Vodafone Group service revenue momentum maintained, strategic partnerships with Microsoft and Accenture

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Vodafone Group Plc (LON:VOD) has announced its Q3 FY24 trading update.

Margherita Della Valle, Vodafone Group Chief Executive, commented:

“We maintained good service revenue momentum in the third quarter across both Europe and Africa, supported by a further acceleration of Vodafone Business, with our Cloud and Internet of Things services growing over 20%.

We’ve made good strategic progress in the first nine months of the year, with improving customer satisfaction and three consecutive quarters of service revenue growth in Europe. Our announced transactions in the UK and Spain are progressing well, and we are in active discussions in Italy. We’ve also begun strategic partnerships with Microsoft and Accenture to fast-track our transformation.”

Q3 performance summary	Q3 FY24	Q3 FY23	*Reported*	*Organic*
Q3 performance summary	€m	€m	*growth %*	*growth % ¹*
Service revenue	9,383	9,520	*(1.4)*	4.7*
– of which Germany	2,892	2,882	0.3	0.3*
Other revenue	1,989	2,118
Total revenue	11,372	11,638	*(2.3)*	4.2*

* represents organic growth. See page 2. ǀ 1. Non-GAAP measure. See page 8.

· Group service revenue growth of 4.7%* (Q2: 4.7%*), or 2.5%* (Q2: 2.8%*) excluding Turkey

· Broad-based service revenue growth with 14 out of 17 markets growing

· Germany service revenue growth of 0.3%* (Q2: 1.1%*), reflecting Business phasing and non-recurring revenue from service providers in Q2

· Vodafone Business: service revenue growth accelerated to 5.0%* (Q2: 4.3%*) driven by strong performance in digital services

· Vodacom service revenue growth of 8.8%* (Q2: 9.0%*), with improved trend in international markets and Egypt

· FY24 guidance^1,2 re-iterated: Adjusted EBITDAaL c.€13.3 billion and Adjusted free cash flow of c.€3.3 billion

Notes:

1. The FY24 guidance foreign exchange rates were: €1 : GBP 0.88, €1 : ZAR 19.30, €1 : TRY 21.10, €1 : EGP 33.38.

2. Guidance for FY24 includes Adjusted EBITDAaL and Adjusted free cash flow for Vodafone Spain for the 12 months ending 31 March 2024.

Performance review

Organic growth

All amounts marked with an ‘*’ in this document 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 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.


Geographic performance summary
								Other				Other			Vantage		Common		Elimi-
	Germany	UK		Italy		Spain		Europe		Vodacom¹		Markets^1,2			Towers³		Functions		nations		Group
Q3 FY24
Service revenue	2,892	1,400		1,057		848		1,175		1,543		393			–		137		(62)		9,383
Other revenue	451	340		122		126		236		389		139			–		212		(26)		1,989
Total revenue (€m)	3,343	1,740		1,179		974		1,411		1,932		532			–		349		(88)		11,372
Organic service revenue growth % ⁴	0.3%	5.2%		(1.3)%		(1.1)%		3.6%		8.8%		90.4%			–						4.7%

Q3 FY23⁵
Service revenue	2,882	1,327		1,071		858		1,275		1,668		368			–		134		(63)		9,520
Other revenue	465	423		153		113		214		396		120			329		227		(322)		2,118
Total revenue (€m)	3,347	1,750		1,224		971		1,489		2,064		488			329		361		(385)		11,638

