Vodafone Group PLC (VOD) 2015 Q4 法說會逐字稿

So good morning, everybody. Thank you for coming to our results day. Today we will follow a slightly different order from what is usual. I will go through the highlights and then I will straight go into the business review. I will be followed by Johan, who will briefly talk about what's after Spring and our technology plans for the future, and then Nick will do the usual detailed financial review.

So I have to say we have closed a pretty good year of execution and a pretty good quarter.

As you all know by now, we have returned to full both service and EBITDA growth in the year: 1.5% revenue and 2.7% EBITDA. This is the first time since 2008.

We have a Q4 service revenue growth of 2.5%, which is really more a 1.8%, as Nick will explain later.

I'm pleased to see stabilization in Europe -- first time since December 2010 that we have a 0.5% revenue growth -- and continuing strong execution in AMAP at 8%.

Good cost control. Nick will talk about it. We are today also raising the synergy targets for KDG and Ono, because they're going well.

And, as a result, as you would expect with a good year and a good quarter, we have met our full-year guidance; GBP11.9 billion of EBITDA and GBP1 billion of free cash flow on a guidance basis.

We will talk today about Project Spring. Project Spring has completed, successfully delivered and also successfully impacting the customer perception.

We continue to grow in our key areas of growth: 4G data, 3G data. We'll comment this later.

I have to say I'm very pleased the enterprise continues to grow, unlike some of our competitors; 2.1% growth in the year.

And, most importantly, unified communication we had a very good record quarter in terms of net adds. We are now covering 30 million households directly with our own NGN network and we are the fastest-growing fixed broadband provider in Europe. Today Vodafone is 21% fixed.

So let's move straight into the status of the strategy. This is just a reminder.

We said after the Verizon deal we will concentrate on our core footprint. We want to be number 1 or number 2 in mobile, with a clear path to unified communications. And we will invest our CapEx and our commercial cost into the areas of data, emerging markets, enterprise and convergence.

So let's have a look at how things went, starting from the investment level.

We have invested since the Verizon days GBP47 billion in the last three years. This clearly has been enabled by the returns from the Verizon deal after the buybacks. This is, I think, a pretty good answer to those who question their investment levels in Europe and Vodafone in general.

GBP47 billion, which went mostly into organic CapEx, GBP24.1 billion; GBP19 billion of this was Project Spring. We have modernized 203,000 base stations in Europe: 2G, 3G, 4G. We have added 102,000 high-capacity backhaul links to improve the data experience.

As you know, we invested GBP7.7 billion in spectrum, mostly 700/800 spectrum for 4G, but also a lot of coverage for 3G data in India.

And, of course, we made some acquisitions, some strategic moves into the convergence space, into the enterprise space, into the Internet of Things space.

So I will cover Project Spring and the customer experience work and the customer what we call CARE internal project. And then Nick will cover the third element of our strategy, which was the efficiency Fit for Growth, and the result of the ZBB project that we did in December.

Now Project Spring. Project Spring, as I said, was successfully completed. We exceeded our targets. You can see in the top-left chart 212,000 fully modernized single RAN sites in Vodafone, with a very broad reach. Here we are comparing 4G coverage going from 32% to 87%, thanks to Project Spring, and 3G in the 3G coverage in our areas to 95%.

Of course, this is a volume metrics. If you look at the quality, right-hand side, 91% of our data sessions today are above 3 megabit per second in Europe, which means video quality, uninterrupted video quality. Dropped call rate in emerging markets, which we took as a measure of quality there, below 1% now. In Europe, of course, the number is more or less one-half of that.

But Spring was not just about investment in quantity and quality. It was also an investment in capability. We have improved significantly our fixed capability. 30 million homes now reached with our own NGN and 13.4 million fixed broadband households now in the Vodafone customer portfolio, which, again, as I said, makes us a very relevant player in this space.

