Vodafone slumps to first-half loss but shares jump as it maintains dividend

Vodafone PLC (LON:VOD) slumped to a half-year loss after taking a hit related to the merger of its India business with Idea Cellular but shares gained as it maintained its dividend and upgraded its cash flow forecast.

The telecoms firm posted a loss of €7.8bn for the six months to September 30, compared to a profit of €1.2bn a year ago.

The group completed the merger of its India operators with Idea Cellular in August in a bid to strengthen its position in the nation’s competitive mobile market. Vodafone recognised a €3.4bn loss and an impairment charge of €300mln on the combined business, which has been named Vodafone Idea.

Foreign exchange headwinds, the company’s exit from Qatar and the adoption of IFRS accounting measures also dragged on results with revenue falling 5.5% to €21.8bn.

Organic service revenue edges higher

Organic service revenue rose 0.8%, driven by a strong performance in its European consumer fixed business, good demand for mobile data, an increase in customer numbers in emerging market operations and growth in the corporate services unit.

However, Vodafone said it had to contend with heightened competitive pressures in Italy and Spain along with a lower wholesale revenue.

READ: Vodafone ticks up as Italian arm snaps up spectrum for €2.4bn to develop 5G coverage

Adjusted earnings (EBITDA) rose 2.9% on an organic basis, excluding items, to €7.1bn as the company reduced operating expenses as part of a restructuring to simplify the business. The adjusted organic EBITDA margin rose by 0.3 percentage points to 30.8%.

On a reported basis, however, adjusted EBITDA declined 4.2% due to the impact of unfavourable exchange rates, a decrease in handset financing in the UK and a regulatory settlement in the UK.

Free cash flow. pre-spectrum. fell 30.6% to €894mln as a result of lower adjusted EBITDA and higher capital creditor outflows.

Net debt increased by 6.4% to €32.1bn, due to dividend payments and spectrum purchases to deploy 5G mobile technology.

The interim dividend was left unchanged at 4.84 cents and the group said it expects the full year payout to be in line with 2018. This annoucement sent shares up 8.8% to 157p in morning trading as there were concerns the dividend could be cut given the reported losses and tough trading conditions in various regions this year. 

Vodafone raises free cash flow forecast

For the 2019 financial year, the company expects adjusted EBITDA organic growth of 3% – the mid-point of its previous guidance of 1-5%. It also lifted its free cash flow pre-spectrum forecast to €5.4bn from at least €5.2bn previously.

“Looking ahead, my new strategic priorities focus on driving greater consistency of commercial execution, accelerating digital transformation, radically simplifying our operating model and generating better returns from our infrastructure assets,” said chief executive Nick Read.

“Our goal is to deepen customer engagement through a broader offering of products and services, and to deliver the best digital customer experience, supported by consistent investment in our leading Gigabit networks. We expect that this will drive revenue growth, reduce churn and lower our European net operating expenses by at least €1.2bn  by fiscal year 2021.”

AJ Bell investment director Russ Mould said: “The reason why the share price is up today is upgraded guidance for free cash flow, being the amount of money it generates from operations minus the bit it needs for capital expenditure. Essentially it is the pot of money that is used to pay back debt and pay the dividend.”

Story by ProactiveInvestors