Vodafone Group - Q4 2023

Transcript

Margherita Della Valle (CEO)

Good morning, everyone. Thank you for joining me for our full year results. Our challenge today, as you see in our results, is that three of our largest markets have declining revenue and our returns are still below our cost of capital. Our performance relative to major competitors has also not been good enough. This requires Vodafone to change, and by change I mean a significant redesign of where we focus our efforts and how we organize ourselves. We need empowered and agile markets focused on our customers. We need to scale up Vodafone Business, and we need to take out complexity and simplify how we operate. To support our transformation, we also need to focus our resources on a portfolio of products and geographies that is right-sized for growth.

I've set out my roadmap for Vodafone in a video presentation that I hope you will have time to watch. We will deliver our transformation by focusing on three priorities: customers, simplicity, and growth. Starting with customers, our focus has to be on what customers actually want, the simple and reliable service they expect. Doing the basics well. I devolved commercial authority fully into the markets in January so decisions can happen faster and accountability is clear. With customer experience now a key element of our CEO incentive plans. On simplicity, we will undergo a redesign of how our group operates by making a clear distinction between headquarter corporate services, which must be as lean as possible, and shared operations, which we will operate on an arm's-length basis on commercial terms.

As we simplify our group center, but also our market operations, we have planned a reduction of 11,000 roles over the next three years. You may have seen announcements in Germany, Italy and our HQ recently. This simplification will increase agility in our markets. The resources it will free up will be reinvested in customer experience and in brand to support growth, which is my third priority. The turnaround of our operations in Germany, in particular, is essential to our growth. We have delivered a number of improvements to our commercial model over the last few months, but we have more work to do to restore competitiveness. To grow, we'll also scale up Vodafone Business, where we have a strong position in a large and rapidly expanding market. Our service revenue exit rate was around 3% in Q4, with all Europe markets growing in FY 2023 except Spain.

We are already investing in deploying new SME customer journeys and enhancing our sales management with new incentives to drive penetration of digital services. Before handing over to questions, let me reiterate. Vodafone must change, and we will change the level of ambition, speed, and the sizes of execution. Thank you.

Operator (participant)

Thank you, Margherita. Our first question today comes from Andrew Lee from Goldman Sachs. Andrew, please unmute yourself and go ahead.

Andrew Lee (VP of Workforce Analytics)

Yeah. Good morning, Margherita. Just had a question on your strategic plan, which is very clear, and I think hits all the right notes in terms of ambition. I guess the key question that we're getting from investors is how quickly can we see evidence of execution on that strategic plan, particularly where the inorganic actions are implied? Obviously, that question touches on the outlook for in-market mobile consolidation deals, but also on a decision on or sale of Spain, which is now on the strategic review.

Margherita Della Valle (CEO)

Thank you, Andrew. Major changes coming for us and, as you know, in telcos, we are a momentum business. Time-wise, I think it will take time to see all the benefits from the transformation flowing through in our results. I think the first things you will see there is the impact of our simplification. As you heard, we are taking out layers to make our HQ leaner, and we are also transforming our shared operations. In the markets, we are really reviewing how we run our consumer operations. This simplification will make us faster in how we go to market, and that's the main objective. They will also drive efficiencies.

The other thing you will start seeing happening already in these months is that we will be able to reinvest these efficiencies in customer experience and in brand, as I was mentioning earlier. These are big changes for us. I'm not sure how much of that, of course, is already understandable externally. It's not just about numbers. It's really about how we operate. The fact that now the markets will be fully autonomous in taking decisions related to their customers and their commercial strategy will make us faster. I will never stress enough, both externally and internally, the importance for me on focusing on our customers and focusing on what our customers really want. Simplification first with reinvestment. Of course, we will need to do more, as you mentioned, both organically and inorganically.

