Vodafone Group PLC (VOD) 2008 Q2 法說會逐字稿

Good morning, and welcome to the presentation of Vodafone's results for the six month period ended September 30, 2008. And thank you very much for attending my first webcast with the financial community as Chief Executive of Vodafone. Thank you.

Let me go through the agenda for the morning. I will start first with the highlights of the results, and summarize our revised guidance ranges for the current financial year.

Then I will pass to Andy, who will present detailed financial results, and finally I will get back and I will give you first an overview of our operations in Europe and in emerging markets, and then a detailed account of the strategy review exercise that we have conducted in the last two or three months.

I really look forward to your comments and your questions, and I just would like to remind you that at 11 o'clock we will observe the two minutes silence for Armistice Day.

So let me begin with the summary of results. Revenues, EBITDA, operating profit, free cash-flow, EPS, all have experienced double digit growth in the first half, albeit thanks to foreign exchange benefits. On an organic basis, Group revenue has increased by 0.9 percentage points, and 2.6% on a pro forma basis, including India. EBITDA has declined about 3% and operating profit about 1% on an organic basis.

Group cash flow generation remains strong, and has increased 16% to GBP3.1b, benefiting from foreign exchange, improved tax settlements and lower interest charges. EPS increased by 17.1%, of which around 14.5% was due to the foreign exchange benefits.

The Board has reviewed the present dividend policy in light of recent ForEx volatility, the impact of acquired intangibles and the current economic environment, and we have concluded that it will provide more certainty to shareholders if the Board adopted a progressive dividend policy instead of the 60% of earnings formula. Essentially this is a policy for which dividends will rise smoothly over time. And the interim dividends will rise by 3.2%.

By now most of you have probably read and analyzed our statement, so I really would like to start by giving you my condensed view of the status of our operations and our performance across Vodafone in the first half.

First I would say that despite revenue trends that have been softer than expected in Europe, we have a good position, and we have again demonstrated the ability to generate good cash flow, essentially through cost optimization, through more sharing of our platforms and through good purchasing.

In terms of market performance, I look at our performance as good in three out of five of the large markets where we operate, stabilizing in Spain and weaker than expected in the U.K. We have taken all the actions, as I will describe later in the day, but it will take some time to see the benefits go through.

In Turkey the turnaround has not yet materialized, and we are putting a lot of effort now on fixing what I would call the basics, which basically is network distribution and commercial offerings to our customers. We have impaired Turkey's value, largely but not exclusively due to changes in the discount rate, and we will cover this again later. And finally in the broad overview points, data and emerging markets continue to be an engine for growth, offsetting voice pricing pressures.

So in order to deliver our cash flow guidance that I will illustrate in a few seconds, in the second half it will be essential to have very strong focus on execution in all our markets, and of course an ability to manage external pressures through very good cash management.

Now, updated guidance for the current financial year, revenue will be between GBP38.8b and GBP39.7b. Operating profit will be between GBP11b and GBP11.5b. CapEx range is revised downward to between GBP5.2b and GBP5.7b. And the free cash flow range increases to between GBP5.2b to GBP5.7b.

The decreasing revenue guidance reflects the more challenging market conditions, in particular in the U.K. and in Spain. The lower revenues result in lower operating profit, but we have reduced the impact by cost reduction and direct cost saving, and decreasing free cash flow guidance reflects lower CapEx, better tax and a Group focus on free cash flow generation that we are enforcing. I will now pass to Andy for his financial review. Andy?

Right. Thank you very much Vittorio, and I will just do a quick overview of the key financials, a couple of comments on liquidity, and add a little bit of detail onto the outlook position.

So first of all, the key numbers, GBP19.9b of revenues and GBP5.8b of adjusted operating profits. Top right-hand chart here, you can see the [WARK] so 17.1% headline increase in the revenues, and if you go across, you can see that 12.5% of that was made up of the FX benefit, particularly the euro. 3.7% of it was the contribution particularly from the India and the Tele2 acquisitions, and the underlying organic growth was 1.1%.

If you actually put India into the equation for both six month periods, then on a pro forma basis the growth was 2.6% for the two half years. The EBITDA margin was 2.2 percentage points down across the Group, in line with our expectations, and I will talk to that in a little bit.

On the adjusted operating profit, the bottom right-hand chart here, the headline was an increase of 10.5% in the adjusted operating profit for the Group. 12 percentage points of that came from the foreign exchange. The acquisitions did not have a huge impact on the operating profit, and the underlying was a 1% decline in profit between the two periods.

Now, as Vittorio has mentioned, we have decided to take a charge, an impairment charge, against carrying value of the asset in Turkey at GBB1.7b. The largest part of that is because the long-term market interest rates have risen over the period since the end of March, and that, when we apply it in the discount calculation, has resulted in about two thirds of that value reduction.

The other one third is to do with the operational performance and outlook for the business that Vittorio will talk to in a minute. The adjusted earnings per share, 7.52p per share, was an increase of 17.1%, obviously fueled significantly by foreign exchange.

So let's start with the revenues in Europe, so the key numbers in Europe. The revenues were up by 14.3%. 13% of that came from the foreign exchange, particularly the euro. We averaged a rate of EUR1.26 for the first half of this year, which was 14% down from the equivalent period last year.

The impact of the Tele2 acquisitions was about 2 percentage points of growth, and if you strip those out, the underlying was a 1.1% decline in the revenues in Europe. Now, if you look at it another way, the regulated incoming revenues themselves caused about 1.3 percentage points of reduction in revenues between the two periods. So all the rest of our products, particularly the data products, the growth there very, very strong, 23% increase in data revenues, covered the reduction in the revenues on the outgoing voice and on the roaming.

The chart on the top right is then looking at sequential quarters, and comparing the growth rates with the equivalent quarters in the previous year. We talked in July about a 0.2 percentage reduction in the first quarter revenues. The equivalent number for the second quarter was 1.3%. The 1.3% had a stable impact from Spain, and about half of the 1.3 came from the performance in the U.K. business.

Interestingly, if you look at that rate of revenue change by customer segment, the consumer segment revenues were flat to very slightly down. The business customers that we've got, our revenues were up about 3%, and actually our large business, international business accounts within that, were up more like 8%, so very strong performance on the business front.

Moving then on to the revenues in EMAPA, headline growth there 25.7%, a significant growth still. 9% of that came from foreign exchange. 7.7% of it came from the acquisition in India, leaving an underlying organic growth of 8.8%. That was very much driven by the increase in the customer base and also by a very, very strong performance in data, with data revenues in EMAPA up by 56%. Again, on a pro forma basis, so putting India in to both periods in full, the growth rate was 14.4%.

The chart on the right, again the quarterly changes there, you can see that the rate of increase slowed slightly in the last quarter, primarily due to reductions in the growth rate in India and in Turkey, with the other businesses basically continuing to grow as they were previously.

Now, on to the EBITDA. On the left-hand side for Europe, the EBITDA grew by GBP0.4b to GBP5.2b for the period. Significant impact from foreign exchange here, GBP0.7b, which more than covered the slight reduction in the revenues on voice, etc, that I talked about a second ago. We invested slightly more in customers, which I'll talk to on the next slide.

Operating expenses remained exactly stable year-on-year, and importantly, we did invest a bit more into the fixed and DSL space. That did not have a significant impact upon the EBITDA, but on top of the chart you can see the margin movement in Europe, which moved down by 2 percentage points overall, of which 0.8% was because of the mix of the lower margin DSL businesses.

In EMAPA on the right-hand side, the growth in the EBITDA there was GBP0.3b, increased to GBP1.7b. The increase was split fairly evenly between the ongoing businesses and India and foreign exchange. The overall margin decreased by 1.7 percentage points to 31.5%, and that was predominantly the margin change in India that Vittorio will talk about later. The rest of the businesses in EMAPA were actually pretty stable on their margin.

European costs, we have split these out into two parts. The left-hand side are the customer facing costs, and the right-hand side are the technology, network, IT and support costs. So just on the left-hand side, the yellow are the purchase costs of equipment and the commissions that we pay to third parties. And you can see those rose very, very slightly year-on-year, about a 1% increase in unit volumes, about a 1% increase in unit price. Volume has been kept down to only the 1% level, partly because of the push to SIM only.

The top part of that chart in blue are the costs of our customer care centers, our sales and distribution, and our marketing, and those have been kept exactly flat year-on-year, as have all of the costs on the right-hand side, the network, the IT and the support costs. So all those cost areas kept absolutely stable, year-on-year, and I think you should look at this in the context of voice volumes that have gone up about 9%, and data volumes which have very nearly doubled during the period.

So adjusted operating profit, up GBP0.6b to GBP5.8b. If I go across the chart here, slightly lower EBITDA contribution, higher in EMAPA, slightly lower in Europe. Depreciation and amortization costs basically stable, year-on-year. Strong contribution from associates, Verizon Wireless in particular, which I'll come onto on the next slide, and then moving across, again, a big foreign exchange benefit, primarily from the euro, albeit in the second half we'll get some further benefit from the dollar if it stays at its current rates.

So Verizon Wireless published their numbers a few days ago, another period of very, very strong performance. Top left-hand chart here is the revenues, $12.7b in the quarter, now running at an annualized rate of over $50b a year. Top right-hand side, you can see the share of the net contract additions of the big four players in the market, 63%, bearing in mind they have about a 30% market share, it is basically punching at about double their normal weight.

The EBITDA margin has been stable during the period, hence the overall EBITDA has gone up, and in terms of contribution to the profits of Vodafone, 20% on an organic basis, 25% on a reported basis. These now account for 25.5% of our adjusted operating profit compared with 22.5% a year ago.

And on the bottom right, you can see the EBITDA less CapEx, a sort of proxy for cash flow, which is now comfortably running at over $1b per month. The Alltel acquisition has now received regulatory clearance, and the expectation is that that deal should close somewhere around the end of 2008.

Now, moving on to financing costs, on the bottom here, financing costs of GBP743m, a reduction, year-on-year, of GBP150m. Some of that was to do with the items at the bottom of this table, so the put accounting for the India option, and also to do with foreign exchange. If you therefore focus on the adjusted financing costs line in the middle, you can see a reduction there of about GBP40m year-on-year at GBP483m.

