Vodafone shows signs of turnround

Vodafone’s chief executive has answered his critics by reporting better-than-expected results and rejecting the case for a break-up of the mobile phone operator.

Vittorio Colao on Thursday reassured investors that the revenue decline at Vodafone’s European businesses was slowing.

He also said Vodafone’s board was unanimous that shareholder value was best secured through the group’s current structure.

Mr Colao has been facing growing investor disquiet over Vodafone’s underperforming European businesses, as well as the company’s inability to secure a dividend from Verizon Wireless, the US mobile operator in which Vodafone has a 45 per cent stake.

Some shareholders say he risks receiving calls to break up the group given that Vodafone’s shares trade at a 30-40 per cent discount to some analysts’ valuations of the sum of its parts.

Vodafone said that while its European businesses continued to report falling underlying sales, they were collectively edging closer to growth.

European revenue fell 3.2 per cent in the three months to December 31 compared with the same period in 2008. It fell by 4.6 per cent in the second quarter.

Group revenue rose 10.3 per cent to £11.5bn in the third quarter compared with the same time in 2008, driven by favourable exchange rate movements and acquisitions.

The group raised its 2009-10 free cash flow guidance – broadly defined as earnings before interest, tax, depreciation and amortisation minus capital spending – from £6bn-£6.5bn to £6.5bn-£7bn.

The improvement reflects better cost and working capital management.

“These results represent a good step forward since we first felt the effect of the recession in mid-2008,” said Mr Colao, who declined to say when Vodafone’s European businesses would return to growth.

He highlighted the benefits of scale, including purchasing power when buying mobiles and other equipment, the ability to secure revenue when customers use their handsets while abroad, and the opportunity to supply telecoms services to multinational companies.

“The board regularly reviews our corporate structure and there is unanimous opinion that the current structure serves well the value of shareholders,” Mr Colao said.

He also noted good performances at some of Vodafone’s emerging market businesses. Turkey, which has been reporting falling sales since mid-2008, returned to growth in the third quarter. The shares closed up 4.8p at 139.3p.