Vodafone Sees Continued Recovery in Europe -- Update

By Simon Zekaria 

LONDON-- Vodafone Group PLC on Friday posted an acceleration in key quarterly sales growth as the telecom giant hailed the continued recovery of its European markets.

The world's second-largest mobile operator by subscribers after China Mobile Ltd. said revenue excluding handset sales, currency movements and mergers and acquisitions--a primary metric--rose 0.8% in the three months ended June 30. This compares with a 0.1% gain in the previous quarter of the last fiscal year, when it posted its first growth for 11 quarters.

On the same basis, Europe revenue dipped 1.5% but Africa, Middle East and Asia Pacific revenue, including India--a key Vodafone market--rose 6.1%, as the operator shifts resources to faster-growing economies.

Vodafone's overall first-quarter revenue dipped 0.9% year-over-year to GBP10.1 billion ($15.6 billion), but rose 3.3% excluding currency movements and mergers or acquisitions.

The company didn't disclose profit figures.

"We have made a good start to the year. Our emerging markets have maintained their strong momentum and more of our European businesses are returning to growth," said Chief Executive Vittorio Colao.

Vodafone shares rose more than 3% in early trading in response to the figures, valuing the company at GBP61.5 billion. Hargreaves Lansdown analyst Richard Hunter said the update confirms Vodafone's upward trajectory.

"To describe a company of Vodafone's size as a work in progress may seem counterintuitive, yet the statement confirms the case," he said.

For years, the Newbury, England-based company has been stung in recent years by its high exposure to Europe's anemic wireless markets; a region where it generates most of its sales. Pinched consumer spending, intensive competition and regulation have combined to curtail the company's performance in its main geographies of Germany, Spain and Italy, as well as elsewhere.

It is spending billions of dollars to improve network quality and speed across the world as consumers demand fast-speed connection for mobile Internet data usage, Internet broadband and media. In Europe, where it is rolling out fiber-optic to push its burgeoning business, it sees the upgrade central to a turnaround of its fortunes in the region.

Vodafone has also focused on deal-making across Europe's fragmented telecom and media sectors, which are pursuing fixed-line assets and exclusive content to shore up stagnating wireless businesses. Operators on the continent are converging to provide bundled offers to boost subscriber loyalty and revenue.

Friday, it said revenue excluding handset sales, currency movements and mergers and acquisitions in Germany fell 1.2%, better than a 3.1% decline in the fourth quarter. Vodafone spent $10 billion to buy Kabel Deutschland, a cable operator in the country, as it battles with rival Deutsche Telekom AG.

In Italy and Spain, revenue on the same basis was down 2% and 5.5%, respectively, but an improvement on falls of 3.7% and 7.8% in the previous three months.

Last month, Vodafone said it launched talks with Liberty Global PLC over an " exchange of selected assets," throwing two European powerhouses back into the center of a frenzy of European television and communications deal making. Friday, Mr. Colao told reporters he had "nothing new" to add on the conversations.

Vodafone has also recently shaken up its management in Europe, which has become the touchstone of the group's strategy. Earlier this week, its Europe CEO departed and heads of European markets were charged to report directly to Mr. Colao as the firm moved to boost decision-making in region.

Separately, Vodafone on Friday said it continues to consider an initial public offering of its fast-growing Indian businesses, without elaborating on any time frame for a decision.

Write to Simon Zekaria at [e-mail]

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