Vodafone : Full Year Reports

Vodafone Group Plc ⫶ FY23 Preliminary results

16 May 2023

A new roadmap for Vodafone

Margherita Della Valle, Group Chief Executive, commented:

"Today I am announcing my plans for Vodafone.Our performance has not been good enough.To consistently deliver, Vodafone must change.

My priorities are customers, simplicity and growth.We will simplify our organisation, cutting out complexity to regain our competitiveness.We will reallocate resources to deliver the quality service our customers expect and drive further growth from the unique position of Vodafone Business."

Financial results		FY23	FY22	Change
Page	€m	€m	%
Group revenue	7	45,706	45,580	0.3
Group service revenue	7	37,969	38,203	2.2*
Operating profit1	7	14,296	5,813	145.9
Adjusted EBITDAaL2	7	14,665	15,208	(1.3)*
Profit for the financial year1	7	12,335	2,773
Basic earnings per share1	19	42.77c	7.71c
Adjusted basic earnings per share1,2	19	11.45c	11.68c
Total dividends per share	22	9.00c	9.00c
Cash inflow from operating activities	19	18,054	18,081	(0.1)
Adjusted free cash flow2	20	4,842	5,437
Net debt2	21	(33,375)	(41,578)	+19.7

• represents organic growth. See page 3. ǀ 1. FY22 re-presented for the reclassification of Indus Towers. See page 31. ǀ 2. Non-GAAP measure. See page 36.

• FY23 performance slowdown in line with expectations
• Germany remains under pressure with -1.6%* service revenue growth and -6.1%* adjusted EBITDAaL growth
• Good performance in Vodafone Business with 2.6%* service revenue growth
• Group revenue increased by 0.3% to €45.7 billion driven by growth in Africa and higher equipment sales, offset by lower European service revenue and adverse exchange rate movements
• Adjusted EBITDAaL declined by 1.3%* to €14.7 billion due to higher energy costs, and commercial underperformance in Germany
• Gain on disposal of Vantage Towers supporting significant increase in operating profit and basic EPS
• Adjusted free cash flow of €4.8 billion, reflecting lower adjusted EBITDAaL and tax phasing
• Significant reduction in net debt to €33.4 billion, proforma net debt to adjusted EBITDAaL improved to 2.5x
• Total dividends per share are 9.0 eurocents, including a final dividend per share of 4.5 eurocents

See page 4 for our FY24 outlook

For more information, please contact:
Investor Relations	Media Relations
Investors.vodafone.com	Vodafone.com/media/contact
[e-mail]	[e-mail]

Registered Office: Vodafone House, The Connection, Newbury, Berkshire RG14 2FN, England. Registered in England No. 1833679

A webcast Q&A session will be held at 10:00 BST on 16 May 2023. The webcast and supporting information can be accessed at investors.vodafone.com

Vodafone Group Plc ⫶ FY23 Preliminary results

A new roadmap for Vodafone

Today, we set out a new roadmap for Vodafone, following a strategic review conducted over the last five months. 1. Vodafone must change

The circumstances of our industry and the position of Vodafone within it, require us to change.

• The European telecommunication sector has amongst the lowest ROCE in Europe, alongside the highest capital investment demands. This has resulted in ROCE being below WACC for over a decade, impacting Total Shareholder Returns.
• More importantly, the comparative performance of Vodafone has worsened over time, which is connected to the experience of our customers.
• Our market position and performance varies by geography and segment. Where we have the right combination of strong local execution and a rational market structure, we can grow and drive returns. There are also material differences between our Consumer and Business segments, with Business growing in nearly all European markets.
• Our turnaround must be built from our strengths, but we need to overcome some clear challenges. We are more complex than we need to be, which limits our local commercial agility.

2. Strategic shifts

Our target is to be a best-in-class telco in Europe and Africa, and become Europe's leading platform for Business. To achieve this, we must change in four essential areas.

