Vodafone Group isn’t immune to the macroeconomic challenges in Europe and Africa, but it’s well positioned to manage them and expects to deliver a resilient financial performance in the year ahead, according to Vodafone Group CEO Nick Read.
However, during the company’s presentation Tuesday to discuss preliminary fiscal year 2022 results, he called out some of the problems in Germany, where the financial performance is showing “good progress” – with 1.1% service revenue growth – but commercial issues remain. Germany is Vodafone Group's largest European market by revenue.
For one, they had a huge volume increase on the network during the pandemic that added challenges in terms of capacity in some areas, he said.
For another, the foot traffic in the retail channel was significantly down throughout the pandemic and has been slow to recover. “Germany is running around, I’d say, 70% of pre-pandemic levels overall. And there’s been more of a shift, I would say, to digital, where I think we could strengthen more going forward,” Read said, according to a Seeking Alpha transcript.
On top of those challenges, there was a change in telecom law last year that resulted in new regulation, so customers were no longer automatically being renewed for 12 months. “We had to recontract with them. We put through these changes into an IT platform with a new set of processes for customer journeys and frankly, they’re cumbersome, and they did not work well on execution,” he said.
In the fourth quarter, they migrated a clunky e-mail based recontracting platform to one that’s voice-based, and that’s working better. But they also had to improve IT stability. In April, “we are seeing availability of those systems now greater than 99.5%, which is the targeted level, i.e., less than two hours of downtime for maintenance each month,” he said.
The expectation is the capacity issues on the network will be resolved by the summer, with “a few clusters left to work on.” In sum, “I’d say we are very much calling Q4 as the commercial low point in terms of customer losses. And you will see gradual improvement in our commercial KPIs over the course of H1,” he said.
Last month, Vodafone announced that Hannes Ametsreiter will step down as CEO of Vodafone Germany at the end of June. The new CEO will be Philippe Rogge, who spent more than a decade with Microsoft, including his most recent role as president, Central and Eastern Europe, based in Germany.
Read said he’s “delighted” to have Rogge join the team. They also strengthened the wider team in Germany. “We clearly understand the issues. We have got clear plans and we are in execution and Philipp will just take that forward,” he said.
Vodafone launched 5G in Germany in 2019. In 2021, it earned the distinction of being the first in Europe to launch standalone (SA) 5G, which was with vendor partner Ericsson. That’s when mobile radio sites in the 3.5 GHz range were switched over to an independent 5G core network.
Overall, the company said the current macroeconomic climate presents specific challenges, particularly inflation, which is likely to impact its financial performance in the year ahead. Based on current assessments, adjusted free cash flow is expected to be around $5.6 billion in fiscal year 2023.