Vodafone - Earnings Call - Q2 2023 Pre Recorded

Transcript

Speaker 0

Hello, everyone, and thank you for joining our results presentation for the first half of FY twenty twenty three. I'll talk you through a short summary of the highlights before Margherita covers the main aspects of our financial performance in the half. I'll then rejoin you to provide an update of our operational and portfolio progress, set out the action plan we have underway to mitigate the macroeconomic challenges we all face, and finally, this in the context of our longer term organic growth strategy for our three business areas of Europe Consumer, Vodafone Business and Africa. We are delivering a resilient financial performance this year. Service revenue growth for the group remained constant at 2.5%, although we experienced lower growth in Europe, which was offset by higher growth rates in Africa and Turkey.

Our adjusted EBITDAL moderately declined to 7,200,000,000.0 in the half when taking into account the one off settlement in Italy in the prior year. The underlying decline was due to the weaker performance this year in our German business. We remain confident in delivering our full year adjusted EBITDA within our original guidance, but the higher energy costs in H2 means we will be at the lower end of our range. Our return on capital increased a further 60 basis points year on year, continuing our progress in this area. We're also confirming an interim dividend of €0.45 per share in line with our medium term commitment.

When I rejoin you later in this presentation, I'll set out the key factors to consider related to the possible impacts of the current macroeconomic climate to our near term financial performance. Before then, I wanted to set out the group wide tangible actions we already have well underway. First and perhaps most important, given the historical deflation in our sector, we have taken proactive price action throughout our European markets. This now includes seven markets with inflation linked pricing models, and altogether, we have announced price increases in 11 out of our 12 markets. We're extremely conscious of the cost of living pressures our customers face.

So alongside these price actions, we have a series of measures to protect those most vulnerable, which includes social tariffs, propositions offering flexible contract lengths, and digitally led low cost second brands. Second, we've made good progress over the last four years to significantly reduce our cost base to what is now a top quartile productivity position. However, as a result of new plans developed on automation and digitalization combined with a group wide streamlining and simplification program, we have identified identified further savings of at least another €1,000,000,000 over the next three and a half years. Third, our long term growth strategy is underpinned by investment in next generation connectivity infrastructure and new digital services, which will be maintained. And fourth, following our proactive refinancing over the last few years, we are in a robust financial position with a low fixed cost of debt, long duration bonds with limited near term refinancing and strong liquidity.

Whilst our shorter term operational priorities and current actions are essential, we remain focused on realizing and investing behind our long term organic growth potential, whilst increasing the diversification and resilience of the group's sources of revenue from its customers. Our European consumer operations represent around half of our revenues and we have a targeted program in place to deliver more consistent and sustainable growth. In addition to the pan European structured approach to pricing I mentioned a minute ago, our growth levers include next generation connectivity, both mobile and fixed, driving convergence and rolling out our flex proposition across our footprint. Around eighteen months ago, we stepped up the level of investment in Vodafone business to ensure we strengthened our product and go to market capabilities in attractive segments of the market, including SD WAN, security, unified communications, IoT, and cloud. These are already significant revenue drivers today and collectively are growing at over 20% in recent quarters.

In addition, Vodacom is uniquely positioned in Africa with each of its markets holding number one positions, having exposure to two of the three largest economies in Africa, and operate in Africa's leading fintech business through the M Pesa and VodaPay brands. Vodacom has a focused system of advantage to drive smartphone and fixed broadband penetration alongside footprint expansion whilst extending the range of financial and digital services. Together, our breadth and depth of growth opportunities are exciting and our mix of businesses are both diverse and resilient. So whilst the near term macroeconomic conditions are challenging, requiring immediate focus and swift action, we will continue to optimize our position to deliver long term sustainable growth. Margarita will now join us to outline our financial performance for the half in more detail, after which I'll return to talk about these areas of focus in more detail.

Speaker 1

Thank you, Nick, and good morning, everyone. We continued to grow service revenue in both Europe and Africa in Half One, as Nick has already highlighted. Our adjusted EBITDAaL declined by 1.2%, excluding the benefit from a legal settlement in Italy in the prior year. This largely reflected the recent operational underperformance in Germany and inflationary cost pressures more broadly, partially offset by our continued efficiency savings. Adjusted free cash flow in the first half was negative as cash flow generation will be weighted towards the second half of the financial year similar to prior years.

