Operating review ⫶ A new generation connectivity & digital services provider

We are focused on growing our converged connectivity markets in Europe, and mobile data and payments in Africa. The next phase of our strategy focuses on three customer commitments and three enabling strategies, all of which work together towards realising our vision to become a new generation connectivity and digital services provider for Europe and Africa, enabling an inclusive and sustainable digital society.  

1. Including VodafoneZiggo | 2. Africa including Safaricom | 3. Organic growth | 4. Based on Germany, Italy, UK, Spain only

Consumer ⫶ Europe (52% of service revenue)

In Europe, we are a leading converged connectivity provider with 7.9 million converged customers, 113 million mobile connections, 142 million marketable NGN broadband homes, we cover 98% of the population in the markets we operate in with 4G, and we have launched 5G in 243 cities in 10 markets in Europe. We have achieved this leading position by focusing on our core fixed and mobile connectivity. We are enhancing our products through capacity and speed upgrades, unlimited mobile plans, a distinct tiered branding hierarchy and convergent product bundles. In Consumer, we maintained our leadership/co-leadership NPS position in three of our four biggest European markets. During the quarter, retail footfall across our four largest markets improved compared to last year, but still remained 40% lower than pre-pandemic levels.

Consumer ⫶ Africa and Turkey (16% of service revenue)

In Africa, we are the leading provider of mobile data and mobile payment services. We have 182 million mobile customers in 8 markets which represent 40% of Africa's total gross domestic product. We cover 67% of the population in the African markets in which we operate with 4G services.

Our M-Pesa financial services platform grew strongly. During the quarter, the platform processed almost 4.5 billion transactions, an increase of 45% year-on-year. The VodaPay 'super-app' will be launched in South Africa, with over 70 merchants already joining the eco-system.  

Vodafone Business (27% of service revenue)

In March 2021, we held a virtual briefing on Vodafone Business for investors and analysts (investors.vodafone.com/vbbriefing). This briefing outlined that: we operate in attractive markets; we have unique scale and capabilities; we have strong operating momentum; and we are on a clear growth pathway.

Our commercial momentum reaccelerated during the quarter, with service revenue growth of 2.7%* (Q4: nil%*). The strong performance was driven by growth in IoT and digital services, such as connectivity and cloud & security, and an easier comparative due to COVID-related disruption to projects in the prior year. We continued to see strong demand from SMEs and the public sector, with improvements also driven by the automotive sector and large multinationals. We became the first operator in Europe to launch Mobile Edge Computing ('MEC') with Amazon Web Services Wavelength and launched Cybersecurity-as-a-Service ('CaaS') in Germany. We continued to support SMEs with our V-Hub service, with 1.6 million visitors from 9 of our markets during the quarter. In Business, we maintained our leadership/co-leadership NPS position in 15 of the 16 markets in which we operate.

Digital services & experiences

We will be expanding on our plans for outstanding digital services & experiences at a virtual investor briefing in September 2021. During this event we will outline our progress on digitalising the consumer value chain in Europe; our performance and plans for financial services and Africa; and expand on our end-to-end IoT solutions for business.

Our Purpose ⫶ We connect for a better future

We believe that Vodafone has a significant role to play in contributing to the societies in which we operate and we want to enable an inclusive and sustainable digital society. We continue to make progress against our purpose strategy and provided a full update on our progress in our recently published FY21 Annual Report and supplementary materials. We have also made a number of announcements with respect to our purpose strategy during Q1.

Europe's largest network, powered by 100% renewables, driving carbon enablement

In June, we announced that our entire European operations - including mobile and fixed networks, data centres, retail and offices - will be 100% powered by electricity from renewable sources from 1 July 2021. As of today, our entire European network uses energy generated from solar, wind or hydro sources. This marks a key step towards our goal of reducing our own carbon emissions to 'net zero' by 2030 and across our entire value chain by 2040.

In addition, we continue to improve our own energy efficiency. Our energy use in FY21 remained broadly stable despite significantly higher data consumption. At our recent Technology Investor Briefing (investors.vodafone.com/vtbriefing), we explained that this was due to the use of more efficient mobile technology, the decommissioning of legacy equipment, and the application of advanced analytics across our network.

Our networks and technologies also play a crucial role in helping to address climate change - last year, the Carbon Trust calculated that our products and services enabled our Business customers to avoid around 7.1 million tonnes of CO2e in their own operations in FY21 (five times our own carbon footprint).

Circular economy

In May, we jointly launched the Europe-wide Eco Rating labelling scheme, working with four other major European operators and open to the whole industry. The initiative aims to give consumers a simple way to identify and compare the most sustainable mobile phones. The Eco Rating scores the environmental performance of a device across its life cycle - from extraction of raw materials, through its entire use, to recycling or disposal at end of life. As well as providing better consumer choice, the scheme encourages suppliers to reduce the environmental impact of their devices and supports the acceleration of the transition towards a more circular model for mobile phones.

