Vodafone FY25 Results Q&A Transcript
FY25 Results Q&A Webcast Transcript
Deutsche Numis
Morgan Stanley
Goldman Sachs
New Street Research
Bank of America Merrill Lynch
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
1
Bernstein
UBS
Exane
Citigroup
HSBC
May 20, 2025/10:00am, Vodafone – FY25 Q&A VODAFONE PARTICIPANTS Margherita Della Valle Vodafone Group - Chief Executive Officer Luka Mucic Vodafone Group - Chief Financial Officer
Margherita Della Valle, CEO Vodafone Group Good morning, everyone, and thank you for joining us today. As you will have seen from our results, our performance in FY25 has been in line with expectations. Before we move to Q&A, I want to provide an update on what has driven the results, the actions we have taken, and the key priorities for FY26 and beyond. Highlights Two years ago, I set out a transformation agenda centred around three key pillars: • Customers; • Simplicity; and • Growth. Whilst we still have much more to do, two years on, Vodafone today has changed. We have: • Reshaped the structure of the Group; • Simplified how we operate; and • Improved our customers’ experience. Therefore, not only changing where we operate, but more crucially, how we operate. Looking closer at each of these three areas, we have right-sized our portfolio for growth, with the sales of Spain and Italy and the merger of Vodafone and Three UK. We have also taken actions in a number of areas within our Investments portfolio, including the further monetisation of Vantage Towers and a simpler ownership structure in India. With these actions, we have reset our capital structure, strengthened our balance sheet and returned €2 billion to shareholders through buybacks, on top of €1.8 billion of dividends over the last year. And the first tranche of the next €2 billion buyback programme is starting today.
ANALYST PARTICIPANTS Akhil Dattani JP Morgan
Emmet Kelly Morgan Stanley Andrew Lee Goldman Sachs Joshua Mills Exane Carl Murdock-Smith Citigroup Adam Fox-Rumley HSBC James Ratzer New Street Research David Wright Bank of America Merrill Lynch Ottavio Adorisio Bernstein Polo Tang UBS Robert Grindle Deutsche Numis
Deutsche Numis
New Street Research
Bank of America Merrill Lynch
Morgan Stanley
Goldman Sachs
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
2
Bernstein
UBS
Exane
Citigroup
HSBC
Vodafone has changed: We have taken action, with more still to do On Customers, we have refocused the culture of Vodafone on delivering the seamless and consistent experience our customers expect. And we have changed. Just two examples. In the UK and Germany we have achieved a number of ‘best evers’ on customer experience. In the UK, our market-leading NPS has been driving the lowest ever levels of churn for both mobile and broadband. In Germany, while there is more to do, we have made a real step-change, delivering our best ever net promoter scores, and halving the gap to the incumbent in the market. At the same time, we are becoming a leaner organisation. We have actioned the planned 10,000 role reductions, and the introduction of commercial models in our shared operations will now enable us to accelerate productivity and efficiency gains. Financially, we have delivered our transformation and the MDU transition within the adjusted free cash flow outlook communicated in May 2023. Vodafone will grow: Our medium-term outlook As a result of the transformation done in the last two years, we are now well positioned to grow our adjusted free cash flow over the medium-term, with two thirds of our adjusted free cash flow coming from growing assets, while the remaining third is generated from Germany, which we are turning around. Let me start with Germany. Over the last two years, we have faced a number of challenges, with a declining broadband base, the massive task of implementing the MDU transition and more recently heightened competition in mobile. Against this backdrop, we have been single-mindedly focussed on driving a structural reset of our operations, centred around delivering a better service to our customers. Two years on, with a new management team, investments in our networks and customer experience and a company-wide restructuring heading towards completion, we are looking at a number of positive trends in our structural leading indicators. Reversing the inertial decline in our customer satisfaction, we have now delivered our best net promoter scores, with dramatic improvements across all products. Whilst we are still far from where we want to be, we are already seeing the benefits in terms of increased loyalty. We will continue to invest in our operational transformation throughout FY26, and whilst we expect market conditions to remain challenging, our results will benefit from our now stable customer base and from the growing contribution of the 1&1 customer base migrating on to our network. But whilst Germany is our priority market, we should not lose sight of the fact that two thirds of our adjusted free cash flow is generated across what we can call our growth footprint. In the UK, we had a strong performance in FY25 both in terms of KPIs and financials. We delivered strong EBITDAaL growth of 8%, and are now the NPS leader in the market across both mobile and fixed, resulting in record low levels of customer churn. Looking ahead, through our merger with Three, which will complete soon, we will be uniquely positioned for EBITDAaL and adjusted free cash flow growth, as leaders on all dimensions in mobile, and leading challenger in fixed broadband. As you know, we will also benefit from our integration, with £700 million annual costs and CAPEX synergies and additional revenue synergies, for example in FWA. Across Africa and Türkiye, we have strong local positions in each market, and significant growth opportunities beyond core connectivity. We will continue to grow cash flows in euros though the cycle, alongside delivering good returns. Finally, we should not forget our Vodafone Investments division and its operational, infrastructure, and innovation businesses. These provide a mix of dividend flows to us, and the potential for value realisation when appropriate. With that, I will pass over to Luka to discuss our financials.
