Business Watch: Vodafone bounces back

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Are Vodafone’s troubled UK operations finally turning a corner? The evidence from Vodafone Group’s latest results would seem to suggest so, though trading is still less-than-rosy.

Vodafone UK reported a 4.9 per cent decline in revenue in the Christmas quarter, which may look bad, but at least it’s better than the 5.7 per cent drop it posted in the same quarter last year.

The business also managed to add an impressive 410,000 net customers during the three months to December 31, taking its total reported base to 18.7 million, of which 61.3 per cent remain on prepay.

Vodafone said the strong net adds had been driven by new products and indirect distribution channels. Those new products include wireless data products as the company cashed in on the explosive growth of mobile broadband usage on laptops.

But while message and data revenue grew, helped by unlimited message plans and the growth in internet bundles, it was offset by the continued decline in voice revenues, which suffered from fierce competition and a termination rate cut that kicked in during July 2009.
Across Europe, the revenue decline was 3.2 per cent versus 4.6 per cent compared to the same quarter last year.

Morten Singleton, telecoms analyst at Collins Stewart – one of the most bearish brokers on Vodafone shares – pointed out that during the same period last year the global financial crisis was in full swing, making it easier for the company to report a lower revenue decline.

He told clients in a research note: “The economic related impacts experienced this quarter last year make the comparables much easier, nonetheless we suspect the market will appreciate the subtle easing of negative trends here.”

It certainly did: investors sent Vodafone shares sharply higher on the day of the announcement as its chief executive Vittorio Colao (pictured) raised guidance for the full-year.

The company now expects to report adjusted operating profits of between £11.4 billion and £11.8 billion in the year to March, up from its previous guidance of between £11 billion and £11.8 billion.

It also raised its guidance for free cashflow, which suggests that the benefits of Colao’s rigorous cost-cutting regime are starting to flow through to the bottom line – just the sort of thing City investors like to see.

“Vodafone results can often feel like a game of dodgems,” Bernstein analyst Robin Bienenstock told Reuters. “There are bright spots, but these are often overshadowed by some peripheral business blowing up (for example Turkey) or huge currency swings that muddy the waters.
“This set of results is free of torpedoes and brings signs of cyclical recovery.”

Full article in Mobile News issue 457 (February 15, 2010).

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