Vodafone Group CEO Nick Read was immediately put on the backfoot in the Q&A session with analysts following the presentation of the company's FY22 results (ended March 31).

After flagging in-market consolidation as a priority and a way to strengthen the balance sheet in fiscal Q2 and Q3, the first question analysts asked was why there has been no visible progress.

UK-headquartered Vodafone Group rejected Iliad's audacious takeover bid for Vodafone Italy in February, while the group seemed to miss the in-market consolidation boat in Spain where Orange and Másmovíl have agreed to merge their operations.

Has M&A slipped down the Vodafone corporate agenda?

Read, sounding a little defensive, said no. "We are actively engaged in many detailed [M&A] conversations as we speak," he said.

Figure 1: Vodafone CEO Nick Read insists many active and detailed M&A conversations are ongoing, and that Vodafone is looking to monetize Vantage Towers through a co-controlled JV.
(Source: REUTERS/Alamy Stock Photo)

He implied that Vodafone had yet to see any good in-market consolidation opportunities rather than it being the case that the board or management were dragging their feet – something that activist investor Cevian Capital indicated after it built up a stake in Vodafone.

"We want to have strong assets in healthy markets that are producing predictable free cash flow growth," said Read.

Reading between Read's lines (Ed note: I've seen better wordplay), any major Vodafone M&A action seems likely to happen first at listed Vantage Towers, the Group's European tower spinout in which it has a majority stake.

"We want to move Vantage Towers into a co-controlled situation and take it off balance sheet," asserted Read. "We want the right financial and capital structure moving forward for Vantage Towers and to make the most of growth opportunities in what is a consolidating sector, as well as to be a part in shaping that consolidation."

Read said talks on Vantage Towers' future had taken place with both industrial and "financial players."

Reflecting on E&'s recent acquisition of a 9.8% stake in Vodafone for $4.4 billion, Read seemed sanguine after a call with CEO Hatem Dowidar over the weekend.

"Hatem stressed it was a passive investment and supportive of the board and management strategy," said Read. There's an opportunity to develop commercial collaboration [with E&, formerly Etisalat] moving forward in procurement, R&D, and shared service centers. We look forward to developing a long term relationship."

The bigger picture

On summing up Q4 and FY22 results, Read claimed it was a "good performance" overall. "We delivered a real inflection point in returns," he said, pointing out that FY22 return on capital employed (ROCE) was up 170 basis points, year-on-year, to 7.2%.

"This is well on the trajectory for returns to be above our weighted cost of capital," asserted Read in the Q&A session.

"We're not immune to the macro-economic challenges in Europe and Africa, but we're very well structured to deal with it," he continued. "It gives us confidence in setting our FY23 guidance on adjusted EBITDAal of €15 billion [$15.8 billion] to €15.5 billion [$16.3 billion], and maintaining our adjusted free cash flow guidance of around €5.3 billion [$5.6 billion]."

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FY22 revenues were up 4% year-on-year to €45.6 billion ($48 billion), just exceeding analysts' expectations as reported by Financial Times (paywall applies), while a 5% increase in core earnings, to €15.2 billion ($16 billion), apparently matched forecasts.

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— Ken Wieland, contributing editor, special to Light Reading