Vodafone Group Public Limited Company · LSE:VOD
Vodafone Group Public — Vodafone Group — H1 2019 Earnings Presentation
50 slides from Vodafone Group Public's earnings presentation, Nov 13, 2018
Slide 1: Vodafone Group H1 2018/19 Results & Strategy Update
Vodafone Group H1 2018/19 Results & Strategy Update 13 November 2018
Slide 2: Disclaimer
Disclaimer By watching this webcast, you agree to be bound by the following conditions. You This presentation also contains non-GAAP financial information which the may not disseminate these slides or this recording, in whole or in part, without the Vodafone Group’s management believes is valuable i
Slide 3: Overview
Overview • Good performance in most markets, Italy and Spain challenging • Narrowing EBITDA guidance to mid-point of 3% underlying1 organic growth, FCF raised to c.€5.4bn • Driving business performance: – Focus on operational execution and organic growth, supporting more consistent commercial perfor
Slide 4: My long-term ambition
My long-term ambition Deepening Customer engagement + Accelerating Digital transformation + Improving Asset utilisation Driving Shareholder Returns • Gaining profitable total • Agile, tech-company • Capturing announced deal • Significant FCF growth, comms market share operating model synergies suppo
Slide 5: Value drivers
Value drivers >€0.5bn cost/capex synergies from Germany/ >€1.2bn CEE1 net opex savings in Europe by 17% FY21 49% 30% of group service revenues of group service of group service revenues revenues Europe Consumer Vodafone Business Emerging Consumer Digital transformation Asset utilisation • Fixed on-n
Slide 6: H1 18/19 progress
H1 18/19 progress € Commercial momentum Digital transformation Asset utilisation • Group service revenue +0.8%1 • 30% of Europe fixed new • Vodafone-Idea merger closed, sales from digital channels Bharti Infratel/Indus Towers • Europe Consumer broadband merger progressing base +250k, converged • ‘Vo
Slide 7: Good EBITDA growth in most markets, Spain and Italy challenging
Good EBITDA growth in most markets, Spain and Italy challenging H1 18/19 EBITDA growth (%) 12.1 10.3 10.2 7.3 4.8 (9.7) (20.7) UK¹ Other Europe Other AMAP Germany Vodacom Italy Spain² Service revenue 0.8 2.4 9.4 2.0 5.7 -6.4 -4.7 growth (%) 1. Adjusted for handset financing and one-off settlement fr
Slide 8: Italy: clear response to competitive intensity
Italy: clear response to competitive intensity Actions Outcomes ho customer base Successful launch of second brand +491k net ports Active base management More for more offers Fixed line momentum 121k broadband net adds, price increase Jun Jul Aug Sep Strong cost discipline € 6.99 6.99 7.99 9.99 Opex
Slide 9: Spain: commercial repositioning; cost transformation underway
Spain: commercial repositioning; cost transformation underway Actions Outcomes Mobile contract Vodafone vs. competitor A Vodafone vs. competitor B net ports (000s) Exiting unprofitable football rights, focus on movies/series €240m annual savings by FY21 (€150m FY20) 3 Repositioning the Vodafone bran
Slide 10: Good performance in key markets
Good performance in key markets Germany UK Vodacom Group Environment Stable Stable Macro pressure in SA Q2 service revenue growth (%) +1.7 +1.11 +6.3 H1 EBITDA growth (%) +7.3 +12.12 +4.8 466 181 4,956 H1 customer net 97 115 195 adds (000s) Mobile Contract Fixed broadband Mobile Contract Fixed broad
Slide 11: Financial review
Financial review Margherita Della Valle Group Chief Financial Officer
Slide 12: Half year financial highlights (IAS18 basis)
Underlying growth Half year financial highlights (IAS18 basis) Service revenue Adjusted EBITDA Adjusted EBIT Free cash flow Underlying Underlying (€bn) (€bn) (€bn) (€bn) Pre-spectrum Post-spectrum +0.8%1 +2.9%2 +8.6%2 20.6 19.7 7.4 2.5 2.3 7.1 1.3 0.9 6.7 6.9 1.9 2.1 0.4 0.6 H1 17/18 H1 18/19 H1 17/
Slide 13: Adjusted and reported earnings
Adjusted and reported earnings H1 18/19 H1 17/18 (€m) IFRS 15 IAS 18 Adjusted EBIT 2,100 2,457 Impairment loss (3,495) - Spain (€2.9bn) Associates (8) 171 Includes 1 month of Vodafone Idea Restructuring (95) (33) Amortisation of brand assets/other (317) (543) Other income and expense (256) (44) Oper