In the enterprise space, we talked a lot about this. We operate now essentially in around 30 countries with full capabilities. This number here is the Internet of Things capability, which now covers 30 countries. And we have an international network that reaches 70 countries with 268 PoPs around the world.

On the customer service, customer experience side, we have this program called CARE. It's around four elements. First, clearly delivering network experience; almost everywhere now we give satisfaction guaranteed type of offers. Also in the UK we now launched that.

The second element is the control element of the spend. Here I just use roaming to indicate an offer which we are basically making everywhere, including the UK now. We just launched very well, I think, in Germany, including US roaming in the offers.

Reward loyalty. More and more rewarding loyalty to address churn but also to reward data usage and increase the ARPU spending, not price but ARPU spending; discounts, essentially, on incremental usage. The example is here the Czech Republic example, because we always talk about the big markets but also in the small ones we have the same strategy.

And then easy access in the three channels of retail, customer service and digital, which, again, we have invested quite a bit in.

So these are activities. You would say, what are the results of this? This indicates the results.

The chart on the left indicates the gap we used to have and we now have versus the best competitor in each market. As you can see, we have progressively closed the gap and just closed the year with an advantage versus our competitors.

This means that we have improved our NPS, which is the measure of recommendation versus detraction, in 15 out of 21 markets where we can measure and we are leading in 13. And, as a result, churn has come down both in enterprise and in consumer, as you see.

Data growth. Data growth continues nicely, first of our engine of growth; 47 million 4G customers, top-left chart.

Europe today, one-half of our data traffic is 4G, which is very good because this means that then we will be able to rationalize the spectrum usage earlier and will allow us to be more efficient with a better customer experience earlier.

Average usage continues to grow. It's now 1.1 GB average across the base in Europe. This allows also monetization strategies, which we indicate here on the right.

This is a German example: to increase ARPU from EUR39 or EUR40 to EUR45. Of course, this comes with more into the package, so it's a more-for-more type of strategy. We give EU roaming, we give data, but we increase the ARPU. This has been launched essentially in most places and UK, again, is active now.

On emerging markets, data continues to grow nicely. You can always see the opportunity in terms of upside. We now have 63% of customers using 3G or 4G data. It's incredible. If you look at the numbers we almost increased by 40 million in one year, so we are now at 82 million customers.

Data volumes are up 80% and the usage is below the European one at 750 MB.

So you can say that an excellent work has been done but also there is a lot of upside, because we are still at essentially two-thirds of penetration and usage is lower.

And when these things kick in, this is a South African example, actually the opportunity to increase ARPU through migration from 2G or 3G or 3G to 4G is significant. You can call it a 20%, more or less, impact.

So data is positive in both mature and emerging markets.

Enterprise. Again, I will not comment on how much we have increased the capability. The important part of the slide is the right one; 2.1% growth. This comes at a moment where, if I look at the competitors' report, most of our competitors are struggling in enterprise or not growing or even declining. We grow 2.1%.

A lot of it is fixed line, but not just fixed line. So 4% growth in fixed line; 1% in mobile; excellent growth in Internet of Things, as I said: 29%, 38 million connections. I think we have the leading platform in the world. There are essentially three, but we have the leading platform in the world.

Global enterprise continues to grow nicely 6%, which is remarkable, and IP-VPN smaller but also growing 8%.

The only point of pressure here is ARPU. ARPU in mobile is down around 8%. There are clearly pressures and this is linked to the fact that other competitors are struggling a bit and, therefore, they respond on price, but very positive enterprise scenario.

And then the nice part of this results announcement, fixed line.

As I said, we cover now in Europe 72 million homes; 30 million we reach directly ourselves. It's not just about reaching the homes. We also have really strengthened our international fiber network. We added 250,000 kilometers to what we had before. We now have 1 million kilometers.

Somebody this morning told me that it's 2.6 times to the moon and back. I don't understand why this is relevant but it is a big number. And we have now a very, very -- it's also 23 times around the earth, which is, I think, more relevant when you talk about cables.

