Vodafone speeds up £1bn cost drive as profits sink

£5.9bn impairment charge hits full-year results

Vodafone has accelerated its £1bn cost-cutting drive in the face of the disintegrating economic markets, and revealed that a £6bn impairment charge cut profits in half last year.

The world's largest mobile phone company yesterday reported pre-tax profits fell from £9bn last year to £4.1bn.

Revenues rose 15 per cent to £41bn, – lifted by favourable foreign exchange moves – but the profits were smashed by a £5.9bn impairment, mainly from its beleaguered Spanish and Turkish arms. The announcement sent its share price tumbling 4 per cent.

The £3.4bn hit in Spain was a "business performance issue," it said, as the country struggles against recession.

Vodafone's pain in Turkey has been well flagged over the year, and the total impairment charge was £2.2bn for the financial year ended 31 March 2009.

The group sacked the management team in Turkey in November and launched a turnaround strategy, saying it was in effect going "back to the drawing board".

Despite this, Goldman Sachs' analyst Tim Boddy called the results "solid".

Vodafone's chief executive, Vittorio Colao, admitted that the group has struggled in its home market of the UK, with growth seen in the Asia-Pacific region, and the Middle East.

Vodafone has a "relaunch plan" for the UK, he said, in what is a "structurally challenging" market.

Operating profit fell 45.5 per cent, suffering from a slump in voice call revenues as well as fierce competition. The group also believes it suffered from a perception of being "more expensive in the UK, which wasn't fully deserved".

The relaunch has included a range of incentive schemes to entice customers including the "Freedom pack" and cuts to roaming charges this summer. In an attempt to cut costs, it axed 500 jobs in February and froze salaries.

Mr Colao said the group took "swift action" to combat the softer revenues last year, but could only promise flat operating profits in 2010. The group predicted operating profit in the range of £11bn to £11.8bn next year.

The flat profits predicted include the £1bn in cost cuts by the end of next financial year. The group said yesterday that it had sped up its target of delivering half the cuts this year to 65 per cent. Mr Colao said the move "will help us to offset the pressures of cost inflation and the competitive environment and invest in revenue growth opportunities".

Mr Colao refused to put a total figure on job cuts as part of the £1bn plan. "I'm a delivery person, and not an announcement person," he said.

The group said the fall in revenues from voice calls and text messages – which it predicts will continue this year – has been offset by the rise in data revenues, up a quarter to £3bn.

Yet revenues have also weakened as customers cut down on calling from abroad. So-called roaming charges were down 14 per cent. "There has been less business and leisure travelling and, coupled with the pricing, that has had an effect on roaming," Mr Colao said.

The group's outlook remained downbeat. "I don't see many green shoots. We haven't seen any big changes in recent months. Will it be a challenging first financial quarter? Yes." Mr Colao added that there was "no evidence consumers were giving up their mobiles, despite the economic conditions".