Cash rich Vodafone hits H1 numbers and lifts capex programme - UPDATE

- Q2 revenue down 4.9 per cent- EBITDA down 4.1 per cent- H1 divi up 8 per cent, 84bn-dollar special divi to comeVodafone's organic revenues fell in line with company guidance in the second quarter, while the prospect of cash returns and accelerated investment plans impressed the market. Organic service revenues at the FTSE 100 telecoms group fell 4.9% in the "very tough" European trading conditions during quarter, slightly below consensus forecasts of a 4.6% decline, and producing a 3.2% fall to £22.0bn for the first six months of the year.Chief Executive Vittorio Colao was encouraged by a 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.After the recently confirmed $130bn sale of its half of US joint venture Verizon Wireless, Colao said the company expected to return $84bn to shareholders and would strengthen the balance sheet, improve dividend cover and allow further investments or shareholder returns in the future.With 4G services already launched in 14 markets so far and coffers now bursting with cash, Colao said Vodafone planned to increase its capital expenditure to roughly £7bn in in the next two financial years, compared to £6bn in three years as previously stated, as part of its Project Spring transition to 4G mobile networks.This is expected to deliver incremental free cash flow of over £1bn in the 2019 financial year and a total cash payback in seven years, with increasing dividends along the way.Earnings for the half-year before interest, tax, depreciation amortisation, as well as £228m of restructuring and significant one-off items, slipped 4.1% to £6.6bn, with operating profits of £5.7bn and free cash flow of £2bn.Management confirmed full year guidance of adjusted operating profits of around £5bn and free cash flow between £4.5bn and £5bn.But, as broker Jefferies noted, earnings margin expectations appear more cautious, with the company expecting margin declines to be a bit steeper in the second half with more acquisition and retention spending in Germany to compete against Deutsche Telekom, "an apparent admission that the approach of curtailing subsidies has not worked". Said the broker: "We believe consensus has been assuming margin declines would be reduced this year and that margins would be flat next year. Accordingly, we believe market EBITDA expectations will now be trimmed."Outside of Europe CEO Colao pointed to emerging markets businesses "performing very well", driven by rapidly increasing smartphone penetration and data usage. "In mature markets, our performance reflects more challenging conditions, which we continue to mitigate through ongoing actions to improve our operating model and cost efficiency."Jefferies noted that messages around Project Spring seemed to contain "a tacit implication of material M&A intent" and maintained its 'hold' stance. On the other hand, broker Nomura said its 'buy' rating was in light of the accelerated spending plans but also due to Vodafone's "inexpensive valuation" and attraction to possible bidders."We sense that Vodafone's accelerated investment plan will appeal to the market's improving sentiment towards investment in telecom infrastructure. In addition, the strategic move will also appeal to potential industrial bidders looking at Vodafone approaching trough earnings."Shares in Vodafone dipped initially but closed Tuesday up 1.7% at 231.25p. OH