And this really gives you the sense that this investment that we are making is not just for consumer but is also for enterprise, is also for the broader international strategy that we are having.

Now the central part of the slide is the important one. 416,000 net adds in the quarter and 426,000 NGN, because we also have some migrations: 13.4 million broadband users, 6.4 million NGN, 9.5 million TV.

So we are the fastest-growing broadband by quite a distance -- a broadband fixed provider in Europe. We are a true competitive alternative and we have 21% of revenues coming from fixed. So the upside here is big.

And, as many others have already described, clearly this also helps the mobile business because it lowers churn.

Now here, of course, we work a lot organically but we also do inorganic commercial agreements. Ziggo, as you know, Vodafone Netherlands is going through the process of authorization. It's a good opportunity: EUR3.5 billion of synergies by year 5. We are not yet working together. We are just planning the integration and the planning of the integration is pretty good.

Interestingly, in Italy we have reached a very good agreement with Enel, the electricity provider. This agreement will allow us to cover 7.5 million homes with FTTH, which, as you know, is much better and higher quality and higher ARPU than other solutions and will bring potentially the number of cities that we reach to 240 (sic - see slide 14, "224").

Now this is excluding the so-called C&D areas, which is where the Government will put the money because they are economically disadvantaged, which, in theory, can bring the total coverage of Vodafone in Italy to 20 million homes.

This means that, of course, we'll continue to access Metroweb, no matter who buys it. And this really says that, again, in Italy maybe inorganic strategies that have been rumored a lot will not be necessary at some point.

So, overall, I would say Spring and CARE are delivering. They're delivering in the four areas of our strategy and I think, most importantly, the customers are appreciating it.

Now if I look at the single countries, a bit of update about the countries.

Germany, great story of recovery in networks: dropped calls 0.45%, 85% of data sessions going at video quality, 4G coverage 87%. We are still number 2 here but close to the number 1. So we have reestablished the situation of two players and a higher perception.

Commercial performance, center of slide. Very good in fixed line; 134,000 net adds. KDG very strong, but also DSL we are recovering.

On mobile we had a lower performance in the quarter. This is the result of pressures in the indirect channels. We are focusing on direct and branded and our main competitor is putting a lot of money into indirect.

So while, on one hand, we increase ARPU but then if also we increase commercial cost I'm not so sure that the equation is right. And so this is an area to watch.

But, overall, good performance. As you can see, back to growth in Germany, 1.6%. I think really, really it's 1.1% because there's one-off that Nick will talk about, but I would say pretty good.

Pressure on enterprise, as I said. Competitors' reactions to our wins still very strong, but very good performance on KDG. And I'm happy to say, and I will have to repeat this comment six times now, growth of EBITDA in Germany.

So positive moment in Germany. We need to watch out pressure on the indirect channels and pressure on enterprise.

Now Italy, as well, a great story here. The network leadership is great. Italy has probably the best network statistics around the large OpCos; 95% 4G coverage, 91% video data quality, clear number 1 in NPS, clear number one in P3, leading by big gap versus the incumbent, and a good commercial performance.

In the central part of the chart you see 63,000 net adds, which, for Italy, is a pretty high number and we went back positive into contract and in prepaid number portability is trending in the right direction.

So I would say good momentum in Italy. One-half of the fixed additions in Italy are fiber. So, again, future-proofing also the growth is very important.

We welcome the return to growth of Italy, 1.3%. There's a bit of pressure in fixed line here. Some offers of Fastweb are a little bit on the cheap side and, therefore, ARPU is not growing, but good growth again also in Italy, back to growth in EBITDA. Here it's 3%.

So good momentum. Watch out pressure on pricing from Three, pressure on pricing from Fastweb in the market.

UK is more a mixed picture. On one hand, we have a very good performance of the network in London, where, actually, we have really 99.9% coverage and a very good performance on dropped calls and video speed. In the rest of the country we still have to do a little bit of work. There is still improvement but we have to do a little bit of work.

