Vodafone interims

Vodafone the second largest ( behind China Mobile) mobile telecoms company in the world. I have a holding in my income portfolio (epic code: VOD).

 

Vodafone announced their interim results today and in summary Group revenue increased by 2.5% to £19.1bn, with service revenue of £17.5bn showing a decline of -2.3% on an organic basis.

On a management basis (includes 5 months of Verizon Wireless and share of associates) - service revenue was £20.0bn, a decline of -4.2%.

For the second quarter Group organic service revenue on a management basis declined -4.9%, with North & Central Europe down -4.9%; Southern Europe down -15.5% and Africa, Middle East and Asia Pacific (AMAP) up +5.7%.

AMAP continues to perform well and now represents 29% of the Group's service revenue and 34% of the Group's EBITDA.  The two fastest growing countries within Vodafone were Ghana growing at 21.2% and India 13.5%.  India is now the fourth largest EBITDA contributor within the Group and has a healthy margin of 31.8%.

Southern Europe continues to perform badly and contained the two worst performing countries Spain and Italy whose service revenues declined by 10.7% and 11.1% respectively.  CEO Colao believes that Europe is at a turning point with an expectation of a return to economic growth during the next two years.   

Adjusted operating profit on a management basis fell -8.3% to £5.7bn and adjusted EPS of 7.85p fell -2.6%.  Reported diluted EPS from continuing operations was 31.97p compared to a loss last year of 8.81p; the reported EPS benefited from £14.7bn of deferred tax assets being recognised, relating to tax losses in Germany and Luxembourg of £17.7m and a likely tax charge of £3bn relating to rationalisation & reorganisation of Vodafone's non-US assets prior to the disposal of its share in Verizon Wireless.

An interim dividend of 3.53p has been declared, which represents an 8.0% increase over last year and management intend to increase the final dividend (post share consolidation after the Verizon Wireless sale) by 8%.  This will result in a total dividend of 11.0p and they have committed to grow it annually thereafter. 

Management have stated that they are on target to deliver adjusted operating profit of around £5bn and free cash flow (defined using a number of adjustments) in the £4.5 - £5.0bn range.

Free cash flow for the six months was £279m compared to £406m last year, with an additional £3.5bn (LY £1.2bn) of associate dividends.  Dividends and share repurchases totalled £4.4bn for the period.

Net debt (I have not included mark to market adjustments on debtors and creditors that Vodafone include) at the period end was £25.8bn compared to £27.3bn at the beginning of the year, much of this improvement is due to foreign exchange translation differences.  Gearing is a comfortable 31% compared to 38% at the beginning of the year.

Vodafone is performing well in its emerging markets, but its future over the next 5 years will still be heavily reliant on an improvement in its European territories.  If Colao has called this right and, his substantial capital expenditure plans (£19.1bn by March 2016) produce the expected free cash flow returns, then undoubtedly Verizon will still be a core constituent of any income portfolio.