Deutsche Numis
New Street Research
Bank of America Merrill Lynch
Morgan Stanley
Goldman Sachs
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
3
Bernstein
UBS
Exane
Citigroup
HSBC
Luka Mucic, CFO Vodafone Group Financial Highlights: Results in line with expectations Thank you very much, Margherita. First off, I am obviously pleased to report that we delivered our FY25 Group guidance for both EBITDAaL and adjusted free cash flow. Looking forward, our guidance for FY26, which is on a pre-UK merger basis, is that we expect to deliver continued underlying growth both for adjusted EBITDAaL and adjusted free cash flow. We expect Adjusted EBITDAaL for the Group to be between €11 billion and €11.3 billion. Within this, we are targeting between €7.2 billion and €7.4 billion for Europe. We also expect to deliver an acceleration in Group adjusted free cash flow growth to a range between €2.6 billion and €2.8 billion. As for the UK merger, we expect the proforma FY26 impact to be roundabout €400 million of EBITDAaL contribution and around about €200 million of adjusted free cash flow drag on a full year basis, due to front-loaded investments into the committed post-merger network buildout, integration investments and interest payments on the debt of Three UK that we will consolidate post-merger. Last but certainly not least, I am happy to say that our detailed work with Hutchison around the validation of our Joint Business Plan for the merger in the last few months has reconfirmed our expectations from the time when we agreed the original deal. We still expect, as Margherita has said, to reach a full run rate of £700 million of annual cost & CAPEX synergies by the fifth year, and free cash flow accretion of the merger by the fourth year. With that, back to you, Margherita, to close us out. Margherita Della Valle, CEO Vodafone Group Thank you, Luka. To summarise. Alongside delivering on our financial commitments, in the last two years, Vodafone has changed. We can now look forward to a new markets mix. Across two thirds of our portfolio, we have a solid growth track record, strong assets in good positions and significant potential for further growth, with clear execution plans. Within this, the UK business, which will now represent a quarter of our service revenue, is well positioned for growth as we roll out our best-in-class 5G network and deliver our merger synergies. Separately, in Germany, we will continue to drive our turnaround in what is fundamentally a good market, delivering better financial performance. This all adds up to good growth in adjusted free cash flow for FY26, and of course, even stronger growth on a per share basis. But most importantly, puts us on a new growth trajectory for the years ahead. With that, let me open to you all for questions.
Deutsche Numis
New Street Research
Bank of America Merrill Lynch
Morgan Stanley
Goldman Sachs
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
4
Bernstein
UBS
Exane
Citigroup
HSBC
Akhil Dattani JP Morgan
My question is really around the guidance and the German outlook. I guess, first, if we look at the comments you have given us for Europe, you have guided to €7.2 billion to €7.4 billion of EBITDAaL. As you said, Margherita, most of your markets are now growing. If I try and back out what that means, it would imply probably mid-single digit decline for Germany. I just wondered if you could help us understand, is that the right starting point for what you are thinking? I guess, more concretely, what I would love to understand is really how I should think about the pace and timing of that German recovery you talked about. You talked about significant improvements in NPS. Maybe you could talk us through what you have done to get there, maybe some comments on [inaudible] what you are assuming there. Finally, the big topic that people really seem focused on is German pricing. Do you see a need within your guidance to respond to what your peers are doing? Thank you, Akhil. I think you have done a catch-all question, which probably is anticipating some of the other questions we will get later. So maybe I suggest I take the pricing point first and then Luka can build on the guidance. Market pricing in mobile is clearly a very important topic. After we touched on it last time in February, we have seen a few positive moves in the market. But whilst it is fair to say there were some positive moves, definitely not as much as we would have liked, as you know better than most. And we have assumed in our guidance for reference in our forecast that the environment now stays where we are. I think it is the appropriate set of expectations for financial reasons, which means that we will continue to see ARPU pressure in mobile within our numbers for the remainder of the year. This is coming mainly from the fact that whilst there were some positive moves, I think, as again, you know very well, particularly in the mid- to high-end of the market, the price points are still very aggressive, and therefore, we will continue to have pressure from that. I can talk to what we are doing. Of course, I mean, I have majored on the most important step change in Germany for us earlier in my introduction, which is the results on customer experience because, as I said just now, this is really something which we are single-mindedly focused on. But we have also taken action in mobile, as you may have noticed, to reshape our propositions in the last few months. And in particular, we have now introduced new handset bundles with device financing, which is really important for us in terms of the range of proposition we have in the market. But just concluding on pricing before handing over to Luka on the moving parts of the guidance, I would say that one thing is certain, which is, as I said, in February, with all operators in Germany having big customer bases and big backbooks, the current situation is certainly damaging for each and every one of us. Luka? Yes. Thank you. First of all, on the implied assumptions on the EBITDAaL evolution in Germany, I mean, these are new numbers, obviously. I think we have done our best to provide a pretty clear range for Europe as a whole and, I would add, a relatively narrow one. Within that, there can be puts and takes across all of the markets. What I can talk about is more than the momentum that we see for the German EBITDAaL recovery. Obviously, as Margherita has said as well, there is going to be an unknown in all of that, and that is the further evolution of the market surrounding us. What I can say with confidence, though, is that we are looking at a significant improvement of EBITDAaL as we move through the year that is partially somewhat mechanical in nature. As you know, we are going to
Margherita Della Valle Vodafone
Luka Mucic Vodafone
Deutsche Numis
New Street Research
Bank of America Merrill Lynch
Morgan Stanley
Goldman Sachs
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
5
Bernstein
UBS
Exane
Citigroup
HSBC
lose the year-over-year drag from the MDUs from the second quarter. In parallel, we are progressing with the ramp-up of the 1&1 migration. That was off to a slow start when we came together the last time. But I have to say, since then it has picked up. So, we have now a better line of sight, and I think can expect that from the second half year on, we will operate at the full run rate there and therefore this will of course be a big benefit to the second half performance. Outside of those mechanical impacts, we are obviously happy that we have now stabilised our commercial performance in broadband. We believe in the potential of our overarching transformation efforts for the German market. I think as we progress through the year, this will more and more gradually add to the strength of our results in Germany.