Good NPS on enterprise, which is a traditional strength of Vodafone in the UK. Not there yet in consumer.

The real issue has been billing migration problems in the UK, which has caused disruption to the customers and to our commercial operations. We still have reached 7 million 4G customers, we still have activated 20,000 new homes in fixed broadband, but, clearly, we have got more churn than what we wanted and less commercial push until we fix the problems.

The problems are being fixed. I would say 75% of them are out of the way. We have reduced the extra calls to the call centers by more or less 0.5 million but we still have a little bit to go. We believe we will have resolved everything by the summer and then we will resume full commercial strength in the second half of the year.

Now in this context, growth is, in reality, a minus 0.8%. It's minus 0.1%, the reported one, but there's, again, the usual adjustments.

Good performance in fixed and enterprise, which is good news because that's the important part of our business. And, again, despite everything that has happened and the extra resources that Jeroen had to put into our customer care and service, we also have a growth here in EBITDA.

Now, of course, the focus is to get back to full commercial strength in the second part of the year.

Spain, another good story. It's a story of leadership. It's the second best after Italy in terms of network, 91% coverage; very good data quality in the high 80%s. 8.5 million homes passed and good regulation to access the whole of Spain. So in Spain we will have a pretty competitive network with Telefonica. In the meantime we also have leadership on the mobile front.

Performance in Spain is very good, both on mobile and on fixed. In the middle you see 64,000 net adds in fixed and 105,000 in mobile.

We have 1.1 million TV users. We have all the content that is necessary in Spain. So we have secured the full set of football rights. And good news, as Nick will say, we have secured already 100% of the synergies and we are actually increasing the tariff. And this is important because this is proof that we now have a Vodafone way of integrating fixed and mobile assets, which I think will be also very useful in the Netherlands.

Financial results; growth 0.6%, once you take out the handset financing thing, and, again, also in Spain, growth of EBITDA 4%.

So looking forward, we need to continue on the trends. We need to continue as a market the recovery, which we have lost a lot since 2008. Now with bundled packages and convergence is the opportunity to get back.

Vodacom I will not say too much; they announced yesterday. It's the usual amazing story. So network leadership here by miles. We have 6,000 4G sites, 58% 4G, 99% 3G; clear leader in the market.

Clearly, what they are doing really very well is two things. On one hand, the re-pricing of the base, which they did very systematically to eliminate the price disadvantage, but also very positively stimulating elasticity. And then this bundle of data packs that continues to push up data usage and data customers and, therefore, ARPU in South Africa.

Financial results they announced yesterday: plus 6.5% locally, plus 10% internationally. Internationally M-Pesa is helping a lot. And, of course, they're growing 12% EBITDA. So pretty remarkable.

India. India there were concerns earlier in the year. We are re-accelerating again. So the growth is 5.3%, which ex-MTRs is more 10%. Then you take away leap year, these things, it's, let's say, 9% to 10%.

Our 3G coverage is 95%. We added a lot of 3G sites and, despite the fact that we are number 2 in the market, we are number 1 in terms of sites, we are number 1 in terms of NPS. And this is important because it clearly means that we have a quality operation, a little bit regardless of the fact that we are number 2.

3G customers up 27 million. We now have 198 million customers in India. We added 14 million in the year. The good thing is that the quality of our data performance is very healthy. Voice is more or less minus 7% at price level and plus 7% in terms of volume, so call it negative or zero.

Data price goes down 9%, 10% but the volumes are up 50%. So all the growth is coming from data. And, as I said many, many times in these meetings, the opportunity for data in India is great because there's no other infrastructure. So it's a data story.

We are about to add another four circles in 4G, thanks to the possibility to re-farm. And we will continue to invest to make sure that we have -- that will give us 60% coverage of our data revenues. Our plan is to go up and secure good 4G for everything.

