Earnings Call Transcript - VOD Q4 2024

Margherita Della Valle, CEO

Good morning, everyone, and thank you for joining us today. A year ago, we set out our plans to fundamentally transform Vodafone for growth. Since then, I'm pleased with the pace of response and speed of execution from everyone at Vodafone. We have moved quickly to reshape our European footprint having announced sales of Spain and Italy as well as our merger in the U.K. Our new portfolio shape will enable us to focus on growing markets with strong positions and good local scale. And as the results and guidance we share today demonstrate, we are in a much stronger position to deliver more sustainable and predictable growth and drive improved returns. Whilst we have made good progress in changing the shape of Vodafone, our operational transformation focused on customer simplicity and growth is driving deeper fundamental changes. We are changing where we invest our time and resources towards our customers. While there is clearly more to do, we are already seeing improved results. We have reduced the number of customer detractors across our markets this year through a systematic effort to remove customer pain points, and we now have a leading or co-leading NPS position in five out of nine of our European markets. We are also changing how we organize ourselves to be simpler and more efficient and have made good progress against our productivity targets. We have established a new commercialization model for our shared operations that will allow us to better serve our markets and telco partners and scale up or down our cost base in response to changes in demand. And on growth, all segments are now growing as you have seen. Our performance in business was particularly strong with service revenue growth accelerating to 5% this year. Beyond our progress on our strategic priorities, I am 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 EBITDA grew by 2% in a year with significant inflationary headwinds, especially energy prices, as well as significant reinvestments we have made to improve our customer experience. But looking ahead to next year, much more still needs to be done. We have clear areas of focus for FY '25 to drive operational excellence across the group. We will once more step up investments in our customer experience and focus on improving our underlying performance in Germany, which includes a broad range of actions across our fixed and mobile propositions, our channel strategy, the MDU transition, and the utilization and quality of our networks. We'll also continue to accelerate our momentum in business and simplify our operations throughout the group. Our operational transformation will enable us to build a better Vodafone, generating growth and delivering the best experience possible for our 300 million consumers and 5 million business customers. And with that, both Luka and I will now take your questions.

Operator, Operator

Thank you, Margherita. We will now take our first question from Emmet Kelly at Morgan Stanley. Emmet, please go ahead.

Emmet Kelly, Analyst

Yes. Thank you very much. Very good morning to everyone, and thank you for taking my question. Just one question, please. You have published your guidance for the forthcoming year. And as always, there's a lot of moving parts with any European Telco company. Can you maybe say a few words about the various puts and takes on the top line and also at the EBITDA level? Clearly, at EBITDA, I see a lot of moving parts, whether it's energy, MDUs, cost savings, etc. So just a few words on how we should think about the top line and EBITDA, the key drivers? Thank you.

Margherita Della Valle, CEO

Thank you, Emmet. Luka, all yours.

Luka Mucic, CFO

Yes. Thanks a lot, Emmet, for the question. I know the drill by now. So, obviously, first of all, let's just recognize that we are very pleased with the momentum with which we are exiting FY '24. We've seen an acceleration on the top line to 7.1% growth at the group level. Very importantly, also the underlying performance in Germany has been very solid, with 0.6% headline growth, but 1.5% underlying. So, in addition to that, we have in Vodafone business, a strong end to the year with 5.4% growth. So all of that is underpinning confidence in the fact that our transformation is actually yielding positive market momentum as well. When we look into FY '25, to start with the top line, we would continue to expect decent growth also in FY '25 from a component perspective. In Germany, as we all know, it's a transitional year with the MDU headwind building up strongly now. We don't expect that our positive underlying growth that we expect to continue also in FY '25 will be sufficient to make up for that. So we expect Germany service revenue performance in FY '25 to turn negative before then in FY '26, obviously, making room for Germany returning as an important growth engine for the group. In the rest of Europe, we would expect a slowdown of growth because of the unwinding of CPI driven increases, which will be very positive on the EBITDA front. I will come to that in a second. But on the service revenue growth side, we will certainly see a step down in the U.K. I would estimate with low single-digit growth in the rest of Europe. It should remain slightly higher than that, but certainly a bit lower than what we have seen in FY '24. The rest of the group, in the emerging markets, will continue to grow very strongly. On the EBITDA front, as you have seen, we are guiding for growth in FY '25, which is, I would say, a strong statement given that, obviously, also on the EBITDA front, the MDU transition is adding a sizable headwind. As a result of that, Germany's EBITDA will also be negative in FY '25. In the rest of Europe, it will develop very favorably because of the energy cost unwind and the generally good commercial performance that we have seen in FY '24 then translating into the full scale benefits on the profit front, and in the emerging markets, we continue to see strong growth prospects. Beyond all of this, I think it's very important that we are 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 FY '26 to be a year of growth in both the top line as well as on the EBITDA line. So we should see a nice step up going into FY '26.

