Vodafone Group Public Limited Company (VOD) Q2 2019 Earnings Report, Transcript and Summary

Well, good morning. Thank you for joining us. This presentation will be a little bit longer than normal, because we're also in top of the results go through a sort of strategic update. Hopefully, you find it informative and worth the slight extra time. So if I turn to a quick summary of the results. Firstly, I'd say that in most markets, we had a good performance. Clearly, we had a challenging situation in both Italy and Spain. We've taken decisive action and I'll be talking about that a little bit more detail. We remain on track in terms of our financial plan. So we narrowed that guidance down to 3% growth year-over-year and slightly uplifted our free cash flow from the €5.2 billion to the €5.4 billion. If I stand back and just sort of say we've done a lot of work in terms of portfolio transformation, and I think it's this moment that we have to be different as a business, have a different lens, a different focus going forward. And there are three things that I really wanted to draw out for you. The first is post the Liberty Global transaction we are effectively strategically resolved on our footprint. And so now, we really need to focus on operational execution excellence and organic growth going forward. And that will support a more consistent commercial performance execution in our countries. The second area is we're going to radically simplify Vodafone, our price plans, our products and services, our internal processes going forward. And importantly, we're going to reduce down the number of initiatives that we're working on as a company and get really focused on the key value drivers for the business, which I'm going to expand upon. And then finally, we want to be open to more partnerships going forward. We want to look at our assets and see where we can do more sharing of those assets without losing our differentiation as a business. We'll believe the multi-value drivers that we will go through the presentation will demonstrate that we can drive free cash flow growth that underpins our dividends, that de-levers the business, and ultimately, improve shareholder returns. So let me talk about that ambition for the business briefly. Three areas you see here that drive ultimately, in our opinion, shareholder returns. And I'll just touch on them. Firstly, deepening customer engagement: here, we want to really start to focus more on our existing base, in them obviously mature markets rather than chasing new customers and really develop those relationships with the customer, deepening, cross-selling, up-selling products going forward to lower churn, improve revenue growth going forward, and ultimately, to really give them a better experience. Our ambition is to systematically grow our total communication market share. Second area is accelerating digital. Now, this is really a transformation of our business model. You know I've said that for a long time now. But really, as we started to execute and as it's accelerated in our business, I think there's a real opportunity to improve the customer experience, deliver a better commercial performance and lower absolute cost. Third area is improving asset utilization. I think we've done a good job in the past around cost and CapEx synergy realization through M&A. Margherita will be talking about it in a little bit more detail in her presentation. I also think we've done a good job from a fixed perspective in a smart CapEx strategy execution developing our fixed footprint. But now we're going to also add mobile. We see opportunities, especially in a 5G world, to do more collaboration and effectively higher utilization of our assets, but again, without lowering different differentiation versus the value players in the marketplace. You saw in the announcement that we want to form and are going through the process of forming an internal virtual tower company, and also over the next six months doing due diligence on our business, legal, tax, et cetera, in terms of looking at the strategic and financial options for us in terms of how we take those assets forward. All of this gives us confidence, reiterating confidence, in the three-year cumulative free cash flow that we set back in May of €17 billion. We remain on track on that plan, and therefore, underpinning our dividend and improving shareholder returns. So we're going to talk in the presentation about five value drivers, and the first three I will talk about later where we are deepening the customer engagements. Specifically, in terms of European Consumer, I'll be talking about how we're going to drive on fixed and what 5G means for us as a business. In terms business, we want to give business its own separate identity. So we used to call it enterprise. We're going to brand it Vodafone Business. We think that people don't understand the shift in capabilities that we're making here and we want to really bring that home along with industrializing IoT. In emerging markets, we see a big opportunity in terms of data growth, and also in terms of digital and financial services with the M-Pesa platform. Now, I won't talk to digital transportation, asset utilization, Margherita will expand on those two in her presentation. So, before we go through more the results and the strategy, just wanted to give you my color on the results of the first-half and just overall performance. I'd categorized it, as I said before I think we've got good solid momentum on the fixed side. Business grew 1%, still continuing to take market share in the market. Emerging market data growth: steady performance in that area as well. In terms of digital transformation, I'll not go through this, because Margherita will cover it in more detail. But I've seen a definite acceleration in this area. And then finally, I think good progress on asset utilization, specifically around the portfolio. If we take India, finally, we closed the JV. It took a bit of effort to get there, and we're making good progress on the tower side. We're not going to talk about India in detail today, because they come out with their maiden results tomorrow, and there will be an investor event on the November 21 to go through the strategy and the plan. In terms of Liberty Global, we've made the submission to the EC after very constructive talks, and that progress is going well. And finally, we announced the merger in Australia just to show that we are continuing to actively manage our portfolio going forward. Importantly, we end up with 25% in a listed entity, and we're able to reduce our parental guarantees. So, on track on our financial goals, stable interim dividend per share. If we stand back and just look at the countries, what we did here was just a sort of do a bit of clustering, so that they're all material rather than show a whole list of smaller countries. What I would say is, clearly, Italy and Spain I'm going to talk to. But if you look at the rest of the portfolio, this was a pretty good set of results. I'd say good results on the service revenue line, but actually pretty impressive results on some of the EBITDA performances of these businesses. I have Nick in front of me, the CEO of U.K. I think U.K. has done an excellent job. Let's not forget it wasn't long ago we've been talking about turnarounds, underperformance, and now at 12% growth in terms of EBITDA. Other Europe, sometimes I think people will forget the materiality of Other Europe, 12% of the portfolio growing at 10%. And if you think about Other Europe, we've got double-digit EBITDA growth in Portugal, in Ireland, in CEE. And that's before, obviously, we will do the Liberty Global transaction. So what I'd say is we're getting a good performance on the rest of the portfolio. However, let us talk about the two challenges. So, let's start with Italy. I would say the team had done, under Aldo's leadership, a series of actions that I think have been effected in the marketplace. The first was the successful launch of the second brand up. You see on here the traction that we're getting in terms of customers numbers. We don't report the customer numbers, but we're getting good traction. What I would say the important thing about the second brand was really the dilution on the main brand. And over the quarter, it was broadly in line with our natural market share. But as the management did a series of commercial actions to optimize, we saw our, if you like, cannibalization declining over the quarter. Also the success of that second brand performance wise has encouraged us to increased pricing. And it was great to see that one of our competitors today also increased pricing in their second brand. We're actively managing the active base, we put through a €2 increase on a significant proportion of our active base for unlimited voice, so we gained a more-for-more action effectively. Fixed line, good progress, I was really impressed with what the management team did on OpEx. I mean, Italy has consistently been working OpEx down, but to produce an 8% down year-over-year, I think is an impressive result given everything else that they were dealing with, so really good, balanced execution. What I'd say when looking into H2, given the pricing actions we're talking about, we would expect to see H2 slightly improved over Q2. Moving to Spain. We've done a full H1 commercial repositioning of the business. If I simplify it, look at top tier, what we've done in top tier we've come out of football. It was unprofitable. We've explained it several times. Question is, what have been the loss in terms of customers? And through to October, I would say it's broadly in line with expectations of where we thought we would be. Second part in the upper tier was repositioning our pricing versus Orange. What we were doing previously was always above Orange and then higher allowances. Now what we're doing is competing head-to-head with Orange. And then at the lower end of that tier, we strengthened Lowi. So we had Lowi, but we didn't give its own complement in terms of subsidy levels, handset financing, if you like, other commercial aspects that we needed to deliver. The important thing is, given these results, what you see over here is now Orange, we are net port neutral and MasMovil has moved into what I call a targeted zone of acceptable losses. So I'd say the commercial actions have delivered through. What we also did is introduce in the mid-tier Vodafone Bit. That's a full end-to-end digital delivery. What that allows us to do is compete with the likes of O2 and Jazztel, but with a structurally lower cost base, commissions, operating costs, et cetera, and therefore, not at the sacrifice of margin. And then finally, clearly, EBITDA declining year-over-year in the first half is unacceptable, and we need to sit back and redesign the cost base of the business. There are actions that will be taking place over the course of H2, and we will update you on those actions in May. And then finally, when I talk about the rest of the big markets, I'd say in brief, Germany, stable markets, performing well on Vodafone mobile branded and fixed, doing a good job on cost, and therefore a 7% year-over-year increase in EBITDA. UK, again stable market context, excellent job in terms of cost, really good to see enterprise fixed back into growth. I didn't have the chance to see when that last was - 2012, I'm being told, okay, so 2012. So it's been a long time, but we are finally back there in terms of now growing again. And then Vodacom, you saw the results. South Africa quarter-over-quarter had a slowdown on underlying performance, because of macro pressures. It is tougher in South Africa at the moment. But international had a very good quarter and is accelerating. So overall, I think the group did a good performance. And on that, I will give you to Margherita.