I understand the question on timing. Let me share how we look at things. If the returns are below cost of capital in any market, it means we will have to look at structural change options there. It's very clear to me that each and every transaction, each and every opportunity will have to be assessed on its merits. I'm sorry, but it doesn't make sense to me to set any arbitrary timelines on the inorganic side. Let me just reiterate, it's a priority. Organic and inorganic change are both a priority to drive long-term shareholder value.

Andrew Lee (VP of Workforce Analytics)

Thank you.

Operator (participant)

Our next question comes from Polo Tang at UBS. Polo, please go ahead.

Polo Tang (Managing Director)

Hi. Thanks for taking the question. Just have a question on Germany. Trends have weakened notably in Q4, both in terms of financials and subscribers. Now, you've recently put through 10% price increases on broadband, where is the risk that subscriber losses accelerate from here and that you have to start discounting to retain or stabilize your base? What gives you the confidence that Germany is at a trough and that things will improve from here? Can you maybe touch on NPS trends in Germany and how you think about the trajectory of German service revenue growth from here? Thanks.

Margherita Della Valle (CEO)

Thank you, Polo. We'll try to take all these point and in general, give you the perspective of what's happening in Germany. Starting from the service revenue trajectory, you should expect to see a step change in growth in Germany already in Q1 as we are going through it now. This will also enable re-acceleration of growth within Europe. It's not the only component. Other markets are also improving, but Europe will re-accelerate now. The same is true, by the way, for the group overall because the one-offs we had in Vodafone Q4 won't recur. Expect first and foremost, re-acceleration from here at Germany level.

In terms of then the moving parts there, I think, we have said it before, but our execution in Germany has been consistently disappointing as we were going through the challenges of the pandemic, the telco law. You've heard this before. Also it's fair to say that from a competitiveness perspective, we have been a little bit left behind by the evolution of the market. As we were busy addressing our internal issues, the market, in particular in mobile, has evolved towards new propositions around family plans, loyalty programs, and we have not really been, part of this conversation so far, which is why you mentioned we are making some changes. We are really taking action to reengineer our commercial model in Spain very broadly around pricing, around products, around channels, really pulling all the levers. First, let me cover pricing.

Fixed broadband, you mentioned our price increases. The way we are looking at it is we have seen a significant quality step up in our cable product as we have accelerated our investment in fiberization in the market. There is a slide also talking to that in the presentation. We now have a fixed broadband service which has just been voted, actually, by an external benchmark, the best in the market. This has allowed us to reset the pricing to the level where it should have been. We first changed the retail pricing in November, as you know, and now we are going through an execution on segments of our customer base of repricing, and this will keep us busy for the first half of the year.

Clearly, there is and there will be a trade-off between pricing and customer numbers, and you should expect to see some additional churn from the execution of the back book repricing on the base. Of course, this will be accretive to value and supporting our service revenue trajectory. More broadly, in terms of competitiveness in mobile, there is much more to do. You have seen us active in the market with above-the-line campaigns on FamilyCard in February, reset of our mobile promotion line-up in April. We now have family plans coming out for June, and there will be more propositions coming through over time. All together, these actions will support the re-acceleration I was talking about before. Just checking that I have addressed all your points.

NPS on cable, we are now well above the pre-pandemic level of our NPS, and it actually keeps increasing. Pleased with our trajectory there.

Polo Tang (Managing Director)

Thank you.

Operator (participant)

Apologies. Our next question comes from Georgios at Citi. Georgios, please unmute yourself.

Speaker 12

Good morning, and thank you for taking my question. It's another follow-up on Germany, Margherita, if you don't mind. I'm just curious, just to be a bit more specific about the trend of customer numbers in the coming quarters, because my understanding is the price increases were notified around March. There's usually a bit of a delay in the customers notifying and then churning away. Should we expect the next couple of quarters to be weaker than what we've seen in the fourth quarter of last year?

Maybe just to follow up on that, in anticipation of the changes in the rental privilege next year, are you aiming to take action for customer numbers to start growing strongly, ahead of that, just to offset perhaps the headwinds you may have on the top line, in the next 12 to 18 months, when that regulation kicks in? Thank you.

