November 10, 2015 / 1:01 PM / 2 years ago

Vodafone first-half earnings rise after four lean years

Branding for Vodafone is seen on the exterior of a shop in London, Britain, September 10, 2015. REUTERS/Toby Melville

LONDON (Reuters) - Vodafone’s first-half earnings rose for the first time in four years after investment in faster 4G networks started to pay off and full-year results may be better than forecast, the company said on Tuesday.

The world’s second biggest mobile phone company has spent billions of pounds on its networks over the past two years and can now offer faster 4G services to 80 percent of its customers in Europe when the economic climate is steadily improving.

Chief Executive Vittorio Colao said Vodafone’s underlying service revenue grew in seven out of 13 European markets in the first half, with southern Europe in particular showing a strong rate of recovery.

“We have reached an important turning point for the group with a return to organic growth in service revenue and EBITDA (core earnings) in the first half,” Colao said.

Vodafone shares rose 5 percent to an eight-week high of 225 pence by 0547 ET after the first increase in first-half earnings since its 2011-12 financial year.

Vodafone’s core earnings, or earnings before income tax, depreciation and amortization (EBITDA), for the six months to the end of September rose 1.9 percent to 5.79 billion pounds, beating analyst expectations of 5.69 billion.

Underlying second-quarter service revenue, on a like-for-like basis and stripping out currency changes, climbed 1.2 percent, better than a 0.8 percent rise in the first quarter and above the 0.9 percent analysts were expecting.

Colao said markets remained competitive, however, and while the trend in Europe was improving, service revenue there still fell in the three months to the end of September.

The company said it now expects full-year earnings to come in between 11.7 billion and 12.0 billion pounds, raising the floor of the forecast range from 11.5 billion.

Analysts at Jefferies, calling the numbers “encouraging”, said Vodafone still envisaged improving service revenue trends in the second half, and it sounding notably confident of improvement in Germany.

MOBILE, INTERNET AND TV

Investors are looking closely at Vodafone’s performance in markets such as Germany, Spain and Britain after its talks with cable operator Liberty Global about an exchange of assets were abandoned in September.

With the Liberty talks dropped, Colao said Vodafone would continue to develop its own services combining mobile, broadband and TV content in Spain, Portugal, Italy and Germany.

Colao said Vodafone’s mobile networks were at least as good as European rivals but former monopolies such as BT and Deutsche Telekom had an unfair advantage in being able to use old copper technology, which was often funded by tax-payers, when rolling out combined services.

“There is a clear agenda on the part of these companies to undo 30 years of customer choice, re-establish their former monopolies and make it very difficult for other players to compete,” he said.

BT has been cleared to buy leading mobile operator EE, which will result in owners Orange from France and Deutsche Telekom holding stakes in the former British monopoly provider.

Colao said European regulators needed to favor investment in fiber networks and to consider imposing stronger operating conditions on the owners of legacy networks.

Taking into account currency movements, Vodafone said growth in the period was dampened. It said it would start reporting in euros rather than sterling from the 2017 financial year, a move it said was logical as half of its revenues were in euros.

It also reiterated it had started preparations to float its Indian unit, potentially in its next fiscal year, Colao said.

Editing by David Clarke

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