Emmet Kelly, Analyst

Great. Thank you very much.

Operator, Operator

Thank you, Emmet. Our next question comes from Polo Tang at UBS.

Polo Tang, Analyst

Hi. Thanks for taking the question. So just one question on Germany. So if you look at German broadband net adds, they didn't see much of an improvement quarter-on-quarter. So can you give some color in terms of what's happening with German broadband net adds for April and May? And how confident are you that the broadband base can stabilize? And can you comment on what's happening with competitive dynamics for the German market? Thank you.

Margherita Della Valle, CEO

Thank you, Polo. Fixed broadband in Q4. We have completed the €7.5 million repricing that we have done through the year and still had one month of technical disconnection from the customers impacted by price rises. But you're right, that would have warranted a bigger quarter-on-quarter improvement in net adds compared to what we have seen. What we see happening today in the market is effectively that having done a large-scale repricing on our base, we are seeing a degree of a halo effect on customer perceptions from this pricing that takes some time to fade. In terms of what we expect for Q1 is an improvement on net adds quarter-on-quarter and we see this continuing throughout the year. We have a number of actions in place as well that will support this ongoing improvement together with the fading of the price increase memory, let's say. In particular, you may have seen from the presentation, we are changing the way we are communicating with our customers in fixed line. We have a big reengineering of customer management processes in play. And also that a little bit later in the year in the second half, we will open up our footprint, fiber connections so that our customers that are on DSL or mobile-only customers and want to benefit from higher speed, but cannot access the cable network will also be able to benefit from higher speed. As I said, over time, we expect continued improvement on this KPI, and of course, our target is to have our per-share of the market value growth.

Polo Tang, Analyst

Thank you.

Margherita Della Valle, CEO

Thank you.

Operator, Operator

Our next question comes from Carl Murdock-Smith at Berenberg. Carl, please go ahead.

Carl Murdock-Smith, Analyst

Thanks very much. I haven't lost my voice this quarter, so I'm able to ask a question. I'd like to ask about the German MDU, single billing transition. On your comment today that you expect to retain around 50% of the 8.5 million MDU TV households. Can you provide a bit more color on what you've seen so far to give you the confidence to give that figure? Given that the 8.5 million customers account for revenue of around €800 million. Is it fair to therefore think about 50% as implying around €400 million of revenue? And a year ago, you talked about committing €100 million of resource to executing the transition last year. What would be the comparable resource figure be for the coming year that might reasonably be expected to drop away after this year? Thank you.

Margherita Della Valle, CEO

Thank you, Carl. We'll let Luka take on the investment and the financial impact. But just in terms of what we are seeing, let me say that it's a very big impact, of course, but I'm very pleased with how our teams have progressed in the execution on this. I need to say very pleased with the strength of our partnership with the housing association that has allowed very strong cooperation in addressing the transition. If you think about our sales and marketing machine, we are nationwide reminding customers that they need to take action. We are saying this very clearly above the line, but we also have in place, a series of nudges as customers go through the process to remind them about the choices they need to make. We have gone through now effectively four months of bigger volumes with particularly the January wave being the most significant. As you have seen in our results, we have as of the end of March secured 1.9 million customers in the period. This is about 60% of the addressable base that we have processed through in that phase. With the visibility we have now, it gives us the confidence to say that we expect to land on around 50% penetration. Clearly, the first to come through also tend to be the most proactive, and therefore, we expect a degree of moderation over time. It will all add up to your point to a €400 million drag from a financial perspective. I'll let maybe Luka give a bit more color on this.