Margherita Della Valle (CEO)

Thank you, Georgios. On the customer numbers now, you are absolutely right. Things will get worse before they get better because we will see in the 1st half of this year the incremental churn that we will get from the base repricing. I need to say, we are quite pleased with where we are. We have done trials before our executions and the churn level we are seeing at the moment, on our cable customers, talking about low single-digit, well in line with the trials and better than the business case. Of course, they will affect the net add numbers.

In terms of therefore fixed band, net adds, which I think is your focus, also thinking about the future of TV, you should wait for the second half of the year to see the customer numbers re-accelerating. Of course, all these moves, let me reiterate it once more, are value accretive and will see the impact on our service revenue trajectory.

Operator (participant)

Our next question this morning comes from Nick Delfas at Redburn. Nick, please unmute yourself.

Nick Delfas (Global Head of Research)

Thanks very much. Just a question on the dividend, Margherita. I'm interested in how you and the board think about the dividend for FY 2024 and, you know, what are the parameters that you're gonna watch to judge dividend sustainability?

Margherita Della Valle (CEO)

Thank you, Nick. As we had anticipated, the board has reviewed our overall capital allocation at the completion of the Towers transaction, and we have reviewed all our three priorities: leverage, capital investment, and returns to shareholders. As far as leverage is concerned, we are now at around 2.5x, and this is the level we are comfortable with in the context of our overall environment from a broader macro perspective. Also from a capital investment, you have seen us now in the post-Vantage world at around 17%, and that's also where we are comfortable to be in. As a result, I've reconfirmed the dividend at EUR 0.09.

Importantly, let me say that if the shape of the group was to change materially in the future, of course the board at that point would have to reevaluate our position.

Nick Delfas (Global Head of Research)

Could I also ask the question in a slightly different way? How much extra energy costs are you bearing in FY 2024 versus what you might think is gonna be the case in two to three years? I know that judging energy two to three years out is difficult, but maybe what's the extra energy cost in FY 2024 versus FY 2020?

Margherita Della Valle (CEO)

Sure.

Nick Delfas (Global Head of Research)

2022.

Margherita Della Valle (CEO)

Versus the pre-Ukraine war, we are talking about just under EUR 700 million in Europe in FY 2024. If you do 2024 versus 2022. 2020 pre-Ukraine. Now, we know that then the peak is going to unwind and by FY 2026 we will have recovered the EUR 400 million increase that we expect in 2023 against 2024. Of the 700, 400 will be unwound. Now, hopefully there is more to come, but I think there we become a bit more speculative as we look longer term. That's what the curves tell us today. As you know, we have now resumed our normal hedging strategy, so 90% of the energy cost in 2024 is locked in. Beyond that, we have a good level of PPAs to rely upon.

Nick Delfas (Global Head of Research)

Great. Thanks very much.

Operator (participant)

The next question this morning comes from James Ratzer at New Street. James, please unmute yourself and go ahead.

James Ratzer (Founding Partner)

Yes. Good morning, Margherita, and also many congratulations on your appointment as permanent CEO for the, for the group. I was wondering if I could focus this morning on Germany. I mean, now you have been appointed permanent CEO, I was wondering if you could just kind of reiterate formally your views in particular on the CapEx outlook in Germany. I mean, there continue to be a lot of questions about whether you might need to invest more in fiber in that market, so it'd be great to get your views on that now you're in the CEO seat. Specifically within the kind of MDU market, you mentioned in the presentation that you have started now some initial transitions from bulk contracts to individual billing.

It'd be great to hear any feedback you can give on the transitions you are getting, you know, so far and success you're getting on converting people over to individual billing relationships. Thank you.

