Vodafone hit by German legal changes as analysts warn of persistent challenges

Vodafone enjoyed better sales and earnings in the first half, but progress was limited by a performance slump in Germany.

The telecoms giant reported its service revenues rose by 1.7 per cent to €15.1billion (£12.5billion) in the six months ending September, while overall turnover increased by nearly €300million to €18.3billion.

Growth was partly driven by strong results in Turkey, where service revenues jumped by a third to €1.1billion thanks to higher prices and customer levels, as well as beneficial foreign exchange movements in the UK.

However, sales declined by 3.9 per cent to €6.1billion in Germany due to new laws banning landlords from selling television in bulk to apartment blocks and price hikes dampening the size of its broadband customer base. 

Vodafone said the combination of higher services revenue and lower energy costs across Europe helped its adjusted earnings before nasties expand by 3.8 per cent to €5.4billion.

Meanwhile, its operating profits climbed by 28.3 per cent to €2.4billion after selling an 18 per cent holding in Indus Towers to Bharti Airtel, one of India’s largest mobile network operators.

The disposal forms part of a push by Vodafone’s chief executive, Margherita Della Valle, to reduce the company’s debts and streamline its operations.

Vodafone also sold its Spanish arm in a £4.3billion deal to Zegona Communications and intends to complete the €8billion disposal of its Italian business early next year.

Alongside this, the firm intends to merge its domestic operations with Three UK, depending on receiving the green light from the Competition and Markets Authority.

Della Valle, who succeeded Nick Read as Vodafone CEO last year, said: ‘The approval processes for our transactions in the UK and Italy are nearing conclusion.

‘These will complete our programme to reshape the group for growth.’

Following the performance, Vodafone has upheld its annual guidance, with free cash flow of at least €2.4billion and earnings before nasties on an adjusted basis of around €11billion expected.

The Newbury-based firm further revealed it had completed the second tranche of a €1billion share buyback scheme.

Mark Crouch, market analyst at eToro, said Vodafone’s results proved it was ‘gradually making strides toward revitalisation.

‘Investors may take some comfort in the company’s extended share buyback program, which signals management’s confidence in the long-term outlook.

‘However, given the scale of the challenge, Vodafone’s proposed merger with Three UK may prove to be the most viable path forward.’

Vodafone shares were 6.8 per cent down at 68p on late Tuesday afternoon, making them the FTSE 100 Index’s biggest faller.

Albie Amankona, analyst at Third Bridge, highlighted ‘tough challenges’ facing the UK mobile telecom industry, with a ‘saturated market and high 5G infrastructure costs that haven’t paid off’ squeezing operators are feeling the squeeze.

‘To stay competitive, Vodafone will need to invest in exclusive content and seamless bundles post-merger. 

‘Without these moves, Vodafone risks losing customers and, in the long run, revenue needed for reinvestment, putting its future growth in jeopardy.’

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