This week I am looking at telecommunications giant, Vodafone, which announced its half year results last week. The group reported a loss of €7.8 billion, predominantly on account of impairment charges in weaker European businesses and the challenges faced by the company’s Indian operations. The results may not look encouraging on the surface but the group is on course to cut operating costs for the third consecutive year and to hit the mid-point of its revenue growth forecast this year of about 3%.
Market sentiment has been weak of late due to concerns about competition pressures in India, the cost of acquiring cable assets in Europe and big investments on new spectrum for 5G services, all of which added to the company’s debt. Investors fearing a dividend cut were reassured by the announcement that the payout would be frozen, but not cut until debt is reduced. CEO, Nick Read, also announced a renewed focus on cost cuts and the creation of a new division to maximise the value of the company’s masts and towers to drive higher returns. The cable acquisitions across Europe have given Vodafone an edge against competitors because having a larger customer base, owning infrastructure and having scale are important in terms of price setting power and control over the quality of services. Mr Read remains confident that the cable acquisitions, cost cuts and improving operational performance will enable the company to maintain dividends and return it to growth in the long term. Vodafone’s share price rose by around 6% on the day the results were released.
This stock is a good example of the challenges faced by long term investors. Risks surrounding debt and dividend remain in the short term but improving results, a renewed strategy and a committed new management team can boost the company’s growth over the long run.