Luka Mucic, CFO

Yes. In particular, on the investment because on the pure revenue impact, and with that also EBITDA impact because it's an extremely high margin business. I think you have already said everything that needs to be said, Margherita. But in terms of the investment, you're right. The total transformation program is coming along with an investment price tag of €100 million. Out of this, we have already spent the first half in FY '24. That's one of the reasons why we also had in half year two in Germany, negative EBITDA performance. So there is a second 50 million coming now in FY '25, and this will then obviously unwind and not stay with us going into FY '26.

Margherita Della Valle, CEO

Let me maybe just add that, of course, this is a very large impact, and it's a big drag in our guidance for FY '25, not just for Germany, but for the group as a whole. We are both really looking forward to FY '26 when Germany will be back to being an important growth engine for the group after this drag. Of course, this will reflect, as Luka was mentioning earlier, also in our growth potential. Overall, we are guiding for growth already in '25, despite these €400 million. So looking forward to '26.

Carl Murdock-Smith, Analyst

That's great. Thanks very much.

Operator, Operator

The next question this morning comes from Akhil Dattani at JPMorgan.

Akhil Dattani, Analyst

Hi, morning. Thanks for taking the question. I wanted to drill a little bit deeper into the comments you made, Margherita on fundamentally transforming Vodafone to growth. And there's two parts to that. The first is, I wondered if you could elaborate on exactly what sort of metrics are key for you when you think about growth. Is it revenue? Is it EBITDA? Is it cash flow? And any sort of high-level thoughts around the sort of growth rates or levels you aspire to. But the bigger sort of picture point of this is that one of the things we've seen in the sector over the last two years is that a lot of companies have started giving mid-term guidance targets across a whole range of financials. I just wondered what your thoughts were on that transition as you sound a lot more confident now on your growth trajectory. Could you similarly consider providing mid-term targets? Thank you.

Margherita Della Valle, CEO

Thank you, Akhil. Ultimately, when we think about growth, we go towards two fundamental KPIs that I think summarize our position which is free cash flow growth and return on capital growth, which is a key objective for us. As drivers of that, you will have seen that we have set up a new scorecard since last year. If I had to say what I mostly care about within that scorecard to enable ultimately free cash flow and returns growth is two things: customer satisfaction, reduction in detractors, NPS improvement. I'm sure we may have the chance to talk more about this in the call. I think this is fundamental for the longer-term health of the business. Driving the opportunity of growth in B2B is much higher than what we see today, and it's in our hands to really drive this. With the change of the shape of the group, winning on business and winning on customer satisfaction, these are all things that are now in our end because we are in good growth markets in terms of where we operate, where we have also good local scale. So it's literally in our hands. You raised a really good question on so what about the midterm? Standing back, you will understand that we see very much FY '25 as a year of transition and not just because of what's happening in Germany with the MDUs, but more broadly. We need to complete the deals that we have announced this year or rather in the last fiscal year now. From FY '26 with the U.K. merger, you will see another change of perimeter. Although I think we have done a big effort and we need to thank also our finance and IR teams in giving you already guidance based on the new perimeter with the discontinued operations, there will be another change of perimeter with the merger. What we can say today is what we have just talked about, which is we are guiding for growth in '25 despite the headwinds of the MDUs. When we think about the longer term beyond '25, clearly, we look at it positively because we will miss that drag, which by the way we talked about €400 million EBITDA, but there is also working capital, as you know which is miscellaneous. So it's quite sizable on our free cash flow metric.

Akhil Dattani, Analyst

Great. Thanks so much.

Margherita Della Valle, CEO

Thank you.

Operator, Operator

The next question comes from Steve Malcolm at Redburn. Please go ahead, Steve.

Stephen Malcolm, Analyst

Good morning. Thank you for the question. I appreciate the connection to the U.K. merger process. I have a couple of quick questions. First, does security clearance in the government influence the CMA approval process? Additionally, as evidenced by your exit from Italy, not all mobile mergers are the same. While I understand you might not go into specifics, could you share whether there are any key issues or conditions under which you would choose to withdraw from that merger? Thank you.

