Vodafone Half Yearly Report

[idpickering]

Financial highlights
·

H1 organic service revenue up 0.3%* as Q2 returned to growth (Q1: -0.2%*, Q2: +0.7%*), supported by improvements in South Africa, Spain and Italy, with solid retail performance in Germany and strong commercial acceleration in the UK.
·

Organic adjusted EBITDA up 1.4%*, reflecting €0.2 billion operating expense savings in Europe and common functions.
·

Reported revenue increased by 0.4% to €21.9 billion, benefiting from the acquisition of Liberty Global's assets in Germany and Central & Eastern Europe.


Loss for the financial period of €1.9 billion primarily reflects losses in relation to Vodafone Idea post an adverse judgement against the industry by the Supreme Court in India.

Interim dividend per share of 4.50 eurocents, equivalent to 50% of the FY19 total dividend payout.


FY20 financial guidance updated:


Adjusted EBITDA of €14.8-€15.0 billion (previously €13.8-14.2 billion), implying c.2-3%* organic growth. This includes a €0.8 billion net benefit from the Liberty Global acquisitions and the sale of New Zealand (completed on 31 July). Excluding this benefit, we are on track to achieve the upper half of our original guidance range.


Free cash flow of around €5.4 billion (previously 'at least €5.4 billion') as lower cashflows from India and the sale of New Zealand offset the initial accretion from the Liberty Global acquisitions.


Pro-forma financial leverage expected to be c.3.0x at year-end, excluding the INWIT transaction; intention to reduce leverage towards the lower end of our 2.5x-3.0x range within the next few years.


And later;

Dividends

Dividends will continue to be declared in euros and paid in euros, pounds sterling and US dollars, aligning the Group's shareholder returns with the primary currency in which we generate free cash flow. The foreign exchange rate at which future dividends declared in euros will be converted into pounds sterling and US dollars will be calculated based on the average exchange rate over the five business days during the week prior to the payment of the dividend.

The Board has announced an interim dividend per share of 4.50 eurocents (2019: 4.84 eurocents). The ex-dividend date for the interim dividend is 28 November 2019 for ordinary shareholders, the record date is 29 November 2019 and the dividend is payable on 7 February 2020. Dividend payments on ordinary shares will be paid directly into a nominated bank or building society account.

https://www.investegate.co.uk/vodafone- ... 00120432T/

[funduffer]

So we had a ~60% cut in the final dividend (paid in August 2019), but the next interim dividend has almost been held, and is larger than the last final!

Final Aug 2008:10.23 euro cents
Interim Feb 2009: 4.84 euro cents
Final Aug 2019: 4.16 euro cents (59% cut)
Interim Feb 2020: 4.5 euro cents

Strange sequence, I wonder what the next final will be?

I am rather pleasantly surprised by this announcement - is it a sign of quick recovery?

FD

[funduffer]

For 2008 read 2018, and 2009 read 2019...

Finger trouble so early in the morning!

[monabri]

From dividenddata

https://www.dividenddata.co.uk/dividend ... y?epic=VOD

Code: Select all

Year End | Interim | Final  | Special | Total* | Growth
03/2020  | 4.50¢   | tbc    |       - | tbc    | tbc   
03/2019  | 4.84¢   | 4.16¢  |       - | 9.00¢  | -40.28%
03/2018  | 4.84¢   | 10.23¢ |       - | 15.07¢ |   2.03%
03/2017  | 4.74¢   | 10.03¢ |       - | 14.77¢ |   2.00%
03/2016  | 3.68p   | 7.77p  |       - | 11.45p |   2.05%


[Alaric]

I noted this paragraph from the announcement.

Net debt as at 30 September 2019 was €48.1 billion compared to €27.0 billion as at 31 March 2019. This increase in net debt reflects cash outflows and debt assumed of €18.5 billion relating to the acquisition of the Liberty Global assets in Germany and Central and Eastern Europe, spectrum accruals and cash payments of €1.6 billion primarily relating to 5G spectrum purchases in Germany, the FY19 final dividend payment of €1.1 billion, and the completion of the buyback for the mandatory convertible bonds issued in 2016 of €1.1 billion. This was partially offset by proceeds of €2.0 billion relating to the disposal of Vodafone New Zealand.

Is this not a straightforward admission that it's paying the dividend out of borrowed money?

[dealtn]

I noted this paragraph from the announcement.

