Vodafone revealed a solid performance over the last six months, but warned of tougher trading conditions ahead as it announced a £1 billion a year cost-cutting drive.
The world’s biggest mobile phone group, in terms of revenue, said it expects to be affected by continual price drops for services in Europe, but maintained this would be offset by significant scope for “usage growth”.
Demand for data services to mobile phones and the need for businesses to improve their communication were also expected to drive forward the business.
However, Vodafone’s new chief executive Vittorio Colao said it was time to shift focus from “revenue stimulation” towards packages that offer more value to customers in return for greater commitment.
He announced a ten per cent rise to £5.8 billion in Vodafone’s half-year operating profits to the end of September, but lowered the company’s revenues guidance for the financial year.
Efficiency will be a key part of the strategy going forward, Mr Colao said.
“We have a significant number of cost programmes across the group which we expect to reduce current operating costs by approximately £1 billion per annum by the 2011 financial year to offset the pressures from cost inflation and the competitive environment and to enable investment in revenue growth opportunities.”
The company said it was well represented in “key emerging markets” – in particular India, Turkey and Africa – where growth was expected.
And it also highlighted three target areas for development – mobile data, enterprise and broadband.
However, in the firm’s interim report Mr Colao warns: “We are clearly entering into a more difficult macro-economic environment.
“These factors led the board to conclude that we should review whether the strategy established in May 2006 remained appropriate.”
The cost-cutting drive represents the company’s response to the new conditions and Mr Colao added any major acquisitions in the future would have to be funded from sales of its existing assets.
The mobile phone boss claimed Vodafone’s scale in technology, strong presence in the enterprise market and brand identity remained core strengths.
He said the company’s focus would principally be on existing emerging markets rather than expansion, adding Vodafone is under pressure in mature European markets such as the UK, where service revenues fell 1.1 per cent in the half-year.
The UK performance slowed in the second quarter compared with the previous three months, which Vodafone said reflected competitive pressures on voice and messaging tariffs. Data revenues continued to show strong growth, helped by higher penetration of consumer mobile broadband and internet bundles.
The company said it had put in place “appropriate actions” to improve trading in the UK, where it admitted it had “underperformed recently”.
The company said in the summer it expected annual revenues to be at the lower end of its range of between £39.8 billion and £40.7 billion in the year to the end of March.
That guidance has now been downwardly revised to between £38.8 billion and £39.7 billion, although Mr Colao said cash generation remained strong.
Analysts at Cazenove said the new strategy made sense and welcomed the suggestion that Vodafone would focus on its current markets rather than chase further acquisitions.
But Society Generale said: “This is a large downgrade pre-currency and highlights the cyclicality of Vodafone.”