Vodafone Group Plc (LON:VOD) has announced its H1 FY25 results.
“We continue to make good progress on our strategy to change Vodafone. The approval processes for our transactions in the UK and Italy are nearing conclusion. These will complete our programme to reshape the group for growth. We are also investing in Germany to strengthen our market position and taking steps to expand our B2B capabilities.As we move through this year of transition, our results in the first half have been consistent with our expectations and we are reiterating our full year guidance. We grew service revenue by 4.8% and Adjusted EBITDAaL by 3.8%. We delivered good performances across our markets, with the exception of Germany, where we have been impacted as expected by the TV law change.I am confident that the actions we are taking will deliver growth for Vodafone this year and a further acceleration into FY26.”
Margherita Della Valle, Vodafone Group Chief Executive
Financial highlights
| €5.4 billion cash proceeds | 2.25 eurocents | Reiterated | |||
| Vodafone Spain & Vantage disposals | Interim dividend per share | FY25 financial guidance | |||
– Total revenue: Increased by 1.6% to €18.3 billion in H1 (FY24 H1: €18.0 billion) as service revenue growth was partially offset by adverse foreign exchange movements.
– Service revenue: On a reported basis grew by 1.7% to €15.1 billion in H1 (FY24 H1: €14.9 billion) and on an organic basis increased 4.8% in H1, with an anticipated slowdown in Germany offset by growth in Other Europe, Africa & Turkey.
– Germany: Declined by 6.2% in Q2 (Q1: -1.5%), as anticipated, primarily due to the impact of the MDU TV law change. Excluding this impact, service revenue in Germany declined by 2.4% in Q2 (Q1: -0.3%) due to a lower customer base following price increases in the prior year. As part of the MDU TV law change, we have now actively retained 4.0 million households, which is in line with our expectations.
– Business: Organic service revenue accelerated to 4.0% in Q2 (Q1: 2.6%), supported by demand for digital services.
– Africa: Organic growth remained consistent in Q2 at 9.7% (Q1: 10.0%), supported by price increases in South Africa and above-inflation growth in Egypt, driven by strong demand for data and financial services.
– Operating profit: On a reported basis increased by 28.3% to €2.4 billion in H1 (FY24 H1: €1.9 billion), primarily driven by a €0.7 billion gain on the disposal of an 18% stake in Indus Towers.
– Adjusted EBITDAaL: On an organic basis increased by 3.8% to €5.4 billion (FY24 H1: €5.4 billion), supported by service revenue growth and lower energy costs in Europe.
– Share buybacks: Second €500 million tranche almost complete, with 1.2 billion shares repurchased for €1.0 billion by 11 November 2024.
– FY25 guidance reiterated: Adjusted EBITDAaL of c.€11 billion and Adjusted free cash flow to be at least €2.4 billion.
Strategic highlights
– Customers: Customer experience transformation underway. Customer detractors have continued to reduce across all segments, and we have leading or co-leading net promotor scores (‘NPS’) in 9 out of 15 markets.
– Simplicity: Our commercial shared operations business is now operational, with Accenture investing its first tranche of its €150 million commitment in October 2024. We are also progressing with the 3,100 role reductions announced in Germany.
– Growth: Pre-tax ROCE increased from the 6.4% reported in H1 FY24 to 7.2%, with a +1.4 percentage point benefit from the reshaped Group primarily offset by the impacts from deconsolidating Vantage and the MDU TV law change in Germany.
A webcast Q&A session will be held at 10:00 GMT on 12 November 2024. The webcast and supporting information can be accessed at Investors.vodafone.com
Strategic Review ⫶ Executing on our priorities
In May 2023, we set out a new roadmap to transform Vodafone along three strategic priorities: Customers; Simplicity; and Growth. We measure our operational progress in these areas through a consistent scorecard. In the first six months of FY25, we have executed across a number of focus areas, and we have summarised our progress below and in an accompanying presentation and video Q&A available here: investors.vodafone.com/results.
Investing in the turnaround of Germany
- Customers: We continue to invest in the customer experience and have increased our brand investment. Whilst there is more to do, the number of customer detractors is falling and we are seeing improved commercial performance.
