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Vodafone warns inflation could derail growth in 2023

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Vodafone CEO Vodafone Nick Read said he was focussing on improving the mobile company's performance in Germany, which makes up 30% of the group. Photo: Daniel Leal/AFP via Getty Images
Vodafone CEO Vodafone Nick Read said he was focussing on improving the mobile company's performance in Germany, which makes up 30% of the group. Photo: Daniel Leal/AFP via Getty Images

Vodafone (VOD.L) reported on Tuesday that underlying profits and cashflow are growing in line with forecasts but said both could be lower in the coming year due to inflation.

In its full-year results, the mobile phone operator posted a 5% rise in its 2022 financial year core earnings, meeting the bottom of its guidance.

The FTSE 100 (^FTSE) telecoms group reported adjusted core earnings of €15.21bn ($15.9bn, £12.8bn), just below market expectations of €15.28bn.

Revenue at the UK’s third largest telecoms firm jumped by 4% to €45.6bn, slightly above analysts estimates of €45.4bn. This was driven by service revenue growth in Europe and Africa, and higher equipment revenue, as well as favourable foreign exchange movements.

For Germany, which makes up 30% of the group, total revenue rose by 1.1% to €13.1bn.

Read more: Greggs warns of price hikes as cost pressures rise

Looking ahead, Vodafone warned that the current macroeconomic climate, especially inflation, presents specific challenges, and this was likely to impact the financial performance in 2023.

"The current macroeconomic climate presents specific challenges, particularly inflation, and is likely to impact our financial performance in the year ahead," the operator said, with the impact of recent energy price inflation, exacerbated by Russia's invasion of Ukraine, factored into its latest forecasts.

Despite the headwinds, the group anticipates it can still put in a resilient financial performance at the year end.

Having delivered against the guidance offered for the full year, Vodafone expects EBITDA and free cash flow being broadly similar for the next 12 months.

"Guidance and our medium-term financial ambition assume no material change to the structure of the Group," a company statement said.

Adjusted free cash flow was expected to be around €5.3bn, it said, down on €5.4bn reported on Tuesday. It had previously set to medium-term target for mid-single digit growth in profit and cash flow.

Shares in the London-listed company fell 1.8% to 118p in early trade on Tuesday in London.

Over the weekend, UAE rival e& took a surprise 9.8% stake in Vodafone for $4.4bn, becoming the firm's largest shareholder, and relieving the telecommunications giant, which has been under pressure from activist investor Cevian Capital to improve its returns.

"Now Abu Dhabi telecoms group e& has taken a big slice of Vodafone," said Russ Mould, investment director at AJ Bell. "This comes hot on the heels of talk that activist investor Cevian Capital has also taken a big stake with a view to getting Vodafone to sell some operations, consolidate its position in key markets, return more cash to shareholders and bring more telecoms experience onto the board."

Nick Read, chief executive of Vodafone, said he was focused on improving the mobile company's performance in Germany, pursuing opportunities for Vantage Towers, the infrastructure arm it spun out last year, and "strengthening its markets positions in Europe".

In February, the CEO said the group was pursuing mergers with rivals in multiple European markets, including in Britain, Italy, Spain, and Portugal, however the company has struggled to close on transactions.

The company is currently pursuing a merger of its UK consumer business with rival Three.

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