So looking ahead, I think we need to watch out Jio, which will come at some point in the market, and we need to continue the preparation of the IPO.

Now, before handing over, just one final quick comment on the other markets.

The Netherlands. In the Netherlands we are number 2 in NPS. We are growing 4G customers. The revenue growth is really more minus 2% than the minus 1.3% reported; again for the usual adjustments. The market is converging very fast. It's the right moment to really do the deal. The deal came at the perfect moment both for us and for Ziggo.

Performance on the other three markets I can only say it's really good. Turkey, Egypt, Portugal; number 1 in NPS rank everywhere.

Turkey has an amazing performance. Not only they do super well in mobile, with data revenues going up 90% and a pretty impressive 4G launch that has taken a lot of customers immediately, but also in fixed line we have 82,000 net adds in Turkey, which is a case of organic growth that will create a very good base for the future.

Egypt, six quarters of growth; back to 11% growth. Clear market leader. Again, everything driven by data.

And then Portugal, which is kind of the bigger of the smaller ones. A truly converged market where we keep our mobile leadership but we are also adding 25,000 broadband customers and we have a 2.5 million fiber reach. And, guess what, back to growth at 3.5%.

So I really like to talk about the large OpCos, where we have now restored performance and growing EBITDA, but also the medium and smaller ones are benefiting from our strategy.

So to conclude. Spring, I think, has delivered. Customer care, customer excellence, with a vision of 2020 will bring the Company in the right space.

We really want to continue to lead in mobile; be stronger in convergence; clearly virtualize over time; have more cloud and have a stronger best-in-class service and digital marketing and care. This is our vision.

Before handing over to Nick I think it's important to have Johan telling us what happens in the blue space after Project Spring and then Nick will give us all the financial implications of our strategy.

(technical difficulty) opportunity to talk here today and good morning, ladies and gentlemen. There are two key messages that I want you to take with you from this presentation.

First of all, as you heard from Vittorio, thanks to Project Spring we have been able to achieve a leading mobile network performance and we will maintain that strong competitive position in the coming years while we improve in the areas where we still think they need to be improved.

Secondly, it's about the vision we have for the future. It's about the gigabit society where our customers are going to get gigabit speed, both on fixed and on mobile access, with short latency, enabling any service to be delivered from the cloud.

On top of that, as Vittorio said, Vodafone is today the leader in Internet of Things. There are new technologies coming out enabling billions of devices to communicate at the much lower cost points than was currently available in the market.

So the strategy, then, to maintain mobile leadership going forward would be to make sure that today where voice is available, video will be available.

We are talking about having some sort of continuous experience around 10 megabit per second with peak speeds up on gigabit. There's a lot of mileage still to get out of 4G in the coming years.

We're also going to get lower latencies. Typically today we have between 14 milliseconds and 15 milliseconds latency in today's 4G networks. That's going to come down to sub-10 milliseconds.

And we will switch on support for Internet of Things in our mobile networks.

On the fixed side it's very much about providing gigabit speed to the homes, to offices. And we will also introduce a new technology that will enable us to do rapid deployment to enterprises for new services at very cost attractive cost points.

On the IT side we need to make sure that our IT systems are flexible and agile. We need to get them at the lower cost and we need to continue the transformation we are on to make Vodafone a digital company.

Increasingly the services we offer are going to be available on both fixed and mobile, i.e., converged services.

And all of this is underpinned by introduction of what is called cloud technologies, where Vodafone will have the advantage of the scale we have where we can launch new services and rationalize the current technology we have at lower cost.

So we put up some goals for 2020. And, starting by mobile, in 2020, then, we will have launched 5G in the first cities. We are planning to shut down 3G, because it doesn't make sense to have 2G, 3G, 4G and 5G running at the same time. And when we migrate customers from 3G to 4G we see that NPS is 12 points higher.

