Vodafone to cut £1bn costs as sales slow

Vodafone is planning a big cost-cutting exercise after slashing its sales forecast by another £1bn...

Last Updated: 31 Aug 2010

Vodafone said that it’s now targeting full-year revenues of between £38.8bn and £39.7bn, lower than its previous guidance of £39.9bn (not to mention the original target of £40.7bn). The telecoms giant is clearly feeling the squeeze from the slowdown in customer spending – with sales slipping, it plans to focus on cutting costs and squeezing more revenue out of existing customers. So it might seem a bit odd that it’s been the biggest riser in the FTSE 100 this morning...

It’s not that the figures are all that great. Revenues were up 17% for the half-year to September, but that was largely due to currency fluctuations. Pre-tax profits fell 27% to £3.3bn, after a massive £1.7bn write-off in Turkey (where the turnaround plan is taking a little longer than expected). Margins and revenues have shrunk in its core European market, with the UK performing particularly badly. Its vast £27bn debt pile reduces its room for manoeuvre. And the £1bn cost-cutting exercise it’s now planning will presumably mean job losses – possibly here on its home turf.

However, on the plus side, the results were nothing like the car crash that some were predicting. Although the sales forecast has been reduced, the profit forecast remains unchanged at about £11bn. It's still churning out more than enough cash to service its debts. And new CEO Vittorio Colao – who took over from Arun Sarin in the summer – also seems to have gone down well. Judging by his comments today, he’s going to focus on making Vodafone leaner and meaner – improving execution rather than chasing expensive acquisitions in emerging markets.

The new boss was cautiously upbeat today, suggesting that he had updated the group’s strategy in response to ‘the changing economic and market conditions’. The focus will now be on three areas – mobile data, enterprise and broadband – and he plans to concentrate on providing more services to his existing customers rather than chasing new ones in such a tough market. This clearly went down well with the market, judging by its big 10% share price bounce this morning (and 10% is a lot for a £60bn company). Welcome to Recession Britain, where 'not-as-bad-as-feared' is the new 'good'...

Strange though it may seem in the light of results like these, Colao appears to have made a pretty good first impression. But whether he can keep this up if the market keeps heading south remains to be seen. Perhaps he should 'Make the most of now', as they like to say at Vodafone...

In today's bulletin:

Now house sales hit 30-year low
Vodafone to cut £1bn costs as sales slow
Editor's blog: The City's Oedipus complex
Crunch puts the mochas on Starbucks profits
PR headache for Ryanair after bird trouble

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