Mobile phones: Spanish troubles drag down Vodafone

Vodafone became the latest victim of the slowdown yesterday as the mobile group warned that its annual revenues would be at the bottom end of forecasts.

The revision - mainly caused by falling sales in Spain - shocked the City and sent shares down almost 14% to close at 129p, making it the biggest percentage faller in the FTSE 100. It cast a shadow over the departure of chief executive Arun Sarin, who is stepping down next week after five years at the helm.

Ericsson also suffered from a Vodafone effect, with shares down 11% despite reporting better than expected quarterly earnings figures.

Although Vodafone said results were in line with expectations, and reiterated guidance on operating profit and cash flow, it said full-year revenues were likely to be at the lower end of its previously stated range of £39.8bn to £40.7bn.

The company said trouble at its Spanish operations had dragged European organic revenues down by 0.2% year on year in the three months to the end of June. With more than 16 million customers, Spain is one of the company's four main European markets, along with the UK, Italy and Germany. Service revenues in Spain were down 2.5% in the quarter, contrasting with 8.1% growth over the course of last year.

Jonathan Groocock, an analyst at Investec, said the evidence of slowdown in Spain "shatters the widespread perception that the company is immune to an economic slowdown".

"Perhaps it was always too good to be true," said Mark James at Collins Stewart. "The Spanish and UK telecoms markets, resilient to the economic slowdown to date, finally look to have cracked."

Sarin said Vodafone had suffered from a "relatively severe macroeconomic environment". "We are not immune to it but we are much more resilient than most other companies. If anyone thought we were immune, that would have been a mis-thinking about how we operate."

He said one problem in Spain was that migrant workers who had been working in construction were returning home.

"Migrants and small-to-medium-size companies have taken a lot of share. But here comes the downturn - there's less construction work and some migrants have gone home. But it's not a business that's falling apart, it's a segment within that business."

He said in the UK - where service revenues for the quarter were up 2.1% thanks to data and messaging, but revenues from phone calls fell by 4.4% - the main difficulty was competition from other mobile networks.

Sarin said earnings would be protected by the company's cost-reduction plans and the strength of the euro against the pound could, on current trends, benefit the company by as much as £750m over the six months to the end of September.

Revenues for eastern Europe, the Middle East and Africa, Asia Pacific were up 9.2% on an organic basis in the quarter. Overall Vodafone added 8.5 million subscribers in the quarter, taking the company's customer base to around 269 million. Group revenues rose 19% to £9.8bn in the quarter, with overall organic growth of 1.7%.

source : http://www.guardian.co.uk/