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Vodafone Australia loses $899 million

Vodafone Hutchison Australia (VHA) – a joint venture between Vodafone Group and Hutchison Telecommunications (Australia) (ASX: HTA) – has reported a net loss of $899 million for the 2012 financial year, following a net loss of $430 million being recognised in 2011.

Whilst expecting further tough conditions throughout this year, the group remains confident that its restructuring of operations in 2012 will return the company to growth and profitability in the future, and thus, will continue to receive the support of its parent companies. A VHA spokeswoman stated that “we are making significant headway in our turnaround strategy and have been very clear that this is a three-year journey, not something that occurs overnight”.

VHA suffered significant financial and brand damage under the leadership of former chief executive Nigel Dews, caused by various network problems that resulted in a loss of nearly 1 million active accounts.

The Sydney Morning Herald this morning announced that Vodafone verged on breaching covenants on a $3 billion loan due to a gearing ratio that “did not meet the threshold prescribed in the syndicated facility agreement”, but managed to avoid it thanks to a partial pre-payment funded by its parent companies. As noted by a partner at a leading law firm, it was unusual that a business with global parents the size of Vodafone Group would nearly breach its loan covenant – highlighting the ‘intensively competitive mobile market’.

In 2012, VHA’s number of accounts fell by 443,000 to 6.6 million, resulting in the company’s first ever negative cash flow of $14.2 million. Furthermore, net assets totaled $1.2 billion compared to $3.9 billion in current liabilities alone.

Foolish takeaway

As Telstra’s (ASX: TLS) dominance in the telecommunications sector continues to expand, Vodafone and Optus – owned by Singapore Telecommunications (ASX: SGT) – have lost large quantities of customers. Having announced ”significant network and service improvements”, Vodafone hopes to attract customers back from its competitors with the introduction of its new 4G network. With a sizable debt – much of which is current – Vodafone will need to see significant improvements soon.

With its legendary, fully franked 28 cent dividend, Telstra is the darling of Aussie investors. But with its share price skyrocketing over the past year, is Telstra past its prime? Click here for our brand-new report: “Is It Time to Sell Telstra?”

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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