The increase in net debt in half one reflects this in year phasing of cash flow as well as our ongoing share buyback program and the timing of dividend payments. Finally, our return on capital continued to improve year on year with pretax ROCE up by 60 basis points to 6.9%. In Q2, we continued to deliver good group service revenue growth, up 2.5% year on year with business accelerating to 3.4. In Europe, service revenue turned slightly negative following the slowdown in Germany and Spain. In Germany, our operational challenges meant we lacked a key growth lever: broadband customer additions.

And in Spain, we are lapping the benefit of a one off price increase in the prior year as we are transitioning to a CPI model in Q4. Growth in Africa accelerated strongly as we benefited from the reduction of mobile money levies in Tanzania and lapped their introduction in the prior year. Financial Services growth was once again double digit. Now turning to the performance of our major markets. In Germany, I'm pleased to report that we have now stabilized our commercial performance with 65,000 mobile customer additions and cable customer losses of only 11,000 in the quarter.

I can now confirm that the operational challenges related to the telecoms law are behind us and our commercial machine is back on track. This was an important step towards improving our revenue growth in Germany. However, the customer losses in the recent quarters, particularly in broadband, will continue to affect our service revenue performance this year. In Q2, this resulted in a service revenue decline of 1.1. A shift in our sales channels mix in mobile with more customers acquired through third parties also impacted mobile ARPU.

Our German EBITDAaL performance stepped down in the first half driven by the combination of the revenue shortfall and two additional impacts. First, we are lapping a strong half one in the prior year, including a number of small positive one off adjustments as pointed out last year. And second, our A and R spend increased year on year as our activity was still subdued in half one FY 2022 due to the pandemic whilst we are now supporting our commercial turnaround. Despite higher energy costs, we expect a better EBITDA performance in the second half, supported by the acceleration of our OpEx efficiencies and ANR phasing. In Italy, service revenue slowed in the second quarter as expected as we lap the full benefit of the Poste MVNO customers migration completed in August.

Excluding this impact, underlying trends improved thanks to the good demand we are seeing for our business digital services such as IoT and cloud and security. In Consumer, we have now migrated over 5,000,000 customers from hundreds of legacy plans to our new simplified back book portfolio of just five in an ARPU accretive way. In fixed, we have seen a post pandemic slowdown in market demand for broadband, but we are growing in fixed wireless access, so our total fixed broadband base was broadly stable during the first half of the year. We have now also launched five gs FWA in Italy, offering speeds of up to 500 megabit per second and will reach 3,000,000 households by the end of FY twenty twenty three. Our underlying EBITDAaL declined by 6.6%, excluding the benefit from a one off legal settlement in the prior year, reflecting lower mobile service revenues.

In The U. K, customer base growth and our CPI plus price initiatives have driven strong service revenue growth for the second quarter in a row. The headwind from the Virgin and Vienna migration was offset by our business segment returning to growth. We continue to grow the customer base of our main brands in both mobile and fixed broadband and our digital sub brand VOXI delivered its best ever sales month in September. Despite the inflationary cost pressures in the period, EBITDA accelerated strongly in the first half, reflecting the good service revenue growth.

Moving on to Spain. Our revenue stepped down in the quarter as we lapped a price increase in July. However, we have now stabilized our customer base and we maintained a stable EBITDA in the first half of the year supported by tax benefits. The key driver of our improved commercial performance has been customer loyalty. Our mobile consumer contract churn reduced by 4.8 percentage points year over year, also thanks to the new simplified and more transparent tariff plans, which we launched in June.

In September, we changed our contracts to include an annual CPI increase for Consumer, SAW and SME customers. Prices will increase for the first time in Q4 of this financial year based on the prior price index movement. In business, despite the significant number of registrations, we are not yet seeing the benefits of the digital toolkit platform because administrative delays. Nick will expand on this together with the broader operational transformation in Spain later on. In our other European markets, service revenue trends remained strong with six out of seven markets growing.

Continued revenue acceleration supported our EBITDA growth despite energy cost inflation and the impact of the new windfall tax in Hungary. As Nick will outline later, in recent months, we announced two transactions in the region: the sale of our Hungarian business and the acquisition of Portugal's fourth largest convergent operator. Both transactions are subject to regulatory approval. Turning to our African markets. Growth in South Africa was supported by our pricing actions and by good trends in Financial Services, with revenues increasing by over 11% in the quarter.