A number of moving parts in here, higher euro interest rates, lower U.S. interest rates, a slight change in the mix of our overall profile of debt towards dollar denominations, and some mark to market gains during the first half of the year.

We'd expect the second half financing costs to be a little bit higher because we would not anticipate the same mark to market gains in the second half, and also we receive the dividend from China in the first half of the year. Worthwhile noting, I think, that around 70% of our interest costs are fixed going forwards for about an 18 month period.

Now, on taxation, we have achieved an effective tax rate of 26.5%, slightly better than we had been expecting for the period, and a significant 3.5 percentage points better than the effective tax rate we had in the half year a year ago, primarily due to two reasons.

Firstly, some countries have reduced the tax rates during the period, most notably Italy and Germany. And secondly, we have made further ongoing improvements to our own internal capital structure, which have also given us an advantage. So the 26.5% rate directionally, we think that that should be good for the rest of this year, and actually, we think that should now be sustainable as we go forward on a medium-term basis.

Now, as ever, a brief update on the tax disputes that we have on the go at the moment, and the answer is not a lot of change on any of them at this point in time. The CFC case is now hopefully in the second highest level of court hearing. We remain very comfortable and confident with our position on that, but still expect it to take some time to resolve.

The Indian court case, we are awaiting judgment on the first round of that, probably over the coming weeks or days. And then in terms of the other sundry settlements, we are continuing to work our way through those, a slightly lower level of settlement in the first half of the year, a little bit more settlement in the second half, but roughly about GBP0.5b a year that we are settling those.

So adjusted earnings per share up 17.1%, 2.8% of that underlying performance, some of that obviously bolstered by the benefits on the financing costs and the interest. 14.5% of it from foreign exchange, and a very small element from the share buyback, which obviously only impacted one small part of the half year, so we get a slightly bigger impact from that in the second half of the year, but overall, an underlying increase in the earnings per share of 2.8%.

Free cash flow, Vittorio mentioned this earlier on. We've been giving this big focus during the period. GBP3.1b of free cash flow (inaudible - technical difficulties) which is an increase of 16% compared with the previous year, so slightly more operational free cash flow generation from the core European businesses.

In the EMAPA region we invested about GBP300m more into CapEx in India, but basically self funded that. The dividends were lower in this first half of the year because of the dividend flow from SFR, which is as expected, but nonetheless, that was a reduction.

Interest costs a slight benefit that I referred to a minute ago, and then tax, we have got a significant cash flow benefit from that, which gives us the closing GBP3.1b number. The overall free cash flow per share pre-Spectrum costs about 5.85p per share, up 16.4% year-on-year.

Capital expenditure, so Europe on the left, EMAPA on the right. Headline level, the capital intensity, capital spend as a proportion of revenues basically constant, year-on-year. In Europe it was 8.4% in both periods. In absolute pound terms that was an increase of GBP0.1b. That was in part FX. It was in part the DSL and Tele2 investments, and in part putting in an ERP system, or starting to put an ERP system into the Group.

On the right-hand side for EMAPA, again the capital intensity percentage there was basically the same as it was a year ago. The actual spend was about GBP0.3b higher, and that was all targeted at the Indian market, where we have been investing in the new Spacetel circles and we have got a six month cost in here for this year, whereas a year ago it was a five month cost on the capital for India. So India is the whole of the reason for the increase in EMAPA.

Net debt, GBP27.7b at the end of September, GBP2.6b of which was the put option in India, so underlying debt at GBP25b. A number of moving parts in here. M&A was a net outflow of about GBP800m, being primarily Arcor and Ghana. There are a couple of line items in here for Qatar where we have an in and an outflow, but the net is an outflow of about GBP50m as we expected.

We did almost all of the (inaudible - technical difficulties) by the end of September, so we have the outflows from that, and then we have a foreign exchange movement of about GBP1b, representing primarily the movement on the dollar. So overall, comfortable with the debt position, and very comfortable with our low single A credit rating, especially in the present environment.

Let me just talk briefly on the issue of liquidity, which I know has been a very real topic more generally. Top right-hand chart here shows the maturity of the various debt instruments that we have got out. Key messages are that in no year do we go above GBP3b, and on average we have got about a seven year life.

On the left-hand side you can see the snapshot at the end of September, just over GBP1b of cash at that point in time. Commercial paper, about GBP2.3b sterling, and indeed, we have been accessing the commercial paper markets even over the last few weeks, and have issued several hundred million dollars worth of commercial paper during that period.

The bond side, we have GBP2.5b sterling of bonds that will mature in May 2009. And we will probably access the markets at a point in time. The markets clearly at the moment are fairly tight, but this is possible to do.

The pricing may be higher, and we will look over the period between now and May to make sure that we have that funded, or in the event that we do not do that, we have got $9b of committed, undrawn bank facilities spread across a large range of banks and institutions which have got a life of three to four years. So I think in overall terms, our liquidity position is fine, and we continue to have a strong balance sheet position.

Now, on the outlook, Vittorio just painted the high level picture here. Just to give a couple of points more detail on this, we have taken the revenue guidance down slightly but all of the other metrics basically are the same, or on the cash flow, slightly higher. Some of that are operational reductions and some of it is FX improvements, but overall, just observe that whilst the revenue is a little bit weaker, overall we're turning that into slightly more cash than originally envisaged.

So just to walk through the key numbers here, we've taken the revenues down by GBP1b, primarily because of Spain and the U.K. and India. We have, within that, got some reduction in the number of devices and handsets that we are selling as part of our deliberate commercial strategy, so that is an element of it. And essentially, on the revenue line, midpoint of range, we're anticipating a similar rate of organic change in revenues to that that we experienced in the second quarter.

The M&A column here not particularly significant, but have added in various contributions from Ghana and Poland and the Neuf Cegetel deal that SFR have done. And then on the foreign exchange, lots and lots of moving parts on this. We are now assuming that for the second half of the year, the average exchange rate on the euro will be EUR1.26, and we're assuming that for the same period, the average dollar rate will be $1.67. So both of those numbers a bit lower than we had when we gave the original guidance at the EUR1.30 and $1.96 rates.

CapEx, we have reined in. We have reduced the amount of CapEx even though we're spending a bit more in India, and we have been very focused upon our interest and tax costs, and hence overall why we have managed to nudge up the overall free cash flow guidance by 0.1 for the year as a whole.

So in summary, strong headline numbers, with a significant benefit from foreign exchange and the geographic dispersion of our assets. Data growth very, very strong across the Group still, and our push into the business and the enterprise segment is also bearing fruit. Cash flow has been a huge area of focus, as has making sure we have got the appropriate liquidity and also driving the tax rate further down. So with that, I will now hand back to Vittorio.

Thank you, Andy. I will now run through the performance of our larger operations, and then present the conclusions of the strategy review. It will be slightly longer than usual but I am confident that we'll have enough time for a good Q&A session.

So let me start with some overall comments about Europe. Europe remains a story of cash generation. In the first half we have generated GBP3.6b up from last year. Capital intensity, 8.4%, which is lower than our yearly target of 10%. Organic service revenue growth, if you take out, or actually you equalize the impact of Easter on the number of working days, has been at minus 1% Q1 and Q2. EBITDA margins down, as expected a couple of points, and 40% of this decline being linked to DSL, so these are the broad numbers about Europe.

Let me start by diving into the U.K. Now, in the U.K. we have experienced a tough first half. Revenues, as the chart indicates on the left side, have declined 1.7 organically, 1.7 percentage points after adjusting for the VAT credit of last year.

We have got a good performance in contract additions, but we have been hit by churn in the high value customer segment. Roaming revenue has been weak, mainly due to the regulations, so the impact on price, but also due to the fact that we have seen reduced business travel. And in general, these three things have resulted in lower service revenues.

Now, we also have some good news in the U.K. Data revenue continues to grow at 30%. We have today more than half a million data cards in the U.K., and this is a good reflection, I think, of our pricing strategy on data, and our good quality of network.

EBITDA margins - I'm moving to the right-hand of the chart - have declined on the underlying business 2.3 percentage points, and this is linked to mainly three things, the fact that we had to renew contracts, 18 month contracts that had been established in 2006, as a part of the move to the 18 month period, higher advertising spending to support our commercial efforts, and network costs to support the data story, and then there is the one-off VAT 0.8 that you see in the chart.

So market conditions have been highly competitive in the U.K., and I have to say we have not moved fast enough as we have done in the previous year. You might remember we were growing at 6%, 7%, 8% for two or three quarters, and we have a bit of a slowdown.

We have taken actions already. We have improved our consumer contract offers. We have increased the emphasis on SIM only. We have improved the conditions for top-up. In Enterprise, we are pricing more aggressively in the U.K., and our pricing policy for Enterprise today is not to lose customers, profitable customers, on pricing grounds.

And as you might have seen outside of the room, we are now focusing on our device ranges. We have the BlackBerry Storm, the exclusive BlackBerry Storm, exclusive to Vodafone and Verizon, and many other devices in all the segments of the range. And of course the U.K. team has been working on costs and particularly on technology and G&A costs.

So in summary, I'm still convinced that the U.K. remains structurally a challenging market. And therefore, Vodafone has to be more commercially agile in the market, leaner on costs, and especially if consumer confidence worsens in the country.

Spain. What has happened in Spain? When we announced the first quarter KPIs, there have been a lot of questions about the steep change in our growth between Quarter 4 and Quarter 1, so I think I should devote some seconds to going through what has happened.

In Spain we have grown for 16 quarters more than the market, and we have done it focusing on what I would call the mobile only segments of the market. So essentially SoHos, migrant workers, what locally is called Autonomos. We had tariffs for Autonomos. And these are segments which are also, due to the way the Spanish economy is structured, which are also generating a lot of international calls.

So when the slowdown has hit the market, clearly these segments have been hit more. You might remember that in those days, in July we said it has been -- we said one third, one third, one third. One third is the economy, one third is the promotion and one third is competition.

So now today I can be a bit more precise about exactly what has happened, precisely the timing of the promotional activity has caused the 3.1 percentage point decline. The stronger competition, including the loss of Yoigo has weighted 2.5 points, and the migrant worker segment has weighted 2.1 points, and we call this the impact of the economy.

