-Full-year profit guidance lowered by 2%
-New €1 billion efficiency programme announced
-Shares drop 6% despite resilient first half
Shares in mobile phone operator Vodafone (VOD) fell 6% to 98p on Tuesday after the company lowered full-year profit guidance to the bottom of its prior range amid ‘challenging’ macroeconomic conditions.
The company said higher energy costs and broader inflation had impacted performance, while a ‘comprehensive’ plan was underway to tackle the effects.
This included extending the productivity programme with ‘significant’ scope for a further €1 billion plus of efficiency gains and reducing energy consumption.
Vodafone shares have lost around 13% in 2022 compared with a 4% fall in the blue-chip FTSE 100 index.
WHAT ARE THE FINANCIAL IMPACTS?
Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortisation) is now expected to be between €15 billion-and-€15.2 billion, a cut of around 2% from prior guidance.
Adjusted free cash flow guidance has been cut by almost 4% to around €5.1 billion.
RESILIENT FIRST HALF
CEO Nick Read insisted the company managed the challenges in the first half in a ‘resilient’ manner. Total revenues increased by 2% to €22.9 billion while adjusted EBITDA fell 2.6% to €7.2 billion.
Higher revenues were offset by a prior year one-off legal settlement in Italy and commercial underperformance in Germany. Operating profit increased by 12% to €2.9 billion reflecting higher income from associates and joint ventures.
The company announced an unchanged first half dividend of 4.5 eurocents per share.
WHAT DO THE EXPERTS SAY?
Investment director Russ Mould at AJ Bell commented: ‘It says a lot when one of Vodafone’s strategic highlights is finding new ways to save a significant amount of money. Cost cutting may help cushion earnings but there is always the risk that cuts go too far and the quality of the business and its services are negatively affected.
‘Activist investor Cevian has been pushing for the group to simplify its international operations and sell poorly performing divisions following a sluggish period for the group. But even Cevian has grown tired of waiting for progress and has been reducing its stake in the business.’
OTHER INTERESTS IN VODAFONE
In May 2022 United Arab Emirates-based telecoms group E& became Vodafone’s largest shareholder after it purchased a 9.8% stake for $4.4 billion.
E&, formerly known as Emirates Telecommunications Group said the stake was a strategic investment and it did not intend to make an offer for the whole company.
Disclaimer: Financial services company AJ Bell referenced in this article owns Shares magazine. The editor of the article (Tom Sieber) owns shares in AJ Bell.
