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Highlights:
- Dividend Cut Despite Steady Performance: Vodafone halved its interim dividend while maintaining its full-year outlook, citing regulatory delays in major transactions.
- Revenue Growth with German Decline: Group service revenue increased by 1.7% to €15.1 billion, despite a notable revenue decline in Germany due to regulatory changes.
- Strategic Deals Nearing Completion: Vodafone’s merger with Three in the UK and the sale of its Italian unit are progressing, aimed at reshaping the group for future growth.
Vodafone Group PLC (LSE:VOD) has maintained its full-year outlook but opted to halve its interim dividend, citing ongoing regulatory delays affecting its key transactions in the UK and Italy. The decision reflects the telecom giant's cautious approach amid a shifting market landscape, as it focuses on strategic moves to streamline its business operations.
Financial Performance
For the first half of the year, Vodafone reported a 1.7% increase in service revenue, reaching €15.1 billion. On an organic basis, growth was stronger at 4.8%. Group adjusted earnings (EBITDAaL) rose by 3.8% to €5.4 billion, aligning with market expectations.
Service revenue in the second quarter stood at €7.64 billion, showing steady performance despite challenges in key markets. However, Germany, Vodafone's largest market, saw a deeper revenue decline of 6.2%, worsening from the 1.5% drop in the first quarter. The company attributed this to a change in German law that prevents landlords from passing cable TV fees onto tenants in multi-dwelling units.
Excluding the impact of this regulatory change, Vodafone's German service revenue still fell by 2.4% in the second quarter, a sharper decline compared to the 0.3% drop seen in the first quarter. The decrease was largely driven by customer attrition following previous price hikes.
Dividend Reduction and Buyback Update
Vodafone announced a significant cut to its interim dividend, reducing it to 2.25 euro cents from 4.5 cents a year earlier. This move is part of the company’s broader effort to optimize its capital allocation and maintain financial flexibility. Meanwhile, the second tranche of its €500 million share buyback is nearing completion, underscoring Vodafone's commitment to shareholder returns despite the reduced payout.
Progress on Strategic Transactions
Chief executive Margherita Della Valle emphasized the company's progress in executing its strategic transactions. Vodafone's proposed merger with Three in the UK and the sale of its Italian business are both nearing completion. These deals are expected to conclude the board's disposal programme, aimed at refocusing Vodafone's portfolio and paving the way for future growth.
Della Valle noted that while the group delivered solid performances across most markets, the regulatory impact in Germany had been anticipated. “The actions we are taking will drive growth for Vodafone this year and accelerate our momentum into FY26,” she added.
Challenges and Future Outlook
The results highlight Vodafone's efforts to adapt to regulatory shifts and market dynamics, particularly in its European operations. The company’s focus on divestitures and strategic mergers signals a pivot towards strengthening its core business areas, while addressing challenges such as declining customer retention in Germany.
As Vodafone nears the completion of its major transactions, it aims to unlock greater growth potential and enhance its market positioning. However, the dividend cut and the mixed performance across markets suggest that the company is navigating a delicate balance between investment in future growth and maintaining shareholder value.
In the coming quarters, Vodafone's ability to finalize its strategic deals and implement operational improvements will be critical in determining its trajectory and market performance. The company remains confident that its strategic initiatives will deliver sustainable growth and stronger financial results in the long term.