Performance review ⫶ Growth in Europe and Africa

·   Group revenue increased by 5.7%, supported by service revenue growth in Europe and Africa, and a recovery in handset sales following COVID-19 disruption in the prior year

·   Group service revenue growth of 3.3%* (Q4: 0.8%*), with growth across Consumer and Business segments

·   Strong service revenue trend, including one-off growth of around 1.0 percentage point following COVID-19 disruption last year

·   On track to deliver FY22 guidance with Adjusted EBITDAaL expected to be between €15.0 - €15.4 billion and Adjusted FCF of at least €5.2 billion

Notes:

1. Vantage Towers A.G. is a new reporting segment for the year ending 31 March 2022. See explanatory note above.    

2. Organic growth is a Non-GAAP measure. See page 8.   

Further geographic performance information is available as a spreadsheet at investors.vodafone.com/reports-information/results-reports-presentations

Germany ⫶ Good service revenue growth maintained

Service revenue grew by 1.4%* (Q4: 1.2%*) and quarterly trends remained broadly similar due to offsetting impacts from the COVID-19 pandemic. Roaming and visitor revenue increased in Q1 having been materially impacted by lower international travel over the last 12 months. This benefit was offset by lower variable call usage, which peaked during last year's lockdown. Retail service revenue grew by 1.9%* (Q4: 1.8%*).

Fixed service revenue grew by 0.6%* (Q4: 1.4%*). The quarter-on-quarter trend was driven by lower variable call usage, partially offset by good Business demand. Retail activity in Q1 continued to be heavily impacted by COVID-19 lockdown measures, however customer footfall started to recover as restrictions eased towards the end of the quarter. We added 33,000 cable customers in the quarter, including 27,000 migrations from legacy DSL broadband. Almost half of our cable broadband customer base now subscribes to speeds of at least 250Mbps, and gigabit speeds are now available to 22.5 million households across our hybrid fibre cable network.

Our TV customer base declined by 75,000, reflecting lower gross customer additions given reduced retail activity during the COVID-19 pandemic. At the end of last year, we launched the 'DAZN' Pay-TV channel and our new Apple set-top box product, having already launched Vodafone TV on the Unitymedia footprint. The full benefit from these actions was not visible in our commercial results due to lockdown restrictions. Our converged customer base continued to grow, with 29,000 Consumer additions in Q1. We now have almost 1.7 million Consumer converged accounts.

Mobile service revenue increased by 2.3%* (Q4: 0.9%*), primarily due to higher roaming and visitor revenue compared to the prior year. Contract churn improved by 1.3 percentage points year-on-year to a record low of 10.7%. We also added a further 1.5 million IoT connections in the quarter, supported by strong demand from the automotive sector. In June, we launched a digital-only second brand, SIMon mobile in the value segment of the market.

We switched off our 3G network on 1 July 2021, with spectrum re-assigned to increase the capacity, speed and coverage of our 4G network, with 4G being up to 70% more energy efficient than 3G. Our 4G network now covers 99% of the population and our 5G network is available to more than 25 million people. We also launched Europe's first 5G standalone network in April. Standalone 5G enables higher speeds, enhanced reliability and ultra-low latency, in addition to using 20% less energy on customers' devices.

Italy, UK, Spain and Other Europe ⫶ Growth supported by good performance and one-off benefits

Italy

Service revenue declined by 3.6%* (Q4: -7.8%*), driven by continued price competition in the mobile value segment. The improvement in quarterly trends was largely driven by an easier prior year comparative due to COVID-19, but also supported by the ongoing stabilisation of the Consumer mobile customer base. Roaming and visitor revenue grew year-on-year and Business activity was higher compared to the prior year.

Market mobile number portability ('MNP') volumes remained below last year's level, despite the easing of national lockdown measures. Our active mobile prepaid customer base remained unchanged quarter-on-quarter. Our second brand 'ho.' continued to grow, with 115,000 net additions and now has 2.6 million customers. In June, we started migrating PostePay MVNO customers onto our network, and we expect the migration to complete by the end of July. In fixed, our customer base remained stable at almost three million. We also added 13,000 fixed-wireless access customers during the quarter, which are included in our mobile net additions.

Through our own next generation network and partnership with Open Fiber, our broadband services are now available to 8.4 million households. In addition, we cover 4.5 million households and businesses with fixed-wireless access, offering speeds of up to 100Mbps.

UK

Service revenue grew by 2.5%* (Q4: -0.6%*). The improvement in quarterly trends was driven by lower comparative performance related to COVID-19 disruption in the prior year and good commercial performance in the current year, notably in Consumer prepaid. COVID-19 disruption eased, leading to higher roaming and visitor revenue and the resumption of fixed project work in Business. This was partially offset by a reduction in mobile termination rates which took effect as of June.

