Vodafone deepens cuts as profits halve

Falling value of Vodafone's struggling Spanish and Turkish businesses contributes to problems for world's largest mobile phone company

Vodafone is speeding up its cost-cutting programme, raising fears of more jobs losses, after the world's largest mobile phone company saw annual profits more than halve to £4.2bn partly because it slashed the value of its struggling Spanish and Turkish businesses.

Vodafone, which has just over 300 million customers worldwide, warned that profits this year would be flat at best as a result of the tough economic climate.

The company, which in February axed 500 British jobs, about 5% of its UK workforce, has already saved £200m as part of a £1bn cost-cutting programme outlined in November and expects to save most of the rest in the coming year, ahead of its original 2011 deadline.

"Our £1bn cost reduction programme is ahead of plan and we continue to explore further ways to reduce cost," said the chief executive, Vittorio Colao, who took over from Arun Sarin last summer.

Vodafone has embarked on its massive cost-cutting programme as it struggles with the impact of the recession on the mature markets of Europe, where voice and messaging revenues are declining as consumers rein in their spending and regulation forces prices down. Growth in emerging markets such as India, meanwhile, is still strong, but even there margins are reducing as competition and the economic climate bite.

As a result of continued tough trading conditions, Vodafone expects operating profits for this year to be £11bn-11.8bn. In the last financial year, to 31 March, operating profits rose 16.7% to £11.8bn.

Pretax profits for the year, however, were £4.2bn, down from £9bn last year, after Vodafone took a £5.9bn impairment charge. The company has reduced the value of its Spanish business by £3.4bn – it has suffered from the deepening recession and intense competition – and its Turkish business by £2.25bn – it is taking far longer to turn around than Vodafone had hoped when it bought it in late 2005. It has also cut £250m from the value of its business in Ghana, despite having bought its stake only last July.

In November Colao made cash generation the central plank of his strategy for the business. Announcing full-year results in line with the City's expectations, the company today said it expected to generate £6bn-6.5bn of cash this year, higher than the guidance it gave for last year.

In the year to end March, the company made £5.7bn, up 2.5% and at the top end of the forecast range that Colao gave in November.

Revenues for the year to 31 March were £41bn, up 15.6% – or up only 1.3% excluding foreign exchange movements. In November, the company said it expected annual revenues to be between £38.8bn and £39.7bn, its second revision in four months. In July, it had said revenues would be at the bottom end of its previously given range of between £39.8bn and £40.7bn. The sheer volatility of foreign exchange markets – and Colao's focus on cash generation within the business – mean Vodafone is no longer giving guidance on revenues.


Richard Wray, communications editor

The GuardianTramp

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