Vodafone makes turnaround progress, shares fall anyway

Shares fell more than 4% following the publication of the UK-based telco group’s first half report. The price had recovered slightly at the time of writing, but was still down 2.7%, further than the FTSE 100, which was down 0.46%.

The decline is likely to have been precipitated by Vodafone swinging to a first half net loss of €155 million from a profit of €1.2 billion in the prior year. It was attributed to a 44.2% decline in operating profit, driven by the absence of Vantage Towers and Vodafone’s operations in Hungary and Ghana, as well as adverse foreign exchange movements. Another contributing factor was a €51 million loss from joint ventures and associates – in particular VodafoneZiggo in the Netherlands.

First half revenue of €21.9 billion was down 4.3% on last year, which is also not ideal, again due to those aforementioned forex movements and asset disposals.

The thing is, investors wanted Vodafone to slim down and focus, and under CEO Margherita Della Valle, that’s more or less exactly what it’s doing.

As well as Hungary, Ghana and Vantage, Vodafone has also since struck a deal to offload its Spanish arm, and is working overtime to convince UK regulators to permit its domestic operation to merge with Three.

Under Della Valle’s turnaround strategy, Vodafone has also spent €150 million in the last six months on improving customer service, and axed approximately 2,700 staff as part of a three-year plan to cut 11,000 jobs. The plan also involves growing Vodafone Business, and things look promising on that front too, first-half service revenue up 4.4%.

Service revenue is recovering. It weighed in at €18.62 billion in the first half, up 4.2% organically. That was due in part to Vodafone Turkey, where inflation drove a 79.3% increase in service revenue. Excluding Turkey, it was still up 2.3%, with growth recorded in Europe and Africa.

Indeed, Vodafone’s closely-watched Germany business seems to be in better shape. Service revenue grew 1.1% in the second quarter, compared to a decline of 1.3% in the first. The improvement was driven by higher broadband prices and mobile ARPU growth.

Group adjusted EBITDA after leases (EBITDAaL) is also holding steady. It inched up by 0.3% organically to €6.4 billion, in spite of what Vodafone said was a significant increase in energy costs.

Vodafone also reaffirmed its full-year guidance broadly flat EBITDAaL of €13.3 billion and adjusted free cash flow of around €3.3 billion.

“During the first half of the year, we have delivered improved revenue growth in nearly all of our markets and have returned to growth in Germany in the second quarter,” said Della Valle.

“Vodafone’s transformation is progressing,” she continued. “Our focus on customers and simplifying our business is beginning to bear fruit, although much more needs to be done. We have also announced transactions to strengthen our position in the UK and exit the challenging Spanish market in order to right-size our portfolio for growth.”

However, despite the progress – plus a clearly-articulated plan – the market for some reason still needs convincing.