Vodafone sees FY at lower end of guidance as rising costs bite
Telecoms giant Vodafone on Tuesday said annual earnings would come it at the lower end of guidance as it battled higher energy costs and inflation.
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The company posted a 2.6% fall in interim core profits to €7.2bn on a 2% rise in revenue to €23bn. Lower profits were pinned on underperformance in Germany, its biggest market, and a one-off legal settlement in Italy last year.
Vodafone added that free cash flow would be €200m lower at €5.1bn, while adjusted core earnings would be €15-15.2bn, down from €15-15.5bn.
“We are taking a number of steps to mitigate the economic backdrop of high energy costs and rising inflation. These include taking pricing action across Europe, whilst at the same time supporting our most vulnerable customers and driving energy efficiency measures across the business,” said chief executive Nick Read.
“We are also announcing today a new cost savings target of €1+ billion focused on streamlining and further simplifying the group.”
The German business, which accounts for a third of group revenue, reported a 7.4% fall in adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) to €2.68bn, partly due to losses in broadband customers and higher customer acquisition costs.
Its UK operation saw revenues rise more than 7% to €3.4bn, and adjusted EBITDA to €685m.
Vodafone last week said it was selling up to 50% of its €14.8bn mobile phone masts business to a private equity consortium, to help it cut debt and potentially pursue deals.
It is also in talks with Three owner CK Hutchison, on a potential tie-up which would create the biggest mobile operator in the country to speed up the rollout of 5G spectrum in the UK.
“It says a lot when one of Vodafone’s strategic highlights is finding new ways to save a significant amount of money. Cost cutting may help cushion earnings but there is always the risk that cuts go too far and the quality of the business and its services are negatively affected," said AJ Bell investment director Russ Mould.
“Activist investor Cevian has been pushing for the group to simplify its international operations and sell poorly performing divisions following a sluggish period for the group. But even Cevian has grown tired of waiting for progress and has been reducing its stake in the business.
“This puts pressure on chief executive Nick Read to deliver better results otherwise his days with Vodafone might be numbered.”
Reporting by Frank Prenesti for Sharecast.com