Vodafone Group PLC (VOD) 2009 Q2 法說會逐字稿

Good morning. Good morning, everybody. Good morning, and thank you for coming to our interim results presentation. The agenda is the usual one. I will go through the highlight of results, the key trends, and guidance. Then, Andy will do the usual financial review. And then, I will get back and discuss the operating environment of the major markets, the progress with our strategy, and the key initiatives. And then, we will have the usual Q&A session with Andy and the regional colleagues and the [City], who are in this room with us today.

So, let me start with the first half. In the first half, revenues and EBITDA have grown 9.3% and 2.9% respectively. On an organic basis, revenue has declined by 3% and EBITDA by about 8%, in line with the expectations when we set out our guidance in May.

Operating profit, at GBP5.9 billion, is up 2.4%.

And free cash flow, which, as you know, is our core focus, is up 29.1% at GBP4 billion, with some benefits coming from the receipt of GBP164 million of Verizon dividend and a few other elements.

The Board -- EPS is up 16%. The Board have recommended an interim dividend of 2.66p, up 3.5%.

And the customer base is 323 million at the end of the quarter, up 16%, with India, as always, being the major driver.

So, my summary of the quarter, first of all the operating conditions. The operating conditions in Europe have been slightly better than expected. Or if I have to say it, I would say they have not worsened recently, with continued pressure on the economic front and I would say a similar competitive intensity to what we expected.

In Africa and Central Europe there has been slightly worse economic conditions. India continues to have good economic growth, although competition has intensified, as we all know, recently.

In this context, we have accelerated the GBP1 billion cost efficiency program, closing it by the end of this year, which is one year ahead of the plan. And this will enable us to offset some economic pressure from the environment and to invest in our growth opportunities.

And today, we also announce a new GBP1 billion cost efficiency program, which has to be delivered in the next two years, as we deepen and broaden our efficiency plans.

We are also making good progress versus our November '08 strategy; 20% data revenue growth, 9% broadband growth. Good progress in delivering new IP converging products, both in consumer JIL 360, that you have seen outside of this room, and IP converging services for enterprise.

And our free cash flow, which as I said has been -- has generated in a nice way in the first half, has been generated without cutting back on investment.

So, moving to guidance, based on what we have seen in the first half, our guidance for '09/'10 is confirmed. Profit is in line for the first half with the May view of the full-year. Cash performance is strong. And we expect now cash flow to land around the upper end of our guidance range.

Please note that we have not tried to reforecast exchange rates, due to volatility. I think Andy will cover, in his presentation, the sensitivity to exchange rate.

So, let me now hand to Andy for the financial review.

Right, thank you very much, Vittorio. Good morning to everybody. I'll go through, quickly, the high level on the financials. Key numbers here, GBP21.8 billion of revenue, which is an increase of 9.3%. About 8 percentage points of that was from foreign exchange, about 4 percentage points from the M&A, particularly Vodacom and the increase in the stake there.

And underlying, about a 3% reduction in the revenues for the Group on an organic basis. The key components of that; Europe, stabilizing, I think we come on to that on the next chart, and one or two of the other markets, like India, still growing but growing at a slightly slower rate.

In terms then of key other aspects of the revenues, the data revenues were up about 20% year-on-year. The last quarter, if you take that at an aannualized basis, about GBP4 billion of annualized revenue stream now coming through from the data products.

And also on the fixed side, with a push into fixed, the fixed growth about 9% on a year-on-year basis. In the half-year, we sold 320 billion minutes, which was an increase of about 20% on a year ago.

The EBITDA, GBP7.5 billion, was up by 2.9 percentage points at a headline level. Within that, the margin was down about 2.1 percentage points year-on-year. So Europe, margins down only 1%, we'll come on to this later but very good cost control there; and in addition to that, the investment in the Turkey turnaround; and the margins having come down a bit in India, as we talked about at the end of the year, making 2.1 percentage points the overall number.

That was probably about 30/40 basis points worse than we had expected when we set the guidance. Really, three contributory factors to that. One, we had some flood damage in Turkey, which we took the cost for; secondly, we have invested a little bit more in the turnaround in Turkey, seeing as we're seeing good momentum there, which Vittorio will talk about in a minute; and thirdly, the competitive environment in India towards the back-end of the half-year.

The adjusted operating profit was GBP5.9 billion. That was up by 2.4%. And that, in conjunction with slightly lower than expected financing costs, tax costs, and intangible amortization, resulted in an EPS number at 8.72p, which was increase of 16%, albeit about 14.5% of that is foreign exchange benefits.

So, moving then on to the first of three regions, Europe and the service revenue, the top left-hand chart here is tracking the quarterly change in the service revenues. And I think the good news is that the last two quarters have now stabilized. 4.4% reduction in the first quarter; 4.6% reduction in the second quarter.

Voice usage trends and data, encouraging; we're going to come on to those on the next chart. But also, we had good growth on contract net adds. They ran roughly double in the second quarter, the level that we had in the first quarter. And the fixed line growth, as mentioned, also pretty strong.

On the top right chart, here you can see the walk between the first quarter and the second quarter, so, 4.4% in the first quarter. Mobile was actually slightly better, up by about 1.3%. Fixed was up by 0.3%. And then we had the regulatory drag, particularly the UK MTR cuts, as expected, and the SMS rate cap, again, both as expected, to come out to the 4.6% number for the second quarter.

Just looking then at two of the drivers behind that. On the top left here, you have a chart on the outgoing voice and on the top right a chart on the data. So just on the left-hand side to start with, the trends on outgoing voice, first of all, the price per minute decline still at around the 10% levels. So, fairly consistent with the previous quarters.

But the usage, actually stabilizing at about 2.8%/2.9% increase after a number of periods of decline. Two drivers, I think, behind that. One is the push we have had to put value-based propositions out into the market to encourage exactly that effect. And secondly, possibly, some evidence of stabilization of the general economic environment externally.

On the right-hand side, the data growth has again stabilized. So we have been, give or take, 18% for each of the last two quarters. A strong performance there, particularly driven by PC connectivity, where the revenues are up by 21%, and also by mobile Internet, where the revenues were up by 30%.

Now, on the cost front in Europe, which is an area that we have been putting considerable focus on, and Vittorio will talk a little bit more about this later on, what we've done is taken three dimensions here and looked for each of them at three successive half-years.

So if we start with the top left, this is the total cost, the total P&L cost, plus CapEx, three half-years ago those were rising; two half-years ago those were just coming down; this last half-year, those have come down by 3.3 percentage points.

The middle chart here is doing exactly the same. But just looking at the total P&L costs, so taking the CapEx out of this, and again trend is three half-years years ago rising; two, we were basically flat; and this last half-year we have actually come down again by 3.3%.

And then on the right-hand side, exactly the same done but this time just with the overheads in the business, which were growing 2%, then flat, and are now coming down by 1.3%. So I think there is now good momentum on the cost reduction.

The key factors behind that, we have got some reductions, some favorability on reductions, on some of the direct costs because of the MTR cuts. We have got some benefit coming through from the overheads. We have got A&R fairly stable across both periods. And then, we've got slightly extra costs for supporting some of the fixed line initiatives.

So that's the overall profile. But as I say, Vittorio will talk more about what we're going to do on costs next later on.

So, change of region, Africa and Central Europe. 3.2 percentage point reduction in underlying organic revenues on the top left there; a benefit from foreign exchange, about 6 percentage points, primarily to do with the South African rand; huge increase because of the accounting for Vodacom particularly, and to some extent the Ghana acquisition being in there; and hence the overall headline rate of increase in service revenues of 34.6%.

On the top right-hand chart, we have picked South Africa. And you can see there, again, very strong performance, strong player; number one player in the market. Again, 7% -- 7.1% revenue growth for the second quarter running.

And then on the bottom left, two slightly divergent trends. In red, you've got Turkey. So we've obviously been going backwards on the revenue there, but that has been improving quite markedly over the last couple of quarters. Again, more commentary on this one later.

But in contrast, in blue, the other Central European markets, where generally the macroeconomic conditions have been very tough indeed. And hence the rate of revenue decline there, on an annualized basis, has been increasing, although actually quarter-on-quarter more stable. And commendably, in those businesses, a huge focus on cost control. So actually, the margins have remained reasonably stable within those countries.

So overall for the region as a whole, the margin is down about 4 percentage points, first half on first half. About half of that is because of Turkey and the push on the turnaround, and about half of that is the M&A effect.