So these are today's, if you want, the facts and the analytics. My simple conclusion is we have underperformed the market. So what actions have we taken after this? First of all, let me say that the actions that we have been taking are working, and the rate of decline in the market is stabilizing and actually it's slightly less in Quarter 2 than Quarter 1, minus 2.2 versus minus 2.5.

We're doing well in contracts, and also in data revenues, despite the fact that the number is not particularly good. This really is two different things, connectivity, data connectivity. It keeps going well. And on the other hand, we have been -- we are seeing a decline in infotainment and the impact of some price caps that we have put in the market to protect, actually, high data users, so to avoid the so-called bill shock.

Prepay, which is the segment where migrant workers tend to be concentrated, is down 11% year-on-year, but the quarterly trend is flat. So while we see still a lowering of international calling from the immigrant customers, we are not seeing neither large decreases in contract numbers nor a worsening trend.

Moving to EBITDA on the right, excluding the impact of Tele2 and DSL and the universal service obligation charge that is now levied in Spain, the margin fell 1.8 percentage points, due to increased A&R spend, again in the contract space where we have been doing well.

So in Spain, after the sharp decline we have acted quickly. We have increased immediately, as soon as we saw the decline on net promotions. We have improved the Vitamina, pricing in Spain. We have pushed SIM only products. We have included or introduced zonal pricing, and we have launched DSL and especially this Vodafone DSL which is a Vodafone router, integrating HSDPA and DSL, which we think is particularly well taken in the Italian market and therefore we are bringing it everywhere.

In summary, we have acted in Spain. We have taken the necessary steps to address the pressures. But it will take time to recover, and so we expect Spain to continue to be challenging over the next few quarters.

Germany. In Germany our position is good. In the second quarter service revenue declined 1.8%, a similar level to the past two quarters. Contract revenue is broadly stable thanks to this family of super flat offers that I will cover later. Data growth keeps being good, and the only segment where we have declined is prepay, 12% decline, due to the strong competition that we have from discounters, and notably from Aldi.

EBITDA in Germany -- EBITDA margin in Germany is up 0.6 percentage points, thanks to the reduction in A&R. Now this reduction in A&R is really linked to two things. We are pushing more SIM only, and we are subsidizing less prepay. Arcor is now the number two player in the market, in the DSL market, and although I have to say competition remains intense and the rate of market growth is declining, and we expect to decline due to the fact that penetration has increased.

So looking ahead, what we will do in Germany? We will continue to drive in the contract space with super flat concept. We have just launched, as a response to the pressure that we have in the prepay segment, we have launched a new aggressive CallYa 5/15 prepay tariff, which is really aimed at regaining ground in the prepay market against the Aldis of this world. And of course we continue to integrate Arcor, where we see cost benefits in the network and the services part.

So in general, we expect German trends to improve later this year, and I would say that while we have to be cautious in the current climate, so far we have seen limited measurable impact from the economic weakness.

Italy. Italy is another positive story. Our revenue is up 8% in Italy. 7% of this is relating to the Tele2 acquisition. So organic service revenue is up about 1%, 0.9% to be precise. And here we have different trends. First of all, strength in contract, we have pushed contract and business. Growth of revenue is 15%. Growth of customer base is 34%.

We have shifted away from a volume orientation in prepay to a value orientation, and we have a very, very strong data growth. 37% is at this point the highest in our mature European market, clearly driven by a very strong drive of PC connectivity. Interesting enough, you might remember that Italy was the first market where we have started going on television with consumer propositions in data, and this is proving to be the right thing to do.

Finally, we are now -- we have now in the market a Tele2 DSL offer, and a Vodafone DSL offer, and between the combined, we have 650,000 DSL customers in the country. EBITDA margins in Italy have declined 4.5 percentage points, mainly due to the Tele2 acquisition, and the remaining 0.8% is really A&R again, linked to the drive in contract.

So Vodafone Italy continues to execute well. We expect further good performance going forward, even though as for Germany, we have to be cautious given the GDP forecast for the country that we all read.

Now, moving to emerging markets, broad comments about emerging markets. Emerging markets again we are displaying robust growth. This is a growth driven by customer additions, and so penetration, mainly. Emerging market is cash generative, despite the fact that we are investing big amounts in network to support the expansion.

Update since April - we have got the license in Qatar. We have concluded or completed the acquisition in Ghana. We have increased our stake in Polkomtel and last week, we announced the purchase of the controlling stake in Vodacom.

There are two operations that I think are worth focusing a bit of attention, India and Turkey, so I will go first through India. Now, India is a great market. India is a great market, strong fundamentals, strong fundamentals for voice, great opportunity for data, which clearly is the next big thing in all the emerging markets, and the thing which is to me very important is penetration is still only at 27% as of end of September.

In the first half, our revenue growth has slowed to 41%, essentially due to tariff reductions that have taken place in the market in the first quarter. These tariff reductions have got a higher effect on the second quarter, with growth growing at 36%, and we have maintained competitiveness. We now have in the markets where we operate, in the historical 16 circles, 21% market share, and on a nationwide basis, we have a 17% market share.

A bit of explanation on the EBITDA evolution in the market, and on the right-hand side you see 5.6 percentage points decline. Here there are three things that explain this decline. The first is the outsourcing of IT to IBM. This is the classic OpEx versus CapEx trade-off. Overall, we save money, but on the P&L, the impact is 1.3 points.

The second is the expansion in the seven new circles where we were not before, the so-called Spacetel circles, which clearly in the beginning has cost but doesn't have revenues, and this is 1.4 points. And then the remaining 2.9 points are exactly the impact of the price reductions, net of the savings that clearly come from the increased scale.

We have invested GBP600m in CapEx in the first half, and we expect to invest for the full year over GBP1b. We are permitting an accelerated base station rollout, 2,000 base stations per month, which we think is very important, given the competitive contest. Indus Towers, which is the tower company, has started operations in July, and shortly the shareholders, the partners will contribute the assets to the company.

So in essence, our focus in India remains growth, penetration, in existing and in the new circles. The opportunity in India I am convinced, remains very large, and it is particularly attractive for players like Vodafone, players who have the scale to support competitive pricing to our customers. We therefore expect absolute level of revenue growth to remain strong despite the pricing pressures.

The other country that was worth a bit of diving is Turkey. As I said at the outset, Turkey's performance has been disappointing. In the second quarter, our service revenue, the left side of the chart, had declined 2.1 points, year-on-year, on an organic basis, and this comes after a 3.7 in the previous quarter.

I could quite frankly mention several external factors that have determined this performance. I could mention the timing of Ramadan, which was not fortunate, the termination rate cuts, the GDP -- the change in GDP forecast. But I don't want to hide behind these factors. The performance in Turkey, our performance in Turkey, has not been where it should be.

We have added 2m customers in the quarters, but due to the fact that one year ago we had weaker controls in our indirect distribution, we had got a big churn, and we are actually negative on net adds. It is taking longer to fix the network, and also to have a solid distribution platform for a country of 70m people.

So in this context, our EBITDA margin actually slightly improved to 19.6, even after very high taxes that are a characteristic of the market. But clearly, profitability is not an issue for us in Turkey. Our priority is now in Turkey to invest, to improve the perception of the network, and to improve our distribution, so that we can deliver more services and better services to the Turkish customers.

So how are we addressing it? First we have established a technology roadmap, and we have a program, which will, in six months, bring the network up to the level where Vodafone expects it to be and the customers expect it to be.

Second, we have a number of initiatives to ensure that we bring to the countries the right commercial offers for the right customers.

And third, we are working on both direct and indirect distributions to deepen and make it stronger.

There's number portability coming. 3G options coming. It is important that we get these three building blocks, the network, the distribution and the commercial offering right in place. This will take time. This will take time, but Turkey is, and remains, a very attractive market, 70m people, very young population. The -- all the elements for a positive growth are there.

So, my conclusion on Turkey is that in Turkey, we know what we have to do. We have done the right things. And we are confident that we will get it right.

I am at the end of my operational review. Let me summarize in simple words what our operational imperatives are.

I would say our operational imperatives are fairly straightforward, improve our market position in Spain and the UK, complete the turnaround in Turkey and continue to perform well in Germany, in Italy, in India and, of course, also, in all the other markets.

In order to do this, we have commercial plans in place. Where we need, we have technology planned. And, I have to say, we have also strengthened the management of these operations, first of all, by focusing the regions on a smaller number of countries and by rotating leadership skills to suit the diverse needs of the market. And I think that shortly we will also announce the appointment of a Turkish CEO to strengthen the local team.

So, now I have to run through the revised strategy, before getting to the strategy, I would like to spend a few seconds to share with you my personal perception of our telecommunication industry. Seen from my perspective, it is the perspective of somebody who comes from the personal mobile angle of the industry.

I would say that in the context of turbulent times, we should not forget that we operate in an industry which continues to be able to generate strong and consistent cash flow, basically, on delivering very compelling services that serve a fundamental human need. And this to me is the crucial point.

Now, somebody believes that voice is increasingly mature in developed markets, but there is the data opportunity. The data opportunity rate of revenue growth is strong. It's stronger in mature market and will be strong in emerging market. And I truly and strongly believe that, as we all can see if we walk into a shop or if we walk into a train, that ubiquitous connectivity is basically a one-way road. Once you start using it, you just cannot give it up. And for sure, I'm very confident nobody will give it up just for saving the cost of a couple of drinks in a month. And this is what I really strongly believe. It's a one-way road and the cost of -- and the benefit of this ubiquitous connectivity compared to the cost are incredibly compelling.

Moreover, in the emerging economies, mobile connectivity will be the main, or in some cases, the only way to access the Internet to have a communication platform for work and for personal living. And even if growth does not show up, maybe for periods, due to general conditions, the mobile side of the industry has flexibility in managing the cost base. If you take CapEx, perhaps half of CapEx are pure maintenance, are fixed CapEx, and the remaining part are driven by volumes or by development. And if you look at OpEx, and I will elaborate further in my presentation, if you look at OpEx, 35% are truly fixed.

