Vodafone Group Plc (LON:VOD) has announced its Q1 FY23 trading update.
Continued growth in both Europe and Africa, performance in line with expectations
· Group service revenue growth of 2.5%* (Q4: 2.0%*)
· Germany service revenue declined by 0.5%* (Q4: 0.8%*), largely reflecting the impact of the new Telecommunications Act
· Europe growth supported by growth acceleration in the UK
| Q1 performance summary | Q1 FY23 | Q1 FY22 | Reported | Organic |
| €m | €m | growth % | growth % 1 | |
| Service revenue | 9,514 | 9,390 | 1.3 | 2.5 |
| – of which Germany | 2,857 | 2,872 | (0.5) | (0.5) |
| Other revenue | 1,764 | 1,711 | ||
| Total revenue | 11,278 | 11,101 | 1.6 | 2.7 |
· Europe Consumer contract mobile ARPU grew by 0.7% year-on-year. We added 215,000 mobile contract customers and lost 72,000 broadband customers in the quarter
· Vodafone Business service revenue growth of 1.7%*, supported by higher roaming and digital services revenue
· Growth in Africa supported by data revenue and financial services growth, as our M-Pesa customer base grew to almost 50 million in the quarter
· Service revenue in Turkey increased to 35.8%*, driven by higher inflation, impacting Group service revenue growth by an additional 0.3pp. Group service revenue growth excluding Turkey was 1.6%* (Q4: 1.4%*)
· On track to deliver FY23 guidance with Adjusted EBITDAaL expected to be between €15.0 – €15.5 billion and Adjusted FCF of c.€5.3 billion
Nick Read, Vodafone Group Chief Executive, commented:
“We have executed in line with our expectations, delivered another quarter of growth in both Europe and Africa, and seen an acceleration in business growth. Whilst we are not immune to the current macroeconomic challenges, we’re on track to deliver financial results for the year in line with our guidance.
Our near-term focus on our operational and portfolio priorities remains unchanged. We’ve made good progress towards stabilising our commercial performance in Germany, and we continue to actively pursue opportunities with Vantage Towers and to strengthen our market positions in Europe.”
Operating review ⫶ A new generation connectivity & digital services provider
Our vision is to become a new generation connectivity and digital services provider for Europe and Africa, enabling an inclusive and sustainable digital society. We continue to make progress on the next phase of our strategy, which focuses on driving shareholder returns through growth. This is being delivered through three customer commitments and three enabling strategies, all of which work together towards realising our vision.
| Customer commitments | Enabling strategies |
| · Best connectivity products and services | · Simplified and most efficient operator |
| · Leading innovation in digital services | · Social contract shaping the digital society |
| · Outstanding digital experiences | · Leading gigabit networks |
| Units | Q1 FY23 | Q1 FY22 | ||
| Customer commitments | ||||
| Best connectivity products & services | ||||
| Europe mobile contract customers1 | million | 66.5 | 65.6 | |
| Europe broadband customers1 | million | 25.5 | 25.6 | |
| Europe Consumer converged customers1 | million | 9.2 | 8.0 | |
| Europe mobile contract customer churn | % | 13.0 | 13.0 | |
| Africa mobile customers2 | million | 185.7 | 181.6 | |
| Africa data users2 | million | 88.0 | 87.2 | |
| Business service revenue growth* | % | 1.7 | 2.7 | |
| Leading innovation in digital services | ||||
| Europe TV subscribers1 | million | 21.8 | 22.3 | |
| IoT SIM connections | million | 159.0 | 129.8 | |
| Africa M-Pesa customers3 | million | 49.7 | 47.6 | |
| Africa M-Pesa transaction volume3 | billion | 5.7 | 4.5 | |
| Outstanding digital experiences | ||||
| Digital channel sales mix4 | % | 24 | 23 | |
| End-to-end TOBi completion rate5 6 | % | 45 | 40 | |
| Enabling strategies | ||||
| Leading gigabit networks | ||||
| 5G available in European cities1 | # | 318 | 243 | |
| Europe on-net gigabit capable connections1 | million | 49.5 | 44.6 | |
| Europe on-net NGN broadband penetration1 | % | 30 | 30 | |
| Simplified & most efficient operator | ||||
| Europe markets where 3G switched off1 | # | 4 | 3 | |
1. Including VodafoneZiggo | 2. Africa including Safaricom | 3. Africa excluding Egypt, including Safaricom | 4. Based on Germany, Italy, UK, Spain only | 5. Group excluding Egypt | 6. Defined as percentage of total customer contacts resolved without human interaction through TOBi
Further detailed information on our strategy can be found through the following links:
| Resource | Link |
| Second phase of strategy | vodafone.com/ar2022 |
| Digital services & outstanding experience | investors.vodafone.com/digital-services |
| Leading gigabit networks | investors.vodafone.com/vtbriefing |
| Vodafone Business | investors.vodafone.com/vbbriefing |
| Vantage Towers | vantagetowers.com |
Our purpose ⫶ We connect for a better future
We believe that Vodafone has a significant role to play in contributing to the societies in which we operate, and we want to enable an inclusive and sustainable digital society. We continue to make progress against our purpose strategy and provided a full update on our progress in our recently published FY22 Annual Report and supplementary materials.
