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Exploring Vodafone’s Resurgence Through Strategic Transformations

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In the past six months, Vodafone has embarked on a forceful comeback scheme. There have been indications of a resurgence, even though investors remain skeptical. Following the delivery of the UK telecoms giant’s half-yearly report, the shares plummeted more than 4%. At the time this report was written, the recovery was marginal, with a 2.7% drop, which was significantly worse than the 0.46% decline of the FTSE 100.

The plummeting shares could be due to Vodafone reporting a dramatic swing from a net profit of €1.2 billion to a loss of €155 million in the first half. This downturn has been attributed to a 44.2% drop in operating profits because Vantage Towers and Vodafone’s operations in Hungary and Ghana were missing. Adverse foreign exchange movements and a €51 million loss from joint ventures and associates, particularly VodafoneZiggo in the Netherlands, are also to blame.

Furthermore, first half revenue stands at €21.9 billion, 4.3% lower than last year, due in part to forex fluctuations and asset disposals. Interestingly, these actions coincide with the investors’ desire for a leaner, more focused Vodafone. CEO Margherita Della Valle has set this in motion, with Vodafone also offloading its Spanish arm and ambitiously seeking the UK regulators’ approval to merge its domestic operation with Three.

A crucial part of Della Valle’s revitalization strategy is enhancing customer service, for which Vodafone has spent €150 million in the past six months. In conjunction with cutting 2,700 staff as part of a three-year plan to trim 11,000 jobs, Vodafone’s revival strategy also includes growing Vodafone Business. Promising results are already being seen, with service revenue in the first half up by 4.4%.

Service revenue is on track for recovery, at €18.62 billion in the first half, a 4.2% organic growth. This was partly due to Vodafone Turkey, where inflation caused a 79.3% climb in service revenue. Even without Turkey, Europe and Africa saw a 2.3% growth.

Vodafone’s pivotal Germany business is also showing promising signs, with service revenue in the second quarter climbing 1.1%, reversing the 1.3% fall in the first quarter. Higher broadband prices and mobile ARPU growth have spurred this revival.

The Group’s adjusted EBITDA after leases (EBITDAaL) remains stable, with an organic growth of 0.3% to €6.4 billion, despite a noteworthy rise in energy costs. Vodafone’s prediction for the full year anticipates consistently flat EBITDAaL of €13.3 billion and free cash flow of around €3.3 billion.

“We have delivered improved revenue growth in nearly all of our markets and have returned to growth in Germany in the second quarter,” said Della Valle.

“The transformation is progressing,” she said. “We are reaping some benefits from our focus on customers and business simplification, although much more needs to be done. We have also announced transactions that will boost our position in the UK and help us exit the challenging Spanish market, to better our portfolio for growth.”

Nevertheless, even with this progress and a clear plan, the market remains wary and requires more convincing.

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