Vodafone Raises Outlook Due to Weak Pound

Vodafone Group, the world's largest mobile phone group by sales, increased its full-year guidance on Tuesday due to favourable foreign exchange movements and said customers are using their mobiles more despite the downturn.

The news, combined with Vodafone just beating its third-quarter revenue forecasts, sent shares in the group up over 7 percent in an otherwise flat market.

Analysts welcomed the lack of material bad news after two revenue downgrades earlier this financial year but noted that the faster growing emerging markets were starting to show signs of maturity.

They said the share rally was due to relief.

Vodafone cut its full-year revenue outlook in November when it reported its half-year results, but still managed to please investors when it said it would maintain profits and boost free cash flow by cutting 1 billion pounds ($1.42 billion) of costs.

Vodafone said on Tuesday it was making good progress with its wide-ranging cost-savings programme which would inevitably result in some job losses.

"At a time of heightened economic worry, Vodafone's result is pretty ok," senior analyst at Ovum Emeka Obiod, said.

"No surprises, no sticking points and little drama. The operator has managed to steady its business, and has avoided the sort of doom that was reported by the mobile handset makers." Vodafone said it had seen good performances from Germany, Italy, southern Africa and India, stabilisation in Britain and weakness in Romania.

Spain and Turkey continued to perform badly though, with the former reporting organic revenue down 5.8 percent compared to a fall of 2.2 percent in the second quarter. Turkey was described as intensely competitive.

Organic revenue from Europe was down 2.8 percent while Africa and Central Europe was up 3.5 percent. Asia Pacific and the Middle East was up 9.2 percent.

Still Talking

Overall, customers' use of their phones was up, with a 10.3 percent rise in minutes, due to some lower pricing. It had 289 million customers, including those from its affiliates.

The use of mobile data, to send emails, pictures and access the Internet, was up 25.3 percent on an organic basis.

Handsets from the lower and higher end of the market both sold well, with the Blackberry Storm phone particularly strong.

Chief Executive Vittorio Colao said the results were in line with the strategy he introduced in November, to focus on customer value offers, mobile data, business customers and fixed broadband.

The group posted an increase in revenues in the quarter ending Dec. 31 of 14.3 percent to 10.47 billion pounds, boosted by exchange rates. Organic revenues were down 1 percent.

Analysts had been expecting group revenues of 10.37 billion pounds according to a Reuters poll of nine analysts.

On Tuesday Vodafone increased the reported guidance due to foreign exchange movements but confirmed the underlying ranges.

"Our underlying performance showed similar trends to the previous quarter," Colao said. "In the context of the current economic environment, we have continued to implement our strategy."

UBS said the revenue was 1 percent ahead of consensus. "The improvement in Italy was expected," they said in a note to clients. "But slowing declines in Germany and particularly the UK are a surprise -- slowing voice price declines and solid data growth appear to have boosted numbers."

For the year ending March 31, Vodafone now expects a revenue range of 40.6 billion pounds to 41.5 billion pounds, from a previous range of 38.8 billion pounds to 39.7 billion pounds.

Adjusted operating profit is now forecast to be between 11.5 billion pounds and 12 billion pounds, from the previous range of 11 billion pounds to 11.5 billion pounds and free cash flow is forecast at 5.5 billion pounds to 6 billion pounds, from the previous 5.2 billion pounds to 5.7 billion pounds.

In an update on the cost-savings programme, the company said good progress had been made and cost savings of approximately 500 million pounds were expected to be generated by the end of the 2010 financial year.

The remainder is set to be generated by the 2011 financial year.

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