Vodafone To Cut More Costs Amid Downturn

Vodafone has announced plans to speed up cost cutting after announcing yearly results which show pre-tax profits down by 53 percent and large write-downs from its European operations.

The telecoms company announced its results for the year ended 31 March 2009, which showed that the company was forced to write-off around £5.9bn attributed mostly to its Spanish business.

The impact of the downturn on Vodafone’s European operations meant that pre-tax profits fell 53.5 percent to £4.2bn ($6.5bn) compared to around £9bn a year earlier. However, write-downs not included, the company did manage to show some positive growth with profits up 16.7 percent to £11.8 billion which pleased some analysts.

“Given the toxic combination of market saturation and economic recession that is blighting the European mobile market, it’s an achievement for a European mobile operator to report growth in service revenues,” said IDC research director John Delaney.

To counteract the effects of the downturn, Vodafone has already announced a cost-cutting drive earlier this year. But now the company has admitted that plan will be accelerated and it wants to achieve a 65 percent saving in costs for the financial year 2010.

“Our £1 billion cost reduction programme is ahead of plan and we continue to explore further ways to reduce cost,” said Vodafone chief executive Vittorio Colao. “We maintain our tight focus on capital discipline and returns to shareholders.”

Looking to the year ahead, Vodafone admits that it expects the tough conditions to continue. “Challenging environment; recent revenue trends assumed to continue,” the company said in a statement.

IDC’s Delaney agreed that 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,” he said.

Delaney added that Vodafone could suffer worse than some because of its reliance on prepaid customers. “In Europe, almost two-thirds of Vodafone’s customers are on prepaid, so Vodafone’s exposure to the danger of spending cutbacks is considerable,” he said.

Vodafone may also be vulnerable to cutbacks among the business users that make up a high percentage of its customer base in the UK, added Delaney, as businesses continue to cut costs and shed staff.