Akhil Dattani JP Morgan Luka Mucic Vodafone
Just an aside, Luka, congratulations on a new role, and best of luck for the future as well.
Well, thank you very much. But you will still be with me for a couple of more occasions in this, but thank you.
Deutsche Numis
New Street Research
Bank of America Merrill Lynch
Morgan Stanley
Goldman Sachs
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
6
Bernstein
UBS
Exane
Citigroup
HSBC
Emmet Kelly Morgan Stanley
My question is on the customer experience and infrastructure in the UK market. Margherita, when you presented your strategy before, you mentioned that improving the customer experience is probably your number one aim going forward. The UK market seems to be the market where perhaps you are having amongst the greatest success. There is obviously a big push to develop infrastructure across Europe, especially you see this in Germany at the moment. Just tying all these thoughts together, can you say a few words on what customers can expect to see in the UK from the merger, in particular, from a network perspective? This has clearly been a pain point in the UK, I know. If I look at OpenSignal, the UK networks rank so far behind other developed markets. Can you maybe just say a few words on what is going to happen in the network as a frustrated UK network user? I do remember sitting in a presentation in the late '90s with the former CEO of when the telco companies talked about bringing, for example, service to the tube in London, and that still is a pain point. Can you maybe just say how the MergeCo will progress on the network side? Sure. Maybe I will start with that and then broaden up to the more general point on customer experience, which I think is really, really important. The most important number on the UK for you, Emmet, today, as part of our guidance slide, we have given as much detail as possible around the merger. There is one number you will like, which is €1.5 billion of CAPEX invested in the U.K. market in this fiscal year. We are really excited and the teams are really ready to hit the ground running on the merger because it really gives us a unique opportunity. From an infrastructure perspective, you know everything about the £11 billion network plan. But let me say that from the very first year of operations, our customers across the country and Three customers, of course, will see immediate benefits from just a simple fact that as we combine two networks, we will have more coverage and more capacity. We will have to see exactly where you are on that roadmap, but we will start to see the impact straightaway. Then as the year move on and the £11 billion gets fully deployed, we will see even more benefits. In terms of what it means for us more broadly, it is really transformative because, first of all, as a Group, we expand our exposure to the UK 25% of our service revenues will be in the UK. Second, in the UK, we will have a unique set of assets. If you look at it from whichever angle, in spectrum, in the network, in the customer bases, we will be really structurally positioned to drive EBITDAaL and free cash flow growth even before you take into consideration the £700 million of cost & CAPEX synergies, which have now been fully detailed and validated into the agreed joint business plan, and on top of that, revenue synergies, for example, from the network on FWA. It is a step change that cannot be underestimated for us in the UK. And it happens in a market where we have consistently outperformed. As you mentioned, we now are firm leaders in customer satisfaction. We come from number three a few years ago. Now this leads me to the importance of customer experience and why we have done this journey. You have heard me talking about this since two years ago really, when I thought we had a unique opportunity on this front for two reasons. One is, as you heard me say, telco is not good enough on customer experience. That can be changed. But second, which is important for today, is it is the most important leading indicator for customer loyalty, and therefore, then our performance more broadly.
Margherita Della Valle Vodafone
Deutsche Numis
New Street Research
Bank of America Merrill Lynch
Morgan Stanley
Goldman Sachs
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
7
Bernstein
UBS
Exane
Citigroup
HSBC
We have seen how the recipe is working in the UK, but anywhere in the Group, having happy and loyal customers is the number one priority that we have. I need to tell you, one of my biggest satisfactions in the last two years has been to see how the culture of the company has really rallied around giving our customers the service that they deserve and winning our customers' trust every day. It has generated a lot of energy. The other thing that is really important is there are no quick fixes for customer experience. It is long, hard work, which is why we are so happy after two years, and you asked what have you done, of investing in the network, investing in customer journey, investing in processes to see that we have across Europe five million less detractors. Obviously, the most important place where we are working is Germany, where we are not done by any stretch of the imagination. But it is good to see the trajectory and the results I was mentioning earlier as a function of what we have invested in the market and also seeing how this then translates, but I am sure this can be another type of conversation, on lower churn in areas such as fixed broadband. A very important leading indicator. You will always see it living in our scorecard as well.