Margherita Della Valle, CEO

Sure, Steve. I mean starting from the end, absolutely. We don't think that this merger in the U.K. warrants any remedy. We've been very, very clear in the last few months about the why. Keep in mind, it's completely different from either the merger that recently happened in Spain between Orange and MASMOVIL or completely different from the merger that the mergers that were discussed in the U.K. itself in previous years. The reason why it's so different, and you're right, each situation is very specific is that what we are doing in the U.K. is merging the two smaller mobile-only players, which have low market shares and no returns that give them the possibility to invest appropriately in the market. It's not me speaking; it's also been Ofcom. In the U.K., you have three large converged players resulting from previous mergers. By combining the two smaller players in the market, we will actually see a positive impact on competition because we will have a third scaled mobile network with not just the ability to invest, which in itself will create good dynamics for the U.K. market overall, but also the ability to have the capacity to compete on retail, but also on wholesale, which importantly is a market that drives very much retail pricing today but where MVNOs are essentially facing a duopoly in the market today. So sorry. I'm very passionate about this, but I think it's a very strong proposition for all stakeholders. As you would expect, we are going through Phase 2 at the moment. Very deep engagement, and you're absolutely right. The security approval has no read across to that. It was expected, and it came without any surprise. But the CMA process will continue all the way probably to the end of the year. What we are doing now is having very intense reviews in order to address all the issues that were in the shopping list of Phase 1 as expected.

Stephen Malcolm, Analyst

So we should take from that that you are assuming that the remedies will be light and you'll be very disciplined in any proposed remedies and your willingness to accept them?

Margherita Della Valle, CEO

You should expect us to be extremely disciplined because again, I don't think any remedy is needed. Plus you know why we are doing what we are doing and you have seen our actions in Italy and the U.K. We need to play in good markets where we have opportunities for good returns, and the synergies in the U.K. merger will provide just that.

Stephen Malcolm, Analyst

Great. Thanks very much.

Operator, Operator

Thank you. The next question comes from James Ratzer at New Street. James, please go ahead.

James Ratzer, Analyst

Yes. Good morning, Margherita and Luka and thank you for taking the question. I'm really interested in learning a bit more about your current relationship with 1&1 in Germany. Now we're into FY '25. We'd be interested if you can give us any more precise guidance on the revenue impact you're expecting from that contract this year and maybe going into FY '26 when the EBITDA impact, I think will be more significant. Yesterday, we saw BNetzA suggest as part of the consultation that they're looking really for one of the MNOs to potentially lease or give up some low-band spectrum to 1&1, and that could potentially involve a network sharing or RAN sharing deal. Are you interested in helping to provide that? What's your willingness to consider a deeper deal with 1&1 as part of this BNetzA proposal? Thank you.

Margherita Della Valle, CEO

Thank you, James. I'll take the last part and then ask Luka to comment on the financial side. We're happy with the deal we have today with 1&1 which, as you know, is a very long-term deal and partnership with 1&1. It's established for up to 18 years. As part of that we will effectively carry the traffic for the, I think €13 million now 1&1 customers wherever 1&1 will not build its network. So from that perspective, we will need our spectrum to answer your question, and so that's what you should expect. Financially?

Luka Mucic, CFO

We are set to begin the migration of 1&1 customers to our networks this Fall. You shouldn't anticipate a major effect from the national roaming agreement in fiscal year 2025. While it will be beneficial, particularly for cash flow, we will also need to invest in some additional capital expenditures to support the onboarding process, which means it will be neutral for cash flow. For revenue and EBITDA, expect impacts in the high double-digit million range, with a similar amount of capital expenditures required. Once onboarding is finished going into fiscal year 2026, we anticipate a positive influence on our results, but in fiscal year 2025, it won’t be sufficient to offset the effects from the MDUs.

Margherita Della Valle, CEO

Yes. It will take time to drive the migration. In terms of service revenue headline, it's really up to back end of up to for it to be really material.

James Ratzer, Analyst

Got it. And can I just ask you, I mean, I think you gave a pretty clear message on spectrum there, but would you be open to any RAN sharing agreement with them?

Margherita Della Valle, CEO

As I said, we're really happy with the position we are at today, and we don't expect any changes to that. As you know, we are busy implementing the agreement we have now and opening up our network.

Luka Mucic, CFO

Let's not forget that through the NRA, we have given, 1&1 a very long-term planning security, and I think that's a significant contribution.

James Ratzer, Analyst

Thank you.

Operator, Operator

The next question comes from Robert Grindle at Deutsche Numis. Robert, please go ahead.