Thank you, Nick, and good morning, everyone. I'm afraid I was told the CFO has to stick to the script, so you will see me here very precise. But before we dive into our numbers for half one, as incoming CFO, I would like to highlight three things that are really important to me. First, transforming their group's operating model and fundamentally reshaping our cost base by accelerating the move to digital. In the digital world, speed and ambition are critical. If we wait for the perfect solution, I think we could be too late. I also see very significant opportunities to leverage group scale. Second, maintaining strong capital discipline and improving our return on capital. I will allocate capital to the highest return opportunities in our business, which will effectively mean de-prioritizing other areas to improve the utilization of our assets, especially our NGN networks, and to ensure that we execute on the sizable cost and CapEx synergies from the acquisitions that we have announced. Third, I think that it's very important that we maintain robust investment-grade balance sheet. This means preserving the headroom and flexibility that we're currently enjoying with our existing credit rating and driving deleveraging over the medium term. I intend to report over these three priorities on a regular basis. Now turning on to Slide 12. The first thing to note is that all figures presented here are on an IAS 18 basis to have comparability with prior periods. I will focus on the underlying trends though, which exclude the distortions created by UK handset financing, the benefit from the UK settlements in our fund last year and FX movement. IFRS 15 statutory numbers are provided in full detail in the press release, but these are not comparable with prior year IAS 18 numbers. Service revenue on an underlying basis grew 0.8% in half one, as good performance across most markets, as indicated by Nick, offset pressures in Spain and Italy. Underlying EBITDA grew 2.9%, driven by higher revenues and the further net reductions in OpEx across Europe. As a result, our organic EBITDA expanded by 30 basis points of margin to 31%, and we remain on track for the fourth consecutive year of margin expansion. Underlying EBIT increased 8.6%, driven by EBITDA growth and stable D&A. Free cash flow pre-spectrum and restructuring was €0.9 billion compared to €1.3 billion in the prior year, reflecting lower capital creditors on CapEx phasing. On a post-spectrum basis, free cash flow increased to €0.6 billion compared to €0.4 billion in half one 2018. As you're aware, each year there are a number of non-cash items that distort our reported earnings. The bridge on Slide 13 shows the work from adjusted EBIT to reported earnings. I do not intend to go through the bridge in detail as these movements are clearly explained in the press release. However, let me draw your attention to two material items. First, the reported half one 2019 figures include non-cash impairment charges of €3.5 billion, primarily relating to the lower-carrying value of our Spanish business as well as a €3.2 billion loss on disposal relating to Vodafone India, following our merger with Idea in August. Second, the group underlying effective tax rate for the first half was 25.9%. This is up from 22.2% last year. And the higher rate is primarily due to a tax change in the country mix of the group's profit as well as foreign exchange losses. Our medium-term tax rate guidance of low to mid-20s remain unchanged. Turning on to our service revenue performance on Slide 14. As the chart on the left shows, our underlying service revenue performance adjusted for UK handset financing slowed down quarter-on-quarter from 1.1% in Q1 to 0.5% in Q2. This slowdown was primarily driven by Spain given the full impact of the commercial actions that Nick just described. Looking ahead to the second quarter, we expect a similar group service revenue performance to that reported in Q2. We expect a modest improvement in Italy, balanced by a slower growth in emerging markets. The chart on the right shows our half one growth by major market on both IAS 18 basis and IFRS 15 basis. As you can see, the growth rates are not materially different under IAS 18, excluding handset financing versus IFRS 15, with two exceptions, Germany and the UK. Just as a reminder, under IFRS 15, we net handset subsidies, commissions to indirect channels and also a portion of our set-top box fees from revenue. As a result, these changes the service revenue mix with opposite effect in Germany and the UK. At group level, these differences will fluctuate over time, but are not expected to be material in aggregate. On Slide 15, you can see the contribution from our value drivers to organic service revenue growth. For Europe Consumer, I have unpacked the contribution split in mobile and fixed; and for mobile, separating also Spain and Italy to provide a better understanding of our performance. On this basis, three-quarter of European Consumer mobile revenues grew overall in half one. European Consumer fixed also continued to grow strongly, as we maintained our commercial momentum in our markets except Spain. In Emerging Consumer, data revenues grew as we monetize strong traffic growth and we raised prices to pass through cost inflation. Vodafone Business, our former Enterprise division, continued to outperform the market, growing service revenue by 1%. Now putting together these drivers, they contributed to 2.4% to underlying service revenue growth in half one. However, offsetting these, as we have discussed, we had increased consumer mobile pricing pressure in both Spain and Italy as well as ongoing wholesale revenue drags from MVNOs. Moving on to Slide 16, as a result of our Fit for Growth program as well as our zero based budgeting efforts and the early benefits from digital, we have reduced operating expenses for the third year in a row. Together with the positive contribution from revenue growth, this supported the organic EBITDA expansion. Breaking down our operating cost further, you can see that in half one we reduced OpEx in Europe including central functions by €200 million. These savings were partially offset by particularly strong inflationary pressures in AMAP, resulting in a €100 million overall saving. On the right, you can see that the rate of cost savings in Europe is accelerating, and we now expect to deliver €400 million OpEx reduction in the current year. We will sustain the pace of structural cost reduction over the next two financial years, achieving a total saving in Europe operating expenses of at least €1.2 billion. On the left-hand part of Slide 17, you can see that our total group OpEx last year was €11 billion, of which €9 billion was in Europe and central functions, and €2 billion was in AMAP. In AMAP, OpEx is expected to grow below local inflation levels, helping to expand margins as typically we're able to raise prices in line with inflation. On the right-hand side of the slide, I've broken out the main components of our European OpEx between commercial costs, including marketing, customer care and retail as well as technology and support cost. I have set specific functional targets for every area of the company, some of which you can see in the box to the right of the chart. So let me take a minute now to walk you through the key cost-reduction levers that will deliver these targets. I have led our Fit for Growth program for the last few years, and I'm really passionate about the opportunity to structurally reshaping our operating model for the future. Over the past year, we have talked a lot about Digital Vodafone and the ability to significantly lower our addressable cost base of €8 billion over a multi-year period. Now, let me say that for me, again, this is all about now being digital first, because I believe that the size of the price from digital is so material that spending excessive time planning and refining as a significant opportunity cost. My ambition is to move faster than the industry, maximizing the benefits to Vodafone. And as you can see on the slide, we are making some good early progress, particularly in customer care, where we have already reduced OpEx by 10% in the first-half of this year through the use of the My Vodafone app and TOBi, our AI-enabled chatbot. This has encouraged us to accelerate the timeline for the program from five years to three years, and increase our ambition on what is possible. But digitalization alone is probably not enough to really structurally reduce cost. We also need to make our business radically simpler. We have already halved in the last few years our tariff plans, reduced our products. But we still have hundreds and, in some cases, thousands of legacy plans around our estate. In order to really drive out cost and increase also commercial agility, we need to be much more radical. We intend to move to much simpler propositions in each market, including digital-only plans like Vodafone Bit, which we expect will have a double-digit improvement in margins compared to our typical products. And we will aim to quickly phase out legacy. This will deliver