Half Year 2023 Vodafone Group PLC Earnings Call
Similar that we have done in the UK, which is part of our overall European proposition roadmap and has led to very significant growth.
In the U K business.
Around 18 months ago, we made the conscious decision of investing beyond connectivity for business and Youre seeing good service revenue growth in our business segments and over 20% growth in the beyond connectivity areas.
And then lastly in Vodacom again, good growth rates and investing behind financial services, which again are growing over 20% year over year.
So that combination of actions immediate short term actions long term investment for growth. We believe on top of a strong financial position in terms of our balance sheet ensures that we're well positioned for our midterm growth ambitions and sustaining improvements in.
Shareholder returns and on that we will hand over for Q&A.
Lovely. Thank you very much and our first question today comes from Jacob <unk> from Credit Suisse. Jacob. Please go ahead.
Hi, good morning, Thanks for taking the question.
I had a question on vantage.
Maybe just talk us through the sort of the logic because IPO ing. It last year, and then taking a private a year later.
What's kind of the thought process.
Underlying that what's changed and then if you can maybe also just explain.
You are in terms of capital allocation.
Most of that closing.
From the debt reduction that you've highlighted.
Within the foreseeable future it looks like you could end up below your leverage floor.
Below the two five to three times, how would you think about using any excess cash could we get a buyback or do you think you need to invest more into the business. Thank you.
Thank you Jason.
I'll, let margherita handle maybe the second part of that question and maybe just in terms of logic clearly.
The IPO was a really important step for us to establish independence of the tower company and that was really important to the nx subtle right our organic growth potential through third party selling so you know of course, we did the one on one transaction there were others as well so I think primarily.
<unk> was that independence, but the second reason was just establishing a re.
Referenced valuation for our towers.
Now when we IPO Ed we took the view that we saw even more potential longer term and therefore, we constrain the amount that we actually sold so we constrained it took quite a small amount being 18%.
And I think that was it.
<unk> indicated with our transaction last week, which was highly attractive at two six times I think a private vehicle now is appropriate and it's appropriate because we can have through co control governance within a private setting.
Can also set the right capital structure to really ensure that we can get behind not only the organic growth, which we were executing but also the inorganic opportunities. The market is highly fragmented and there is a real opportunity I think to capture and consolidate the market.
Therefore, we really needed to have a private vehicles, we have to do that and of course, we have two strong investors behind us with a lot of experience and expertise and obviously strength in depth in terms of financial capability to achieve that goal. So I think we shared the vision we share the ambition.
Very excited about that collaboration moving forward.
On the capital allocation.
As you mentioned, we have always indicated that our near term priority would be deleveraging and I think.
This is proving the right approach in the current macroeconomic conditions. So.
Would expect initially to allocate the proceedings towards.
Further strengthening our balance sheet.
But we will form a full view.
On this once the transaction, we have completed and the final proceeding slinky effect.
Just as a reference point in the proceedings the way to look at is assuming all the minority spend at NSS and criticized him reaches its target of 50% ownership.
As intended then we are talking about.
Five 8 billion. So once we will have completion, we will.
First the situation at that point.
Thank you.
Okay. Thank you very much.
Next question today comes from Robert Grindle from Deutsche Bank. Robert Please go ahead.
Yes.
Good morning.
Thanks for the John <unk> presentation. This morning, you made clear white German EBITDA trends will improve in the second half due in part to end and are facing but I'd like to get some more clarity.
On the operational changes now fully behind you and Johnny I wanted the commercial trends look like from here in particular, what does it mean for service revenue growth.
Trading in the current quarter. Please I think the new prices didn't land, yet, but perhaps you could put me straight on that so a bit more color on Germany. Please.
Good morning, Robert I'll.
I'll, let margherita maybe handle.
Outlook et cetera.
Just talk to the operational improvements.
We have completed all of our remedial actions on both <unk> and network that we've set out to achieve on schedule.
If I was going to give you some color to that so that you say, okay. I understand what you mean by that I would say first of all our front end systems that were originally not stable hasnt.
<unk> has now reached a greater than 99, 7% availability. So we're very happy with the stability of those front end systems.
We've also got our IC trouble tickets or where we have issues down to normalized levels.
We have re engineered the important.
Sort of frontline processes in terms of re contracting customers within our new systems.
And that work is now operating since June .
Against stack quality, Kpis and metrics that we've set out to achieve.
