Flailing Indian business pulls Vodafone Plc deep into the red

Vodafone announced its financial results for the six months ended September 30 with several adverse comments from its Indian operations including losses.

Vodafone announced that loss for the financial period of €1.9 billion primarily reflects losses in relation to Vodafone Idea post an adverse judgement against the industry by the Supreme Court.

It also announced a lower free cash flow of around €5.4 billion, previously "at least €5.4 billion", as lower cashflows from India and the sale of New Zealand offset the initial accretion from the Liberty Global acquisitions.

The group made a loss for the period of €1.9 billion, primarily reflecting a loss at Vodafone Idea following an adverse legal judgement against the industry by the Supreme Court, partially offset by a profit on the disposal of Vodafone New Zealand.

"We have extended the long stop date on our agreement to merge Indus Towers and Bharti Infratel, which is still awaiting regulatory approval from the Department of Telecommunications, having received all other required approvals," Vodafone said.

The six months ended September 30 includes impairment charges of €3.5 billion in respect of the Group's investments in Spain, Vodafone Idea and Romania.

On the Supreme Court judgement, Vodafone results said that in October, the Supreme Court in India ruled against the industry in a dispute over the calculation of licence and other regulatory fees, and Vodafone Idea is now liable for very substantial demands made by the Department of Telecommunications in relation to these fees.

"We are actively engaging with the government to seek financial relief for Vodafone Idea. Given the ruling our guidance now excludes recharges from India (a drag of €0.1 billion on our free cash flow) and Indus Towers dividends (a drag of €0.15 billion on our free cash flow)," it said.

On the operations of Vodafone Idea, Vodafone said in October 2019, the Indian Supreme Court gave its judgement in the "Union of India v Association of Unified Telecom Service Providers of India" case regarding the interpretation of adjusted gross revenue ('AGR'), a concept used in the calculation of certain regulatory fees.

"As the Group has no obligation to fund VIL losses, the Group has recognised its share of estimated Vodafone Idea Limited ('VIL') losses arising from both its operating activities and those in relation to the AGR judgement to an amount that is limited to the remaining carrying value of VIL, which is therefore reduced to € nil," Vodafone said. It has recognized the losses and the carrying value is reduced to nil.

"If the carrying value had been high enough not to have restricted the Group's share of losses, then the recognised share of losses would have been substantially higher," it said.

The adjusted other income and expense was a €0.9 billion charge (September 30, 2018: €0.3 billion charge), primarily due to losses incurred in Vodafone Idea Limited , offset by the profit recognised on the disposal of Vodafone New Zealand of €1.1 billion.

In the notes on investment in associates and joint arrangements, Vodafone said the equity accounted results for Vodafone Idea Limited ('VIL') for the period included an estimate for a material charge for amounts due following the recent Supreme Court of India judgement in the case Union of India v Association of Unified Telecom Service Providers of India and others regarding the definition of adjusted gross revenue ("AGR") used to calculate regulatory fees.

"The Group's recorded share of VIL's resulting losses has been restricted to the amount that reduces the Group's carrying value in VIL to €nil at 30 September 2019. The Group's carrying value was €1,392 million at 31 March 2019 and in May 2019 the Group invested €1,410 million via a rights issue," it said.

"Significant uncertainties exist in relation to VIL's ability to generate the cash flow that it needs to settle, or refinance its liabilities and guarantees as they fall due, including those relating to the AGR judgement. VIL is seeking relief from the Indian government, including, but not limited to, granting a waiver of interest and penalties relating to the AGR judgement. The value of the Group's 42 per cent shareholding in Indus Towers Limited ('Indus') is, in part, dependent on the income generated by Indus from tower rentals to major customers, including VIL. Any inability of these major customers to pay such amounts in the future may result in an impairment in the carrying value of the Group's investment in Indus (30 September 2019: €0.6 billion)," it said.

On the discontinued operations and assets and liabilities held for sale, Vodafone said in the comparative period, Vodafone combined its subsidiary, Vodafone India (excluding its 42 per cent stake in Indus Towers), with Idea Cellular in India.

Consequently, Vodafone India was accounted for as a discontinued operation for all periods up to August 31 2018, the date the transaction completed.

"For the five months ended August 31, 2018, the group recorded a loss on disposal of Vodafone India of €3,420 million. This loss is presented within discontinued operations," it said.
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