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Vodafone Weighs Towers Sale, Swings to Net Loss for H1Vodafone Weighs Towers Sale, Swings to Net Loss for H1

UK-based operator has created a separate towers company in Europe and says it is now reviewing options for that business.

Iain Morris

November 13, 2018

4 Min Read
Vodafone Weighs Towers Sale, Swings to Net Loss for H1

Vodafone appears to be considering a sale of infrastructure assets after setting up what it describes as a "virtual internal tower company" across its European operations in a further bid to reduce costs.

Nick Read, the operator's new CEO, said he is "reviewing the best strategic and financial direction for these assets" as Vodafone Group plc (NYSE: VOD) swung to a net loss of €7.8 billion ($8.8 billion) for the first six months of the current fiscal year from a net profit of €1.2 billion ($1.4 billion) a year earlier.

Sales were down 5.5%, to around €21.8 billion ($24.5 billion), but Vodafone blamed this decline and its loss on accounting changes that included impairment charges of €3.5 billion ($3.9 billion) across Spain, Romania and India. A loss on the disposal of Vodafone India, which recently completed a merger with local rival Idea Cellular, was partly responsible for the setback.

Vodafone said any comparison of recent numbers with year-earlier figures was "not meaningful" and that its revenues grew 0.8% on an organic basis, excluding handset financing. Organic earnings (before interest, tax, depreciation and amortization) were up 2.9%, excluding handset financing and settlements, thanks to cost-cutting activities across the group.

However, Read flagged "competitive challenges" in Italy, where a costly spectrum auction and competition from new entrant Iliad have taken their toll. He also noted pressure in the Spanish market.

Read said Vodafone was now targeting full-year EBITDA growth of 3%, having previously offered a range of 1-5% as guidance.

"We are on track to reduce net operating expenses for the third year running," he said. Vodafone is targeting a net reduction in European operating expenses of €1.2 billion ($1.4 billion) by 2021.

To achieve that cost-cutting goal, Read noted in the half-year announcement that Vodafone's "new strategic priorities focus on driving greater consistency of commercial execution, accelerating digital transformation, radically simplifying our operating model and generating better returns from our infrastructure assets. Our goal is to deepen customer engagement through a broader offering of products and services, and to deliver the best digital customer experience, supported by consistent investment in our leading Gigabit networks."

Figure 1: Vodafone CEO Nick Read: Aiming to simplify operating model and generate better returns from infrastructure assets. Vodafone CEO Nick Read: Aiming to simplify operating model and generate better returns from infrastructure assets.

Due to a net cash outflow related to the Vodafone India transaction, as well as spending during Italy's recent spectrum auction, Vodafone's net debt rose to €32.1 billion ($36.1 billion) from €29.6 billion ($33.3 billion) at the end of March.

The move to set up a tower company comes shortly after Bloomberg reported that Vodafone and Telecom Italia (TIM) were in talks to pool their 5G assets and build a joint network.

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Light Reading. Italy's spectrum auction raised about €6.6 billion ($7.4 billion), easily beating a government target of €2.5 billion ($2.8 billion) but leaving operators in a difficult financial position ahead of 5G rollout. The recent launch of a low-cost service by Iliad, a French company that acquired Italian assets last year, has already intensified competition in Italy's mobile market. (See Italy's $7.6B 5G bonanza puts telcos on the rack.) Read appeared to lash out at the Italian government shortly after the 5G auction, saying that "auctions should be designed to balance fiscal requirements with the need for investment to enable economic development." Vodafone said its new tower company would manage about 58,000 towers across the European business and have a dedicated management team focused on cost reduction. "We are also conducting due diligence in order to determine the optimal strategic and financial direction of all our tower assets, including those held in joint ventures," said the operator. The rather gloomy earnings update comes as Vodafone tries to push through a takeover of German and central European assets owned by Liberty Global, one of the region's biggest cable operators. Vittorio Colao, Read's predecessor, had talked up the cost-saving and commercial attractions of that deal, but it has faced strong resistance from Deutsche Telekom, the German telecom incumbent, and could yet encounter regulatory opposition. Vodafone's share price has fallen 38% since the start of the year but investors appear encouraged by Read's plans as the operator's stock gained almost 6% in early trading on the London Stock Exchange to 152.9 pence. — Iain Morris, International Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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