Margherita Della Valle (CEO)

Thank you, James. I'll start with the CapEx outlook. I was reconfirming earlier our capital intensity more broadly for the group is now around 17% post Vantage. Within Germany, specifically, you see that within this envelope we are constantly accelerating the fiberization of our cable network as we do node splitting. Our run rate today of capacity addition is two point five time what it was two years ago. We have had a significant acceleration there. We are also keeping evolving our technology roadmap. In cable, we have just executed a trial in Germany of high-split DOCSIS that, as you know, has the potential to bring us to speed up to 1 Gb per second downlink, 3 Gb sorry, uplink, 3 Gb per second downlink.

We really see cable as competing effectively from a technology perspective with fiber over time. Of course, we have set up our JV for a de-dedicated fiber build of seven million households over time. We think we are where we should be in this space. That's the first part. Housing associations and where are we on the process there? It's a two-step process. First, we are recontracting in framework agreements the housing associations, and then we market directly to the customers to transfer their bills across to Vodafone. We're well on to now the first part of that execution, and it has reconfirmed that we are the partner of choice of the housing association themselves. We have only just started now the individual customer bills transition. We have done a couple of trials so far.

The first one, which has completed, has delivered a 65% redemption rate from our basic TV customers transitioning to the individual billing. We now consider this as probably near perfect execution because the 65% also coincides with the estimates we have of how many customers are actually regularly using the service within our eight point five million households base. It's fair to say that this was a trial which was done with plenty of lead time, significant resources. We have another one ongoing, which has not completed, which is currently delivering only a fraction of that number. It will be a big complex execution for us. In terms of financial impact, we are talking about a baseline of EUR 800 million of revenues in Germany from the MDU customers in the housing associations for basic TV.

The main impact on this will be in FY 2025 because the law changes in July 2024, so it doesn't touch us this year. You may have heard us commenting this morning on the fact that some impacts will be visible already in FY 2024. Important that I call these out because three things will happen. The first, as you have seen in our cash flow guidance, is that we will have a change in working capital because the housing associations were typically paying services in advance for a full year. The second is going to be on customer numbers. We'll start to see migrations at scale, let's say in Q4 from January. As we do this, we may see oscillations in customer numbers because there may be lead times between when you disconnect the housing association and you actually reconnect the individual customers.

Finally, we have already put into our budget for this year significant resources in Germany to actually execute the transition. I mean, people, processes, and commissions. This will impact our EBITDA in Germany this year by about EUR 0.1 billion. As I mentioned, the main impact is FY 2025. For Vodafone overall, it's worth noting that this is going to be a material headwind in 2025, but we will have the unwind of the energy costs we were talking about before, which is why when we have given guidance today on EBITDA and cash flow for 2024, we've been clear that this guidance has been rebased to a level we will now deliver sustainably growth from in the mid-term.

James Ratzer (Founding Partner)

You know, thank you. That's really helpful. Good color there. Just one thing on the TV migration to 35% you say you have lost on these initial trials. Have any of those been with loss of broadband customers or is it just pure TV only?

Margherita Della Valle (CEO)

TV. I'm referring to TV.

Carl Murdock-Smith (Co-Head of Telecoms and Media Equity Research)

Great. No, that's really clear. Thank you.

Operator (participant)

The next question this morning comes from Emmet Kelly at Morgan Stanley. Emmet, please go ahead.

Emmet Kelly (Senior Research Analyst)

Yes. Good morning, Margherita, and good morning, everyone. My question please is on the phasing of EBITDA growth in full year 2024. There was clearly a difference in the phasing last year. I think it was minus 3% in H one and broadly flat in the second half of the year. Could we expect a different phasing again in full year 2024? A difference between H one and H two? Could you maybe just refer to some of the individual countries within that mix like you did last year in terms of Germany, Italy, U.K., Spain? Maybe just a couple of drivers there. Thank you very much.

Margherita Della Valle (CEO)

Thank you, Emmet. There will be a significant difference in phasing. You are right to point this out. We are guiding to broadly flat EBITDA for the year, but actually H1 and H2 will look different, mainly because of energy. You know that energy has weighed heavily on our EBITDA performance this year in the second half, particularly in Europe. We have had a drag of four percentage point, and this will continue into H1 because all the impact on energy in 2023 was H two related. You know, we had edged before the war all the way to basically December, and then we had all this big impact in the last quarter.

