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Vod
Posts below are a bit late (years) in condemning Net Debt.
Net Debt is hardly any different to the past 3 years!
This will make 4 years of very similar Net Debt.
Similar - not shockingly worse!
A relatively small reduction in earnings has been issued. Over €1.5billion was previously forecast.
Today that has been lowered but it's still circa €1.5billion!
Yes, down a few low hundred million. Not down a billion but a few hundred million.
Technically the wording is being regarded as a profit warning. However I have a ton of data on profit warnings and the average one day fall after such announcements is 20%+) usually more) in most cases, but the lowest comes in at circa a 15% drop. VOD has done approx a one day 8p/8% drop.
That is not a typical profit warning reaction!
Should the SP go on to drop the equivelant of 20% from Monday's close then I'd be prepared to make a special case for VOD and treat it as a proper profit warning. And that opens up a whole new can of worms. And that's another subject (post is long enough :) it
Been on the motorway all day so tired now after studying the past 3 years almost identical net debt so not posting them but will wait to see if the next 2 years estimates (by analysts) of fantastic Net Profits get adjusted down and will post those soon (couple of weeks)
But at the moment the huge net profits forecast for the next 2 years are still the same.
Probably will come down a bit, but not much by the sound of things; because -
Revenue is up for H1
So is Operating Profit.
However Net Profit is a little down on last year. Just a little only, though.
But Net Debt is approx over €1b higher. When you're talking about the past 3 years being in the lower end €40b's then €44b last year/€45b this H1, which is still in the lower 40's, is hardly the end of the world is it?
Key is how the SP reacts in the coming days. Needs to drop at least another 8p yet again (and then some; that's the bare minimum required) to become a more serious concern before it can be regarded as a propa' pannicky profit warning.
Haven't worked out a floor yet (tired)
(And need to see analysts new 2 year replacement forecasts based on today's news) so please keep the bearish posts coming so I can consider getting a bargain-priced small tranche in the margin of safety category :)
Velo.. Got you sussed? You just want to buy them on the cheap? So do I, but I have run out of money! What part of buy low, sell high don't I get? Can anybody lend me a few grand?
On Nov 16th I posted comments referring to the net debt in the H1 trading update released that day.
I still had more to say but as it had gone midnight and I was far from home, I decided to leave it until I returned.
This is a bit late now, but here is the conclusion to my findings on Net Debt so it’s important the original post links to this conclusion.
Why?
Because every single review and criticism from media journos and the like, commenting on the Net Debt has utterly missed the continued similarity of Net Debt and yet all are in uproar at the “sudden” / “ballooning” of the Net Debt to €45b at H1.
And that’s a false and erroneous view to take because . . .
- NET DEBT IS STILL IN LINE WITH THE PREVIOUS 3 YEARS OF H1 Net Debt amounts!
It’s not a new issue that’s only raised its head this year, why then so many panic-strewn reports and posts as if this has come flying out of the blue? It hasn’t. See for yourself:
Net Debt @ H1 for year ending 2020 = €48.1b
Net Debt @ H1 for year ending 2021 = €43.8b
Net Debt @ H1 for year ending 2022 = €44.2b
Net Debt @ H1 for year ending 2023 = €45.5b
The average for the 3 years prior (‘20 to ‘22) to the ‘23 H1 that was released last week is €45.3b
- So you can see the current year’s H1 is almost a perfect mean average making 4 years of H1's similarity.
It has not suddenly shot up out of control, it’s stayed almost exactly the same for a number of years now.
Where is the sudden “out-of-control ballooning” of Net Debt? And why are so many keen to make you think it is a brand-new problem?
It’s a fact that in a bull market, growth stocks are welcomed when they build up debt - but in a bear market, the market rotates out of debt-laden stocks and into value stocks. So I understand the angst.
But show me why it’s worse this H1 than the previous 3 years because it isn’t worse - it’s very, very, similar!
Net Debt doubled a couple of years ago at the time VOD bought Liberty Global’s towers in Germany & Europe et al. Think they paid about €21b which was added straight onto the Net Debt, effectively doubling it.
That was the time for the outcry! Far too late to ram it down investors' throats now as if it’s a helpful service to VOD investors.
However I have discovered maybe another reason for the hue and outcry and will post about that in my next post so as not to detract from the above.
It involves the full year Net Debts.
After that, a post on the fantastic, almost unbelievable, " sudden" :) :) huge earnings increase in market estimate forecasts that are due over the next 2 years > > >
“. . . However I have discovered maybe another reason for the hue and outcry and will post about that in my next post so as not to detract from the above. “
————————
I want to now mention the ANNUAL Net debt, for each year.