So, we individually have levers and, collectively, if you let me use a simple expression, we have some taps, collective as an industry, that we can open or close, depending on development and depending on the economic phase.

I do believe that we operate in an attractive industry. And I do believe that it's an industry with economies of scale, serving essential services with flexibility on the cost base.

So, where does Vodafone stand in this industry? I think Vodafone has some very distinctive attributes which put us at the center stage in this industry.

And quickly going through them. We have demonstrated that we have a strong cash flow performance. We have a diverse portfolio of assets in mature and emerging markets and most of the places we are either number one or number two. We have been pioneers in the data world, both at the network end, 3G, HSDPA and at the service end with all the initiatives that we have done. We have a strong brand in consumer space, but this strong brand is becoming stronger and stronger and more credible within Enterprise and business space.

And finally, we have demonstrated that we have advantages of scales on infrastructure and on purchasing.

So, my view of the industry, balancing the right and left-hand side of this slide, is that this is an attractive industry which provides essential services with a very, very compelling way and a compelling -- serving a compelling -- in a compelling way a very basic human need. And Vodafone on the other hand, is very well positioned, because on all the key elements of this industry we have demonstrated that we have some strength.

So, we can make a good investment case if we execute efficiently. So, execution will be a word that you will hear from now on quite a bit of time.

The new strategy had to reflect these things. Had to reflect the new economic environment, our strength and what we believe is the future of our sector.

So, the departing point for our strategy was the May '06 strategy. The May '06 strategy has served us well. And I don't need to go in great detail into all things. We have -- we were starting from high prices and low volumes. We have reduced price by 17%, increased volume by 21%. We have declared cost targets which we have delivered. The flat OpEx or the 10% capital target, which somebody said was unachievable in those days but eventually, I think, we are at 8.4%, as I said.

We have increased our emerging market exposure through the exciting -- I would call it exciting addition of India and the promising addition recently of Vodacom. And we have moved into total communication, having today a business which, on an annualized basis, worth GBP2.8b in mobile data and having DSL capabilities everywhere.

We have sold GBP3b of non-core assets. We have grown dividend, made sizable capital returns to the shareholders and, in the process, we have retained the single-A rating which, in these days, seems to me fairly relevant.

So, how has the environment changed in this period? Now, the environment, clearly, has changed. The other evident thing is the prospects for economic growth have changed. There have been issues with inflation raising in emerging markets. Maybe a bit less now but still there with energy concerns, especially where we depend on diesel or where people depend on basic food for a large part of their spending. Competition remains, I would say, strong. Double-digit price declines are expected and the norm. And these offset growth in usage.

We have discussed with many of you the concept of elasticity and how much elasticity and how much price declines can be balanced by volumes. The concept has been proven difficult to measure and also difficult to demonstrate.

There's more converged offerings. And when I say converged offerings, I don't just say Fixed Mobile offerings, but also platforms like the iPhone or Android, which give multi-platform access to the same services. And resellers and discounts have a bigger role in the industry.

And finally regulation. Regulation keeps having an important role, not just in defining the mobile space, but also defining the way we interact with -- in the DSL Broadband space with large incumbents.

So, we had to review the strategy to reflect the new market conditions and to reflect what we thought was the right thing for Vodafone.

Our November '08 strategy can be illustrated in a fairly simple way with one target and four pillars. The one target is really focusing the whole of Vodafone on driving free cash flow generation and execution focus and a stronger execution focus.

In order to do this, we must drive four things. First, strong operational performance, both at a revenue level and at cost level.

Second, pursue the existing, the already existing today, growth opportunities that we see in our communications space, mobile data, Enterprise and Broadband.

Third, we need to deliver appropriate returns from our existing emerging market assets as a priority and look at expansion opportunity if and when they arise cautiously and selectively.

And finally, we need to reward our shareholders and be disciplined on how we use their money.

And I will start describing the first element of driving the operational performance which is value enhancement.

As I said, the May '06 strategy had revenue stimulation as a key pillar, which really was driving -- about driving voice usage through price reduction. However, price per minute falls continue to erode margins and they're not compensated by enough elasticity. And this is clearly indicated in the left-hand of the graph which correlates outgoing price and outgoing usage.

We also need to address the remorseless rise in customer investments that has been the main driver of margin erosion in the recent years. This, of course, will always be influenced by market factors. But it's critical that we get smarter and more focused on our investment and our subsidies.

We have to optimize the value of relationship. This means moving away from per minute pricing and having lower prices as a result of loading our offers with more value, minutes or megabytes or whatever is going to be the measure. Extending such offers across the communities, family members or company employees, are locating better our commercial investment and rewarding longer relationships for the customers. One of the way that we call it, we call it Much More For More, more people in the family, more services, you get much more.

From a price perspective, this means that Vodafone wants to be always price competitive in the high end and in the medium end of the customers. And we should not be afraid of lowering our prices, as long as we achieve three things. We load our infrastructures more, we balance our commercial cost and we improve the lifetime, and therefore scope, of our relationship with the customers. We have the network capacity to do this. And this is consistent with any industry where scale does matter.

So, you probably will say fine, good theory, how does it work in practice or does it work in practice, by the way?

And let me give you a German example, where in Germany we have developed the Superflat concept that I illustrated in the beginning. This is a head of household type of tariff where, as I said, you add bolt-ons, more services or more family members and you get better conditions. As the graph shows with the blue bars, we're getting more revenues for more usage and much more compared to the existing entry tariffs.

Now, what the graph does not show is the commercial investment which is related to that, which, of course, is commercially sensitive, but I can tell you it is much better for us as well.

So, this is a tariff which is better for the customers but it is also better for Vodafone. And you can expect to see more, not exactly this in every market, but more of this philosophy around.

Now, moving to the second element of operational success, we need to work on cost. Let me start with a bit of a description, since there has been some speculation on our ability to work on cost -- on our cost -- a small description of our cost base.

If you take the GBP27.4b of cash cost that we had last year, putting together OpEx and CapEx, the reading horizontally, the weight is 30% direct cost, which mainly is Interconnect, 34% customer related including A&R, 17% technology, IT G&A operations and 19% CapEx.

If you look instead vertically, what drives this cost. You will see that a quarter of this cost are generically usage or volume driven, 41% are market related and 35% are fixed.

Now, let me first cover the market related. I've already said the market related costs are, or have been responsible for the margin erosion of our industry recently. And, as I said, we have to acknowledge that market conditions and being competitive clearly influence a large part of our decisions to have commercial cost. But we also have to acknowledge that it is too easy to accept that this is outside our control and we will come passive in this area.

So, value enhancement, as I described before, is essential. Is an essential part to addressing these costs and remaining competitive at the same time.

Let's now moved to the fixed costs, so what is strictly under our control. Now, here are some cost programs that we have in the Company. As you can see, these cover all areas, technology, logistics, everything, the general administration, support functions.

The concept here is to really drive down cost and achieve regional scale with a goal to save GBP1b by year '10-'11, relative to the '07-'08 number. And use these savings to offset some of the inflationary pressures that we have in our business, to fund some of the growth opportunities and, of course, to offset the revenue pressure.

Now, the overall effect on our cost structure of the initiatives would be the following. In Europe, we really want to ensure that operating costs remain broadly stable from last year to '10-'11. In many other programs, we also have an impact on CapEx. The 10% CapEx that we had in the past is confirmed. As I said before, 5% is basically maintenance, about 20%, 25% is volume related and a part of it is expansion. We think that we can maintain that target. And, by the way, if you look at Germany last year, which is a place where we have a big presence and converged operations. If you put together Arcor and Vodafone, we already, last year, were at 10%. So, we think it's doable.

Different approach for emerging markets. Now, here the opportunity for growth is there. So, here the target is not to reduce cost but to keep costs flat. The target is to have cost growth lower than revenue growth. And, of course, we have to put more CapEx. Andy has shown before 21% of revenues, but we don't see any reason why, long term, these markets when they mature should not go -- trend towards the 10% number.

So, this is our approach on cost and I want to address the growth opportunity. Now, the growth opportunities, and we really and strongly prioritize based on where we think Vodafone has advantages. And we do think, as I said before, that our advantages are network scale, in brand and in customer base and customer assets.

First, mobile data. Now, mobile data, we already have delivered. We have GBP2.8b, best in class products and networks. I believe that there is a great opportunity in Europe. In Europe we have doubled from 4% to 8% the data subscriptions in our base in one year.

If you look at the left-hand side of the graph, you see penetration of mobile PC connectivity devices plus 84%. If you look at handheld business devices, plus 96%. What does this mean? This means that more and more people walk around with data-enabled device in their pockets or wherever they keep them. And more and more people, as much as it happened with voice and with text, six, seven, eight years ago, are getting accustomed more and more to use these devices. I really think that this is an important opportunity for us.

How we will drive this opportunity? I would say, first of all, focusing on devices. It's important that we have the best. We're working on Netbooks. In these days in the UK, I think the Dell Netbook is selling 2,000 per week. We're working on USB keys or dongles. We're working on phones and, clearly, there's a huge work of segmentation and development that will take place.

We have demonstrated, the UK is an example, Italy is another one, that we can be creative and aggressive with pricing schemes. And we have to do it, because the more you get into deeper and deeper segments of the society, the more you need to segment your pricing.

And we have reorganized our competencies and our efforts in the IP Services space, both in consumer and in business, through Vodafone Business Services and Vodafone Internet Services, which are our two units who are in charge of developing IP-based services for our customers, linking our billing, our CRM, our databases not the customer experience.

Second opportunity, Enterprise. In Enterprise, this is another area where we have done well. We have a GBP7b business here. We took a disproportionate share of mobile data growth and this demonstrates, I think, the credibility of the Vodafone brand in this space. The pies on this chart, represent an estimate of the GBP175b market that Enterprise have. Where you see the green part is the mobile part. It's relatively small part.

Now, here on the left-hand we have done pretty well in the Corporate segment. We established in 2006 Vodafone Global Enterprise. Now, is growing still 8%, very strong position in large multinationals and with a deepening value -- deepening cooperation with Verizon which is adding a lot of value here.

What is the next step is working on SMEs and -- so sorry. First of all, of course, the first step is to continue to work well (inaudible) and continue to leverage on that.

