Vodafone Takes Steps to Improve Profitability, Eyes Growth

The European and African telecoms group Vodafone (VOD.L) reported better top-line growth on Monday, driven by higher prices in Britain and improvements in Germany, Italy, and Spain, marking a positive start for new Chief Executive Margherita Della Valle’s turnaround plan. Shares rose as much as 3 percent in London after the company beat analyst expectations.

However, Vodafone, emerging from its rocky few years, still has plenty of work to do. It faces a tricky balancing act between cutting 11,000 full-time jobs, improving performance in Germany, and launching a review of its Spanish business. Moreover, that will take time to deliver good enough results for investors.

Vodafone, which has a presence in nearly every country in Europe and Africa, posted an overall 1.3% rise in service revenue for the quarter, beating forecasts. That reflected strong demand in Britain, where Vodafone has invested heavily in upgrading its network to offer faster services. Moreover, it also benefited from improvements in Vodafone’s other European markets.

In Germany, Vodafone’s biggest market, service revenues declined to 1.3% from 3.5% last year. The improvement was mainly due to broadband price increases and better performance in the consumer sector.

However, Vodafone faces headwinds from a slowdown in some southern European economies. Its Spanish and Italian businesses saw quarterly service revenue declines of 1%. Moreover, the company needs help to boost demand for its business services in Greece, where economic problems have led to a slump in corporate customers.

Della Valle has vowed to cut more than 10% of the group workforce and streamline operations and has launched a strategic review of Vodafone’s German operation. She also said it would focus on delivering a more straightforward and predictable customer experience and investing in the brand. However, she warned, “It will not be easy to return Vodafone to consistent growth.”

The company also announced that former SAP (SAPG.DE) chief financial officer, Luka Mucic, will join the Vodafone finance team as CFO on Sept. 1. He will replace Della Valle, who took on the top job permanently in April.

According to the company, Mucic has worked at the software maker since 2005 and will bring a wealth of experience in driving operational and financial transformation. Vodafone added that the appointment will strengthen the group’s leadership team and drive financial growth and stability. The company also said it expects to see a further reduction in capital expenditure this year. That will help to reduce its debt levels and free up more cash for investment. The company also expects to profit in 2023 for the first time in three years. That will include a one-off gain from selling some of its assets. It will also pay a special dividend of about PS2.8 billion to shareholders. That will be the first dividend from Vodafone in seven years. It is a far cry from when Verizon paid Vodafone enormous dividends.

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