Now you will see that in between H1 and H2, you will have a significant energy drag in H1, and then we will normalize in the second half.

Emmet Kelly (Senior Research Analyst)

Thank you.

Operator (participant)

Thank you. The next question comes from Sam McHugh at Exane. Sam, please go ahead.

Sam McHugh (Head of Telecom Equity Research)

Thanks. Hi, Margherita. just a short follow-up actually on one of the questions earlier about capital allocation. We haven't seen any explicit mention of the medium-term ambitions of mid-single digit EBITDA and free cash flow growth or the two 2.5-3 times leverage target. Are these still the midterm objectives, in terms of leverage and free cash flow growth? Are they the right leverage targets given that you don't consolidate or own your towers and you're losing some of the fixed infrastructure in Germany as well? A bit more color around that would be super helpful. Thank you.

Margherita Della Valle (CEO)

Thank you, Sam. As you remember, in November, we called out the fact that the original midterm ambition in the current macro environment, energy and the like, wasn't going to be achievable in the same timeframe. Since then, obviously we have seen a change in perimeter of the group with the transactions in Vantage and in Hungary. We are restarting from there. The ambition, of course, continue to remain to deliver return in excess of cost of capital.

Actually, I was calling out earlier as part of the transformation, we will discriminate, if you want, more strongly between the markets in which we are returning cost of capital or the segment in which we have good returns, like Vodafone Business, and make sure that we allocate our CapEx accordingly and consider inorganic structural actions where the returns are not there. We have a clear ambition to deliver return in excess of cost of capital. In terms of other financials, I go back to what I was saying earlier. We have rebased FY 2024 in EBITDA and cash flow generation as a base from which to sustainably grow in the midterm.

On leverage, we have not a new range, but feel that 2.5% in the current environment in terms of rate is an appropriate position to be in, so the lower end of the additional range. Sorry, original range. That's the picture we are painting this morning.

Sam McHugh (Head of Telecom Equity Research)

More of a focus on the returns improving versus the explicit targets.

Margherita Della Valle (CEO)

Yes.

Sam McHugh (Head of Telecom Equity Research)

Super. Thank you.

Operator (participant)

The next question comes from Carl Murdock-Smith at Berenberg. Carl, please go ahead. Carl, your line is open. Please go ahead.

Carl Murdock-Smith (Co-Head of Telecoms and Media Equity Research)

Sorry, can you hear me?

Operator (participant)

Yes.

Margherita Della Valle (CEO)

Hello.

Carl Murdock-Smith (Co-Head of Telecoms and Media Equity Research)

Yeah. Perfect. Sorry about that. I wanted to ask about the dual targets on slide eight of the presentation this morning around being best in class telco in Europe and Africa, being Europe's leading platform for business. On the first of those, in terms of Europe and how strongly do you feel that Vodafone and the European operations naturally should belong to part of the same group? Thank you.

Margherita Della Valle (CEO)

In terms of our position in Africa, it's very clear that it's one of our strongest assets and you know that it is a strong contributor to our growth and returns. We are leading there in all the markets in which we operate. We have the leading financial services platforms also in all the markets in which we operate. It's a strong contributor to creating shareholder value for the group as a whole. We have chosen to effectively focus our effort on these two regions, Europe and Africa. In both, I think it absolutely fair for us to say that we belong to the category of best-in-class operators. For me, Carl, that doesn't mean anything more complicated than saying that we should be delivering a good quality service for our customers.

Don't read anything else into it in terms of parameters and combinations. It's about doing what our customers want and being successful in our execution. I think we are doing very well already in Africa. We are doing very well in some markets in Europe, where we are growing, but not all markets in Europe. Maybe you give me an opportunity here to explain a little bit better what I mean in terms of delivering good quality, simple service, because we didn't have the chance to touch on this. I believe our industry has really changed in the last few years. Our products to the customers have become much simpler in consumer. Simple bundles of connectivity, fixed mobile converged. What our customers want has also changed significantly. We have plenty of data as you would expect on that.

