Vodafone Shares Drop As Revenues Growth Slumps

Vodafone’s share price dropped on Wednesday as it announced a sharp slowdown in service revenue growth.

Vodafone said that group service revenues rose 1.8% between October and December, to €9.5 billion. This was down from the 2.5% rise recorded in the prior quarter.

At 91p per share, Vodafone was trading 2.3% lower on the day.

Mixed Bag

The FTSE 100 firm said that performance was mixed across its core European marketplace.

Service revenues in its German, Italian and Spanish markets continued to decline in the last quarter, it said. In Germany, revenues dropped 1.8% year on year, speeding up from the 1.1% decline recorded in quarter two. This was due to customer losses prompted by the Telecommunications Act and reduced roaming turnover.

UK service revenues rose 5.3% between October and December thanks to customer additions and price increases. However, this was down from growth of 6.9% punched in quarter two.

Aggregated service revenues across the rest of Vodafone’s European operations rose 2.1% year on year, with growth enjoyed across all countries bar Romania. Reduced roaming sales caused growth to slow from 2.9% in the second quarter.

The business said it was “broadening price actions across Europe” to improve performance, and that eight of its markets were now operating inflation-linked pricing models.

On Tuesday Vodafone completed the sale of its Hungarian operations for a cash consideration of €1.7 billion.

“We Can Do Better”

Despite the sharp third quarter slowdown Vodafone kept its guidance for the full year unchanged. It said it expected to generate adjusted earnings before interest, tax, depreciation and amortisation after leases (EBITDAaL) of €15 billion to €15.2 billion in the 12 months to March.

Adjusted free cash flow, meanwhile, is tipped at around €5.1 billion.

Vodafone chief executive Margherita Della Valle commented that “although we’re continuing to target our financial guidance for the year, the recent decline in revenue in Europe shows we can do better.”

She added that “we need to do more for our customers by delivering quality connectivity in an easy way.”

Della Valle said that Vodafone has simplified its structure and given local markets full autonomy to make better commercial decisions. She added that the company has launched initiatives to help it achieve its €1bn cost savings target.

“A Daunting In-tray”

Neil Shah, executive director of content and strategy at Edison Group, commented that recently-appointed chief executive Margherita Della Valle faces “a daunting in-tray.”

He noted that “the European telecoms industry [is] going through a period of heightened financial uncertainty in which some of the leading groups have seen their valuations almost half.”

Vodafone said it has faced specific operational challenges following the implementation of the Telecommunications Act in Germany in late 2021. The company’s broadband customer base has continued to decline following the legislation.

Shah noted that problems in German have proved “a thorn in the side” and that “investors will be keen to understand in the coming months whether this is an anomaly or a structural issue which will require further investment from the group in order to solve.”