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‘The future is exciting. Ready?’ – Vodafone Group slogan.
Vodafone is one of the world’s leading telecommunications companies. The company has grown exponentially over recent decades through mergers and acquisitions (M&As) and is now a leader in providing broadband and mobile services to households and businesses across its core markets in Europe and further afield.
Today, it provides mobile networks in 26 countries, 17 of which are also catered for by Vodafone’s fixed-line broadband services. It has additional access to another 49 countries where it does not hold any equity interest but is working with other companies through local partnerships.
Vodafone: built on some of the biggest corporate deals in history
Modern day Vodafone has been built on the foundations of some major M&A activity. Its successful (and hostile) takeover of Germany’s Mannesmann in 2000 was one of the biggest deals in corporate history and almost doubled the size of Vodafone to make it the largest mobile telecommunications in the world.
Then there was its acquisition of Cable & Wireless Group in 2012, which represented a big step in Vodafone’s efforts to go beyond mobile and bolster its fixed line services in multiple geographies, particularly the offering presented to businesses. A year later – and 13 years after its entry into Germany through the Mannesmann deal - Vodafone made its push into offering broadband and television services by buying Kabel Deutschland after successfully fending off stiff competition from US firm Liberty Global.
Vodafone was also responsible for making the single largest return to investors (by value), spraying them with £51 billion in 2014 after selling off its 45% stake in its US partner Verizon – the biggest mobile service provider in the US – for about $130 billion. Vodafone’s joint venture with Verizon had been in place since 1999, and had played a crucial role in Vodafone’s success. But while the acquisition of Mannessman had almost doubled the size of Vodafone, the loss of its stake in Verizon practically cut it in half.
Although the Verizon sell-off allowed Vodafone to woo investors and pay down debt, it was reluctant to part with its stake and Vodafone has been constantly rumoured as a potential takeover target since the deal because of the dramatic effect on its size. The favourite has been US rival Liberty Global, but whispers of any merger have fallen silent following Vodafone’s recent acquisition of Liberty Global’s television and broadband businesses in Germany and Central and Eastern Europe.
Diversifying its product offering is key to Vodafone’s future. The company is looking to lock in customers by selling them a variety of services, becoming an all-in-one provider of telecommunications for both businesses and homes across the world, built around the heart of the business in Europe.
Vodafone released its latest set of annual results in May, following a series of new deals being announced. Vodafone is continuing to grow and outperform its wider peers, but its investment plans (which have so far helped drive earnings growth) means that while growth is expected to continue over the coming years, it will be considerably lower than what it delivered in 2017.
So, what next for Vodafone?
Vodafone earnings: five-year performance
Although revenue has struggled since 2015 when it delivered a sizeable jump thanks to its addition of Vodafone Italy and a string of acquisitions, Vodafone has provided material profit growth over the past three years.
In the most recent financial year (that ended in March 2018) Vodafone reported a 39% increase in pre-tax profit, despite revenue declining for the second consecutive year. Vodafone cited currency headwinds and the deconsolidation of its operations in the Netherlands after spinning it into a joint venture VodafoneZiggo.
Much of the growth in earnings is being generated organically, with organic adjusted earnings before interest, tax and amortisation (EBITDA) rising 11.8% last year to beat guidance of ‘around 10%’. Free cash flow, excluding the impact of spectrum auctions (whereby it bids for bandwidth), came in at €5.6 billion, comfortably ahead of its guidance for above €5 billion.