Vodafone cuts outlook and seeks cost savings as economic woes mount

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FILE PHOTO: A branded sign is displayed on a Vodafone store in London

By Paul Sandle

LONDON (Reuters) -Vodafone cut its full-year cashflow forecast and lowered earnings guidance on Tuesday, reflecting soaring energy costs and a deteriorating performance in Germany, Italy and Spain.

Chief Executive Nick Read said the European mobile operator had to navigate a “challenging macroeconomic environment” that forced it to cut its cashflow forecast by 200 million euros to about 5.1 billion euros ($5.3 billion) for the year to the end of next March.

“We are taking a number of steps to mitigate the economic backdrop of high energy costs and rising inflation,” he said.

“First and perhaps most important, given the historical deflation in our sector, we’ve taken proactive price action throughout our European markets.”

Vodafone is raising prices in 11 out of 12 markets, he said, with a majority implementing inflation-linked increases.

The group, which faces a 300 million euro increase in its energy bill this year, also plans to cut 1 billion euros of costs in the next three and a half years, including a simplification of tariffs, he said.

There will be an impact on jobs, he said, though roles such as software engineers would still increase.

Vodafone lowered its adjusted core earnings target range to between 15 billion and 15.2 billion euros, from a previous 15-15.5 billion euros.

The market was already pessimistic about the British group’s prospects before the half-year results, with the cashflow consensus standing at 5.14 billion euros and core earnings at 15.11 billion euros.

Its shares fell 9% to a two-year low of 95 pence, however, with analysts saying they expect a lowering of cashflow and earnings expectations for the year to March 31, 2024.

GERMAN DIP

Vodafone reported a 2.6% decline in adjusted earnings in the first six months of its current financial year, which it blamed on commercial underperformance in Germany, its biggest market, and a one-off legal settlement in Italy the previous year.

The decline in service revenue in Germany accelerated in the second quarter to minus 1.1% from minus 0.5% in the first quarter, mainly because of broadband customer losses.

Its performance in Italy and Spain also worsened quarter on quarter, driven by intense competition.

Britain, however, was a bright spot, with service revenue strengthening after consumer price rises and a return to growth in the business segment, it said.

Vodafone wants to merge its British network with Hutchison’s Three in a step it says will increase network investment. Read said talks were progressing well.

Last month he struck a deal with Altice to build a 7 billion euro fibre network in Germany and last week he announced the sale of up to half of Vodafone’s majority stake in its masts company Vantage Towers to infrastructure investors.

($1 = 0.9666 euros)

(Reporting by Paul SandleEditing by Kate Holton and David Goodman)

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