Business - Vodafone's 1H profit falls 35 percent

LONDON: Vodafone Group PLC, the world's biggest mobile phone company by sales, said Tuesday its net profit fell 35 per cent during the first half
of the financial year. But shares rallied as the company announced 1 billion pounds ($1.56 billion) in cost cuts and stuck to its full-year profit forecast despite the global economic downturn.

The company said net profit for the six months through Sept. 30 was 2.14 billion pounds ($3.33 billion), down from 3.29 billion a year earlier, as consumer spending fell in developed markets amid the global economic downturn.

Revenue over the same period rose to 19.9 billion pounds ($31 billion) from 17 billion pounds, chiefly as a result of beneficial shifts in foreign exchange rates.

Despite the weaker profits, shares rallied 7.8 per cent to 117 pence ($1.83) in early trading in London as the company announced cost-cutting measures to tackle the spending slowdown in developed markets, reiterated its focus on fast-growing emerging markets and stuck to its forecast for full-year operating profit.

The mobile group said it plans to reduce operating costs by around 1 billion pounds ($1.56 billion) a year by 2011 to offset the dual pressures of high competition and cost inflation.

It also emphasized its continuing focus on developing markets, where profit and revenue are growing even as the group's European markets slow.

``Our updated strategy reflects the changing economic and market conditions,'' said chief executive Vittorio Colao, who took the post in July. ``In our emerging markets, the priority will be execution.''

In the first half of the year, adjusted operating profit in the region including Eastern Europe, the Middle East and Africa increased 15 per cent at constant exchange rates to 2.1 billion pounds ($3.3 billion) compared to the first six months of last year.

That helped offset the decline in operating profit in Europe over the period, which dropped 7.7 per cent to 3.5 billion pounds ($5.5 billion).

Vodafone said that as a result of its cost cutting measures and growth in developing markets, operating profit for the 12 months through March 2009 would still reach its previous forecast of between 11 billion pounds and 11.5 billion pounds ($17 billion-$18 billion), even though revenue would be less than previously expected at no more than 39.7 billion pounds ($61.8 billion).

``In general, the numbers and accompanying statement are positive,'' said Richard Hunter, head of British equities at Hargreaves Lansdown Stockbrokers. ``Naturally there remain challenges around the wider economic picture, but the company nevertheless remains well placed to benefit from any uptick in economic fortunes.''

That is largely because of the company's significant and growing presence in emerging markets, where the total number of mobile phone users is rising even as the European and U.S. markets are saturated.

In the past two years, Vodafone has made acquisitions in the fast-growing markets of Turkey, India and Ghana. In May 2007, it spent $10.7 billion for a controlling 52 percent stake in Hutchison Essar Ltd, which is now India's third-largest wireless provider.

Expansion has continued in the past half year with plans for Qatar and South Africa.

In May of this year, Vodafone said it had signed a deal, alongside a local partner, to pay $2.1 billion for Qatar's second wireless license.

Earlier this month, it announced plans to take majority control of South Africa's largest mobile phone company, Vodacom.