More information can be found here: investors.vodafone.com
Spirit Beat
Spirit Beat is our bi-annual employee survey that measures progress on how people experience our culture ‘Vodafone Spirit’, engagement, and connection to our purpose.
The results from the latest survey in April show our employee engagement index remained high at 72 (2021: 73) and 92% of employees feel that their daily work contributes significantly to Vodafone’s purpose ‘We connect for a better future’. We are encouraged to see an increase to 71% of employees experiencing their managers acting on Spirit Beat (2021: 64%). Teams with managers embracing and taking action had a higher Spirit Index (+10pt) and engagement score (+10pt). Following our global standards for new hybrid ways of working, the survey shows that those who are hybrid-working score higher in ‘Get it done, together’ behaviours.
Circular Economy
Digitalisation is key to saving energy, using natural resources more efficiently and creating a circular economy. We recognise that to build a circular economy we need to tackle not only our network waste, but also device waste.
In line with our circular economy plan, announced in February 2022, to help extend the life of mobile phones and increase the reuse and responsible recycling of handsets; Vodafone Germany launched it’s ‘One For One’ initiative tackling e-waste, committing to recycle one mobile phone for every mobile phone sold to a private customer.
Reporting
We report against a number of voluntary reporting frameworks to help stakeholders understand our sustainable business performance. We have published our second standalone Task Force on Climate-related Financial Disclosures (‘TCFD’) report, responses to Sustainability Accounting Standards Board (‘SASB’) Standards and published our ESG Addendum, a comprehensive spreadsheet that includes data on environmental, social and governance (‘ESG’) topics.
Our ESG Reporting can be found here: investors.vodafone.com/ESG
Performance review ⫶ Sustained growth in both Europe and Africa
· Group revenue increased by 1.6%, supported by service revenue growth in Europe and Africa
· Group service revenue growth of 2.5%*, with growth across Consumer and Business segments
· Good service revenue trend impacted by 0.5%* decline in Germany, offset by acceleration in the UK
· Service revenue in Turkey increased to 35.8%*, driven by higher inflation, impacting Group service revenue growth by an additional 0.3pp. Group service revenue growth excluding Turkey was 1.6%* (Q4: 1.4%*).
· On track to deliver FY23 guidance with Adjusted EBITDAaL expected to be between €15.0 – €15.5 billion and Adjusted FCF of c.€5.3 billion
Organic growth
All amounts marked with an ‘*’ in the commentary represent organic growth which presents performance on a comparable basis, excluding the impact of foreign exchange rates, mergers and acquisitions, the hyperinflation adjustment in Turkey in Q1 FY23 and other adjustments to improve the comparability of results between periods. Organic growth figures are non-GAAP measures. See non-GAAP measures on page 8 for more information.
Germany ⫶ Commercial momentum gradually recovering in line with expectations
Service revenue declined by 0.5%* (Q4: 0.8%*), primarily reflecting broadband and TV customer losses in H2 FY22, related to the impact of new sector legislation. Retail service revenue was broadly stable at -0.1%* (Q4: 1.2%*).
