Vodafone Group Plc – Trading update for the quarter ended 30 June 2018

Vittorio Colao, Group Chief Executive, commented:

“The Group's organic service revenue growth slowed during the first quarter, in line with expectations. The majority of our operations performed well, with ongoing momentum in Germany, further underlying recovery in the UK and continued good growth in AMAP, all of which helped to offset increased competition in Italy and Spain. Our commercial performance was solid, with further broadband market share gains in Europe, a record number of customers adopting our converged propositions, and the continued success of our world-leading IoT platform. In India, where competition remains intense, we have now received conditional approval from the Department of Telecoms for the merger of Vodafone India and Idea Cellular, which we aim to close before the end of August, allowing us to unlock substantial synergies. The Group's overall performance (including good progress in reducing absolute operating costs for the third year running) provides us with the confidence to reiterate our outlook for the year”.

*   All amounts in this document marked with an “*” represent organic growth which presents performance on a comparable basis, both in terms of merger and acquisition activity and movements in foreign exchange rates. Organic growth is an alternative performance measure. See “Alternative performance measures” on page 9 for further details and reconciliations to the respective closest equivalent GAAP measure.

1. Converged net additions are shown excluding the first time inclusion in Germany of prepaid mobile customers with fixed products.

2. Organic adjusted EBITDA growth excluding the impact of settlements and UK handset financing.

3. Alternative performance measures are non-GAAP measures that are presented to provide readers with additional financial information that is regularly reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measure. See “Alternative performance measures” on page 9 for more information and reconciliations to the closest respective equivalent GAAP measure and “Definition of terms” on page 13 for further details.

OPERATING REVIEW

On 20 March 2017 we announced an agreement to merge Vodafone India with Idea Cellular ('Idea') in India. As a result, Vodafone India is now excluded from Group figures, unless stated otherwise.

Strategic progress

During Q1, we continued to make good progress in our strategic 'growth engines' of mobile data, fixed/convergence, and Enterprise.

Mobile data

Data traffic grew 57% during Q1 (Europe: 56%, AMAP: 58%). Additionally, Indian data traffic quadrupled following a steep decline in data prices. This largely reflected increased smartphone usage as data allowances expand, with customers now using 3.3GB on average each month (Europe 2.8GB, AMAP 2.3GB, India 4.6GB). Our network investments have created a strong platform to capture this data demand, and we continue to have the leading or co-leading network NPS scores in 14 out of 20 markets including India.

Across the majority of our European markets our 'more-for-more' commercial propositions as well as personalised offers utilising advanced data analytics supported mobile revenue growth. However, contract ARPU remained under pressure primarily as a result of a mix shift towards SIM-only and multi-SIM family contracts and the introduction of EU Roam Like At Home regulation in June 2017, together with increased competition in certain markets. In AMAP data revenues are growing strongly, supported by the relative scarcity of fixed Internet access and low data penetration.

Fixed & Convergence

During the next five years around 50 million additional households are expected to adopt NGN broadband within Vodafone's European footprint. We view this shift to NGN as a window of opportunity to capture substantial profitable market share. Gaining scale in fixed also allows us to drive convergence across our combined fixed and mobile customer base, lowering churn. We have a flexible and capital efficient strategy which combines build/co-build, strategic partnering, wholesale and acquisition options. This approach allows us to continually improve our fixed access position. We have created Europe's largest NGN footprint covering 109 million households, of which 36 million households are 'on-net' (including VodafoneZiggo) and 7 million households are reached via strategic partnerships, where we enjoy superior economic terms compared to regulated prices. Pro-forma for the announced acquisition of Liberty Global's cable assets in Germany and CEE, as of the end of Q1 we would reach approximately 115 million households, with 54 million 'on-net' (including VodafoneZiggo). 

During Q1 we added 128,000 new broadband customers in Europe (Q1 17/18: 237,000), a slower pace than in recent quarters due to customer losses in Spain and competitor promotions in Germany. However, our NGN customer base grew by 351,000 (Q1 17/18 384,000), and our converged customer base grew by a record 289,000¹ customers (Q1 17/18: 119,000). This drove sustained European fixed service revenue growth of 4.0%* in Q1.

In total, including VodafoneZiggo the Group now has 19.9 million broadband customers, of which 13.6 million take a high speed service over fibre or cable, 13.8 million TV customers and 6.0 million consumer converged customers (representing 34% of the consumer broadband base, up 7 percentage points year-on-year). Fixed now contributes 25.6% of Group service revenues (29.9% in Europe).

Enterprise

Services to businesses comprise 30.0% of our Group service revenue. Our relationships with business customers are expanding from traditional mobile voice and data services to embrace total communications, IoT, Cloud & Hosting and IP-VPN provision. These new areas offer both market growth and market share opportunities for us.

In Q1, our Enterprise business grew service revenues by 0.9%* (Q4: 1.5%*), or by 2.0%* (Q4: 2.1%*) excluding the impact of regulation. This growth was supported by our unique global network and product set and by the contribution from emerging market growth. These factors allowed us to offset continued pricing pressure in European mobile and roaming declines. Growth in IoT continued (Q1: 12.6%*), primarily driven by the increase in connections (+32% year-on year).

Outlook²

Trading during the first quarter was in-line with management's expectations underlying the outlook statement for the 2019 financial year. The Group therefore confirms its expectation that organic adjusted EBITDA (excluding settlements and UK handset financing) will grow by 1-5%, with free cash flow generation (pre-spectrum) of at least €5.2 billion. Guidance is set on an IAS 18 basis, however IFRS 15 is not expected to have a material impact on the Group's organic adjusted EBITDA growth (on a guidance basis), and will have no impact on free cash flow.