Mobile phone giant Vodafone slumped to a half-year loss yesterday as it counted the cost of economic woes in Italy and Spain.
As well as writing down the value of its operations in the two struggling countries by nearly £6bn, Vodafone was impacted by the competitive UK market as rivals fight for business with new unlimited tariffs.
Revenues in the UK were down by 2.1 per cent and underlying profits fell by nearly a third as the higher cost of retaining smartphone customers also hit home.
Across the group, half-year revenues were down 7.9 per cent – driven by an 18 per cent slump in southern Europe – and bottom-line losses were £492m against pre-tax profits of £8bn a year earlier.
Shares were 3 per cent lower, despite the company announcing a £2.4bn dividend from US joint venture Verizon Wireless, of which £1.5bn will be returned to shareholders.
Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “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-found ed.”
Chief executive Vittorio Colao admitted the performance from wholly-owned operations was slightly below expectations in the first half.
He said weakening economic conditions were mainly to blame and said the environment was unlikely to improve in the second half of the year.
Vodafone will have to wait until the spring to launch its 4G products in the UK after EE, formally known as Everything Everywhere, got the go-ahead to offer services on the network, which has speeds up to five times faster than 3G.
Vodafone’s new ‘4G phone promise’ offers customers the chance to bring an eligible phone into any store and have 70 per cent knocked off their remaining contract, in exchange for taking on a 4G device.
But while it battles in the fiercely competitive UK market, Vodafone has been buoyed by earnings from its stake in America’s largest mobile phone network Verizon, helping operating profits to rise 8.5 per cent to £6.2bn.
“We are a little disappointed by the size of the dividend; we believe Verizon Wireless has the capacity to pay much more, but clearly the shareholders have taken account of the cost of recent spectrum acquisition,” said Espirito Santo analyst Will Draper, referring to the cost of buying frequencies to run mobile services.
Vodafone said it would pay a six-month dividend in line with its dividend per share growth target of at least 7 per cent per year until March 2013.
However, finance chief Andy Halford said the group had not yet decided on its dividend targets beyond 2013.