Vodafone reports its annual results for the year ended 31 March 2024 tomorrow, in what could be the telco’s last full year of results before a potential merger with rival Three in the coming months.
The firm’s shares have fallen some 21% compared to this time last year, but the stock has stayed relatively flat since the start of the year.
Here are some key areas to keep an eye on as results are disclosed.
Voda-Three merger
Vodafone unveiled plans for its £16.5 billion merger with telecoms rival Three last year. If it is approved, it’s hoped the deal will close by the end of this year.
The firm last week cleared the first regulatory hurdle to getting the deal over the line: The UK government conditionally approved the merger following a national security assessment of the telecom deal in light of Three’s Chinese owners.
But Vodafone still needs to clear a much bigger regulatory hurdle: getting the deal past the UK’s Competition and Markets Authority. The CMA began its ‘phase 2’ investigation into the merger last month and has a deadline of 18 September to make a decision.
Will there be hint’s as to the investigation’s progress? The tie-up is not a done deal and the CMA has expressed concern about the risk of less competition for consumers. And a previous merger between O2 and Three ultimately fell apart after it was blocked by the EU.
Voda’s rightsizing
While Vodafone is looking to increase its market share in the UK, the firm has unveiled plans to withdraw from other markets entirely.
In November last year the firm sealed a deal to sell its Spanish business to UK-based investment firm Zegona Communications for as much as €5 billion. Then in March 2024, the telco giant reached an agreement to sell Vodafone Italy to Swisscom AG for 8 billion euros in cash.
Adjustments are likely to be made to the company’s balance sheet and income statement to reflect these divestments. Vodafone has said that these two markets have not been profitable for the business -- what will be the overall impact on group profits?
Debt profile
Like all major telecoms firms, Vodafone is saddled with a lot of debt. In its last annual report, the firm had total borrowings of around 90 billion euros.
More than a billion of those borrowings are set to mature in the next twelve months. Given the rise in interest rates over the past couple of years, loans and bonds up for maturity will likely need to be refinanced at higher rates. How will that impact the firm’s bottom line?
Germany
Germany is Vodafone’s single biggest market, accounting for around a third of its global turnover -- but it has also been one of its worst-performing markets.
In its last annual results Vodafone complained it had seen “commercial underperformance” in Germany, which “remains under pressure”.
The firm’s earnings in Germany fell 6% last year, after its cable broadband customer base declined by 119,000 and its TV customer base declined by 412,000.
There are further challenges ahead, including changes to German TV laws, which take effect from July 2024 and end the practise of bulk TV contracting in Multi Dwelling Units, one of the firm’s largest customer bases.
Vodafone has promised a turnaround plan for Germany -- are there signs it is paying off?
Dividends
Earlier this year, Vodafone unveiled changes to its dividends policy.
Total dividends for the current year are expected to remain at 9.0c per share but then reduce to 4.5c per share from the new financial year, with an aim to grow from that base.
The telco has also unveiled plans to return up to €2bn following the completion of each of the sale of the Italy and Spain units. Will it live up to those commitments?
Energy costs
In its last annual results, Vodafone said the surge in energy costs across Europe had been partly-responsible for its drop in earnings. Have things improved and how is that impacting the bottom line?