And I would say that we've been able to double the speed of the uplink in the heavier data areas segments.
For a more attractive product for our customers. So I sort of stand back and just go through the checklist. The whole checklist I would say now we're much more in the normal cycle of upgrade in air <unk> Sea and process is moving forward I'm also pleased with obviously.
Our continued commercial regaining of momentum if you like the commercial engine is back in Germany.
Gave us the confidence to do the pricing action that you referred to but maybe if you want to give more color. Yes in terms of outlook in your multipart question I would call that service Avenue commercial performance and.
And pricing and now its lending.
And starting from service revenue first we should expect a lower performance from service revenue in the second half compared to Q2.
And this is driven essentially by two reason.
One more mechanical and one move to mobile Oracle. So I'll take first the mechanical part which is related to effectively what we would call tough comps in the prior year you may remember that last year in Q3, we called out to peak in B to B revenues, which can be quite lumpy.
Sometimes and in Q4, we then called out some service revenue year end adjustments related that seems like contact with service provider of course, this will not repeat.
In the second half this year and then in terms of ARPA trends, we have called out a shift in channel mix in mobile as we exited the pandemic and we saw a re acceleration of volume movements with the new telco level, we have seen a higher weight.
For our indirect channels in service provider is therefore with a lower output and we expect this trend to continue in the second half.
However, as you look beyond this year into FY 'twenty four we expect.
Structural certainly seven reacceleration for the two points, you were raising earlier, which our commercial performance and pricing.
On the commercial front as a result of the action that was highlighting you seen us now growing for two quarters in mobile and I think effectively stabilized our cable base in fixed.
So we can we can count on this stabilization.
To improve our trends going forward and then we will have the pricing benefit so on pricing two moves actually one has attracted a lot of attention, but I think they are both important.
First of all we have raised prices on the front book in fixed by five to 10 Europe .
And this was against the increase in upload schools that we could offer to our customers, but we have also reduced the promotional intensity in mobile and this is important because.
If you were looking at our inflow as it stands today in the month of November for example, our mobile our acquisitions are coming in at.
The price points net of promotions, which is.
About 5% higher than than what it used to be before so.
To support in both fixed and mobile.
Which together with the better commercial dynamics will support re acceleration into FY 'twenty four I think we can say that fundamentally Germany remains a strong market absolutely.
Thank you.
Okay. Thank you very much.
Our next question today comes from David Wright from Bank of America. Please go ahead.
Hello, guys I Hope you can hear me quick till the right buttons.
So just a couple of quick questions. So the first is just on inflation.
Linked pricing.
You are rolling that out across markets progressively now on I think it was quite encouraging that telecom Italia last week, followed and what has been certainly one of the toughest markets. So I guess my question is.
How much of that can we.
Think about dropping through to actual net growth I know in the U K, they've talked about sub 50% of the gross price increases coming through.
Because you obviously have to manage the customer base et cetera. So I guess my first question is if you could talk about any early indications of how much you think you can monetize from CPI linked price rises.
And then just my second question and I'm going to sneak in a Margarita we saw telefonica, putting through a new hybrid yesterday paying over 7% I think you've got 2 billion. Due in October next year, I think you've got about $10 billion or seven hybrid stock. So you could obviously look to to take bond financing on I think 10% of that.
Are you comfortable.
Sort of thinking of brown about effectively refinancing at sort of 7% plus levels right now so those two questions. Thank you guys.
Good morning, Doug.
Can I suggest I'd.
I'd like to just touch on the strategic elements of pricing and then maybe Margherita can ask answer more directly your question because I.
The important thing is that clearly energy cost and higher rates of inflation is put it in this sector under pressure.
In Europe , and there's only so much that we can do won't cost and pricing is a critical component of the formula for every operator, and I think youre going to see that consistently across the board. We have advocated the CPI modal because we believe that that is more transparent for the customer and also as simple.
For us to manage in our back end systems, which goes every operators should be trying to achieve both of these are repricing.
Re pricing model, which adds a lot of complexity.
Continuously in the backend so that's why we.
We propose CPI.
Pricing I would also say I think it leads to a more sustainable model for the industry as well as we've seen in the U K in terms of being more investment OLED model going forward I would say if you stand back we obviously in every market depending on the quality of our <unk>.
<unk> set out a strategic positioning of that pricing versus our peers, yes brand.
