Britain may be out of recession, but for our neighbours across the English Channel the economic difficulties are continuing to have grave effects upon business in many European countries. The single currency has meant that, due to a severe financial crisis in Greece, countries such as Spain and Italy are now struggling to keep their heads above water, with even relatively buoyant economies such as the ones in Germany and the Netherlands now beginning to struggle.
As a result, many companies are seeing their half-year profits severely damaged due to a drop in trading in the Eurozone as customers can no longer afford to spend on non-essential items such as mobile phones and luxury clothing.
Vodafone is one such company feeling the knock on effects of the Euro’s crash, with the result that units held by the business in Spain and Italy have been written down by £5.9 billion.
The news came in the same week that the mobile phone giants reported a pre-tax loss of £492 million for the half year ending on the 30th of September. This is a startling drop from the same period only a year earlier, when the firm recorded a huge £8 billion profit – a clear sign that trading in the Eurozone is having a severely detrimental effect upon the company’s revenues.
Chief executive of Vodafone, Vittorio Calao, said; “Our results reflect tougher market conditions, mainly in southern Europe.”
However, he added that the network’s “attractive and growing exposure to emerging markets” buoyed the group’s confidence regarding the long term future, especially as Vodafone is now becoming a major player in expanding economies such as India and Turkey.
Altogether, revenue dropped by 17.5 per cent in the southern European market, with 8.2 per cent of this fall attributed to the fact that the Euro has significantly weakened against the pound in the first six months of this financial year. This is an issue for the company as much of its European revenue comes from southern Europe, and until the economies in certain European countries stabilise there is unlikely to be a boost in Vodafone’s overall profitability.
Vodafone believes that customers in Spain and Italy are choosing to go on to lower cost tariffs in an attempt to save money while the economy remains turbulent, but as the Eurozone stabilises their customers would gradually begin spending more again. Price competition also played a role in the company’s losses, as many customers were choosing to jump ship to cheaper rivals.
However, it was not all bad news in Vodafone’s statement, as revenue from data services grew slightly in southern Europe. The firm believes that this is due to increasing numbers of customers relying on smartphones rather than wireless internet connections in a bid to cut costs.
Yet Hargreaves Lansdown stockbroker Richard Hunter believes that the future may hold its fair share of struggles for the mobile phone provider, and that recovery may still take some time.
He says; “The wider market has held concerns over southern Europe for some time now, and these numbers from Vodafone are uncomfortable proof that the financial fears are well-founded.
“News of the impairment in Spain and Italy is very disappointing, whist organic revenue overall has fallen and net debt has risen.”
Do you think that Vodafone will be able to combat issues caused by the Eurozone crisis and manage to record a profit at the end of the financial year, or do you believe that the financial crisis will drag the company’s full year revenues down?
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