Slide 14: Service revenue growth
Service revenue growth Quarterly trends2 Impacts of IFRS 153 (%) Ex. UK handset financing Reported (IAS18) IFRS 15 basis H1 18/19 (%) IAS 18 (ex. UK handset financing) IFRS 15 2.0 Germany 1.1 (6.4) 2.2 Italy (6.8) 2.1 1.6 0.8 1.6 1.1 UK 1.4 0.9 (4.7) 1.4 0.5 Spain (4.3) 1.3 1.1 0.3 0.3 5.7 Vodacom 5
Slide 15: Service revenue growth drivers
Service revenue growth drivers H1 18/19 organic service revenue growth contribution (pp) 0.3 1.2 0.5 (1.2) 0.8 0.4 (0.4) Europe Europe Emerging Vodafone Italy/Spain Wholesale¹ H1 18/19 Consumer mobile Consumer fixed Consumer Business Consumer (ex. HF) (excl. IT/ES) mobile 1. Includes common function
Slide 16: Opex reducing for the third year in a row
Opex reducing for the third year in a row EBITDA growth (€bn) 0.2 6.9 0.1 Europe1 opex savings accelerating: (0.1) 6.7 0.4 0.3 FY 17/18 FY 18/19e H1 17/18 Direct margin Net A&R Europe opex¹ AMAP opex H1 18/19 organic EBITDA organic EBITDA 1. Europe and common functions opex 16
Slide 17: Targeting >€1.2bn of net opex savings in Europe
Targeting >€1.2bn of net opex savings in Europe Group opex Europe1 opex mix (€bn) Europe1 AMAP (€bn) Commercial Technology Support 11.2 2.0 Targets: Functional targets: - Customer ops: >30% net reduction Growing < inflation 3.7 9.2 4.1 - Retail footprint: >15% reduction - IT ops: >40% savings >€1.2b
Slide 18: Digital transformation: cost reduction levers
Digital transformation: cost reduction levers Digital first Radically simpler Leverage Group scale Addressable cost base €8.0bn1 €2.5bn €1.0bn €1.5bn €3.0bn Commissions Retail Customer Operations footprint operations Progress in H1 Progress Progress • 10% reduction in frequency of • 40% of products
Slide 19: Digital transformation: Germany broadband case study
Digital transformation: Germany broadband case study Buy Onboard Install Get help 33% of broadband gross DSL calls down 30% Successful installations now 98% 20% of contacts now automated adds now online • Improved website design • Substitute calls by selfcare journeys • Grow automated and selfcare •
Slide 20: Driving asset utilisation: creating a virtual TowerCo
Driving asset utilisation: creating a virtual TowerCo Number of sites (tenancy ratio) Opportunities Virtual TowerCo JVs • Vertical internal organisation with 19,200 (1.1) dedicated management team for 1,500 (1.7) controlled operations 3,100 (1.2) • Driving operating efficiencies and 20,000 (1.3) imp
Slide 21: Driving asset utilisation: strong synergy track record
Driving asset utilisation: strong synergy track record Synergies delivered from previous transactions1: (€bn) (€bn) (€bn) Vodafone Germany Vodafone Spain VodafoneZiggo KDG synergy target: €300m pa Ono: synergy target: €240m pa VZ synergy target: €210m pa 9.1 8.6 4.8 4.4 3.2 3.0 €0.4bn €0.3bn >1/3 of
Slide 22: On track for fourth consecutive year of EBITDA margin expansion
On track for fourth consecutive year of EBITDA margin expansion Group adjusted EBITDA margin Ex. handset financing (%) & settlements Ambition 31.0% 30.7% 30.8% 29.5% 29.3% 28.5% 28.6% H1 12/13 H1 13/14 H1 14/15 H1 15/16 H1 16/17 H1 17/18 H1 18/19 22
Slide 23: Capital intensity stable
Capital intensity stable Capital intensity H1 H2 Full year Evolving capex mix Driving asset utilisation 16.1% 15.7% c.16% European NGN self build Smart capex planning largely complete – €170m saved in FY19 14.7% 17.6% 17.3% 4G coverage now 95% in EU IT migration to the Cloud 14.1% 13.6% – 40% of app
Slide 24: Nearing the peak of the 5G spectrum cycle
Nearing the peak of the 5G spectrum cycle Historical cash spectrum spend1 (€bn) 3.4 Upcoming 5G auctions3 1.5 1.6 1.6 10 year average spectrum cash spend €1.2bn 1.1 c.1 Spectrum amortisation below €1bn2 0.4 0.4 0.5 0.3 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19e FY 20 FY 21 1. Ex. I
Slide 25: Free cash flow
