Vodafone warns inflation to hamper earnings, deal talks

2 minute read

Branding hangs outside a Vodafone shop in Oxford, Britain, May 16, 2017. REUTERS/Toby Melville

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  • CEO says M&A talks ongoing in four markets, but 'no fire sales'
  • Wide ranging earnings outlook for FY23 below market consensus
  • Says talked with new major shareholder on Saturday
  • Shares fall 3%, before paring losses

LONDON, May 17 (Reuters) - Rising inflation and a tough economic backdrop will hold back Vodafone's (VOD.L) earnings this year and could complicate its dealmaking efforts, the mobile phone group warned on Tuesday.

The company, which has a new Middle Eastern shareholder, said it expected adjusted core earnings of 15-15.5 billion euros ($15.7-$16.2 billion) this financial year, below analysts' average forecast of 15.57 billion euros.

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

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"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 fell 3% in early trade, wiping out gains made on Monday, the first day of trading after UAE-based telecoms company e& said it had bought a $4.4 billion stake in the British group. The stock later recovered, but continued to lag Britain's benchmark blue-chip index (.FTSE).

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".

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

Since then, Vodafone has rejected a $13 billion 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. read more

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

Read said he had a "very good" conversation with e&'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.

($1 = 0.9547 euros)

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Editing by Kate Holton and Mark Potter

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