Vodafone profits plunge after disposals and FX movements

Vodafone Group’s first-half profit plummeted due to the telecom group’s exchange rate fluctuations and the impact of the sale of business units last year.

The telecoms giant’s operating profit fell 44.2 percent to €1.7 billion in the six months ended September, due to the sale of Vantage Towers, Vodafone Hungary and Vodafone Ghana, as well as ‘unfavorable’ currency movements.

These factors also caused the company’s revenue to fall roughly €1 billion to €21.9 billion, even as organic services revenue rose thanks to solid performance in Britain and Africa.

In the former area, organic service revenues increased by €110 million to €2.8 billion, partly due to higher mobile roaming revenues and the number of broadband customers.

At the same time, it expanded its Vodacom business by 9 percent thanks to record results in South Africa, Egypt and international markets.

In Germany, the largest market in terms of turnover, Vodafone experienced growth again in the second quarter thanks to rising broadband prices and turnover per average mobile user.

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

CEO Margherita Della Valle said: “Vodafone’s transformation is progressing. Our focus on customers and simplifying our operations is starting to pay off, although much more needs to be done.”

The Italian-born boss, who became CEO in April, is leading a turnaround plan to streamline the group’s operations and boost growth, under pressure from investors angry about its falling valuation and lackluster trading performance.

Vodafone Group shares were 1.1 percent lower at 76.5 cents on Tuesday morning, meaning they are down about 27 percent over the past 12 months.

Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: ‘Sales and operating profits are moving in the wrong direction for Vodafone, due to recent divestments and the structural challenges that are emerging.

‘Huge sums of money have been invested in developing fiber optic networks and capturing parts of the 5G spectrum, and that is putting pressure on cash flows.’

At the end of October, Vodafone announced that it planned to sell its Spanish arm to investment group Zegona Communications for around £4.4 billion.

Chiekrie said the deal “marks an end to years of frustration for investors” over below-target returns.

Ha added: “The funds from the Zegona deal will likely be directed towards paying down the group’s large debt pile, rather than supporting unsustainable dividend payments.

‘There are also rumors that Vodafone is looking at strategic options for its Italian unit, such as selling the company or finding a partner.’

Vodafone has also agreed to a merger with Three’s UK division, which would make the enlarged company the largest telecoms operator in Britain, with more than 27 million subscribers.

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

The deal is currently being investigated by the Competition and Markets Authority as there are concerns it could lead to a ‘substantial reduction of competition’ in the telecom sector.

Unite the Union has claimed the merger could lead to mobile phone bills rising by £300 a year, although Three’s general counsel Stephen Lerner said no price increases were planned.

Mark Crouch, analyst at investment platform eToro, said the partnership between Vodafone and Three was “not an innovative approach that will reward investors, but rather a defensive move at a time of market stress.”