Vodafone warns inflation and tough economy could hold back earnings this year

Vodafone chief executive Nick Read said he was focused on improving its performance in Germany and pursing opportunities for Vantage Towers, the infrastructure business spun out last year. Picture: Larry Cummins

Rising inflation and a   tough economic backdrop will hold back Vodafone's earnings this year and could complicate its deal-making efforts, the mobile phone group has warned. 

The company, which has a new Middle Eastern shareholder, said it expected adjusted core earnings of €15bn to €15.5bn this financial year, below analysts' average forecast of €15.57bn. 

That came as the company reported a 5% rise in adjusted core earnings to €15.2bn for the year to the end of March that was at the bottom of its guidance range.

"The current macroeconomic climate presents specific challenges, particularly inflation, and is likely to impact our financial performance in the year ahead," the company said.

Shares in Vodafone were little changed. The shares had gained earlier this week after a UAE-based telecoms company said it had bought a $4.4bn (€3.8bn) stake in the telecoms giant. 

Vodafone chief executive Nick Read said he was focused on improving its performance in Germany, pursing opportunities for Vantage Towers, the infrastructure business spun out last year, and "strengthening its markets positions in Europe".

Opportunities across four markets

In February, he said he was looking for deals in Spain, Italy, Britain, and Portugal.

Since then, Vodafone has rejected a $13bn (€12.3bn) approach from France's Iliad and Apax Partners for its Italian business, and has seen two of its rivals in Spain — Orange and MasMovil — enter exclusive merger talks. 

In Britain, however, Vodafone is in talks with smaller rival Three, owned by Hutchison, according to reports.

"There are opportunities across four markets that we are pursuing, and we're engaged with a number of players in those opportunities," Mr Read told reporters on Tuesday.

"Clearly it's a more challenging macroeconomic backdrop, and so that will have a factor on some of the players' decisions, but overall we continue to make good progress on those discussions," he said. 

He declined to give more details, but he stressed there would be no fire sales.

Mr Read said he had a "very good" conversation with the UAE firm's chief executive Hatem Dowidar on Saturday. 

"He was fully supportive of our strategy, both organically and the actions we are taking on the portfolio," he said. 

Largest shareholder in Vodafone

The UAE-based telecoms company is called E& and was previously known as Etisalat. 

It said on Saturday it had become the largest shareholder in Vodafone with a 9.8% stake, attracted to its management, its efforts to unlock value and a diversified currency base. 

It ruled out exerting control or launching a full takeover.

Analysts were divided however over the group's long-term plan, after activist investor Cevian and other long-standing shareholders called on Vodafone to simplify its portfolio, repair markets through consolidation and boost returns.

While analysts at JPMorgan said E& could become more activist over time, possibly in conjunction with Cevian, Credit Suisse and Jefferies said the investment could give Read more breathing room to invest in assets and withstand pressure to sell off operations immediately. 

• Reuters