Robert Grindle, Analyst

Good morning, and thank you. My question is about your non-consolidated but co-controlled assets, please. Liberty is transferring its Ziggo stake to a Benelux HoldCo. Is that interesting at all to you guys? And then the very considerable Oak Holdings stake, I think you're still at 60%. Is it still the plan to drop to 50% when other deals are closed perhaps, or is there a different future there? Thank you.

Margherita Della Valle, CEO

Thank you, Robert. Luka, who's directly involved may take the Vantage site on the Netherlands. We are pleased with where we are in a nutshell, strong asset in a good market. There we have just reorganized the way we manage our non-controlled assets. You may have noticed that we have set up a new division called Vodafone Investment. This is because I really believe that we need to manage those assets differently from the controlled ones. We have set up a very light team of financial and operational experts that will be entirely focused on governance, not just for VodafoneZiggo, but for the entire portfolio of investments, which of course includes Vantage but also includes Satellite and other things which are less well known. I think this will really allow us to drive the best value creation for these assets. But as far as VodafoneZiggo is concerned, happy with our position today. If I'm thinking if you want M&A, my focus is going to be in completing the three deals we have announced in Europe in the last year.

Luka Mucic, CFO

And perhaps on Vantage, thanks for mentioning this or asking the question because I think it's really a great example of the value crystallization potential that we have in the portfolio of Vodafone Investments. As you know, we have already received proceeds of €5.4 billion for the disposals that we have done so far at a very attractive of 26x EBITDA multiple. We still stand at 60% of shareholding in Oak Holdings. However, we remain in constructive dialog with the Private Equity Consortium that is now joining us in Oak Holdings. We still see an opportunity to further sell down shares. There is no reason why we should stay at 60%. This is a work in progress and certainly a very good value crystallization opportunity for us.

Robert Grindle, Analyst

Thank you.

Operator, Operator

The next question comes from Jakob Bluestone at BNPP Exane.

Jakob Bluestone, Analyst

Hi, good morning. Thanks for taking my question. I had a question on your free cash flow bridge. You're guiding for free cash flow in FY '25 of at least €2.4 billion versus the €2.6 billion you did in FY '25. I was just hoping you could help us understand what's kind of the bridge between those two. Your EBITDA, you've said will be sort of roughly flat at €11 billion on a pro forma basis. I think you said back in March your CapEx would be flat as well. I guess you had a tax one-off in Germany, which maybe explains some of the difference. But if you can maybe just help us understand what drives this probably lower free cash flow in FY '25? Thank you.

Luka Mucic, CFO

Yes. Well, first of all, I mean, I perfectly appreciate that there are lots of moving parts and puts and takes and complexities that have been arising from the whole discontinued operations situation. Our IR team remains fully available to lead you through all the details of the bridge, and we have also included, I would say, a pretty useful work that outlines the major parts of it in the back half of our presentation. When you talk about the free cash flow in particular, so 2.6 and the 2.4. There are two elements there. One is obviously, FX and currencies, with €100 million. The other one is the fact that we do not expect to continue to recharge about €100 million of below-the-line recharges to Spain after the completion of the disposal. That explains the difference, and for the rest and details, I'm very happy for you to reach out to IR.

Margherita Della Valle, CEO

From a substance perspective, beyond the sort of like-for-like reconciliations, Jakob, I think one important point is worth noting, which is we are guiding to at least 2.4, so slightly different from around, which is actually the EBITDA guidance. So see this as the bottom end of what we expect to achieve. So FY '24, like-for-like, 2.4, FY '25 from 2.4 upwards aforementioned.

Luka Mucic, CFO

And last but not least, in that ambition for growth, let's not forget that we are working through a €500 million negative impact from the MDUs, which consists of the €400 million that we have talked about previously, plus an additional €100 million working capital track. So that's something that you should have in the back of your mind at least as well.

Jakob Bluestone, Analyst

Understood. Thank you.

Operator, Operator

Thank you. The next question comes from Maurice Patrick at Barclays. Maurice, please unmute yourself and go ahead.

Maurice Patrick, Analyst

Thanks, guys, for taking the question today. If I could ask a question on the central function, always an exciting area to ask about. Really, it's a question to what extent the costs in the central function can flex up and down with the revenues. I think in your response to Jakob's question just now, you talked about a €100 million or so headwind at the central level due to the timing of Spain, being deconsolidated with the sales of Zegona. But you presumably, in 12 months' time, we got the same thing taking place at Swisscom playing I think it's €350 million a year. So if you could give some thoughts on the outlook for revenues and costs in the central function for FY '25 and '26, it'd be very helpful. Thank you.

