Vodafone annual profits drop on European debt risk

British mobile phone giant Vodafone said yesterday that annual net profits sank almost eight per cent on a huge impairment charge for its operations in debt-ravaged nations across southern Europe.

Earnings after tax fell to £7.97 billion (€9.16 billion) in the year to March, compared with 2009/2010, when it was boosted by higher revenues, cost savings and a lower tax bill.

Impairment losses ballooned to £6.15 billion, which compared with £2.1 billion last time around. The group blamed weak economic environments in Greece, Ireland, Italy, Portugal and Spain.

But Vodafone shares rallied 1.40 per cent to 170.60 pence in afternoon London deals as investors focused on news that pre-tax profits soared 9.5 per cent to £9.5 billion.

“The main focus for equity investors has been the Vodafone full-year profits, with pre-tax coming in at £9.5 billion – nearly 10 per cent up on last year,” said research head Anthony Grech at trading group IG Index.

“This was better than expected, and we’ve seen the shares in demand right from the open this morning.”

Total sales meanwhile increased by 3.2 per cent to £45.88 billion, which was ahead of analysts’ forecasts for £44.47 billion.

“The past year has seen further strong performances in our key revenue growth areas of data, emerging markets and enterprise, and we have gained or held market share in most of our key markets,” Vodafone chief executive Vittorio Colao said in the earnings release.

“We enter the new financial year well-positioned to deliver further value to our shareholders.”

The group has sold off non-core assets over the past year in China, France and Japan.

Vodafone said it expected to raise a total of £14.2 billion from the sale of its interests in China Mobile, SoftBank and SFR, while it has committed £6.8 billion to share buyback programmes.

And the company paid $5 billion in March, to buy out its Indian partner Essar from their mobile phone venture, increasing its exposure to faster-growing emerging markets. The group yesterdasy said that adjusted annual operating profits would rise in the current 2011/2012 financial year to £11.0 - £11.8 billion.

Richard Hunter, an analyst at Hargreaves Lansdown stockbrokers, said Vodafone posted “robust” numbers and was reaping the benefits from the rising popularity of smartphones and tablet computers.

“Vodafone has had a busy year strategically, but has been able to keep its eye on the ball in posting another set of robust numbers,” Mr Hunter said.

“The disposal programme has been in line with the commitment to realise maximum value from non-controlled assets, which in turn will allow an increase in the buyback scheme in conjunction with paying down some debt.

“In addition, the increasing popularity of smartphones and tablets is driving an increase in data service income, whilst the penetration of this market is showing some promising signs,” he added.

Vodafone recently confirmed it was selling its 44 per cent stake in French rival SFR to media group Vivendi for €7.75 billion in cash.