material IT and customer care savings. Finally, the third opportunity lies on further leveraging group scale. When you consider what we have achieved through scale and standardization in some of our operations, the savings are significant. For example, the cost of our finance operations has reduced by three quarters since centralization. And we have seen 40% reduction in our network operating centers. We now have 20,000 employees in our shared service centers in Europe, Eastern Europe, Egypt and India. And thanks to automation, just in the first half, we have reduced over 900 roles this year. We now intend to go further and centralize our network design and engineering functions, our IT operations and to create a virtual tower company, which I will come to later. But before then, let me give you practical example of the kind of opportunities that we see. Our fixed broadband in Germany, and there we are fundamentally transforming the way we are serving our customers. Following a redesign of our customer journey on our website, now a third of all our customer connections in broadband in Germany are done online. We have also introduced apps for pretty much any customer interaction you can think of, onboarding, installations or getting help. This has lowered our cost to serve, but also accelerated revenue as customers are connected faster and improve, obviously, the overall customer satisfaction. So in the end-to-end digitalization of this customer journey, we have reduced the cost of this process by around 25% so far. Now, another example on how we intend to reduce cost and also improve our asset utilization is our decision to create a virtual tower company in Europe. By creating a vertical internal organization across all of our control tower assets with a dedicated management team, we are replicating an approach which has been successful in many other areas, including procurement. Across our controlled European operations, we own circa 58,000 towers with an average tenancy ratio of 1.4. We see the potential of improving this ratio over time, without compromising our strategic differentiation. We're also now conducting due diligence on these and other operational considerations, so that we can determine the optimal strategic and financial direction for all our tower assets, including those held in JVs in the coming quarters. Capturing the large synergies from acquisition that we have announced in recent years is another significant opportunity, which we will continue to pursue relentlessly. As you can see on this slide, we have a strong track record in delivering synergies, and it has clearly contributed to the material absolute cost reduction that we have delivered in our cost base over recent years. The biggest opportunity ahead now is clearly the acquisition of Liberty Global assets in Germany and Central Europe, where we are targeting an annual run rate of over €500 million in cost and CapEx synergies, which will deliver an estimated €6 billion NPV. Now, moving back to our performance in the half year, you can see on Slide 22 that our intense focus on cost has supported a further expansion in EBITDA margin. We have underlying margins now at 31%, up 30 basis point organically compared to the prior year. And as a result, as I was mentioning before, we remain on track for the fourth consecutive year of EBITDA margin expansion. Over the past three years, if you look at the averages, we have expanded margin by 80 basis points in each year. And our clear ambition is, obviously, to continue to expand margins going forward. Moving from EBITDA to CapEx; the chart on the left shows that capital intensity has remained broadly stable, despite a 2.5 times increase in absolute data traffic. This year, we expect CapEx to be again around 16% of sales, including the ramp-up of the DOCSIS-based gigabit plan in Germany. Not that we typically have a pronounced weighting of spend towards the second half, which I expect we will continue this year. Now if you look at the table on the right, it illustrates our CapEx mix is evolving. With European NGN networks largely complete now and the 4G networks almost fully rolled out, as well as major IT modernization projects due to conclude, we have headroom to fund the rollout of 5G within our mid-teens capital intensity envelope. Looking forward, we have significant opportunities to drive efficiencies both through activities such as smart CapEx planning using AI-powered analytics, as well as from the migration of our IT estate to the cloud, where we are making good progress. Turning on spectrum costs. You can see that our business, as you know, has typically very lumpy spectrum cycle. It's reflecting the fact that new generations of technologies are released about eight - every eight to 10 years. During the first half of this year, we have 5G spectrum auctions in both Italy and Spain. While the combined NPV of spectrum acquired in those markets was €2.6 billion, which we will accrue in full in our balance sheet, the projected cash outlay for these auction as well as last year's UK auction is expected to be around €1 billion in the current financial year. Over the coming 18 months, we expect further material 5G auctions in Germany, the UK, Spain and South Africa, and then Turkey and Egypt in the following year. A good indication of the recurring cost of spectrum across the cycle is to look, as usual, at our historic average. And as you can see, over the last 10-year period, it remained around €1.2 billion per annum. If I look forward, I do not expect the upcoming 5G auctions to really materially change our long-run average cost of spectrum. And now on to cash flow. First of all, with the results for the first half. The two key items to call out here are net interest costs and tax, both of which are in line with our full year expectation and are broadly consistent with the prior year. Our net cost of debt remains 2.4% in half one, excluding the cash raised ahead of the Liberty Global transaction. And free cash flow pre-spectrum decline due to lower capital creditors, as I mentioned at the beginning, which is related to the phasing of capital additions. Now for the year as a whole, we expect to generate around €5.4 billion of free cash flow pre-spectrum on a guidance basis. This mainly reflects our increased confidence in EBITDA growth. As usual, we expect our free cash flow generation, as you know, to be strongly weighted to the second half of the year. Turning on to the balance sheet. We expect to end the year with around €31 billion to €32 billion of net debt. This is equivalent to around 3.5 - 3 times net debt-to-EBITDA on a pro forma basis for the deal with Liberty Global. It includes the issuance of around €3 billion of mandatory convertible bonds and is in line with our expectation, when we announced the transaction. Note that during half one, we reclassified at the KDG put option of €1.8 billion. This is to align our position through typical industry practice and report it as a minority. There has been a lot of debate around group leverage in recent months, so let me take a moment to set out, how I intend to manage the group balance sheet. The fundamental principle is always to retain a robust investment-grade credit rating. And currently, we have clear headroom above our minimal BBB rating. The average life of debt is over 10 years, reducing refinancing risk. And this means that even if rate should rise going forward, we have locked in attractive funding. We also hedged against FX volatility in emerging markets, both by issuing local currency debt, and where this is not possible, through the use of derivative overlays. Overall, with this prudent approach, I'm confident that we will deleverage over time within our 2.5 to 3 times range, supported mainly by the group potential to grow EBITDA as well as the opportunity to dispose of non-core asset. And last but not least, cash flow. Let me explain why our free cash flow ambition supports our dividend. We remain on track for our LTIP midpoint objective of €17 billion of cumulative free cash flow before spectrum by FY 2021. Compared to the starting point of €5.4 billion this year, this clearly implies higher free cash flow generation for the coming years. Of course, since we presented the LTIP objective back in May, there have been some incremental headwinds versus our original plan, both in Spain and from emerging markets FX pressure in Turkey. But there are also some tailwinds, notably the accelerated cost transformation program that I have already outlined, which by itself will add over €800 million in the next two years to our pretax cash flow. In addition, worth reminding that the LTIP free cash flow objectives do not include the acquisition of Liberty German and Central European assets, which are expected to be materially accretive to free cash flow over time. In the context of this free cash flow ambition, I view our dividend as affordable at current levels. And once we deleverage back towards the lower end of the range, the board will consider returning to dividend per share growth. And with that, I will close, and then back to Nick.