Margherita Della Valle, CEO

Sure. I will provide a broader perspective, but to revisit what Luka mentioned earlier, this was an accounting effect rather than a key concern, which is the EBITDA impacts related to central functions in terms of revenues and costs. We do not anticipate any stranded costs or negative EBITDA impacts from the evolution of our shared operations moving forward. This is primarily driven by two factors, which I wanted to clarify. Firstly, we have altered the management of our shared operations, making them commercial. This means that, along with the Vodafone market and external partners, we now have Master Service Agreements for purchasing shared operation services. We will closely monitor volumes and unit costs, and controlling this dynamic will allow us to adjust costs according to demand, whether it comes from internal or external sources, including new partners. It's important to note that these operations are very flexible in nature. Over 90% of our shared operations employees are located in areas where we maintain an efficient cost structure and flexibility. Reflecting on the past year, we have completed the reduction of 5,000 roles as part of our plan to reduce 11,000 positions, with over half of that reduction occurring in shared operations. This gives us considerable flexibility, and we will align this flexibility with our commercial model. The second factor you mentioned is our new ventures in Italy and Spain with Zegona and Swisscom, which are buying services from our shared operations worth €460 million. We have a variety of contracts with different durations, extending up to five years, allowing us sufficient time to understand and adapt to our partners' evolving demands. We do not foresee any negative outcomes from this situation; rather, we expect to see enhanced efficiency opportunities, as shared operations, through scale, automation, and the integration of AI, will offer substantial productivity improvements.

Maurice Patrick, Analyst

Thank you.

Operator, Operator

The next question comes from David Wright at Bank of America Merrill Lynch. David, please go ahead.

David Wright, Analyst

Hi, guys. Thank you, and I hope you can hear me well. I might focus and follow-up a little on Robert's question, please, just on the Vantage stake. Obviously, when I look at the dividend received, it's not hugely efficient versus your cost of debt on what could be the proceeds. But just on the ability to sell down the Vantage stake, the obvious question is what would you use the money for? Your balance sheet is in very good shape. You already have a significant buyback plan. Is this the potential plug for more German fiber? And if I might just add, the buyback, I know Spain is due to complete imminently according to your presentation. Does the buyback follow imminently the Spain proceeds? Thank you.

Margherita Della Valle, CEO

I'll let Luka address the buybacks, but I need to clarify that you should have asked David, and I needed to respond. The answer regarding German fiber is no. We are satisfied with our current cable network. If you look at our presentation, we have increased our segments in Germany by 30%. This remains within our usual capital expenditure framework, and we are continuing to grow. We actually observed very positive trends in customer satisfaction in Germany, which we might want to discuss later. Additionally, we are currently rolling out OXG in six cities in Germany, including Düsseldorf and Dortmund. We are pleased with our position. But regarding what we will do with the money and buybacks?

Luka Mucic, CFO

But first of all, on the share buybacks, just to be very clear, you are right. We expect to receive final approvals imminently. We would intend to launch the share buyback very shortly after that. This all follows on the heels of each other. So that's very clear. And in terms of Vantage, as Margherita said, no. We won't invest it in fiber, and that would leave, obviously, the potential for either additional shareholder returns or additional deleveraging or additional value accretive investments, let's say in business B2B opportunity. But with whatever we do, it will be focused on driving the right returns for our shareholders, and we will make that choice once we succeed.

David Wright, Analyst

Thank you, guys. Thank you.

Operator, Operator

The next question this morning comes from Ottavio Adorisio at Bernstein.

Ottavio Adorisio, Analyst

Hi, good morning. I have one question and a couple of clarifications. The question is on the Vodafone investments that you set up today. Through the question, you talked extensively about Vantage Towers. My question is mostly on the others. Who's going to be the ultimate owners of this infrastructure? Do you reckon this 55th JV will stay forever? Or like you do in the U.K., you're willing to take full ownership of the assets? The clarification is mostly on the guidance. How much of the free cash flow guidance included in the Swisscom payments? How much will be for this year and how much will be for FY '26? The other one is, basically on free cash flow. You've got still on adjusted free cash flow. If you can tell us what to expect from restructuring integration costs for next year, considering a bit booked below the line? Thanks.