If you look in particular our... what we call our detractors, the one that rate zero to two in the interactions with Vodafone, the unhappy ones, what they want us to improve is really this simple service I was talking about. I know it seems basic, I think it's quite important and I think sometimes overlooked in telcos. They want to have a good experience when they upgrade, they connect, they call the call centers. It's not about network performance, it's not about innovation, and it's not even value for money. The majority of our markets, if you are looking at the stats, you would see a very big difference in what people want more of or better of. I think that's what we need to focus on, and it's in our DNA to work on it in Europe and Africa.

Carl Murdock-Smith (Co-Head of Telecoms and Media Equity Research)

That's great. Just you mentioned the detractors there and the importance of reducing that. I mean, on slide 12, you've given the 12 kind of metrics that you are focused on, and you've committed there in the webcast this morning to update us on that. Just in terms of that, is that a commitment in the annual report every year, you'll provide KPIs along each of these 12 metrics or will it be more regular than that?

Margherita Della Valle (CEO)

The metrics are there to say that we will report regularly on those. Some of them may be significant in terms of movement on a quarterly basis or on an annual basis, presumably not all of them. There will be a mix depending on what's appropriate. Our intention, as I said in my presentation, if you have listened to it, is really to have an honest, transparent conversation about what we generally believe matters, and this is the key list for me.

Carl Murdock-Smith (Co-Head of Telecoms and Media Equity Research)

Okay. That's great. Thank you.

Margherita Della Valle (CEO)

Thank you.

Operator (participant)

The next question this morning comes from Robert Grindle at Deutsche Bank. Robert, please unmute yourself. Carl, if you could mute yourself and your video, please. Thank you.

Robert Grindle (Managing Director)

Good morning. Thank you. I'd like to ask about your plans to arm's length, your shared service centers on commercial terms. Is that mainly a cost thing? As you said you'd consider using third parties if more efficient. Is arm's lengthening also a step towards either OpCo or sub-asset divestment optionality? I remember you did similar in Egypt before proposing that sale. How long does arm's lengthening take, please?

Margherita Della Valle (CEO)

Very different circumstances I would say in Egypt. Why we are doing this, and then I think you're asking how long will it take? This is a really important change for me because over the years we've been very successful, as you know, in building shared operations in areas like IT, back office, procurement. This has been a key driver for me to drive productivity in the group, and it's one of the reason why through our scale and digitization we have been leading than the industry benchmark on cost efficiency. I think it would be fair to say that not all shared operations have been managed with the same level of rigor over the years. By rigor, I mean this commercial model, Robert.

I mean essentially, P x Q charging model with price benchmarked to third parties and full transparency therefore on the business case. The reason why this is really important to me, and we have got it right in a number of areas already, like our procurement or our offshore call center, we have always worked with that model. But that's not true for all the things we do centrally. The reason why it's really important is that only if we have those measures, we know whether we are delivering on our business case and we are getting the best service for our markets. Which is why I'm saying there may be areas which have not worked so far with that level of rigor or where we may find out we are not delivering to the business case.

In those cases, it may be true, for example, in some cases of in-house product development, we may decide either to stop the activity altogether or to source this differently. It's a big change for us, but it's a big change for us for timing that is going to happen within this year. That's the target execution that we have.

Operator (participant)

The next question comes from Maurice Patrick at Barclays. Maurice, please go ahead.

Maurice Patrick (Managing Director)

Oh, hi there. Yes, thanks for taking the question. Just on the free cash flow and dividend side. I mean, you guide on free cash flow of EUR 3.3 billion for the year. That's of course before restructuring spectrum costs. Spectrum costs is directly around EUR 1.2 billion a year. I think restructuring sort of fee, EUR 400-500. I'd say in the next 12-24 months, maybe we're going through a period of not quite so much happening on the spectrum side. On the other side, you have got 11,000 headcount reductions. Can you give us some sense of what you think we should expect on those below-the-line items for the next couple of years? That'd be helpful. Thank you.

