Vodafone's 'safety first' strategy

Mobile phone giant Vodafone yesterday unveiled a new risk-averse strategy to combat increasingly challenging markets that will include £1 billion of cost cuts by 2011.

Chief executive Vittorio Colao, who took over from Arun Sarin in the summer, said the firm would shift its focus from "revenue stimulation" towards packages that offered more value to customers in return for greater commitment.

Colao's new "safety>first" policy comes as mobile telecoms, an industry once thought relatively immune from the downturn, has come rapidly under the cosh.

Vodafone revealed yesterday, alongside its interim results, that its revenues could come in up to £1bn under target this year. The group now expects full-year revenue to be between £38.8bn and £39.7bn. It had already cut its expectations in July to the bottom of a previous forecast range of £39.9bn to £40.7bn.

Colao seemed to rule out further acquisitions at a company previously linked with mega-takeovers, such as Mannesman for £112bn in 2000.

He said yesterday: "There are few potential large new markets of interest to us and we will be cautious and selective on future expansion."

The City liked the new conservatism at the group against the tough trading backdrop, as well as Colao's statement that Vodafone would introduce a "progressive" dividend policy where growth reflects the underlying trading and cash performance.

The group's shares jumped 9 per cent amid news the interim dividend rises 3.2 per cent to 2.57p, before eventually closing up 6.2 per cent at 115p.

Colao said: "Our strategy reflects the changing economic and market conditions and it will drive execution with a continuing focus on free cash flow."

Analysts at Dresdner said: "Vodafone has delivered a more material change to strategy than we expected, with more of a focus on cash and dividend than there has been in the past.

"This is a fundamental change which, when combined with earnings momentum from stable operations, lower tax rates and favourable foreign exchange rates, supports a good chance of a rerating for the stock."

Vodafone said it expected to cut operating costs by about £1bn "to offset the pressures from cost inflation and the competitive environment and to enable investment in revenue growth opportunities".

The group declined to say whether it would make job cuts.

Vodafone revealed that revenues in the six months to end-September rose 17 per cent to £19.9bn. Headline operating profit came in about the middle of City forecasts, up 10.5 per cent at £5.8bn. Colao kept the target for operating profit this year at £11bn to £11.5bn.

Source: The Scotsman, 12th November, 2008

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