Bryan Bai brands mobile fixed et cetera.
And so we operate.
If you like that strategic framework by market. So all I'd say on pricing is we don't operate in isolation.
But clearly we try and take all the proactive steps both front book.
And back book to advance all the sector.
But of course is dependent on competitor moves as well I just wanted to sort of provide that framework would be for the answer.
Yes, I would say.
Considering all the actions we have taken so far.
We are looking at a material impact on European service revenue growth next year.
We have said excellence in 11 out of 12 markets out of the seven at CPI embedded in the contract.
I'll just cover quickly what we have done in the big four markets for reference we've just talked actually about fixed broadband and mobile in Germany in the UK CPI is now.
Well established.
In Spain, we have just introduced CPI in our contracts in September October and we will apply our first and pace on that basis in Q4.
And then in Italy, we have migrated as you know almost $5 million of prepaid customers towards a simplified range of Scottish glance in an accretive way.
Taken in aggregate as I was saying.
Hell of very material impact on European service revenue with the actions we have in place. So far we are talking about 1% to 2% impact incremental impact to service revenue growth next year.
Clearly you flagged an important point, which is the potential for erosion. When there is a difference between front book and back book as time moves on and this is also why im giving you.
It includes.
Our estimate of that but it's important to say that the hope was flagging.
They came to maintain alignment as Vodafone between plants and Bakken we have been successful in doing so in fixed broadband as we have seen in the UK and win even there is more competition on the front book again, UK mobile would be a case of dock, we managed to retain.
A proportion of the benefit overtime through the upgrade cycle through our Cvs. So so youll get a net positive impact I'd say in all circumstances, but important to maintain alignment.
Possible.
On your question on <unk>.
Our financing instead. This gives me an opportunity actually to reiterate what I believe is a really strong.
<unk> position in our balance sheet today, because as you know our rates are 100% fixed.
25% our maturities are very long over 11 years I think it's one of the strongest position across sectors in the whole of Europe , which puts us in a good position to deal with the current.
Environment, you mentioned, the hybrid maturities and in our presentation, we show year by year, what's due for refinancing I would say we have a plenty of time to decide what to do because we are talking about January 24, and then also because the hybrid themselves have long maturities where not to.
Talking about very significant amounts in the next three years it surround bashing is.
It is now $3 5 billion on which we will have also flexibility given that we have now started the journey.
Deleveraging.
Also with the support of the tower transaction. So I think we are in a very strong position in terms of.
Interest cost outlook.
And I think alright.
Jamie.
We made the call to prioritize deleveraging.
We said, we wanted to get to the lower end of our range and we've been executing consistently against that prioritization and then the current macro environment I think that was the right decision.
Thank you.
Okay. Thank you very much.
Our next question today comes from Andrew Lee from Goldman Sachs. Andrew. Please go ahead.
Yes, good morning, guys.
So, let's pull off on the German recovery confidence.
I'm from Robert's questions.
Obviously, you've highlighted your confidence in that recovery, but the.
Share price and Investor feedback.
Investors don't share that confidence and one of the key things is one of the Kpis look better this quarter.
Is it fair that that's been paid for by higher acquisition costs and customer acquisition costs.
Starting with the 7% decline in EBITDA.
I Wonder if you can just give us a bit more color to explain your confidence on the German commercial momentum you talked through the things that you've sorted out.
To put it back on track, but what are you seeing in terms of evidence of it being back on track maybe the run rate of Kpis in October before your price rises or any other data points would be helpful. There.
And then I guess, just the second question, which is really a follow on from that.
What are we going to see as investors in terms of evidence of that commercial momentum over the next couple of quarters, because you've highlighted there.
Tougher comps mean organic service revenue growth is going to be weaker in Germany.
In the second half of the year. So what can we look for.
Drivetime investor confidence.
And over the next six months. Thank you.
Maybe do you want to talk to INR and view and just a bit of an outlook and it might be or just maybe a notch in terms of what I think key drivers.
Sure in terms of.
And adding Germany.
Important to consider that we are comparing ourselves in half one this year to a first half of the year last year, which still.
The.
Wait in a way.
Some pandemic restrictions at the time since then we have seen an acceleration of the volume movements due to us through last year with the new telco, which has been continued into the first half of this year. So when you look at.
The impact on the P&L of Anr Anr here, you need to consider that there has been a volume increase.
