Vodafone profits hit by European woes
Mobile operator writes down value of Italian and Spanish units
By Gaurav Sharma | CFO UK | Published 11:50, 13 November 12
Global mobile and wireless telephony giant Vodafone reported a pre-tax loss of £492 million for the six months to 30 September, versus £8 billion of profits recorded over the corresponding period a year earlier.
In a statement on Tuesday, the company blamed troubled European markets for the poor performance. Revenue in southern Europe fell 17.5 percent, including an 8.2 percent decline due to the Euro weakening against the Pound.
Vodafone also said it had written down the value of its units in Spain and Italy by £5.9 billion blaming tough market conditions and decline in consumer spending in the two countries.
However, its 45 percent stake in US operator Verizon Wireless provided a silver lining with a dividend of £5.4 billion due to be shared between it and majority owner Verizon Communications by the end of 2012.
Vodafone’s share is expected to be £2.4 billion it plans to use part of it to start a £1.5 billion share buyback programme.
Vodafone chief executive Vittorio Colao said, "Our results reflect tougher market conditions, mainly in southern Europe.”
But Colao added that he was upbeat about long term opportunities in "attractive and growing” emerging markets including India.
Société Générale analyst Ottavio Adorisio felt that a falling dividend yield might see Vodafone losing top ranking in the FTSE100 table with a portfolio reshuffling (of UK income funds) likely to follow.
“The main surprise in Vodafone’s statement was that ‘organic’ growth in service revenues fell. This is the first year-over-year fall after nine consecutive quarters of growth. Our impression is that Vodafone may have scrapped its exceptional dividend and decided instead for the £1.5 billion share buyback,” he told CFOWorld.
Richard Hunter from Hargreaves Lansdown stockbrokers said the wider market had concerns over southern Europe for some time now.
"These numbers from Vodafone are uncomfortable proof that the financial fears are well-founded. News of the impairment in Spain and Italy is very disappointing, whilst organic revenue overall has fallen and net debt has risen," he added.
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