Free cash flow H1 18/19 H1 17/18 (€m) IAS 18 IAS 18 Adjusted EBITDA 7,078 7,385 Capital additions (3,067) (3,263) Capital creditors (821) (576) Working capital (1,704) (1,718) Net interest (369) (343) Net cost of debt 2.4% (ex. Liberty) Taxation (395) (400) Liberty funding cost 2.4% to date Dividend
Slide 26: FY 2018/19 net debt outlook
FY 2018/19 net debt outlook ~3.0x pro-forma leverage post LBTY Net debt Estimated year (€bn) end net debt A robust investment 31.5 0.8 c.€31-32bn 0.8 grade balance sheet: (1.8) (2.1) • Headroom above c.3 minimum credit rating c.(5.4) 4.0 • Long term maturities • Hedged against EM FX volatility March
Slide 27: Recurring FCF supporting €4bn annual dividend
Recurring FCF supporting €4bn annual dividend Free cash flow pre-spectrum (€bn) c.€17bn cumulative 3yr LTIP ambition Headwinds vs. plan: 5.4 c.5.4 • Spain repositioning • Emerging market FX 4.1 Normalised Normalised spectrum spectrum Tailwinds vs. plan: • Accelerating cost transformation 1.3 Dividen
Slide 28: Strategy update
Strategy update Nick Read Group Chief Executive
Slide 29: Our strategy
Our strategy Our purpose: We connect for a better future Deeper customer engagement Europe Consumer Vodafone Business Emerging Consumer Scaled platforms & Partner of choice Leading global Europe’s largest M-Pesa Africa’s largest Europe’s largest IoT platform TV and content payment platform Tower Co
Slide 30: Europe Consumer: Vodafone's leading NGN footprint
Europe Consumer: Vodafone’s leading NGN footprint European marketable homes (proforma)1 (m) Strengthening our reach and economics Total homes Germany /CEE acquisitions 168 • c.24m NGN marketable homes in Germany Total incl. ADSL and NGN 145 • Transform CEE assets into fixed/converged challengers NGN
Slide 31: Europe Consumer: driving on-net penetration, lowering churn
Europe Consumer: driving on-net penetration, lowering churn Increase our on-net penetration and… … upsell more products and services (%) Germany 29 Super Wi-Fi Gigaholiday Spain 21 Italy 12 Always connected Portugal 21 Ireland 13 Secure Net converged TV & entertainment Greece 2 Netherlands 46 0 10 2
Slide 32: Best Gigabit Network: building Europe's largest 4G/5G network
Best Gigabit Network: building Europe’s largest 4G/5G network 95% 4G coverage A densified and modernised network 88k 98% single RAN 4G sites 96% have high capacity backhaul A leading 4G/5G spectrum position 8 already have 3.5GHz spectrum for 5G markets Co-lead in 5G deployment 66% in cities with mor
Slide 33: Best Gigabit Network: efficient gigabit factory
Best Gigabit Network: efficient gigabit factory Costs stable Relative radio cost of delivery Europe network costs1 Europe data traffic (PB) Indexation of unit costs H1 +57% YoY -70% 102 102 -80% 100 FY 15/16 FY 16/17 FY 17/18 3G 4G 5G Targeting stable network costs despite strong expected traffic gr
Slide 34: Europe Consumer: 5G brings more opportunities
Europe Consumer: 5G brings more opportunities QoS Consumer IoT Fixed wireless access E-Gaming Opportunities Tiered offers based on quality 2.5bn European Consumer Targeting rural, semi-rural and Mobile gaming population to of service and/or speed IoT devices by 20251 non-fibre areas reach 157m by 20
Slide 35: Vodafone Business: a unique asset
Vodafone Business: a unique asset Global footprint Product mix 7% Cloud 3% IoT Mobile 60% Vodafone markets 30% Fixed Partner markets • Owner economics in multiple markets • Leading fixed challenger • 248,200 kms of fibre • Minimal exposure to legacy products and low margin IT projects • Security and
Slide 36: Vodafone Business: the challenger to incumbents
Vodafone Business: the challenger to incumbents Mobile revenue share1 100% Business c.78% Consumer c.60% 50% Competitor 4 Competitor 3 Competitor 2 Vodafone Competitor 1 0% Business Consumer Business Consumer Business Consumer Business Consumer Enterprise fixed revenue 8% 7% 9% 13% market share 1. L
Slide 37: Vodafone Business: Gigabit solutions for large corporates
Vodafone Business: Gigabit solutions for large corporates Gain in fixed market share with SD-WAN1 Leveraging our IoT global leadership Global IoT enterprise market – Total value chain (€bn2) • Disrupt legacy relationships with lower cost solutions CAGR 17–25 232 • Differentiate through mobile integr