Wonderful. So let me take the opportunity just to have a small section on strategy going forward. Obviously, Margherita talked about two of the key important levers. I want to talk about the other three. Just before I do that, I think in the spirit of simplification, this is our strategy on a page. Some people have said, yeah, Vodafone has a complex strategy. We have distilled it down to what really matters. It starts with purpose. A lot of people think our purpose and mission is a bit soft. Let me say why purpose is important, it's because the two reasons. I feel employees, especially today, want to feel part of an organization that is positively contributing to society. That if you're going to recruit, retain top talent and willful talent and win those people in the marketplace, I think they need to feel part of an organization that we want to be part of the organization that delivers for society. And then secondly, when we're engaging with regulators, governments, politicians, society in general, I think we've got to be constantly demonstrating that we are contributing as a force for good whether it's investments, whether it's jobs, whether it's policymaking. And you will see that from Vodafone going forward. I'm going to talk about the customer engagement and the three segments in a bit more detail in this presentation, but I just wanted to emphasize the importance of scaled platforms. We have some really big platforms in our business that I think there's an opportunity to develop a more compelling road map going forward, and importantly, partner with others to develop that road map. And I think that can be a real differentiator for us going forward in a number of areas. And you see here IoT TV platform. I mean, when we did the Liberty Global transaction, that puts us on 22 million customers as a base the size of Sky. I think a lot of people don't understand the potential that we have there. M-Pesa, I'm going to talk about. And of course, we talked about the TowerCo already. On top on that, we want to have the very best gigabit network. We have Johan as CTO in the audience here, very much focused on maintaining our momentum here. And then Margherita has talked about the two pillars around digital first and radically simpler as a business in the transformation of our business model. So let me take the first pillar. And that first pillar in terms of customers and top line, I'm mainly focused on the top line performance, is in terms of our fixed business. Post Liberty Global, we will be the largest NGN footprint in Europe. We have 54 million homes on our footprint. And what we can do is market to 117 million NGN products across Europe, when you add on top wholesale and strategic partnerships. And by the way, strategic partnerships were expanding over time. What does that really mean? It means better economics than wholesale, and therefore, more accretive for us going forward. In terms of our footprint, clearly, the Liberty Global transaction strategically enhances all markets for us. But we've made good progress elsewhere. It was good to see that both our partners in Italy and in the UK received funding that will help us continue to expand and grow. And the gigabit upgrades, we're now 100% complete. We have DOCSIS 3.1 in Spain, and we will be 70% complete in Germany by the end of this fiscal year. Now, the important part is we're also the fastest-growing fixed broadband provider in Europe. And if you take NGN fixed broadband growth, we're growing at around 1.5 million customers every single year. The really important thing is, after the transaction, we will have an average penetration of about 28%. And what you see on the chart is the fact that we are in the early stages of that penetration curve. But what we've got to do is really drive local go-to-market execution on top of our national execution. And so, we've come up with a more detailed plan of what best-in-class looks like in terms of moving this penetration curve. This is a really important bullet at the bottom. You add 1 million customers on-net onto our footprint, and because of the high margins, you're talking incremental free cash flow of €250 million. So it's a really key part of our execution. On top of that, what we're going to do is develop a more compelling convergence road map of products and services, and importantly as I said, the TV platform. So, we have multiple TV platforms because, obviously, we made multiple acquisitions. We made the decision as an ExCo in October to move to one platform over time. And why are we doing that? Because we get synergies in terms of procurement. We get one road map in terms of functional capability build, so the development cost gets spread over the whole base as opposed to being fragmented. And importantly, what you're able to do is then go to strategic partners, and say, you've got one platform to connect with to get across our whole footprint. So we really think that's a future opportunity for us going forward. Now, we're going to do both consumer and enterprise. We want that to be on the best networks. We've got a leading 4G network. We want to build Europe's largest 5G network. One of the really important aspects that was in Project Spring was the densification and modernization of the network, and you see the stats here in terms of the infrastructure that we put in place. So we always said that 5G would be a layer on top of 4G, which we've already invested in. We've been investing in spectrum. You see the number of markets that we got for 5G already. Clearly, I look at the Italy auction and I was really disappointed with the auction in terms of, if you like, the artificial nature of that auction construct, because it effectively drove artificial scarcity. However, what I would say is coming out of that auction we're well-positioned as a business to continue the differentiation that we've already established in that important market for us. And then, finally, in terms of 5G, we want to co-lead in 5G. What do I mean by co-lead? It means we don't want to go faster or slower than the fastest player in the marketplace. Yeah? We see advantages, and I'm going to talk about that, but we want to pace at that sort of level going forward. And 66% of our sites in the key urban areas, 100,000 population, are 5G ready. 5G ready is single RAN 1 gig per second speeds on the backhaul. So our ambition is to be the leader in network perception and true differentiation versus the value players. Now in the immediate term, as we roll out 5G, the immediate benefit we see is around cost. So as you see, we have been doing a good job in terms of network cost for our business. We've been experiencing 60%, 70% data growth over the last couple of years. And Johan and his team have done an excellent job of holding down the cost base. How they've done that? We are migrating all the time traffic volume onto 4G away from 3G. So today, if you took the European network, 77% of the data on the network is on the 4G network. Why is that important? It's because there was significant efficiency gains for us on a unitary cost basis as we migrate to 4G. And again, we see the same in 5G. So this is why we have confidence that we can hold stable our network cost going forward even though volumes will increase substantially in a 5G world. Now, cost is exciting. And you could see from Margherita, she loves reducing cost, so that's good. But top line is also important. I'm getting more excited about 5G in the medium term, and these are the areas where I think there's opportunity in the consumer space. The first is around quality of service. We're building intelligence into the network. That intelligence will allow us to differentiate the services that we provide, so speed-tiering will be a possibility going forward. What that allows us to do is sort of do different segments, different products and, ultimately, different pricing depending on the criticality of the service. We did a good job on consumer IoT in terms of the V launch, positioning Vodafone as a consumer IoT player. However, the important development we're working on at the moment is our own platform to enable an end-to-end seamless experience for customers on multi-devices, which at the moment is not the case. So basically, we think we can enhance the delivery on this from the experience we've got on our enterprise IoT area and take market share in this area. Fixed wireless access is something often talked about. We have spent a lot of time on this over the summer. Yeah, all the different business cases, all the different permutations. Yeah, ultimately, we don't see the business case for a fixed wireless access, when you have NGN fixed broadband in place with ARPUs at the levels they are in Europe. We look at the complexity of huge data growth. You're talking a fixed data customer is like 50 times a mobile customer. So putting that strain on the network, that cost of delivery with those sort of ARPUs doesn't make economic sense to us, especially when we want to be known for the best quality network. So what we want to do is more of an outside of the NGN fixed footprint. We see an opportunity for more targeted propositions, which we will be rolling out over our markets. And then finally, E-Gaming, we believe that in our footprint, there will be up to 150 million gamers, all looking and willing to pay a premium price to shoot a telecom [alley] [ph]. So we see opportunities on the revenue side. In terms of business, as I say, we're rebranding Vodafone Business. We want to demonstrate that we have wider capabilities that maybe people appreciate today. Now, I just want to bring some of those to bear. So in terms of our unique footprint, we're in 25 markets, where we are executing our own operations. We have 45, what - let's say, deep partners, where we partner market with them to deliver for enterprises, connected with 250,000 kilometers of fiber. So we have more control over the end-to-end experience that we deliver for large corporates, which is really important for them, and importantly, the security that goes with it. And the other really important thing is we have deeper economics in more countries than an incumbent. Yeah? They might have deep economics in one, two, three countries, but not the footprint that we have. So we think we have a unique set of assets. The other thing is the product mix. Don't confuse our product mix with some of the other incumbents' product mix. As is connectivity, it's good margin business. We have very little legacy business, and we have very little low-margin IT services. Also, Business operates in a marketplace where we have structural advantage. And what I try to do here is highlight for the four big markets versus Consumer, the structural difference. Our sales in the incumbent together in mobile-only have 78% market share. In Consumer, you're talking 60%. So in Consumer, you've got 10-plus brands in most markets competing for your attention. In Enterprise, essentially, you've got two big players that offer the full range of products and services and then a long tail. And we think this is an opportunity, especially when we got low fixed market share today for us to expand going forward. So to conclude on Business, 50% of Business is SoHo/SME. We think there's an opportunity to go into fixed and take share. We also believe also are large corporates. Two things I'd draw out, corporates today are going through the moment when you say I need to switch out a legacy, fixed infrastructure and move into SD-WAN infrastructure, and it's a moment when they are opening up and considering lots of different vendors. So we have the opportunity to really change the perception of Vodafone being more mobile orientated into a total comps player. And so we will be very much focusing on this area. And the other thing is in industrialization of IoT. If you look at this chart, you see that connectivity is a relatively small part of the overall pie. We are a leader in the connectivity. We have the largest share. People know that we've got the global platform, yeah, and we can offer global connectivity. We'll continue to want to take share. But here is where the opportunity is also in terms of services. And what we have to do is build a services stack, and we've done that for automotive. So we are a global leader in automotive. And what we now want to do is build more vertical stacks of services, things like insurance, health care, et cetera, and really build sort of specialist ecosystems to serve that area. In terms of emerging markets, two points I really wanted to make. In emerging markets is - on this definition, 17%, growing at around 7% year-over-year in terms of service revenue. However, importantly, data is - data revenues, 50% of the revenue here, and that's growing at 18%. And we are at very early stages of penetration with 4G at 22%. And you see that as you move up from 2G to 3G to 4G, we can stretch the ARPUs. So still, plenty of growth left in the market. And this is the other important platform point I wanted to make. We talk about M-Pesa. M-Pesa is like €1 billion business for us, growing at around, let's say, 19%, something around that. But a lot of people think this is just money transfer. And we made the strategic choice quite a while back to say, no, no, no, what we need to do is take it on a journey of enterprise payments, financial services and ultimately m-commerce. And so what we're doing is we're broadening the offering that we give customers. And this is what I wanted to highlight. As you broaden, the percentage that M-Pesa represents goes up to broadly 30%, and you get a very engaged customer base. So it becomes a lot more strategically important for the overall development and winning your mobile share as well as developing businesses in this space. So to conclude, sorry it was a little bit longer, but I think there were some important messages we wanted to land with today. We have a clear focus on operational execution, organic growth moving forward; ambition to transform our business model. We've identified five value levers that basically are around us deepening the customer engagement, transforming and accelerating on digital and better and increasing utilization of our asset. And we want to do that with consistent investment to build our Gigabit network, driving free cash flow growth going forward, which we feel underpins both our dividend and improves shareholder returns going forward. And on that, we will do Q&A.

