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Vodafone: all eyes on cash generation and costs

Capex and cash flow considerations will be to the fore on results day
November 12, 2020
  • Focus will centre on the cost of expanding infrastructure and stripping out Huawei equipment
  • The float of its European ‘Vantage Towers’ business should help to pare back net borrowings

You could argue that telco’s do not have sunk costs in the conventional sense, at least not in the digital age. You either commit capital on an ongoing basis or fall by the wayside. Vodafone (VOD) is set to reveal its half-year figures on Monday, 16 November, in which the cost of expanding and updating its infrastructure will be to the fore, hopefully together with new details on the costs of removing Huawei equipment out of the sensitive parts of its EU networks.

That scaling-up includes the acquisition of Liberty Global’s assets in Germany and other European locales, together with a recent deal between its Egyptian subsidiary and the country's National Telecommunications Regulatory Authority that significantly expanded its network capacity. The related $540m (£415m) bill is relatively modest by Vodafone’s recent standards, and the Egyptian business may well be hived off to the Saudi Telecom Company in short order, but the group closed out FY2020 with net debt sitting at 67 per cent of shareholders’ funds. Admittedly, the planned float of its European ‘Vantage Towers’ business should help to pare back net borrowings, but the group’s ability to finance distributions will be uppermost in the minds of many investors.