But the second thing is to now extend our services into SoHos and SMEs. And this is what Vodafone Business Services is about. It's a local operation, so we operate locally. We will leverage on our Business divisions that we have created in all the markets where we operate.

And we will, clearly, leverage on our assets, strong sales force, trusted brand and share services and products, especially in the IP space where this is, today, possible.

So, third opportunity, Fixed Broadband. Now, Fixed Broadband. In several markets Fixed Broadband is becoming an increasingly important part of our communication, particularly for Enterprise and for high value customers. We believe that we can generate incremental value by selling Broadband into our Mobile customers and also by attracting new customers to the shops, as it is happening these days in Germany, where, as I said, we are now the second provider in the country.

We have network, we have distribution and we have scale to work on DSL. In some countries, we have decided to own DSL Broadband assets. But we are technology agnostic. Our choice is, and will always be, to invest based on three criteria. Basically, geo-density, local geo-density, local pricing level and local regulation. So, we will pursue this opportunity where the market -- where this makes sense financially and where we have the right assets. Our approach to Broadband here is, and will be, a market by market approach.

Now, turning to emerging markets. I already said that we'll be shifting our focus from expanding to prioritizing execution in emerging markets. Why do we think -- why do I think that this is a (inaudible)? This chart illustrates why.

And the easy answer here is because we are in the right places. Because we are in India and India is an incredible growth opportunity, because through Vodacom and through our initiatives, we are in the Middle East and Africa. We are exposed to China through China Mobile. We are exposed to the US through Verizon Wireless. We are not in Latin America, but, basically, this chart says Vodafone is where it should be.

If you think about the seven Spacester circle of India, we call them circles, which is a bit of a funny name, but in reality here, we're talking about 300m people. So, Vodafone is adding coverage of 300m people. The GDP, clearly, and the GDP per capita is different than a mature market, but this is the scale of development in India.

Therefore, my primary focus in emerging market will be to ensure that we execute on our business well. And in order to do this, we have reorganized, you have noticed that we have reorganized, as I said, our EMAPA operation into smaller regions with greater focus on fewer markets each.

Growth in this market, as I said, will remain strong. But we have the Mobile Data opportunity.

If you look at Vodacom. What Vodacom in South Africa have achieved by becoming the first provider of Broadband across all technologies through mobile platform. This gives you the idea of the potential. And the important thing, the import success factor here will be the ability to bring lower cost devices to these markets. When I go to India, when I go to Kenya, when I go to South Africa, the one thing that they ask is, of course, penetration and coverage because that's an essential. But the next thing is when are you going to bring me a low-cost, data-enabled device?

So, we are convinced that this is going to be an important thing. Executing is a priority, executing in this market.

Talking about expansion. We have criteria to screen the opportunities. These are the classic criteria you would think of. And, of course, we have M&A financial criteria that are in place to look at specific opportunities.

We have identified only a small number of large markets of significant size. And this could be explored in the future selectively and cautiously.

In the markets where we are not present, and where we don't want to put equity, we have the partner market operation, which is, we think, a very effective way of bringing in our services to a market and giving to our customers access and good condition to that market without committing equity. And the MTS deal, which is a huge deal as we announced two weeks ago, is, I think, the best example of that.

So, in summary, approach to emerging market is focused first on execution and then cautiously and selectively on expansion.

Fourth element of our strategy is capital discipline. It will be about cash flow generation. One question which is logical is what are you going to do with the cash?

Now, first, of course, is profitable investment in our existing business. This means supporting our businesses. This means going after the three growth opportunities that I have illustrated. And, of course, there's the spectrum where we -- our position is that while we are comfortable with a spectrum allocation that we have, we might, on a country by country basis, look at specific opportunities.

The second priority is to clearly enhance return to our shareholders, primarily by the way of dividends. And then you have M&A. First, I would like to say that within existing markets, I see consolidation as a positive for the industry. And I would support in-market consolidation, active or passive, as a concept.

The synergies that we are looking, or we are seeing, in the Alltel case, we think, Verizon are clearly indicating that in-market consolidation creates value for shareholders. There are also other examples that we are seeing and in our own work, even integrating our current -- and Vodafone is creating synergies. So, our position on consolidation is that we support.

Emerging markets, I covered before. And this leaves with portfolio management.

Now, on portfolio management, we review every controlled asset in the Vodafone portfolio and the check is, as the assets return, the local cost of capital and is the asset worth more to somebody else? And if the answer to this question requires it, we will -- we have to take, and we will take the appropriate actions.

We also have a few non-controlled assets. Verizon Wireless is the first. Still delivering double-digit revenue growth. In the process of completing, as I said, a major value creating acquisition, Alltel.

We recently have deepened the cooperation with Verizon Wireless in areas like technology, devices with the Storm that you can try outside and on global accounts. The Board reviews Verizon Wireless regularly. And we remain open minded as to how to maximize the value to our shareholders, taking into account the complex and tax efficient structure that we have. So, we are today convinced that our current position is the best for Vodafone.

We have a good partnership and a strong operational cooperation with SFR as well, supported by a good shareholder agreement and, most importantly, by a very aligned strategy.

And finally, we have an important investment in China Mobile. Now, China Mobile, I don't need to tell you, is the number one player in a growing market, enjoying large scale advantage. And here, again, we have a good partnership. Very important the cooperation on the LTE development. But more recent and, I think, very promising, we are extending the cooperation to services through the joint venture that we have with China Mobile and Softbank. Our investment provides exposure to a leading player in a fast growing market.

So, in conclusion, the Board continues to review our position in this company regularly.

In summary, if I have to say what I would like you to take away from today, I would like you to have a clear idea of what my Management and myself will spend our time on and what are our priorities. And our priorities are put here in the chart. We will work on strengthening our business everywhere, and, of course, most importantly where we underperform, focusing our Management on value and making sure that we implement the GBP1b cost program.

We will work hard to improve contribution from Data, Enterprise and develop Broadband as part of the change in profile of Vodafone. Focus on delivery in emerging markets and look at expansion cautiously and selectively. And, of course, maintain clear priorities for surplus capital.

Our ambition is to confirm the -- or sustain the free cash flow generation in the GBP5b to GBP6b range which has been for last year and is for the guidance for this year.

And I would like to ask you to let me conclude with my personal ambition. Personal of Vittorio Colao. My ambition is to lead Vodafone in an industry that I do believe is still attractive and to fully exploit, during my tenure, Vodafone's strong advantages on brand, on scale and on commercial assets. And in my mind, to lead a Company which is simpler, much faster and a winning player in a very exciting industry.

Thank you very much for your attention. And I would like to ask Andy to join me for questions.

Okay. Yes. Can I ask you please to introduce yourself for the people in the webcast. Laura?

Thanks very much. Can I ask four if that's okay?

First of all on the dividend. The 3% growth that you've announced for the interim, should we think of that as a good proxy for what you mean by progressive in the medium term, or could it be a little bit more conservative, given the current market uncertainties?

Secondly, in the release you mentioned that you'd support in market consolidation. There could be opportunities in your two weaker markets in Europe, which are the UK and Spain, T-Mobile and Yoigo, I was thinking about. Without being specific, are these the kind of opportunities that you could have in mind?

Thirdly, I'm trying to think about how do you think about your CapEx flexibility going forward? And I guess the easiest way to ask this is would you have reduced your CapEx guidance for fiscal '09 if your operating profit guidance wasn't coming down?

And then lastly on the debt, given how much ForEx is moving, I was wondering if you could update us on the structure of your debt? I thought it was all swapped into euros but I notice there was a dollar impact in the presentation, so if we could just have an update on that?

And I take the first two and then I co-own with Steve Pusey, our CTO, sitting here, the CapEx question and then I will leave the debt for Andy.

So, Laura, on dividends, I think we have a -- first of all, let's see where we start from. We have a good track record of dividend growth. We have increased dividends significantly over the past years. We have a fairly relevant payout as percentage of cash.

Our updated dividend policy wants to give certainty to shareholders. The 60% of earnings was, clearly, subject to fluctuations. In this way, we think that basically saying that we will rise smoothly over time. We give certainty about what we want to do. The 3.2% has come out of the Board. The Board has considered a number of factors. And we consider that we are at the right level of growth at this time.

So, it's a consideration of many factors, not a specific factor. And, as you can imagine, there is the underlying performance, there's the external market, there's credit, there's plenty of considerations.

The important thing is that we wanted to give certainty to our shareholders that we are committed to have rising dividends.

On in market consolidation, I would not make specific comments about markets. I'm sure you do not expect me to make a specific comments or specific things. But what we wanted to signal is that we are evolving our position. We always have said that we wanted to be passive beneficiary of consolidation, which is -- could still be the case by the way, because it's not a bad thing to be a passive beneficiary.

But clearly, we see consolidation and the values that can be created in consolidations as very important now. And therefore, we are open minded at considering active or passive and it's going to be a market by market thing, so it's very difficult to give an answer concerning any specific market.

On CapEx, I might ask Steve, maybe, to say a few words. But our position is we don't think we need to cut CapEx. As I said, half of the CapEx are basically needed to keep the business going. And then the rest is either volume driven or new development. We see that we have been investing at the right level. We come out winners in the quality of our data experience in almost every country. We have 37% growth in Italy, 30% growth in the UK, 24%, 25% growth in the other markets. Our customers are very happy with the level of services we are giving them. We still have plenty of space in terms of capacity. Maybe, I don't want to go into difficult territory for me, but the total capacity of our network is much more than what we're using today. I think we are at 30%, Steve, probably?

Yes. Steve Pusey. Hi, Laura. I think that Vittorio is absolutely spot on. Our capital intensity reflects our need. We're very happy with our position. We're servicing the growth, particularly driven by data across our European footprint, as well as, of course, inclusive of our investments in DSL, which are within those figures.

So, we're comfortable with our position. We've got excellent customer service against that. We're at about 32% overall capacity on our networks. Of course, that's a European average, which gives us plenty of room for growth. Of course, we're always addressing the hot spots where we find our data traffic and that's certainly a position that we're comfortable with.

Steve, can we pass to Andy for one minute and 35 seconds answer?