So I'm sorry.

I'm sorry. Go ahead.

[Paul] [ph] from JPMorgan. Two questions, please. Nick, at the beginning, you talked about as one of the key pillars, the focus on more consistent commercial execution. I guess, just keen to understand kind of the thought process behind that, I guess the inference being probably you haven't felt there has been that consistency. So maybe you can talk about why you think that is? What sort of markets you feel you haven't maybe had the performance you would have liked? And what do you think that's a function of? Is it the debate around the group being a very big group and maybe it will be benefiting from reducing some of the non-core markets? Is it about changing strategy compensation structure? Just any sort of color around that will be really interesting. And then the second one is really about the outlook from here. You've talked about the divergence between the non-Spain and Italy markets, which are doing, obviously, very impressive EBITDA growth, 11%. And then Spain and Italy that are obviously in a transition phase. Italy's due to Iliad. And it sounds like from what you said, things have already bottomed. How do you feel about Spain? And I guess, what do you think you need to do in terms of the next steps? Where are we? And when do you think roughly we get to the bottom?

Okay, so multipart question. What I'd say is Margherita may cover Spain outlook. Just in terms of improved commercial performance. Look, I put it down to a couple of factors. I think Vodafone maybe have been trying to lead the industry into a nice rational space, improving returns. Maybe we were doing more of the heavy lifting than others in the marketplace and that we were getting undermined. Let's say, tactically - not strategically, but tactically undermined on that. I think we have to compete. That doesn't mean that we're driving down prices. But I don't think we always should we doing the heavy lifting, if you like, to improve market conditions. I would say secondly, look at it that we view the markets like a high tier, mid, low. I mean, I was going through as an example in Spain. I think, we need to compete at all three. There was a moment, when we came out of wholesale and we didn't replace Vodafone in that segment, so if you like, Vodafone was never in the lower end. But when we came out of wholesale, we weren't really getting economics from that part. So the question is, do you do it by a second brand, do you do it by product extension? There's lots of different ways to do it. You don't have to go back into wholesale. But I think you have to have the mindset of you're going to win in all of the three areas. I'd say, we need to have fewer initiatives, and therefore, the ones that really count we replicate quicker with speed. And I think, Margherita made the point about in a digital world, that ability to replicate fast in that network, but we need to do it on our footprint. And then finally, what I'd say is, yes, we are changing the remuneration scheme, so from the April 1, next year, we're making an adjustment. We did 60% financial, 40% customer. And then we had a very large basket customer metrics. What I've decided is to take it back to a 75% financial, so evenly split service revenue, EBIT, free cash flow, and then the rest is customer, but harder customer metrics, which are churn, total comms market share and then NPS.

Taking the point on the Spanish outlook. Essentially, we have seen the first half of the year has been characterized by the cost of our commercial repositioning going through. It will take longer than just half one as the new pricing levels, which flow through the whole customer base. So I think you can expect the second half of the year to look very much like the first half in revenue terms or actually more precisely like the second quarter as we were seeing the effects coming through. And we still have, in this fiscal year, the bulk of the football costs in our P&L. Now looking forward to next year, clearly its early days, and there are a number of uncertainties. We should clearly benefit from the fact that at that point, we will lap the commercial repositioning from a revenue perspective, and also, next year, we will actually see the benefit of the reduction in football cost in our P&L. I just wanted to add one more point in terms of commercial execution and execution more broadly, which is around the point I was making on digital earlier in terms of speed. I think that the traditional approach of telcos to transformation is lots of business cases and trying to hit, if you want, the perfect plans. What I'm seeing with digital is that the type of returns we have on the business case is it's such that we should really step away from this idea of perfection and just get on and do things, because they end up self-funding and then you can perfect as you go along, and I think this is a big part of really focusing the business on results.

Yeah. Hi, it's Polo Tang from UBS. Just two questions. The first one is really just about the acquisition of Sky by Comcast, how you see this changing the dynamics in the communications market in Europe, if at all? But also related to that question, you also highlighted the scale of your TV platform with 22 million subscribers, post the acquisition with Kabel Deutschland, so can we expect you to do - be doing things differently in terms of TV, so specifically content acquisition or exclusive rights on a pan-European basis? The second question is really just in terms of more color in terms of Italy, because you obviously highlighted in the presentation that the second half potentially could be better. Could you maybe just expend more in terms of what you're seeing with Iliad in the market? Can you remind us what's happening in terms of your pricing in Italy and just any other dynamics that you see relevant in terms of what gives you optimism in the second half?