So third region, Asia Pacific and Middle East. The organic revenues up 12%, add some foreign exchange benefits, mostly Egypt, deduct a small amount because Australia is no longer included in the revenue numbers. And the reported increase in revenues now at 17.8%.

On the top right, you can see that over sequential quarters. So the rate of growth reducing, but nonetheless still in double digits.

And then on the bottom left, you can see the increase in customer base size in blue. We have got India, so now 82.8 million customers, which is up over 50% on a year ago. And in red, the other countries in the region, where again you can see a steady and progressive increase in the customer base.

Overall, margins in the region down 3 percentage points. The majority of that is India, with a smaller effect from the acquisition and the start-up in Qatar.

Moving then onto the US, Verizon Wireless, the numbers there published a few days ago. Again, business still continuing to grow, albeit the rate of growth is slowing. So 5.8% growth in revenues on an organic basis in the most recent quarter.

On the top right, the EBITDA however continues to decline, in part helped by the Alltel acquisition, which is going and being integrated exactly on plan, at $11.8 billion of EBITDA in the half-year; so nearly $2 billion per month.

Non-voice revenues continuing to decline significantly. And the EBITDA less CapEx cash proxy at $8.8 billion for the half-year. So considerable cash generation. Verizon Wireless now accounts for 34% of the Group's adjusted operating profit.

On that subject, last year's adjusted operating profit for the Group, GBP5.8 billion, this year GBP5.9 billion. If I move just quickly across the page, a reduction from the EBITDA contribution. D&A then has been slightly increased because of the accounting for Vodacom, the increased contribution from the US in the Associates line, M&A which actually is also Vodacom related, and then foreign exchange benefits, which are split fairly evenly between the euro and the dollar, to come to the GBP5.9 billion number for the most recent half-year.

On to financing costs. The financing costs top line here is the costs on the debt. So GBP559 million, which is an increase of 28% on last year.

Two moving parts there. One is, the debt levels being higher, 31% higher, largely FX driven. But on the other hand, as shown at the bottom of the chart, the average cost of debt has dropped from 4.6% a year ago to 4% now.

Then increased income from investments, reduced level of accrual for interest on tax settlements. And the net effect is the adjusted financing costs of GBP430 million are down about 11% year-on-year.

On taxation, the effective tax rate for the first half was favorable; 21.5%, due to a couple of settlements of longstanding tax disputes, where we will actually make payments in the second half of the year. So overall, we still expect the full-year average effective tax rate to be in the mid 20s. But the profile of that has been slightly beneficial to the first half of the period for that reason.

In terms of some of the bigger tax issues around. The CFC case, we are currently awaiting an answer to the question as to whether we can appeal the latest ruling to the Supreme Court. And we hope that we will get an answer to that in the next couple of months.

On the non-CFC issues, the longstanding tax issues, I'd say there's probably GBP0.25 billion that I think we'll settle in the second half of this year, and maybe about another GBP0.25 billion thereafter. But that will essentially be the end of those.

And then, on the India tax issues, which I'm sure we're all familiar with, we received what is called a show cause notice from the Indian tax authorities a few days ago. That was entirely as expected, as part of their normal process. We have been busy reading that with our advisors. At this point in time, we are not seeing anything new in there. And, therefore, we remain absolutely of our view that we do not and should not in the long-term have an exposure on that front, but nonetheless will have to go through a process in the meantime.

Capital expenditure. We have got GBP2.6 billion of CapEx in both half-years, the first half of each year. So broadly, the overall numbers are pretty similar. There is slightly more in here for Vodacom, again because of the 100% accounting. There is a little bit lower on India. But broadly, the numbers are pretty similar. The capital intensity for Europe and the Common Functions was 8.8%.

So looking forwards to the full-year, we still expect the CapEx to be roughly where we had said it would be originally; so around the 10% capital intensity. And probably would see a little bit less spend in India and a little bit higher spend in Europe. But overall, pretty similar to where we had expected to be at the start of the year.

Now, free cash flow. Very, very strong free cash flow for the half-year; GBP4 billion. The first time we have done that. Just doing the walk here, GBP3.1 billion in the first half of a year ago. Increased contribution from Europe, albeit obviously FX played a part in that. The AP&ME region, Africa, has contributed a little bit more; some pretty tight control there of the Indian working capital.

Then we have, on interest, got slightly higher interest expenses just due to the higher debt levels. The dividend income is slightly higher. Remember, we got the deferred Verizon Wireless dividend receipt, which has come into this year, which otherwise would have been in last year.

And then, on the tax front, due to the timing of some of the tax settlements, we have actually got slightly lower cash tax cost in the first half of the year.

So overall, we've generated I think it's 7.62p per share of free cash flow; up 30% year-on-year.

If I look to the full-year, just -- we have said -- and Vittorio's mentioned this, that we now think we'll be around the top end of the range. I know if you multiply these numbers by two, you get to numbers higher than that. But just to observe that in these numbers, we've got the one-off benefit of the Verizon Wireless tax dividend.

The CapEx profiling is obviously back-end loaded and the tax payments also have tended to be a little bit beneficial in the first half, and will be slightly heavier in the second half. So hence why we think around the top of the range is where we should end up.

The net debt. This is walking through from April 1 to the end of September. The short story here is we started at GBP34 billion, we ended at GBP34 billion. So not a huge amount of movement there. Included in these numbers is about GBP3.3 billion of put option accounting.

The key moving parts, the GBP4 billion of the free cash flow that I've just referred to; GBP2.6 billion out for the M&A; equity dividends, the final dividend at GBP2.7 billion; and then the FX has actually given us a benefit this time round. So overall, GBP34 billion and very much in line with our low A target credit rating.

So in overall summary then, I think we have controlled, particularly on the cost front, well. We are getting the cost now on a downward trend which is, I think, good news. The free cash flow obviously again, also a very, very strong number for the half-year.

Just on the adjusted operating profit, as Vittorio mentioned, we haven't changed the FX rates in that. We have assumed implicitly in it that we will have the same FX rates as the EUR1.12, $1.50 that we had at the start of the year. We have assumed within that, that we will get slightly slower depreciation amortization, about GBP8.2 billion now forecast for the full-year.

And we're assuming roughly that the EBIT trends we've had in the first half, we will see going through the balance though it'll be a little bit difficult to predict. We'll get some benefits on the cost side. There'll be a little bit more investment on the commercial side in Europe. And the India situation, obviously, could put a little bit of pressure there. So directionally, similar order of magnitude on that.

And in terms of the CapEx, we're saying the numbers will be very much as we expected them to be at the start of the year.

So with that, I will hand back over to Vittorio.

Good. I would now like to cover three things. First of all, how is the economy impacting Vodafone, and how do we see the future; what's the performance in the major markets; and the progress vis-a-vis our strategy and the key initiatives. And then, I will sum up with the key focus for the period ahead. So let's start from the economy.

First of all, GDP growth. We presented in May an IMF view. Things are basically forecasted to see a modest return to growth in Europe, a better return to growth in South Africa, and continuing positive growth, about 6% in India. On the other hand, in Europe, as you all know, there are some unemployment concerns, as you see in the chart.

Coming closer to Vodafone, which I think is interesting for you, what are we seeing? Well first of all, we are seeing that for the first time, for the first quarter, the decline in revenue growth, which was continuing throughout the different quarters, seemed to be stabilized, plus 2.8% versus plus 2.9%.

On the other hand, we see a continued decline in roaming revenue. And minus 14% of this quarter is almost mathematically exactly what Vodafone is experiencing in terms of reducing our own travel costs. So it seems to be -- and it's very consistent with other indicators about international travel.

Enterprise revenue is still negatively affected, minus 5.1%, but less negative than in the previous quarter, minus 5.6%. And at handset volume levels, we are seeing a return to growth in terms of total volume of handsets that we are distributing, with polarization continuing. So more handsets at the low end, which clearly is an indicator of the fact that there are some household budgetary concerns. But also, good presence of smartphones, which is very good for our data business.

In Central Europe, as both Andy and I have said, weaker economic conditions. South Africa stabilizing. And India, with economic growth continuing but competition which has intensified recently with pricing moves from some of our competitors.

So what are we basing our guidance for the rest of the year on? I would say some positives clearly, some negatives clearly. And overall, I would say the situation has not yet materially changed versus the month of May, when we have issued our guidance.

Moving to the specific operations. Let's start with Germany. In Germany, Q2 service revenue declined by 4.9%, which is in line with Q1, with a small improvement, as you see, in mobile and in fixed, offset as we expected by MTRs and roaming.