One minute 35 second answer to our debt profile position. Okay. I'll have a go at that one. So, what we are endeavoring to do is to make sure that we have got the funding for the various parts of the Group broadly aligned with long-term cash flows. Obviously, only a small proportion of the Group at the moment is sterling denominated and therefore we have a mix of currencies around on other fronts. At this point in time, we're probably around 70% euro funded, about 30% US dollar funded, 10% in multiple other currencies and that all adds up to about 110%. So, there's about 10% held in cash in the UK so that we can pay dividends and other things in the UK.

So, part of it is dollar denominated. That has been a big advantage in terms of getting the lower interest cost during the period. It's equally meant that at the end of the year with the FX conversion but that has put the overall debt level for the Group up a little bit.

So, that's broadly the profile and I've talked far too fast. So, I've run out of time.

We are 30 seconds away from -- I think. So, anybody who can make a question in 30 seconds so that then we have two minutes?

Robin?

Robin Bienenstock from Sandford Bernstein. You've talked a lot about Enterprise revenue growth. I wonder if you can tell me a little bit about Enterprise margin evolution?

Yes. Shall we just wait for giving my answer after the two minutes that I would like us -- to ask you to observe?

Thank you very much. So answer on Enterprise customers and the profitability of Enterprise customers. I think, again you never want to categorize, but you can see Enterprise customers really divided into two categories.

There's very profitable, mostly local or at least not very big, customers where profitability is pretty good. The issue is to be there, to be local and to be able to provide simple solutions. The idea behind that is these are companies that don't have a CIO, don't have strong expertise in total telecom. Typically have not been served very well by the incumbents because these are almost captive type of environments. And we are proving that we are stronger and stronger thanks to our local presence. These are our mobile customers of today and they have stronger and stronger needs.

There's another set of companies which can be very appealing because they are large, they are very big. And for serving those customers the important thing is to keep the cost to serve under control because in percentage terms they can have much smaller numbers. Now the number -- the revenue deal might seem very big but the cost to serve can push down the profitability a lot.

So we have been very disciplined in approaching the latter type of companies. The Vodafone Global Enterprise operation is very focused on providing few services in a very, very competitive way but in a very disciplined way also from a cost point of view. While now we want to expand more in the so-called SME place, where the cost to serve element is less relevant because we already have in place the sales networks. And it's the product simplicity and the product ease of use which is essential.

The evolution of our network (inaudible), all IP, IMS-based network that we are doing in Europe will enable the development of products ideally one time in a single place and then the deployment in many places.

So it's very different level of profitability of two segments.

Can I ask you a follow-up just on Germany, your example of super flat -- the super flat tariff. You talk about a decline in price elasticity across Europe and then you talk about revenue enhancement from tariffs like the super flat tariff. But Germany, as far as I can tell, is the only market in Europe where in fact you're seeing price elasticity that is greater than one with very, very deep price discounts. So are you saying from this that actually you're moving towards larger flatter bundles across Europe?

Yes. What we're really saying -- I'm not sure that in Germany you can say that overtime plus the elasticity has been stable about one. I wish I could be able to say that.

I'm not saying that. What I am saying though is that if I look at the collection of bills that we have from customers for 2007 the only place where we saw price elasticity greater than one on a constant basis was in Germany on companies that made discounts of greater than 25%, 30%. That's looking at specific customer bills for 2007. Obviously we didn't see so much of that in your --

We look at years and years of things. But the point is the following. What we need to balance is really four elements. It's not just price and volumes. But we need to balance price, volumes, commercial cost and lifetime value of the customers. These are the four things that matter. You can have a situation of a negative price elasticity and a loss of margin but still you can make a good case by working on the other two things. So the approach that we are taking now, and Germany is just one example, is an approach of balancing the overall economics of the account.

Going back to your point on Enterprise. In Enterprise it's almost more natural to do it because you look at specific deals. And what you find out is that while in some cases people might think well this is a very low price for a company, the lifetime value of the company is much better because the other elements of the equation were better. So this is the type of philosophy that we are introducing in the consumer space. It will require a lot of work because it's a lot of segmentation and it's a lot of systems behind it. But we are getting there.

Thank you. It's Paul Howard at Cazenove. A couple of questions just about Europe. You paint a picture of Europe where you can keep operating costs stable but the top line is still declining. Do you see stabilization any time in the foreseeable future on that front?

And in terms of scale in Europe, you say scale is important. Why limit yourself to certain customer segments? Why not adopt a more aggressive strategy to keep that scale above your competitors in Europe?

And then finally, with that in mind, in country consolidation I guess you wouldn't rule out exiting certain European markets on the same basis?

Yes. Let me Paul start with the revenue stabilization. I don't think I want to make a multi-year forecast. What I see is that in certain markets prices have come down quite a bit and usage has gone up. In other markets prices are still high. We will need, as I said in my previous answers, to make sure that we maximize whatever we can take in each market depending on the level. And the result of this stabilization -- if you ask me long term, of course when prices will be down at the Indian or the American level, I can see a better revenue profile. But we're not there yet. So it's going to be -- it's going to take time.

Scale. I'm not sure where you have got the impression that we don't want to get scale. The answer is that yes, we want to get scale but we want to get scale in profitable segments of the market. Europe is now fully penetrated, more than fully penetrated. There is the data opportunity which is good because if you look at the penetration of data it's still pretty small. But especially considering the cost of the data devices not all segments will be as profitable as the best ones. So we need to be focused and selective on getting scale. So scale is an objective but we need to achieve scale where scale is profitable.

In terms of consolidation is good. Yes. As I said I wouldn't make comments about specific countries. But the Board -- our Board has to review all businesses on a regular basis. So if a business as I said is either underperforming or somebody believes the business can be worth significantly more to them, I think the Board is open minded to look at everything.

You mentioned the data opportunity -- Alan Burkitt-Gray from Global Telecoms Business magazine. The data opportunity also means an appetite for faster and faster data. We've seen in Telstra in Australia the other day announcing a huge increase in its target bandwidth for its HSPA service. Do you see that you're going to be doing that forced into increased capital expenditure to satisfy this demand for broader and broader -- faster and faster broadband? And what is your judgment on faster HSPA versus longer term strategies like LDE? And what -- when do you see commercial LDE emerging?

Let me say that Vodafone has always been in front of the pack in the data space. We have been among the first to introduce HSDPA, we have been among the first to upgrade at 3.6. Now we are bringing 7.2. In one of the previous conferences -- meetings I think we said that 7.2 was a hotspot type of thing. Now it's becoming more and more of a normal thing that we put into dense places. I think the coverage is 12%, 15% now. So we are going up and up. We are looking at the next level. So now 7.2 is being deployed but we are already looking at what is called 14.4 which really is 10 I think. And then we are already thinking -- I'm sure in Steve's departments there's people thinking about the 28.8. So there's plenty of room to grow with HSDPA.

Therefore it is already part of our CapEx. It's already part of what we do. And we are very convinced that mobile data is -- it's a compelling experience and it's a very important experience. We are there.

Now LDE, LDE is an evolution we have not yet committed. We are part of the trials with China Mobile and Verizon Wireless. We look with interest at LDE. LDE will bring another level. You're talking about -- depending whether it's on 10 or on 20 -- you can talk about 50meg or 50 megabits per second or even more. We will keep looking but for the time being we have a good platform, HSDPA. There are several steps that we can make.

Yes, it's Robert Grindle from Deutsche Bank. Will the activation of Indus Towers where you contribute your assets still be a free cash flow neutral event or will there be a benefit coming through there?

And why is it taking so long in Turkey to fix what previously was a very under invested asset? I think it was a turnkey project. Why is it so complicated?

And lastly can we expect management remuneration to more closely track your new focus on free cash flow rather than a mix of top line and other metrics you've had in the past? Thanks.

Yes. Let me take your questions in reverse order, starting from the easy one. Management remuneration is and will be more linked to free cash flow. Ours is already there and we will move the whole company more across there. So easy answer.

Second fairly easy answer. Why is it taking so long in Turkey. Quite frankly we have underestimated the complexity of -- or the state of the network situation. Honestly we have started. We thought that going quickly with -- we did also a pretty good deal with Motorola but we both underestimated, us and Motorola. And now we are running. So the network element of the thing I think has been very important. The brand has been taken fantastically in Turkey. The switch to Vodafone brand has been good. If anything we have not been up to the expectation. And now we want to be there and we are doing the right things.

Indus is a special case because Indus is clearly an infrastructure company. So the profile of cash flow of Indus will be different. You need -- it's a company which of course will create value for shareholders by multi-tenant agreement on the towers and therefore you need to put the CapEx in earlier. We will be working on how to crystallize and monetize the value that is being created but it is a slightly different cash flow profile.

Will, I think you had a question. Yes?

Thank you. It's Will Draper at Execution. I want just to ask a few things on India. Firstly with the entry of Telenor and the toughening of market conditions there how do you feel about that medium term guidance that was given out for 25% market share and 35% or mid 30s EBITDA margin? Is it time perhaps to have a think about that?

Secondly what are you expecting for 3G auction costs and the timing? I think that's coming imminently.

Thirdly, is India a market where you would consider in market consolidation to be an attractive option given the extremely competitive nature of the market and the large number of players?

And then lastly, is it a market, putting it the other way, that you would consider exiting at some point to generate funds for further investment elsewhere?

Yes. How do we feel about Telenor getting into the market? There's plenty of competitors there. So we feel like it's going to be only one more competitor. The -- we are still pretty confident that what we have been doing which essentially if you look at it is really two things. We are pushing ahead with CapEx and with roll-outs. So 2,000 towers per month. Getting into Spacetel, getting another 300m people potentially covered and accelerating the roll-out on one hand. On the other hand becoming more aggressive with prices is the right strategy, exactly for the reasons that you are indicating. New people are coming, you roll-out faster, you lower the prices, you create -- you build market share and then we'll see.

On guidance, we're not changing our views. We still believe that if you take out the one-off effect and the other things it could be a 30 plus profitability market.

And 3G options. They are coming in early '09 but I cannot really make any comment about expected values or any intention for reasons that I'm sure you understand.

