Vodafone Swings into Loss in 2024 First Half, Despite Growth in Germany

Shares in Vodafone experienced a decline on Tuesday, as the telecommunications giant reported a loss in the first half of 2024. However, the company did see a positive turnaround in its largest market, Germany.

Firm-wide Revenues Drop, Dividend Maintained

During the first half of 2024, Vodafone's firm-wide revenues dropped by 4.3% to €21.9 billion ($27.2 billion), resulting in a loss of €155 million. The company decided to maintain its dividend at 4.50 euro cents per share.

Share Prices Experience Decline

The share prices of London-listed Vodafone (VOD, -3.67% VOD, -2.26%) fell by 4% on Tuesday, following a cumulative loss of 27% over the past year.

German Market Shows Signs of Growth

Vodafone's German segment, which makes up 31% of its service revenues, experienced a return to growth in the second quarter. This positive development follows a series of contractions in 2023 due to new laws banning the selling of bulk TV contracts.

Impact of German TV Laws

Starting in July 2024, German TV laws will prevent companies from engaging in bulk sales of TV contracts to housing associations managing multi-dwelling units (MDU). Vodafone currently serves 8.5 million MDU TV customers, generating annual revenues of €800 million.

CEO Margherita Della Valle's Transformation Efforts

The CEO of Vodafone, Margherita Della Valle, hailed the German division's return to growth as an indication of the success of her transformation efforts. In May, she emphasized the need for change within the company and pledged to simplify operations by cutting 11,000 jobs.

Progress and Future Outlook

While the first-half results reflect positive progress, Della Valle acknowledges that there is still much work to be done in transforming Vodafone.

Vodafone's Growth in Germany and Plans for Italian Unit

Vodafone recently announced its return to growth in Germany, marking a positive development for the company. This news comes after the decision to sell its struggling Spanish business to Zegona Communications for up to €5 billion. With the Spanish segment no longer part of its portfolio, Vodafone's focus now lies on its Italian unit, which accounts for 11% of service revenues but has faced challenges due to intense price competition in the mobile services sector.

According to reports from Italian newspaper Il Sole, Vodafone is currently exploring various options for its Italian business, including the possibility of a sale. Potential buyers being considered include Fastweb and Iliad. While Vodafone's Italian arm faces some hurdles, the company's U.K. business has shown considerable growth, generating 15% of service revenues in the second quarter. In an effort to further strengthen its position in the U.K. market, Vodafone aims to merge its U.K. business with Three UK.

However, despite these positive developments, industry analysts remain cautious about Vodafone's overall financial performance. They argue that the company's recent results do not align with the optimism expressed by Vodafone's representatives. AJ Bell analysts led by Jack Pattison, in particular, highlight several concerns. Vodafone has experienced a loss-making position, a decline in revenue, a stagnant dividend growth, and negative free cash flow. While efforts to restructure the group are underway, it may take time before substantial changes can be observed.

In conclusion, Vodafone's growth in Germany is an encouraging sign for the company, but challenges persist in other markets such as Italy. The company's strategic decisions and restructuring efforts will likely play a crucial role in determining its future success.