Vodafone sees 2015 earnings hit by network investment

Tue May 20, 2014 1:08pm EDT
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By Kate Holton

LONDON (Reuters) - Britain's Vodafone (VOD.L: Quote) said next year's earnings would be hit by vital investment in its network, as it again wrote down the value of some of its European business - this time by 6.6 billion pounds - owing to tough market conditions.

Shares in the stock dropped 4.3 percent, wiping 2 billion pounds off the market value of Vodafone - which has reported record falls in underlying revenue in the last 18 months, and made several multi-billion impairment charges as it grapples with fierce competition, regulator-imposed price cuts and consumers who are making fewer calls to save money.

The latest charge takes the total impairment figure for Vodafone in the last four years to 24.4 billion pounds.

To fight back, Vodafone has stepped up spending on its network - the first among its rivals Telefonica (TEF.MC: Quote), Deutsche Telekom (DTEGn.DE: Quote) and Orange (ORAN.PA: Quote) to boost its investment plans. All have all reported lower profits due to competition and the need to rebuild.

But before the spending and improvements can kick in, Vodafone has suffered particularly poor revenues in Germany, Italy and other European markets and said on Tuesday it had been forced to write down the value of its assets across Europe due to lower projected cash flows.

"Vodafone continues to spin the plates with mixed success," Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said.

"The writedowns across several European regions are further proof of the challenges the company is facing, with underlying profit continuing to move in the wrong direction."

Vodafone has earmarked 19 billion pounds over the next two years for investment in Europe and across its emerging market operations in a bid to get ahead of its rivals, after selling its U.S. business in a $130 billion deal.   Continued...

A truck carrying cars speeds past the headquarters of Vodafone in Madrid March 17, 2014. REUTERS/Susana Vera