Margherita Della Valle (CEO)

Sure. I think you have summarized it appropriately. We have been guiding today to EUR 3.3 billion of free cash flow generation as a new base from which to grow in the midterm. In the short term, from a spectrum perspective, we are past the 5G cycle. From a restructuring perspective, yes, there is a lot going on, and therefore, there will be a sizable amount into 2024 and beyond, but we're well past the peak of the restructuring costs also linked to the Liberty integration. These have now completely closed, and therefore, I think our peak was EUR 800 million in FY 2022. We've had EUR 600 million this year. Although the sort of core turnover of the restructuring may increase, we will not go back to those levels.

Maurice Patrick (Managing Director)

Great. Thank you.

Margherita Della Valle (CEO)

Thank you.

Operator (participant)

We have time for one last question this morning. That question comes from David Wright at Bank of America. David, please unmute yourself and go ahead.

David Wright (Managing Director)

Hopefully, I'm unmuted. Okay.

Margherita Della Valle (CEO)

Yes.

David Wright (Managing Director)

Last question. All right. First of all, just on Africa, you know, investors can buy Vodacom. What, what is it? What do you do with Vodacom? What is the group synergy from owning Vodacom? Why would you not ever entertain a potential approach from that asset if the price was right? If I could just extend a little on inorganic activity. Your leverage is now fine. I think actually this year, with your EBITDA stable and the remainder of the Vantage proceeds, you're probably gonna deleverage a little more. You could be sub two point five. You're comfortable with your capital allocation. Therefore, any inorganic actions that could see assets sold, what would you do with the proceeds? If leverage is fine, if capital intensity is fine, surely the proceeds come back to investors.If you could comment on that. Thank you.

Margherita Della Valle (CEO)

Sure. I will take the two steps, maybe starting from the leverage and the potential excess capital. We have talked about the capital allocation as it stands. We are at 2.5%. As you have seen also looking at our guidance, it will take time for us to have another material step-down in leverage. We are guiding to broadly stable EBITDA in FY 2024 and EUR 3.3 billion of free cash flow. As you do the math, you see that it will take longer to have an organic step-down on leverage. For that or for that matter, any other exceptional proceeds that may come, the board will consider the situation when it presents itself. I wouldn't prejudge on that today.

On Vodacom, I will reiterate what I was saying earlier. It's a very strong asset for us as a group. Of course, you mentioned options and situation. The board will always consider options that create shareholder value, but Vodacom is a very strong contributor to our performance and our returns, which for me are really important today.

David Wright (Managing Director)

That's a standalone business. How does Vodafone create value through its ownership of Vodacom? What are the shared commercial services, the procurement, et cetera, that means you create value through owning that emerging market asset? For instance, on the flip side, you create risk through. Two days ago, we had a massive spike in the currency because of typical emerging market volatility. You create risk. How do you create value by owning Vodacom? Thanks.

Margherita Della Valle (CEO)

We are used to manage emerging market volatility. Typically, what we see happening, but probably not the time to get into a lot of detail, is that free cash flow gets hit at the time of the devaluation. If you grow revenues ahead of inflation and cost below inflation over the cycle, you go back on the other side with growth. This has been our experience, and we are seeing already today Turkey, where revenues are growing ahead of inflation. Between Europe and Africa, the synergies are very different than the one we have within Europe. Therefore, we have talked in the past about, yes, there is cooperation of procurement, there is cooperation on large corporate customers. We share products. It's a different level of synergies than the one we have within Europe, I think is your point, and that's absolutely correct.

At the same time, once more, it is creating value.

David Wright (Managing Director)

Okay. Thank you.

Operator (participant)

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

Margherita Della Valle (CEO)

Thank you very much. Just wanted to say thank you for being with us today.