- Networks: We continue to upgrade our award-winning cable network and we are now able to market the largest Gigabit footprint in Germany, supported by our new wholesale agreements with Deutsche Telekom and Deutsche Glasfaser.
- Partnerships: We started onboarding 1&1 customers to our network in August 2024.
- Transformation: We continue to make progress on the simplification of our Germany operations. We are now halfway through the execution of our 3,100 role reduction plan and have reshaped the leadership team with our new Commercial, Business and IT directors being onboarded.
Vodafone Business capabilities
- Products: Supported by Microsoft, Google & Mastercard partnerships. SME managed services & DaaS platforms launched.
- Capabilities: New Business CEO & Director for Germany & Other Europe, & over 200 specialist digital sales team members.
Efficiency via simplification of shared operations & AI
- Shared operations: Our commercial shared operations are now operational, with Accenture investing its first tranche of its €150 million commitment in our partnership in October 2024.
- Transformation through AI: We are rolling out our new AI-driven digital assistants to our agents, and directly to our customers with our SuperTobi chatbot. Our AI adoption is supported by our strategic partnerships with Microsoft & Google.
Portfolio actions
- UK: The Competition and Market Authority’s phase 2 review is ongoing and we have made a number of commitments in response to the CMA’s provisional findings and notice of possible remedies. The final decision is due by 7 December, with completion expected in early 2025.
- Italy: The Competition Authority’s final decision is due by 10 December, with completion expected in early 2025.
- Romania: Along with Digi Romania, we have signed a memorandum of understanding with Hellenic Telecommunications in relation to a potential acquisition of separate parts of its subsidiary Telekom Romania. The discussions remain at an early stage and there is no certainty that a transaction will be agreed.
Vodafone Investments
| Financial Review ⫶ Africa & Turkey driving growth | |||||||||
Financial results
– Total revenue: Increased by 1.6% to €18.3 billion in H1, as organic service revenue growth was partially offset by adverse foreign exchange movements.
– Service revenue: Increased by 1.7%, on a reported basis and increased by 4.8% on an organic basis in H1. An anticipated slowdown in Germany was offset by growth in Other Europe, Africa & Turkey. Vodafone Business continued to grow at an accelerating pace during H1, supported by demand for digital services, particularly cloud and security.
– Operating profit: Increased by 28.3% to €2.4 billion in H1, primarily driven by a €0.7 billion gain on the disposal of an 18% stake in Indus Towers in Q1.
– Adjusted EBITDAaL: Increased by 3.8% on an organic basis in H1, supported by service revenue growth and lower energy costs in Europe. Adjusted EBITDAaL in Germany declined by 9.3%, including a 8.2 percentage point impact related to the MDU TV law change.
– Earnings per share: Basic earnings per share from continuing operations was 3.92 eurocents in H1, compared to a basic loss per share of 0.40 eurocents in the same period of the prior year, primarily due to higher operating profit. Adjusted basic earnings per share was 4.84 eurocents, compared to 3.72 eurocents in the prior year.
– Discontinued operations: Vodafone Spain and Vodafone Italy are reported as discontinued operations and are therefore excluded from the results of continuing operations. Discontinued operations are also excluded from the Group’s segment reporting. The disposal of Vodafone Spain completed on 31 May 2024. See note 5 ‘Discontinued operations and assets for sale’ in the condensed consolidated financial statements for more information.”
Cash flow, funding & dividend
– Cash from operating activities: Increased 1.8% to €5.6 billion reflecting lower working capital outflows compared to the comparative period, together with lower tax payments, offset by a lower inflow from discontinued operations.
– Adjusted free cash flow: An outflow of €950 million versus an outflow of €1.4 billion in the prior year period. This improvement reflects lower cash tax, lower working capital outflow as well as higher dividends received from associates and joint ventures.
– Net debt: Decreased to €31.8 billion (€33.2 billion as at 31 March 2024), primarily driven by the proceeds from the sale of Vodafone Spain for €4.1 billion as well as the 10% stake in Oak Holdings for €1.3 billion, offset by a free cash outflow of €1.1 billion, equity dividends of €1.2 billion and the share buyback of €0.9 billion.
