Vodafone blames difficult economic environment for 12.7 percent profit drop

Data revenue, emerging markets and asset sales help boost revenue

Vodafone reported a 12.7 percent drop in net profit for the year to March 31, blaming economic conditions in Europe.

The operator reported revenue of £46.4 billion (US$73.4 billion) for the twelve-month period, up 1.2 percent on a year earlier, while group net profit fell 12.7 percent to £6.96 billion, it said Tuesday.

The loss was swelled by a £4.0 billion impairment charge relating to the company's activities in Italy, Spain, Portugal and Greece. The company reduced the book value of those businesses to reflect lower projected cash flows and the effects of strong price competition there.

The company recorded a £3.5 billion net gain on the sale of its interests in SFR and Polkomtel, although it warned that future cash flow would be reduced by its loss of a regular dividend from SFR.

The economic environment in Europe is set to remain very difficult over the next year, Vodafone said, with weak consumer demand, a harsh regulatory backdrop and ongoing competition creating material barriers to growth.

Today, about £29.9 billion of Vodafone's £42.9 billion in service revenue comes from Europe.

However, Vodafone had a strong year in emerging markets. Its biggest such operations, in southern Africa, India and Turkey, saw organic growth in service revenue of 7.1 percent, 19.5 percent and 25.1 percent, respectively.

Vodafone expects these and its other businesses in emerging markets to represent an increasing proportion of revenue and profit and in the coming years, it said.

Another are of growth is machine-to-machine communications. Growth in this sector driven by the automotive and utilities sectors, and the number of SIMs used for this purpose have increased from 5.3 million to 7.8 million year-on-year.

In Europe, 26.9 percent of Vodafone customers now have smartphones, and 44.9 percent of its contract customers.

As a result of these changes, Vodafone's data revenue grew from £5.1 billion to £6.2 billion, but this was not sufficient to offset the decline in voice revenue over the period: it fell from £27.2 billion to £25.7 billion. Revenue from messaging and from Vodafone's fixed-line activities each grew by about £200 million.

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Mikael Ricknäs

IDG News Service
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