It's very good for us to do this migration from 3G to 4G, thanks to Spring. If we exclude India, 93% of our installed mobile base stations, it's very cost effective to move spectrum and reuse that hardware for 4G. So it's very easy for us to make this transition, thanks to the investments already done in Spring.

We will also put in place fiber backhaul. If you take European cities with more than 100,000 inhabitants, our goal there is to have more than 95% penetration of fiber to those sites. If we look today and we take the four biggest countries that we have in Europe that figure is 69%.

Now I wouldn't rule out microwave because, in that sub-10 millisecond latency that we want to have in the coming 5G networks, microwave hop adds less than 0.3 milliseconds. So I wouldn't rule at all using microwave in tomorrow's 5G networks.

We will also start already next year by introducing a new technology called Narrowband IoT. That basically means that if you take our existing 4G network, we do a software upgrade in about 85% of our installed base that enables this new technology. It has 6 times stronger signal, which means with existing site grid we have we're going to have extremely good indoor penetration and rural coverage. And it's a very cost-effective way for us to add on this technology.

On the fixed side we're going to upgrade our cable networks to DOCSIS 3.1, and on the fiber-to-the-home side with the next generation PON technologies. This will give us multi-gigabit speeds.

On top of that, we will introduce a new technology called virtual CPE. That basically means that we ship to our enterprise customers a cheaper standard box and when we sell new services we switch them on in the network instead of shipping another box to the customer.

In the IT estate we will transform to a converged modern billing and CRM system. That's already underway in many of our properties.

Through introduction called agile ways of working, we're going to be reducing the lead time for introduction of new services with about 50%.

And we will also take down the number of IT vendors we have with two-thirds. And I'm convinced that will give us better quality at a lower cost.

Thanks to cloud technologies, we can easily introduce converged services. And one example I have here is cloud-based TV that we're going to launch in the UK and Italy this year.

We install it once in our internal cloud. And then in the market, we just have a fairly low-cost CPE box that goes in. So it's a very effective deployment. Do it in one place and get it, and sell it in many markets.

We will also enable all-important customer journeys on the digital platform in My Vodafone. That app is a key interaction, which, I think, will give a more qualitative interaction for our customers.

All of this is supported by something called in-cloud technologies. This is the buzz in the industry. Everyone is talking about network function, virtualization, what it can give. We haven't said anything from Vodafone about this but we have actually been running it in production for the last 18 months for the first applications. It works really well.

We are now scaling it up so by 2020 we will have modernized more than 50% of the core networks. And this is supported by something called software-defined networking, which creates more agility in our internal network.

On our IT estate we're going to be moving more than 65% of our IT systems over to what we call the hybrid cloud environment. Basically, we can control if you put it in our internal private cloud or using external public cloud providers, giving us flexibility and benchmarking of what is available.

So the message I want you to take with you is that we have a leading mobile network performance thanks to Spring and we will maintain that strong competitive position. And we have an ambitious roadmap for the future but I believe it's a very realistic roadmap. And I'm comfortable with the CapEx envelope we have put in place to support it.

And with that, Nick, over to you.

Good morning. I'd like to first of all thank Goldman for our new low-cost location. It must be the first time ever Goldmans has helped a business lower its cost. (laughter) The second thing I'd like to thank them for is this step. Obviously, I'm surrounded by giants now in Vittorio and Johan.

Anyway, I thought a new venue deserved a new format to my presentation. And what I've done is I've removed a lot of the statutory reporting tables to focus more on the underlying trends of the business so that we have a bit more time in that area.

Obviously, I'm more than willing over coffee to debate deferred tax accounting and the pros and cons later.

So for the first time since 2008 we can see a positive sign in front of both service revenue and EBITDA at 1.5% and 2.7%, respectively.

I think what is even more encouraging is the second-half acceleration. I wouldn't call it quite Ferrari acceleration yet but, for a European-quoted telco, this is getting exciting times.

