Vodafone Group upped its financial outlook for the year, buoyed by growth in mobile data, as CEO Vittorio Colao stated that overall IoT revenue has the potential to “become as big at least in the foreseeable future as a medium-sized country”.
In a media briefing today, Colao pointed out that while some of the first half revenue gains are one-off, “a large part of it is actually the underlying performance, which comes from mobile data, it comes from convergence, and from enterprise”.
Group organic service revenue increased 1.7 per cent on an organic basis to €20.6 billion, with slower growth in the second quarter due to its Africa, Middle East and Asia pacific performance, reflecting “strong prior-year comparatives, as well as by a lower contribution from carrier services”.
In Europe, organic service revenue growth was consistent, with the “increased drag from roaming regulation offset by an improved underlying performance in mobile”.
The company reported a profit for the period of €1.2 billion, compared with a prior-year loss of €5 billion, on revenue of €23.1 billion, down 4.1 per cent from €24.1 billion. Last year, the period included a €5 billion write-down of Vodafone’s operations in India.
Operating profit of €2 billion was up 32.5 per cent from €1.5 billion.
The decline in Group revenue was attributed to the deconsolidation of Vodafone Netherlands and foreign exchange movements.
Following the launch of V by Vodafone (its consumer IoT offering), Colao gave some more detail on where Vodafone sees its strength. “There are a lot of people going into smart homes, and a lot of people going into smart homes for different reasons. If you are an electricity company you have one reason to get into the home, if you are a device maker you have another.”
“Which is why we tend to focus all of our IoT solutions for both the enterprise and consumer on where there is some element of mobility, because that is where typically it’s more consistent with our strategy and less crowded,” he continued. “It’s to do with outdoor, and control, an element of security, tracking.”
In terms of IoT potential, Colao said that obvious revenue will be dwarfed by the number of devices connected, “it will be interesting growth, important – very important – when 5G comes, but it will take time,” he said.
“We are planting now the seeds of future growth. It’s patient investment.”
Vodafone Group’s CFO Nick Read also noted that as more consumer devices become connected, customers will still need a main tariff to which other products are added – which will also have benefits in terms of reducing churn.
With regard to in-home IoT propositions, the executive said that “it’s more likely than not we will partner”.
The Indian market continued to be bloody. Service revenue declined by 15.8 per cent due to price competition both from new player Reliance Jio and “aggressive competitor responses”. Vodafone said “significant actions” to lower its cost base led to broadly stable EBITDA margin for the last three quarters.
“In general we have been holding well in the circles where we have leadership, we have put the vast percentage of our capex where we are leaders, and of course we are preparing for the merger with Idea. So when the merger happens we should have two companies coming together with the biggest spectrum allocation in the country, with a very big network, $10 billion of synergies, and hopefully both of us have reinforced our positions where we were strong, which was very complementary,” Colao said.
Some regulatory approvals are still required, and the executive said “we think it’s going to be 2018, sometime in the middle of it, but it’s difficult to predict”.
Vodafone’s guidance for adjusted EBITDA growth of 4 per cent to 8 per cent has now been upgraded to around 10 per cent, with free cash flow (pre spectrum) exceeding €5 billion (previously “around €5 billion”).
This primarily reflects stronger-than-expected underlying European revenue growth and a later-than-anticipated commercial launch by the new entrant in Italy.
In the second half of the year, the company will continue with strategic moves such as fibre infrastructure expansion in Germany, Portugal and the UK; its entry into the consumer IoT market with V by Vodafone; and the Digital Vodafone programme “designed to enhance customers experience, increasing revenue and cost efficiency”.
The company is also considering an IPO for its New Zealand operation, with Nick Read stating there is “strong demand” for such a move.