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Vodafone reassures with uneventful Q1, shares rise

Vodafone, the world's largest mobile phone firm by revenues, reported a slight decline in quarterly organic sales in line with muted expectations and reiterated its full-year outlook, lifting its shares on Friday. The first of Europe's major telecoms carriers to update the market this quarter reported revenues that largely mirrored wider economic developments, with strength in India and South Africa mostly compensating for weakness in Europe.

Organic service revenue fell 2.1% in the quarter to end-June but reported group revenue rose 9.3% to £10.743 billion ($17.74 billion), thanks to positive currency effects and a higher stake in South Africa's Vodacom. Vodafone shares rose 3.6% to 121.1 pence by 0830 GMT, lifting the European telecoms index 1.4%.

Vodafone said it would update the market in November on its progress in cutting 1 billion pounds of costs. It said in May it would speed up its cost-cutting plan.

“We have a relief rally. They delivered in line. They reiterated their guidance and said: 'Wait until November and we'll deliver a good cost-control story,” said analyst Mike Kovacocy of Daiwa Securities. “It's looking like it's going to be one tough slog for the rest of the year.”

Vodafone has guided for adjusted operating profit of between £11 billion-£11.8 billion for its fiscal year to end-March 2010, after making £11.8 billion in its last fiscal year.

The forecast assumes rates of €1.12 and $1.50 to the pound. Currently, the pound is at $1.46 and €1.16, and has been strengthening.

Chief Financial Officer Andy Halford told journalists on a call: “We are very comfortable still with our guidance range. Nothing surprised us in the first-quarter numbers.”

Low expectations also prevailed at US carrier AT&T's results announcement on Thursday. The company pleased the market with a drop in quarterly profit that was less steep than expected and flat sales.

Vodafone added 8 million customers in the quarter, taking its proportionate customer base to 315 million. Verizon Wireless, its US joint venture with Verizon Communications, had 1.1 million net customer additions.

Free cashflow rose 21% to £1.896 billion, while the company's net debt at June 30 stood at £31.2 billion.

Vodafone's revenues were also hit in some markets including much of Europe, where it makes about two-thirds of its sales, by regulators' cuts to mobile termination rates, which operators charge each other to connect incoming calls. These now account for about 12% of Vodafone's sales.

Like all carriers, Vodafone is struggling to milk more revenue out of saturated markets in Europe and North America. It has branched out ambitiously into India and parts of Africa, where many people have yet to buy their first phone.

Vodafone's South African sales grew 5.2% on an organic basis, but the rest of Africa was patchier, with Egypt strong but Democratic Republic of Congo and Tanzania weak.

Vodafone said the focus was on squeezing more out of markets in which it is already present, and not on entering new markets.

Speculation has been rife that Vodafone among others may be interested in acquiring parts of Kuwaiti mobile operator Zain's African operations, which Zain is considering selling. (Reuters)