Vodafone announced plans to increase investment in an attempt to turn around the continued fall in revenues in Europe. The mobile operator increased the budget for its Project Spring to GBP 7 billion by March 2016, from 5 billion previously, saying it hopes the investment in networks will help differentiate its services. Announced earlier this year from the proceeds of the Verizon sale, Project Spring spending will go mainly to networks in Europe, as well as on new enterprise products and improving the customer experience. Vodafone said the project will put pressure on EBITDA and cash flow in the next two years, but should pay back with increased cash flow within seven years.
The higher investment comes as the company's reported revenues for the fiscal first half to September increased 2.5 percent year-on-year to GBP 19.06 billion, thanks to the acquisitions of CWW and TelstraClear. Profit for the period from continuing operations increased by GBP 20.0 billion to GBP 15.7 billion, primarily due to a tax benefit of GBP 14.7 billion in the current period and an impairment charge of GBP 5.9 billion in the prior period.
However, organic service revenues, adjusted for currency effects, takeovers and divestments, fell 4.2 percent to GBP 20.04 billion in H1. In Europe, the company was hurt by cuts to termination rates and the weak economy, with revenues in south Europe down 14.9 percent to GBP 4.48 billion and north and central Europe revenues down 3.9 percent to GBP 9.47 billion. The Africa, Middle East and Asia operations continued to grow, with sales up 5.8 percent to GBP 5.89 billion. Adjusted operating profit fell 8.3 percent to GBP 5.71 billion, already meeting the group's full-year target of around GBP 5 billion. The outlook is on a pro forma basis, excluding the Verizon Wireless stake, the sale of which is expected to be completed in early 2014.
Vodafone also maintained its outlook for annual free cash flow of around 4.5-5.0 billion, after GBP 2.02 billion in the first six months of the year. The operator increased its interim dividend by 8 percent to 3.53 pence per share and pledged the same increase in the final dividend. Cash capex was up slightly in H1 to GBP 3.3 billion, mainly due to 4G roll-out, with LTE networks now present in 14 countries after the recent UK launch.
On its other strategic initiatives, Vodafone said it now had over half its 3G footprint in Europe receiving peak speeds of 43.2 Mbps, up from 29 percent a year ago. This helped grow the number of customers on its Red plans to 7.5 million and average data use per device to 400 MB per month. The company targets 11-12 million Red customers by the end of the fiscal year in March 2014.
It has also expanded its unified communications services to 12 markets, as part of efforts to grow in the enterprise segment. Enterprise service revenues were still down 4.5 percent in the first half, due to tough price competition in many markets. The company is targeting GBP 300 million in cost reductions in Europe this fiscal year to help offset the pressure on revenues.