• We will rebalance our organisation to maximise the potential of Vodafone Business, which continues to accelerate growth, has a unique set of capabilities and has a strong position in a large and growing market as organisations digitise.
• In order to win in our consumer markets, we will refocus on the basics and deliver the simple and predictable experience our customers expect.
• We will be a leaner and simpler organisation, to increase our commercial agility and free up resources.
• We will focus our resources on a portfolio of products and geographies that is right-sized for growth and returns over time.

3. Our action plan

To execute the change in these four areas, we have an action plan already underway, focused around three priorities: Customers, Simplicity and Growth. Early examples of this action plan include:

• Customers: Significant investment reallocated in FY24 towards customer experience and brand
• Simplicity: 11,000 role reductions planned over three years, with both HQ and local markets simplification
• Growth: Germany turnaround plan, continued pricing action and strategic review in Spain

We will change the level of ambition, speed and decisiveness of execution. We will have empowered markets focused on customers, scale up Vodafone Business and take out complexity to simplify how we operate.

A more detailed outline of the new roadmap for the transformation of Vodafone is contained within an accompanying video presentation available here: investors.vodafone.com/results.

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Vodafone Group Plc ⫶ FY23 Preliminary results

Financial summary

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 adjustments 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 36 for more information.

Financial performance

Total revenue increased by 0.3% to €45.7 billion (FY22: €45.6 billion) driven by growth in Africa and higher equipment sales, offset by lower European service revenue and adverse exchange rate movements.

Adjusted EBITDAaL declined by 1.3%* to €14.7 billion (FY22: €15.2 billion), with revenue growth offset by higher energy costs and commercial underperformance in Germany. The adjusted EBITDAaL margin was 1.4* percentage points lower year-on-year at 32.1%.

Operating profit increased to €14.3 billion and the Group made a profit for the period of €12.3 billion (FY22: €2.8 billion), largely reflecting a gain on disposal of Vantage Towers.

Basic earnings per share was 42.77 eurocents, compared to basic earnings per share of 7.71 eurocents in the prior year.

Cash flow, funding & capital allocation

Cash inflow from operating activities were broadly stable year-on-year at €18.1 billion.

Free cash flow was an inflow of €1.4 billion (FY22: inflow of €3.3 billion) partly reflecting a lower adjusted EBITDAaL,

higher licence and spectrum payments and tax phasing. Adjusted free cash flow was €4.8 billion (FY22: €5.4 billion).

Net debt decreased by €8.2 billion to €33.4 billion (€41.6 billion as at 31 March 2022). This was driven by free cash inflow of €1.4 billion, acquisitions and disposals of €8.7 billion, partially offset by equity dividends of €2.5 billion, and share buybacks of €1.9 billion (used to offset dilution linked to the conversion of certain mandatory convertible bonds). Other movements in net debt includes €1.7 billion relating to the settlement of 5G spectrum in Italy previously included in net debt.

Current liquidity, which includes cash and equivalents and short-term investments, is €16.0 billion (€12.3 billion as at 31 March 2022). This includes €4.6 billion of net collateral which has been posted to Vodafone from counterparties as a result of positive mark-to-market movements on derivative instruments (€2.2 billion as at 31 March 2022).

Total dividends per share are 9.0 eurocents (FY22: 9.0 eurocents) including a final dividend per share of 4.5 cents. The ex-dividend date for the final dividend is 8 June 2023 for ordinary shareholders, the record date is 9 June 2023 and the dividend is payable on 4 August 2023.

Hyperinflationary accounting in Turkey

Turkey was designated as a hyperinflationary economy on 1 April 2022 in line with IAS 29 'Financial Reporting in Hyperinflationary Economies'. See note 1 of the condensed consolidated financial statements for further information.

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Vodafone Group Plc ⫶ FY23 Preliminary results

Outlook

Performance against FY23 guidance

In May 2022, we set out guidance for FY23 for Group adjusted EBITDAaL and adjusted free cash flow. In November 2022, this was updated to reflect the worsening global macroeconomic climate, with higher energy costs and broader inflation in particular.