			FY23⁵													FY24
Organic service revenue growth %⁴			Q1		Q2		H1		Q3		Q4		H2	Total		Q1		Q2		H1		Q3
Germany			(0.5)		(1.1)		(0.8)		(1.8)		(2.8)		(2.3)	(1.6)		(1.3)		1.1		(0.1)		0.3
UK			6.5		6.9		6.7		5.3		3.8		4.6	5.6		5.7		5.5		5.6		5.2
Italy			(2.3)		(3.4)		(2.8)		(3.3)		(2.7)		(3.0)	(2.9)		(1.6)		(1.0)		(1.3)		(1.3)
Spain			(3.0)		(6.0)		(4.5)		(8.7)		(3.7)		(6.2)	(5.4)		(3.0)		(2.7)		(2.8)		(1.1)
Other Europe			2.5		2.9		2.7		2.1		3.6		2.8	2.8		4.1		3.8		3.9		3.6
Vodacom¹			6.9		8.3		7.6		8.0		7.0		7.5	7.5		9.0		9.0		9.0		8.8
Other Markets^1,2			32.3		39.7		36.0		48.8		54.9		51.7	43.5		74.1		85.0		79.3		90.4
Group			2.5		2.5		2.5		1.8		1.9		1.8	2.2		3.7		4.7		4.2		4.7

Downloadable performance information is available at: investors.vodafone.com/results

Notes:

1. Total revenue, service revenue, other revenue and organic service revenue growth metrics for FY23 have been re-presented for the Other Markets and Vodacom segments to reflect the move of Vodafone Egypt from the Other Markets segment to the Vodacom segment. There is no impact on previously reported Group metrics.

2. The Other Markets segment comprises only Vodafone Turkey in FY24. The comparative period also included Vodafone Ghana.

3. In March 2023, the Group sold its controlling interest in Vantage Towers A.G. to a joint venture entity co-controlled with KKR and GIP.

4. Organic service revenue growth is a non-GAAP measure. See page 8 for more information.

5. The comparative period includes the results of Vodafone Hungary and Vodafone Ghana which were included in the Other Europe and Other Markets segments, respectively, until their disposal. As previously reported, Vodafone Hungary was sold in January 2023 and Vodafone Ghana was sold in February 2023.

Germany ⫶ Commercial trends improving

Service revenue increased by 0.3%* (Q2: 1.1%*) as the contribution from higher broadband ARPU was partly offset by the impact of broadband customer losses and lower regulated rates for terminating mobile calls. The lower growth in Q3 primarily reflects non-recurring revenue received from mobile service providers in Q2 and lower IoT revenue in Q3.

Fixed service revenue increased by 1.0%* (Q2: 1.4%*) as broadband ARPU growth was partially offset by the impact of a lower broadband and TV customer base. During Q3, we communicated price increases to a further one million customers. As a result, we saw further fixed broadband disconnections and our customer base declined by 76,000 (Q2: -133,000, Q1: -121,000). Our converged customer base increased by 45,000 to 2.4 million. Gigabit speeds are available to over 24 million households across our hybrid fibre cable network and we have achieved strong quality and reliability results in all four major independent network tests.

Ahead of changes to German TV laws, which take effect from July 2024 and end the practice of bulk TV contracting in MDU apartment complexes, we have started migrating end users to individual TV customer contracts at scale. We currently have 8.5 million MDU TV households, generating around €800 million in basic-TV revenue annually. Trials to date have successfully migrated 35% to 65% of these households into individual TV contracts. During Q3 our total TV customer base, including premium TV customers, declined by 136,000.

Mobile service revenue decreased by 0.5%* (Q2: +0.7%*) reflecting a lower total customer base and a reduction in mobile termination rates, partially offset by higher roaming and visitor revenue. Lower quarter-on-quarter growth reflects non-recurring revenue received from service providers in Q2 and lower Business IoT revenue year-on-year in Q3. We added 95,000 new contract customers in the quarter, supported by our ongoing optimisation of sales channels and an improved performance of Vodafone’s own brands. We have achieved strong results in all four major independent mobile network tests from ‘Connect’, ‘CHIP’, ‘Computer BILD’ and ‘OpenSignal’.

Vodafone Business service revenue decreased by 1.9%* (Q2: +1.0%*) in Q3, reflecting a strong prior year comparative performance in public sector and cloud services, and lower IoT revenue. We added 1.8 million IoT connections in the quarter, driven by strong demand from the automotive sector. In November 2023, we expanded our digital services proposition for SoHo businesses, with Microsoft 365 and new security solutions now available to customers.

