Vodafone accelerates cost cutting programme

On Tuesday, European heavyweight carrier Vodafone reported a 54.4 per cent drop in profit for the year ended March 31. Net Income fell to just over £3bn for the year, down from £6.7bn in the previous year.

As a result, the Big V has accelerated its £1bn cost cutting programme, which delivered approximately £200m in savings in the past year. The company now intends to deliver at least 65 per cent of the total programme in the next year, which analysts at investment firm Execution called “a tough message on costs”.

Group revenues for the year ended March 31 were up 15.6 per cent to £41bn, compared to £35.5bn in 2008, while EBITDA (earnings before interest, tax, depreciation and amortisation) climbed 10 per cent to £14.5bn, from £13.2bn in 2008.

The group’s customer base has also exceeded the 300 million mark, with its proportionate customer base standing at 303 million at end March.

Chief executive Vittorio Colao said that, in the more mature European and Central European operations, voice and messaging revenue declined due to lower growth in usage and continued price declines, while roaming revenue fell due to lower business and leisure travel. But the African and Indian markets remained robust driven by continued but lower GDP growth and increasing penetration.

European organic service revenues declined 1.7 per cent reflecting the economy and a strongly competitive environment. Impairment charges increased to £5.9bn, primarily in respect of Spain, which saw service revenue decline by 4.9 per cent on an organic basis, with an 8.6 per cent decline in the fourth quarter.

But Colao noted that ongoing price pressures and lower volume growth in voice products were offset by good growth in data. Group data revenues were up 43.7 per cent to £3bn for the year.

In January 2009, US operation Verizon Wireless completed its acquisition of Alltel which is expected to generate cost synergies of over $9bn, Vodafone has also deepened its commercial relationship with Verizon Wireless, which now contributes 30 per cent of adjusted operating profit, with joint initiatives around LTE, enterprise customers and BlackBerry devices.

IDC research director, John Delaney, said that Vodafone is now reaping the fruits of some contentious decisions taken by its management in recent years. “Having resisted investor pressure to divest its stake in Verizon Wireless, Vodafone now benefits from the strong revenue and profit growth reported by the US operator following its acquisition of Alltel – and all in dollars too. Also benefiting the top line is Vodafone’s decision, three years ago, to extend its interests in emerging markets as a key objective of the operator’s corporate strategy.”

However, Delaney believes that the European mobile operators, Vodafone included, have more trouble ahead of them on the revenue front. “Today, the pain is in Spain – but it will be felt more widely over the coming year. The recession is set to hit people in the pocket throughout Europe, for at least the remainder of 2009,” the analyst said.

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