Vodafone doubles target for cost cuts
November 11, 2009
By Kate Holton London
Vodafone has doubled its cost-cutting target to £2 billion (R25bn) by 2012, after a successful start to the programme boosted cash flow.
Vodafone's decision to raise its target by £1bn surprised analysts and came as the largest cellular operator by revenue reported first-half revenue, earnings and adjusted operating profits in line with forecasts and reaffirmed its profit guidance for the year.
Earnings before interest, tax, depreciation and amortisation in the six months to September rose to £7.46bn, matching estimates, from £7.24bn a year earlier. Sales in the half rose 9.3 percent to £21.76bn, the company said yesterday.
On an organic basis, group revenue was down 3 percent.
The results follow similar statements by European rivals, which have also cut costs.
Deutsche Telekom, Telenor, KPN and TeliaSonera have all reported higher-than-expected earnings on cost cuts.
The only major exception so far was France Telecom, which missed forecasts and warned of rising restructuring costs.
In spite of the huge boost to its cost-cut target, however, shares in Vodafone slipped 2.2 percent in early trade as analysts picked up on the 2.1 percentage points decline in the group earnings margin, due to tough competition in emerging markets such as India, and a turnaround plan in Turkey.
Daiwa analyst Michael Kovacocy said: "It is clear that for the time being, Vodafone is scaling down, battening the hatches and set for a period of difficult growth prospects."
Vodafone launched a £1bn cost-cutting scheme in November last year to be completed by 2011, but accelerated the rate by a year in May after confronting saturated markets in Europe and a slowing rate of growth from increased competition in emerging markets.
We have made strong progress with our strategic priorities, in particular in mobile data and cash generation," said chief executive Vittorio Colao.
"We have confirmed our guidance for the full year, despite the uncertainties of current economic trends."
In Europe organic service revenue from the provision of ongoing services was down 4.5 percent due to the tough economy and competition.
India, a key market for Vodafone which has been hit by a pricing war, had service revenue growth of 20.5 percent after adding an extra 14.1 million customers, better than analysts had expected. - Reuters
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