By Kate Holton
LONDON (Reuters UK) - Vodafone (VOD), the world's largest mobile phone operator by revenue, has doubled its cost cutting target to 2 billion pounds by 2012, after a successful start to the programme boosted cashflow.
Vodafone's decision to raise its target by 1 billion pounds surprised analysts and came as the company reported first-half revenue, earnings and adjusted operating profits in line with forecasts and reaffirmed its profit guidance for the year.
The results follow similar statements by European rivals which have also cut costs heavily.
European firms Deutsche Telekom (DTEGn), Telenor (TEL), KPN (KPN) and TeliaSonera (TLSN) all reported higher than expected earnings on cost cuts, but Deutsche failed to provide an outlook for 2010 due to economic uncertainty.
The only major exception so far was France Telecom (FTE), which just 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.
On an organic basis, group revenue was down 3 percent.
"Mobile heavyweight Vodafone has come out with a set of first-half results that were in-line for both revenue and EBITDA, but highlight significant underlying weakness," 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 with austerity a necessity."
Vodafone launched a 1 billion pound cost cutting scheme in November a year ago to be completed by 2011, but accelerated the rate in May after confronting saturated markets in Europe and a slowing rate of growth from increased competition in emerging markets.
On Tuesday the company, whose shares have underperformed the FTSE 100 by 13 percent this year, said it would deliver that programme a year ahead of plan.
The original cost cutting scheme was also part of the group's strategy launched in November last year to focus on improving performance and cash generation as opposed to its previous plan of growth by expansion.
UNCERTAIN FUTURE
"We have made strong progress with our strategic priorities, in particular in mobile data and cash generation," Chief Executive Vittorio Colao said.
"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 increasing competition.
Previously difficult markets such as Spain and Italy showed signs of improvement, as did Turkey after a turnaround plan.
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, slightly better than analysts had expected.
Vodafone's two main rivals, Bharti Airtel (BRTI) and Reliance Communications (RLCM), both reported weak earnings in their recent results due to the price war.
In total, Vodafone reported first-half earnings before interest, tax, depreciation and amortisation (EBITDA) up 2.9 percent to 7.5 billion pounds, in line with expectations.
It reported half-year revenues up 9.3 percent to 21.8 billion pounds, also bang in line with the Reuters poll of 12 analysts.
"This was never going to be a first-half recovery story and we saw nothing to change our thesis," Bernstein analyst Robin Bienenstock said. "On the contrary better than expected European revenues is particularly positive. We expect more in the second half."
(Editing by Greg Mahlich)
