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Vodafone returns to growth in Q2, profits hit by India ruling

Organic service revenue returned to growth of 0.7% in the second quarter after a decline of 0.2% in the first

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A loss before tax of €1.9bn reflected a ruling from the Supreme Court in India

Vodafone Group plc (LON:VOD) reported a statutory loss in the first half of the year due to a legal ruling in India that masked a return to underlying revenue growth and the early benefit from its recent M&A activity.

The telecoms giant reported revenue of €21.9bn for the six months to 30 September, up 0.4% as organic service revenue returned to growth of 0.7% in the second quarter after a decline of 0.2% in the first.

Revenues were boosted by two months’ contribution from the €18.4bn acquisition of European cable businesses from Liberty Global, partly offset by the disposal of the New Zealand business.

A reported loss before tax of €1.9bn reflected a ruling from the Supreme Court in India against the local telecoms industry in a dispute over the calculation of license and other regulatory fees, making the Vodafone Idea joint venture liable for “very substantial demands”.

Underlying profit (EBITDA) was up 1.4% on a constant currency basis to €7.1bn, slightly ahead of analyst expectations.

For the full year, the board has upped its guidance to €14.8bn-€15.0bn from €13.8bn-€14.2bn to include the Liberty acquisition and New Zealand sale, but excluding these factors said it was on track to meet the upper end of the previous figure.

Dividend, cash flow and debt

An interim dividend of 4.50 euro cents per share was declared, half of the total full-year payout.

Free cash flow pre-spectrum fell 56% to €394mln in the half, hit by the Indian ruling and Kiwi disposal and guidance for the full year has been adjusted from the previous “at least €5.4bn” to “around €5.4bn”.

Chief executive Nick Read said he expected to “build on” the return to top-line growth in the second half of the year in both Europe and Africa and said a “fast start” had been made on integrating the Liberty Global businesses.

Net debt was a whopping €48.1bn, up 50% due to the Liberty deal, purchases of mobile spectrum and shareholder returns.

The leverage ratio is expected to be around 3.0 times adjusted EBITDA at the end of the year, excluding the expected €2.1bn expected from an Italian towers deal with INWIT, with Read intending to reduce leverage towards the lower end of the targeted 2.5-3.0 range within the “next few years through a combination of organic growth, non-core asset sales and working capital initiatives”.

Quick facts: Vodafone Group PLC

Price: 126.855 GBX

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Market Cap: £341.92 m
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