Fixed service revenue declined by 1.6%* (Q4: -0.4%*), driven by the lower broadband and TV customer base, as a result of specific operational challenges related to the implementation of policies to comply with the new Telecommunications Act, which came into effect in December 2021. Our cable broadband customer base declined by a further 34,000, and we lost 30,000 DSL broadband customers in the quarter. As expected, the scale of customer losses has reduced from Q4 FY22, following remedial activity with both our IT systems and customer journeys, and the gradual unwind of churn related to the Telecommunications Act. Half of our cable broadband customers now subscribe to speeds of at least 250Mbps, and Gigabit speeds are available to 24.0 million households across our hybrid fibre cable network.
Our converged customer base remained broadly stable at 2.4 million Consumer converged accounts. Our TV customer base declined by 79,000 reflecting the impact of the new sector legislation.
Mobile service revenue increased by 0.8%* (Q4: 2.4%*). We added 6,000 contract customers in the quarter, with continued good demand from the public sector partially offset by Consumer disconnections related to the new Telecommunications Act. We added a further 2.7 million IoT connections in the quarter, supported by strong demand from the automotive sector.
Italy, UK, Spain and Other Europe ⫶ Similar trends quarter-on-quarter, growth acceleration in the UK
Italy
Service revenue declined by 2.3%* (Q4: -0.8%*) as a result of continued promotional intensity in the mobile value segment. The slowdown in quarterly trends reflected higher than usual wholesale MVNO revenue in Q4 FY22, partially offset by good Business demand.
In mobile, market mobile number portability (‘MNP’) volumes remained stable. Our second brand ‘ho.’ continued to grow, with 65,000 net additions, and now has 2.9 million customers.
Our fixed line broadband customer base remained broadly stable at over 3.0 million, declining by 18,000 in the quarter. We also added 11,000 fixed-wireless access customers in the quarter, which are included in our mobile customer base. Our Consumer converged customer base is 1.3 million and 53% of our broadband customer base is converged.
Our next generation network (NGN) broadband services are now available to 25.9 million households, including 9.2 million through our own network and our partnership with Open Fiber. We also cover over 3 million households and businesses with fixed-wireless access, offering speeds of up to 100Mbps.
UK
Service revenue increased by 6.5%* (Q4: 2.0%*), driven by contractual annual price increases, customer base growth, higher MVNO revenue, and higher roaming and visitor revenue. The quarter-on-quarter improvement was further supported by Business service revenue trends.
In mobile, we added 18,000 contract customers in the quarter as we focused on implementing price actions across our customer base and Consumer retail plans. Our customer consideration rate remained strong, and we did not see a material impact on customer churn. Our digital prepaid sub-brand ‘Voxi’ also continued to grow, with 21,000 customers added in the quarter. Our digital mix improved to 36% of total sales in the quarter.
In fixed, our broadband customer base increased by 22,000 in the quarter, and we now have 1.1 million customers. Over half of our broadband customers are converged. In November 2021, we announced the expansion of our long-term strategic partnership agreement with CityFibre, which in conjunction with our existing partnership with Openreach, now enables us to reach over 8 million households with full fibre broadband, more than any other provider in the UK.
Spain
Service revenue declined by 3.0%* (Q4: -5.1%*) driven by continued promotional activity in the value segment, and a reduction in mobile termination rates, partially offset by seasonally higher visitor revenue.
In mobile, we added 38,000 contract customers in the quarter. Mobile contract churn significantly reduced, by 2.5 percentage points year-on-year to 17.6%, reflecting our continued focus on improving customer loyalty. Our second brand, ‘Lowi’, added 84,000 customers during the quarter and now has a total customer base of 1.6 million. Our broadband customer base declined by 30,000 and our TV customer base remained stable in the quarter.
In June 2022, we launched a new product portfolio, focusing on simplified and more transparent tariff plans to further improve customer loyalty.
We continue to see good demand for our Business products, including a significant number of registration requests to the digital toolkit platform. Over 8,000 Business customers have already registered on the platform, with Vodafone being the orchestrator of their access to digital services. The platform was launched in March 2022 by the Spanish government to deliver EU recovery funding initiatives for small and medium sized enterprises.
Other Europe
Service revenue increased by 2.5%* (Q4: 2.7%*), with good growth in both mobile and fixed. An improved performance in the majority of our markets was partially offset by a decline in Romania and Albania.
