- Vodafone’s half-year revenue fell 4.3% to €21.9bn
- Underlying cash profit of €6.4bn, up 0.3% on an organic basis
- Net debt of €36.2bn, an increase of €2.9bn over the first half
Aarin Chiekrie, equity analyst at Hargreaves Lansdown:
“Revenue and operating profits are heading in the wrong direction for Vodafone, reflecting recent disposals and the structural challenges at hand. Huge sums of money have been pumped into building out fibre networks and snapping up parts of the 5G spectrum and that’s weighing on cash flows. The transformation remains in its infancy with Vodafone noting the need to simplify its business and improve customer service. In the first half, there was a 2,700 headcount reduction, in line with the group’s 3-year plan to trim 11,000 roles, which some would argue might inhibit improving customer service.
The recent €5.0bn sale of Vodafone Spain to Zegona marks an end to years of frustration for investors as the division’s been yielding below-target returns. Should the deal get approved by regulators, it would see Vodafone receive at least €4.1bn of cash, plus preference shares in Zegona.
With the dividend yield currently sitting above 10%, a review of the group’s capital allocation policy is likely on the cards and future yields could get cut back to more modest levels. Typically, when companies in this industry have dividend yields above 7%, there is downward pressure on the dividend. Historically, exceptions to the rule have been few and far between, and Vodafone is unlikely to be one of them. That means the funds from the Zegona deal are likely going to get ploughed back into paying down the group’s hefty debt pile, rather than supporting unsustainable dividend payments.
There are also whispers that Vodafone is looking at strategic options for its Italian unit, which could include the sale of the business or finding a partner. The Italian unit is one of Vodafone’s better-run assets but has struggled in recent times as competitors have broken into the mobile and broadband arena and disrupted the market. While nothing’s official, don’t be surprised to hear further developments on this front in the near future.”
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