Our commercial momentum reaccelerated in the quarter as retail store restrictions eased, adding 65,000 mobile contract customers in Q1. In June, we launched 'Vodafone Evo', an innovative mobile contract proposition offering customers a combination of flexible contracts, trade-in options, and early upgrades. We also announced an exclusive retail partnership with the Dixons Carphone Group, covering 300 stores and digital channels, with improved terms compared to our previous arrangement. We added 29,000 broadband customers in the quarter, with good demand for our new Vodafone 'Pro Broadband' product, which we launched in March. We now have 940,000 broadband customers, of which 467,000 are converged. Business demand for our SME and corporate products also remained strong, including for productivity and security solutions.

Spain

Service revenue grew by 0.8%* (Q4: -1.3%*) with the quarterly improvement in trends largely driven by roaming and visitor revenue. Q1 significantly benefited from an easier prior year comparison following strict COVID-19 restrictions and customer support measures put in place last year. However, this was partially offset by continued price competition.

The market remains highly competitive, particularly in the value segment. We grew our mobile contract customer base by 27,000 during the quarter, supported by strong public sector demand. Our second brand 'Lowi' added 60,000 mobile customers and now has a total customer base of 1.3 million. In May, we announced price increases applying to the main Vodafone brand, effective across our customer base from 15 July 2021.

Other Europe

Service revenue increased by 4.2%* (Q4: -0.2%*), with all markets growing during the quarter. The strong quarterly improvement was driven by the year-on-year growth in roaming and visitor revenue and increased prepaid activity, with top-ups notably lower in Q1 last year as a result of COVID-19 restrictions, as well as good commercial momentum.

In Portugal, retail activity increased and we added 28,000 mobile contract customers and 16,000 fixed broadband customers. In Ireland, our mobile contract customer base increased by 17,000 and mobile contract churn remained low at 8.6%. In Greece, we added 13,000 mobile contract customers, supported by prepaid migrations, as well as 52,000 prepaid customers as lockdown restrictions eased and international tourism grew year-on-year.

Vodacom ⫶ Good growth in South Africa, with an acceleration in international markets

Vodacom service revenue grew by 7.9%* (Q4: 7.3%*). Growth accelerated in Vodacom's international markets following significant growth in M-Pesa transaction volumes and the reintroduction of M-Pesa peer-to-peer fees, which were temporarily suspended in some markets during the COVID pandemic last year. This benefit was partially offset by lower growth in South Africa due to a strong prior year comparative.

In South Africa, service revenue grew year-on-year but the rate of growth slowed quarter-on-quarter. The lower growth was attributable to the expiry of temporary government support measures and social grants, which had supported consumer discretionary spend in the prior year. We added 8,000 mobile contract customers and 515,000 prepaid customers, with the latter supported by our new 'active day's management' prepaid initiative, which encourages data use with daily allocations. Financial Services customers in South Africa increased by 14% to 13.3 million, reflecting the expansion of our service offerings, and 68% of our mobile customer base now uses data services.

In Vodacom's international markets, M-Pesa now represents 23.7% of total service revenue, an increase of 4.4 percentage points year-on-year, and 65% of our customers are now using data services.

Further information on our operations in Africa can be accessed here: vodacom.com.

Other Markets ⫶ Growth rates accelerate as lockdown restrictions ease

Service revenue increased by 18.4%* (Q4: 13.1%*), with the quarter-on-quarter improvement reflecting the impact of COVID-19 on roaming and visitor revenue in the prior year, as well as increased demand for data across our markets.

Service revenue growth in Turkey accelerated, reflecting price increases and the easing of lockdown restrictions. Mobile contract customer additions were 223,000, supported by migrations from prepaid customers. Contract churn improved by 5.7 percentage points year-on-year to 15.2%.

Service revenue growth in Egypt also accelerated, supported by the easing of lockdown restrictions, customer base growth and increased data usage. During the quarter, we added 65,000 mobile contract customers and 447,000 prepaid mobile customers.

Vantage Towers ⫶ Continued momentum and on track to meet FY22 guidance

Total revenue increased to €303 million as more than 200 new tenancies were added during the quarter, bringing the tenancy ratio to 1.41x. Vantage Towers continued to contribute to Europe's digital transformation and reached a number of new partnership agreements with customers during the quarter. Vantage Towers reported its results on 22 July 2021. Further information on Vantage Towers can be accessed here: vantagetowers.com.

Following the IPO of Vantage Towers, we have updated our segmental reporting structure to reflect the way in which we now manage our operations. Vantage Towers is now reported as a new segment within our financial results. A separate announcement that presents FY21 performance on a proforma basis for the new segmental reporting was published on 22 July 2021 and can be found on our website: investors.vodafone.com. There will be no change to our statutory information for comparative periods, which will remain as previously disclosed.