Vodafone raises its forecasts thanks to cost-cutting and a boost from Africa, but Germany is holding it back
The group led by Margherita Della Valle is targeting an adjusted EBITDA of up to 13.4 billion and an adjusted cash flow of up to 3 billion. 3,000 jobs were cut in the first half of the year
Vodafone has raised its full-year forecasts. Yet this comes whilst the company has closed the first half of its financial year with a loss of 3.6 billion. The gap between the two figures is largely down to Germany. The group’s largest market still generates 30 per cent of service revenue and a third of adjusted EBITDA. In Germany, that margin fell by 3.2 per cent on an organic basis, and Vodafone recorded an impairment charge of 4.85 billion. The rise in forecasts, however, is being driven by cost savings, growth in Africa and business services.
Upward forecasts
For the financial year ending 31 March 2027, the group led by Margherita Della Valle forecasts adjusted EBITDA, net of leases, of between 13.2 and 13.4 billion euros, compared with the 13–13.3 billion indicated in July. The estimate for adjusted free cash flow has also risen, from €2.6–2.9 billion to €2.8–3 billion. At the midpoint of these two ranges, organic growth is expected to be 7 per cent for the margin and 21 per cent for cash flow. Vodafone has already achieved gross savings of over 200 million in the first half of the year and has cut around 3,000 jobs across Europe and shared services. Added to these are the 2,300 job cuts announced in Germany.
In the six months to September, turnover rose by 11.4 per cent to 21.9 billion, partly due to the consolidation of Safaricom, Vodafone Three and Telekom Romania. Revenue from services grew by 5.8 per cent on an organic basis, with business services growing at the same rate, whilst digital services in Europe are seeing double-digit growth. Adjusted EBITDA, net of leases, rose to 6.5 billion, up 12.6 per cent on a reported basis and 6.4 per cent on an organic basis.
The Germany issue
Two accounting items were responsible for the reversal in the net result, from a profit of 1.1 billion to a loss of 3.6. In addition to the German write-down, linked primarily to interest rate movements, there was a 2.2 billion write-down of deferred tax assets in the UK following the recognition of CK Hutchison’s stake in Vodafone Three. The 3 billion accounting gain linked to the Safaricom transaction only partially offset the blow.
“I am very pleased with the group’s overall performance, but Germany is not yet where it should be,” said Group CEO Della Valle. Revenues from services in Germany grew by 0.4 per cent on an organic basis in the first half of the year, but between July and September they fell again by 0.5 per cent, following a 1.2 per cent increase in the first quarter. Competition in the mobile sector is squeezing revenue per customer, and over the half-year Vodafone lost 75,000 contract mobile subscriptions and 198,000 broadband customers. A court ruling on broadband price rises has also prompted the group to stop recognising the €5-a-month increases for 2.5 million customers on old contracts.
