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Vodafone shares rise as telecoms group lifts profit forecasts – Financial Times

May 16, 2017

Vodafone has promised a stronger performance after difficulties at its Indian unit and customer service problems in the UK contributed to a €6.1bn loss in the year to March.

Shares in Vodafone rose more than 4 per cent by mid-afternoon after the telecoms company raised its guidance for underlying profit growth.

Vodafone shocked the market last year by writing down the value of its Indian unit by €5bn as it struggled to cope with aggressive new market entrant Reliance Jio. It also continued to battle difficulties in its home market where a poorly executed billing systems upgrade triggered customer fury and regulatory fines.

The company has since merged its Indian unit with rival Idea Cellular and this week rolled its Kenyan subsidiary into the Vodacom company it controls in South Africa as Vittorio Colao, chief executive, continues to realign Vodafone’s assets.

The €6.1bn loss was better than expected after stronger earnings growth in the second half and a revision to the Indian writedown to €3.7bn after the Idea merger.

Revenue was down 4.4 per cent to €47.6bn due partly to foreign exchange movements as organic service revenue — the sales it derives from calls and data — rose 1.9 per cent over the year. That growth slowed to 1.5 per cent in the fourth quarter, driven partly by an accelerated decline in the UK where it fell 3.9 per cent in the final three months of the year.

Mr Colao said that revenue at the UK division was “flattening” and that it had eliminated the customer service problems that have plagued the unit. “We are refocusing on commercial competitiveness,” he said. 

Vodafone’s revenue for the year dropped 3.3 per cent in its home market while its adjusted earnings fell 7 per cent. That compared to a near-11 per cent rise in profit in Italy and 4.5 per cent in Germany.

Mr Colao said that the company expects to report a better performance in the UK in the second half of the current financial year. “There is no doubt we have had a lot of issues,” he said.

Asked if the company felt it needed to pursue a merger with Liberty Global, Mr Colao again appeared open to a deal but said there are no talks. “There nothing new being discusses but it takes two to dance. We look at strategic options should opportunities present themselves,” he said.

Vodafone’s statements on its outlook now strip out India and the Netherlands, where its operations have been merged with Liberty Global’s Ziggo, as the units have been deconsolidated from its accounts.

The removal of the cash-losing Indian unit helped strengthen its forecasts as the company pointed to adjusted earnings before interest, taxation, depreciation and amortisation to grow 4-8 per cent compared with 3.4 per cent in fiscal 2017. Free cash flow is expected to hit €5bn, up from €4.1bn with a new round of cost cuts planned.

Vodafone raised its dividend 2 per cent for the year to March and said it would raise it again next year as part of its “progressive” policy.

“We are broadly getting in a space where we can balance our dividend and investment needs,” said Mr Colao. That pledge comes after TalkTalk and BT cut their dividends last week.

Dhananjay Mirchandani, an analyst at Bernstein, said: “Things are looking up at Vodafone. 2017 numbers were not spectacular, though guidance for 2018 is a strong vote of confidence by the leadership team in Vodafone’s business prospects. This a big and rather unwieldy tanker. The good guidance for 2018 has to be interpreted in that context.”

Stephane Beyazian, an analyst with Raymond James, said that Vodafone had outperformed in the second half of the year but remained concerned about its prospects in the short term. “While Vodafone is executing well on strategy, we see a risk of slower revenue trends in the next couple of months, due to specific factors (the price war in India, T-Mobile in the Netherlands, Iliad in Italy, and regulations in Germany). We continue to believe that a tie-up with Liberty Global would be the best option for Vodafone,” he said.

Vittorio Colao, Vodafone chief executive © Bloomberg

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