Vodafone swivels focus to Germany, UK in 'transitional year'Vodafone swivels focus to Germany, UK in 'transitional year'

It's been a busy 12 months for Vodafone Group, intent as it has been on reshaping its European operations by offloading underperforming assets and attempting to bulk up in other markets such as Portugal and the UK.

Now that it has agreed on the respective sales of its operations in Italy (to Swisscom) and Spain (to Zegona), group management is placing its focus on Germany and the UK, where there are a number of challenges still to be overcome.

Indeed, Vodafone Germany faces a particularly fraught time in the coming financial year to March 31, 2025 (FY25). Vodafone admitted, for example, that it expects to retain just 50% of its 8.5 million multi-dwelling unit (MDU) households amid the fallout in changes to German TV laws.

German housing associations are prohibited from bundling television services and broadband into leases for MDUs from July 1, 2024, opening the way for other broadband and TV service providers to prise individual users away from bulk deals previously offered by cablecos.

Speaking during Tuesday's earnings call for the financial year to March 31, 2024 (FY24), Luca Mucic, chief financial officer at Vodafone Group, said FY25 will be a "transitional year" for Vodafone Germany. While underlying growth is expected to remain positive in FY25, this will not be enough to offset the "MDU headwind," he said. 

"We expect Germany service revenue performance in FY25 to turn negative," he said, although he noted that Germany is then expected to return "as an important growth engine for the group" in FY26.

At the end of March 2024, Vodafone Germany had "actively retained 1.9 million households," although the total TV customer base fell by 1 million during the year, primarily due to the MDU transition, which began in the last quarter of FY24.

In the rest of Europe, Vodafone expects to see a slowdown in service revenue growth this year "because of the unwinding of CPI-driven increases," Mucic said.

"We will certainly see a step down in the UK. I would estimate with low single-digit growth, [with] the rest of Europe to remain slightly higher than that, but certainly a bit lower than what we have seen in FY24. And the rest of the group in the emerging markets will continue to grow very strongly," he said.

In terms of EBITDAaL, Vodafone is guiding for growth in FY25, "which is I would say a strong statement given that … the MDU transition is adding a sizable headwind," Mucic said.

Overall, Mucic insisted that management is "setting Vodafone up for being a sustainable growth story for the future. So with this transitional year and the MDU headwinds out of the way, we certainly expect FY26 to be a year of growth in both the top line as well as on the EBITDAaL line."

Slow progress with UK merger

Vodafone will certainly be hoping to come closer to completing the planned merger of its UK operations with those of Three UK. The proposed joint venture was recently approved by the UK government under the National Security and Investment Act (NSIA), although it is subject to certain conditions in order to mitigate perceived risks to national security. For example, the merged entity would establish its own national security committee to oversee any sensitive work, and a technical group within that committee would then provide updates and information to the government.

However, the proposed transaction is currently being scrutinized by the Competition and Markets Authority (CMA) and it still remains uncertain whether or not the deal will be approved. Indeed, in recent days, the CMA, by publishing a notice of extension for the statutory inquiry period of the Phase 2 process, effectively stopped the clock in its investigation as it awaits information and documents it has requested from Three UK owner CK Hutchison.

Vodafone chief executive Margherita Della Valle acknowledged that the CMA process is expected to continue "probably to the end of the year." She reiterated Vodafone's belief that the merger does not warrant any remedies, as seen with the recent transaction between Orange and MásMóvil in Spain.

"The reason why it's so different … is that what we are doing in the UK is merging the two smaller mobile-only players, which have low market shares and low returns," she observed.

Meanwhile, Vodafone is also still attempting to buy Nowo in Portugal, but has been unable to convince regulators to approve the deal.

"We submitted proposed remedies, which were rejected in early 2024. After reviewing the competition authority's comments and exploring further options to address the authority's concerns, we submitted revised proposals that are currently being considered by the competition authority," the operator said.

More to be done

In terms of its performance in FY24, Della Valle said she is "pleased with the financial results we have delivered, having slightly exceeded our guidance for the year."

"Our service revenue growth has been accelerating throughout the year, and EBITDAaL grew by 2% in a year with significant inflationary headwinds, especially energy prices, as well as significant [investments] we have made to improve our customer experience. But looking ahead to next year, much more still needs to be done," she added. 

Group revenue in FY24 decreased by 2.5% to €36.7 billion (US$38.95 billion) owing to the disposals of Vantage Towers, Vodafone Hungary and Vodafone Ghana in the prior financial year and adverse exchange rate movements, the group said. Also as a result of disposals in the prior year, the operating profit fell 74.6% to €3.7 billion ($4 billion). Adjusted EBITDAaL grew by 2.2% to €11 billion ($11.9 billion).