By Kate Holton
LONDON (Reuters) - Vodafone, the world's largest mobile phone group by revenues, said it would accelerate cost cutting plans after forecasting profits would be flat at best in the coming year and announcing a 5.9 billion pound impairment charge.
Vodafone <VOD.L>, which said the charges were due to problems in Spain and Turkey, also posted 2008-09 revenue, earnings and free cash flow in line with analyst forecasts.
Analysts mostly welcomed the robust results and the new cost targets, but Vodafone's shares slipped 0.4 percent by 9:35 a.m. on the impairment, outlook and tough European conditions, underperforming a 1.2 percent rise on the benchmark FTSE 100 index.
Vodafone, like other mobile operators, has struggled from the recession in Spain where customers are looking for cheaper deals and it has also had to boost its network in Turkey to properly compete there.
On top of the two difficult markets, the company said revenue from voice calls and messaging declined in its more mature regions, while roaming charges also fell due to lower business and leisure travel.
But the results showed signs of the company's new strategy coming through, with a good performance from India and Africa, data charges from customers surfing the Internet up 44 percent and improved cost controls.
"We are confident that our strategy is appropriate for the current operating environment," the group said.
In November, Vodafone said it would cut 1 billion pounds of costs to maintain profit and boost free cash flow to cope with the expected challenging conditions.
Investors at the time welcomed its new focus on cost controls and on improving performance, instead of the previous plan of growth by acquisition.
Vodafone said on Tuesday it would accelerate its cost cutting programme, with over 65 percent to be achieved in the 2009-10 financial year, and Chief Executive Vittorio Colao told reporters they would look at increasing the scale of the plan.
But he said their targets were not top-down instructions and would announce any update if they found room for further cuts.
"Full-year results come well within guidance, but the 4.2 billion pounds impairment in the second half is an unwelcome reminder of the past," Analysts at JP Morgan said. "November's message on capital discipline is firmly reiterated."
MISSING REVENUE
Vodafone set out forecast ranges for 2009-10 on Tuesday, but failed to give an exact revenue forecast after twice downgrading that target during the financial year just ended.
"These results demonstrate the impact of the early actions we took to address the current economic conditions and highlight the benefits of our geographic diversity," chief executive Vittorio Colao said in a statement.
"Our 1 billion pound cost reduction programme is ahead of plan and we continue to explore further ways to reduce cost. We maintain our tight focus on capital discipline and returns to shareholders."
For the 2008-09 year to end-March, it posted revenues up 15.6 percent at 41 billion pounds, with earnings before interest, tax, depreciation and amortisation up 10 percent to 14.5 billion, both in line with forecasts.
Free cash flow was 5.7 billion pounds and adjusted operating profit at 11.8 billion before impairment charges.
For the year ahead, Vodafone said operating conditions would be challenging in Europe and central Europe.
It expected adjusted operating profit in the range of 11-11.8 billion pounds and free cash flow in the range of 6-6.5 billion pounds.
It said recent revenue trends were assumed to continue in the challenging environment, and capital expenditure would be similar to the 2009 financial year after adjusting for foreign exchange.
Daiwa analyst Michael Kovacocy told Reuters the lack of additional cost cutting was disappointing, given the pressures on the top line and said the business was clearly finding it tough in Europe.
(Reporting by Kate Holton; Editing by Jon Loades-Carter)