Voda group posts 54pc profit drop


Vodafone UK has continued to struggle against the economic decline, posting a 45 per cent profit loss and a customer base drop of 450,000 in its Q1 results announced today.

The network said it would accelerate its £1 billion cost savings programme from 50 per cent completion this financial year to 65 per cent, but gave no indication as to whether this would involve more job cuts further to the 500 already slated for its UK operations.

Vodafone’s UK service revenues were down 0.8 per cent and its EBITDA was down 14.8 per cent. It lost 450,000 customers, bringing its total base to 18.716 million; 58.5 per cent of those being on prepay. Total churn is up to 41 per cent from 35.7 per cent in the same period last year and 34.6 per cent in Q4.

Across the group, its annual net profit for the last financial year plunged 54 per cent to £3.08 billion, down from £6.76 billion in the previous year, as the network was hit by impairment charges of £5.9 billion chiefly relating to its performance in Spain and Turkey. It added seven million new customers in Q1, bringing its global total to 303 million at the end of March.

Vodafone group chief executive Vittorio Colao (pictured) told a City conference this morning: “We had said we would aim to complete 50 per cent of our cost cutting programme within the 09/10 financial year but the economic environment has worsened and we have been focussing more and more on costs. So we have decided to accelerate this programme and are now targeting 65 per cent this year. Some of this has been achieved through network sharing, field force outsourcing and job cuts. We would like to identify new cost savings to offset pressures from the economy.

“The UK remains a challenging market with margins under pressure – heavy cross net offers are depressing margins. This particular market is a structurally challenging one, with a 3.5 per cent decline in growth. There are people doing better than us in this market but their margins are not significantly better than ours.

“The economy has put pressure on voice and SMS revenues. There has also been a decline in roaming revenue because of a slowdown in business and leisure travel. Lower handset volumes as replacement cycles are becoming longer, but this isn’t necessarily a bad thing.”

In the UK, Vodafone’s service revenue declined by 1.1 per cent on an organic basis, primarily due to a decrease in voice revenue resulting from increased competition in a challenging economic environment, customer optimisation of out of bundle offers and lower roaming revenue.

Wholesale revenue increased due to the success of the network’s MVNO business through ASDA and Lebara. Data revenue growth was maintained, driven primarily by increased
penetration of mobile PC connectivity and mobile internet services. The acquisition of Central Telecom, which provides converged enterprise services, was completed in December 2008.
The 15.3 per cent organic decline in EBITDA, which included the impact of a £30 million VAT refund in the prior year, was primarily due to higher off network usage in messaging services and higher retention costs. Customer retention costs grew, as did operating expenses thanks to the decline in the value of the pound.

Colao said the company had focussed on bringing more value offers to the market in a bid to link this with Vodafone’s overall identity.

He described Spain as a “challenging market” that had shown “weakness across the board”. India was a source of further potential growth, he said, while in Turkey, revenues were down 18 per cent but it was on track to launch 3G in the second half of this year.

In South Africa, Vodacom saw revenue growths of 11 per cent and was listed on the country’s stock exchange this week.

Colao also acknowledged that Vodafone as a network was a commodity “pipe”, and that the service game had to be played at a group level.

He summed up: “We expect voice and SMS growth to continue to be negative. We will be looking at how quickly we can close the gaps that exist in some countries and the extent to which we would reinvest our cost savings into growth areas such as DSL and data. It’s proving that extension into this world is working very well. We plan to be ahead of the medium term strategic target we announced in November.”

IDC research director John Delaney said: “Vodafone is now reaping the fruits of some contentious decisions taken by its management in recent years, such as its decision three years ago to extend its interests in emerging markets as a key objective of the operator’s corporate strategy. Vodafone’s Asian and African operators are contributing an increasingly important chunk of the growth in Vodafone’s total service revenues.

“We believe that the European mobile operators, Vodafone included, have more trouble ahead of them on the revenue front. Today, the pain is in Spain – but it will be felt more widely over the coming year.

“Today’s results show that Vodafone is making the best of the hard times that we’re going through. But for the coming year, at least, those times are going to get harder still.”

IHS Global Insight analyst Peter Boyland added: “In its established markets, Vodafone has shown that it sees mobile broadband and data use as the way forward as traditional revenues decline, and IHS Global Insight expects to see significant investment in these services over the next year.”