The telecoms giant reported organic service revenue – a revenue measurement which strips out the impact of one-off costs such as handset sales – was down 4.9% in the second quarter due to weak sales in Europe. This compares to a 3.5% fall in Q1 and a 4.2% fall in Q4.

The £7bn ‘Project Spring’ investment plan for the next two financial years is expected to boost profitability over the long term, but will result in a cash outflow in the 2015 financial year, the group said.

In its half-year report, the telecoms giant revealed statutory pre-tax profits of £1.514bn for the six months ended 30 September, compared to a loss of £3.881bn in the same period in 2012.

Adjusted pre-tax profits came in at £5.145bn, a 2.6% increase on the previous year.

The sale of its stake in US group Verizon Wireless will allow the firm to return $84bn to shareholders, it said.

Vodafone will pay an interim dividend per share of 3.53p, up 8%, and intends to pay a full-year dividend of 11p per share.

FTSE 100-listed Vodafone is one of the largest dividend payers in the UK market, and widely held across UK equity income portfolios.

Vittorio Colao, group chief executive, said trading conditions remain challenging in developed markets, although the firm is making good progress in emerging regions.

“While trading conditions in Europe remain very tough at present, we are encouraged by the forecast return to economic growth over the next two years and the potential for a shift in regulatory focus to support greater industry investment and consolidation,” he said.  

“Our emerging markets businesses are performing very well, driven by rapidly increasing smartphone penetration and data usage. In mature markets, our performance reflects more challenging conditions, which we continue to mitigate through ongoing actions to improve our operating model and cost efficiency.

“Our Project Spring organic investment programme – now increased to £7bn – will accelerate further our plans to establish stronger network and service differentiation for our customers.  

“The pending $130bn US transaction will reward our shareholders for their long-term support of our strategy and will provide us with a strong balance sheet, improved dividend cover and the financial and strategic flexibility to make further investments in the business or returns to shareholders in the future.”

Shares in Vodafone fell 0.6% to 225p shortly after trading began this morning.