In Germany, our mobile consumer market share is under pressure, I would say mostly, if not exclusively because of the iPhone. But there are also some positives. We have net adds in the Q2 contract, net add additions at 171,000 adds. The first quarter number was 34,000 adds. Data going up 17%. Fixed line back into positive space, plus 2%, with a very strong net add market share. I think we had a 30% market share in the quarter.

We have reduced cost in Germany. Total organic costs are down 1.3%. And by doing this, we have softened the impact on the EBITDA margin, which has been 2.3 percentage points.

I would say, the summary is that in Germany we obviously need to push harder commercially. And we'll do it on the mobile Internet side, with smartphones, on the prepaid plans that we just relaunched, and on all the bolt-ons connectivity programs, both on the fixed and on the mobile side.

In Italy, we had another good performance within an economic environment which is slightly weaker than in the past. Q2 revenue increased 1.4%, as you see in the chart. In mobile, there was a bit of a slowdown in consumer prepaid, which offset a very good data performance. Data up 24%, with 43% growth in the consumer mobile Internet part of it, which is an important thing that you will see across all of our countries.

Double digit growth in fixed; 26%. Again, leading net add market share in Italy as well, 173,000 adds in the six months. And consumer contracts up 19%.

In Italy, EBITDA margin has gone up 1.1 point. We have cut customer costs 3% and kept total organic cost stable.

So focus going ahead in Italy; SME and SoHo especially with the converging offers. And, of course, continuing to push on mobile data and on DSL.

Moving to Spain. Spain economy remains, as we all know, challenging. In Spain, with unemployment which is now at 18%. However, we have got an improvement in Q2, with revenue decline of 6.9% and, most relevant, an underlying improvement in both mobile and fixed, 2.4 points as you see in the upper end of the chart.

Organic service revenue trends continue to improve, with total minutes in the quarter stable. This was against a minus 5% in the previous quarter. Data plus 17%. Fixed, as in Italy, accelerating, plus 20%. And instead, some weakness continuing at the enterprise level, linked to the clear -- clearly linked to the state of the economy.

In Spain, EBITDA margins have been broadly flat; 40 basis points of loss. Again, done through a good job on organic costs, which were down almost 7%.

Focus initiatives going ahead; value enhancement, the Tarifas Planas that I described in one of the previous meetings. DSL, now we have a national bitstream distribution agreement. And one particular focus for Spain will be on retention to handle churn, which in a compressed economy is very important.

My overall take of Spain is that now we start seeing good progress of the actions that we have put in place 12 months ago. Of course, we need to continue.

Moving to the UK. UK is another economy which is weak. With the UK business delivering an underlying Q2 revenues that were stable versus Q1, with some small improvement, 0.3%, on mobile, and the expected impact of the MTR cut, which was in line with the guidance.

Here we had, again, a good contract net add performance; 275,000 [sic - see Presentation] net adds, which is accelerating. A very good, actually the best performance of our four larger European opcos in data, plus 25%. And an important element of this has been the consumer mobile Internet part of it, 73%. And, as in Spain, enterprise is under pressure because businesses are rationalizing cost.

EBITDA margin lower, 2.7 points. Here again, we have softened the impact of the service revenue decline. We're working on cost, with OpEx down 5%.

Key initiatives. We continue to reposition the brand. We did it to increase the value perception of the brand over the summer, with roaming and Freedom Pack. We have launched Vodafone 360 and we are about to complete our product range with the iPhone, in the beginning of the next year. And again, having a very strong mobile Internet capability was very important to prepare for that.

We have signed the new distribution agreement with Carphone Warehouse and Phones4U which we are now basically at full speed. And we have introduced converging products in the enterprise segment.

Overall take, I think we're making some good progress in the UK but we need to remain focused on commercial recovery, on innovation and on cost reduction.

India. India overall remains an attractive market. It's a market where GDP growth is estimated at above 7% for the coming five years. It's a market where penetration is still just above 40%. There's 600 million more Indians that need communication. And in India, we are doing, as Vodafone, well. Q2 revenue was up 18%; 12% if you look only at the mobile part of it. Customers up 54%. Usage up 34% and prices down an average of 15%.

So, in this context, we have gained revenue market share, which is now around 21%. And we have got a decline in EBITDA of 4.4 percentage points, which is mostly linked, I would say two-thirds of it linked, to the entry into the new seven circles.

Let me say a few words about competition in India, which I know has been widely covered recently. Clearly, competition has intensified in India with 12, I would say, aggressive competitors. We believe that competition will remain vibrant until consolidation occurs.

To continue to be competitive, we at Vodafone have launched per second billing tariffs as well. This was less than two weeks ago, and we already have millions of customers on this new tariff. So we have been quick, and we are competitive. And Nick Read is in the room, we can comment further later.

So the economic situation of India is good. Competitive intensity high. We have to be disciplined in scrutinizing our CapEx. I said in May that we would review the margin of profitability in all the circles. We now are planning to invest a couple of hundred million less than planned in India, in the new circles, where we see that the returns from the customers today are marginal.

Overall take, we are very well positioned in India. We have a very strong brand. We have 1 million points of sales, very powerful distribution. We have at our Company with 100,000 towers, which has scale and in some ways will be a magnet for consolidation of infrastructure. And of course, we have good competencies, when the data [world] will come to exploit also that opportunity.

Moving to Turkey, I'm glad to report that in Turkey we are making progress on our turnaround plan. And today, I can also show some evidence of that in the numbers. Q2 revenue decline was 4.8% in the quarter. Most important, quarter-on-quarter, revenues were up 12%. So the Company is growing again.

We have very good mobile number ports. You see in the bottom end of the chart, 704,000 net add positive ports in the quarter. And total net adds are also up, for the first time in over 12 months.

Incoming usage is up. Clearly, due to the cross-net tariffs that have been introduced in the market. But also, outgoing usage is up 29% for us. And total ARPU is at 8%.

The network is now comparable in quality to the one of the main competitor. We have launched 3G. And as I had hinted in my first quarter announcement, we launched 3G in as many cities, 81, as the main competitors.

And distribution, finally, we now have 857 exclusive distribution agreements in the country.

So, overall take of Turkey, clearly, it is a challenging competitive environment. But our turnaround plan is gaining traction and we are going in the right direction.

Focus for the months to come; we need to continue the turnaround, we need to build the brand in the country, and to rebuild our revenue position.

I will not cover a lot Vodacom, because they announced yesterday their results. Few sound bits; first thing, clearly, very good position in South Africa. We are number one in South Africa; plus 7% of revenues; plus 12% of customers; plus 35% of data.

The EBITDA margin is up in absolute terms, slightly down in percentage terms, to preserve our leadership position.

Outside of South Africa, the economic slowdown has impacted Gateway. The price competition and the slowdown have impacted a bit to the DRC in Tanzania. The MTR discussion is ongoing, and we expect some change next year, with Vodacom fully engaged in the discussions with government.

So this is -- I would say this covers what we are doing commercially in the main operations.

There are a couple of aspects of our strategy review that I presented to you 12 months ago that I would like to cover. The first one being cost, and the second our growth engines.

Let me first cover the cost. Last year, we announced a GBP1 billion three-year cost efficiency program, that was meant to offset the competitive pressures, some inflation on costs, and to give us money to invest in our growth opportunities. In light of the challenging environment, we have decided to accelerate the plan and to deliver these savings by the end of this year, which is one year ahead.

The chart shows the European part of the GBP1 billion. As you can see on the chart, our cost, based on '07/'08, would have gone up GBP0.5 billion, due to traffic increase and some kind of inflation that we have in our cost base. We have been able to reduce GBP0.9 billion, mostly 50% coming from technology and leveraging scale; 30% from marketing and commercial operations; and 20% from overhead.

We -- by the end of this year, we will have reinvested GBP0.2 billion, mainly in DSL roll out; in IP consumer and business products, 360 JIL enterprise; a bit on direct sales and distribution in places like the UK, where we needed more distribution.

And we have left -- we are left with GBP200 million net that we can either use to enhance the margins or reinvest commercially.

Going ahead, this morning we announced a further GBP1 billion OpEx saving program, which we will target for the next two years, and so for by the end of '11/'12.

The areas where this program will be focusing are the same ones that you would expect. So, mostly technology, where we are now really leveraging our scale. And here we're talking about further evolution of our IT outsourcing; extension of the IT simplification outside Europe; acceleration of network sharing; and consolidation, where we can, in Europe of our access and core service management.

We have some efficiency and effectiveness initiatives in the commercial area, mostly call centers and logistics.

And of course G&A, through concentration of our purchasing in the Vodafone procurement company, which now is fully operational and is delivering results, and some kind of general overhead reduction.

