Vodafone profit warning sends shares crashing by 5%

 

Vodafone showed the world yesterday what its business looks like without its giant stake in the US telecoms group Verizon – and it wasn't pretty.

Its shares crashed more than 5 per cent as the chief executive, Vittorio Colao, admitted that Vodafone's now vital European operations were declining at a rapid rate, leading it to write £6.6bn off the value of its businesses in the region and warning that next year's profits would fall.

The announcement disappointed investors who earlier this year toasted a record-breaking £51bn return of cash from the telecoms giant after it sold its stake in Verizon Wireless. Now Europe is responsible for two-thirds of Vodafone's sales, but the market there is suffering badly as regulators order mobile firms to cut their customers' bills. Vodafone's European revenues plunged 9.1 per cent in the last quarter.

All four of its big European markets – the UK, Germany, Spain and Italy – saw continued falls as regulators clamped down. Analysts at Berenberg bank said some of the trends in terms of falling profitability were "very bad".

Sales fell 3.6 per cent on an organic basis in Britain – the eighth consecutive quarter of decline – although Mr Colao noted that it was an improvement on the previous quarter. "It is difficult to say when exactly it will turn around," he said.

In another worrying sign, Mr Colao admitted that Vodafone has won only 637,000 4G customers in Britain – far behind rivals EE with 3 million and O2 with 1 million. He insisted he was "pleased" with progress on 4G and did not want to get into a "game" about subscriber numbers.

Mr Colao said headline profits before exceptional items, known as Ebitda, will be between £11.4bn and £11.9bn in the coming year, against £12.8bn in the previous financial year to March.

At the time of the Verizon sale, Mr Colao promised to invest billions of pounds in its Project Spring initiative to upgrade its network with super-fast 4G coverage. However, investors are fretting that Vodafone is now too dependent on Europe. The Vodafone boss was "optimistic" about growth from selling data, expansion in emerging markets, and selling "unified communications" – a mix of mobile, broadband and pay-TV. He recently bought the "fixed-line" firms Ono in Spain and Kabel Deutschland in Germany.

Some analysts were sympathetic to Mr Colao, who has made Vodafone the biggest dividend payer in the FTSE 100, but they are worried about whether his long-term investments will pay off soon.

Espirito Santo bank said it made sense for Vodafone to "make a clearer distinction between the quality of its network and the competition", adding: "Should this be achieved, then alongside an improving macro environment, Vodafone shares should benefit. However, at this juncture, visibility of success is low and competitive forces remain substantial."

Berenberg was upbeat, seeing "good reasons to expect a further material improvement" as Project Spring kicks in. But Jefferies bank said there was "little to inspire confidence in turnaround prospects".

Sentiment has also soured as merger prospects have receded. AT&T, which ruled out a takeover of Vodafone in January, is buying DirecTV in America, while BSkyB, another mooted partner, is now looking to merge Sky's European operations.

Vodafone fell to an annual pre-tax loss of £5.27bn. Post-tax profits soared to £59.4bn thanks to Verizon Wireless and a huge tax credit from its Luxembourg operation. Revenues fell 4.3 per cent on an organic basis to £38.35bn. The dividend rose 8 per cent to 11p.

Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific