Vodafone PLC (LON:VOD) has reported a slight fall in revenue for its first quarter and confirmed that its mobile towers business will be spun-off via an initial public offer in Frankfurt early next year.
Under the new name of Vantage Towers, the business owns 68,000 towers across nine European countries from Germany to Portugal and Ireland, plus a 33.2% stake in an Italian joint venture, a newly announced merger in Greece and plans to add Vodafone’s 50%-owned UK joint venture with O2.
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In a statement, Vodafone chief executive Nick Read said the launch was part of improving the use of the group’s assets and that Vantage Towers “will also unlock further value for shareholders” from the IPO, while intending to retain a majority stake after the spin-out.
Focusing back on the operational telecoms business, in a separate statement, the FTSE 100 company said organic sales fell 1.3% in the quarter to June 30, 2020, mostly from the coronavirus (COVID-19) pandemic hitting roaming charges, though reported service revenues were up 1.3% to £9.1bn.
UK organic revenues were down 1.9%, Germany, now the group’s biggest market, was flat, Italy and Spain were both down more than 6% but Vodacom in South Africa was up 1.5%.
Read said the performance "demonstrates the relative resilience of our operating model and focused delivery of our strategic priorities"
He added: “Whilst we have seen the direct impact on our revenue from travel restrictions and business project delays, we have also seen increased usage in voice and data, alongside record NGN [next-generation network] broadband customer net additions in Europe.”
For the full year, the Vodafone boss said the group remained “on track” for its guidance on cutting operating expenditure and for underlying profit (EBITDA) to be “flat to slightly down” and to generate at least €5bn of free cash flow.
There was no mention of the group’s debts, which at the March 30, 2020, year-end stood at around €42bn.
Shares fell 4% to 123.72p in Friday morning trading, down 16% since the start of the year.
“Vodafone will be losing some attractive assets when it sells Vantage Towers, but management thinks shareholders will get more for their money if the towers can be valued separately through an IPO,” said analyst William Ryder at Hargreaves Lansdown.
Cash from the sale is likely to go towards reducing debt, he said. “Overall we think the sale makes sense, and in the long run it should leave Vodafone more focussed and agile.”
The impact on sales from people not going on holiday and paying roaming charges as much may not fully recover for some time. “But in the long run we’re not overly concerned,” Ryder added. “We were also slightly worried about costs, but management still thinks it can make savings and deliver a healthy dose of free cash.”
Richard Hunter at Interactive Investor said an overall revenue decline of 1.3% “is a fair result, and is partly attributable to the enhanced performance in Germany, which is clearly taking shape” and “is before the full effects of cross-selling opportunities to tempt customers into a 'converged' pack offering several services and the expected cost savings wash through”.
He concluded: “Vodafone has a loyal following of optimistic investors, based on a number of factors such as its sheer size, cash generative ability and clearly visible prospects. The punchy 6% dividend yield is another attraction, particularly in the current environment where many companies have simply chosen not to pay out at all. The market consensus of the shares as a strong buy has been in place for some time now and there seems little in this update to disturb that view.”
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