Now, of this GBP1 billion additional saving, a part of it will be used to offset volume and inflation increases. But we currently target to have at least half of the GBP1 billion available either for margin enhancement or for commercial reinvestment, if the competitive situation requires it.

Moving to the engine for growth, we had -- I had indicated last year these days three areas; data, fixed broadband, and enterprise. Let me start with data. Data is up 20%. We now have a GBP3.8 billion business on an annualized basis. And I do believe that the opportunity in data remains large.

Data revenues today 11% in Europe, up from 7% two years ago. We have in Europe today 30% of customers, of active customers, using data every time -- at least one time per month, but only 10% of customers having a regular subscription. And if you go outside of Europe, it's only 5%, the people who really use data.

So there is an opportunity, which is not just what it was at the beginning of the development of data, which was mostly an enterprise wireless broadband Blackberry email type of experience. It's becoming a consumer thing. Today's smartphones in Europe, smartphones for consumer, represent already about 20% of our new devices sold.

On fixed broadband, we are up 9%, 1 million. We have 5.1 million customers now in Europe. We have a very strong contribution to that coming from Italy, Germany, and Spain. But we now are building also positions in places like Portugal or Ireland.

And finally, in enterprise, while total revenues are down 5%, which is pretty much in line with the general trend of the market, our market share is holding nicely at 34% in Europe. With the high end, which are the global accounts served by VGE, at a more marginal minus 1%.

So plans here is to continue to expand VGE. We are now going up to more than, almost 600 customers; to continue to develop services, which are converging services for enterprise. And we just recently announced something which I think is very important in the future, maybe not huge today but will be important in the future, which is the creation of a new machine-to-machine business unit to serve machine-to-machine applications and machine-to-machine customers.

Now, all of this, why is it important? Because this is really meant to position Vodafone at the core of the mobile data world and the data world more in general, which is consistent with our vision. I would like to cover a bit our vision and also the financial sustainability of our vision, which in many of my meetings with you has come up as a question.

First of all, what's our vision? Our vision is, let me reiterate it, it's -- I already described it a couple of times, it's a very simple one; we really think that the customers -- we want to provide our customers everywhere, in all our regions, with the type of data experience that they want.

We have, I think, leading capabilities here; very high speed networks, going to 21 Mbps in most places. Some places we have integrated fixed and mobile networks. In other places, we do the integration with third party elements. And in other places, where the market doesn't require it, they are just mobile networks. This is what sometimes is called the downpipe part of our business. I like to see it as the efficient part because we have scale.

We also have distinctive and unique assets; CRM, billing, location, distribution, customer care., Which is the smart element of our networks, and is the element that third parties ask for because this is the enablement for their business.

And then we have products and services, and in some cases these are our products and services. You have seen outside 360. In other cases, could be established markets like the Android, or the Google marketplace, or Ovi or iTunes. And in other cases, it's simply third party services, which we will enable, thanks to our billing engines, and now with the JIL joint venture, with a worldwide capability, so we can enable everybody in a mixed way.

So our vision is efficient pipes, smart networks, and a communication-centric platform, sometimes ours, sometimes third parties. Because with 323 million customers, you cannot serve all the customers in exactly the same way.

This is our vision for the future. And this is also the concept of power to you, the new brand position that we have; power to the customers, freedom to the customers, but enablement through our efficient commercial and technical platform.

Now, in my meetings with many investors I heard often the question can you really support this, this great explosion of data? Is this something that you can handle? And I committed to come back with some kind of statistics on this, and this is the statistic.

Our total traffic is now growing a lot, is up 300% versus two years ago. We now handle 15 petabytes per quarter, which is 2.5 times what we handle in terms of voice. But if you look at the network utilization, our average network utilization has gone up from 20% to 30%. And of course, it's not the average network utilization which really matters, but it is the peak saturation that really determines where CapEx and costs will go.

Now, the peak saturation, which is the number of sites which are used at 90%, or over 90% capacity in the busy hour, is actually 5% and is slightly lower, actually, than what it was a few months ago. How is that? Well, because of course we invest.

And, first, we invest in better HSPA versions, so with higher spectral efficiency. Just to give you an idea, in the coming six months we will upgrade between 20,000 and 25,000 sites in Europe to a better HSPA or higher HSPA version. We invest in transmission and backhaul, Ethernet microwave being the king technology. And of course, where eventually we need to add site, we add sites, but network sharing in this respect helps reducing the costs.

So through a combination of actions, we think that the vision that I described is supportable for the foreseeable future, with the around 10% capital intensity that Andy has referred to in his presentation.

So, in conclusion, I would say that the strategy, 12 months later, starts delivering and is still the right one. We have introduced value-enhancing products for the customers in most markets. We have been delivering, or we will deliver by the end of the year, our cost reduction targets and we are adding the new ones. We have commercial plans to strengthen our position in the European markets, where we need it.

Data revenue is up. Fixed revenue is up. We have new converged consumer and business services. Good progress in India, still a leading position in South Africa, and some early sign of recovery in Turkey.

All of this generating GBP4 billion of free cash flow in the first half, without cutting investment on the future, and without -- not supporting the data growth that I have described. And this, to me, confirms that the focus of the Company for the coming period should be cash generation and commercial execution.

And as far as the first half is concerned, I think that some progress across all the strategic priorities is visible. And we are delivering GBP4 billion of cash flow, guidance confirmed at the upper, or around the upper end of the range, and dividend increase of 3.5%.

I thank you very much for your attention. I would then ask Andy to join me for Q&A, also from our online audience. And if needed, using also our colleagues who are in the room.

Thanks. It's Tim Boddy from Goldman Sachs. Just a question on closing the revenue gap compared to your competitors in Europe. If we look at what's taken place, it seems like your revenues on the margin are better than you expected and you're reducing more costs. But, obviously, the guidance at the operating profit level is unchanged. Can you help us understand that dynamic? And I guess, as an indication, are you willing to be more aggressive to catch up on revenues?

Well, maybe, Andy, you take the guidance part and I comment a bit on the revenue in Europe. I think that we are doing well in several markets. But there are a couple of markets where, clearly, as I said in my speech, I think we have to continue to push. One is UK.

In UK, we have done, I think, basically, all of the right things. Now we are getting to balance distribution, we are getting to better brand positioning, we will get to a complete product range. But, of course, we need to continue to push hard and to take away costs, because we have a cost in the margin position in the UK which I don't think is where we should be.

In Germany, we are delivering very well on data, very well on mobile broadband, I would say the PC part of it, but our market share is under pressure. If you look at it and you compare our numbers with our main competitors, there is a very, very clear iPhone effect. So, again, that's an area where we have to continue to invest.

And we have to continue to invest consistently with our vision, which is a great vision of data enablement, also in the consumer space, not just in the business space, and of growth of the whole world of applications and mobile experience. So, I think this is basically what is driving the European strategy.

In terms of guidance?

Yes, if you look at the guidance, we are -- in the first half on revenues, we're very, very similar to where we had expected to be. We have said the margin has been just a little bit lower than we had originally expected at the start of the year. And, yes, we'll have some benefits from the cost reduction program in the second half, but the second half, normally, has slightly higher customer investment, seasonality, etc., that is in there. So, slightly lower margin contribution.

The DNA is, on the other hand, going to give us some benefit. So, hence, overall, still seeing ourselves being in the same adjusted operating profit range.

Andrew? And then to your right.

Hi. It's Andrew Beale from Arete. A couple of questions. There are several markets in Europe where you don't have your own fixed line network, and you rely on partnerships or don't have a significant fixed line offering. Just wondering whether that's something you feel the need to fill in, to have your own network, to be able to drive those businesses. And also, in the corporate space, whether you feel there is any need to have a fixed line capability to address that.

And secondly, from the Verizon Wireless or the Cellco 10-Q, the inter-company debt to the parent is being repaid at a pretty rapid pace now. Can you give us any insight into what you think will happen when that's done? Will Verizon Wireless just accumulate cash on the balance sheet in anticipation of future maturities? Thanks.

So the usual -- thank you, Andy. The usual, you take the last part of the question.

On fixed line, I think I have said a number of times we don't feel that we have to have fixed capabilities everywhere. The need for fixed capabilities at the end of the day is determined by customers, by the competitive situation and by the alternative that you have, either from a commercial point of view or from regulatory point of view, to integrate services.

Which is why we have different positions in different markets. As I said, we have the core three markets where we are doing it. Now we are extending in Portugal and in Ireland. In Greece we did a different type of agreement so we just basically contributed our fixed assets into Hellas Online in exchange for a small percentage.

