Rattled investors gave Vodafone a stock market hammering today after the mobile phone giant warned of revenues at the bottom end of hopes.
Its shares fell as much as 16% – wiping more than £11bn (€13.8bn) off the value of the business – and dragging the FTSE 100 Index into the red virtually single-handed.
Vodafone has suffered from weaker trading in the UK and Spain, as well as lower than expected sales of equipment such as handsets and USB data cards in the three months to June 30.
This will leave annual revenues at the foot of its expected range of between £39.8bn (€50.2bn) and £40.7bn (€51.2bn).
Vodafone has escaped the full extent of the falls seen by the wider Footsie during the past year as investors sought a safe haven for their money.
However, Collins Stewart analyst Mark James downgraded Vodafone following the update. He said: “Perhaps it was always too good to be true. The Spanish and UK telecoms markets, resilient to the economic slowdown to date, finally look to have cracked.
“It seems likely that earnings expectations, regardless of management’s statements, are likely to get scaled back.”
Sweden’s Ericsson also hit sentiment in the sector today after a 70% fall in second-quarter profits in the wake of disappointing trading at its Sony Ericsson mobile joint venture.
The firm warned of slowing market growth in mid-to-high end phones and increased competition. It expects tough market conditions to prevail for the rest of 2008.
Vodafone’s slide marks a disappointing exit for Arun Sarin as he prepares to hand over the reins to deputy chief executive Vittorio Colao next week after five years in charge.
Richard Hunter, head of UK equities at stockbroker Hargreaves Lansdown, said: “The CEO would not have wished for these numbers as a swansong, nor the accompanying share price performance.”
Vodafone said business in Spain has been hit by heavy competition and a fall-off in customer spending as consumers tighten their belts.
In the UK, where the group has around 18.5 million customers, organic revenue growth slipped to 2.1%, which the group also put down to “continued competition in the UK market and signs of an economic slowdown”.
Across the wider European market, it was only the increased strength of the euro against the pound compared with a year earlier which boosted revenues.
Stripping out the beneficial currency effect and the impact of acquisitions, organic revenues in Europe actually declined by 0.2% over the quarter.
But despite the revenue warning, Vodafone still expects to achieve operating profits of between £11bn (€13.9bn) and £11.5bn (€14.5bn) as it looks to cut costs across the business and benefit from emerging markets.
Mr Sarin said: “Notwithstanding this more challenging operating environment, we continue to benefit from a diversity of assets and services.”
Vodafone’s EMAPA operation, which includes fast-growing markets in Eastern Europe, the Middle East, Africa and Asia, and Pacific regions, lifted overall revenues by more than 30%.
In India, where the group bought Hutchison Essar last year, Vodafone added more than five million customers in the first quarter.