Heavy impairment charges at its struggling operations in Italy and Spain sent Vodafone’s full-year pre-tax profit tumbling by two thirds, while the tough economic backdrop in Europe squeezed organic service revenue by 4.2 per cent in the three months ended 31 March 2013.
That’s the biggest quarterly drop in service revenue since Vodafone started using the metric in 2003, says Reuters.
Rises in mobile data revenue are still not high enough to offset falls in voice and messaging revenue, which continues to be squeezed by competitive and regulatory pressures.
“We have faced headwinds from a combination of continued tough economic conditions, particularly in southern Europe, and an adverse European regulatory environment,” said chief executive Vittorio Colao.
The good news for Vodafone is that Verizon Wireless, in which it has a 45 per cent stake, continues to perform well. Service revenue at the biggest wireless carrier in the US was up 8.1 per cent, while Vodafone’s share of the operator’s profit was up 30.5 per cent, to £6.4 billion.
Given the tough trading conditions in European markets, however, Vodafone says it will be retaining the £2.1 billion dividend due from Verizon Wireless in June, rather than handing it out to shareholders.
High exposure in southern European markets remains Vodafone’s Achilles Heel. Impairment charges on its Spanish and Italian operations added up to £7.7 billion for the full year, which helped shrink group pre-tax profit from last year’s £9.5 billion to £3.3 billion.
Net profit for the year was £673 million, down from £7 billion.
Full-year organic service revenue from Vodafone’s southern European operations plummeted 11.6 per cent to £9.6 billion (which is around a quarter of group revenue).
As well as “severe macro-economic weaknesses” in the region, Vodafone points to steep cuts in mobile termination rates (MTRs) in Italy and Greece – as well as inroads made by combined mobile and fixed offers in Spain and Portugal from incumbents and fixed-line operators in the second half of the year – as contributory factors to the downturn.
Organic service revenue nosedived 12.8 per cent in Italy, while Spain’s dropped 11.5 per cent.
Taking Vodafone’s northern and central European operations as a whole, organic service revenue was steady, registering a slight drop of 0.2 per cent.
However, it was strong growth in Turkey – service revenue up 17.3 per cent, primarily driven by contract base growth – that made up for weaknesses elsewhere.
In the UK, full-year service revenue dropped 4 per cent.
As a group, Vodafone’s full year organic service revenue dropped 1.9 per cent, to £40.9 billion. Of that sum, voice revenue accounted for £25.7 billion, down 13 per cent from the year before. Messaging revenue is also on the wane, down 11 per cent, to £4.7 billion.
More encouragingly, organic data revenue was up 13.8 per cent, helped by increasing European contract smartphone penetration, which was up 9.9 percentage points, year-on-year, to 54.8 per cent. However, at £6.7 billion, group data revenue is still only around 16 per cent of overall turnover.
Thanks to cost-saving initiatives and a strong performance from Verizon Wireless, Vodafone was able to boost adjusted operating profits by 9.3 per cent, to £12 billion.
There is still no clarification on whether or not Vodafone will sell its stake in Verizon Wireless, while the long-running US$2.2 billion tax dispute in India continues to cast a shadow.