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Vodafone's new CEO to cut costs, review tower assets

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Vodafone's new CEO to cut costs, review tower assets
Branding hangs outside a Vodafone shop in Oxford, Britain, May 16, 2017. REUTERS/Toby Melville   -   Copyright  Toby Melville(Reuters)
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By Paul Sandle

LONDON (Reuters) – Vodafone’s new chief executive <VOD.L> Nick Read said he would reduce operating costs by 1.2 billion euros ($1.35 billion) by 2021 and review its tower assets to drive higher returns at the world’s second largest mobile operator.

Replacing Vittorio Colao at the top of the British company after the Italian ran the group for 10 years, Read said he would also freeze the dividend until the British company has reduced its debt pile.

“My new strategic priorities focus on … radically simplifying our operating model and generating better returns from our infrastructure assets,” Read said on Tuesday.

The initial market reaction was positive, with Vodafone shares trading 7 percent higher shortly after the market opened.

The shares had fallen 39 percent since the beginning of the year as investors fret about the cost of acquiring Liberty Global’s cable assets in Germany, the outlay on new spectrum for 5G services and tougher conditions in some European markets.

Read, the former Vodafone finance director who took over the top job last month, said he had taken decisive commercial and operational actions to respond to challenging conditions in Italy and Spain, and would reduce Vodafone’s costs for the third year running.

As part of a move to drive better returns from investments and to share capital assets where possible, it would create a “virtual tower” company to manage the 58,000 towers it controls across Europe, with a dedicated management team.

The group is also conducting due diligence on how best to own all of its towers, including those held in joint ventures. Analysts have suggested the group could partner with a tower group operator to bring extra cash into the business.

Any change in the ownership of its towers would mark the latest reinvention at Vodafone which is adapting to rampant consumer demand for mobile and fixed broadband services at a time of high competition in the industry.

Colao announced his departure in May a week after Vodafone clinched a long discussed deal to pay $21.8 billion to buy Liberty Global’s <LBTYA.O> assets in Germany and eastern Europe. That should allow it to take the fight to rivals with a broader range of superfast cable TV, broadband and mobile services.

On Tuesday the group showed it was operating generally in line with forecasts.

It reported group service revenue of 19.7 billion euros and adjusted earnings of 7.08 billion euros, up 2.9 percent on an organic basis for the six months to end of September, broadly in line with market forecasts.

Vodafone also narrowed its growth target for organic adjusted core earnings to 3 percent from a previous range of 1-5 percent and said it now expected free cash flow before spectrum costs to be around 5.4 billion euros, above the previous target of 5.2 billion euros.

It had an operating loss of 2.1 billion euros, largely driven by impairments of 3.5 billion euros in Spain, Romania and the Vodafone Idea business. ($1 = 0.8898 euros)

(Reporting by Paul Sandle; Editing by Kate Holton/Keith Weir)

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