Vodafone profits slide in 'tough conditions'

Revenues have slipped at Vodafone but its £130bn Verizon cash pile is comforting investors.

by Gabriella Griffith

It’s a morning of mixed emotions for Vodafone shareholders; on one hand they hear the unfortunate news adjusted operating profit has fallen 8.3% in the first six months of 2013 to £5.7bn but on the other, the phone giant has announced it will return about $84bn (£53bn) to investors, following the sale of Verizon Wireless.
The phone giant reported organic service revenues of £20bn for the six months to 30 September – down 4.9% compared with the same period last year. Southern Europe performed particularly badly – with a revenue drop of 15.5%, central and northern Europe fell too, by 4.9%.
‘Whilst trading conditions in Europe remain very tough at present, we are encouraged by the forecast return to economic growth over the next two years and the potential for a shift in regulatory focus to support greater industry investment and consolidation,’ said chief executive Vittorio Colao.
Colao pointed out the company is doing particularly well in emerging markets thanks to the mighty smartphone.
Meanwhile, investors are cheered by the bumper pay out, which follows September’s deal with Verizon –Vodafone sold its U.S. arm to the American company for a whopping $130bn – the second largest acquisition deal in history. Vodafone announced it would increase its interim dividend by 8% to 3.53p – with more to follow when all of the cash hits the coffers - thought to be in early 2014.
‘The pending $130 billion US transaction will reward our shareholders for their long-term support of our strategy and will provide us with a strong balancesheet, improved dividend cover and the financial and strategic flexibility to make further investments in the business or returns to shareholders in the future,’ said Colao.
Quids in – pop the champers.
The mountainous stash of ‘Verizon cash’ is not simply going towards shareholders though – there’s a fair bit of change left over after they’ve had their cheques. Vodafone has said it plans to funnel £7bn into improving its networks by March 2016 – part of what it’s calling ‘Project Spring.’
The company said it intends to invest £3bn in Europe – improving speed in its mobile networks. It will also cough up some £1.5bn to extend its coverage across major cities in emerging markets. It plans to plough £0.5% into its enterprise product suite and £1bn on ‘customer experience.’
This doesn’t mean deploying Vodafone’s advertising mascot, Yoda, to answer your phone for you and take messages, rather the company plans to upgrade its stores and improve its mCare and online platforms. Still, as Yoda would say, ‘Good, to us, this sounds.’

No mention was made, however, of Vodafone’s new ‘prime takeover target’ status. With its American arm sold, the British phone company looks pretty attractive to other large companies - American telecoms giant AT&T is rumoured to be sizing Vodafone up for an acquisition. A buyout could be further good news for investors but certainly not for British Plc - the phrase ‘another one bites the dust’ comes to mind

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