In Portugal, we maintained our good commercial momentum, and we added 46,000 mobile contract customers and 12,000 fixed broadband customers in the quarter. In Ireland, service revenue growth was driven by strong commercial momentum, and also supported by contractual price increases in the Consumer segment. Our mobile contract customer base increased by 14,000. In Greece, we added 32,000 mobile contract customers, including migrations from prepaid customers. Contract customer loyalty rates improved, with churn down by 0.7 percentage points year-on-year to 8.9%.
Vodacom ⫶ Growth in South Africa, and strong data demand in international markets
Vodacom’s service revenue grew by 2.9%* (Q4: 3.1%*) with growth in both South Africa and Vodacom’s international markets.
In South Africa, service revenue growth was supported by contract price increases implemented from 1 April, and growth in new services such as IoT. This was partially offset by a temporary delay in social grants impacting consumer discretionary spending. We added 50,000 mobile contract customers in the quarter, supported by our more-for-more ‘Vodafone Red’ proposition, and 68.3% of our mobile customer base now uses data services. Financial Services revenue in South Africa grew by 4.6%* to €39.5 million, reflecting strong demand for our insurance services. Our VodaPay ‘super-app’ launched in October 2021, and has reached 1.9 million registered users.
In Vodacom’s international markets, service revenue growth was supported by strong growth in data revenue. This was partially offset by the impact of mobile money levies in Tanzania introduced during Q2 FY22, but which the Government has further reduced from July 2022. M-Pesa revenue as a share of service revenue increased by 0.1 percentage points to 23.8%. Over 59% of Vodacom’s international customer base is now using data services.
In November 2021, Vodacom Group announced it had entered into an agreement to acquire Vodafone Egypt from Vodafone for a total consideration of €2.4 billion. As a result, Vodafone Group’s ownership in Vodacom Group will increase from 60.5% to 65.1%. The transaction is subject to Egyptian regulatory approval.
Further information on our operations in Africa can be accessed here: vodacom.com.
Other Markets⫶Turkey, Egypt and Ghana
Service revenue growth remained broadly stable at 24.7%* (Q4: 19.8%*) as a result of strong customer base and ARPU growth, and higher contribution from Turkey, impacted by accelerating inflation. Reported service revenue decreased by 1.8%, as higher service revenue was offset by the depreciation of the Turkish lira versus the euro.
Service revenue growth in Turkey was due to the acceleration of inflationary price increases, and customer base growth. We maintained our good commercial momentum, with 418,000 mobile contract net additions in the quarter, including migrations from prepaid customers. Customer loyalty rates continued to improve, with contract churn down by 2.6 percentage points year-on-year to 12.6%.
Service revenue in Egypt continued to grow, reflecting strong customer base growth and increased data usage. During the quarter, we added 1.1 million prepaid mobile customers.
Hyperinflationary accounting in Turkey
Service revenue in Turkey increased to 35.8%* in Q1 FY23, driven by higher inflation, impacting Group service revenue growth by 0.3pp. Organic growth metrics exclude the impact of the hyperinflation adjustment in Q1 FY23 in Turkey. Group service revenue growth excluding Turkey was 1.6%* (Q4: 1.4%*).
As anticipated and explained in Vodafone Group’s reporting for the year ended 31 March 2022, Turkey now meets the requirements to be designated as a hyperinflationary economy under IAS 29 ‘Financial Reporting in Hyperinflationary Economies’. The Group has therefore applied hyperinflationary accounting, as specified in IAS 29, for amounts reported by Vodafone Turkey for the period commencing 1 April 2022.
Consequently, revenue amounts presented for Turkey for the quarter ended 30 June 2022 are measured based on their present value equivalent as at 30 June 2022 using an inflation index multiplier before translation to euros at the reporting date exchange rate. The inflationary adjustments to the Group’s revenue and service revenue for the quarter ended 30 June 2022 increased by €1 million each. Previously reported comparative consolidated financial information for Turkey has not been re-presented.
Vantage Towers ⫶ Delivering on our plan
Total revenue increased to €325 million, and 340 new tenancies were added during the period, bringing the tenancy ratio to 1.44x. Vantage Towers reached a number of new partnership agreements with customers during the quarter. Vantage Towers reported its results on 21 July 2022. Further information on Vantage Towers can be accessed here: vantagetowers.com.