Deutsche Numis
New Street Research
Bank of America Merrill Lynch
Morgan Stanley
Goldman Sachs
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
8
Bernstein
UBS
Exane
Citigroup
HSBC
Andrew Lee Goldman Sachs
I just had one question, the German recovery, following on from Akhil's question, and the improvement through FY26 specifically. Are you in a position yet where you can see strong potential to grow the ex 1&1 underlying revenues and EBITDAaL in Germany in the third or fourth quarter of this year? And if not, why not? The follow-up to that really is, you highlighted broadband customers are flat at the moment in Germany. But with those ARPU pressures that you are assuming through FY26, if you cannot grow in the second half of this year at some point, what needs to change for you to grow in FY27? Do you think either execution needs to continue to get better? Or do you think the growth is out of your hands?
Margherita Della Valle Vodafone
Thank you, Andrew. I may build on FY27 and what we need, but first, Luka, on the service revenue trajectory during the year.
Luka Mucic Vodafone
Yes. I mean, as we have said, we expect to return to growth in service revenues during FY26. A major component of that will be the 1&1 contribution, obviously. Again, I think we had this conversation before. I would always argue that this is a commercial agreement as you would also see other agreements in the wholesale space with MVNOs and others that contribute simply to the results. From that perspective, it is for me really a bit hard to disentangle this from the overarching performance of the country. The rest is essentially going to be a function of the competitive intensity in mobile. This plays a significant role. In terms of the rest of the performance there, from a service revenue perspective, keep in mind, we have just talked and discussed about broadband. We are actually very happy that we have stabilised the base. This was a significant part of the underlying performance outside of the MDUs in FY25. This is now stable. ARPU actually also quite in a reasonable shape. But what you should not forget is that we have also constant underlying TV drag, as I would call it. Because TV has been, for a while, even outside of the MDUs, in a structural decline. I think that will continue into the mid-term. If you make the math out of that, then you will obviously understand that 1&1 is an important contributor that will materially help to bring us back to growth. Just going straight actually to the point, Andrew, you made around the ex 1&1 growth rate. I think the final answer will very much depend on the pricing conditions in mobile. The jury is still out on that one. But let me say upfront that I think in the current market environment that we just discussed with Akhil, I think it is unlikely that ex 1&1, which I agree with Luka, should not be taken in isolation. You could talk about Lyca and others. But that is where we are. In terms of 2027 then, so much better exit, of course, in Germany in 2026. Overall results, much better than in 2025 but in particular, second half with a better exit as we go into 2027 then. I mean, Luka could also give you lots of new moving parts because there will be more of 1&1. There will be no more MDUs. There will be full annualisation at that point of the commercial investments that we have made, including the A&R, which, as you know, transitions through the years or all sorts of mechanical support like this.
Margherita Della Valle Vodafone
Deutsche Numis
New Street Research
Bank of America Merrill Lynch
Morgan Stanley
Goldman Sachs
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
9
Bernstein
UBS
Exane
Citigroup
HSBC
But you are spot on, on the fact that we count on also the improvement we are making structurally in the loyalty of our base and in the fact that by then, we will have had a full run rate or a fully stable base on all fronts to, of course, support us for the longer term in growing Germany. Okay. Yes. I mean, I would not spend the time now to debate what constitutes underlying. But I guess that is what investors need to see, the growth in FY27. It sounds like we need a supportive price environment to achieve that if you are assuming a stable customer base into FY27 as a basis case. I think everyone can make its judgment. I was really keen for this year to be quite specific on our expectations for Europe to allow you to centre. But beyond Europe and Germany, what I think is really important in the discussion today, and we may have a chance to pick it up later, is the guidance of the Group growth just for FY26, where the numbers are on the page and also for the mid-term. But I leave that to other questions.
