Vodafone plans to save £1bn to survive recession and intense competition

Vodafone is to slash costs by £1bn in the next three years as it battles to protect profits against intense competition and the weakening economy.

The mobile phone giant announced the measure yesterday as it unveiled solid results for the first six months of its financial year, and the new chief executive, Vittorio Colao, outlined his plans for the future.

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Mr Colao said at the first interim results presentation since the departure of Arun Sarin: "I want to lead a company that is simpler, much faster, and a winning player in an exciting industry." He said the focus would be on controlling costs and improving performance rather than targeting acquisitions.

Vodafone's revenues grew 17.1 per cent to £19.9bn in the six months to the end of September, while its operating profit rose 10.5 per cent to £5.8bn.

The numbers beat analyst expectations, and coupled with a good reaction to the updated strategy, the shares rose 6 per cent to 115p, despite a 3.5 per cent fall by the FTSE 100 index. Yet it expects the conditions to remain "challenging in Europe given ongoing competitive and regulatory pressures and recent economic conditions in certain markets". It cut the revenue outlook for the second time in four months to £38.8bn to £39.7bn, but reiterated its full-year profit forecast of £11bn.

Mr Colao said the updated strategy, which builds on one announced in May 2006, aims to improve the company's operational performance with the £1bn cost reduction programme, look at opportunities in mobile data, enterprise and broadband, and consolidate its position in emerging markets.

The company admitted that the cost cutting would include headcount reduction across its 80,000-strong global workforce, but would not be drawn on how many or in what region. It will also look to cut savings in the back office, through technology platforms and fewer contractors. "We have to do what we have to do to remain competitive," Mr Colao said, adding that the bulk of reductions will be in Europe.

Vodafone admitted that the UK performance had been weak in the second quarter as service revenue fell and its growth rate slowed. It added that only about 4 per cent of profits now come from the UK, but it would not follow companies including the advertising agency WPP in become a tax exile.