Margherita Della Valle, CEO

Okay. I hope I have noted everything, Ottavio. I'll start and then hand over to Luka for the integration and restructuring cost. I think your question on the 55th was about owning 100% in Vodafone investments. Are you referring to a specific asset in the portfolio?

Ottavio Adorisio, Analyst

I was looking at the slides, and I can see there are tons of 50-50 JVs, not consolidated. Some of this is infrastructure that you're going to use for a long time. My question is, who's going to be the ultimate owner of the assets? Do you run as it is? Or are you trying to buy back some stage?

Margherita Della Valle, CEO

If it’s sort of the broader picture, again, we have just reorganized splitting control for the non-control, and that tells you that we intend to maintain the portfolio as non-controlled. If I think about the list that are in there, there are plenty of good reasons for it to stay this way in the future. So don't expect, I'm trying to think about the list is very long, but if I think about Vantage or if I think about VodafoneZiggo, I don't see us moving into owning 100% of these assets in the future. As far as also just to take the free cash flows off the table at the payment level, of course, we have no recharges to Swisscom in FY '25. So clearly, the guidance is not affected by this and we have not issued guidance yet for FY '26. From the deal announcement, Swisscom is effectively taking over the same perimeter of recharges that were happening with Vodafone Italy. So no major changes expected from that in FY '26, Luka?

Luka Mucic, CFO

Perhaps, just nevertheless coming back on FY '25, what we have mentioned in our release is that outside of our guidance, we are obviously expecting a continued cash flow contribution from discontinued operations in Italy, mainly of €400 million, but that is outside of our guidance and would come on top. In terms of restructuring, if I may add spectrum payments that stand between the adjusted free cash flow and what I would call the real free cash flow of the company for FY '25, I would see in aggregate a similar amount as we have seen in FY '24. Restructuring will go slightly up on the spectrum side, broadly similar numbers, as we have had in FY '24 making up in aggregate for roughly the same amount.

Ottavio Adorisio, Analyst

Many thanks. Margherita, my question was not involved on Ziggo Vantage, but was on the JV with this. So who's going to be the ultimate owner of that asset?

Margherita Della Valle, CEO

I see. Sorry. OXG, we don't see any reason to build fiber on balance sheet as we were discussing with David earlier. In terms of so we expect the 50:50 relationship to continue as it is. We have a long way ahead which is a six-year build to give us 7 million households, and you shouldn't expect us to make any changes there in that time frame.

Ottavio Adorisio, Analyst

Thank you.

Operator, Operator

The next question comes from Georgios Ierodiaconou at Citigroup. Georgios, please go ahead.

Georgios Ierodiaconou, Analyst

Good morning, and thank you for taking my question. I just wanted to focus a bit on OpEx. Luka, you made a comment earlier about service revenue may ease in some markets, but the cost pressures will also start to reverse. You gave quite a bit of detail around energy. Is it possible to also maybe give us some indications around labor costs within the new perimeter in Europe, last year versus this year and what your expectations are regarding whether there are any pending negotiations to still be finalized? And maybe if I could ask one clarification around the additional €300 million of cost savings. I just wanted to clarify, within that, you are not including any flexing of costs around central functions from any potential changes in the contracts with other customers? Thank you.

Luka Mucic, CFO

Yes, so let me take this. So first of all, year-over-year, you're absolutely right. Energy will be a tailwind from an OpEx perspective. Last year, we had in Europe in the new perimeter, so excluding Italy and Spain, roughly €200 million of headwind, and about 80% of that will unwind in FY '25. In terms of the rest, labor costs, we are actually not facing a significant headwind as far as we can see. So, this should remain quite constructive. Unlike, for example, some others in the market in Germany, we have an existing two-year deal with the labor unions. In that respect, our salary levels for 2025 are set already, and that's typically the largest part of where you can expect some moderation. The inflation rates have come down, and hence the salary rounds are also pretty moderate. This is not going to be a major uncertainty. So that has moderated. Then in terms of the €300 million and central functions, we are looking for efficiencies and productivities across the board that of course also includes the central functions, but that is not tied to a loss of opportunity, so to say, in terms of the business that we are covering because Margherita has said, very rightfully, that we are indeed covered with our existing relationships with Zegona and Swisscom. We still have an ambition across the board, across all entities, including the group functions to drive for further efficiencies through simplification, standardization, leveraging of technology, AI, and so on. We're very busy working on that. It's obviously an area that I'm passionate about also given my background coming from the software industry.