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UK, Italy, Spain and Other Europe ⫶ Growing in 7 out of 9 markets

Service revenue increased by 5.2%* (Q2: 5.5%*) as continued strong growth in the Consumer and Business segments was partly offset by lower fixed wholesale revenue.

In mobile, our contract customer base increased by 18,000 supported by good seasonal trading. Consumer contract retention also improved by 0.8 percentage points year-on-year. Our digital sub-brand, ‘VOXI’ continued to grow, with 26,000 customers added during the quarter.

In fixed, we added 39,000 broadband customers in Q3, and we now have 1.3 million broadband customers. Through our partnerships with CityFibre and Openreach we can now reach over 14.5 million households with full fibre broadband, more than any other provider in the UK.

Vodafone Business service revenue increased by 5.8%* (Q2: 3.2%*) during the quarter, supported by strong growth in IoT and higher project revenue. This follows our announcement in August 2023, that we will be providing connectivity for Britain’s smart meter network through our partnership with Data Communications Company.

In June 2023, we announced a binding agreement to combine our UK business with Three UK to create a sustainable, and competitive third scaled network operator in the UK. Following the merger, which we expect to close around the end of calendar 2024, subject to regulatory and shareholder approvals, Vodafone will own 51% of the combined business and CK Hutchison 49%. This combination will provide customers with greater choice and more value, drive greater competition, and enable increased investment with a £11 billion plan to create one of Europe’s most advanced standalone 5G networks. Full details of the transaction can be found here: investors.vodafone.com/merger-of-vodafone-uk-and-three-uk

Italy

Service revenue declined by 1.3%* (Q2: -1.0%*) as a result of continued price pressure in the mobile value segment, partially offset by strong Business demand for fixed line connectivity and digital services.

In mobile, our Consumer prepaid active customer base declined quarter-on-quarter, in part reflecting repricing actions across a proportion of our customer base. Our digital sub-brand ‘ho.’ continued to grow, with 36,000 net new customers, and now has 3.2 million customers. In October 2023, we agreed an extension to our wholesale MVNO agreement with PostePay until the end of 2028.

Our fixed line customer base decreased by 24,000, however we also added 24,000 fixed-wireless customers which are reported within our mobile customer base. Our next generation network broadband services are now available to 23.3 million households, including 9.1 million through our own network and our partnership with Open Fiber. This is complemented by our fixed-wireless access services which now cover 4.3 million households via 5G FWA and 1.3 million households via 4G FWA.

Vodafone Business continued to grow strongly at 7.5%* (Q2: 7.5%*) driven by good demand for both our fixed connectivity and digital services, supported in part by the business voucher programme. This initiative, which concluded in December 2023, has been funded via the EU Recovery and Resilience Facility (‘ERF’) and subsidises high-speed broadband connectivity. In October 2023, we announced that Vodafone will provide hybrid 5G Mobile Private Network infrastructure to SNAM, one of Europe’s largest natural gas transportation companies, and in November 2023 we were awarded the public tenders for local area networks and mobile services for public administration.

On 18 December 2023, we confirmed that we are exploring options for in-market consolidation in Italy with several parties. There can be no certainty that any transaction will ultimately be agreed.

Spain

On 31 October 2023, we announced that we had entered into binding agreements with Zegona Communications plc in relation to the sale of 100% of Vodafone Spain. On completion, which is expected to take place during the first half of calendar 2024, we will receive €4.1 billion in cash and up to €0.9 billion in the form of Redeemable Preference Shares, which redeem no later than six years after closing. The enterprise value of €5.0 billion is equivalent to a multiple of 5.3x Adjusted EBITDAaL and 12.7x Operating Free Cash Flow for the 12-month period ended 31 March 2023. Full details of the transaction can be found here: investors.vodafone.com/sale-of-vodafone-spain.

Vodafone Spain will be reported as discontinued operations in the consolidated financial statements for the year ending 31 March 2024.

