Vodafone cuts sales target on weak European market

LONDON - Reuters

Vodafone, the mobile phone operator, is worried over falling consumption in Europe. AFP photo

Vodafone cut its medium-term sales target and took a write down of 4 billion pounds ($6.3 billion) yesterday as cash-strapped customers in southern Europe made fewer calls and regulators upped the pressure on the world’s largest mobile operator.

Vodafone posted full-year results in line with forecasts and stood out from its peers by promising another strong dividend as strength in emerging markets and Germany, Britain and Turkey offset a slump in spending in Spain and Italy.

But with trading in its two big southern European markets showing little sign of improvement and regulatory and foreign exchange pressures due to continue, Vodafone said it now expected organic service revenue growth in 2013 to be slightly below its previous medium-term target range of 1-4 percent.

It took an impairment charge of 4 billion pounds against its businesses in Spain, Italy, Greece and Portugal, all at the heart of the euro zone debt crisis. The problems have hurt consumer spending which is expected to hit Vodafone’s cash flow.

“Europe continues to be challenging,” Chief Executive Vittorio Colao told reporters. “But even though the macro economic conditions remain tough, Vodafone is well positioned for the coming years.

“We have continued to gain revenue share in many of our markets ... and geographic exposure is a positive differentiator.”

The British-based group is the latest in a long line of major companies to be hit by government austerity measures being imposed across Europe, where consumers facing tax rises, inflation and muted wage growth are cutting spending.

A reluctance to spend on discretionary goods, particularly in Italy, Spain and Greece, has hit Europe’s biggest retailer Carrefour, drinks group Diageo and electricals retailer Kesa among others in recent weeks.

British retailer Marks & Spencer scaled back its revenue growth guidance on yesterday.

The telecoms sector has also been hit by the steady cuts to so-called mobile termination rates, which are the fees operators pay each other to connect and disconnect calls.

But despite the twin pressures, Vodafone has managed to stay ahead of rivals due to its strong presence in faster growing emerging markets, strong corporate offering and a reputation for a better network.

It raised its total dividend by 7 percent to 9.52 pence, before the addition of a special dividend from its business in the United States, and said it expected that growth rate to continue for the 2013 financial year.