Andrew Lee Goldman Sachs
Margherita Della Valle Vodafone
Deutsche Numis
New Street Research
Bank of America Merrill Lynch
Morgan Stanley
Goldman Sachs
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
10
Bernstein
UBS
Exane
Citigroup
HSBC
Joshua Mills Exane
I wanted to shift back slightly and move to the B2B segment. I think in the report, you called out some headwinds from the UK B2B market and specifically Managed Services, and also some ARPU pressure in the Mobile space. I wondered if you could give us a bit more colour on what is happening there and maybe broaden the question into how you are seeing the B2B landscape more broadly across your different geographies and what you are assuming about the B2B growth in your FY'26 guidance? Then perhaps just more specifically, could you remind us now what percentage of Vodafone Group service revenue and also Group EBITDAaL is coming from the B2B segment? Yes. I guess if you do not mind, I will take those questions. First of all, we are actually very happy about the growth trajectory that we have achieved with our B2B business during FY25. You have seen that we have shown quarterly acceleration every quarter as we had expected at the Q1 earnings call. We exited with 5.1% growth in Q4, and we continue to believe into that potential and actually would expect this good growth at the Group level to continue. Now in terms of the markets performance, it was obviously differing by market in the UK. We had a decline in the full year. Q4 was actually positive. But for the full year, it was slightly negative. There are a couple of reasons for that. One is that the same actually year-over-year price increase pressures apply to B2B that we also saw a bit in Consumer, where essentially the annual price increases came in due to lower inflation at lower rates. That has been weighing on the growth in B2B. From a go-forward perspective, yes, we have outlined that we are losing a couple of pretty old, I have to say, and also relatively low-margin managed services contracts in the UK. Otherwise, the performance in the UK as elsewhere in Europe will clearly differ between a core connectivity business, which will be lower growth, and then additional support from our digital services business that we are investing into where we have been adding additional agents, where we continue to build out our product portfolio and where we are clearly expecting continued growth opportunities. So yes, UK will be challenged in FY26 from a B2B perspective. But in the broader sense, we continue to expect positive growth in B2B from a Group perspective and certainly see the strength of our portfolio, in particular in what we call beyond connectivity as a strong underpinning of that where we have much higher growth rates than in core. Just maybe a quick build on this point of the digital services. I would say the way that our demand is moving, we have always had strong demand across Europe and Africa for digital services. The recent geopolitical-induced focus on sovereign technology services on defence areas is also something that will be supportive for continued good digital services growth for us. Thanks. Maybe just to follow up. If we could have a ballpark figure on the revenue and EBITDAaL exposure to the B2B segment, that will be helpful.
Luka Mucic Vodafone
Margherita Della Valle Vodafone
Joshua Mills Exane Luka Mucic Vodafone
Yes, absolutely. Sorry for that. Yes, we are approaching 30%. We are still slightly below that. But it is a decent piece of business for us, close to 30%. In terms of the EBITDAaL performance, the structural margins in the B2B business are slightly lower because digital services comes with a lower EBITDAaL margin than core activity. However, and that is the
Deutsche Numis
New Street Research
Bank of America Merrill Lynch
Morgan Stanley
Goldman Sachs
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
11
Bernstein
UBS
Exane
Citigroup
HSBC
more important point for me and what I am really excited about, obviously, the capital intensity of this business is very low. We have an asset-light business in this space. So we are relying, in addition to some own capabilities also on our strong strategic partnerships to bring the solution capabilities to the market. This is actually, from a returns from a cash flow perspective, very positive for us. This business is not only measured, in my eyes, at least from an EBITDA perspective, but in particular, from a cash flow contribution perspective.
Deutsche Numis
New Street Research
Bank of America Merrill Lynch
Morgan Stanley
Goldman Sachs
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
12
Bernstein
UBS
Exane
Citigroup
HSBC
Carl Murdock-Smith Citigroup Margherita Della Valle Vodafone
Margherita, as you are kind enough to tee it up, I will step in and ask. One of the highlights of today's guidance was the strength at the Group level, largely due to Africa and Turkey. What gives you confidence of the medium-term growth opportunity in those markets in euro terms? What has driven that step change in growth in cash flow generation? What synergies are there across the Group and what options might you consider in the medium term if investors continue to apply different weightings to euro of free cash flow from Europe versus the euro free cash flow from elsewhere in the Group? I would call out the fact that when I talk about 66% of cash flow generated within our current growth portfolio, it is not just Turkey and Africa, but it is going to be increasingly the UK and of course the consistent position of our other European markets for completeness. Now if I look then at Turkey and Africa and the reasons behind the performance that you have seen where we have demonstrated hard currency growth in all our geographies. I would say a two-part answer. The first is the discipline where you have high inflationary environment to grow revenue ahead of inflation and costs below inflation applied in the day- to-day execution in these markets. This is a muscle I think we have trained quite well by now. But it is not just that. There are also two other aspects. One is the quality of our performance and the second is the actual market potential per se. If I maybe start from the market potential, I mean it is visible to everyone that these are markets where connectivity has still potential to grow. The population is growing. Data is growing. Data is being monetised. But what is most attractive is that there are also what we would call non-linear growth opportunities in these markets that we are exploiting, again, talking about digital services, right. Whether you are talking about financial services, of course, for Africa or whether you are talking about other digital services. For example, sovereign data centres in those territories are already making an impact. There is a broad range of services where Vodafone in those markets is effectively the provider of choice. That give us confidence on a multi-year growth. And then on top of that, we are pleased with our execution in those geographies, whether you look at Turkey, whether you look at Egypt, whether you look at Africa more broadly. I mean, we discussed, I think a couple of calls ago about what is driving the growth in Turkey, for example. You will have seen, we continue to build on our highest ever market share. We outperformed market growth. We have really clear execution plans and strong teams in place to make the most of this potential opportunity. Then you close with saying, okay, this is all well and good. I see the growth coming. But in all the calls, we talk about Germany, and therefore, is there anything you want to change about that? I think what you will see us doing is continuing to bring to life as we did in the results presentation today that the Group is covering a number of different geographies, Europe, Africa, Germany, other countries, the UK. That is what we are going to continue to work on driving performance. Ultimately, we have a single goal, which is sustainable mid-term adjusted free cash flow growth. We said back in March 2023 that we had the goal to use the cash flow level of those days as a base to grow from. I think we have proven in the last two years that we have executed on our financial guidance. Now it is time to go into the proper growth phase, also thank you to all these opportunities.