In market consolidation in India, will it happen? Yes, it will happen. I think it's not now. This is the phase of build out. This is the phase of penetration. This is the phase where you need to bring the market from 27% penetration to whatever it's going to be. And there's a number of years for that to happen. And then things will happen.

Now recently they just made active network sharing possible -- a possibility in India which could actually change a bit the dynamics of these new players in different ways. So if you ask me, long term too many players -- very long term too many players in India. Probably, yes. But there is something in between in my view. Exiting India, I honestly don't think why we should talk about this today.

Yes. One more question here and then we need to move here. Terry and then back Justin. Yes?

Thanks. Yes, it's Darren Ward at Liberum Capital. My question is about SIM-only contracts. You seem to be quite a fan of it. It seems to be the perfect business response to a recession. Can you tell us what's been happening to the percentage of gross adds in Europe coming from SIM-only for you?

And in talking to some of your competitors recently they seem to have a limited appetite for it. Do you think you could try to lead the industry in that direction a bit? And what do you think could happen to your proportion of gross adds coming from SIM-only contracts going forward?

As everything in life or in business life I'm not for dogma. I'm for practical things. The practical thing is that if you look -- if you walk into a UK shop in these days people come in and they say I would like to have a better tariff. I would like to spend less and maybe if I renew my handset six months later it's fine. So this is (inaudible). So SIM-only and special conditions for non-hardware based contracts I think is a smart response to customer needs and is consistent with the concept of leveraging the scale of what we have which is the network and giving the customers what they ask for.

Is this a dogmatic approach? Absolutely not. We will always have customers who will want to have a new device, whom we want to attract by the way on our own new devices like the Storm that we have outside here. So the answer is SIM-only is going up, it's going up significantly. I don't know if Andy you have an exact percentage but it has gone up significantly. I see that several of our competitors are going in that direction. Some less convinced than us. But that's fine. It reflects the different nature or different customer bases.

But I would not make it as Vodafone wants to be a SIM-only company. We don't. We are so big and we have so many segments of customers that we need to give to every segment what the segment is asking for. So it's one of the many ways of addressing this phase.

Just for balance -- geographically balanced. Terry?

Thank you. It's Terry Sinclair from Citi. Can I first ask given that you've got fast data growth but mature voice in Europe how that plays into your appetite for more European spectrum? Is it getting more muted or more vigorous as data grows?

Secondly, a couple of questions for Andy. How should we think about the optimum leverage of the company, given that you've got a 70% fixed rate bias at the moment in an environment where interest rates are now coming down? How quickly could you move into a more flexible arrangement if you wanted to?

And perhaps allied to that, the very low tax rate you scored in the first half, will that last longer than the second half?

Yes. The answer on spectrum is easy. In general we are comfortable with the spectrum allocations that we have and there are some moving elements. However we will look at a country by country basis because we all know that spectrum over time it's always valuable. So at reasonable levels we might decide in some countries to get some. But as I said, we are not starved for spectrum. Andy?

Yes. So your two -- well let's take your last one first. The simple answer is yes, we do expect that to last beyond the current year. I think the new structures we've got in place and the new tax rates in some of those countries we can reasonably expect now to be there for the medium term. So not just a one-off blip.

In terms of leverage and interest rates, overall debt levels I think we are in a fine space and in the present environment I think we're comfortable with where we're at. We look pretty carefully in terms of interest rate, the amount we fix, the amount we leave floating, at rates of interest compared with historical trends and every quarter as we go through that we'll form views on it. So each quarter we'll be deciding whether we're going to fix forward again for another period or not. And you're quite right, in a period of declining interest rates then we may well change that mix as we go forward. But I think it's put us in good stead over the last few years that.

Let me go back and then we come here in the center. Justin?

Thanks. Justin Funnell at Credit Suisse. I think many shareholders will welcome the strategic changes on portfolio that you aren't talking about today. I guess the debate will move quickly on into how fast. It's not exactly a seller's market right now. Arguably waiting this long to sell assets -- it's not ideal timing. So should we be looking at this as a medium term objective or do you see offers on the table right here right now that you can look at?

Secondly on the cost cutting target, is it perhaps a bit conservative? Your own operating costs depending on your definition you're using were broadly flat in Europe in the first half. We're presuming there's an acceleration of cost cutting efforts going forward with the appointment of Michel Combes. So is that a beatable target that you've given us today on the keeping operating costs flat? Or in fact is there actually an embedded bare issue of revenues in that number?

And then just finally coming back to Spectrum, obviously you're increasingly caveating your free cash flow guidance excluding Spectrum. There's some big Spectrum decisions coming up I guess, not just Europe, not just India but Turkey. Can you give us a ballpark number? What should we be expecting you to spend on Spectrum over the next few years, just to avoid us being surprised later on?

Let me take the -- if I understood correctly your first question is how fast would you consider selling assets?

Yes.

I think I will really give you the simple answer. The simple answer is first we should be convinced that some assets are not performing and don't fit the strategy. And second we should have somebody who is interested. So it's a very classic process that requires reviewing our assets, reviewing our plans and if something is not there, as I said we are open minded and we will look at it. But I cannot comment on specific things because it would be clearly odd to do it without having gone through the processes.

On cost targets, I would resist a bit the concept that Michel has been asked to join the company just to cut costs. This is a concept that has been floating around in the financial community and I -- while of course I expect him to work on that, there is a bit more to do than just cutting costs in Europe.

Cost reduction is important as I said because we have to face where we are. We have programs and the programs we have described today and the number we gave today are things that we are comfortable we can execute. And please keep in mind this does not cover the commercial costs because we did not think it would have been neither wise nor a particularly serious thing to say we're going to cut commercial costs because those are to some extent determined by the market conditions.

So the answer is we have to work on what we control strictly and make sure that we maximize the commercial value of what we offer at the other end.

On Spectrum, I can pass the question to Andy but I refrain again to -- from expressing a number. We -- as I said, we don't need desperately Spectrum and therefore we approach these auctions with a very disciplined financial case in mind. For sure we need and we want to have the necessary raw material for our services which is Spectrum. But today we have in most places, not everywhere but in most places, we have what we need.

Shall we move Nick and then Andrew?

Thanks very much. Nick Douglas from Morgan Stanley. I just wanted to pick up on that point about capital allocation. Obviously it's good to see change that we can believe in from Vodafone in terms of the capital allocation policy shifting from expansion to execution.

But I guess one question is what the price of any change in policy is going to be because it's not necessarily the choice of buying or not buying that's the issue in the past but the price at which that's done. And so historically the sales I guess one could say have been at low multiples and the purchases have been at very high multiples, which from a -- if a fund manager did that obviously it might not be the best way to run the portfolio.

So on that subject is there any point still allocating capital to fixed? You haven't really talked about that very much but the Tele2 acquisition was quite recent but it's hard to see how that's benefiting the company.

Equally is all-in market consolidation good? T-Mobile in Austria might say maybe not. I guess the Danish in-market consolidation is questionable. Even Verizon Wireless, Alltel is going to result I think in quite a big exceptional charge that you'll have to take at some stage. So is in-market consolidation good in all circumstances and how is the fixed line investment really benefiting Vodafone today?

Yes. As I said before, this is not about dogmas. It's about very practical and very fact based disciplined evaluation. What we have changed I think from the past is a position on consolidation. We used to say no, just passive beneficiary of whatever happens. What has changed is that we have seen in several cases, and I agree with you, not all cases, but in several cases, significant value creation created by essentially cost synergies.

Now you asked me how are we doing in our acquisitions. I can tell you the Arcor integration plan is delivering exactly, actually a bit more, cost savings. Exactly what we had thought about when we purchased the last bit. Italy Tele2 is doing well. We are on track with the plan. What will be delivering in Italy or in Spain Tele2 is a bit more than just that because to be honest Tele2 relative to Vodafone we're talking about small things. It's much more on the -- being able to complete the offer for the customers, being able to glue different types of offers, mobile, broadband, into family concepts, rather than the sheer cost element of it.

But again, as I said in my earlier answer, we have financial criteria. We will look at the situations case by case. It's very difficult to make a dogmatic general position. We just want to signal that we recognize that there is a delivery element which is very important to factor into our evaluations.

Can I just double check on the Verizon integration costs. Do we have any steer yet what that's going to be? Because I presume there's going to be a one-off charge for the integration of Alltel?

Yes. They're just fine-tuning that as we go through it at the moment. So with the close coming up over the next couple of months we'll be clearer on that. We'll talk about it when we've got more specific information.

Andrew and then we go back again a bit.

Hi. It's Andrew Beale from Arete Research. On Verizon you've given some slightly conflicting messages. You said both you're open minded and it's a deepening partnership. I guess it's difficult to see it being both. In devices, you've obviously integrated a lot more, you've got LDE in the medium term bringing you closer together, you supported a bunch of acquisitions that they've made. Should we not be reading it as that you are getting steadily closer to them rather than you being truly open minded?

I don't think I gave you conflicting messages because the reality is what it is. We are close to Verizon and there are opportunities to cooperate more with Verizon. So what shall we do? Not leverage on these opportunities? Should we not go to RIM and get the Storm? Should we not cooperate on global accounts? Should we not try to make sure that when we converge from a technological point of view we have the same platform and same thing? Of course we should.

And actually times are evolving in a direction where we can cooperate more. Now that does not mean that from value and from a shareholder point of view we keep an open mind on what happens, because clearly this is an investment. This is not a business that we manage. It's a business that they manage. Therefore we have to keep an open mind on what happens. But I would think that most shareholders, most investors would not like that we do not cooperate with Verizon and don't leverage on what we have today.

No. I wasn't suggesting that. I just thought it was more natural that you're getting closer rather than actually thinking about disposal. That was my reading of the situation. But also could -- just in terms of M&A generally, are there assets today that you think there is a ready buyer and don't meet your return criteria? Are there assets that actually fall into that category for you, right now?

The easy answer is that if the Board had seen assets underperforming and had offers to make, for sure, look at those assets and decide to do something. But again, this is a continuing regular process. So its part of the life of the company. Yes. There and then we go back and we come back that place.