For us everything has to be put in the context of the vision. We need to be able to serve the customers, and their needs. How to do it, well it's a matter of capital efficiency, returns, and alternatives. So I don't feel that I have to get the same strategy everywhere. I need to be able to serve the customers everywhere, which is a slightly different thing.

We are happy the way things are going in Italy and Spain, or in Germany, but for example the UK is different market.

Now on the corporate side, the important thing is to have the service capabilities, so the ability to manage converged services, which is why we are going into IP Centrex, IP PBX, this type of capability. But again, [they're better] and it could be different by market. Andy.

Verizon Wireless, yes the net debt position is just below $29 billion. The inter-company element of that I think is, by memory, just under a third of that number now. The repayments have really been scheduled according to maturity dates and to the rates that are being charged on the interest, so there is no change on any of those fronts.

The cash generation is broadly as we had expected it previously. We will sit down annually and go through what the dividend implications are, as we said post the Oltel deal. At this stage there is no change, the focus is on getting that cash reduced and we're making good progress on it.

Here, and then we move to Simon and then we move up here.

It's Paul Marsh from Berenberg. I see from the Cellco 10-Q that you managed to squeeze more tax distribution from Verizon Wireless. I think that was $584 million cash flow in total from Verizon Wireless in the first half. Could you just clarify for the full-year GBP6 billion to GBP6.5 billion of free cash flow target, how much of that is going to be from Verizon Wireless? And has that increased because of that extra tax distribution compared to the number that you gave in May?

Okay, let me try to explain. There are three elements to this. There is what I'd call a normal rate of tax-related dividend, number one, nothing's changed on that front.

Secondly when we did the Oltel deal we agreed that there would be a slight increase in the level of tax-related dividend for a three or four year period, so that is now reflected in those numbers.

And thirdly, there was the $200 million deferral of the dividend that we would otherwise have received back in March of this year, but actually received in April.

So the latter is a sort of one-off benefit. The middle one was an uplift agreed, consequential on the Oltel deal, and the core one is the ongoing underlying tax.

Bear in mind these dividends are largely there so that we are going to receive enough cash so that we can pay our share of the tax that the Verizon Wireless business pays. But because it is a partnership, not a legal entity, we, the parent, pay it. So actually, with the exception of the $200 million that was a deferral, the majority of that is an in and an out. It's in as a dividend, it's out on the tax cash line.

Thank you very much. Simon Weedon from Merrill Lynch. A couple of questions for you, one is on India, whether or not you can comment on the forward-looking CapEx requirement there. I think you've given us in the past an indication of a few years out CapEx for India. Is that now something that you expect to see coming down year-over-year next year?

Second I'd be most interested to know, Telefonica has agreed a deal with Telecom Italia to buy their German fixed asset at what looks like a pretty attractive multiple for the buyer. I wondered why you passed on that.

And I also wondered if you could comment on license payments that may be coming up in the second half. I see you made some payments over and above the Qatari license in the first half and I wondered if there was anything coming in the second as well. Thanks.

Good, let me allocate a bit the questions. On India, we have here Nick Read.

I would say India CapEx, as an introduction, has gone down now 35%. We, as I said in May, review, given the fact that you are in a low penetration situation, and we're getting into more rural areas, we review the amount of CapEx regularly. Which is why I have just said we are reducing this year from what we planned. But Nick, do you want to comment more?

Yes, I'd just add on top of that, when you look at our V16 circles, we're already at around about 85% population coverage, which is in line with Bharti. So really it's about Spacetel now and how we're building out that network. We've about 39% population coverage, and that's compared to Bharti, which is around about 65% to 75%, depending on circles. So as Vittorio said, a substantial reduction as a percentage of sales already this year, for the rest of the year, and able to optimize going forward.

Where do you expect to be at the end of the year in terms of your Spacetel coverage then, the end of this fiscal, roughly?

I would need to check but I would say that was probably about another [5% to 10%] but let me come back on that.

On Telefonica Hansenet, we looked at the asset but quite frankly we are pretty happy where we are. We have integrated Arcor. We have a very good, as I said in my presentation, a very good market share. We now have Vodafone branded DSL everywhere, so it's a matter of financial discipline. Do you prefer to invest commercially or do you prefer to buy something? So it was as simple as that.

Andy, on the license.

Yes, on the licenses, the spend to date is a bit of Qatar, a bit of Italy, I can't remember if there was a bit of Turkey that was in there. Balance of year, I think the only substantive one is the India auction that is coming up. It looks as if, I think, the German spectrum will be more a next year financial -- a next financial year event for us. So it's all about India.

Stephen?

Thanks, it's Stephen Howard here at HSBC. First question, when do you think we might see network capacity and quality beginning to trump handset exclusives as a key factor in consumers' choice of network? I'm just wondering if you're beginning to detect a backlash against AT&T on account of the impact that the iPhone, I can say from personal experience, is having on their network. If this question were conducted over the AT&T network, I suspect it would have been dropped about five times by now.

My other question is, I was wondering if you have any views on the FCC's opinions on net neutrality. I thought there was some rather troubling comments out a few weeks ago and I'm just wondering if you think there's any risk of that sort of, as I would regard it, regulatory short-sightedness spreading to Europe? Thanks.

Let me say, first of all the situation in Europe is very different from the situation in the US. We have invested much more and much earlier on HSPA capacity. I believe that the more smartphones are adopted, and the more video applications become normal, the more difference in network quality will be a determinant for customers.

In the US, iPhone customers didn't have a choice, and still don't have a choice. Now there's Android, there's new products that have a very good performance in terms of mobile Internet. Now the comparison starts becoming -- and HTC and other products -- now the comparison starts becoming relevant. It takes some time, but we are seeing that network quality is very important when you get into this space. So I think over time it will be important.

On the FCC position, we are very actively engaged at European and at local level on the discussion. Under the umbrella of net neutrality, there are many positions and sometimes some positions are a bit misrepresented. We believe that as long as we can in Europe discriminate customers, and discriminate applications but not discriminate between different providers of the same application, it will be fine. So not discriminate the BBC versus Sky.

But of course a big heavy video type of application has a different type of implication for us, than one of you synchronizing your email. So this is the type of discussion that we are trying to push forward in Europe, and of course we are following very closely together with our colleagues and friends of Verizon what is happening in the US.

But it is a discussion that can be managed in a sensible way if you take these few simple principles.

Justin, and then everybody else.

Thanks very much. Just on slide 23, the very helpful breakdown of a few numbers, the handset volumes up 11% in Q2, having been down. And I guess Q2 last year would have been flat to down. We're going to start annualizing some quite interesting comps on handset volume I would have thought. You could see by Q3, Q4, handset volumes up 20% or something. What does that mean for your European margins? And to what degree is that reflected in the new guidance for this year?

Secondly, in India, my colleagues in India believe that the government's starting to shift on consolidation, potentially allow consolidation sooner than this three-year moratorium. What role would you like to play?

Let me take the India piece and then give to a cooperative effort of Michel Combes and Andy the handset in Europe question.

India, as I said, we think that with their 12 players, and the prices where they are, clearly consolidation will be inevitable. One way of thinking about consolidation is really the network and the tower consolidation. I don't think anybody believes that there's going to be 12 networks in India, and for that matter probably in certain areas there will not be more than two or three.

So a way of facilitating consolidation is also what we are already doing. We have the leading tower company in the world, which I think is a very positive because it keeps the model basically, already, at least at infrastructure level, more consolidated.

What type of role we will play in the consolidation? Well first of all rules have to change, and there's a lot of debate, as your colleagues know very well. We think they will have to change. When is always a question mark, but not whether it will change. And then, as always, we will look at the opportunities and we will support consolidation, whatever that means. It could be active, could be passive beneficiary, depending on who does what.

So very open mind, discipline and supportive with this great advantage of the infrastructure company.

Michel, you want to say a few things about handsets in Europe, and guidance?

Maybe just a few words on handsets. So we see this trend continuing in Q3 and Q4, meaning that growth in the number of handsets which will be sold in the European market, with the bi-polarization which has been referred to by Vittorio, meaning that more low-tier which do represent today 60% of the handset sales, and more high-value handsets, smartphones, which are driving of course our data growth in Europe.

So these trends should continue in the next coming quarters. And of course it's embedded in our forecast for the next two quarters.

Do you want to add something Andy?

No, it is embedded in our (multiple speakers).

Shall we go one second digital, and ask if there are questions from the online audience.