I should have said it's one question each. So I apologize for everyone. Okay, from now on it's one question each, just so everyone gets a chance. I'll let Margherita maybe give a bit more color on Italy. Just in terms of Comcast, look, we have not engaged with Comcast yet, so we haven't had the opportunity to sit down. We'd like to sit down with them and discuss how they view Europe and opportunities moving forward. Certainly, the impression we're getting is that they've bought Sky for their content aggregation, and if you like, content production capability more than distribution. And certainly, the Sky CEO was recently saying, they didn't see themselves going into fiber builds. But then, you never know, that might change over time. Clearly, we remain as a potential partner for fiber build opportunities going forward. And so, look, yeah, let's see where that develops. I'd say in terms of the TV platform, and it's read-across-the-content strategy. No change, okay? We are a distributor of content. We will remain a distributor of content. I've yet to see in Europe a successful example of someone going into - doing content themselves as a telco. Look, we don't want to compete with other telcos on content. We just want to distribute. But I do think having a good platform, a good central team, someone that engages with content providers in a strategic way will help us secure the rights I think.

On Italy, clearly, it's a prepaid market, and therefore, can be very volatile. If I have to point out of where we see it now, since the launch in May, we have seen Iliad gradually raising the bar on its pricing up to €7.99 at the moment. If you look at our own offers, we have essentially also created space for that. So our second brand offer, for example, today is €9.99 versus €7.99 with Iliad. We would expect this to happen also on the back of effectively the margins in the market. The reason why we are saying that we are seeing Italy at the moment improving, revenue trends in the second half, is twofold. First of all, the level of fights below the line, which are one of the characteristic in the market, has significantly slowed down after the summer. The level of below the line is now a third of what it was prior. So that's a good development. And then the second element is as part of our base management we have also applied to a part of our base re-pricing over the summer that we are now seeing flowing through our revenue projection.

Right. You pick someone and…

Good morning. Karen Egan from Enders Analysis. You talk about having a deeper relationship with your customers and with a view in particular to reducing churn. Can you talk a little bit about kind of the churn benefits that you see from that, and what kind of countries you're looking to for reassurance that that's likely to come through? And any other benefits that you see from these deeper relationships beyond churn?

I just think the industry, if I stand back and just look at the industry we suffer an unacceptably high level of churn. I mean, good companies, good industries would not have churn rates where they are [NS] [ph]. So I just think we have to get more focused on churn. That's why I want it as the number one metric for customers within the business on our [bonus] [ph] scheme, because I think that there's huge economic interest for us if we are not churning customers, because the cost of acquiring again in the marketplace is so high, plus you get inconsistencies chasing in the marketplace with promotions versus how you're making your customers feel on the deals that they have today. So, I think that this is a natural thing to be doing at this stage of development. But also, it's our view of a converged world. In a converged world, you will not just have one mobile number with us. You might have four or five for the family, the fixed product, TV, then you got consumer IoT, you might have 30 devices connected, which we will bundle for you and we will make that a seamless experience through the Vodafone app. It's just more the fact that you start to get more appreciative as a customer about what Vodafone is doing for you with fantastic gigabit network.

Maybe just to add one data point in terms of example, most of our markets in what we call Other Europe, our sort of fifth market in Europe, around single-digit churn in contract mobile. The average for Other Europe is just 10%.

Yeah, sorry.

Thanks. It's Andrew Lee from Goldman Sachs. A question on cost cutting. So your multi-year cost cutting clearly reflects your confidence in the ability to sustain that cost cutting over many years and it's clearly driving investor confidence in that. The other kind of investor pushback on digital cost cutting is the ability to retain it, to see it drop through to - drop down to free cash flow, whether you have to give it away and lower prices, because everyone else does it. How do you stay confident or how confident are you in the drop-through of your digital cost-cutting efforts actually impacting your free cash flow?

I would say in a nutshell the importance is speed. If we manage to be faster and more flexible than some of our competitors, then we will have the ability to obviously retain the savings at our end. So that's another reason why focusing on speed is quite critical.

I would also just build on the fact that this is the first time we're doing a multi-year ambition and sharing it. We've always had ambitions previously, but you would have a number of drivers and then you would say what's the next phase, if you like. I think you have to really look at this as transforming the business model. And because the aspects of the execution have been accelerating for us, and we've had a very good performance this year, it really gives us confidence that we can - the theory is getting applied in practice and we've got real momentum. And therefore, we can see structural cost coming out, I mean, calls, et cetera. So I think that we feel it's the better form. Why don't you stay there and we'll go through here?

Yeah, thanks. It's Stephen Howard at HSBC. I wanted to ask a question about differentiation, because you're saying on the one hand that you're looking to do more partnerships with other players. You're talking about the sort of virtual tower company and looking to lift the tenancy ratio. How can you be sure that that doesn't sacrifice your ability to differentiate versus less invested rivals? And aligned with that, I'm also a little nervous about some of the regulatory trends. That does seem to be an interest on the part of some regulators on limiting your ability, for instance, to hold off selling 5G, for instance, to MVNOs. I'm thinking here potentially about the German market. Is there a risk that your - the regulators compel you to wholesale 5G in a quicker timescale than you'd ideally be comfortable with? Thanks.

Yeah. I mean, I think your question on differentiation, do you know what, we debate differentiation a lot, it's what does it constitute in terms of differentiation. I'd translate it slightly differently when we went through the strategy reviews. How do we compete in the marketplace? And what I'd say is there's going to be sort of three pillars to how we compete. One is best network, so we will have - might be co-best with the incumbent, but we will have best network versus at least the value plans in the marketplace. And then you say, in terms of service, well, you're hearing us talk about, well, we're really going to focus on the digital end-to-end service that we're delivering for customers. And we do think we can move faster than others in the marketplace, to Margherita's point. And therefore, it can be a differentiated seamless experience, i.e., you put us up there, and say actually, this really works. Yeah? And is a lower cost for us. And then the third thing I would just say is going back to my point about competing at the tiers, we will always be good value at each tier for what we're offering to customers. And I think as a combination, that is a compelling, whether you want to call differentiation, you want to call it effective way of consistently commercial performance in the marketplace. I would say in terms of regulatory, look, I've not heard specifically a major push. I was talking to Hannes only yesterday about the regulatory environment. Yeah, I would say generally, regulation, there's a push. They want to encourage investment, which is good conversation. And so, they want to encourage models around investment. So this would go against that I would argue. I'd say the other thing though is there are a lot of conversations around coverage obligation. So I'd say the battle we're facing at the moment generally is these coverage obligations and just making sure they're in a reasonable place over a reasonable time period. And it's because a lot of people are concerned about white spots, et cetera, because they can see the potential of 5G, and therefore, they want to make sure that there's coverage. My answer to that is that's why we're talking about asset utilization. And in a mobile world with 5G, we might be open to more sharing in areas that need to be covered.

Thank you very much. It's David Wright from Bank of America. Over the last 10 years or so, if I look at the numbers, you're running around about €4 billion to €5 billion of write-down per annum, and we've just got another big one today with €3.5 billion in Spain. And that's practically half the value of ONO that you bought. But what I'm trying to understand is what is driving the write-downs because the rhetoric on OpEx seems very positive. The rhetorics on CapEx seems broadly in line. So for instance, Spain, today, could you talk us through how you got to that €3.5 billion? What's driving the write-down? And the sort of roundabout way I'm coming to this is, and it might be just myself, but it feels like there's a lot in here for OpEx and free cash flow, but there's not so much towards revenue. Is it revenue growth in the industry that's really the kind of declining factor here or the disappointing factor? And I'm interested in how you think about that.