The main number I wanted to draw to your attention is this one: EBIT at GBP3 billion on the right. In FY15 it fell 24%; the year before that, 19%. We, along with the rest of the industry, have been hit by numerous well-known factors whilst continuing to invest in CapEx and spectrum, which, in turn, has significantly depressed EBIT and returns.

You see from the chart our EBIT decline has moderated in FY16; down just over 6% year over year. And I see FY17 being the turning point as EBITDA grows and capital expenditure normalizes.

Now, clearly, a key driver of that improvement is top-line growth. And there's two points I'd like to note on this year-over-year service revenue chart.

Firstly, it shows the broad-based nature of our recovery. At the bottom you see the full-year performance versus the bars Q4.

It's great to see some of our main markets join the rest of the growth markets, with Germany, Italy, Spain, even Greece, moving positive. As Vittorio has already covered, two markets are experiencing some challenges, namely the UK and Netherlands.

Secondly, in the red box, the Group produced a reported growth of 2.5% versus the underlying of 1.8% if we exclude the impact and benefit of leap and some year-to-date accounting changes.

I believe our revenues have gone through a transformation both in terms of quality and in terms of resilience, which I'd like to highlight on the next two slides.

Taking the quality dimension first, you can see from this chart that we placed a greater focus on our branded revenues, growing by GBP0.8 billion year over year versus a decline of GBP0.4 billion the previous year. In addition, we've been very disciplined on wholesale, not compromising our long-term strategic position to prop up short-term results.

From this chart I think it's clear that Vodafone customers in a post-Spring world are valuing Vodafone's network and service.

Turning to resilience I want to focus on European revenues for a minute, starting at the top right of the pie chart.

Consumer fixed, now 14% of our revenues, are growing at 3.4% year over year and has a low churn profile, given our focus on high-speed broadband products.

Enterprise at 35%, including SOHO, SME, corporates, is essentially flat year over year, outperforming competitors who are in decline as we expand total communications on our distinct European and global footprint.

Consumer mobile contract in-bundle at 26% initially suffered dilution from our proactive drive on Red, initially designed to protect against OTTs, but now is benefiting from 4G and data monetization.

This leads consumer out-of-bundle now at just 5% of revenues. There will always be a residual amount of out-of-bundle but the customer-friendly usage notifications, coupled with CRM tools, is a real up-sell opportunity for us in this space.

Prepaid is starting to stabilize, declining 4.4% this fiscal year compared to a decline, on average, over the last two years of 18% per annum as we launch online second brands and youth propositions.

Finally, regulated MTRs have reached the floor and MVNOs are no longer a material part of our business model.

So, to conclude on revenues, we've taken a lot of pain to get to this point. But we hope to benefit from more tailwinds than headwinds moving forward.

So, having looked at revenue, we need to look at our cost and see what we can achieve in terms of operational leverage and expansion of margins as we grow. I've given you a breakdown of our cost base before but, given the questions that you had last time, I've refined the categories to be more helpful.

Against the categories we have labeled our six global Fit for Growth initiatives that sit on top of a comprehensive list of local initiatives that are monitored centrally so we can accelerate best practice between the operating companies.

I've a slide on each of the initiatives to highlight the progress we're making, with the exception of direct cost optimization, given its sensitivity.

The goal of that work stream is to ensure we challenge and tightly manage SLAs and regulatory conditions with the incumbents. You've all seen how active we've been in this space and we've had a significant number of wins. And we will maintain that level of intensity and focus going forward.

So on to initiative number two, commercial efficiencies. We've been driving our A&R intensity, as seen on the left-hand chart, through a combination of activities you see on the right; namely, direct channel mix, value-based commission models in indirect and lower subsidies.

In addition, bottom right, we're driving My Vodafone app not only as the default mechanism to get customer service but also an enriched CRM experience, where we propose to our customers the best products and services for them in a personalized way; the core of great digital marketing.

We ended the year with a 36% penetration of smartphones, which, given the base growth, is a doubling of My Vodafone app users. We intend to drive this to 60% by the end of FY17.