Margherita Della Valle, CEO

Thank you, Georgios.

Operator, Operator

Thank you. We have time for one more question this morning from Andrew Lee at Goldman Sachs. Andrew, please go ahead.

Andrew Lee, Analyst

Yes, good morning. I just wanted to maybe bring us back to your right to the start and your answer to the question at the beginning about kind of trends through '25 and into '26. You made some pretty clear and helpful commentary around the puts and takes and temporary factors from '25 going into '26 and said '26 should see a step up, which obviously we'd expect given the cable TV headwinds in FY '25. I just wanted to try and better understand how you're thinking about the underlying growth across the group. If we adjust for the 1&1 contract, adjust for the energy tailwinds in FY '25, adjust for the cable TV headwind and try and get to an underlying sense of what you're guiding to on EBITDA growth for FY '25, it looks like around 3% to 4%. How are you thinking about the trajectory of underlying EBITDA growth? Do you think that improves into FY '26? Perhaps if I might ask a bit more specifically, obviously, Germany is absolutely at the heart of that. Do you think we've reached a sustainable level at 1.5% organic service revenue growth this quarter ex the cable TV? How do you think group trends on an underlying basis progressed from 25 into 26 and specifically Germany? Thank you.

Margherita Della Valle, CEO

Maybe cover the prospects for Germany, but maybe you start with the building blocks.

Luka Mucic, CFO

Just, since we are almost out of time, I just want to confirm that I think you have highlighted the right building blocks. But what does that translate into? It's actually that we will likely see a U shape of our performance in FY '25 because the headwinds, in particular, on the MDU front are mainly going to hit us in terms of year-over-year growth impact in the first half year, as this impact will now magnify in Q1 and even further in Q2. We will also see the lapping of our German price rises in fixed broadband in Q2, and then the positive impacts like 1&1. I would add to this also, the step up in the performance that we still expect to see in Vodafone Business as we are now putting additional investments in as we see the market opportunity. We expect the pipeline build-up that we're already witnessing then to translate from the second half year into further growth opportunities that obviously will carry us also into FY '26 and going forward. Therefore, you should see a U shape in terms of the growth performance in FY '25, and then once we have the impact from the MDUs annualized and out of the way, then clearly, we can see the full underlying strength of the growth coming to fruition.

Margherita Della Valle, CEO

In terms of issuance longer-term prospects, I'm pleased with having 1.5 underlying in Q4. We now see this U shape impacting Germany during this fiscal year. Our ambition has to be to accelerate and take our fair share of the market growth. It's in our hands. It's a good market where we have scale, a strong brand, and strong networks. The new team has a big agenda for that that we will deliver during FY '25. If I think about maybe MDU transition we have covered, but in terms of actions, fixed versus mobile, on fixed, it's all going to be about post-pricing, commercial performance, as I said earlier, with the focus on CVM and of footprint. In mobile, what you will see happening is a continued switch between non-branded towards branded channels. It's fair to say that the market in Germany at the low end, particularly around the non-branded channels has been heating up. Recently, there are a lot of promotional aspects going on at the lower end of the market. You see this somehow reflected into our mobile methods in the quarter and will continue into Q1. Our strategy there in terms of driving growth, as I say will not change. We care about service revenue. We don't care about volumes. We will continue to push our branded channels supported by more investment in customer experience and our brand itself in Germany and look forward to driving customer satisfaction even higher. This year was a year of stabilization supported by the improved performance of the cable network, which we were very happy to have achieved despite the price increases. We need to drive this up to deliver higher underlying service revenue growth going forward into FY '26 in Germany and get the acceleration that Luka was talking about.

Andrew Lee, Analyst

Thank you.

Operator, Operator

Thank you. This concludes the Q&A session this morning, and I would now like to hand back to Margherita for any closing remarks.

Margherita Della Valle, CEO

Just thank you very much for all of you for being here for questions today, and looking forward to seeing you again in July for our Q1 results. Thank you.

Luka Mucic, CFO

Thank you very much.