Vodafone wrote down the value of its business in Spain and Italy by £5.9 billion (€7.4 billion) and lowered its cash flow forecast as recession-hit southern Europeans cut back on using their mobile phones.
The British mobile operator yesterday became the latest company to fall victim to a plunge in demand in peripheral eurozone countries, as they drive through austerity measures to reduce government deficits.
Last week, French bank Credit Agricole took a £2 billion writedown on the sale of its Greek business, while companies from steelmakers to brewers have warned of weakening trade across the eurozone.
Vodafone is in a better position than many rivals thanks to its strength in faster-growing US and emerging markets, and continues to pay a dividend when others have cut back.
However, the British group’s growth in emerging markets is slowing, and some investors were disappointed by a smaller-than-expected dividend from its US joint venture Verizon Wireless, announced on Monday.
“If you stripped out the impact from the US then these results would look pretty poor, and that’s a problem,” said Espirito Santo analyst Will Draper.
Vodafone said organic service revenue – a key financial metric which excludes acquisitions and one-off costs – fell 1.4 per cent in the three months ended September.
That included a 11.3 per cent plunge in southern Europe, where consumers are suffering a prolonged recession. Data last week showed a quarter of a million Spaniards ditched their mobile phones in September.
As a result of weak trading, as well as adverse currency moves, Vodafone said it expected free cash flow for the full financial year to be in the lower half of its guidance range.
Vodafone said it was writing down the goodwill of its operations in Spain and Italy by £3.2 billion and £2.7 billion respectively. That left the carrying value of goodwill for the businesses at £2.4 billion and £7.2 billion respectively at the end of September.
The group’s first-half adjusted operating profit rose 2.2 per cent to £6.2 billion, beating analysts’ average forecast of £5.9 billion thanks to a strong performance in the US, which accounted for over half the total. Southern Europe accounted for around 18 per cent of operating profit.
Vodafone said it expected to get a £2.4 billion dividend from its US joint venture Verizon Wireless by the end of the year and would buy back £1.5 billion of shares with the money.
“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,” Espirito’s Draper said, 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 seven per cent per year until March 2013.