Vodafone Group reported a small rise of 0.4 percent in revenues for its fiscal first half to September to EUR 21.94 billion, helped by its takeover of activities from Liberty Global from August. Adjusted EBITDA was up 2.7 percent to EUR 7.11 billion, while the net result was a loss of EUR 1.89 billion due to one-time charges in India.
On an organic basis, adjusted for the takeover and the sale of Vodafone New Zealand, Vodafone said service revenues grew 0.3 percent and adjusted EBITDA was up 1.4 percent. Service revenues returned to growth of 0.7 percent in the second quarter, after the 0.2 percent fall in Q1, supported by improvements in South Africa, Spain and Italy, solid retail performance in Germany and strong commercial acceleration in the UK, the company said.
In Europe, organic service revenue was still down 1.4 percent (-1.7% in Q1), hurt in part by the EU cap on international call and SMS prices from mid-May. The rest of the world improved to growth of 8.9 percent in Q2, versus 5.4 percent in Q1.
The net loss narrowed to EUR 1.89 billion in the first half from EUR 7.80 billion a year ago when Vodafone took more impairment charges. The loss this year was due mainly to the court order in India ordering operators to pay increased regulatory fees, as well as higher taxes and interest payments and increased operating losses in India after the merger with Idea a year ago.
Free cash flow shrunk to EUR 34 million from EUR 566 million a year ago, hurt by spectrum auctions such as the 5G sale in Germany as well as restructuring costs in Spain and Italy. Vodafone said it would pay an interim dividend of 4.50 cents per share, down 7.8 percent from a year earlier but equal to 50 percent of the full-year dividend last year.
Higher EBITDA guidance
Vodafone updated its full-year guidance for the takeovers and divestments. It now expects adjusted EBITDA of EUR 14.8-15.0 billion, up from the previous guidance of 13.8-14.2 billion and implying 2-3 percent organic growth. This includes a EUR 0.8 billion net benefit from the Liberty Global acquisitions and the sale of New Zealand (completed on 31 July).
Excluding the takeover, Vodafone said it was was on track to achieve the upper half of its original guidance range. Thie company said it made a fast start on integrating the Liberty Global operations and achieved a EUR 0.2 billion year-on-year reduction in net operating costs in Europe and common functions in the first half. Costs were still up in the Rest of World operations, albeit at a slower pace than local inflation. As a result, the company expects to deliver a fifth consecutive year of EBITDA margin expansion this year.
In addition to integrating the acquired assets, cost savings are expected from a shift to more digital customer service. Vodafone said it's rolling out a new version of the MyVodafone app across markets, with integrated loyalty programmes, as well as deploying bots for customer service and using digital channels more for personalised marketing. The aim is to generate more than 40 percent of sales through digital channels by the end of fiscal year 2021, compared to around 20 percent at present, while also reducing customer service interactions by 40 percent.
Lower cash flow
Meanwhile, the forecast for free cash flow was downgraded to "around EUR 5.4 billion" this year, from previously "at least" that amount. This is due to lower cash flow from India and the sale of New Zealand, offset by the initial accretion from the Liberty Global acquisitions, Vodafone said.
Vodafone said it was on track to have its new towers company set up by next May, and the company expects to monetise the assets within 15 months. While debt increased in the past year to EUR 48.1 billion after the Liberty Global transaction, the company said it expects to reduce leverage from around 3.0x at the end of this year to the lower end of its 2.5-3.0x target range within a few years.
