latest half-year after Vodafone added 96,000 customers in the second quarter.
This takes its total base to 19.66 million – of which 40 per cent are pre-paid customers. Conditions were much tougher in Spain and Italy, where the company’s service revenues fell 12 and 13 per cent respectively.
By contrast, the Indian market is booming for Vodafone, with continued customer growth and strong data usage helping to drive revenues up 11.7 per cent.
Its investment programme – called Project Spring – aims to speed up improvements in its network, resulting in wider 4G coverage in Europe and 3G coverage in emerging markets.
Richard Hunter, head of equities at stockbroker Hargreaves Lansdown, said: “Whilst the challenges persist, Vodafone has posted a relatively comforting set of numbers, including an upward revision to its full-year earnings.
“Strategically, the investment in the business through Project Spring is continuing apace, and this, coupled with some selective acquisitions, is having the gradual effect of transforming the group into a unified communications company, as opposed to an almost pure mobile play.”
The update echoed Dutch rival KPN, which last month showed revenue and profit falling at a slower pace as its strategy of investing in faster 4G networks paid off.
Broker Citi said the latest figures from Vodafone probably brought forward the time when the company will be able to report revenue growth across the board.
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