Hi. Graham Ruck from Merrill Lynch. With the increased focus on free cash flow, it just seems that the revenue guidance is less and less relevant. But at the same time in Q1 and Q3 you are updates are mostly focused on revenue. I'm just wondering if moving forward if there is a way that there could be some changes coming in terms of how you think about the guidance. I guess probably for next year now.

Do you want to take it, Andy?

Yes. I will do. A very, very good question. Especially in the light of what has happened. I agree directionally with you. The key thing really is about the cash flow, the profitability of the business and we will be getting some views as to whether the revenue guidance actually adds a whole lot as we go forwards. So I exactly agree with your point.

Good show. More a bit here.

Yes. Thank you. Michael Armitage, Blue Oar. Just to pick up your closing comments on wanting to leave the business more flexible and simpler and you mentioned right at the beginning, investment in an ERP system. I wonder if you could just give us the whole shopping list of things that you see happening organizationally to deliver --- to take Vodafone from being a very large, pretty cumbersome beast to one that is very agile and responsive? I am thinking is it more devolved or is it more command and control? Is it investment in IT and reporting systems? Is it greater delegation to mid-management? Is it an elimination of content obsession? What do you do to make it a simpler organization?

I would give you the simple answer. We need to share as much as possible the technical platforms because clearly that's where they create the cost benefit. And by having the same technical solutions deployed, even if physically they're not the same, you can at least purchase them together and you can leverage on your scale. And this is on the back hand.

On the front hand I am very convinced that we need to leave the markets managing the customers and we need to leave the markets basically doing the right things depending on the local culture, local pricing, local competition and whatever is the situation they operate in. And as a glue for the company we need and we have a big project that Andy is leading. We need to have a very, very effective shared ERP systems to reduce the number of people and the number of interactions between different parts of the world just by sharing a common management system, as you would do if we were just funded today and we started operating as a single entity today.

So it's really three things. Very strong direction to sharing and putting in common everything that is on the back hand where the big costs are and Steve usually leads most of these things in an I think fairly effective way. Strong autonomy to the markets to really do what's right for the customers and what's right for the market. And IT as an important element for keeping G&A costs and overheads low.

Yes?

Thanks. It's Mark James, Collins Stewart. The 40% of costs that are market driven, you say it gives you scope to adapt in the event of greater economic pressure. I just wanted to be clear. Do you think those costs will grow faster or slower than revenues for next year?

It's market driven. It's a market by market thing and it's market-driven, it's competition driven. So it's very difficult to give an answer. I think that the best players in the industry will manage to control the dynamics of those costs better than the others. But it is an interactive type of game. It's difficult to give the answer. I think in meetings like here several times I have said that in certain markets it seems to me that the dynamic of those costs is not right but it's still there. So I will refrain from making a prediction.

James Hutton-Mills from Toscafund. A couple of quick questions. Just returning to the theme of costs. In terms of the billion, can you give us a little bit more in terms of profile? Is it going to be front end loaded, is it going to be back end loaded?

Also is there anything you can say more about geography? Will it be more focused on regions, which have been somewhat disappointing or is it across the board?

And then perhaps to return to Justin's underlying question, how aggressive do you feel this billion is? Are you very happy with it? Do you think that if global growth was to disappoint in some way you could be more aggressive on that target?

And then lastly, just in terms of the regions. As you look across your different regions, which region would you say you are, say over the next 12 months, where are you most confident on margin improvement and where are you least confident on margin improvement?

Andy, why don't you take the cost questions and I will give an answer to the last one?

Yes. There are a huge number of projects that we've put in motion now to drive the next tier of costs out. A couple of years ago we put in place a lot of things. We've been very successful at holding the operating expenses flat despite the volume growth in the business. And there's a whole new swathe of ideas that we shared with you here. Some of those are quicker to implement than others. Some of them are going to take some time. But we are certainly not going to have these being back end loaded. We will do as much as we can to make sure that we get traction on them as early as possible.

In terms of geography, I don't think I'd look at it specifically in terms of geography. Obviously the bulk of the cost sits in Europe but we are doing a lot of comparisons for all of our operating businesses against external points of comparison. Each of the businesses has got the metrics to know where they are short or where they're doing better than the competition.

So quite a lot of this is actually being clinically targeted at particular businesses and particular processes within businesses. How aggressive? Ask people in the business. They feel this is being pretty aggressive. But frankly cost is a journey. And I think just as we go forwards, if there is even further revenue pressure on the business obviously we'll have to look for the next tier of things. But at the moment this tier of the billion will be a good occupation for a number of us for a period going forward.

Yes. On the regional question, I have to say again it is what we would expect. Middle East, Asia is driven by India which is growing very well and Egypt is doing fine and Pacific we still are growing well. So I see it as a growth story and a positive story. Central Europe and Africa has Turkey as a key focus turnaround. I would not be surprised if we had to invest in Turkey. We continue to invest to improve our position in network and in distribution. And as I said in the presentation, if you ask my concern is clearly not margin in Turkey. It's the opportunity that we don't want to miss.

And in Europe it will be essential to work on costs. I think the coming year, the coming 18 months it will be essential to work on costs. So depending here -- I have to go back to the earlier comment. It depends on how fast and how deep Michel will really be able to do it while in the meantime we work on data and enterprise and on broadband. But this is a bit different profiles for the different three regions.

Yes?

Thank you. Petri Allis of Redburn. Two questions if I may. First on the issue of past negativity on becoming a bit pipe and now clearly that's much less of a worry as long as you are efficient and a good quality bit pipe. What's the role going forward for content applications for you or with your partners? Or indeed are you moving towards mutual open access world on that?

And then the second question, going back to the super flat tariffs and such in Germany and other countries. To what extent are you seeing potential acceleration in fixed substitution and are you explicitly going to push for that given that you have less of a legacy to worry about than many of the number ones in the European markets? Thank you.

Bit pipe. Nothing wrong with being a bit pipe if it's an efficient bit pipe. What I have a problem with is the adjective that usually is in front of the bit pipe which is dumb. The dumb bit pipe. That I don't think is the case. We want to be a smart bit pipe where smart means that we have few elements of our delivery which we think are extremely powerful and extremely important for the customers. And you're talking about the billing capability. You're talking about the profiling capability. To some extent you're talking about the location information. These are things that will make the difference between a dumb pipe and a smart pipe.

So we want to be efficient. Given. But we also want to be smart. Because that is what will defend the value in our business. So no problem with the pipe thing. A bit of problem with the degree of brain that we want to have and we have the ambition to have.

Do we want to work on operating systems? No. We don't have the ambition to influence. We work with everybody and all operating systems are fine. Do we want to work on applications to make the customer experience seamless and working well between the address book, the billing, the location? Yes. That we want. And that is what the group that works for Frank Rovekamp headed by Peter Knook is working on. He's working on making that layer which is necessary between the operating systems and the customer experience work well and work with a value added from Vodafone.

Super flat. Your question was?

The issue about going after fixed substitution more explicitly?

Yes. I see it as an advantage that we have to be honest. As I said before, we don't have to be dogmatic. If a market is more driven by fixed mobile substitution we can play more fixed mobile substitution. If a market has segments that actually are more for the converged or at least for the unified relationship we are putting in place the assets to be able to provide that.

But again we don't have a big legacy to defend and we can do the right things. And again in Germany it's interesting because to some extent in Germany we can play both strategies because we have Arcor and Vodafone assets put together. But we also can push more super flat tariffs. So I think it's an advantage relative to the incumbent competitors.

Thank you.

Thank you very much.

It's Stephen Howard here at HSBC. Two questions. Firstly on the scale side of things. I'm glad to see this getting so much attention. I was wondering if you'd agree with the following proposition which is that historically Vodafone maybe hasn't made the most out of scale in terms of the unit cost advantage to make life uncomfortable for its competitors? Now I can see that it's done a lot for you in terms of profitability. But would you agree that in the past it hasn't perhaps been leveraged as aggressively in the marketplace as it might have been? I'm just trying to gauge how your attitudes there may now have changed and how much more aggressive you might be prepared to be?

Second question just regarding deregulation. There've been a couple of interesting documents out recently. Quite a robust piece I thought from Ofcom. Also ARCEP talking about termination rates. I was just wondering if we could have an update on your thought process there? Thanks.

Sure. I'm not sure I agree with the fact that Vodafone has not made -- as I said in my presentation, when we announced the OpEx and the CapEx targets there was a bit of skepticism. And now we are proving that we're doing it. It just takes time. This is a huge company. It takes time to -- we have put together the company from different legacy systems with different infrastructure and it takes time to make the margins. The work that Steve Pusey is leading is actually to have a single new generation network in Europe which takes time because you have to -- and you also want to do it without throwing away money. So I don't think I would agree on the fact that (inaudible) didn't have the intention to do it. It just -- have to do things in steps.

On regulation, I don't think I have a lot of updates. There is on MTRs an aggressive position of the Commission. There are countries who have already made decisions in different directions. The Commission doesn't have the power to enforce this thing. They have a persuasion role. And it will take some time. So I cannot update you much more.

On SMS and data roaming it's 1% of our revenues. I think things will progress as we have said in the meetings that we have got one on one and things will go the way they have to go. Today I would say I don't see a big impact -- anything different from the last times. This is my conclusion.

I will take one more question but really the last one because unfortunately time is running short. Please?

Christopher Nicholson from Oraca. Unless Vodafone really thinks there's nothing left that it needs strategically in its footprint in any way, it strikes me as slightly odd that this would be the time to put out into the market that you won't be making any significant acquisitions, if I've heard you correctly. Because the implied statement is that you don't see anything else that you could possibly need. And this looks like an opportunity over the last three months, perhaps the next 12 months that might not be repeated in any sensible horizon.

I don't think we have ruled out acquisitions. We just have said that we have first to deliver where we are. Because where we are, as I said before, opening seven new servers in India is basically like doing a big acquisition because you are adding a lot of coverage and a lot of infrastructure.

I just said that we need to be cautious and selective in approach. And also we have to think that not many big countries have been -- are left basically. So we wanted to highlight the execution has a priority and delivery has a priority. And in looking at the few remaining large opportunities we'll be fairly disciplined because we are aware that first we have to deliver where we are.

Does that answer your question? Good. I would like to thank you all very much for this very long session and I look forward to meeting you individually.