And then interest actions in a simplified way to postal Colo intensity on volume now so simply more volumes and together with the additional volumes. We also add then youll see it in deal that revenue line of the P&L.
Our handset mix shift towards high Fts, we've had very successful iPhone promotions in the last quarter and this has both of course.
Our pro customers in but also.
More and more volumes of handsets, which have impacted both higher revenues and.
As we move into the second half of the year, then because phasing is so important and will not be a drag to EBITDA anymore. In Germany. You know that we are talking about a lot.
Better EBITDA performance as we move into the second half compared to the first half and this is because we will not see this drag anymore. Because we will compare our first analysis, which had already the impact of the commercial intensity of the new tell Colo.
And also we had some one offs last year that supported the EBITDA in the first half that of course won't recur. So you should expect.
A better outcome for the second half and for the full year.
Andrew if I if I can.
Let's just put it in a slightly bigger picture first of all you've seen all our competitors results, Germany removed.
Attractive market, probably one of the best performing European markets of which we have a strong asset in that market, we put our hands up and said we dropped the ball on the new telecom lower implementation. The remedial actions being taken is behind US now and Youll see in our commercial momentum regain and Thats what gave us the confidence to do that.
Pricing changes that we if we didn't have confidence we wouldn't have done that.
Maybe in the next quarter.
Relative performance adjustment because of the pricing action with C.
But if we look through that clearly we are regaining commercial momentum go very much the management team focus now on the proposition roadmap for Q4 and next fiscal year, which we are finalizing in terms of regaining focus on convergence cross selling capability that we've been constrained on.
Up until now because of the remedial action that we have been taken.
Also structurally I would just say look we have a really good mobile network is performed well versus <unk> seen that gap over time close you've seen that gap maintained against tef.
And then you go across to the fixed network side, we have an upgrade program on the fixed cable network and at the same time, we announced the fiber to the home all of targets devices for housing associations I'm really pleased with the combination of both of those things the cable upgrade program that we've communicated plus the FCC H.
Program, because together, that's given real competence to housing associations, what we've seen is a real.
Celebration in terms of re contracting with us.
Last one single significant housing association this fiscal year because of our communication of how we're advancing our network. So I just look at it yes. There was a full drops management changing management changes were done we had a very clear plan executed through with group support.
Of the Germany operation.
And now we move back onto the front moving forward.
Yeah.
Yes.
Okay.
Our next question today comes from Tim It's Kelly from Morgan Stanley and it. Please go ahead.
Yes, good morning, Nick and Marguerite and good morning to everybody else as well.
My question please.
Sticking with the phasing of the EBITDA throughout the year. If you look at your guidance at the group level, you've delivered minus two 5% and eight one youre targeting I think just over 1% for the full year. So it looks like.
5% EBITDA growth potentially in the second half of the year clearly all of that cannot be Jeremy I need to have to be some other dynamics there as well. So could you maybe say a few words on the other.
And EBITDA growth as we go into the second half of the year and in <unk>.
If you could reference, Italy, where EBITDA was down I think six 5% in the first half of the year. Thank you.
Sure I think when you look at the year on year elements.
EBITDA.
Important once again to consider the year, we're comparing ourselves to because.
There were a couple of elements in in last year's performance that are relevant to the growth rates themselves in.
In the first half.
Ads.
One of settlements spin.
Specifically in Italy, which flattered our EBITDA performance last year, and we called out and then I said into the second half of the year.
We add what we were discussing before in Germany in terms of if you want re acceleration of the commercial intensity into the second half.
Elements are relevant when you look at.
At the guidance, we're giving for a significant re acceleration in our store despite and this may be a little bit counterintuitive. The fact that at the energy cost.
<unk> will be higher in the second half than it has been in the first half because of course the printing Ukraine.
<unk> that we had in place that are running off.
But the reason why we will have this phasing of EBITDA growth is that we will have three big swings between upfront and as to which are actually broadly off of similar size.
Youre right its not all about Germany. So the first swing as you may have already seen yesterday is related to vodacom.
Vodacom EBITDA was marginally down in Florida, and we expect good growth into the second half also supported by the dynamics in the international markets. So that's number one number two is anr.
The drag we have suffered from in alpha and won't recur and after we have.
Cover this already and then number three is clearly our opex initiatives, where we are accelerating you heard about the new 1 billion cost target, 22% to 26 and these will also be.
