Telecoms giant Vodafone has plunged into the red after guiding lower on its adjusted free cash flow for the year (although at first glance the 2014 cash flow target seems intact) and after unveiling a share repurchase plan, instead of the expected "pass -through" of Verizon Wireless´s special dividend, which in itself was lower than expected. As if that were not enough, its bottom line was hit by a huge impairment charge during the half year ended September 30th. The £5.9bn impairment charge related to its operations in Spain and Italy -as a result of challenging market conditions and adverse movements in discount rates in that region. This heavily contributed to a pre-tax loss of £0.49bn for the period, compared with an £8bn profit last year.Vodafone's adjusted operating profit on the other hand, at £6.17bn, was 4.2% above consensus. Revenue for the period fell 7.4% from £23.52m to £21.78bn year-on-year, with the decline partially offset by a drop in the cost of sales, from £15.79bn to £14.76bn, resulting in gross profit of £7.02bn (2011: £7.7bn). Despite that, the company expects operating profits for the full year to be in the upper half of the range of £11.1bn to £11.9bn previously indicated. Vittorio Colao, Group Chief Executive, said: "Overall performance in our controlled operations in the first half of the 2013 financial year has been slightly below our expectations, mainly as a result of a further weakening in the macroeconomic environment. However, this has been offset by a very strong performance by Verizon. We expect the environment to be similar in the second half of the 2013 financial year."Mr. Colao added that: "We now expect [...] free cash flow to be in the lower half of the range of £5.3bn to £5.8bn indicated in May 2012. We expect the group EBITDA [earnings before interest, tax, depreciation and amortisation] full year margin decline to continue its improving trend year-on-year, excluding the impact of mergers and acquisitions and restructuring costs." However, it seems likely that markets were looking for the company to meet the mid-point of that guidance, not the lower end. Hence, it comes as little surprise that such guidance has caught the attention of analysts. Those at Nomura, for their part, had this to say: "Meanwhile, adjusted free cash flow (FCF) is expected to be in the lower half of the range (GBP 5.3- 5.8bn), but this includes outdated foreign exchange (FX) [assumptions], which has been unhelpful for VOD this year. We expect consensus FCF expectations to fall below the GBP 5.3bn floor. We currently forecast GBP 5.15bn."For the six month period, organic service revenue growth dropped by 0.4%, dragged down by Southern Europe where organic revenues declined 9.8%. This trend worsened during the second quarter, when organic service revenue growth fell by 1.4%, again weighed down by Southern European revenues dropping 11.3%. Overall group service revenues fell by 7.9% with Southern Europe dropping the most at 18.1%, Northern and Central Europe falling 2%, and Africa, Middle East and Asia Pacific falling 5.1%. Even so, Vodafone continues to be highly cash generative with free cash flow of £2.2bn for the six months together with £2.4bn dividend due from Verizon Wireless by the end of 2012. After it receives this a £1.5bn buyback will commence. The group will pay an interim dividend per share of 3.27p, up 7.2% on the same period last year. Nevertheless, last night Verizon Wireless announced it would pay an $8.5bn dividend by calendar year-end. This is 15% below last year's level, which was the minimum expected by analysts.As well, "the fact that the special dividend pass-through from Verizon Wireless has been replaced by a £1.5bn buyback means that income investors will need to adjust to a total dividend of 10.2p, 24% lower than 13.5p in full year 2013," Nomura adds. As of 15:16 shares of Vodafone are losing 3.8% to 160.35p and leading fallers on the Footsie.CM