Vodafone posts strong profits

The Mannesmann deal was a big victory for Vodafone chief executive Chris Gent

Shares in Vodafone Group, the world's largest mobile phone operator, rose strongly on Tuesday after the company reported a 24% rise in first-half earnings.

At the close, the shares stood at 262.5 pence, up 24.25p or 10.18% on the day.

The firm's earnings of £3.28bn ($4.71bn), before tax and other charges, for the six months to the end of September were at the high end of analyst forecasts.

But Vodafone's figures also revealed the pressures operators face making inroads into the competitive mobile phone market.

Margins in the UK dropped to 30% from 33% last year, and for a German subsidiary fell to 30% from 45%.

Chief executive Chris Gent said Vodafone expected improvement in the second-half.

"We do believe we are in pretty good shape over the next couple of years," he added.

Welcome boost

The results, if they continue to be well received, will be a welcome boost to a technology, media and telecoms (TMT) sector which has been out of favour in recent months.

In the US, the tech-heavy Nasdaq index fell to its year low on Monday, and stands 40% lower than its March peak.

In the UK, falls of TMT stocks Baltimore Technologies and Bookham Technology have threatened their place in the elite FTSE 100 league of leading shares.

Telecom firms have been under pressure from two directions recently.

• The drop in share prices has robbed them of a cheap currency to fund future expansion, while
• the costs of licences for third generation mobile phones forced them to take on more debt than they would have liked to.

Vodafone said its net debt at 30 September stood at £13.2bn - a figure pushed up sharply by the higher-than-expected cost of acquiring 3G mobile licences in Germany and the UK, and debts assumed in the takeover of Germany's Mannesmann.

However, debt should fall to £10bn or less by the end of the year, Mr Gent said.

Mannesmann clouds the picture

Interpreting Vodafone's performance has been made extra difficult because of the £212bn merger with the German telecoms giant earlier this year.

The biggest merger in corporate history was supposed to give Vodafone a strong presence in those parts of Europe it did not reach.

Vodafone said it had made "substantial progress" integrating the German firm into the group but analysts worry that Mannesmann's D2 mobile network in Germany is finding it more expensive to sign up new subscribers than expected.

Price wars in the UK and elsewhere are hurting the bottom line as well, and like other operators Vodafone has seen its average revenues per subscriber fall by more than half during the past four years.

Subscriber growth

But Vodafone's subscriber numbers continue to show solid growth.

The number of proportionate customers - which also reflects Vodafone's stakes in subsidiaries and affiliates - was 65.5 million at 30 September, up from 42.3 million a year previously.

Some 12.2 million new customers were added in the first half.

In the UK, the number of customers increased 16% in the period to 10.2 million, giving Vodafone a market share of 54%.

Since the end of the September, the company has also bought a 2% stake in China Mobile for $2.5bn (£1.7bn) and agreed to take 25% of Swisscom Mobile for 4.5bn Swiss francs (£1.8bn).

Increased dividend

Mr Gent said Vodafone would continue to "take advantage of opportunities to expand strategically and geographically".

However, he said it was too soon to say whether talks about acquiring Eircell - the mobile unit of Ireland's eircom - would succeed.

"We hope it comes to something...[but] it all depends on due diligence," he said, adding a decision was likely by early December.

The flotation of Mannesmann's Arcor fixed line unit is planned for March.

Analysts said the performance of internet portal Vizzavi - a joint venture with France's Vivendi - would also be important for Vodafone's future.

Designed as a multi-channel portal providing web access through mobile phones and interactive television as well as computers, the service is thought to be struggling to establish itself.

Mr Gent maintained that it was "too early to say how well Vizzavi is going".

Vodafone declared an increased interim dividend of 0.688p a share, up from 0.655p last time.