Vodafone doubles cost cut target

By Kate Holton

LONDON (Reuters) - Vodafone (VOD.L), 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.DE), Telenor (TEL.OL), KPN (KPN.AS) and TeliaSonera (TLSN.ST) 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.PA), 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 .FTSE 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.

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"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."