Vodafone’s confidence for 2018 sparks rally

Management is planning to merge its Indian subsidiary with rival Idea Cellular and so numbers from this loss-making division have been stripped out. The merger deal also meant €1.3bn of the net €5bn impairment taken at the half year was written back. Meanwhile, the reporting currency has changed to euros to better reflect the group's strongest geographical presence.

Strip out the plethora of complications and there's a lot to like in Vodafone's results. On a like-for-like basis, revenues were up 2 per cent and adjusted cash profits rose nearly 6 per cent to €14.1bn. Adjusted earnings per share increased 17 per cent to 8ȼ, despite the higher number of shares following the issuance of mandatory convertible bonds in February 2016.

True to its roots as a global telecoms company, it was Vodafone's overseas markets which aided the trading performance. The strongest divisions were Turkey and Egypt, which achieved double-digit revenue growth. Add that to the continued accumulation of new mobile customers at South Africa-based Vodacom and Africa, Middle East and Asia Pacific (AMAP) revenues rose 8 per cent on a like-for-like basis.

The UK, meanwhile, was disrupted by mistakes made during the implementation of a new billing system in the final quarter of 2015. The resultant customer decline sent UK mobile revenues and adjusted cash profits down 3 per cent and 16 per cent, respectively.

But as the group's difficulties can be localised to the UK and India - set to complete before the end of the 2018 financial year - management has an optimistic outlook. Adjusted cash profits are expected to grow between 4 per cent and 8 per cent, and free cash flow forecast to hit €5bn, up from €4.1bn in this period.

Analysts were reviewing numbers as we went to press. Jefferies had expected adjusted pre-tax profit for the year to March 2018 of €3.7bn, giving adjusted EPS of 8.54ȼ (FY2017: 8.0ȼ).