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Vodafone ramps up investment to capture growth opportunity

3 minute read

A branded sign is displayed on a Vodafone store in London, Britain May 16, 2017. REUTERS/Neil Hall

  • Increased investment to constrain free cash flow growth
  • Says there is a compelling opportunity to capture growth
  • Full-year earnings fall 1.2%, missing market expectations
  • Shares fall 7%

LONDON, May 18 (Reuters) - Mobile and broadband operator Vodafone (VOD.L) said it would accelerate investment in its network again this year after spending more to meet the demands of COVID-19, resulting in free cash flow growth falling short of market expectations.

The British company said free cash flow would increase to at least 5.2 billion euros this year, after it just met its target of "at least" 5 billion euros in the year to end-March. Analysts had expected on average an increase to 5.4 billion euros.

"The world has changed because of the pandemic," Chief Executive Nick Read told reporters on Tuesday.

"We see a compelling opportunity for high growth given the step change we've seen towards a digital society over the past year. Importantly, this growth opportunity exists in both Europe and Africa."

He said COVID-19 had advanced digitalisation by about five years, and higher network usage would be permanent.

Shares in Vodafone, which have risen by 13% in the last 12 months underpinned by a dividend yield of around 6%, fell 7% as investors fretted over the investment.

Analysts at Citi, who rate Vodafone a "buy", said capex levels and other outflows were hindering growth in free cash flow.

Vodafone reported a 1.2% drop in adjusted earnings to 14.4 billion euros for the year to end-March, short of market expectations, on 2.6% lower revenue of 43.8 billion euros after COVID-19 hit roaming and handset sales.

Read, however, said Vodafone exited the year with accelerating service revenue growth across its business, with a particularly good performance in its largest market, Germany.

"The increased demand for our services supports our ambition to grow revenues and cash flow over the medium-term," he said.

He has focused Vodafone on Europe and Africa and spun off its mobile towers infrastructure into a separate business that it listed in Frankfurt in March.

Vodafone said it expected EBITDA for the current year to rise to 15.0 - 15.4 billion euros.

Reporting by Paul Sandle; editing by William James

Our Standards: The Thomson Reuters Trust Principles.

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