Slide 38: Emerging Consumer: Material data growth opportunities
Emerging Consumer: Material data growth opportunities Africa and Middle East data customers1 ARPU uplift in South Africa 161m Customers +22% 78m +13% Active data users 69m Smartphone customers 36 4G customers 2G 3G 4G • 43% smartphone penetration • Data revenue is 50% of Emerging Consumer mobile ser
Slide 39: Emerging Consumer: M-Pesa as a financial services platform
Emerging Consumer: M-Pesa as a financial services platform 1. Money transfer & core services 2. Enterprise payments 3. Financial services 4. Mobile commerce P2P transfers, international B2B, bank transfers, bills, Loans, handset financing, Merchant in-store transfers salaries insurance, finance tool
Slide 40: Summary: Free cash flow growth
Summary Clear focus on Strong ambition to Five value drivers for Consistent investment operational execution transform our revenue growth in the best Gigabit operating model and margin expansion networks Free cash flow growth Supporting a sustainable dividend and improved shareholder returns 40
Slide 41: Q&A
Q&A 41
Slide 42: Appendix
Appendix 42
Slide 43: Germany: continued operational momentum, margin expansion
Germany: continued operational momentum, margin expansion Actions Outcomes Mobile contract and broadband net adds Mobile contract Fixed broadband Investing for network leadership 258 DOCSIS 3.1 upgrade in 30% of footprint 217 212 208 Growing in higher value channels 144 Direct >40% of gross adds 94
Slide 44: UK: building commercial and financial momentum
UK: building commercial and financial momentum Actions Outcomes Mobile contract and broadband net adds Mobile contract1 Fixed broadband Investing for network leadership 104 #1 in London 77 66 Consumer focus on fixed and youth segment 53 44 Broadband base +201k yoy, VOXI net adds +39k 33 41 38 26 Fix
Slide 45: H1 YoY EBITDA walk
H1 YoY EBITDA walk (€bn) 7.4 +2.9% 6.9 0.2 7.1 (0.1) (0.1) 6.7 (0.1) (0.1) (0.3) H1 17/18 FX/other Qatar India recharges UK settlement UK handset H1 17/18 H1 18/19 UK handset H1 18/19 reported EBITDA deconsolidation financing organic organic financing EBITDA reported underlying underlying EBITDA EBI
Slide 46: Vodafone pro-forma NGN footprint by country
Vodafone pro-forma NGN footprint by country1 Household coverage (m)2 Owned Strategic partnership3 Acquired Assets Wholesale % Household coverage 70% 64% 75% 88% 58% 93% 38% 5.0 11.0 11.2 28.1 12.5 12.7 10.3 0.2 2.6 2.7 7.2 6.4 3.2 Germany Italy Spain UK Portugal VodafoneZiggo NLJV CEE¹ 117m Househol
Slide 47: Customer experience and commercial KPIs
Customer experience and commercial KPIs Europe AMAP Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 17/18 17/18 17/18 18/19 18/19 17/18 17/18 17/18 18/19 18/19 4G customers (m)1,4 54.3 56.8 59.1 61.0 62.2 4G customers (m)2,3 34.3 47.2 56.2 68.4 73.8 Broadband customers (m)1 17.1 17.5 17.8 17.9 18.3 Broadband customer
Slide 48: Financing costs (excluding Liberty financing costs)
Financing costs (excluding Liberty financing costs) HY 18/19 HY 17/18 (€m) (€m) Net financing costs (815) 152 Mark to market - Mandatory convertible bonds 180 (176) Foreign exchange1 215 (302) Adjusted net financing costs (420) (326) Other mark to market of derivative positions 5 (19) Interest expen
Slide 49: Forward-looking statements
Forward-looking statements This presentation, along with any oral statements made in connection therewith, contains “forward-looking and associated benefits; the Group’s ability to secure the timely delivery of high-quality products from suppliers; loss statements” including within the meaning of th
Slide 50: More information
More information Visit our website for more information 2019 upcoming dates Interim dividend paid Q3 results Prelim results 1 Feb 25 Jan 14 May Contact us [email protected] +44 (0) 7919 990 230 www.vodafone.com/investor For definitions of terms please see www.vodafone.com/content/index/investors/glo