Vodafone returns to growth in Germany

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Vodafone has returned to growth in Germany, its largest market, in a boost to the UK-based telecoms group as chief executive Margherita Della Valle seeks to turn around performance and streamline its European operations.

Della Valle has pledged to improve the FTSE 100 company’s performance in part by simplifying the business. The company last month announced it was selling its Spanish business for up to €5bn to Zegona, a fund founded by two former Virgin Media executives, as part of that plan.

On Tuesday Vodafone reported a 1.1 per cent rise in organic service revenue in Germany in the three months to September 30, to €2.9bn, as it benefited from broadband price increases and higher average revenue per user in mobile. The uptick, which beat analysts’ forecasts compiled by Bloomberg of a 0.5 per cent decline, compared with a decrease of 1.3 per cent last quarter.

Germany accounts for 31 per cent of the company’s group service revenue, a key metric including sales from contracts, network use and roaming. German service revenue had previously declined five quarters in a row.

Its German division lost 133,000 broadband customers in the second quarter, up from 121,000 losses in the previous three months, which Vodafone said reflected customers leaving due to price increases.

Analysts had been hoping for signs of improvement in the operational performance in the country.

The telecoms group reported a 44 per cent drop in operating profits to €1.7bn in the first half of the year, which it said reflected business disposals in the prior financial year, adverse exchange rate movements and a lower share of results of associates and joint ventures. Its cash inflow from operating activities fell 12 per cent to €5.5bn over the same period.

Despite this, Vodafone reiterated its full-year guidance of adjusted earnings before interest, taxes, depreciation and amortisation after leases to be about €13.3bn and adjusted free cash flow to be about €3.3bn.

Della Valle is a longstanding Vodafone veteran who previously served as chief financial officer, and took over on a permanent basis in April.

After being appointed, Della Valle had said she wanted to focus on simplifying the business and pursuing deals in European markets that were not earning above their cost of capital, including Italy, Spain and the UK.

The sale of its Spanish business was praised by some investors and analysts who believed it showed Margherita Della Valle was delivering on deals.

Vodafone in June also announced plans to merge its domestic business with Three UK, owned by CK Hutchison. The deal, which would create the UK’s largest operator, is being investigated by the Competition and Markets Authority.

The future of the group’s Italian business is being closely watched by analysts after Della Valle said in July the market would “benefit from consolidation” alongside Spain. Vodafone last year rejected a bid of more than €11bn for the division from French billionaire Xavier Niel’s Iliad and private equity fund Apax.

In Italy, it posted a 1 per cent decline in quarterly service revenue to €1.06bn in the three months to the end of September, narrowing from a 1.6 per cent decrease in the previous quarter.

Della Valle is also presiding over a workforce restructure. Vodafone in May said it planned to cut 11,000 jobs over the next three years.

Vodafone’s share price fell 2 per cent in morning trading on Tuesday, and is down by almost 16 per cent in the past six months.