Deutsche Numis
New Street Research
Bank of America Merrill Lynch
Morgan Stanley
Goldman Sachs
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
13
Bernstein
UBS
Exane
Citigroup
HSBC
Luka Mucic Vodafone
Yes. Perhaps just briefly because you have mentioned synergies. Actually, there are synergies both in terms of leveraging the scale of the Group between the emerging markets and Europe. We are doing that already today on the procurement front when acquired RAN capabilities and so on, we leveraged this. But there is also an exchange of best practices which can be very fruitful. Like for example, in AI, we have capabilities here in Europe that we are leveraging also to help our emerging markets to quickly adopt those practices. On the flip side, in Turkey, for example, we have excellent digital nurturing skills. We have great apps innovation there that we are also bringing to other European countries. So, all of that just makes the combination so much stronger than the single parts alone.
Deutsche Numis
New Street Research
Bank of America Merrill Lynch
Morgan Stanley
Goldman Sachs
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
14
Bernstein
UBS
Exane
Citigroup
HSBC
Adam Fox-Rumley HSBC
I would like to ask a question on the share buyback, please. I wondered if you could reflect a bit on the value that the buyback is bringing to you and your shareholders at the moment. You have spent €2 billion. We have got another €2 billion to go. It is a huge portion of the market cap. There is no reference to per share data in your presentation anywhere. So presentationally at least, you are not really linking that huge commitment to the narrative that you are trying to tell us. The stock has got a 5% dividend yield so it is not providing much valuation support. I guess I would just like to check, are you still certain this is the right allocation of capital? To that sustainability point, clearly, given the free cash flow you generate at the moment, the dividend that you have got, looking into the medium term, €2 billion is unlikely to be the right number going forward. I will let Luka talk to the strategy around buybacks and returns more broadly. But there is one number, Adam, that I think is really important. Your question is a really valid one. If you look at our adjusted free cash flow guidance for FY26, at the midpoint of the guidance, we are growing adjusted free cash flow per share by 17% year-on-year. I completely agree with you that the per share element of these KPIs is really important. But, Luka? I would agree, it is unappreciated. But when you ask about the capital allocation strategy more broadly, I think when we first talked about this when I was coming in around two years ago, we were single-mindedly focused on dividend that was back then considered as not properly covered by underlying cash flow and with no kind of fantasy for growth for the future. We had, in the meantime, two significant value creation events through the sales of Spain and Italy at a point in time where, from our perspective, clearly the share price levels did suggest that there was value in putting some of this capital to work by making sure that things like the ones that Margherita has talked about, and that is growing the free cash flow contribution on a per share basis could come to fruition. So in that sense, I think we have followed through on the commitment that we have given and we have rebased the dividend, but with an ambition to grow it over time, and we stick by that commitment. In terms of the capital returns through share buybacks, I think we are executing on them because we believe it is from a value perspective, a positive and accretive investment. Certainly, I am still a believer in the value accretion potential. That is why not only has Vodafone started a share buyback programme today. I have also decided to buy back some more shares for my own personal account. I think in that respect, it is for me a logical thing to do. Let us see what the future brings. The current programme will probably take us roundabout through the end of the current fiscal year. Then we will reassess together as well, obviously, on the appropriate dividend levels.
Margherita Della Valle Vodafone
Luka Mucic Vodafone
Deutsche Numis
New Street Research
Bank of America Merrill Lynch
Morgan Stanley
Goldman Sachs
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
15
Bernstein
UBS
Exane
Citigroup
HSBC
James Ratzer New Street Research
I had a bigger picture question, which I think a lot of people would like to understand your longer-term financial outlook for the company. I mean, I know there are a lot of moving parts in Vodafone at the moment. But when I look at your major peers, they also have a lot of moving parts and uncertainties, and yet pretty much all of them provide detailed quantified three-year financial targets. I mean, actually, even one of your own largest businesses, Vodacom, provides three-year quantified financial outlook. Now I do see you are now stating some medium-term free cash flow growth expectations, but that is fairly vague. Would Vodafone consider providing detailed three-year financial guidance so we can get more visibility on your longer-term outlook? If not, what is holding you back? I think that, James, you are coming from a very valid angle in terms of forgetting the numbers for a second, painting the picture of what we are targeting to achieve in the mid-term, I think is going to be important. You know that we have gone through two years of significant transformation. This is actually the first time that I can look forward and say we are where we wanted to be in terms of shape. Hopefully, that will also simplify everyone's life in terms of the numbers and the moving parts. We have the shape of the Group that we want to have, which is why what you find in the presentation today is a clear outline of how this looks like, what are the growth opportunity and why we have the confidence to now state that we are moving from the base to grow from of two years ago to proper growth. We will now go through the UK integration. As soon as we close, we will start off very, very quickly. We will bring this shape back to life in our results. I think you should expect to see more from us in the future in terms of talking to the vision in the mid to long-term, but we first needed to get the building site closed, which is what we are doing now. I suppose now the business is in the kind of right-sized for all the big picture M&A. Can we expect that maybe in the H1 guidance or the results you would actually be willing then to give some three-year detailed, let us say, revenue, EBITDAaL, free cash flow trends? Because let us say, the major peers in Europe and, let us say, even Vodacom are doing the same. In various different ways. But I would refrain for now to give guidance on guidance. It is definitely a consideration to give a more cohesive outlook. Wha is really important for us is now to move to this gradual, sustainable free cash flow generation and give you the confidence of what are the moving parts for that.
