Vodafone rejoices in first half return to European growth

A 1.2% increase in organic service revenue in the second quarter, bettered the 0.8% in the first quarter and expectations of the same, led to a 1.0% year-on-year rise to £18.4bn for the first half of the year.

Revenue for the first half fell 2.3% to £20.3bn but earnings before interest, tax, depreciation and amortisation (EBITDA) rose 1.9% to £5.8bn thanks to better top-line trends and good cost control in Europe and Africa, Middle East and Asia Pacific.

Chief executive Vittorio Colao said he expected revenue and profitability trends to improve in the second half, nudging his EBITDA forecast for the fiscal year slightly higher to a range of £11.7bn-£12bn, from £11.5bn-£12bn before, with free cash flow to be positive after all capital expenditure.

"We have reached an important turning point for the group with a return to organic growth in service revenue and EBITDA in the first half of the financial year,” Colao said.

“Our customers are benefiting from the significant investments we are making in high speed mobile and fixed networks, as evidenced by the huge growth in demand for data and the increased loyalty to Vodafone services.”

Colao also added his voice to the usual throng of Sky, Virgin and TalkTalk in criticising BT’s hold over the UK’s internet infrastructure, telling BBC radio that while Britain only gets 10Mbps from BT, Vodafone is able to offer 100Mbps in southern Europe. Vodafone’s UK revenue and EBITDA both declined in the half.

The continuing investment and resulting depreciation and amortisation charges as part of Project Spring, the two-year modernisation programme, led to adjusted operating profit falling 5.9% as the investment more than offset the organic growth in EBITDA.

Adjusted earnings per share of 2.51p were a 4.6% fall on the same period last year.

Societe Generale noted that Spain was main positive driver for service revenues, arresting its fall to only 2.0% after a 5.5% decline in the first quarter, whereas year-on-year growth in Germany and the UK deteriorated by circa 60 basis points.

"The £6.6bn leap in net debt highlights VOD’s big challenge," SocGen said, with negative free cash flow before spectrum payments of £541m in the half and the impact from spectrum payments adding a further £4.3bn.

Analyst Alex Joyner at research house Galvan said with the return to organic growth in service revenue and EBITDA, it looked like Vodafone “may have turned a corner”, and also highlighted the opportunities for M&A with the company’s £4.2bn cash pile.

“The recovery in Europe is particularly encouraging. Demand for mobile data continues to soar and Vodafone is leading the way with its 4G offering. ‘Project Spring’ is coming to fruition and there are plenty of big opportunities in the TV and broadband space.”