Cost cuts boost Vodafone outlook

Telecoms company Vodafone Group increased its full-year cash flow forecast, helped by cost cuts and rising sales in emerging markets.

Cash before license and spectrum payments in the year ending March will be between £6.5 billion and £7 billion, the company said in a statement today. In November, Vodafone had forecast cash to be around the upper end of a range of £6 billion to £6.5 billion.

The company now forecasts adjusted operating profit to be between £11.4 billion and £11.8 billion, compared with an earlier prediction for between £11 billion and £11.8 billion.

Sales in the three months to December 31st rose 10.3 per cent to £11.5 billion, Vodafone said. The average estimate of analysts surveyed by Bloomberg was for revenue of £11.36 billion.

In Europe, service revenue fell 3.2 per cent, with data and fixed line revenue continuing to put in a strong performance. Voice usage and price trends in mobile were broadly stable, the company said, with improvements driven driven by enterprise and messaging.

Vodafone Ireland, which has more than 2.3 million customers, said customers increased voice minutes of use by 1.3 per cent to 260 per customer in the quarter ended December 31st, while texts increased 8.6 per cent to 199 per customer, compared to the previous quarter.

The average use in Europe for Vodafone's customer base was 154 voice minutes and 90 text messages per customer for the quarter.

Average mobile blended quarterly average revenue per user (ARPU) fell by 7.7 per cent to €37.40.

Vodafone Ireland's strategy director Gerry Fahy said text use remained robust.

"Given the economic climate, people have changed their habits; they're more careful about using their phone," he said.

"Vodafone has delivered value savings of 22 per cent to existing customers in the last 12 months. We had a very strong Christmas period during which time we attracted an additional 35,000 customers to Vodafone," said Mr Fahy.

At the end of the quarter, the company had 186,000 fixed line and DSL broadband customers. It added 35,000 new customers across fixed and mobile in the quarter, and saw its bill-paying subscriber base increase to 869,000.

The company also announced today it would enable HSPA+, or 3.5G technology, which equips the network with 21Mbps data download speed capability. The rollout has begun in Dublin, and Mr Fahy said the company expected it to be rolled out to other areas in the next two quarters.

"The evolution to 3.5G represents a significant coming of age for mobile broadband as users will be able to access a range of data intensive products and services and enjoy a high quality user experience. Vodafone also continues to lead in fixed line services with the recent launch of a 24Mbps Vodafone at Home package," Mr Fahy said.

He said the network would also be beneficial to iPhone users, which Vodafone is also supplying in competition with rivals O2.

Elsewhere, service revenue in Africa and Central Europe fell 0.5, supported by growth of 12.9 per cent in Turkey and continued strength at Vodacom, which saw a 5 5 per cent rise driven by data.

Asia Pacific and Middle East grew 10.4 per cent, with India's service revenue increasing 13.8 per cent, despite the competitive environment.

The group said data revenue exceeded £1 billion for the first time, a 17.7 per cent rise year on year. Smartphones continued to grow in popularity across Europe, with active data users rising above 30 million. Data accounted for 11 per cent of service revenue in Europe, continuing the trend for a sixth quarter.

The group's fixed line revenue rose 10 per cent to £862 million in the quarter, supported by strong growth in broadband customers. According to the company, it now has more than 5 million broadband subscribers in Europe.

Vodafone chief executive Vittorio Colao is reducing expenses to offset a slide in demand for telecommunications services in some countries. Vodafone said in November that its £1 billion cost-reduction program would be delivered a year ahead of schedule and that the company planned a further £1 billion of cost savings by 2012.

“Service revenue trends have improved with continuing growth in our data and fixed line revenue.," he said.

"Free cash flow guidance has been raised reflecting the impact of our cost and working capital reduction programmes. We are on track to deliver on our strategic priorities in the current financial year.”

Additional reporting - Bloomberg