– Current liquidity: Cash and cash equivalents and short-term investments totalled €11.1 billion (€9.4 billion as at 31 March 2024). This includes €1.4 billion of net collateral which has been posted to Vodafone from counterparties as a result of positive mark-to-market movements on derivative instruments (€1.9 billion as at 31 March 2024).
– Shareholder returns: The interim dividend per share is 2.25 eurocents (FY24 H1: 4.5 eurocents). The ex-dividend date for the interim dividend is 21 November 2024 for ordinary shareholders, the record date is 22 November 2024 and the dividend is payable on 7 February 2025.
| Outlook & capital allocation |
In May 2024, we set out guidance for FY25 for Group adjusted EBITDAaL and adjusted free cash flow, which we reiterate today.
As Vodafone Italy is recognised as a discontinued operation, its adjusted free cash flow has been excluded from our FY25 guidance. For further information please refer to appendix VII in the accompanying presentation available here: investors.vodafone.com/performance/annual-reporting.
| FY25 guidance1,2 | |||
| Adjusted EBITDAaL3,5 | c.€11.0 billion | ||
| Adjusted free cash flow3,4,5 | at least €2.4 billion |
Notes:
1. The FY25 guidance reflect the following foreign exchange rates: €1: GBP 0.86; €1: ZAR 20.58; €1: TRY 34.98; €1: EGP 51.75. The guidance assumes no material change to the structure of the Group.
2. Vodafone Spain and Vodafone Italy are both reported as discontinued operations in accordance with IFRS. The financial results from discontinued operations are reported separately from our continuing operations, and therefore, they are excluded from FY25 guidance.
3. Adjusted EBITDAaL and Adjusted free cash flow are non-GAAP measures. See page 49 for more information.
4. Adjusted free cash flow is Free cash flow before licences and spectrum, restructuring costs arising from discrete restructuring plans, integration capital additions and working capital related items, and M&A.
5. Excluding the impact of hyperinflationary accounting in Turkey.
Capital allocation
In March 2024, we conducted a broad capital allocation review, considering the Group’s strategy within its reshaped footprint.
– Investment: Following an extensive review of our capital investment requirements, the current capital intensity will be broadly maintained at a market level, which will allow for appropriate investment in networks and growth opportunities. Capital additions in H1 FY25 include an extraordinary core network software licence of €300 million for the next 5 years (with no cash impact in FY25), as well as upfront network investment in Germany in relation to the 1&1 national roaming agreement.
– Leverage: A new leverage policy of 2.25x – 2.75x Net Debt to Adjusted EBITDAaL has been adopted and we target to operate within the bottom half of this range. The new leverage policy supports a solid investment grade credit rating and positions Vodafone to continue to invest for growth over the long-term.
– Shareholder returns (dividends): Following the right-sizing of the portfolio as a result of the sale of Vodafone Spain and Vodafone Italy, the Board determined to adopt a new rebased dividend from FY25 onwards. The Board is targeting a full year dividend of 4.5 eurocents per share for FY25, with an ambition to grow it over time, and has declared an interim dividend of 2.25 eurocents per share (H1 FY24: 4.50 eurocents). The new dividend was set at a sustainable level, which ensures appropriate cash flow cover and sufficient flexibility to invest in the business for growth.
– Shareholder returns (share buybacks): The Board also approved a capital return through share buybacks of up to €2.0 billion of the proceeds from the sale of Vodafone Spain. The Board anticipates the opportunity for further share buybacks of up to €2.0 billion following the completion of the sale of Vodafone Italy, which is expected to occur in early 2025. So far in FY25, an initial tranche of €500 million of share buybacks was completed on 6 August 2024, resulting in the repurchase of 591 million shares. A second tranche of €500 million of shares buybacks commenced on 7 August 2024 and is expected to complete in November 2024. It is expected that the commencement of the third tranche of €500 million of share buybacks will be announced shortly thereafter.
