Vodafone warns prices might increase as cost of living crisis bites

FILE - This Tuesday, Feb. 24, 2009 file photo shows people walking by a branch of Vodafone in central London. Vodafone, one of the world's largest cellphone companies, revealed the scope of government snooping into phone networks Friday, saying authorities in some countries are able to directly access an operator's network without seeking permission.The company outlined the details in a report that is described as the first of its kind, covering 29 countries in which it directly operates. It gives the most comprehensive look to date on how governments monitor the communications of their citizens. The most explosive revelation was that in a small number of countries, authorities require direct access to an operator's network — bypassing legal niceties like warrants. It did not name the countries. (AP Photo/Sang Tan, file)
Vodafone warns on profits and seeks €1bn in cost cuts. Photo: Sang Tan/AP (ap)

Vodafone fell over 7% and was on track for a 25-year low as the mobile operator announced a €1bn (£880m) cost-cutting drive and warned that prices for customers might increase.

The company said it would take “pricing action” across Europe to mitigate against high energy bills and rising inflation – meaning prices could go up for customers.

Vodafone has already implemented price changes in 12 out of 13 European markets, including raising contract prices, reducing promotional discounts and linking prices to inflation.

Read more: UK unemployment rate rises to 3.6% as real wages lag behind inflation

The mobile operator said the worsening global macroeconomic climate, rising energy costs and increased inflation had hit financial performance.

Shares in the operator were down over 7% on Tuesday morning after the company adjusted its earnings guidance to €15-15.2bn, down from €15-15.5bn and lowered its free cash flow forecast from €5.3bn to €5.1bn.

Revenue was up 2% to €22.9bn but adjusted earnings before interest, tax, depreciation and amortisation fell 2.5% to €7.2bn, driven by commercial underperformance in its largest market Germany and a one-off legal settlement in Italy.

Vodafone’s chief executive Nick Read said: “In the context of a challenging macroeconomic environment, we are delivering a resilient performance this year, alongside making good progress with our operational and portfolio priorities.

“We are taking a number of steps to mitigate the economic backdrop of high energy costs and rising inflation.

“These include taking pricing action across Europe, whilst at the same time supporting our most vulnerable customers and driving energy efficiency measures across the business.

“We are also announcing today a new cost savings target of one-plus billion euros focused on streamlining and further simplifying the group.”

This April, Vodafone increased prices in line with the annual consumer price index, plus 3.9% in the UK market.

Vodafone said it is conscious of financial pressures its customers are facing and has implemented a cost-of-living plan to help people.

It includes social or low-cost tariffs, extra measures to support customers and business and helping customers reduce their energy usage.

The UK business reported a more than 7% increase in revenues, to €3.4bn.

Read more: Paris overtakes London to become Europe’s biggest stock market

Matt Britzman, equity analyst at Hargreaves Lansdown, said: “It’s certainly not plain sailing at Vodafone right now, warnings that weaker economic conditions and rising costs are set to bring full year results down from previous guidance put a dampener on half year results.

"A €1bn extension of the existing cost savings programme and further pricing actions are being brought in to try and keep rising costs in check.”

Chris Beauchamp at IG Group added: “Squeezed by energy costs and rising wages, Vodafone’s gloomy outlook for the next six months has resulted in a swift drop on the open, wiping out the bounce from the October lows.

"The usual round of cost savings predictions have done little to boost confidence in the group, and with further economic weakness expected for Europe next year, we might see Vodafone having to be similarly gloomy about the outlook when full-year results roll around.”

A dividend of €0.045 was declared.

Watch: Vodafone tests 'self-powering' phone mast in the UK