Net debt as at 30 September 2019 was €48.1 billion compared to €27.0 billion as at 31 March 2019. This increase in net debt reflects cash outflows and debt assumed of €18.5 billion relating to the acquisition of the Liberty Global assets in Germany and Central and Eastern Europe, spectrum accruals and cash payments of €1.6 billion primarily relating to 5G spectrum purchases in Germany, the FY19 final dividend payment of €1.1 billion, and the completion of the buyback for the mandatory convertible bonds issued in 2016 of €1.1 billion. This was partially offset by proceeds of €2.0 billion relating to the disposal of Vodafone New Zealand.

Is this not a straightforward admission that it's paying the dividend out of borrowed money?

No.

Free Cash Flow 34mio (Note 3)
Equity Dividends paid 1,092mio

That's a straightforward admission...you don't need the rest, unless you want to paint a "non-straightforward" of saying it.

[daveh]

So we had a ~60% cut in the final dividend (paid in August 2019), but the next interim dividend has almost been held, and is larger than the last final!

Final Aug 2008:10.23 euro cents
Interim Feb 2009: 4.84 euro cents
Final Aug 2019: 4.16 euro cents (59% cut)
Interim Feb 2020: 4.5 euro cents

Strange sequence, I wonder what the next final will be?

I am rather pleasantly surprised by this announcement - is it a sign of quick recovery?

FD

They say they are setting the interim as half the previous years total. To me this suggests that they are setting the final and interim to be the same with the final this year likely 4.5 eurocents plus perhaps a little if they want to increase the dividend. I can't see the final being double the interim for the usual 1/3 to 2/3 split as that would seem to negate the big cut of last years final. So my prediction is the final will be 4.5 - 5.0 euro cents.

[pyad]

Dave is right. Any confusion about their current div policy is clear from the 2019 annual accounts published last May where it states:

Dividend per share rebased to 9.00 eurocents (15.07 eurocents in FY18), implying a final dividend of 4.16 eurocents; progressive future dividend policy

So there was a cut of about 40% for 19 but for 20 we should expect a marginally higher or at least a maintained div of 9.00€¢. Consequently with today's interim of 4.50¢ the final may be at least the same again. As with any div, there are never any guarantees and future payouts will depend on the definition of "progressive" and the company's results. "Progessive" in directorspeak does not have the same meaning as it does in English of moving ahead.

The conservative forecast of 9.00€¢ is worth about 7.76p at present so with the shares at 162p the forward yield is around 4.8%

[IanTHughes]

I noted this paragraph from the announcement.

Net debt as at 30 September 2019 was €48.1 billion compared to €27.0 billion as at 31 March 2019. This increase in net debt reflects cash outflows and debt assumed of €18.5 billion relating to the acquisition of the Liberty Global assets in Germany and Central and Eastern Europe, spectrum accruals and cash payments of €1.6 billion primarily relating to 5G spectrum purchases in Germany, the FY19 final dividend payment of €1.1 billion, and the completion of the buyback for the mandatory convertible bonds issued in 2016 of €1.1 billion. This was partially offset by proceeds of €2.0 billion relating to the disposal of Vodafone New Zealand.

Is this not a straightforward admission that it's paying the dividend out of borrowed money?

No.

In the year to March 2019, Free Cash Flow from Operations (FCFO) was around £5 Billion against a total dividend of £4 Billion. With the reduction in dividend this current year of around 40%, FCFO will comfortably cover the reduced Dividend whilst also making even more room for Debt reduction.


Ian

[Alaric]

FCFO will comfortably cover the reduced Dividend whilst also making even more room for Debt reduction.

What reduced debt?

Net debt as at 30 September 2019 was €48.1 billion compared to €27.0 billion as at 31 March 2019.

The dividend is a small number compared to the debt, but they do say

This increase in net debt reflects cash outflows and debt assumed of €18.5 billion relating to ..... cash payments of €1.6 billion primarily relating to ....., the FY19 final dividend payment of €1.1 billion,.....

[IanTHughes]

FCFO will comfortably cover the reduced Dividend whilst also making even more room for Debt reduction.

What reduced debt?

Net debt as at 30 September 2019 was €48.1 billion compared to €27.0 billion as at 31 March 2019.

Of course debt has increased almost entirely due to the completion of the deal to purchase certain European operations from Liberty Global for €18.5 Billion, as reported here:

https://www.broadbandtvnews.com/2019/07 ... able-deal/

A deal that will increase Free Cash Flow by the way.

Are you claiming that Free Cash Flow is insufficient to cover the dividend? If so do please explain how that is so.


Ian

[Alaric]

Are you claiming that Free Cash Flow is insufficient to cover the dividend? If so do please explain how that is so.

