Job fears as Vodafone launches £1bn cost-cutting drive
Vodafone is launching a £1bn cost-cutting drive, which could lead to job losses, after reducing expectations for annual revenues for the second time in four months, in the face of tough trading in Europe and slowing growth in its emerging markets.
The world's largest mobile phone company said it had performed particularly poorly in the UK over the last six months, where operating profits almost halved to £134m, as it dropped its forecast for annual group revenues to between £38.8bn and £39.7bn. In July it said revenues would be at the bottom end of its previously given range of between £39.8bn and £40.7bn.
The chief executive, Vittorio Colao, who only took over from Arun Sarin in the summer, said the company must focus on cutting costs throughout the business as it enters a more difficult economic environment. He wants to save £1bn by 2011, which means no increase in costs in Europe and growth in operating costs at a much lower rate than revenues in its emerging markets from now until 2011.
Instead of chasing customers, the company must also try to persuade its existing subscribers – especially corporate customers - to do more with their phones, especially using them to access the web. He also signalled that major acquisitions are off the agenda and will only be carried out if they can be funded with the proceeds of disposals.
"Our updated strategy reflects the changing economic and market conditions and it will drive execution with a continuing focus on free cash flow," he said. "We will improve operational performance through customer value enhancement and cost efficiency, supported by a £1bn cost reduction programme.
"We will pursue growth opportunities in total communications, specifically mobile data, enterprise and broadband. In our emerging markets, the priority will be execution and we intend to further strengthen capital discipline."
He said the company will continue to focus on the amount of cash it generates – between £5bn and £6bn a year. This year, however, foreign currency fluctuations mean Vodafone's free cash this year will be between £5.2bn and £5.7bn, up from its original guidance of £5.1bn-£5.6bn.
In the six months to end September, revenues increased 17.1% to £19.9bn but were boosted predominantly by currency effects – as the company makes the majority of its money outside the UK. Stripping out the effects of foreign currency fluctuations, organic growth was just 0.9%.
Operating profit decreased to £4.1bn, compared to £5.2bn for the same period in the previous year, as the company wrote down the value of its Turkish business – only bought three years ago - by £1.7bn.
Profit before tax was £3.3bn, down from £4.56bn with free cash flow of just over £3bn.
The performance of the company's European operations suffered from the tough economic climate with margins decreasing from 38.2% to 36.2% on revenues that were down 1.1% on an organic basis. The company blamed ongoing price pressure on core voice and messaging services.
Revenue growth in emerging markets was 25.7% to £5.4bn but that was driven mostly by its Indian business, acquired last year. Stripping that out, organic growth was 8.8% with a weak performance in Turkey where the company admitted its turnaround "is taking longer than we anticipated".
Shares in the company rose 6.25p to 114.6p in early trading.
source
The world's largest mobile phone company said it had performed particularly poorly in the UK over the last six months, where operating profits almost halved to £134m, as it dropped its forecast for annual group revenues to between £38.8bn and £39.7bn. In July it said revenues would be at the bottom end of its previously given range of between £39.8bn and £40.7bn.
The chief executive, Vittorio Colao, who only took over from Arun Sarin in the summer, said the company must focus on cutting costs throughout the business as it enters a more difficult economic environment. He wants to save £1bn by 2011, which means no increase in costs in Europe and growth in operating costs at a much lower rate than revenues in its emerging markets from now until 2011.
Instead of chasing customers, the company must also try to persuade its existing subscribers – especially corporate customers - to do more with their phones, especially using them to access the web. He also signalled that major acquisitions are off the agenda and will only be carried out if they can be funded with the proceeds of disposals.
"Our updated strategy reflects the changing economic and market conditions and it will drive execution with a continuing focus on free cash flow," he said. "We will improve operational performance through customer value enhancement and cost efficiency, supported by a £1bn cost reduction programme.
"We will pursue growth opportunities in total communications, specifically mobile data, enterprise and broadband. In our emerging markets, the priority will be execution and we intend to further strengthen capital discipline."
He said the company will continue to focus on the amount of cash it generates – between £5bn and £6bn a year. This year, however, foreign currency fluctuations mean Vodafone's free cash this year will be between £5.2bn and £5.7bn, up from its original guidance of £5.1bn-£5.6bn.
In the six months to end September, revenues increased 17.1% to £19.9bn but were boosted predominantly by currency effects – as the company makes the majority of its money outside the UK. Stripping out the effects of foreign currency fluctuations, organic growth was just 0.9%.
Operating profit decreased to £4.1bn, compared to £5.2bn for the same period in the previous year, as the company wrote down the value of its Turkish business – only bought three years ago - by £1.7bn.
Profit before tax was £3.3bn, down from £4.56bn with free cash flow of just over £3bn.
The performance of the company's European operations suffered from the tough economic climate with margins decreasing from 38.2% to 36.2% on revenues that were down 1.1% on an organic basis. The company blamed ongoing price pressure on core voice and messaging services.
Revenue growth in emerging markets was 25.7% to £5.4bn but that was driven mostly by its Indian business, acquired last year. Stripping that out, organic growth was 8.8% with a weak performance in Turkey where the company admitted its turnaround "is taking longer than we anticipated".
Shares in the company rose 6.25p to 114.6p in early trading.
source
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