Vodafone accelerates cost cuts

By Kate Holton

LONDON (Reuters) - Vodafone, the world's largest mobile phone firm by revenues, is to speed up cost-cutting plans after forecasting flat profits at best for 2010 and announcing a 5.9 billion pound impairment charge.

Vodafone Group <VOD.L>, which said the charges were due to problems in Spain, Turkey and Ghana, also posted 2008-09 revenue, earnings and free cash flow in line with forecasts.

For 2010, it set out an adjusted operating profit range that would be flat at best and failed to give a specific revenue forecast after twice revising it down in the financial year just ended. But it predicted free cash flow would grow.

Analysts were divided over the results and Vodafone's shares slipped 0.9 percent by 12:08 p.m. on the impairment, outlook and tough European conditions, underperforming a 1 percent rise on the FTSE 100 index.

Vodafone, like other mobile operators, has struggled with the recession in Spain where customers are looking for cheaper deals, and it has also had to boost its network in Turkey to properly compete there.

On top of the two difficult markets, the company said revenue from voice calls and messaging declined in its more mature regions, while roaming charges also fell due to lower business and leisure travel.

But the results showed signs of the company's new strategy coming through, with a good performance from India and Africa, data charges from customers surfing the Internet up 44 percent and improved cost controls.

"We are confident that our strategy is appropriate for the current operating environment," the group of 303 million customers said.

In November, Vodafone said it would cut 1 billion pounds of costs to maintain profit and boost free cash flow to cope with the expected challenging conditions.

Vodafone said on Tuesday it would accelerate its cost-cutting programme, with over 65 percent to be achieved in the 2009-10 financial year, and Chief Executive Vittorio Colao told reporters they would look at increasing the scale of the plan.

But he said their targets were not top-down instructions and would announce any update if they found room for further cuts.

"Full-year results come well within guidance, but the 4.2 billion pounds impairment in the second half is an unwelcome reminder of the past," Analysts at JP Morgan said. "November's message on capital discipline is firmly reiterated."

MISSING REVENUE

Vodafone set out forecast ranges for 2009-10, but failed to give an exact revenue forecast, saying only that it expected recent trends to continue within the challenging environment.

"These results demonstrate the impact of the early actions we took to address the current economic conditions and highlight the benefits of our geographic diversity," Colao said.

Analysts have said the mobile market has proved more sensitive to economic factors than expected.

Deutsche Telekom <DTEGn.DE> slashed its full-year targets in April after tough competition and weak trading in Britain and the United States.

However Telefonica <TEF.MC> managed to stick to full-year targets and beat first-quarter forecasts after a strong performance in Latin America offset weakness in Spain.

For the 2008-09 year to end-March, Vodafone posted revenues up 15.6 percent at 41 billion pounds. Free cash flow was 5.7 billion pounds and adjusted operating profit at 11.8 billion before impairment charges, all in line with forecasts.

For the year ahead, Vodafone said operating conditions would be challenging in Europe and central Europe.

It expected adjusted operating profit in the range of 11-11.8 billion pounds and free cash flow to grow and come in the range of 6-6.5 billion pounds. Capital expenditure is set to be similar to 2009 after adjusting for foreign exchange.

Daiwa analyst Michael Kovacocy told Reuters the lack of additional cost cutting was disappointing.

"With Spain -- one of the company's most profitable franchises -- now impaired and further stagnation and decline in Europe in store, the case for future consensus downgrades has likely increased," he said.

(Reporting by Kate Holton; Editing by Jon Loades-Carter and Rupert Winchester)

Article Published: 19/05/2009