Vodafone upgrades profit expectations

This follows six months of strong trading during which adjusted cash profits rose 13 per cent to €7.4bn on a like-for-like basis. European service revenue growth of 0.8 per cent came in ahead of expectations, while sensible capital allocation sent overall operating expenses down 9 per cent. The group managed to offset the removal of data roaming charges with a higher number of mobile and fixed customers. After stripping out the impact of regulatory changes, European service revenues grew 1.9 per cent on an organic basis and accelerated in the second quarter.

Mobile remains a huge opportunity for Vodafone in Europe. Customers are now using 2.1GB of data on average every month and this is rising as the quality of mobile connectivity improves. Vodafone is likely to increase its mobile capacity by bidding for spectrum in the upcoming UK auction for 4G and 5G wavebands. In the reported period, it spent 18 per cent of its €3.3bn capital expenditure on upgrading its mobile capabilities to prepare for the UK launch of 5G.

Things are also looking up for the Indian business which was sidelined earlier in 2017 after its proposed merger with peer Idea Cellular. True, revenue here dropped nearly 16 per cent to €2.6bn in the reported period but the threat from lower-priced competitors is beginning to lessen. Broker JPMorgan is confident that the combined business can return to revenue growth in 2018. Moreover, both Vodafone and Idea have managed to sell their telecoms towers for a total of 78.5bn rupees (£0.9bn). This cash will help the new business deal with its debt issue – Vodafone India’s debt stood at €8bn at the end of September.

Prior to these results, JPMorgan had forecast full-year pre-tax profits of €3.6bn, giving EPS of 10ȼ (from €3.3bn and 8ȼ in FY2017).