Vodafone to slash costs as European operations stutter

Vodafone is set to unveil new cost cutting plans after announcing sharply lower growth figures for its first-quarter.

Colao

Colao

The company posted group-wide service revenues of £9.98 billion for the quarter ending June, up only 0.6 per cent from last year, compared with a forecast for 0.9 per cent, and down from 2.3 per cent growth in the group's previous quarter.

Reacting to this downturn, Vodafone reiterated its annual outlook, with its CEO Vittorio Colao telling reporters: "Inevitably we are now about to embark on a new wave of cost initiatives, it is what you have to do when times are tough."

The company is blaming its poor performance on weak consumer spending in economically weak Italy and Spain, where revenues fell 7.7 per cent and by 10 per cent respectively. Growth also slowed in the Czech Republic, Greece, Portugal and Romania, and the UK slowed more than expected due to the weakening economy and aggressive pricing from Telefónica's O2 UK and 3UK, according to Reuters.

The company was helped by strong results from India, Turkey and Germany, adding that data revenues grew 17.1 per cent on the back of higher adoption of smartphones in Europe, reported the Financial Times.

Commenting on the results, CFO Andy Halford said that it was difficult to be optimistic in the short term. "Clearly consumers and businesses remain nervous in many territories, our sense is that we should prepare the business for a few more quarters that are going to be reasonably tough," he said, according to Reuters.

Vodafone shares were pushed 1.9 per cent lower following the announcement, promoting Espirito Santo analyst Will Draper to comment: "It is not a disaster. It is just a slight miss. The UK has shrunk, Italy has missed our numbers and the emerging markets growth is still pretty good but it has also clearly slowed in Turkey, India and South Africa."

Emeka Obiodu, senior analyst at Ovum, told Reuters: "The significant point from these results is that emerging markets are no longer sufficiently rescuing poor performances from Vodafone's European markets."

The market was further disappointed that no mention was made of any discussion with Verizon Communications over a dividend distribution from Verizon Wireless, according to MarketWatch.

For more:
- see this release
- see this Reuters article
- see this Financial Times article
- see this MarketWatch article

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