In Vodacom's international markets, service revenue trends reaccelerated. This was driven by the increase in M Pesa transaction volumes as we lapped the introduction of mobile money levies in the prior year in Tanzania and at the same time benefit from a significant reduction of these fees in half one. M Pesa revenue is now 24.4% of our total revenues in the region. Our joint venture, VodafoneZiggo, continued to perform well in The Netherlands with the best mobile service revenue growth in five years delivered in the quarter. EBITDA increased by 1.3% in the quarter and the company has reconfirmed its '22 guidance for the full year of stable to modest EBITDA growth and cash returns of $550,000,000 to €650,000,000 Now turning to group profitability.

Adjusted EBITDAaL declined by 1.2% in half one, excluding the benefit from a one off legal settlement in Italy in the prior year. This decline, as I indicated earlier, was mainly driven by Germany. In Spain, EBITDAaL was stable, supported by tax benefits this year, and we saw good margin conversion in U. K. And Other Europe.

As a group, we continued to grow direct margins and delivered a further reduction in addressable OpEx in Europe. Offsetting these was higher than usual cost inflation, particularly in energy, higher customer acquisition costs in The U. K. And Germany and elevated technology spend in South Africa. The phasing of last year's EBITDAaL was impacted by the positive one off settlement in Italy during reacceleration of commercial activity in half two as we exited the pandemic.

This phasing will be very different this year with a stronger second half. In half two, we will face significantly higher energy cost inflation, but it will be more than offset by three distinct factors: first, strong growth in Vodacom with the reacceleration of our international markets second, in Europe, the ANR headwinds we have experienced in Half one will not recur as we lap the post pandemic increase in commercial activity. And finally, we will see the benefits of the acceleration of our efficiency plan, which I will expand on later. Moving on to free cash flow. There are a few points to call out.

First, as usual, free cash flow will be heavily weighted towards the second half. This is due to the negative working capital movement in half one driven by the phasing of our CapEx spend as well as the timing of our annual handset receivable sales. Second, cash tax is circa €100,000,000 higher than last year following the deferral of some FY 'twenty two payments into the current year. Third, restructuring costs are now trending lower as expected as the peak of the Liberty integration costs is now behind us. And finally, spectrum payments of €2,200,000,000 include the final five gs installment in Italy of €1,700,000,000 This was already fully reflected in our reported net debt as well as the 110 megahertz of spectrum acquired in South Africa in March.

With the five gs spectrum cycle now largely complete across our footprint, we expect only limited auctions going forward. This should be supportive of net cash flow generation in the years to come. Turning next to our net debt. As usual, our reported Half one position was impacted by the seasonality of cash flows. This combined with the FY 2022 dividend payment of €1,300,000,000 and share buybacks of €1,000,000,000 relating to the maturing of mandatory convertible bonds meant that our reported net debt increased to €45,500,000,000 and leveraged to the 3.1 times in September.

However, in line with our FY 2023 guidance, we expect to close the year within our 2.5 to three times leverage range. Upfront cash proceeds from the Vantage Tower transaction of between €3,200,000,000 and €7,100,000,000 together with the deconsolidation of Vantage towers, would reduce leverage by a further 0.2 to 0.5 times. Given the recent volatility in credit markets, it is important to highlight the significant actions we have taken over the last few years to actively manage our balance sheet risk and liquidity position. First, all of our bonds are now held at fixed interest rates with a weighted average cost of debt of circa 2.5%. Second, our average bond maturity is eleven years, which is amongst the best in the sector and indeed across all European sectors.

Also, our refinancing needs are relatively limited over the next few years. And as a result, our exposure to current interest movements is relatively small. Finally, we have a strong liquidity position with cash and cash equivalents excluding net collateral from counterparties of €3,900,000,000 together with extensive credit facilities. Overall, we are progressing well on the execution of our CapEx plan and we are on track to invest around €8,000,000,000 for the year, excluding Vantage Tower's growth CapEx. Our disciplined approach to capital allocation continues to support an improvement in returns with pretax return on capital employed increasing by 0.6 percentage points year on year to 6.9% in half one.

Finally, let me provide you with an update on our outlook for the full year. Since we set our original guidance in May, the global macroeconomic climate has clearly worsened with energy costs in particular impacting our cost base, which is why we now expect to deliver EBITDAaL towards the lower end of our 15,000,000,000 to €15,500,000,000 range. As a result, we also now expect adjusted free cash flow to be slightly lower at around €5,100,000,000 versus the around €5,300,000,000 we guided to previously. And with that, I will hand back to

Speaker 0

Nick. Thank you, Margarita. I want to start with our top priority, the performance of our largest market, Germany. As I outlined in May earlier this year, though Germany remains Europe's most attractive telco market and our structural position within it strong, we have not been satisfied with our commercial performance over the last fiscal year, which is now impacting our financial performance in the first half of this year. The new management team have taken a number of significant actions to first resolve the specific IT issues related to our systems implementation of the new telco law and secondly, to ensure our fixed network has the right capacity for current demands.