Loaded towards the second half of the year.
Net net.
As you mentioned, we have guided to an EBITDA growth at the lower end of our original range and the only reason why I'm using the word lower end is because of energy movements between may when we issued our guidance today. The energy drag has increased which is why we are assuming in into the loan.
And but it's it means.
Growth definitely in the second half.
Thank you.
Sorry, you asked about Italy, actually I forgot to answer specifically on Italy.
The dynamic is very much once you exclude the settlement.
Very much driven by the top line.
And I must say this will.
We'll continue into the second half, but again overall European group will have the dynamics, we have just talked about.
Thank you Margaret.
Thank you very much. Our next question today comes from Sam Mchugh from Exane. Please go ahead.
Got it.
Great.
There'll be some targets cellphone mid single digit EBITDA and protection of our obviously, we've seen the underlying decline in EBITDA.
Guidance for this year is for free cash flow for folks on how realistic is that medium term outlook post the vantage sale.
Two and half to three times leverage range become appropriate.
This will make you think about your kind of dividend coverage and so what would you say to shareholders or maybe you've already having talked about the dividend.
Yes.
Yes.
Shall I take them.
Midterm outlook.
And the and the leverage range.
So in terms of.
Mid term outlook.
Fair to say that when we set our ambitions 18 months ago, we were coming out of the pandemic and we were looking forward to.
More normal.
Economic environment, Unfortunately, 18 months' zone.
We are far from that and with that particularly in our case, a significant shock coming from energy prices with also the broader inflation, so I would say until that.
Environment Normalizes, we will not be able to deliver what we're all our mid term goals within the timeframe that we have that we have flagged that certain.
We are taking action however on structural France, as we were discussing earlier on both pricing and costs.
We have ahead of us a big peak of energy cost to go through as you have seen from our presentation.
But if you set that peak aside and as we have already discussed it will have to reverse.
Think about it as the actions we are undertaking as being designed in such a way that energy cost peak aside.
They will maintain off on a good growth trajectory.
You also referenced briefly the growth of this year I think just one quick point.
Worth highlighting as we did in May there is a big swing in tax costs between last year's free cash flow in this year free cash flow is going to be $500 million. So when you calculate growth rates you need to keep that in mind because of simply technical deferral offer cash tax payment in <unk> in Germany.
Finally on the on the leverage range I can only reiterate the points, we mentioned earlier, we need to wait until that actually we compete.
The.
Vantage transaction and at that point, we will review our position overall in terms of capital allocation.
Okay.
Maybe just.
To frame how the board would think about the dividends, we have a minimum commitment of known in euro cents that.
That was part of our midterm.
<unk>.
We have been prioritizing deleveraging.
We have gone past the peak of five <unk> spectrum and Liberty integration, so that will support free cash flow.
We are doing a number of portfolio actions that will materialize synergy benefits et cetera, if we complete everything that we want to complete clearly in the near term we have an energy hit.
But we have to look through that and when we look through it.
And let's say the exceptional inflation and we have the balance sheet effectively to absorb that if we look through it management still remains on the ambition of the midterm.
Both.
So we see the dividend intrinsically linked to that profile.
Alright, thank guys. Unlike my from my environment. Thank you.
Thank you.
Yes.
Thank you very much. Our next question today comes from Polo Tang from UBS.
Paula Please go ahead.
Yeah, Hi, Thanks for taking the question is just on your German fiber JV with LTC decides to deploy fiber to around 7 million homes or around about a quarter of your German cable footprint, how reducing each a great more of Jeremy footprint to fiber and can you maybe just talk to what you just talked to housing.
Association areas and can you maybe talk through what you're seeing in terms of NPS score trends the subscribers, who take cable and then does the subscribers who take the DSL broadband maybe just a quick follow up Jeremy about energy, how do you think about the impact of potential government.
To support in terms of how that may or may not impact your 500 million euro headwind that you've outlined for next year.
Okay, I'll, let margherita covered energy.
But we.
I've got good engagement with the health associations I.
I would say that as I said before we've gone through a cable upgrade plans and the fiber build plans.
And it's not like every housing association wants fiber okay.
And the and many of them don't want the disturbance associated with if you like upgrading to fiber. So they are just as interested in the cable upgrade plan over time and is it a disruption on the build outside the building and then of course, there's disruption in the building at the same time and they would really prefer to time.
