Vodafone says 'right-sizing' will continue as it announces H1 results

Vodafone has today released its H1 results, reporting a fall in service revenues and operating profit. Its CEO highlighted continued focus on customer satisfaction and simplification of group operations, while stressing the need to focus on markets where industry structure allows for sustainable growth.

Vodafone has seen its total revenues fall by 4.3% to €21.9 billion (US$23.8 billion), down from €22.9 billion ($24.9 billion) last year. It attributes this result to adverse movements of foreign exchange rates, as well as the sales of Vantage Towers, Vodafone Hungary and Vodafone Ghana in the prior fiscal.

It cites those same factors as reasons for a 44.2% decrease in operating profit to €1.7 billion ($1.9 billion) and the fact that the group made a loss of €0.2 billion ($0.2 billion) over the period. The firm also points to "lower share of results of equity accounted associates and joint ventures in the current year" as contributing factors.

Furthermore, adjusted free cash flow fell by €1 billion ($1.1 billion) and reached €1.5 billion ($1.6 billion), reflecting an 0.3% decrease in adjusted EBITDAaL to €6.4 billion ($7 billion).

Commenting on the results in a pre-recorded video, group CFO Luka Mucic said significant outflows in H1 were expected and due to the "phasing of workflow capital and trade receivables" being skewed toward H2. 

In less bleak news, group service revenue was up 4.3% to €18.6 billion ($20.2 billion) on a comparable basis. Mucic noted this is a positive outcome for the company given headwinds from energy costs and inflation pressures.

Service revenues at the company's German business, which represents nearly a third of group service revenues, meanwhile, returned to growth in Q2, increasing by 1.1% on a comparable basis.

Market reaction was mutedly pessimistic, with the share price today taking a modest tumble of around 5%.

(Source: Google Finance)

Vodafone CEO Margherita Della Valle, for her part, said the following in written comments on the results: "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."

Italy may be next in 'right-sizing' drive

She also noted more needs to be done on "right-sizing" the company's portfolio. During the video session, she went on to say Vodafone's returns do not cover cost of capital in the UK, Spain and Italy because the local industry structure doesn't allow it. She noted the group wants to focus on markets where sustainable growth is possible.

She highlighted ongoing merger talks with Three owner Hutchison and the recent sale of Vodafone's Spanish unit to Zegona as part of the right-sizing move.

She also told journalists the company is considering options for its Italian business. Reuters cited unnamed sources as saying these options include a joint venture or a sale, adding other sources pointed to Iliad as a potential candidate for a deal.

Others have previously speculated about possible consolidation in the Italian market. TIM CEO Pietro Labriola said earlier this year that the conditions are right, while also noting more recently that the sale of the telco's NetCO unit will allow it to play an active role in such an event.

Della Valle, meanwhile, highlighted yesterday's deal with Accenture as part of Vodafone's strategy to accelerate its commercial shared operations strategy. This means establishing a fully commercial relationship between the group and its units in individual markets as part of the firm's drive to increase "simplicity."

The company is also planning to use a similar model to sell services to JVs and partner markets, she said.

Della Valle also highlighted progress on the ongoing shift from volume to value, highlighting price increases across the continent, while pointing to improving customer satisfaction metrics.