Vodafone makes first organic growth since recession

Vodafone Group has made its first organic growth since the recession first hit the company over 18 months ago.

Vodafone Group revenue increased by 4.8% to £11.3 billion and Group service revenue increased by 4.9% to £10.6 billion for the quarter ended 30 June 2010. On an organic basis, service revenue increased by 1.1%, an improvement of 1.7 percentage points on the previous quarter, as each of the regions delivered improved service revenue trends.

These are the first quarterly results to show organic service revenue growth since the global recession first impacted Vodafone, and reflect its increased commercial focus across the Group. In Europe data revenue growth accelerated to 23.3% as a result of strong smartphone and mobile connectivity sales. The company has also generated good growth in South Africa, India and Turkey.

In Europe service revenue fell by 1.7%, a 0.7 percentage point improvement on the previous quarter. Its northern European businesses experienced an improvement in economic conditions, whilst its southern European businesses continued to experience a weaker economic environment and poor consumer sentiment.

Both Germany and the UK delivered a third successive quarterly improvement in organic service revenue trends and returned to positive service revenue growth, with each generating faster data revenue growth rates as a result of our focus on smartphones and data plans and, in Germany, on netbooks. Spain delivered a small improvement in organic service revenue trends, despite an increasingly competitive market. In Italy, where the company has responded to significant price competition with targeted promotional activity, organic service revenue declined.

Enterprise revenue returned to growth in Europe, increasing by 0.2% with improved roaming activity and customer wins by Vodafone Global Enterprise. Organic enterprise growth was positive in Germany, Italy and the UK, and trends remained broadly stable in Spain.

Vittorio Colao, Chief Executive, commented: “These are the first quarterly results to show service revenue growth since the global recession impacted. We have achieved these results through our continuing commercial approach in key European markets, focusing especially on data, and from strong growth in emerging markets, with India now cash positive at an operating level and our highest ever quarterly revenue in Turkey. The financial outlook for the current year is confirmed.”

In Africa and Central Europe service revenue grew 3.7%, a 1.3 percentage point improvement on the previous quarter, driven by strong performance in Turkey where Vodafone is now benefiting both from successful execution of our turnaround plan and from an improving economic environment. In South Africa growth was at a similar level to the previous quarter with higher data revenue growth substantially offsetting the impact of reduced mobile termination rates. In its central European markets, operational trends improved despite fragile economic environments and significant reductions in local mobile termination rates.

In Asia Pacific and Middle East service revenue increased by 10.5%, a 5.5 percentage point improvement on the previous quarter. The improvement was driven by continued strong customer growth and better usage trends in India where there have been no recent significant price reductions by market leaders. Vodafone’s operational actions following last year’s significant price declines have been successful and it is now seeing minutes return to operators with strong brands and performing networks. Its Australian joint venture continued to perform well.

Capital expenditure was £1,041 million reflecting continued European network investment, enhancement of its network in Turkey and continued network rollout in India, albeit at a slower rate than in the first quarter last year. In addition, the Group invested £3.0 billion in spectrum licences in India and Germany.

Free cash flow was £1,767 million and was broadly stable year on year after adjusting for foreign exchange.

Net debt at 30 June 2010 was £32.7 billion, slightly lower than at 31 March 2010, reflecting free cash flow generated during the period and favourable foreign exchange movements which together broadly offset spectrum payments in the period.

Successful implementation of its strategy, set out in November 2008, has enabled Vodafone to return to service revenue growth in the quarter with improving trends across the Group’s three regions and has positioned Vodafone for further growth in Europe, driven by mobile data, and in our emerging markets, claimed Colao. Later this year Vodafone will set out how it intends to accelerate its strategy to drive shareholder value and take advantage of the widespread adoption of data.

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