These actions have been successfully completed and now we move on to our normal cycle of upgrades. This also allows us to focus on improving our commercial momentum and we can already see the early signs of success with a return to growth in mobile contract customers and gradual stabilization of our fixed broadband base. As many of you will have noted, we have launched a new portfolio of broadband products for both consumer and business customers with an increase in ARPUs of €5 to €10 per month. This is a significant commercial change and I will talk more about our broader approach to pricing across Europe shortly. Our improving commercial momentum is built upon our strong underlying I've spoken to you before about our network road map, but let me just touch on a few points.

Per independent surveys, we have the fastest and most consistent fixed broadband network in Germany today and will continue to invest in upgrading it, having substantially increased our node splitting run rates and starting to pilot DOCSIS 3.1 high split, which offers three gig down and one gig up. We are also strengthening the in home experience for our customers through upgrading their WiFi routers to the latest WiFi five or six mesh systems, having launched our group developed Super Wi Fi product. To complement our existing plans for the hybrid fixed cable network, we have agreed a targeted fiber to the home deployment in partnership with Altice. This off balance sheet joint venture will pass up to 7,000,000 homes over the next few years, targeting large housing associations and expanding our existing footprint. The JV has attractive economics to Vodafone both as a shareholder and as an anchor tenant.

Ortiz is a highly experienced partner for us with a proven track record of fiber build programs and dedicated construction capabilities through its subsidiary, Geodesia. So in conclusion, we are working our operating and commercial plans at pace, whilst continuing to invest behind our strongest asset position for long term growth in Europe's most attractive market. Turning to our second priority area, Spain. This time last year, I recapped the structural challenges in Spain driven by hyper fragmentation of operators and brands. This dynamic over time has led to an unsustainable low level of returns, which we needed to address.

Over the last twelve months, we've taken a number of actions to improve our commercial performance and structurally enhance our returns over time. First, we've implemented contractual links to inflation within contracts alongside our commercial actions of the simplification of Vodafone branded connectivity portfolio, widening LOI distribution and targeted digitally led campaigns, which have led to growth in mobile contract customer additions and the stabilization of the fixed broadband customer base. Second, we've taken a wide range in restructuring to radically simplify both our distribution and back office processes, enabling us to reduce our OpEx by a further 13% so far this year. Third, through our social contract engagement, the government have responded with a series of initiatives to support the sector, including energy caps, reducing the spectrum tax burden, and removal of the specific TV tax that was applied to operators, all supporting our focus on improving returns to acceptable levels. And fourth, we are actively engaging on various strategic options for our fixed network infrastructure, which I look forward to updating you on at the appropriate time.

Before I outline the strong progress we've made against the large portfolio agenda we set out for the year, I wanted to pause and frame the portfolio activity within strategy. When I came into the role as CEO, the first action was to focus the Vodafone footprint on Europe and Africa, where we had real industrial scale at a regional level. This involved significant transactions completed over a five year period. Second, we have continued to extend our capabilities in gigabit fixed connectivity in order to offer all of our European customers a fully converged experience. This has involved transactions and network sharing agreements.

We've made a real step change and now have a marketable gigabit on net footprint of over 50,000,000 homes with a further reach through wholesale or strategic agreements of around 90,000,000 more, a total footprint of over 140,000,000 households. Having now achieved a converged capability with a regional industrial scale in connectivity, our next phase focus on three strategic aims. First, to create regional industrial scale in passive mobile infrastructure through Vantage towers. It is important to remember that we made an early call on five g, that five g would require a dense network over time, which is why we firstly agreed network sharing arrangements in each country to drive future synergies for our operating businesses, then separated out the assets to form Vantage towers to take advantage of the future organic and inorganic growth driven by five g demand. Second, to create in market local industrial scale for mobile to add to our regional scale.

And third, to accelerate the growth of digital services predominantly in Vodafone business and financial services in Africa. These strategic aims are all focused on strengthening the assets, resilience, and organic growth of the group to create and unlock value for our shareholders. Last week, I'm sure you all saw that we announced the co control transaction with KKR and GIP for Vantage Towers. The transaction is on highly attractive terms, an agreed price of €32 per share, a 33% increase on our IPO price of €24 last year, and a 19% premium on our last three months trade in average price. This equates to a multiple of 26 times EBITDAaL, which is very similar to recent comparable transactions.

