Vodafone – Downgrades Full Year Guidance As Higher Costs Take Their Toll

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Vodafone Group plc (LON:VOD)’s half year revenue rose 2.0% to c22.9bn, driven by growth in service revenue and higher equipment sales.

Underlying cash profit before leases (EBITDAaL) fell 2.6% to €7.2bn. Higher revenue was offset by commercial underperformance in Germany and the lapping of a one-off legal settlement received the prior year.

Management warned “the global macroeconomic climate has worsened, with energy costs and broader inflation in particular”. As a result, guidance for underlying cash profit before leases has been lowered from €15.0-€15.5bn to €15.0-€15.2bn.

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Vodafone is looking to extend its cost saving programme, hoping to generate over €1.0bn in additional cost savings by the 2026 financial year.

The group’s free cash outflow worsened from €1.0bn to €3.2bn, reflecting lower cash profit and higher licence and spectrum payments. Net debt rose €3.9bn to €45.5bn

The board announced an interim dividend of 4.5 eurocents per share, in line with the prior year.

Vodafone's Earnings

“It’s certainly not plain sailing at Vodafone right now, warnings that weaker economic conditions and rising costs are set to bring full year results down from previous guidance put a dampener on half year results.

A €1bn extension of the existing cost savings programme and further pricing actions are being brought in to try and keep rising costs in check.

Challenges remain in Germany, the group’s largest region, with the group losing customers in both broadband and TV. New legislation came into effect at the start of the year and Vodafone’s battled with compliance with the new rules and finding essential cross-selling opportunities under the new way of operating.

Talks are still underway with Hong Kong-based CK Hutchison about a possible merger of its UK business with Three UK. Aside from the significant regulatory hurdles that’d have to be overcome, Vodafone’s motives are to create a company with bigger scale to fully capitalise on the opportunities provided by the 5G roll out.”

Article by Matt Britzman, Equity Analyst at Hargreaves Lansdown

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