Margherita Della Valle Vodafone
James Ratzer New Street Research Margherita Della Valle Vodafone
Deutsche Numis
New Street Research
Bank of America Merrill Lynch
Morgan Stanley
Goldman Sachs
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
16
Bernstein
UBS
Exane
Citigroup
HSBC
David Wright Bank of America Merrill Lynch
It is a question that might actually follow on a little bit from James. But just on the UK, a couple of clarifications. You have talked about EBITDAaL boost of €0.4 billion I think it is. In your original deal presentation, you talked about pre-IFRS 16, Three EBITDAaL of £612 million. That obviously looks like it is broadly halved. I suspect that is mostly handset accounting. But if you could clarify that first, Luka. You also mentioned, I think your words earlier in the presentation, that the free cash flow dilution stated was including restructuring spend. But I do not think it is, is it? Because your free cash guidance is ex. restructuring. What is the restructuring spend we could expect on top of that? I guess this just flows through to James' point really, is your free cash flow guidance is before restructuring, which has been a significant amount for every one of the last, and I might even say, 10 years. Telefonica more recently broke down their free cash flow into, at the end of the day, what is distributable. I just wondered if you could start giving us some visibility of free cash flow after restructuring, given that is essentially what is distributable. I appreciate spectrum is a lot more commercial. But those dynamics would really help us. If I might just add, Margherita, why is the deal not closed yet? We all thought it should have done. If there is just anything you can add there. Yes. Maybe I will take that. I would say watch this space. I mean, we got the approvals from Ofcom and the CMA during the month of April. We have then been able to lock down the joint business plan, which is done. We are now going to the customary closing adjustment. But watch this space. Yes. Then on the €400 million, yes, of course, this represents the EBITDAaL contribution under our preliminary view under the Vodafone accounting policies. There are various puts and takes there, lease accounting, service accounting and so on. I think it is probably better for the details then and the puts and takes to be followed up on an IR call. But it is our best view of how the results would present themselves under our accounting policy. You are right. I have not been talking about restructuring. I have been talking more broadly about integration investments. That is not necessarily all restructuring. From a restructuring perspective, first of all, I think we had in FY25 compared to the prior year, relatively calm year from a cash perspective. We were at around about €250 million, I believe, of restructuring expenses. There will be a moderate step-up as we go into FY26 on the restructuring, not only from the UK, but also from the fact that in Germany, we still have to fully complete the second wave of our restructuring programme that we have there. When you think about only the impact for the UK, it will be actually broadly neutral because we also will, upon the closing, benefit from the spectrum sale proceeds to VMO2. So, the merger per se is from below the AFCF level broadly neutral in FY26. The £500 million restructuring guide, that still applies though and we should probably assume that is quite heavily phased at the first couple of years. Correct?
Margherita Della Valle Vodafone
Luka Mucic Vodafone
David Wright Bank of America Merrill Lynch
Deutsche Numis
New Street Research
Bank of America Merrill Lynch
Morgan Stanley
Goldman Sachs
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
17
Bernstein
UBS
Exane
Citigroup
HSBC
Luka Mucic Vodafone
The £500 million across five years, absolutely, yes.
David Wright Bank of America Merrill Lynch
Across five years?
Margherita Della Valle Vodafone
Yes, but heavily faced upfront. But in year one, to be clear, the €200 million are the same at AFCF and full FCF level. There is not any additional drag below the line.