Let me cover the last point, because, clearly, you didn't like the last part of my presentation, because that was completely focused on revenue growth, so I obviously did not land with impact. So…

I turned obviously shooting [indiscernible] I don't know.

So look, we do see three areas, where we do see opportunity going forward. What level of growth rate we can achieve, we'll see. Really, I'm trying to say, take Spain and Italy to one side, the rest of the portfolio is growing around 2%. This time last year, we were growing around 2%. So it's 2% as an overall growth ambition. The write, can it be higher, I don't know. But what I'm saying is we can deliver those type of growth rates, and that's before we get into 5G, et cetera and whether there's opportunities or not. So look, the ambition there is the top line growth. I think what we're saying is that the cost agenda just underpins our business and gives us strength going forward, but in a view of improving the customer experience.

On impairments, I need to say to the first part of your question, that I think we need to go back to 2013 to find actually any material impairment in Europe. That was when Nick stepped as CFO. In terms of - since then, we didn't have any major movements in the European environment. As far as Spain is concerned, now we are taking essentially what you see in the results into the valuation of the company. Clearly, from an accounting perspective, we need to take a prudent view, and we have reflected the EBITDA trend that we have seen in the second half, I would say, quite mathematically in the valuation.

Andrew Beale from Arete. Just a quick question on towers. I guess, what are the operational savings that you're sort of envisaging you can make just by moving to a separate management of the towers? What's - which of the markets, where you think that it makes sense to go after external tenancies without undermining your strategic position? What is the embedded cost of tower financing that you see relative to your cost of debt? And what would be the priority for any funds raised if you go down that route?

Okay, eight part question. Look, we're not going to say specifically how much the savings are. In terms of the vertical internal tower company, that's one of the levers that delivers the €1.2 billion. It's really in two areas that we will see. So one is just efficiencies. It's like anything, when we set up Indus Towers, it was a really good example. I was on the board of Indus Towers. You carve them out, and then they're having that single focus, suddenly everyone's focusing on efficiency. Why does that tower only produce X? Do we need it in that location? Should it move to this location to be more productive? So you really look at the returns by tower, and so you had that single focus. I would say - I'm not saying that, that doesn't happen today, but it wouldn't happen with the same discipline and ruthlessness of single-minded focus on towers. So drive out efficiencies, drive out tenancies. I think, there's tenancy potential across the footprint, it's not in one or two markets. And I think we do need to then sit back and say, is that a strategic tower or not a strategic tower. What we're finding is, and this is where the due diligence needs to follow through, is just we see a lot of different opportunities where we could probably drive more tendencies. Maybe one person's view of what's strategic versus another's view of what strategic will be different going forward. So I'd say these are the two things that we will drive off the back of it. Clearly, our cost of fund is structurally lower than most tower companies' cost of funding. So when you start thinking about disposing of, let's say, a minority stake in towers, you have to start thinking about, well, if you've got 5%, 6% cost of funding, and we've got 2.5%, you're internalizing that cost into our model, so the attractive multiple needs to be high for us to do that. So look, let us go through the due diligence. Let us do the analysis. By the way, there's a really important consideration, when you're going to sell a proportion of towers, clearly, we have to carve the towers out, set them up in a separate legal entity, therefore leases need to move, contracts need to be changed, capital gains tax comes into consideration. I can give you an epic list of all the hard work we've got to do to create that if we want to. But we've got to go through the due diligence, check the size of the prize is big enough, the values are big enough and the tower company brings enough value to the table over and above our internal single focus.

Hi, this is Guy Peddy from Macquarie. I sense from your presentation there's a lot more focus on the IT side of things with your digitalization side and you're talking partnerships a lot more perhaps certainly with some of your physical assets. Does this actually mean that there's recognition that actually owning physical assets is less important going forwards than it was in the past, because actually those are being largely commoditized, and it's difficult to differentiate so you've got to find that differentiation elsewhere?

Let me give an example and probably, Brian, our Vodafone Business Group Director, would probably not like me for giving you the example, but it's probably the easiest one to - if you look at cloud, you could decide I want to going into the cloud business, I want to own data centers, I want to put infrastructure in, et cetera, or you go a variabilized model with a partner. And I think it's those type of considerations, where you're sort of saying to yourself, we've got some heavy lifting to do on our own part of the business model, but we do need capabilities. And therefore, rather than us taking the burden of trying to extend ourselves and then you've got to get skill sets, competencies, you've got to put more capital into that area, is it faster, because speed matters that we partner to get an effective solution together with partners that, let's say, don't try to undermine us, partners that genuinely see the value we offer and want to work with us. And that's the great thing about Vodafone, everyone would like to work with Vodafone but we just make it a little bit too difficult for people to work with us, yeah. So what we need to do is make that an easier experience, more collaborative experience and then we need to move fast. But we only want to work with it, when it's in a space that's material, an opportunity rather than fragmented initiative just for the relationship. Yeah, and then we'll switch sides. Okay, yeah.

Hi. So it's John Karidis from Numis. I'd like to understand why you do not want to lead in 5G? And I ask you this in the sort of context of the sort of Trumpian pronouncements we're getting in the states about the benefits of 5G specifically also for the economy. You talked about fixed wireless access, so I'm not expecting you to repeat that, please, but there are other companies there that make some pretty significant pronouncements about the benefits of 5G to the industry and to them specifically by being first. So if you could enlarge upon that that would be great.

Yeah, look, we discussed this a lot as a team, as an executive team over the summer, when we're talking strategy, because we're stress testing all components of the strategy. What I would say is Verizon, and I was over meeting with Hans recently, Hans has very specific circumstances to why he thinks fixed wireless access is material opportunity for him that just don't exist for us. It's dead for spectrum, where ARPUs are for fixed as the alternative. So he just believes it's a bigger opportunity. Frankly, it does not pour over to us. I mean, I see a more targeted proposition opportunity. To your point about 5G and why don't you lead, it's a really quite simple answer, which is, if you're an incumbent, are you really going to allow us to lead on 5G, yeah, it will turn into an arms' race. It will turn into every single incumbent will push CapEx. I think the industry spends enough on CapEx at the moment. So what we need to be doing is thinking more intelligently. And what we're saying is, we'll go faster if it's the incumbent that goes that sort of speed, we will match them on that speed, but we're not going to push them into an arms' raise. I don't think it's healthy for the industry, especially where share price is at the moment for the whole industry, et cetera, as a whole.

Yeah. Hi, it's Maurice from Barclays. So you made a big point about partnerships earlier. If I saw your slides correctly, your definition of partnership seems to be you using other people's networks as opposed to others using yours, which brings a debate back to MVNOs. It feels like in Germany, it's the lack of partnerships that might drive a fourth new network entrant given what's happening around that? So your thoughts in terms of MVNO partnerships, if in Spain, it looks like you're launching a new brand that's not using wholesale partners, what's your view towards MVNOs changing in wholesale?

