Vodafone profits level off

Mobile phone giant Vodafone warned market conditions were likely to remain challenging in Europe after reporting flat annual profits today.

The group made underlying profits of £8.75bn (€12.9bn) in the year to March 31, down 0.5% on a year earlier, although bottom-line losses narrowed to £2.38bn (€3.5bn).

Vodafone said it had met or exceeded financial expectations in all key areas, even though its Europe operating region suffered from increased competition and regulatory pressures. It expects this trend to continue in the current year.

In Ireland, customer numbers increased by 102,000 to 2,177,000. Total voice minutes used in the quarter ended March 31 increased by 10.2% to 1,420 million from 1,289 million in the same quarter in 2006. However, in the same period, average blended monthly ARPU decreased by 8.2% to €44.60 from €48.60.

Vodafone Ireland strategy director Gerry Fahy said: "The last year was a milestone year for Vodafone Ireland. We led price innovation in the market by delivering reductions in the region of 20% on mobile phone bills to our customers and we led product and service innovation with the success of our 3G Broadband network."

Vodafone is Ireland's leading mobile services provider with a customer base of more than 2.17 million comprising business and personal subscribers and a revenue market share of more than 47%.

Revenues in the UK edged ahead 1.5% to £5.12bn (€7.5bn), but this failed to prevent earnings in the region from falling 10.1% to £1.46bn (€2.1bn) in the year. The same rate of decline was seen in Germany - Vodafone's biggest market - as revenues dipped 5.4% to £5.44bn (€8bn) and earnings stood at £2.43bn (€3.6bn).

As expected, Vodafone wrote down the value of its German business in today’s results. However, it also took a further hit of £3.5bn (€5.2bn) to cover the impact of legislation cancelling fixed fees on the top up of prepaid cards in Italy.

The total write-down of £11.6bn (€17bn) seen in today’s results was still better than the £23.51bn (€34.7bn) taken by the company a year earlier.

Stripping out the charges and other one-off factors, Vodafone’s underlying earnings increased 1.6% to £11.96bn (€17.6bn).

The marketplace has become more competitive following the introduction of flexible contracts by competitors and the launch of VoIP services such as Skype, which enables telephone calls to be made over the internet.

The fall in UK margins during the year – down to 28.5% from 32.2% in 2006 - reflected Vodafone’s bid to retain customers by reducing tariffs but keeping acquisition and retention costs, the level of subsidy paid by Vodafone on its handsets, high.

In a bid to tackle the pressure, chief executive Arun Sarin has offered customers broadband and landline services alongside mobile phones.

The company launched its Vodafone At Home service in January offering unlimited broadband and inclusive calls to any UK landline, using BT Wholesale’s broadband network.

In Europe, new legislation restricting roaming call charges is set to make life more difficult for operators.

Vodafone claims that 75% of its roaming revenues will be unaffected by the law and says its charges have already fallen by 40% in the past two years.

Despite its European margins pressure, Vodafone now has around 206 million customers worldwide and the company employs more than 60,000 staff, of which more than 10,000 are based in the UK.

The main driver of earnings growth has been emerging markets. In February the mobile phone group won the battle for control of India’s Hutchison Essar, although the deal had little impact on this year’s results.

Vodafone won a takeover tussle with Reliance Communications and Essar itself to buy Hutchison’s controlling stake for $11.1bn (€8.2bn), reckoned to be the single largest foreign investment in India’s history.