It is a particularly good outcome for us as we have retained co control of our towers. I'm pleased to say that we've achieved all three of our clearly stated strategic objectives: co control, deconsolidation and monetization. Retaining co control of Vantage towers enables us to have an influence in how the towers that house our radio equipment are managed into the future rather than Vodafone be solely in the hands of third parties. Tower contracts are long term and in a rapidly changing world, we believe this is essential. We are partnering with two like minded and highly experienced infrastructure partners in KKR and GIP.

We can deconsolidate Vantage Towers from our balance sheet and this has two benefits. First, it moves Vantage Towers debt into the JV, which reduces Vodafone's debt by that amount. And second, it allows Vantage Tower to increase its leverage in line with an infrastructure company, which could be say six, seven or eight times rather than being limited to that of a telco, which is between 2.53 times. This significantly increases Vantage Tower's financial flexibility to capture future growth opportunities both organic and inorganic. And finally, the transaction enables us to monetize some of our stake generating cash proceeds of a minimum of £3,200,000,000 through to a potential of 7,100,000,000.0 As you heard from Margarita earlier, this will reduce our leverage by a minimum of 0.2 times and potentially up to 0.5 times.

When looking at the opportunities for improving local industrial scale in mobile, our primary objective has been to create the right returns environment to attract digital infrastructure investment that governments need for global competitiveness through sustainable market structures via consolidation. Throughout Europe, there is a clear link between the local scale of the operators, the return on capital they generate, and then in turn their ability to invest back into the further development of next generation infrastructure. A secondary consideration for us is the optimal ownership structure to maximize the value that can be created. These objectives are showcased through the range of transactions we have recently communicated. In Hungary, though we had a quality asset and team, the government's objective was to achieve a 50% market share under Hungarian ownership, a goal which was incompatible with our own objective of further local scale.

So we were pragmatic. The most value creating option was to agree the sale of Vodafone Hungary to a local operator, allowing our business to be instrumental in assisting the government achieve their objective whilst rewarding our Vodafone shareholders through an attractive multiple given the synergies that were shared. By contrast, in Portugal, the optimal route was for us to agree the small acquisition of Novo, which will strengthen our scale and competitiveness in a market where we performed well for a number of years. The UK is an opportunity to take two weak return players, drive industrial scale and synergies to improve returns whilst delivering the best five g network for The UK. A JV balances the risk and reward on that execution.

Discussions with Hutchinson continue to make good progress, I look forward to updating you in due course. We've made strong progress over the last twelve months on our operational and portfolio priorities, but it is a moment for all businesses, all CEOs to seriously evaluate the very significant macro challenges we now all face. Eighteen months ago, I set out our medium term financial ambitions, which were based on the macro conditions at that time. During FY 2022, we met each of these ambitions with good revenue, profit and free cash flow growth, leading to a significant improvement in our return on capital. Against the backdrop of higher inflation and rising interest rates, we have to consider the near term impact these are having on our financial performance.

In May year, we will set out our guidance for the year as usual, but I wanted to share with you today some of the considerations that are shaping our planning. The principal challenge we face is rising energy costs and how this feeds through to our overall inflation, which I'd like Margarita to now talk you through in more detail.

Speaker 1

Hello again, everyone. For those of you that have followed our progress over the last few years, you will be familiar with our ongoing productivity program, which has enabled us to generate net OpEx savings of over €1,500,000,000 This has been achieved through a comprehensive program of activity with some examples set out on the slide. It has allowed us to perform very well against the industry benchmarks, but we now have to deal with an unprecedented rise in energy costs as well as higher inflation across the board. Looking at energy, we have held our consumption flat group wide over the last few years despite the significant usage increase supported by our networks. For FY 2023, we have now 93% of our European consumption hedged, which is leading to over €300,000,000 higher total cost for the year.

In FY 2024, our European consumption is currently circa 50% hedged at an average cost of around €200 per megawatt. Considering current spot prices, this could mean up to €500,000,000 additional cost before any government intervention. Against these headwinds, we are targeting another €1,000,000,000 of savings in our European OpEx cost by FY 2026. As you know, I've always targeted net savings flowing in full to our bottom line. In this instance, given the near term instability of the macro environment, I need to call out two very specific exclusions to our new target: energy price movements and extraordinary inflationary peaks.