I'm just claiming that they aren't making a profit and are borrowing to pay the dividend, which is what they are themselves saying. They can do that for as long as they have borrowing powers or they are able to sell assets to raise cash. They don't look however in any danger of running out of assets in the manner of Carillion although borrowing to pay dividends is presumably the route taken by Carillion on its path to destroying shareholder value.

[IanTHughes]

Are you claiming that Free Cash Flow is insufficient to cover the dividend? If so do please explain how that is so.

I'm just claiming that they aren't making a profit and are borrowing to pay the dividend, which is what they are themselves saying.

Well you can rest easy, they are not!


Ian

[Alaric]

Well you can rest easy, they are not!

Except that if they had cancelled the dividend, their borrowings would be reduced.

[IanTHughes]

Well you can rest easy, they are not!

Except that if they had cancelled the dividend, their borrowings would be reduced.

So what? I can only repeat:

In the year to March 2019, Free Cash Flow from Operations (FCFO) was around £5 Billion against a total dividend of £4 Billion. With the reduction in dividend this current year of around 40%, FCFO will comfortably cover the reduced Dividend whilst also making even more room for Debt reduction.

Why do you persist in saying that dividends are being paid out of borrowing when it is patently not correct?


Ian

[Alaric]

Why do you persist in saying that dividends are being paid out of borrowing when it is patently not correct?

#

They aren't making a profit, but are paying dividends. They quote an increase in borrowing, driven in part by cash payments of €1.6 billion which include dividends of €1.1 .Their net debt increased by €21.1 billion. If they hadn't paid a dividend, presumably the net debt increase would only have been €20 billion.

[IanTHughes]

Why do you persist in saying that dividends are being paid out of borrowing when it is patently not correct?

They aren't making a profit, but are paying dividends. They quote an increase in borrowing, driven in part by cash payments of €1.6 billion which include dividends of €1.1 .Their net debt increased by €21.1 billion. If they hadn't paid a dividend, presumably the net debt increase would only have been €20 billion.

I can only repeat:

In the year to March 2019, Free Cash Flow from Operations (FCFO) was around £5 Billion against a total dividend of £4 Billion. With the reduction in dividend this current year of around 40%, FCFO will comfortably cover the reduced Dividend whilst also making even more room for Debt reduction.

As the saying goes ...

You can lead a horse to water, but you can't make it drink

Ian

[Arborbridge]

So, folks: how does one square the two interesting but opposing views put forward by Ian Hughes and Alaric?

I note that one is a HYPer whereas the other is mainly interested in TR.



Arb.

[YeeWo]

Just watched about 45 minutes of the Investor Presentation, superficial conclusions: -
- The debt used to make acquisitions and, arguably, pay dividends is servicable and will be far more sustainable as the business reduces costs.
- A business model focussed on scale operation and avoiding endless price-wars sounds sensible, this is only attainable when you're the size of VOD.
- It will be very interesting to see what the Tower Co. ends up being spun-off for value wise.
- That Vodafone's Indian business can be marked down to Zero is a Shocking Reflection on the arbitrary-nature of corruption in Modi's India. One cannot help but think of all the MNC's in a portfolio and think of their vulnerability in India. I hope Washington, London, Brussels et al are well aware of what's happening and have the ability to reciprocally threaten Indian business interests operating overseas.

Disc -Vodafone is 7.7% of portfolio, held since 06 Oct 16, with dividends and tinkering I'm on an XIRR of -3.37%

[dealtn]

So, folks: how does one square the two interesting but opposing views put forward by Ian Hughes and Alaric?

I note that one is a HYPer whereas the other is mainly interested in TR.



Arb.

The former is quoting for the full year to March 2019 a cash flow of 5bio approx., which covers a dividend of 4bio approx. The latter is talking about earnings, and cash flows post March 2019. We don't yet know how the full year will pan out, but what we got today was for the first 6 months of that period. The numbers show cash flow of 1.4bio approx., out of which various obligations are to be met before anything is left to pay dividends to equity share holders. On their numbers there is just 34mio left, with the (reduced) dividend payments of 1bio approx. made (plus another 1bio approx. of share buy backs).

I don't know enough about the company, the deal to acquire the assets which may well turn out to be cash flow positive, or whether there is any seasonality in the accounts between H1 and H2, but the numbers today in themselves don't show anything convincing to me to suggest debt won't be utilised in paying a full year dividend (or asset sales I guess).

Perhaps someone could provide an alternative view or conclusion to convince me it would be worth me investigating further?