VOD

Business Context and Reporting Period

Company: Vodafone Group Public Limited Company
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: First Half (H1) of Fiscal Year 2025 (ended September 30, 2024)
Date of Announcement: November 12, 2024

Vodafone reported H1 FY25 results consistent with expectations, highlighting progress in its strategic transformation. Key portfolio actions include the completed sale of Vodafone Spain and ongoing regulatory approvals for the sale of Vodafone Italy and the merger of Vodafone UK with Three UK. The Group is investing in Germany to strengthen market position and expanding B2B capabilities.

Key Financial Metrics

Note: H1 FY24 comparatives have been re-presented to exclude Vodafone Spain and Vodafone Italy as discontinued operations.

Material Changes vs. Prior Period

• Operating Profit Surge: Operating profit increased by 28.3% to €2.4 billion, primarily driven by a €0.7 billion gain on the disposal of an 18% stake in Indus Towers.
• Germany Performance: Service revenue in Germany declined by 6.2% in Q2 due to the impact of the Multi-Dwelling Unit (MDU) TV law change. Excluding this impact, service revenue declined by 2.4% due to a lower customer base following prior year price increases.
• Discontinued Operations: Vodafone Spain and Vodafone Italy are now reported as discontinued operations. The disposal of Vodafone Spain completed on May 31, 2024, generating €4.1 billion in cash proceeds.
• Share Buybacks: The Group repurchased 1.2 billion shares for €1.0 billion by November 11, 2024, completing the second tranche of its buyback program.
• Dividend Reduction: The interim dividend per share was set at 2.25 eurocents, down from 4.50 eurocents in H1 FY24, reflecting a rebased dividend policy following portfolio right-sizing.

Guidance, Outlook, and Risks

Guidance and Outlook

Management reiterated full-year FY25 guidance:

• Adjusted EBITDAaL: Approximately €11.0 billion.
• Adjusted Free Cash Flow: At least €2.4 billion.

The Group targets a leverage ratio of 2.25x to 2.75x Net Debt to Adjusted EBITDAaL. Capital allocation priorities include maintaining capital intensity at market levels, deleveraging, and shareholder returns via dividends and buybacks.

Management Commentary

CEO Margherita Della Valle stated that results were in line with expectations and that the Group is making good progress on its strategy to reshape for growth. The approval processes for transactions in the UK and Italy are nearing conclusion. The Group is investing in Germany to strengthen its market position and expanding B2B capabilities.

Risks and Contingencies

• Regulatory Approvals: Completion of the UK merger with Three UK and the sale of Vodafone Italy depends on regulatory approvals expected in early 2025.
• Germany MDU Law: Ongoing impact of the TV law change on revenue and customer base in Germany.
• Legal Proceedings: The "Makate v Vodacom" case in South Africa remains pending before the Constitutional Court, with potential compensation outcomes ranging widely.
• Macroeconomic Conditions: Risks include adverse foreign exchange movements, inflation, and interest rate fluctuations.

Investor Verification Checklist

• Germany MDU Impact: Verify the extent of customer retention (4.0 million households retained) and the trajectory of revenue recovery post-law change.
• Portfolio Transaction Timelines: Monitor the final regulatory decisions for the UK merger (expected by Dec 7, 2024) and the Italy sale (expected by Dec 10, 2024).
• Dividend Sustainability: Assess the impact of the reduced interim dividend (2.25 eurocents) on total shareholder return relative to the new leverage policy.
• Free Cash Flow Trajectory: Track the improvement in Adjusted Free Cash Flow from an outflow of €0.95 billion in H1 to the full-year target of at least €2.4 billion inflow.
• Indus Towers Gain: Confirm the non-recurring nature of the €0.7 billion gain in operating profit and its impact on future earnings comparisons.