Excluding these external factors, the logic hasn't changed. The major component of our efficiency increase going forward will be our group wide streamlining and simplification program. One years point ago, we changed our technology operating model, allowing us to maximize our European scale benefits moving forward. And we will now be able to further simplify our commercial operations. This has been made possible by the simplified customer offers now available across most of our markets and the progress of our IT transformation programs, which will be fully completed in the coming years.

As ever, I will regularly report back on our progress.

Speaker 0

Thank you, Margherita. Can I take the opportunity to reinforce that our cost actions will help streamline our business, increase our speed of execution and ultimately keep everyone focused on the needs of our customers? However, cost action alone is not enough to mitigate the challenges ahead. Over a year ago, I spoke to you about the importance of sustainable pricing structures that link to inflation and investment. The UK has led the way in Europe.

And as you can see on the screen here, we have already implemented inflation linked pricing structures in seven of our European markets. In addition, where inflation linked pricing has not been possible, such as Germany, we have taken additional measures to simplify our product portfolio in an ARPU accretive manner. Altogether, we have taken price actions in 11 of our 12 markets shown here. Alongside these price actions, we are acutely aware of the cost of living pressures faced by our customers. So we have complemented these actions with targeted initiatives to help those most vulnerable with dedicated social tariffs, flexible contract terms, and our low cost sub brands.

Now turning back to the longer term growth opportunities that despite the challenging macro backdrop, we must remain focused on. I'd like to showcase Vodafone UK as a real blueprint for what is possible in our other European consumer markets. We've developed between the group and The U. K. A proposition road map that was then trialed and successfully rolled out in The U.

K. Business, which has been instrumental in delivering both the service revenue and EBITDA growth of 7% in h one. This has involved a series of commercial innovations with the EVO proposition for consumers named Flex across the group that brings together service, handset, contract separation with different durations and customer contributions, guaranteed trade in values, insurance, other ecosystem devices, and CPI plus pricing. Combined with our fixed broadband challenger position, we are delivering consistent growth of our customer base, ARPU increases, productivity gains and all underpinned by a substantial improvement in customer feedback and loyalty. Vodafone business is a growing part of our group that generates almost 30% of our revenues.

Last year, the team set out their plans in an investor day that began by explaining the addressable markets they serve, which are structurally different to consumer given customers predominantly look to us and the incumbent for enterprise grade services. With this significant market opportunity, we stepped up our level of investment with a particular focus on SMEs and increasing our position in public sector for next generation connectivity digital services. The chart on the top right of the screen shows how Gartner's assessment of our capabilities have evolved. Our global leading IoT business has remained strong and is now being matched by a significant capability improvement in our next generation connectivity services. And our investment is beginning to pay off with Q2 showing strong service revenue growth of 3.4% and a consistent double digit growth rate on digital services, which includes SD WAN, security, unified communications, IoT and cloud.

We continue to see the potential of the EU recovery fund programs. Clearly, the focus on the Ukraine war has led to some administrative delays in the government programs, but the opportunities through 2027 remain significant. And now to end on Africa, where we have simplified our ownership structure to deliver both enhanced synergies and unlock the wider growth potential across the African footprint. Through a series of portfolio actions, we are in the final steps of streamlining all of Vodafone's African operations into Vodacom. As you can see from the chart, Vodacom will be present in countries with a population greater than Europe.

Vodacom has the number one position in all markets, obviously with the exception of Ethiopia in which we recently launched. Our financial services business through the M Pesa and VodaPay brands has a commanding position with 69,000,000 customers and is growing by 25%. And we will be launching the VodaPay platform in Egypt, where we are already gaining traction as the leading mobile payments provider. And finally, last month, we were awarded a mobile money license in Ethiopia. In addition to our footprint expansion, Vodacom is extending its reach into more fixed connectivity coverage and extending its growth potential through new digital and financial services.

This commercial strategy is already delivering revenue growth of 3.9% on a business that delivers a return on capital of 23%. I remain very excited by its growth potential and the execution capabilities of Chamille and the Vodacom team. To conclude, we're delivering a resilient performance this year and are on track to deliver adjusted EBITDAL at the lower end of our original guidance despite the challenging macro backdrop. We have made good progress on both the operational and portfolio priorities we set out to achieve this year, but clearly there is more to do. We also have a clear short term plan including significant price and cost actions already underway to ensure we are fit for the new macro environment we all face.

These actions combined with our strong financial position ensure we can remain focused on executing our organic growth strategy to deliver on the long term growth opportunities in Europe, Africa and Vodafone business. Thank you for watching, and I hope you'll join Margarita and I for a live Q and A session with equity research analysts.