Yes, thank you Vittorio. One question from the online audience. Will Draper hasn't made it today for some reason, but he is online. He just wanted to know, from either of you, whether you could explain the dividend growth rate. Why we chose 3.5%, despite the strong increase in free cash flow, and whether there's scope for the dividend growth rate to rise in H2. Thank you Will.

Dividend growth obviously up 3.5%. It is the interim stage. Obviously at the end of the year we will be looking at that for the full-year. At this stage it is essentially a marker; it reflects the fact that while some of the earnings level numbers are high, the FX benefits are still quite significant within those. And at the end of the year, obviously with the Board, we will look at it with more knowledge then as to where we're at.

I would say an entry point. Shall we go back, at the back of the audience? And then we come down again.

Yes, hi, it's Robert Grindle from Deutsche Bank. Within your Verizon Wireless profit contribution, do you have material restructuring charges in there, in this half, on their Oltel acquisition?

And then, going back to the handset volume pick-up, is there any sign yet of SIM-only customers re-contracting again in Europe? Thanks.

Andy.

Yes, the published adjusted operating profit number at the half-year is after taking our share, about GBP0.1 billion of restructuring cost, and we've estimated full-year that we'll likely see that run-rate, so GBP0.2 billion for the full-year. Remember the guidance ranges were done exclusive of those, so we have actually taken that cost in the reported numbers.

On SIM-only I would like to pass it to Michel. The only thing I would like to say is SIM-only is one of the ways that you manage customers in a recession. Some customers still want to get maybe lower, cheaper handsets, but still change their handsets. So it is not the one thing that we do in this period. And Michel you want to --

I would just say no major move, so 10% of our upgrades in Europe are without handsets, so are SIM-only. And 13% of our gross adds are SIM-only.

So it is one of the things, but it is not a general thing.

Let's go left and then come down, and then again there, and then I will be back here again.

Thanks very much. Nick Delfas from Morgan Stanley. If I could just ask about Verizon. Obviously the history of Vodafone, the last few years, has been various downside surprises whether it was German growth, Japan, Turkey, India. You haven't said much about what you expect to happen in the US now there's more price competition, there's a less sympathetic FCC, there are more players. Do you think there's a risk of a crack in pricing and profitability over there? And if not, why not?

Nick, let me say that the structure of the US market is basically what we all know. So it is a competitive market, with several players, but with two players being clearly stronger than the others from a network perspective, from a distribution perspective, from a service capability perspective.

And of course I tend to believe that Verizon is the strongest, but you know this is a matter of opinion. And we do believe that competition is heating up on especially the smartphone and the new services, basically as it is expected.

Now the upside of it is that the ARPU is still pretty high. The upside of it is that the system of mobile party pays has created a certain type of price levels which are around $0.05 probably, something like that, which is significantly lower than in Europe. And therefore there is an opportunity to, yes, have a lot of competition, but build up into the new world.

FCC, as I said before, clearly there is attention from the FCC, but as I said it's a matter of bringing the discussion into the right thing, keeping in mind that in Europe for example we always have got open networks. Everybody has always been able to put whatever services they wanted on our networks, and I think the US players are getting there, a little bit later, but they are getting there.

So it is a discussion that should be possible to manage in a normal way and eventually the two markets will become much more similar in some ways.

But starting from lower price, much higher usage, much higher ARPU, and a [data] inclination which is very good. The 20% smartphone that we have in Europe, probably in the US it's 50% or 60% -- 40%, okay it's two times already what we have in Europe.

So you think negative revenue growth in Verizon Wireless is not likely in the next 12 to 24 months?

I'm not supposed to give guidance for Verizon, but --

Please, let's go to the left, and then come back, Robin, and then this area here.

Thanks. James Britton from Nomura. Two questions on CapEx. Firstly you agree that obviously network quality is going to become increasingly important. Can you say where Vodafone, or where you feel Vodafone really has a differentiated network quality against its main competitor within Europe? Obviously I note Orange's latest marketing campaign.

And secondly on CapEx, a European operator announced the complete replacement of their 2G and 3G network last week to raise themselves to 4G. Do you see any sense in doing that? And what is your timetable really for moving to 4G?

Let me take a risky approach. I will get to the technical question, and give to my CTO, who's sitting there, the, who is the best, question, because I could be accused of being slightly biased. And you will expect which countries.

2G, 3G discussion. I read what others say, but what I see is that we are moving the network from three to seven and from seven to 21 Mbps with HSPA, and we have another couple of rounds to go as well. We have the doubling and then eventually we have the 56, before getting to the need of NLT thing.

So in a way, we are following LTE. We are very engaged with Verizon, we are very engaged with China Mobile. I think Steve can comment on it, we are in every possible body who is looking at LTE. But we see that from a financial perspective, it makes a lot of sense to continue to upgrade our HSPA network, and eventually one day you will have areas which will be LTE, areas which would be HSPA -- what are 56, HSPA 21, and eventually normal thing.

So we don't see it as a huge revolution. If you had a very good HSPA network, but just, you know, progressive, following the demand curve, and making sense of investment with it.

So when? I think it's going to be back end of '11, possibly '12, something like that. But again, we are supporting every development body, and we are involved in everything. It's just a matter of following the technology evolution, not revolution. Now, Steve, where are we better than our competitors, and how do we measure it? Everywhere, of course.

Good morning, Steve Pusey. We take a lot of pride in the independent drive tests as the best reference of user experience and network quality. We obviously have our own views, but those are the best independents.

Through the last year, and these are conducted usually annually, sometimes bi-annually, we came out on top in Spain, in Germany, most of the cities in Italy; there was about two where a competitor was on parity with us. The UK, which is, I think, the one you refer to, is about even. Everyone's, in the independents, experiencing about1.4 Mbits in the downlink experience. We're all about the same there.

We're in mid upgrade in the UK, so I would hope we could come back and delight our customers again where we would expect to be. So where it really matters, in all our big countries, I could go on to Portugal, we do extremely well in Portugal. We were the first to introduce 21.6 [Mbps] into Greece recently, at recent announcements.

So network really matters. We pride ourselves on just about [leading] everywhere where we conduct independent drive tests against our key competitors, and it's certainly all the major markets.

Moment in time, I would say the UK, we'll respond to that as we go through our upgrades, if that helps.

Martin, you will probably add South Africa.

Absolutely.

Yes, sorry. I was focusing on Europe, because of the Orange particular announcement, but similarly in South Africa, absolutely.

We are the data provider. The fact of the country.

Yes. Yes.

Shall we move again here, in the middle, and then to the right? Well, whatever. First in the middle, I think. Yes, Paul, and then Terry and then, whatever.

Thank you. Petri Allas of Redburn. A couple of questions, first on the European regulators looking to bill and keep in the medium-term. How do you see that potentially playing out, and the impact on yourselves, and how are you financially preparing with rebalancing and otherwise already?

And secondly, on the LiMo 360 investment. Where do you see that really playing into an increasingly fragmented smartphone market with a couple of leaders and then smaller players, and indeed, how much investment have you made and are intending to make in pushing the platform, because it's largely your thing for now?

For the time being, then we'll see. Let me take the regulators question, and then I will share a bit with Michel the LiMo question and in general what we're trying to do in that space.

From a bill and keep point of view, I think it's a bit of a theoretical discussion. It's a discussion which is being used every time that mobile termination rates go down. We don't think that the European system is wrong, and we just have agreed in most places a slide-down of mobile termination rates. I see it as the logical evolution, and I think that this slide-down will continue until the discussion becomes a bit less relevant, to be honest.

Bill and keep has clearly some advantages. It clearly has some disadvantages, because you need to charge people for receiving phone calls, and in Europe, you have a large part of people who have low spending and low economic -- small budgets that basically could run the risk of being cut out. So I don't think it's a short-term thing. Eventually it may be, once things have become less relevant.

I would leave to Michel the more in-depth discussion of LiMo. The important thing that we're trying to do, and I would like to put to discussion of LiMo in the general context is, we see a world where there's going to be several operating systems, and clearly, there's not going to be a convergence on one. And the customers will need to be able to use their services across different systems.

So the whole strategy of Vodafone, Verizon, China Mobile, and Softbank through the JIL is to make this choice as irrelevant or as transparent for the customer as possible by the creation of the [middle way] that will work with those systems. LiMo will be one of these, and is the one that we are using for 360.

I don't think we are the only one but maybe, Michel, you want to integrate your comments.

Maybe just a few words on that. First, as Vittorio referred to earlier on, probably next year the volume of smartphones which will be sold in Europe will be in between 30% to 40% of our sales, where it does represent today more or less 20% of our sales. So we see a big space in the smartphone arena in order to play a game in that environment.

