Vodafone’s revenue drops in Germany

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UK-based telecoms group Vodafone has suffered falling revenue in its biggest market, Germany, as chief executive Margherita Della Valle attempts a major turnaround of the business.

The German division — which accounts for 36 per cent of group service revenue — was hit after the government prevented housing associations from bundling television with rent in a new law that came into force in July.

Organic service revenue, a key metric including sales from contracts, network use and roaming, fell 6.2 per cent in Germany, slightly worse than analysts’ forecasts for the three months to September 30.

However, overall revenue rose, helped by growth in the company’s Turkish and African markets. Vodafone posted a 4.2 per cent increase in organic service revenue in its second quarter, nudging ahead of an analyst consensus of a near-4 per cent rise.

Although expected, Della Valle said the company’s performance had been undermined by the TV law change and that it was investing in Germany to strengthen its market position.

“We look forward to growth in Germany and [taking] our fair share of market growth into next year once the whole TV transition is put behind us,” she said on Tuesday.

The FTSE 100 company’s shares fell 4 per cent to 70.13p in early morning trade on Tuesday in London.

Della Valle said the impact of the recent UK Budget, which included changes to national insurance, was “not material for Vodafone” as only a small proportion of the group’s employees are located in the UK. She estimated that the new rules would cost it about £10mn.

She added that the company continued “to make good progress on our strategy to change Vodafone”.

After taking over last year she said Vodafone needed to boost its business in Germany and take action in European markets that were not earning above their cost of capital.

The group has since announced the sale of its Spanish and Italian businesses and the planned merger of its domestic operations with CK Hutchison’s Three UK.

Vodafone maintained its guidance for its 2025 financial year of adjusted earnings before interest, taxes, depreciation and amortisation after leases of about €11bn and adjusted free cash flow to be at least €2.4bn.

It also posted 1.2 per cent organic service revenue growth in the UK compared with analysts’ expectations of an uptick of 0.72 per cent.

The UK competition regulator last week paved the way for its proposed domestic tie-up with Three UK as long as the companies addressed competition concerns. The Competition and Markets Authority said it was seeking feedback on remedies before making its final decision by December 7.

Della Valle said the approval processes for its transactions in the UK and Italy were “nearing conclusion” and that “we believe the CMA’s concerns have been addressed . . . [and] can see a path to clearance as long as a balanced position is preserved”.

Vodafone said the Italian competition authority’s final decision on the sale of its operations in the country was due by December 10.

The telecoms group reported a 28 per cent increase in operating profit to €2.4bn in the first half of the year, which it said was primarily driven by the disposal of an 18 per cent stake in Indus Towers in India.

Vodafone’s net debt decreased to €31.8bn from €33.2bn at the end of March.