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Mobile services

Vodafone Rules Out Emerging-Markets Spin-Off

Vodafone boss Vittorio Colao has ruled out a carve-up of the operator that would separate its investments in emerging markets from its European assets, telling analysts the scheme would not be "value-creating."

A demerger was first seen as a real possibility several months ago, when Vodafone Group plc (NYSE: VOD) was still holding discussions with cable giant Liberty Global Inc. (Nasdaq: LBTY) about an exchange of European assets. (See Vodafone in Asset-Swap Talks With Liberty and Liberty Global Keen on Vodafone Tie-Up – Report.)

While talks with Liberty Global collapsed because of disagreements about valuation, an emerging-markets spin-off could allow Vodafone to pool its faster-growing mobile operations in a separate listed company from its maturing businesses in Europe. (See Vodafone, Liberty Call Off Asset-Swap Talks.)

Asked about the attractions of a split during an earnings call with analysts, Colao indicated that it made greater sense from a procurement perspective to continue managing operations across different regions under one umbrella.

"In September we discussed the contribution that central functions give to emerging markets and the contribution of emerging markets to central functions," said the Vodafone CEO. "We buy a lot in India -- data is democratizing the world, with the same devices used everywhere -- and it's better to remain in the current set-up."

Nevertheless, Vodafone is making preparations for a possible initial public offering of its India business and told analysts it will take a decision on this next year.

Colao also dropped hints that he would still consider a deal with Liberty Global when asked if the "door remained open."

"We looked at swapping assets and couldn't find an agreement on values," he said. "We parked it but we are still here."

An asset-swap with the cable giant could have helped Vodafone to provide the full spectrum of fixed voice, broadband, mobile and TV services to customers in its biggest European markets.


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The launch of converged services has become a strategic priority for Vodafone in the face of growing competition from rivals operating both fixed and mobile networks.

Having already picked up cable assets in Germany and Spain, Vodafone has been spending heavily on the rollout of 4G and fixed broadband services through its Project Spring initiative and claimed its investments had started to pay off in the first half of the 2016 financial year. (See Eurobites: Vodafone Gets a Yes on ONO.)

Indeed, Vodafone nudged up its full-year guidance after heralding a return to growth in underlying service revenue and earnings during the first half.

The company now expects to generate EBITDA of £11.7-12 billion ($17.7-18.2 billion) compared with an earlier forecast of £11.5-12 billion ($17.4-18.2 billion).

After stripping out the effects of takeover activity and currency movements, service revenues grew by 1.2% in the fiscal second (July-to-September) quarter following a rise of 0.8% in the first, compared with the year-earlier periods.

Even more encouraging was the 1.9% increase in "organic" EBITDA that Vodafone claimed to have seen in the first half of the year. "This is a return to organic EBITDA growth and margin stabilization after six halves of contraction," said Nick Read, Vodafone's CFO, during the operator's earnings call.

Vodafone's share price was trading up 4.8% in London at lunchtime on Tuesday following the call.

On a reported basis, however, Vodafone's overall first-half revenues fell by 2.3%, to £20.3 billion ($30.7 billion), compared with the year-earlier period, while EBITDA was down by 1.7%, to £5.8 billion ($8.8 billion).

Next page: Project Spring costs hit the bottom line

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