Vodafone gets down to business with growth plan

Vodafone has announced that going forward, it plans to deliver “predictable, stronger” growth in Europe with businesses operating in the growing telco markets in which the company already claims strong positions, and with a pronounced acceleration in business-to-business (B2B).

In the first significant act of the turnaround strategy, Vodafone sealed in November 2023 a binding agreement with European telecommunications, media and technology investment house Zegona the sale of 100% of its Spanish division, in a deal valued at €5bn. It has now completed what it says is the final step of the portfolio right-sizing with a binding agreement to sell 100% of its Italian operations to Swisscom AG for €8bn.

The reshape of the telco began in earnest in early 2023, when then recently appointed Vodafone Group chief executive Margherita Della Valle revealed sweeping changes needed to take place after fiscal year 2023 results showed a marked performance slowdown.

The results highlighted that the comparative performance of Vodafone had worsened over time, which the company said was connected to the experience of its customers. They also showed material differences between Vodafone’s consumer and business segments, with the latter growing in nearly all European markets.

Della Valle stressed that to consistently deliver, Vodafone had to change. “Our performance has not been good enough,” she said. “To consistently deliver, Vodafone must change. My priorities are customers, simplicity and growth. We will reallocate resources to deliver the quality service our customers expect and drive further growth from the unique position of Vodafone Business.”

With the sale of Vodafone Italy and Vodafone Spain, together with the proposed merger of Vodafone UK and Three UK – now being investigated by the UK’s Competition and Markets Authority (CMA) – the telco says it will now focus its operations in Europe on growing markets, with good local scale.

In addition to the divisional sales, the other key business development will be taking advantage of what are regarded as growth opportunities in B2B. Vodafone said demand for its digital services was strong, and claimed it was particularly well positioned to support small and medium-sized enterprises and public sector customers, as their strategic partner in transitioning to the cloud and generative AI. B2B service revenue growth reached 5% in Q3 fiscal year 2024, and the company said it was gaining share against all primary competitors.

Going forward, Vodafone intends to extend its range of platforms and capabilities through dedicated investments and new partnerships such as one with Microsoft. From 1 April 2024, its new internet of things (IoT) company will focus on entering new markets and creating a platform-as-a-service offering to support other telcos.

The new capital allocation framework, including dividend to be rebased to 4.5c per share from FY25 onwards, is said to amount in a €4bn capital return via share buybacks and a new leverage range of 2.25x-2.75x.

Commenting on the moves, Della Valle said: “The sale of Vodafone Italy to Swisscom creates significant value for Vodafone and ensures the business maintains its leading position in Italy, which has been built through the dedicated commitment of our colleagues to serving our customers over many years. Our transactions in Italy and Spain will deliver €12bn of upfront cash proceeds and we intend to return €4bn to shareholders via buybacks, as part of our broader capital allocation review.”