© PA

Vodafone struggles with the law of large numbers. Growing earnings and top line gets harder the bigger the company and at £56bn in market value the London-listed group more than qualifies. Since completing the sale of its holding in Verizon three years ago, profitability has slipped. No longer. A cheery reaction to full-year results on Tuesday — shares rose 4 per cent — suggests hopes are too high.

Chief executive Vittorio Colao has had the unenviable task of defending Vodafone’s record during this time. Consider its UK and India units. Together these two make up well over a quarter of group revenues. Mr Colao can bet on better times in both countries. Earnings before interest, tax, depreciation and amortisation in the UK fell 16 per cent. Surely such an awful drop will not recur now the company has completed the much-delayed installation of its billing system.

In India, Vodafone’s merger with Idea Cellular should help reduce sparring in a mobile market in freefall due to the aggressive pricing of the Reliance Jio brand. Even better, Vodafone’s 45 per cent holding in the combined entity means the requirement to consolidate an extra €8.7bn into group net debt is gone. That accounting magic plus an upward revision to last year’s impairment test for India has increased earnings.

What matters more to the market is Mr Colao’s optimistic outlook. After just meeting targets on group ebitda improvement at 3 per cent, Vodafone promised a bit more: between 4 to 8 per cent growth this year. Free cash flow should rise a quarter towards €5bn. That should mean more dividend potential after only a 2 per cent lift in 2016, assuming no major acquisitions.

Meeting these expectations still looks tricky. Vodafone’s heavy investment is in the past, and capital spending is unlikely to fall much further. Sales must surprise upward, costs fall much more, or both. Yet two-thirds of revenues derive from low-margin mobile divisions. Mr Colao will need some good luck with his numbers.

Email the Lex team at lex@ft.com

Copyright The Financial Times Limited 2018. All rights reserved.