That for general refurbishment of buildings, which are longer cycle times. So I think the combination of these two things is providing them a lot of clarity on our roadmap proving that we really all of the natural partner of choice because we could not off the boat.
<unk> and over a long timeframe.
I would say that we targeted the fiber build so the housing associations because frankly, the economics are attractive for us to do that and also as we do that we obviously have additional build around the areas. So these tend to be more highly dense areas that we are targeting and we are.
Gone through region by region through Germany, where we want to build with.
And therefore, we have exclusive Betsy in those areas and I think many people, who appreciates and has the importance of partnering with old pieces, because they had a significant construction entity.
<unk> has built over 80 million homes past in six countries over two decades. So what we wanted to do and they've already started building in Germany, and what we wanted to do was purpose built in June .
Our build prioritizing how we want to rollout fiber.
<unk>.
Housing associations in areas. So what I'd say is it was more to do with us having a targeted bill taking the capacity in the market by the way. We're also talking to a number of other construction companies to supplement you'll see bill.
Bill because theyre doing the majority, but theres still some residual that we will be.
And those are well advanced as well.
So what I'd say is that when.
When I look at to your point of NPS.
Because we've been upgraded and network I can't point to any.
Our particular NPS that's at this point that would suggest a big deviation.
With our experienced in Spain, as an example, where we have been having fiber completely over with.
With cable offering both we haven't seen any difference at all on the NPS. So I think this is just about credit quality.
Hybrid.
Cable fiber networks. So by definition it has fiber in it I think is about offering a high quality network either through that mode.
Total fiber.
On energy, we have quantified the headwinds for next year at $500 million in our presentation and this is based on current spot prices and doesn't have any government intervention benefit in it.
Why is that there is a wide range of government actions that are being discussed all across Europe , you mentioned, the German plant, which is definitely the largest thought.
All other countries are also working on anything from tax rebates, all the way to.
The more material price gaps.
We are not including this in our forecast at the moment because there is still a substantial level of uncertainty.
They have the German measure there.
They still need to pass through state aid evaluation from the EU, we have not yet clear on what conditions may be attached to them. So we remain cautious at this stage could be material. If we talk about Germany alone it could be over 100 million benefit to our P&L.
The type of measures, which have been discussed at the moment.
Great. Thanks.
Thank you very much. Our next question today comes from Nick <unk> from Redburn. Please go ahead.
Yes, thanks, very much just two questions on revenue growth if I could the first one is on business. So slide six three.
Three 4% could you talk a little bit more about the components of that growth is that all connectivity how much of it is software services.
And then the second questions around base management and lifting prices on the back book, So I think I'm right in saying that.
There is no plan at the moment for the most part to lift prices in Germany specific to on existing subscribers. So the price increases you're talking about a whole new subscribers.
Hey, Good morning, let me just answer that one because it's simple and then I'll, let Marguerite who made it to the business revenue composition.
In terms of your rights at the moment.
From book changes that we've made.
I would say that.
Germany in the past in terms of cable.
Has put through price increases quite consistently every year.
And on that quite successfully we have not announced anything at this point it wouldn't be appropriate to talk about anything in the future on pricing at the moment. However, clearly we are assessing our options.
And on the service revenue growth in business trip.
4% in the quarter. This is still I would say in the main.
It had impact from the big initiatives of the European recovery funds, when we talk about digital toolkit in Spain vouchers in Italy is starting to come through.
But not yet.
These have been mostly delayed for administrative reasons, what's driving the current acceleration.
Essentially two things one is the beyond connectivity part of service, it's about a quarter of our service revenues now growing.
In excess of 25%.
Year on year.
And you have a full range of areas, which are growing very strongly from Iot, which is growing in the high single digits cloud, 30% year on year. There is a wide range of digital services accelerating and also if you look at it.
From the product mix from a.
Segment mix I would say we are still we are seeing strong acceleration into the public sector.
We are growing double digits at the moment and some of it may be tender associated to the European recovery funds. Some of it is simply higher demands that we're seeing now.
And that's a lower margin.
Yes.
What was the margin of that growth.
Similar to the group margin, it's not dramatically different.
We're seeing good margin growth also in the quarter as much as we see service revenue growth. So margin dynamic is actually quite good.
Yes.
We deliberately.
Deliberate don't go after let's say products services that let's say are very very low margin I mean, that's that's not the type of business that we focus on.
