Vodafone Group plc (VOD) traded near the top of the European market Tuesday as the world's second-largest mobile phone company said it would slash costs and reorganize the ownership of its communications towers after disappointing investors with a move to freeze the company's dividend growth in order to focus on debt reduction following its $22 billion purchase of Liberty Global (LBTYA) assets earlier this year.

Vodafone posted an operating loss of €2.1 billion for the six months ending in September, the company said, but backing out €3.5 billion in one-off charges linked to operations in Spain and Eastern Europe, as well as its Vodafone IDEA business, the group saw adjusted earnings rise 2.9% to just over €7 billion, with  organic services revenues rising just under 1% to €19.7 billion. However, new CEO Nick Read said a renewed focus on cost cuts, alongside moves to create a division to manage both its 58,000 European towers, as well as those owned in joint ventures, provided a counterweight to his decision to freeze dividend growth until the group can reduce it debt-to-earnings ratio. 

"Looking ahead, my new strategic priorities focus on driving greater consistency of commercial execution, accelerating digital transformation, radically simplifying our operating model and generating better returns from our infrastructure assets," Read said. "As part of our effort to improve returns, we are creating a virtual internal tower company across our European operations, and we are reviewing the best strategic and financial direction for these assets." 

Vodafone shares were marked more than 7.2% higher in the opening hour of trading in London and changing hands at $£154.80 each, the highest in more than a month but a move that still leaves the group with a year-to-date decline of around 27%. 

Earlier this year, Vodafone said it would pay around $22 billion deal to buy several European media assets from John Malone's Liberty Global's Germany operations, as well as the group's businesses in he Czech Republic, Hungary and Romania, giving it a customer base of 54 million homes and a total reach of 110 million throughout its so-called "next generation network". Vodafone said the deal, the last under former CEO Vittorio Colao will create "cost and capex synergies" of around €535 million per year for the next five year, a figure which translates to around €6 billion on a present value basis.

The stock has fallen around 30% since that deal was announced, however, as investors grew increasingly concerned over the group's added leverage, which lifted its net debt to €32.1 billion by end September, a 6.4% increase from the same period last year.

Vodafone said it will now focus on reducing operating costs by around €1.2 billion by 2021 and will pay an interim and full-year dividend that is essentially flat to last year's levels. The board could boost the payout over the longer term, the company said, "once the Group's financial leverage has reduced towards the lower end of the revised target range of 2.5x-3.0x net debt / EBITDA."

"Our focus on organic growth along with the strategic and financial benefits of the proposed acquisition of Liberty Global's assets give confidence in the Group's ability to grow free cash flow, which underpins our dividend," Read said.