For FY23 we reported adjusted EBITDAaL and adjusted free cash flow of €14.7 billion and €4.8 billion. This included adverse foreign exchange rate movements versus those used for the basis of guidance and other items which in aggregate impacted adjusted EBITDAaL by €0.2 billion and adjusted free cash flow by €0.5 billion.

The table below compares the guidance given and our actual performance.

	Original guidance	Updated guidance	FY23 outcome on	FY23 outcome as
			guidance basis1	reported
Adjusted EBITDAaL2	€15.0 - €15.5	€15.0-15.2 billion	€14.9 billion	€14.7 billion
billion
Adjusted free cash flow2,3	c. €5.3 billion	c.€5.1 billion	€5.3 billion	€4.8 billion

FY24 Guidance

In order to provide a basis of comparison for our FY24 guidance, we have rebased our FY23 financials to reflect the current structure of the Group and applied foreign exchange rates that are consistent with FY24 guidance rates. On a comparable basis, the rebased FY23 adjusted EBITDAaL is €13.3 billion and adjusted free cash flow is €4.2 billion.

Based on the current prevailing assessments of the global macroeconomic outlook, for FY24 we expect:

• Adjusted EBITDAaL to be 'broadly flat' at around €13.3 billion; and
• Adjusted free cash flow to be 'around' €3.3 billion, reflecting expected working capital movements, interest and dividend receipts

The guidance above reflects the following:

• Foreign exchange rates used when setting guidance were as follows:
• • EUR 1 : GBP 0.88;
  • EUR 1 : ZAR 19.30;
  • EUR 1 : TRY 21.10; and
  • EUR 1 : EGP 33.38.
• This guidance assumes no material change to the structure of the Group.

Notes:

1. The FY23 outcome on guidance basis is derived by applying FY23 guidance foreign exchange rates. The FY23 guidance foreign exchange rates were €1 : GBP 0.84; €1 : ZAR 17.32; €1 : TRY 16.75; €1 : EGP 19.28.
2. Adjusted EBITDAaL and adjusted free cash flow are non-GAAP measures. See page 36 for more information.
3. 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, M&A, and Vantage Towers growth capital expenditure. Growth capital expenditure is total capital expenditure excluding maintenance-type expenditure.

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Vodafone Group Plc ⫶ FY23 Preliminary results

Operational Key Performance Indicators

	Units	FY23	FY22
Europe mobile contract customers1	million	64.8	66.4
Europe broadband customers1	million	24.7	25.6
Europe Consumer converged customers1	million	9.1	9.0
Europe mobile contract customer churn	%	13.5	13.6
Africa mobile customers2	million	189.9	184.5
Africa data users2	million	94.8	89.9
Business service revenue growth*3	%	2.6	0.8
Europe TV subscribers1	million	20.7	21.9
IoT SIM connections	million	162.3	150.1
Africa M-Pesa customers2	million	56.7	52.4
Africa M-Pesa transaction volume2	billion	26.0	19.9
Digital channel sales mix4	%	26	25
End-to-end TOBi completion rate5	%	56.2	42.9
5G available in European cities1	#	332	294
Europe on-net gigabit capable connections1	million	50.0	48.5
Europe on-net NGN broadband penetration1	%	29	30
Pre-tax ROCE (controlled)3 6	%	6.8	7.2
Post-tax ROCE (controlled and associates/joint ventures)3 6 7	%	5.1	5.2
Europe markets where 3G switched off1	#	4	4

1. Including VodafoneZiggo | 2. Africa including Safaricom | 3. These line items are non-GAAP measures. See page 36 for more information | 4. Based on Germany, Italy, UK, Spain only | 5. Defined as percentage of total customer contacts resolved without human interaction through TOBi. Group excluding Egypt | 6. The FY23 ROCE excludes Vantage Towers. FY22 excluding Vantage Towers pre-tax ROCE is 7.0% and post-tax ROCE is 5.0% | 7. The FY22 comparative for post-tax ROCE has been re-presented for the reclassification of Indus Towers. See page 31.

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