Great. Thanks very much.
Thank you very much our next question today and this is the last question that we have time for today.
Comes from James Ratcliffe from New St. James. Please go ahead.
Hi, Yes, good morning, Nicholas Margarita so item two questions. Please.
So I wasn't expecting this morning to be asking questions about the FY 'twenty for guidance, but given you have the slide in there where you talk about some of the considerations for US I was wondering if I could just drill down and not on a little bit more detail. So firstly on the margins you seem to have kind of.
Three red sits down and to green checks up.
Sure.
Yes, sorry, not to be made.
But at the same time you also mentioned that doesn't include potential uplift that could come in from energy caps. So could it be well first of all should I read that slide is saying margins for next year might be slightly down but could it be that if the energy caps.
Come in.
Margins for next year, it could be stable or maybe even for next year and if you could say anything about kind of what we should think about the base levels of free cash flow.
Next year, if you can say anything on that and then the second question I have just a broader question on Germany. I mean believe this evening as a new CEO since July now I mean, I think a lot of the commentary you talked about today and it has been about successfully fixing some of the problems that were there in the past.
Can you give any kind of commentary on how <unk> is thinking about may be driving new initiatives.
In Germany from here.
Any forward over the next few years. Thank you.
The first one yes on.
On slide 24.
Of course, we need to wait for the guidance in May, but we wanted to use the presentation to start highlighting the key moving parts for slide 24, given the macro environment, we are facing and.
Yeah.
I say this.
Yes.
Major drags to our performance next year.
One is specifically energy inflation, they keep as current condition current spot prices $500 million. The second is of course, the why the inflationary pressure that will affect wages and also order costs.
Again, Steve I think on a more positive note.
We should expect.
Europe to add some structural elements of <unk>.
The acceleration embedded in its performance as we have discussed today. So we will have a weaker exit this year, because we have suffered from customer losses, but we have re accelerated the commercial performance in <unk>.
Germany, and Spain, and this will be supportive from a demand perspective.
On the demand front there is the possibility of some macro pressure, but we will also have the benefits of the price increases that we've just talked about and then finally.
We will have the actions that we're undertaking on costs as part of the new $1 billion target that will also be favorable.
Net net I cannot be drawn into.
EBITDA guidance at this stage, we will have to come back in May.
You asked about free cash flow, maybe I can add an element that we have not yet drawn our capex planning for FY 'twenty four again at this time in the year, but I would say you will have seen a 423, confirming our $8 billion.
Capex spend excluding vantage growth Capex and looking ahead to FY 'twenty four we feel broadly comfortable in maintaining our current level of capital intense.
James.
Let me speak for Philip.
We will have an opportunity to meet some in due course.
But if I if I sit back and I was just thinking that theres really painful things.
We've talked a lot. So felipe about what has been focus on both was sort of rebuild the team with the right skill sets capabilities to execute the plan and he has done that.
Total confidence in that team.
We've done some important additions.
I think we will make a big impact.
Secondly, it was a balance.
Execute through on the plan that was in place for the remedial actions needed to accomplish that.
Third, which which they have been working on for the last couple of months was.
I was concerned about there were too many initiatives in that business.
Needed to be rationalized focused down we're clear of prioritization to drive execution success and growth and I was really pleased that we had a review a couple of weeks ago in Germany for a whole day with the team and they were presented in back on that that prioritization.
And trade offs that need to be made for execution for next year now clearly I can't go through all of those were but we're very happy that now is a more focused plan and then the full thing.
My perspective was really just continue to execute through all the investments we're doing around the network.
Paul.
It's a big agenda, because if you think about the mobile side coverage obligations, ensuring that those are executed through and then on the fixed side with.
<unk>, a new JV will be seeking a partner I think it's next week or the week. After go through detailed mix et cetera. So these are I would say the first four things. He will also say is communicate scene is getting now and so the business is moving customers is understanding.
The challenges issues, what more we could do to improve the experience. So there are many other things, but these are the four things I'd call out.
Great. Thank you very much indeed.
Okay.
Since we have time for today, so I'll hand back to Anika margaritas.
Thank you for.
For everyone for taking the time to join US I am sure that we will meet in due course over the next couple of weeks, one way or another.
And thank you.
[music].
Yeah.
[music].
Yes.
[music].
No.
[music].
Okay.
[music].
Yes.
[music].