Mobile phone giant Vodafone will unveil a slight increase in annual underlying earnings to £12bn (€17.7bn) today, despite tough times for the firm in UK and European markets.
The business grabbed the headlines last year with the UK’s biggest annual losses of £14.85bn (€22bn) after writing off £23.5bn (€34.7bn) from the value of assets, including German telecoms business Mannesmann.
It will take a much smaller write-down in this year’s figures, with market consensus figures for the group indicating underlying earnings ahead 3% from last year’s £11.8bn (€17.4bn), with overall sales up 7% to £31.3bn (€46.2bn).
But in a sector where increasing competition has already hit the margins of rivals including Orange, T-Mobile and O2, the company’s European performance will come under close scrutiny as the sector also faces regulatory pressure from new legislation.
Vodafone warned in March that its UK margins for the second six months of the financial year to March would be lower than the 30.8% reported for the half-year to September.
The company has also suffered from declining UK revenues, which dipped 1% to £2.5bn (€3.7bn) in the half year to September 30.
Rival moves include more flexible contracts as well as the introduction of VoIP services such as Skype, which enables telephone calls to be made over the internet.
The fall in UK margins during the five months to February reflected Vodafone’s bid to retain customers by reducing tariffs but keeping acquisition and retention costs – the level of subsidy paid by Vodafone on its handsets – high.
Investors will also be looking for signs of progress on chief executive Arun Sarin’s UK strategy of offering customers broadband and landline services alongside mobile phones.
The company launched its Vodafone At Home service in January offering unlimited broadband and inclusive calls to any UK landline, using BT Wholesale’s broadband network.
But in Europe new legislation restricting roaming call charges are set to make life more difficult for operators.
Analysts predict a £200m (€295m) fall in sales in the current financial year, although Vodafone claims that 75% of its roaming revenues will be unaffected by the law and says its charges have already fallen by 40% in the past two years.
And the company’s key German and Italian markets also face renewed challenges with price cuts from the likes of Deutsche Telekom and Telecom Italia.
Credit Suisse analyst Justin Funnell said: “There is evidence of increasing competition from incumbents. Roaming regulation could also stimulate more competition as operators fight harder to protect market share.”
Despite its difficulties, Vodafone now has more than 200 million customers worldwide and the company employs more than 60,000 staff.
The main driver of earnings growth is expected to be emerging markets. In February the mobile phone group won the battle for control of India’s Hutchison Essar, although the deal will have little impact on this year’s results.
Vodafone won a takeover tussle with Reliance Communications and Essar itself to buy Hutchison’s controlling stake for $11.1bn (€8.2bn), reckoned to be the single largest foreign investment in India’s history.
Hargreaves Lansdown equities analyst Keith Bowman said: “The firm’s core European markets have been difficult in the past two years, although hopefully this will be counterbalanced by growth in the emerging markets arena such as Turkey and India.”