To date, the market has gone into panic mode over this year’s half-year H1 Net Debt.
Well, they should prepare themselves for a stroke when they get an eyeball of several years worth of full-year annual net debts. LOL!
Proof positive that the media is short-sighted, because if they’ve gone ape-shht over €45.5b then they have retained no memory of all the past years' average higher full years worth of Net Debt.
To recap these were the prior years' H1 Net Debts, but next to them I’ve now supplied the full-year Net Debt that each year accrued -
Net Debt @ H1 for year ending 2020 = €48.1b
Net Debt for the full year ending 2020 = €54.2b
Net Debt @ H1 for year ending 2021 = €43.8b
Net Debt for the full year ending 2021 = €52.7b
Net Debt @ H1 for year ending 2022 = €44.2b
Net Debt for the full year ending 2022 = €54.6b
So you can see in each of the preceding 3 years, the average €45b half-year Net Debt ended each year, almost €8b or €9b higher than the H1 values.
That’s the average full-year - the lower mid-half 50’s of €53.8b
I draw your attention to this because I expect more panic at the full-year results next spring, so be ready to ask why they thought a yearly average of between €52b to €54b Net Debt was tolerated - but why not now?
Now all that was assuming that this current year was also going to come in with “similar” full-year Net Debt. However, it was my turn for a shock. According to the TTM method of estimates for the full-year Net Debt, I’m looking at a full-year Net Debt in the region of €60.8b!
Net Debt @ H1 for year ending 2023 = €45.5b
Net Debt ‘forcast’ (TTM) Fullyear ending 2023 = €60.8b
I don’t have an answer for that except to say look at the fantastic earnings increase for the next 2 years that I will reveal in the next post. Could the expected huge increase in earnings be part of the defense as to why Net Debt may or may not hit €60b by this trading year’s end?
Finally to counter all that, take a look in my final post next, at the great increase in earnings estimates the market expects over the next 2 years > > >
Velo - It's all smoke and mirrors in these reports you get from big companies. One minute you're comfortably invested in what seems like a great company and the next minute all hell is let loose.
Hi Velo, not sure where you obtained your figures, but I notice you've added borrowings excluded from the reported Net Debt figure, like Lease Liabilities. I haven't checked all the figures, but:
FY20 reported Net Debt, adjusted for mark to market gains in hedging reserves, was reported as 42.168 billion with,
Lease liabilities 12.063 billion,
Bank borrowings secured against Indian assets 1.346 billion,
--------------------------------------------------------------------------------
Total borrowings excluded from net debt 13.409 billion
(42.168 + 13.409) = 55.577 billion - 1.346 billion = 54.231 billion
It appears your FY20 figure omits the Bank borrowings secured against Indian assets of 1.346 billion.
BT seem to automatically add lease liabilities to Net Debt, whereas Vodafone report Net Debt with them excluded.
The sale of the Vantage stake may knock around 6 billion of the Net Debt by the end of FY23.
Debt rating agencies and investment community use net debt as follows:
'Gross debt less cash and cash equivalents, short-term investments, derivative financial instruments excluding mark-to-market adjustments and net collateral assets.'
At 31 March 2022 €m
GROSS BORROWING(70,092)
Lease liabilities 12,539
Bank borrowings secured against Indian assets 1,382
Collateral liabilities 2,914
GROSS DEBT (53,257)
Collateral liabilities (2,914)
Cash and cash equivalents 7,496
Short-term investments 4,795
Collateral assets 698
Derivative financial instruments 2,954
Less mark-to-market (gains)/losses deferred in hedge reserves (1,350)
NET DEBT (41,578)
Looking at the H1 presentation:
The Increase in net debt at the half year is due to MCB buy-back, timing of dividend payments & FCF phasing
Free cash flow weighted to H2 reflecting the seasonality of working capital and €1.7bn spectrum payment in Italy already in net debt
Page 43 is worth a look ie the increase in net debt from year end €41.6Bn to H1 €45.5Bn due to net collateral liabilities and timing differences.
In particular, FY22 €2.2Bn increases to H1 €7.6Bn.
The group accounting policy causing the timing difference says:
'The Group invests surplus cash positions across a portfolio of short-term investments to manage liquidity and credit risk whilst achieving suitable returns. Collateral arrangements on derivative financial instruments result in cash being paid/(held), repayable when the derivatives are settled. These assets do not meet the definition of cash and cash equivalents but are included in the Group’s net debt based on their liquidity.'
https://investors.vodafone.com/sites/vodafone-ir/files/2022-11/vodafone-h1-fy23-results-presentation.pdf