Vodafone to focus on cost control

By Kate Holton

LONDON (Reuters) - Mobile phone group Vodafone cut its full-year revenue outlook for the second time in four months on Tuesday but said it would maintain profits and boost free cash flow by cutting 1 billion pounds of costs.

Investors and analysts welcomed the focus on cost controls and on improving performance, instead of on growth by expansion, pushing shares in the world's largest mobile phone group up 9.5 percent to 118.6 pence by 11:25 a.m. in a falling wider market.

Vodafone Group, reporting its first set of figures under new Chief Executive Vittorio Colao, also reported first-half results that met expectations, but said conditions would be challenging.

"Vodafone has delivered a more material change to strategy than we expected, with more of a focus on cash and dividend than there has been in the past," Dresdner analysts said in a note.

"This is a fundamental change which, when combined with earnings momentum from stable operations, lower tax rates and favourable foreign exchange rates, supports a good chance of a rerating for the stock."

Vodafone now expects full-year group revenue to be between 38.8 billion pounds and 39.7 billion. It had already cut its expectations in July to the bottom of a previous forecast range of 39.9 to 40.7 billion pounds.

It slightly raised its free cash flow forecasts.

"Operating conditions are expected to continue to be challenging in Europe, given ongoing competitive and regulatory pressures and recent economic conditions in certain markets," the group said.