5G gains pace, gigabit steady as Vodafone faces off H1 headwinds

Comms group claims significant progress with portfolio strategy in the first half of FY23 to create industrial scale, enable accelerated growth and unlock value and sees service revenue growth of 2.5%

Vodafone has reported what it says is a resilient performance to date for the first six months of FY23, alongside making good progress with its operational and portfolio priorities.

For the half-year ended 30 September 2022, Vodafone saw its total revenue increase by 2.0% on an annual basis to €22.9bn as service revenue growth and higher equipment sales were partly offset by what it described as unfavourable foreign exchange movements.

Adjusted EBITDAaL declined by 2.6% compared with the same period a year ago to €7.2bn, with revenue growth offset by a prior-year one-off legal settlement in Italy, representing a 1.4 percentage point drag year on year and commercial underperformance in Germany. The Adjusted EBITDAaL margin was 2.0 percentage points lower year on year at 31.6%.

As a result, operating profit increased by 12.0% to €2.9bn, reflecting, said Vodafone, a higher share of income from associates and joint ventures and lower depreciation and amortisation. The group made a profit for the period of €1.2bn as an increase in operating profit and investment income was offset by a higher income tax charge, attributable to one-off deferred tax credits recognised in the prior period.

Looking at key performing territories, Germany accounted for 30% of Vodafone group service revenue and the subsidiary’s total revenue increased by 2.2% to €6.6bn, driven by equipment sales. On an organic basis, service revenue declined by 0.8% annually, primarily reflecting broadband losses since the second half of 2022, related to the implementation of new sector legislation in the country.

Fixed service revenue declined by 1.6%, driven by the lower broadband customer base, as a result of specific operational challenges related to the implementation of policies to comply with Germany’s new Telecommunications Act, which came into effect in December 2021.

The UK contributed 14% of group service revenue, which amounted to €3.4bn, an annual increase of 7.3% driven by service revenue growth and an appreciation of sterling against the euro. An improvement in quarterly trends was supported by the return to growth of the company’s business segment, partly offset by lower wholesale revenue.

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UK fixed service revenue declined by 2.8% annually as strong growth in the consumer segment was offset by a decline in business service revenue due to lower project activity. The company’s broadband customer base increased by 61,000 during the period and it now has more than 1.1 million broadband customers, of which 54% are converged.

Through partnerships with CityFibre and Openreach, Vodafone said it is able to reach over 9 million households with full-fibre broadband, more than any other provider in the UK.

Yet despite being generally pleased with the performance in the half-year, group CEO Nick Read warned of the need for cost saving going forward. “We are taking a number of steps to mitigate the economic backdrop of high energy costs and rising inflation,” he said. “These include taking pricing action across Europe, while at the same time supporting our most vulnerable customers and driving energy efficiency measures across the business.

“We are also announcing a new cost savings target of €1bn-plus focused on streamlining and further simplifying the group. We are confident that the ongoing delivery of our organic strategy and portfolio actions will underpin long-term growth and create value for shareholders.”

Looking towards the second half of the year, Vodafone predicted Adjusted EBITDAaL of around €15.0bn-15.2bn and adjusted free cashflow of about €5.3bn.

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