Vodafone To Invest 7 Billion Pounds As Trading Slumps

Britain’s Vodafone (VOD.L) plans to spend 7 billion pounds on its networks following the sale of its U.S. business, ramping up investment after it posted a record fall in quarterly organic service revenue.

The world’s second-largest mobile operator, which agreed a deal in September to sell its U.S. arm to Verizon Communications (VZ.N) for $130 billion, said it would spend 7 billion pounds ($11.2 billion) by March 2016 to improve its networks in a bid to set it apart from rivals.

The group announced the details of its “Project Spring” spending program as it reported first-half results showing the pressures across the group.

Organic service revenue – its key ongoing revenue measurement which strips out the impact of one-off costs such as handset sales – was down 4.9 percent in the second quarter due to very weak trading in Europe.

That was worse than the 3.5 percent fall recorded in the first quarter and well below the last record fall of 4.2 percent in the fourth quarter.

“Whilst trading conditions in Europe remain very tough at present, we are encouraged by the forecast return to economic growth over the next two years,” Chief Executive Vittorio Colao said, in reference to general market indicators.

The investment, which is likely to prompt rivals to respond, is designed to improve network quality across Vodafone’s footprint, to meet the demand of consumers who want to access the internet on the go via smartphones and tablets.

It plans to invest around 3 billion pounds in Europe, to improve the speed of its mobile networks. Some 1.5 billion pounds will be used to extend coverage across major cities in its emerging markets. It will also spend on fixed networks and its corporate division.

Overall, first-half core earnings were down 4.1 percent to 6.6 billion pounds, compared with a company-compiled estimate of 6.4 billion pounds. That was off revenues of 22 billion pounds, down 3.2 percent on an organic basis.

“The overall performance of the Group in the first half of the current financial year has been in line with our expectations,” the company said on Tuesday.

“We are therefore on target to deliver adjusted operating profit of around 5 billion pounds and free cash flow in the 4.5- 5.0 billion pounds range.”

Source : Reuters