Vodafone profits plunge after disposals and FX movements

  • The telecoms giant reported first-half operating profits fell by 44.2% to €1.7bn
  • Its organic service revenue rose thanks to solid results across the UK and Africa
  • Vodafone sold its Vantage Towers, Hungarian and Ghanaian divisions last year

Vodafone Group’s first-half profits plummeted as the telecoms group suffered currency fluctuations and the impact of its disposal of business units last year.

The telecoms giant’s operating profits fell by 44.2 per cent to €1.7billion in the six months ending September, following the sale of Vantage Towers, Vodafone Hungary and Vodafone Ghana, as well as ‘adverse’ foreign exchange movements.

These factors also drove the firm’s turnover roughly €1billion lower to €21.9billion, even though organic service revenue rose thanks to solid performances across the UK and Africa.

Difficult game: Vodafone reported first-half operating profits fell by 44.2 per cent to €1.7billion

In the former territory, organic service revenue grew by €110million to €2.8billion, thanks partly to higher mobile roaming revenue and broadband customer numbers.

At the same time, it expanded by 9 per cent in its Vodacom business on the back of bumper results in South Africa, Egypt and international markets.

In Germany, its largest market by sales, Vodafone returned to growth in the second quarter due to increasing broadband prices and revenue per average mobile user.

Following the result, Vodafone reiterated its full-year guidance for free cash flow of about €3.3billion and adjusted core earnings to be ‘broadly flat’ at approximately €13.3billion.

Margherita Della Valle, its chief executive, said: ‘Vodafone’s transformation is progressing. Our focus on customers and simplifying our business is beginning to bear fruit, although much more needs to be done.’

The Italian-born boss, who became CEO in April, is spearheading a turnaround plan to streamline the group’s operations and boost growth amid pressure from investors angry with a sliding valuation and lacklustre trading performance.

Vodafone Group shares were 1.1 per cent lower at 76.5p on Tuesday morning, meaning they have slumped by around 27 per cent over the past 12 months. 

Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: ‘Revenue and operating profits are heading in the wrong direction for Vodafone, reflecting recent disposals and the structural challenges at hand. 

‘Huge sums of money have been pumped into building out fibre networks and snapping up parts of the 5G spectrum and that’s weighing on cash flows.’

In late October, Vodafone announced that it intended to sell its Spanish arm for about £4.4billion to investment group Zegona Communications.

Chiekrie said the deal ‘marks an end to years of frustration for investors’ regarding below-target returns. 

He added: ‘Funds from the Zegona deal are likely going to get ploughed back into paying down the group’s hefty debt pile, rather than supporting unsustainable dividend payments.

‘There are also whispers that Vodafone is looking at strategic options for its Italian unit, which could include the sale of the business or finding a partner.’ 

Vodafone has also agreed to merge with Three’s British division, which would make the enlarged company the biggest telecoms operator in the UK, with more than 27 million subscribers.

Over a decade, the pair have pledged to invest £11billion to deliver ‘one of Europe’s most advanced standalone 5G networks’.

The deal is currently being investigated by the Competition and Markets Authority amid concerns that it would lead to a ‘substantial lessening of competition’ in the telecoms industry.

Unite the union has claimed the merger could lead to mobile phone bills rising by £300 per year, although Three’s general counsel, Stephen Lerner, has said that no price hikes were being planned.  

Mark Crouch, an analyst at investment platform eToro, said the Vodafone-Three tie-up ‘isn’t an innovative approach that will reward investors, rather a defensive move at a time of market stress’.