In Spain, service revenue declined due to continued price competition in the Consumer value segment, a lower customer base and a reduction in mobile termination rates. This was partially offset by the positive contribution from inflation-linked price increases implemented in January 2023 and higher Business revenue during the quarter. Our mobile contract customer base increased by 29,000 and our broadband customer base decreased by 24,000.

Other Europe

Service revenue grew by 3.6%* (Q2: 3.8%*), with all six markets growing during the quarter, supported by our price actions in most markets.

In Portugal, both the Consumer and Business segments continued to grow strongly, supported by inflation-linked contractual price increases implemented in March 2023, as well as good demand for fixed services. We added 47,000 mobile contract customers and 31,000 fixed broadband customers during the quarter. In Ireland, service revenue increased, driven by mobile customer base growth. In Greece, service revenue grew, reflecting good growth in our Business fixed segment, supported by public sector demand. During the quarter, we added 41,000 mobile contract customers.

Vodafone Business service revenue increased by 7.8%* (Q2: 5.2%*) during the quarter, with growth in both connectivity and digital services, including IoT, Cloud and SD-WAN solutions. Growth was supported by a higher customer base, price increases in the SoHo and SME customer segments across all markets, and public sector contract wins in Greece and Romania.

In September 2022, we announced that we had entered into an agreement to buy Portugal’s fourth largest converged operator, Nowo Communications, from Llorca JVCO Limited, the owner of Masmovil Ibercom S.A. The transaction is conditional on regulatory approval. We submitted proposed remedies which were rejected in January 2024. We are reviewing the competition authority’s comments and exploring further options to address the authority’s concerns.

Vodacom ⫶ Maintained strong Group SR momentum

Note: Organic growth rates include Egypt in all periods

Vodacom’s service revenue grew by 8.8%* (Q2: 9.0%*), with growth in South Africa, Egypt, and Vodacom’s international markets.

In South Africa, service revenue growth was supported by the Consumer mobile contract segment, which benefited from a price increase in the first quarter, and good fixed line growth in Consumer and Business. The lower growth in Q3 was due to a strong prior year comparative, reflecting an acceleration in customer data usage during widespread power outages. We added 58,000 contract customers in the quarter, and now have a total base of 6.8 million. We added 2.9 million mobile prepaid customers in the quarter, supported by our Big Data led customer value management capabilities which offer personalised bundles to customers. Financial services revenue grew by 3.9%*, driven by good demand for our insurance services. Our ‘VodaPay’ super-app continued to gain traction with 4.8 million registered users.

In Egypt, service revenue continued to grow strongly in the high inflationary environment, reflecting good customer base growth, increased data usage and good demand for our financial services product, ‘Vodafone Cash’, which now has 7.5 million active users. During the quarter, we added 123,000 mobile contract customers and 607,000 mobile prepaid customers, and we now have 47.8 million customers.

In Vodacom’s international markets, service revenue growth was supported by a higher customer base, and strong M-Pesa and data revenue growth. The reacceleration in quarterly trends was largely driven by the DRC, which is benefitting from accelerated network investment. M-Pesa revenue continued to grow strongly and now represents 27.4% of service revenue. Our mobile customer base now stands at 53.7 million and 62.3% of active customers use our data services.

Turkey

Service revenue growth in Turkey was driven by continued customer base management and ongoing repricing actions to reflect the high inflationary environment. Despite a material devaluation in the currency, service revenue also grew in euro terms during the quarter. We maintained our good commercial momentum, adding 352,000 mobile contract customers during the quarter, including migrations from prepaid customers.

Hyperinflationary accounting in Turkey

During the quarter, service revenue in Turkey increased by 90.4%* (Q2: 85.0%*) due to ongoing repricing actions to reflect inflation. Turkey was designated as a hyperinflationary economy on 1 April 2022 in line with IAS 29 ‘Financial Reporting in Hyperinflationary Economies’. Organic growth metrics exclude the impact of the hyperinflation adjustment in Turkey in the quarter.

Group service revenue growth excluding Turkey was 2.5%* (Q2: 2.8%*).