Vodafone Writes Down Units in Spain and Italy

BERLIN — Vodafone on Tuesday wrote down the value of its network businesses in Spain and Italy by £5.9 billion as the British carrier struggled to weather southern Europe’s economic downturn.

The nearly $9.3 billion charge pushed Vodafone, based in Newbury, England, to a £1.9 billion loss in the six months through Sept. 30 after a £6.6 billion profit a year earlier.

The Vodafone chief executive, Vittorio Colao, blamed southern Europe’s economic woes, which has led to rising unemployment and economic stagnation in Spain and Italy, where Vodafone owns the No. 2 carriers behind Telefónica and Telecom Italia Mobile.

“Our results reflect tough market conditions, mainly in southern Europe,” Mr. Colao said.

He reiterated, however, that the company’s strategy remains one of cost-cutting and investing in faster networks to increase the sale of wireless data and offset other declines.

Vodafone, the largest telecom in Europe by market capitalization, saw its shares in London fall by as much as 4.5 percent to 159.1 pence on Tuesday afternoon.

In the six months through September, Vodafone said its total revenue fell 7.4 percent to £21.8 billion from £23.5 billion a year earlier. In southern Europe, the declines were twice as steep, with revenue falling 18.1 percent to just under £5 billion.

Revenue fell by 18.4 percent in Italy and 19.3 percent in Spain, Vodafone said. About half of the declines stemmed from the weakening of the euro against the pound, which eroded the value of Vodafone’s earnings in the single-currency bloc.

The British operator also faltered in Germany, Vodafone’s largest single market in Europe, where revenue from voice service and text messaging, its traditional source of earnings, is being increasingly eroded by free Internet-based mobile calling and smartphone message applications.

In Germany, where the company and T-Mobile are roughly equal as market leaders, revenue fell 6.5 percent to £3.9 billion.

“Germany experienced a sharp slowdown in revenue momentum as well as pressure on margins,” Jerry Dellis, an analyst in London at Jefferies International, a securities and investment bank, wrote in a note to clients.

Massive writedowns are no stranger to Vodafone, which rose to global prominence in the late 1990s through a series of aggressive mergers and acquisitions in Europe and Asia, and the purchase of a 45 percent stake in Verizon Wireless, the largest U.S. wireless carrier.

But the company has periodically overreached during its evolution, and economic downturns set off large accounting corrections to the value of its business. Twelve years ago, Vodafone wrote down the value of its business by the equivalent of $6.5 billion.

Mr. Colao, the son of an Italian carabinieri officer who took over as chief executive in 2008, has streamlined Vodafone, selling stakes in operators in France, Poland, Japan, Sweden and China. In January, he was able to coax from Verizon the first dividend payment for the Verizon Wireless venture since 2005, a windfall worth £2.9 billion to Vodafone.

On Tuesday, Mr. Colao said Vodafone would receive a further £2.4 billion dividend from Verizon Wireless before the end of this year.

Philip Kendall, an analyst at Strategy Analytics in London, said that Vodafone was faring no worse than other operators in weathering the downturn of southern Europe.

“As the No. 2 player in Spain and Italy, we feel Vodafone is holding its own quite well,” Mr. Kendall said. “I’m not suggesting all is good at those operations, just that most operators in those markets are hurting and it would be a little short-termist to get out now.”

Vodafone has explored opportunities to consolidate its operations in the region, and in February called off a merger of its Greek carrier with that of a rival, Wind Hellas. But the company is unlikely to leave the region, Mr. Kendall said.

“We wouldn’t expect major changes at Vodafone,” Mr. Kendall said. “They’ll be exploring opportunities for consolidation, and options for cutting costs, but are unlikely to be considering an exit.”

Article source: http://www.nytimes.com/2012/11/14/technology/vodafone-writes-down-units-in-spain-and-italy.html?partner=rss&emc=rss