THE financial crisis in southern Europe plunged Vodafone into the red during the first half of the year but the mobile phone giant said it remained “very positive” about its long-term prospects.
After a slump in revenues across Italy and Spain as cash-strapped consumers cut back on mobile phone use, the group wrote down the value of its business in the two countries by £5.9 billion and unveiled plans to introduce a “radically simplified” pricing structure in Europe in a bid to stabilise revenues.
The impairment charge saw Vodafone post a pre-tax loss of £492 million for the six months to 30 September, compared with an £8bn profit a year earlier, on total revenues 7.4 per cent lower at £21.8bn.
Chief executive Vittorio Colao said: “We have continued to make progress on our strategic priorities over the last six months, with good growth in data and emerging markets in particular. In the short term, however, our results reflect tougher market conditions, mainly in southern Europe.”
Service revenues in the region fell 11.3 per cent during the second quarter, with Italy tumbling 12.8 per cent and Spain down 12 per cent.
Second-quarter revenues in the UK declined 3.2 per cent as the group came under pressure from rivals launching unlimited bundles.
In response to fierce competition and rising smartphone usage, the group announced a new strategy that will see it offer unlimited calls and texts packages and higher data allowances.
Colao said: “Pricing will be radically simplified as a result, giving clear visibility of the cost of ownership.”
Despite its European woes, Vodafone expects adjusted operating profits for the full year will be towards the upper half of the range of £11.1bn to £11.9bn that it indicated in May.
Shareholders will receive an interim dividend of 3.27p per share, up 7.2 per cent over last year’s pay-out, and Vodafone also said it would start a £1.5bn share buy-back programme after receiving a £2.4bn dividend from its Verizon Wireless joint venture in the US.
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said the £5.9bn impairment in Italy and Spain – which follows a £4bn write-down in the value of its southern European businesses last year – was “very disappointing”.
He added: “The wider market has held concerns over southern Europe for some time now, and these numbers from Vodafone are uncomfortable proof that the financial fears are well-founded.”
However, analysts said the group was well placed to benefit as more customers access the internet over its mobile networks – 30.7 per cent of its European customers now use smartphones, up from 14.5 per cent two years ago.
Jonathan Jackson, head of equities at Killik & Co, said: “Although parts of the group’s portfolio are experiencing difficult trading conditions, the important US business is performing well.”
Revenues at Verizon Wireless, which has almost 96 million customers across the US, grew by 10 per cent to £10.7bn in the first half and Vodafone’s share of profits from the joint venture jumped 27.4 per cent to £3.2bn.