Of course, we will distribute different type of smartphones, but we feel it's appropriate to have our own, let's say, platform which is open in order to develop our own user experience in order really to differentiate ourselves vis-a-vis our competitors. Because, of course, when you are just distributing smartphones, which are provided by people such as Google or Apple, it's much less obvious to differentiate yourself.

As far as LiMo is concerned, of course, it's an industry standard which is open, so we were the first to shoot with our 360 device. We expect some other European players, besides the ones that Vittorio has mentioned, besides Verizon or people which are in our, let's say, partnership. But we expect some European players, major ones, to makes some moves in the next coming months, because they have made the same analysis that to drive an open operating system is something which is meaningful in the future, in order to remain independent from the closed operating systems which are now the standard of the industry.

Thank you. Do you have any comment on the level of investment you have made, or will be making in LiMo?

Yes, it's within the normal commercial investment thing, so it's -- you know, if you calculate subsidy levels, or whatever, it's within that. So it's not a particularly different thing.

I said we would move now here a bit. Terry, and then decide we can-- yes, we'll get there.

Hi. Terry Sinclair from Citi. Two questions; first of all, you decided not to narrow the guidance range for operating profit. Does that reflect presumably poor visibility somewhere? And is that issue of visibility important anywhere outside India in that decision?

Secondly, could you just comment on the proportion of your traffic that is on net in Europe and in India, and any important trends there?

Andy, any particular guidance?

Yes, we thought about the guidance range narrowing. We've not typically gone and narrowed at the half-year point, albeit obviously, we opened it up at the start of the year. So there's nothing ominous in there, it's just that is there a huge value-add from constantly fine-tuning exactly where we're going to be in there.

I think the numbers we've got at the half-year are very much in the center of that sort of range, and I'm very comfortable with the range. Therefore, we haven't changed it.

We looked at the FX as well and said, well, it bobbles around so much that, frankly, going and restating it at this stage, it could well bounce back a little bit by the end of the year, so probably easiest just to leave the two of them as they were, albeit on the free cash flow to say that we do expect to be at the top end of the range.

Nick and Michel on the on net.

Broadly 60%.

60 in India.

I would say that it's more or less the same in Europe. It's increasing due to all our new offers in these on net flat offerings that we have launched in the previous quarters and that we have illustrated, such as SuperFlat or Tarifas Planas in Germany and in Spain, because we are trying to drive this on net traffic.

I think I promised we would go a bit here to the right. Go, go.

Thank you. Christopher Nicholson from Oraca. Two questions, if I may.

The first one is, what do you think is the key attribute required to protect retail margins in a developed set of economies such as Europe?

And the second question is, do you much care about being potentially the third player in the UK market? And if you do, I guess on both questions, what is it you're going to do about it to protect margins and also positioning in the UK?

Yes, the most important thing that you can do to protect margins is to focus on the right customers, and get the right return, especially on the new things, on data and on these things. You can have data customers which are beautifully profitable, or thank God, few who are not.

And so the ability to discriminate those customers is the most important thing. In terms of subsidies, in terms of network treatment, in terms of commercial investment to attract and to retain over the lifetime, which I think is the single most important thing that we can do.

In terms of UK, honestly, if the merger goes through, we will be number three, but a close number three; so it is number three above 20% in market share with a leading position in business, with as many shops as the others, with access to the same -- it's a bit the point I made before. We have put in the right space all the elements of the marketing mix.

So would I prefer to be number two? Yes. Will we try to be number two? Yes. But it's not a weak, bad number three type of position.

Yes? Now --

Thanks. It's Mark James from Evolution. Your new GBP1 billion cost reduction target, and the 50% that gets reinvested, you said that's because of volumes and inflation. I think I understand the volume point, not the inflation. Where do you envisage experiencing cost inflation?

Well, there's some, probably not huge, cost inflation in rental of sites. There's some cost inflation, not huge now, on personnel, depending on local labor regulations. There are some [big] logistics. We are reducing it through the kind of big things, but there might be, the more shops you open, a bit of inflation there.

It was more relevant last year than this year, as you would expect.

So it's mainly volumes in respect of this?

Yes.

It's more volume.

It's much more volume. Yes? I would like -- again; let's go up there again. Up and back. Then, Paul.

Yes, good morning. It's Jeremy Dellis from JP Morgan. Two questions, please. Given the stronger free cash flow position this year, how do you think in terms of your medium-term guidance of GBP5 billion to GBP6 billion, could we looking at a little bit more than that?

And then in Europe, over what sort of timescale do you expect to close the, roughly, I think, 250 basis point gap between your revenue growth rates and those of the average mobile operator?

Yes, let Andy handle the cash flow thing, and I'll cover the other one.

The way we see the revenue game in Europe is a bit different relative to main competitors and to smaller competitors. Relative to main competitors, we don't want, of course, to have any gap, and if anything, we want to have a positive gap in our favor. And here, the game, as I have said in my presentation, is mostly on the smartphone side, on the data side, and on the ability to upgrade as much as possible our customer base into higher tariffs, better tariffs. And, of course, in some markets, there was an iPhone story that is gradually going away. In -- or will actually hopefully go away.

Vis-a-vis the smaller competitors, to be honest, it depends. In some cases, they are very focused on low end of market and on prepaid, and maybe in some cases we just let them do and we play more the MVNO game. If you look at places, for example, like in Italy, we have 70% of the MVNO market. It was a different way of playing against those.

So it's a bit, I would say, the real important focus for us is the smartphone, the data, and the medium to high end of the market.

Guidance?

Yes, the GBP5 billion to GBP6 billion number which we talked about a year or so ago was directional. I guess if you actually restated that today to current FX rates, you'd probably put about GBP0.5 billion on those numbers, so it's more GBP5.5 billion/GBP6.5 billion. I think that's still a good number. Yes, we're at the top end of it at the moment, but in that sort of range.

Yes.

Thanks. It's Paul Howard, Cazenove. I guess this is Terry's question in a slightly different way. In terms of you've got a small change in EBITDA margin guidance, plus you've got some additional cost savings in the year. How much of that do you feel is increased investment in commercial activities in the second half of the year, and perhaps the first half of the year? And how much of that relates to challenges in Eastern Europe and India?

And finally, just on the outlook for European revenue growth, have we passed the worst now, and European revenue should start to improve, the trend should start to improve from here?

I would say that the European revenues, as I said, we have some positive signals, some less positive signals. I would call it stabilization more than, as Andy has done in his presentation, and we see some signs of stabilization from here to -- and it's going to be an improvement. Quite frankly, there is still the unemployment question, which is a bit there. But for sure, we are not seeing a worsening.

Andy, on the margin thing? I think you --

Yes, there's a little bit of both in there. I'd say probably slightly more focused on the commercial side. There will be a couple of markets where the margins will be slightly lower, but it's a combination of the two.

Go this side. I cannot see exactly in the back, but --

Yes, it's Robin Bienenstock from Bernstein. I'd just like to pin you down, I guess, a little bit on European revenue growth, and I'd like to know when you think, or indeed, if you do think that European revenue growth is going to go back to positive overall.

Go back to -- sorry?

Positive territory.

Well, European revenue, clearly, they're linked to the economy, and they're linked to the economy in two ways. One, the enterprise and the business sector, so when the enterprise and the business sector starts rehiring, which so far does not seem to be the case, as I said, we see some stabilization of revenues there. We have to see whether there is a lag, and usually there is a bit of a lag, when the thing kicks in.

And the second is the general impact of unemployment into household disposable income. And again, as I said, we see some positives and some negatives. The positives are that people are actually taking data subscriptions, plus 70% in the UK, plus 20% or 40% between Italy, Spain and Germany. But on the other hand, they're optimizing their tariffs.

So it's a bit of mixed picture. I don't know, Michel, if you have to comment more, but basically, this is the situation, and we prefer to just say we follow probably the general trend of the economy.

Yes, back there. Sorry, I have the light in my eyes, so --

Just a -- not really following the revenue line, but much more on the -- taking the cost savings. You talk about 2012. Do you think that's a period where you can start seeing stabilization of EBITDA margin?

I think it is quite difficult looking forward. We will have benefits coming through on the cost front. We will have the mix change progressively, not hugely, but moving towards the fixed line activities, which are necessarily a little bit lower on margin. And the data products vary a bit on margin, probably in the average, it's slightly below the average. So looking two years out, particularly with the uncertainties around the economy, I think it is very, very difficult to predict that accurately. But those will be the key things that will determine which way it goes.

