Vodafone Group Plc Q4 FY2024 earnings call

• Vodafone has been transforming, reshaping European footprint with sales of Spain and Italy and U.K. merger. • Operational transformation focused on customer simplicity and growth, with reduced customer detractors and leading/co-leading NPS in five out of nine European markets. • Established new commercialized model for shared operations to serve markets and telco partners. • Financial results slightly exceeded guidance for the year, with EBITDA growing by 2% despite inflationary headwinds. • Focus for FY '25 includes stepping up investments in customer experience, improving Germany's underlying performance across fixed and mobile propositions, channel strategy, MDU transition, and network utilization, and accelerating business growth while simplifying operations.

Service revenue growth has been accelerating throughout the year. Business segment had strong service revenue growth accelerating to 5% this year. Germany had 0.6% headline service revenue growth in FY '24 with 1.5% underlying growth. The rest of Europe's service revenue growth is expected to slow down in FY '25 due to CPI unwinding. Emerging markets continue to grow strongly.

• FY '25 service revenue growth expected to have component-wise decent growth, but Germany's service revenue performance expected to turn negative in '25 as MDU headwinds build. Rest of Europe's service revenue growth to slow down due to CPI unwinding. Emerging markets to continue strong growth. • FY '25 EBITDA expected to grow despite MDU transition adding sizable headwind, with Germany's EBITDA negative in '25 and rest of Europe's EBITDA developing favorably due to energy cost unwind and good commercial performance. Emerging markets have strong growth prospects. • FY '26 expected to be a year of growth in both top line and EBITDA as MDU headwinds and other transitional factors subside.

• MDU transition in Germany poses a significant drag on financial performance, including revenue and EBITDA. • Competitive dynamics in the German market could impact broadband net ads and overall performance. • Uncertainties in the CMA approval process for the U.K. merger could affect the merger's outcome. • Energy prices and reinvestments for customer experience present headwinds to EBITDA growth.

Q: Can you say a few words about the various puts and takes on the top line and EBITDA level for FY '25?

A: In FY '25, Germany is a transitional year with MDU headwinds, service revenue expected to turn negative. Rest of Europe's growth to slow due to CPI unwinding. EBITDA expected to grow in '25 despite MDU transition headwind, with Germany's EBITDA negative and rest of Europe's EBITDA favorable due to energy cost unwind and good commercial performance. Emerging markets continue strong growth.

Q: Give color on German broadband net ads for April and May and confidence in broadband base stabilization?

A: Fixed broadband had large-scale repricing, seeing halo effect on customer perceptions. Expect improvement in net ads quarter-on-quarter in Q1 and continuing throughout the year with actions like reengineering customer management processes and opening up fiber connections.

Q: Provide color on retaining around 50% of 8.5 million MDU TV households and resource figure for MDU transition?

A: Secured 1.9 million customers in period, 60% of addressable base processed. Expect 50% penetration, resulting in ~€400 million revenue drag. €100 million spent in FY '24, with another €50 million in FY '25.

Q: Elaborate on key metrics for growth and mid-term guidance?

A: Key metrics are free cash flow growth and return on capital growth. Focus on customer satisfaction and B2B growth. FY '25 is a transition year due to completed deals and U.K. merger, with longer-term positive outlook from '26.

Q: Impact of U.K. merger process, CMA approval, and security clearance?

A: U.K. merger is a strong proposition with no need for remedies, going through Phase 2 of CMA process. Security clearance has no read across to CMA approval.

Q: Revenue impact from 1&1 contract in FY '25 and RAN sharing?

A: Migration of 1&1 customers to Vodafone networks starts in Fall '25, with revenue and EBITDA impact in high double-digit millions and CapEx required. No plans for RAN sharing currently.

Q: Thoughts on nonconsolidated assets like VodafoneZiggo and Vantage?

A: Reorganized non-controlled assets into Vodafone Investment division to drive value creation. Still in dialog with Private Equity Consortium on Oak Holdings stake.

Q: Free cash flow bridge for FY '25?

A: FX and Spain deconsolidation timing contribute to headwinds. €500 million negative impact from MDUs including €400 million EBITDA and €100 million working capital.

Q: Flexibility of central function costs with revenues?

A: Shared operations are commercialized with MSAs, allowing cost scaling with demand. No stranded cost impact from shared operations evolution.

Q: Use of proceeds from Vantage stake and buyback timeline?

A: Proceeds could be for shareholder returns, deleveraging, or B2B investments. Share buyback to be launched shortly after final approvals for Spain sale.

Q: Ultimate owners of infrastructure JVs and free cash flow guidance?

A: 50:50 JV relationships to continue. No recharges to Swisscom in FY '25, restructuring and spectrum payments similar to FY '24.

Q: OpEx trends, labor costs, and cost savings?

A: Energy costs to unwind as a tailwind. Labor costs not a significant headwind in Europe due to existing deals. €300 million cost savings include efficiencies across central functions.

Q: Underlying EBITDA growth trajectory and Germany's organic growth?

A: FY '25 expected to have a U shape in performance due to MDU headwinds. Germany's underlying organic service revenue growth expected to be a focus, with efforts to accelerate growth into FY '26.