Deutsche Numis
New Street Research
Bank of America Merrill Lynch
Morgan Stanley
Goldman Sachs
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
18
Bernstein
UBS
Exane
Citigroup
HSBC
Ottavio Adorisio Bernstein
My question is again on free cash flow. You provided a good breakdown on slide 23, where you see Germany only 33% of adjusted free cash flow. There is a mismatch between that number and the one calculates when it does the operating free cash flow, EBITDAaL minus CAPEX, where Germany is around 47%. The question is that, do you book all the interest in hard currency in Germany? The €19 billion of tax assets this quarter in Luxembourg, you cannot use for to offset again German taxes? Again, on free cash flow, you received around €307 million from Vantage Towers this year. Last time Vantage Towers was listed, it was generating around €430 million of cash. If I do pro rata, it looks that you are overdistributing Vantage Towers. Are you over-gearing the balance sheet like you do for VodafoneZiggo, or it is just organically generated? So maybe just an observation and then hand over to Luka for the detail. I suspect your numbers are from pre-UK merger, Octavio, because even on EBITDAaL, that is not what you find in our results for FY25. But more broadly, Luka? I think you are probably referring to the slide that has the distribution of free cash flow generation across markets. That is a very simplified view, obviously. So from that perspective, we should not one-to-one try to reconcile this with the Group numbers. Yes. But everything is attributed fairly. There is no extra interest or other things. It is EBITDAaL minus CAPEX with then an attribution of interest across the markets irrespective of if you want specific technical elements. It is what you would expect to do. What is in there, just to be clear, is indeed the Vodafone Investments dividends, of course, and all the dividends that the Group received because it is a breakdown of free cash flow. It is not a breakdown of EBITDAaL. The full perimeter, including the Vodafone Investments division which is 9% in the slides, comes into play. There, maybe if I can just add then on the Vantage Towers results. Actually, this is underpinned by the performance of Vantage Towers, which has been growing, both revenues as well as profits quite reliably, and if I can add that, obviously, has their own investments as well, which includes INWIT, for example, which is doing very well and will actually provide a special dividend in FY26 that will provide support as well. So, in that respect, this is just a reflection of the strong performance of Vantage Towers that allows us to distribute dividends, not only to us, by the way, but also to our co-shareholders from the consortium.
Margherita Della Valle Vodafone
Luka Mucic Vodafone
Margherita Della Valle Vodafone
Luka Mucic Vodafone
Ottavio Adorisio Bernstein
So, you would expect to extract around €300 million of dividends from Vantage going forward annually?
Luka Mucic Vodafone
There is no reason to not expect the same dividend levels from Vantage.
Deutsche Numis
New Street Research
Bank of America Merrill Lynch
Morgan Stanley
Goldman Sachs
Vodafone Group Plc. FY25 Q&A Transcript JP Morgan
19
Bernstein
UBS
Exane
Citigroup
HSBC
Polo Tang UBS
It is on Germany but specifically fibre and MDUs. Can you maybe talk through what impact your fibre upgrades are having in terms of your German broadband net adds and NPS? Can you give an update in terms of how the OXG joint venture is doing in terms of upgrading the footprint of seven million MDU homes? Do you think you need to upgrade the remaining 19 million homes in your cable footprint to fibre? Just related to this point, about MDUs, Deutsche Telekom last week on its call highlighted it now has access to 5.7 million MDU homes. Are you seeing any signs of increased competition in the MDU space? And longer term, do you think that there will be one or two fibre infrastructures in each MDU longer term? Sure. I will start from, if you want, the impact of fibre in our numbers, in our customer satisfaction. There is no impact of fibre on that. You know that we have just opened our sales footprint to wholesale agreements that do include fibre, for example, from Deutsche Telekom and Deutsche Glasfaser because we want to give our customers in the DSL area access to fibre, which is why today we effectively offer gigabit products to three out of four of German households. This is our strategy, I would say, pretty much everywhere. You see we have the same approach in the UK. Now these connections are immaterial at the moment. We are talking about single-digit gross adds in a quarter. The results that you see in our numbers and the results in terms of customer satisfaction are actually a product of quite significant churn reduction in our cable estate because, obviously, this is the very vast majority of our customers. In a market, which now we should all recognise in Germany, does not have much growth in terms of penetration anymore. It is plateauing. The stabilisation of our customer base in the last couple of quarters has come from churn reduction. We are very pleased to see now our cable churn, where we also by the way the highest ever NPS Vodafone as recorded for cable. Our cable churn is now very much in line with what you would expect. It is actually below, for example, the fixed broadband churn that we have in the UK, which is growing strongly. This churn reduction is a function of the fact that we have really changed the customer experience. You have seen us and you have heard us talking about network investment over the last couple of years, improved customer base management and processes. Also we have done a lot of work on legacy routers, which are now less than 15% across the whole customer base of Vodafone. As an outcome of all this, we have had best in test results, as you have seen on the network across all networks in fixed broadband in Germany, just recently a third less network complaints, from our customers and this best ever NPS. This is the sort of structural customer experience transformation that I see as a leading indicator of performance and that we will continue to drive in that space adding what I said before, which is on top of a better service to our customers, also a wider footprint in which we can sell gigabit product is going to allow us to be a one-stop shop for the customers across fixed mobile and TV. This is a very clear objective for us. Now you asked where are we on fibre and then what is going on in the MDUs. Maybe just covering these aspects. In terms of our own fibre build, you have seen in these results that OXG has been running late compared to the original plan. The majority of the build was to be done with Geodesia, which obviously had some issues in the last 12 months. But we have taken action. We now have 29 different building companies working across 22 cities in Germany.
Margherita Della Valle Vodafone
Page i Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22Powered by FlippingBook