But would you say that the actual mobile margins attributed would be stabilizing at that level?

I would be hoping that if we are picking up more on the revenue front, that in a business that is fairly fixed cost in its base, then that should be improving positions. So we'll be quite dependent upon the GDP and the top line growth.

Yes. I think we can go this side.

Hi, this is Ottavio Adorisio from Societe Generale. A couple of questions. One is on cost cutting, the other one is on guidance. On cost cutting, I was just wondering if you can give a bit of color about margins and going into next year. You deliver already the GBP1 billion for this year, and your EBITDA growth organically is basically falling around 8%. That's double over last year. Your EBITDA margins are sliding at the same pace of last year. So I was just wondering if, as you deliver this GBP1 billion, this additional GBP1 billion, it's consistent with an additional EBITDA margin decline on the same rate we've seen in the first half of this year.

And going into the guidance, I was just wondering if you also give a bit of sensitivity. If you use the ForEx for the dollar at $1.60, that was the average for the first half, or $1.66, that is the current at the moment, what would happen to your guidance for the full-year?

And also on depreciation, have you changed your assumptions, and if you do -- if you have done it, what have been the impact on your guidance for the full-year? Thanks.

Can I make a comment on the cost efficiency programs? What we are setting for the new one, and I try to repeat it because it's important, it's GBP1 billion extra, of which we think that half gross, more or less, will be absorbed by the growth of the business, and half should be available.

Now whether that will be available to increase the margins or will be available to invest in commercial things, it will depend on the competitive situation. So we are not exactly deciding where the GBP0.5 billion will go, because quite frankly, if there's no commercial need, it will be great to have margin enhancement.

And if there is on the other hand a commercial need, and given the confidence that we have on our ability to generate cash flow, we think it would be re-invested commercially. So, this is why we said the GBP1billion has to be 50% and 50%, but the second 50% could go either to the margin or to the re-investment. Andy, do you want to pick up the rest of the question?

Yes, just on the guidance. Roughly the rule of thumb on the adjusted operating profit is 1% change on full-year basis on the euro is about GBP70 million. And 1% change on the dollar is about GBP40 million. So I guess so far we have probably tracked actually pretty closely on the euro, and the dollar, as you say, is just a little bit higher, and we'll have to see what happens in the balance of the year. But that would be the rule of thumb for working out the impact.

And on depreciation, have you changed your assumption for the depreciation for the full-year? And what's the impact on your guidance?

So on depreciation, not really. On the amortization of intangibles and licenses, we're saying now about GBP8.2 billion. I think we've indicated about GBP8.5 billion previously, and that is just due to looking at the asset lines on the brand on businesses and things like that. So, slightly lower level now predicted.

And that feeds into your guidance, basically the GBP300 million feeds into your guidance.

That is fed into the guidance.

Thanks.

So we are here and then to the front.

Thanks very much. Michael Armitage, Astaire Securities. A very simple question which I probably don't really expect an answer to, but I'll have a go, which is Orange's pricing on the iPhone is very obviously dramatically similar to O2's pricing on the iPhone. And they seem to be making it quite difficult for pre-registered customers actually to get it until after the expiry of their current contract. So some people are actually getting quoted 2011 for delivery of their iPhone. So they don't seem to be going for share, and it seems [inaudible] and you haven't actually talked to them. But I was just wondering what your reaction to that is, and how we might expect the iPhone launch to be for Vodafone?

As you correctly said, you don't expect me to tell you two months in advance what we will do in the UK. I have to tell you that wrapping up many of the points raised, we think we have a good distribution, good network. We will play our own fair game into the iPhone market but two months ahead, or whatever, is the delivery date. We are collecting pre-registration and the only thing I can tell you, if Orange customers are very unhappy they can go into red shops if they want.

Yes. Hi, Mandeep Singh from Berenberg. It's a question on the US. On the one hand you talk about Verizon Wireless being 34% of operating profit, then Andy says, well, you know, you sit down with them once a year and discuss the dividend. I don't think that really conveys how important it is to the market, in terms of ascribing appropriate value to the asset.

Is there really nothing you can do with that, or is it just sit down once a year and have a friendly chat, and see if they might pay you some dividends? Presumably there's other things you can do with these guys. You've got the stake in Italy. How important is it to management to address this issue?

As I said at a recent conference in New York, we keep reviewing on a regular basis all of our assets, and therefore, as you would expect, the biggest one is being reviewed a couple of times per year at the Board. We review all the possibilities and the alternatives. The current best alternative is to just continue to cooperate. The company generates, as Andy has shown, a very, very hefty cash flow. For the time being the priority is to repay the dividend -- to repay the debt, and then we'll have the discussion on dividends.

We are very open-minded to everything, but of course we have the value to our shareholders as the main priority.

Back there?

It's Steve Malcolm from Evolution. Can I come back to the UK market, which I know is relatively small but possibly psychologically important. You mention you've done some good things in the last six months, before that you've done some very bad things. You tried to change distribution and it didn't work. You didn't get the iPhone, that was pretty catastrophic.

How can you convince us that getting the iPhone just doesn't accelerate the washing machine of churn once again [if you are offering the] same product? You've seen your margins go from lower 30s to low 20s. Can you share with us a point at which you might begin to take market share again, how you think about the tradeoff between revenues and margin, where this market might go to? You've had some consolidation as well, which could be a good thing, but intuitively one looks at the iPhone coming and just thinks more competition, indirect distribution's a winner, the operators aren't, how can you change that?

Yes, let me correct you, if you don't mind on one thing. You said we have done many bad things. I really don't believe that trying to rationalize distribution in this country was a bad decision. It was an unsuccessful decision, it was, maybe we hoped that the whole market would evolve in a certain direction, which has not happened. But to be honest we have not been stuck to it, and we said, fine we go back to a different type of distribution model. So, I'm not so sure that you can say the decision was bad, per se.

The iPhone, we haven't got the iPhone in a number of markets. We have got the iPhone in other markets. At the end of the day, it's a commercial negotiation and whoever has an exclusive device or property can do what they want with it.

How can I convince you? I think I would like Michel to say a few words, but I think it's going to be next year. So, once we have -- we are on the same foot on distribution, on branding, and on products, having, as Steve has said, one of the best, if not the best, network in the country, I think it will be fair game.

And so next year, three quarters from now, two quarters from now, I will have to convince you with the numbers. It's a bit like Turkey in a way, at some point numbers will have to show that things will go in the right direction. Michel, do you want to add something?

Just to confirm what you said. I guess that it will take a few quarters, but I think that was has been achieved in the previous months go in the right direction, branding, new products or offerings in the pre-paid arena, for example, but also in the post-paid, new devices.

So of course you are speaking about the iPhone, but I guess that the iPhone is not the only one. We'll have a large array of smartphones in the next coming weeks and months, whether it's a 360 device, whether it's Blackberry, whether it's Google phone, whether it's the iPhone, so which means that we'll have a bunch of new devices for our customers there.

We have worked, of course, on the distribution, and we start to get some traction, have in mind that we're re-entering the distribution only in July. So of course there is a ramp-up in order to get the benefit of it; we'll start to see that in the next coming months, of course, also.

So I think that all the basics are now right, and that should pay in the next coming quarters. We should also benefit from this consolidation which is going to take place. We all know that when a consolidation occurs, of course, the people which are not part of this consolidation can grab some benefit of it, because we'll be more focused on our customers, instead of being focused on the consolidation itself.

So, which means that with all that into next coming quarters, but it will take some time, we should start to deliver an improvement of our situation in the UK.

I think we have time for one more question. Last one.

Thanks. Mary Lou from Mobile News Magazine. You might not be ready to address this question yet, but in terms of a potential headcount reduction to go with the new GBP1 billion cost cutting program, do you expect this it be consistent with the reductions that were made with the program that's just about to be completed, or will this be different?

Our cost efficiency programs are not about headcount merely. As I said, many of the advantages are coming through things like purchasing more through our [border] from procurement company, rationalizing more IT, which, by the way, is already outsourced. So it's a kind of a different model of work with outsourcers. It's property, it's space, there's a lot of things, logistics consolidation, which of course can have some impact but we're not talking about huge things.

So it's a variety of things, and as we did in the past, we'll manage it in a very, I would say, sensible way, initiative by initiative, project by project, like we did in the past. So, I wouldn't expect big announcements of big headcount things, but progressive consolidation work.

I think time is over. I would like to thank you all for coming, thank you for your questions, and looking forward to the individual meetings.