Vodafone bucks the trend to grow revenues and hold onto dividends

Vodafone HQ sign

Growing revenues and profits while maintaining the dividend are three things which are not supposed to happen together amid COVID-19, but Vodafone has done it.

With Group revenues totalling €44.9 billion for the full-year to March 31, a 3% year-on-year increase, and profits swinging from a 2019 loss of €951 million to a 2020 gain of just over €4 billion, Vodafone has something to boast about. This of course does not reflect the full impact of the COVID-19 pandemic, but it does demonstrate the telco is navigating the turbulent times effectively.

“Vodafone has delivered a good financial performance – growing revenue, adjusted EBITDA and free cash flow – whilst building strong commercial momentum through the year and executing at pace on our strategic priorities,” said Group CEO Nick Read.

“We have also continued to invest in our fixed and mobile Gigabit network infrastructure and digital services, to provide faster speeds for our customers, as well as successfully managing the recent surges in demand. The services Vodafone provides are more important than ever and we are committed to playing a key role in society’s recovery to the new normal.”

Latest three-month performance of European telcos (Euro (€), millions)
Telco Total revenue Year-on-year Profit Year-on-year Dividend?
Vodafone 11,285 0.8% 45 2.6% Yes
Orange 10,394 1% 2,602 0.5% No
BT 6,419 (4%) 2,287 (1%) No
Telefonica 11,366 (5.1%) 3,760 (11.8%) Yes
Telia 2,110 (2.2%)* 684 (5.1%) Yes

*Like-for-lie comparison, excluding acquisitions

While Vodafone does look like one of the more solid telcos during this period of societal lockdown, reduced spending power might have an impact in the mid- to long-term.

“Vodafone’s relative resilience to the lock-down has provided short term relief, but most investors eyes are now focused on which stocks will perform best as the world progressively moves out of lock-down and life returns to a new normal,” said Dan Ridsdale, Global Head of TMT for Edison Investment Research.

“Vodafone’s stable revenue profile means that any impact is unlikely to be significant either way, but on balance, the longer-term impacts of reduced spending power and mobility are likely to be headwinds.”

Although Group revenues dipped below what was expected by analysts for the period (€45.4 billion), it does appear the markets are sympathetic to circumstance. In the hours following the release of the financial data, Vodafone share price increased almost 8% (10am, May 12).

European performance by market – full year
Market Total revenue Year-on-year
Germany 12,076 16.2%
Italy 5,529 (5.6%)
UK 6,484 3.3%
Spain 4,296 (7.9%)
Ireland 838 (1%)
Portugal 985 5.5%
Romania 734 16.8%
Greece 884 2.7%

Aside from a few markets where competition has been rocked by disruptive market entrants, the European business is holding steady. India is proving to be a significant issue, so much so it is becoming increasingly clear the team is attempting to cut their losses, though the group is in a relatively solid position.

Moving forward, the team is more readily embracing the convergence trends which are sweeping through the telecoms industry. The business can now claim 25 million broadband customers across the region, a number which will most likely grow as the acquisition of Liberty Global assets in Germany and Eastern Europe start to pay off.

Thanks to a mobile subscriber base of 64.4 million customers across Europe, Vodafone is in a position to ride out the turbulent COVID-19 crisis relatively unscathed, but it will be difficult to make any significant progress during this period.

5G has been launched in 97 cities, but with societies under lockdown taking this forward will be difficult. The UK business has claimed 751,000 broadband customers, but consumer appetite to switch is very low currently. The subscription-based television distribution business has over 22 million active customer subscriptions, but Netflix and Disney+ are the ones profiting from societal inactivity.

The framework is there for a convergence business model in some markets, though Vodafone is having to compromise by utilising third-party broadband infrastructure in others. There are certainly some interesting developments on hold here, but most will hope the period of enforced inactivity does not dampen the prospects of the business to much.

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