Look, so first of all, I will answer that. But you made a jump, it isn't a case of us using other - I think there are a lot of partners that want access to our huge customer base. They want access and - commercially, and I think there's big opportunities in the partnering space for the top line development with partnering, but we've got to be easy to do business. I'd say specific to MVNOs, what I would say is when we step back and think about wholesale, and you'd say, well, was it a good decision to do the wholesale decision we've made? Obviously, we did 4G. We did a big investment. And what we were really saying was it wasn't that we were against wholesale, we just said it needed to earn an acceptable return. And that included everything we were doing on the assets and including spectrum rather than through incremental economics. So we just wanted to make sure value plans did not get a structural advantage and lower, if you like, the quality of networks. I think when I look around, I look at Germany and I'd say that has played out really well strategically. I'd say Spain, less well, because Orange decided to wholesale a high-quality network. Okay, that's life. So I would say the strategy itself, I could go around all the market and say whether I thought in hindsight, positive, neutral, I'd say Spain is the one that's ended up being the negative, it's a little bit outside of our control. If I look forward, all I'm saying is in a 5G world, I think we need to be open to partnering, but not give, so no change, for giving value players a leg up, that doesn't mean that we're against wholesaling. If they want to pay the full cost of that network, that's one answer. Clearly, the decision around 4G might change, because, ultimately, we need to migrate 3G onto 4G and shutdown and reform 3G. And we want to do that between 2020 and 2022, because that's a real opportunity to use that spectrum in a more efficient way, and that's probably the cheapest way we can increase capacity. So these are the type of considerations.

Hi, it's James Ratzer from New Street Research. Just wondered if I could ask a bit about some of the assumptions you've used in your impairment test, please, because, I mean, you're giving the...

This is definitely yours...

I would definitely go. Yeah, so you're giving the impression that both Italy and Spain are recovering from here, but yet the long-term kind of growth rates you're using in the impairment test is that actually Italy kind of continues to decline going forward. Spain does grow, but I mean a 5 point gross gap between the two markets over five years compound to quite a material difference. So what is it in Italy in particular that you're more concerned about versus the Spanish outlook, please?

I would just sort of step back from the various component parts of this debate, because essentially, if I may say so, the impairment is expected to be what I would define as a prudent accounting exercise. We touched on it earlier. We do not want to continue to revise the assumptions in our models and therefore we set them at a level where we are comfortable. Don't read an automatic read across to what can be either next year's EBITDA guidance from impairment numbers. But of course, I mean, maybe we can pick this up later directly or within a day.

Sort of assuming a similar degree of prudency in both markets, you're still assuming a 5 point growth gap between those two markets going forward. Is that fair?

Shall we just really discuss it later?

I wouldn't read that much into it.

It's definitely not our long-range plan in terms of giving you guidance. It's different type of assumptions.

Yeah.

Hi, it's Dhananjay with Bernstein. I'm surprised no one's asked a question on Vodafone Liberty yet. The - two parts, please. Firstly, the federal cartel offices requested for a referral back of the German component of the transaction. Phase 1 deadlines have been moved, I think, to November - to December 2018. What are your thoughts, number one, on the timing for any decision on jurisdiction from the commission? And what are your expectations of the outcome, number one. And number two, based on your conversations that you described as constructive with the commission, what are the key areas of concern around competition that the commission has voiced as it pertains to the transaction? Thank you very much.

Look, I mean, it was no surprise that the cartel office in Germany asked to have it. We expected that, so there was no surprise in that. The deadline moved out from phase one by two weeks, I suppose, it's not a particularly big extension. It makes no difference to the extension in terms of the final phase two. What I would say is in terms of timing then on jurisdiction, we'll know for the December timing. We are engaged now. So I really can't - I mean, we're literally engaged now. So I really don't want to expand on the conversation we're having. All I'd say is, look, these are two very large businesses, multi-country, non-competing, overlapping footprint, and the precedents are all there over the last five years of EC taking these cases. This is what the EC was there to do. So we're very confident. I think we've got last - two last, two.

It's a question for Margherita actually. On page 26, on the gearing, we can see that there is a lot of moving parts, of which free cash flow is only one of them. So you mentioned that you see some headrooms on at least keeping the minimum credit rating. So if you can share with us what we're talking here in terms of headroom. If you could quantify in terms of which sort of, how much that would have to go up or EBITDA has to go down, so basically that headroom disappears. And because I relate to this one, I can see that the put option's been reclassified. Are the agencies going to do the same, given your talks with them? And you also put €800 million injection at least negative cash flow from India. In the H1, you actually disclosed €1.3 billion equity injection in India. So how we got from €1.3 billion negative in H1 to €800 million negative in the full year?

Ottavio, very, I'm going to say, precise question, as we would expect. I think you asked three different things, and I'll try to take them in turn. Easiest one, KDG reclassification, actually, it's something that the rating agencies pointed to us. They noted that we were the only company that they were aware of actually doing the old version of the classification, and therefore, certainly are following this. On your bigger picture question, I would say that probably a three part answer. The first one is we are really committed to operate within the 2.5 to 3 times range that we have set. And when we talk about margin and headroom, it's because the range itself has been set in such a way that the top-end which is 3 times has some clear water between that threshold, and our, ultimately, balance sheet policy of having a robust investment-grade credit rating, right? At the moment, as you know, two rating agencies out of three are giving BBB+ on that position. So that's where we have headroom. In terms of how we intend to move within the range, clearly, there may be short-term oscillations. But, ultimately, what we are looking at is a trend which deleverages through EBITDA. That's the fundamental moving part in your equation. When we say we re-confirmed €17 billion of cash flow generation over the three years, clearly, implicit in that there is a constant EBITDA growth. And this is the primary driver of deleveraging. On top of that, once you overlay Liberty - because we always see as here the pro forma impact of Liberty as the net debt impact - but once you overlay Liberty in terms of its own EBITDA and cash flow, clearly, as you know, this is going to be additionally accretive, so building on our own EBITDA growth. Final part of the question, the €800 million on the net cash flow to India on closing, I think for that I will really need to go back to team later and explain to you the moving part.

Yeah, Robert from Deutsche. I'm going to ask about the U.K. Please could you comment on how the wholesale market for fiber is shaping up? CityFibre announced an extension to its 1 million. You guys didn't say anything at the time. I wonder whether you will continue with that? And there are - certainly, there are other builders in the U.K. as well, would you engage with those other builders? And as broadband is picking up in the UK, could TV come back on agenda, now you've sorted out your mobile customer services issues?

All right. So what I would say is just from a wholesale perspective, so CityFibre's gearing up, 10 cities, good progress. So we're happy with the engagement we have with them. We have signed with BT the sort of - what would you call it - contingent model or whatever, which doesn't compromise the execution that we've got with CityFibre or our commitment with CityFibre. So we felt we could do the same. In the end, if we wanted to pull away from the BT deal, we'd just lose the discount. So it's not strategically impairing us, if you like. And we're always open to other players that want to consider other models. So, for instance, if Comcast guy suddenly said, okay, we want to consider. The one that's been pretty quiet at the moment, I would say, is Openreach. We're not engaging with them at the moment in terms of any further opportunity. And, in terms of TV, look, really pleased. I mean, Nick's in front of you. So Nick's doing a great job for driving fixed broadband. Actually, he made a really important decision, which we were at a moment, where we were deciding where we're going to roll out Vodafone TV and fixed broadband. And he made the right decision, and the right decision was, look, I really want to be successful on driving penetration of fixed broadband. And when we're successful and we know the product, and we've got great service, then I want to overlay TV in the future. It's always going to be there. We'll develop the, if you like, OTT-type models at the group level. And he can always pick those up. So I think it was a really - it was a brave decision at the time because it would have been easier to say yes. And I think that's a sort of good example of like Vodafone moving forward, yeah. Don't try and do too many things badly. Do a few things really well. Get commercial traction, build confidence, in the eyes of the customer and then take it to the next level. Wonderful. Real pleasure to see you all.