Vodafone adjustments make it difficult to judge

On the surface, these are pleasing results for Vodafone (VOD). Total revenue was up thanks to a recovery in demand for handsets and increased service revenue from Europe and Africa. This has enabled it to push up its full-year adjusted cash profit guidance to the top end of the range. Underlying cash profits increased by 6.5 per cent to €7.6bn (£6.7bn), reflecting the increase in revenues and a favourable legal settlement in Italy. The adjusted free cash flow forecast has also increased to at least €5.3bn (£4.5bn), from at least €5.2bn.

These results, though solid on the surface, need to be put in context against of raft of corporate restructuring measures. Last year there were five disposals, four acquisitions, three mergers and one demerger across the group’s operations in Europe and Africa. And in March, it completed the IPO of its Vantage Towers business, which has a network of 82,000 towers across Europe.

The group recorded a free cash outflow of €1bn, but if you adjust for the integration costs and Vantage Tower growth capital expenditure, along with the licence and spectrum payments needed to upgrade to 5G, then we are left with an inflow of €23m. The statutory outflow meant that the group's net debt pile actually increased from €43.9bn to €44.3bn.

The good news for investors is the significant growth in Africa where there are lots of potential customers that need connectivity. The number of African mobile customers increased 8.7 per cent to 186m and the number of data users was up 3.7 per cent to 87.6m. And the investment in 5G now means it is now available in 244 cities in Europe, up from 127. Mobile contract customer loyalty in Europe also improved by 2.3 percentage points and a €1.3bn reduction in net operating expenditure was achieved.

FactSet consensus gives an adjusted EPS estimate of 9.06p, rising to 11.9p by FY 2024, but it's worth remembering that this is a work in progress. The nature of one-off costs for the business is also open to debate when you consider that spectrum licensing is part and parcel of running a telecoms business. Then there is the ever intensifying competition, the integration of Liberty Global and ongoing capital expenditure commitments to take on board. Hold. 

Last IC View: Hold, 129p, 19 May 2021