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Vodafone predicts sales slowdown

The world’s biggest wireless operator in terms of sales blamed intensifying competition and pricing pressures in several of its key markets. The news added to the gloom surrounding the mobile carrier and can only add the growing doubts surrounding chief executive Arun Sarin.

Vodafone said it expects a review of the value of its assets to show a substantial impairment and said this reflects a lower view of growth prospects, particularly in the medium to long term, than those it had used previously.

The company is carrying 81.5bn pounds ($141.8bn) goodwill on its balance sheet, with 35.5bn pounds ($61.8m) stemming from its $188bn takeover of Mannesmann in 2000, which it said occurred at a time when share prices in the telecommunications sector were significantly higher than today.

It said most of the write-down will be attributable to Germany, while Italy, with 19.7bn pounds of goodwill ($34.2bn) and, potentially, Japan, which accounts for 9bn pounds ($15.7bn), could also be affected.

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Mobile carriers and analysts were once starry-eyed at the prospects of revenue growth with the arrival of 3G, but Vodafone now says it has incorporated into its latest 10-year plan, a lower view of growth prospects for a number of key operating companies, particularly in the medium to long term. With lower growth prospects, Vodafone is now only using five-year forecasts in most cases.

Inevitably, slowing growth rates will hit profitability and Vodafone it envisages a year on year decline in proportionate mobile EBITDA margins, excluding Japan, of around 1% on an organic basis. This is because initiatives to drive further cost efficiencies are offset by pricing pressures, additional investments in customers, and changes in termination rates. Vodafone said its outlook for the current financial year remains unchanged.

Analysts expect that there could be further downgrades to Vodafone’s forecast in the year ahead. But Sarin is still resisting calls for the company to sell its 45% stake in US wireless carrier Verizon Wireless and return the money to investors. We look at Verizon and our presence in the US as an important asset to the company. The board reviews the Verizon situation from time to time. We’ll continue to review, he said.

This article is from the CBROnline archive: some formatting and images may not be present.

CBR Staff Writer

CBR Online legacy content.