Vodafone Cuts Costs Ahead of Plan, but Sees More Gloom Ahead

Mobile phone operator Vodafone Group expects underlying operating profit to remain flat or decline in the coming year, even though the company is ahead of its plan to cut £1 billion (US$1.5 billion) in annual costs by 2011, it said Tuesday.

Vodafone reported revenue of £41 billion for its fiscal year ended March 31, a year-on-year increase of 15.6 percent. The rise was almost exclusively a result of favorable exchange rates and acquisitions.

Net profit for the year, at £3.08 billion, was down 54.4 percent, as Vodafone wrote off impairment charges totalling £5.9 billion following poor performance of its operations in Spain, Turkey and Ghana.

Excluding the effects of the impairment charge and some other, smaller adjustments, Vodafone said adjusted profit for the year rose 36.6 percent, to £9.06 billion, while adjusted operating profit rose 16.7 percent to £11.8 billion.

Vodafone is now less certain about what the future holds. For the year to March 31, 2010, it has widened its outlook for adjusted operating profit to between £11 billion and £11.8 billion -- flat or a decline of up to 6.5 percent.

This gloom is despite the company's faster-than-expected progress with its £1 billion cost-reduction program, announced in November. The company has already cut annual costs by £200 million, and expects to make more than 65 percent of the cuts during the year ending March 2010, faster than originally planned. Last November, the company said it wanted to cut costs by about £1 billion by its 2011 financial year, which ends in March.

Revenue from voice calls and messaging is lower in more mature European and Central European markets, as a result of continuing price declines and also lower usage, something Vodafone blamed on the recession.

Prospects in Europe and Central Europe continue to be dim, but Vodafone expects revenue growth to continue in emerging markets, especially India and Africa.

But there is also good news from other parts of the world. Results in Africa and India, where Vodafone added 24.6 million subscribers, remained robust, according to the company.

Data service revenue worldwide was also up by 43.7 percent, and now totals £3 billion, Vodafone said.