Europe is thorn in Vodafone's side
Vodafone issued cautious forecasts about its current financial year, after tough trading conditions in Europe dragged down net profit in the year to end-March.
Operating profit in the region fell £805 million (€921 million) to £5.7 billion as revenues declined in all but two of the carrier’s eight main European markets, leaving the total figure at £32 billion compared to £32.8 billion at end fiscal 2010.
Vodafone blames the declines on higher overall customer acquisition and retention costs, however the extra spending did little to stem a flow of mobile customers away from the carrier. Mobile users in Europe fell almost a million to 147.4 million, with the heaviest losses in Germany and Spain – the latter being hardest hit due to general economic malaise and lower price tariffs.
The struggles in Europe took their toll on the group’s net profit, which fell nearly £750 million to £7.8 billion despite a 2.4% rise in revenue. Adjusted operating profit for the year of £11.8 billion was at the upper end of Vodafone’s previous guidance, and it beat its free cash flow target with a figure of £7 billion.
As a result, the firm has predicted stable operating profit of £11 billion to £11.8 billion, and cash flow of £6 billion to £6.5 billion for fiscal 2012.
Chief Vittorio Colao explains the outlook in the region remains tough, particularly in southern Europe. “We expect further regulated cuts to mobile termination rates to have a negative impact of about 2.5 percentage points on service revenue growth,” he noted, adding. “We continue to keep a tight rein on costs and working capital, allowing us to maintain our levels of investment.”
Investec Securities analyst Morten Singleton told Bloomberg the carrier’s aggressive voice and data bundles should see it through the troubles, leaving it well positioned to cash in on growing consumer appetite for mobile data.