Moving on to initiative number three, network and IT transformation. Clearly Johan has already talked through the 2020 technology vision but I just wanted to really add two points.

Firstly, Project Spring was an enlarged footprint, an increased density of our network. As seen on the left-hand chart, this added fixed cost into our OpEx an additional GBP0.3 billion versus pre-Spring. We have a further GBP0.2 billion increase in cost in FY17 as we annualize the effect of Project Spring.

Secondly, as seen on the right-hand chart, IT OpEx and CapEx as a percent of revenue stands at 5.5%.

We have a large legacy estate. It's complex. It's costly. Through the transformation program, already covered by Johan, we are targeting a five-year end state of 3.5% to 4%. We anticipate making progress each year, balancing the IT transformation CapEx with rigor around BAU and the returns that we get from that CapEx.

Initiative number four, centralized procurement and shared services. I'm really pleased with the progress we've made on the procurement side, top left.

In FY16 Group spend managed through our central Vodafone procurement company rose to 74%; consistently beating industry benchmark pricing and halving the number of suppliers we deal with, as seen top right, to 11,000.

As a result of our success in this area, a number of our partner markets are now starting to buy services from us and allow us to manage their categories.

However, I'm particularly excited about something we consider to be a big potential opportunity. It's the cost-component build-up model; so where we strip down a product to its bare components, individually cost them and then do a cost-plus model going forward.

Given our scale and expertise in the area of procurement, I believe we're uniquely placed to drive a competitive advantage in this space.

Similarly, bottom chart, we've reached scale and maturity with our shared service centers. Using our own captives within our emerging market footprint we exited the year with 19,000 FTEs; a saving of GBP400 million per annum.

In the early stages this came from labor arbitrage but increasingly we are driving process reengineering. And in the future we see the opportunity around automation.

Initiative number five was zero-based budgeting, of which this facility was one of them, which is a new methodology we introduced for the first time this fiscal year. And it essentially had three components.

Firstly, we started with a specific perimeter of spend at Group to test the approach. So this was the Group governance and Group products and services areas. Our review delivered an absolute net reduction of GBP100 million fully executed by March, so that we have the full impact and saving in FY17.

Secondly, Group operating units, such as data centers, we established a multi-year productivity target for each area.

And finally, and probably most importantly, given the combination of local Fit for Growth initiatives with the global ones and ZBB methodology, we established multi-year margin improvement targets for each OpCo.

And, as you see on the chart, FY12 to FY15 we had 10 countries grow EBITDA faster than service revenue; FY16, 15; and, moving forward, our Board has just approved the three-year plan targeting 24 out of 26.

Our final area of focus for Fit for Growth is the delivery of synergy benefits.

We're pleased to announce a 25% increase in the NPV of cost and CapEx synergies moving from the EUR5 billion to the EUR6.3 billion.

On the left of the chart the integration of Ono is ahead on all fronts, with the Spanish team having already secured 100% of the original year 4 synergy targets. This has allowed us to increase the synergy run rate and NPV to EUR300 million and EUR2.8 billion respectively.

On the right of the chart our German team had a more cautious start to the integration, given it didn't want to disrupt the KDG growth momentum that we already had. That caution has paid dividends as we've managed to accelerate the top line, now growing at 7.5% year over year with strong commercial momentum that Vittorio covered.

On our cost and CapEx synergies our assumption on the speed of exit from central offices proved too optimistic, though largely recovers post year 4. However, we have more than recovered in the near term through greater procurement and central function savings. Therefore, in aggregate, we're tracking to our year 4 target, with further upside past that enabling us to increase the NPV by 15% to EUR3.5 billion.

So, bringing revenue and cost story together, we move to year-on-year EBITDA performance, and our gross margin expanded EUR0.5 billion for the full year.

Customer costs continued to decline, down over EUR0.1 billion, whilst producing what you see at the top: a clear superior commercial performance.

The enlarged Project Spring footprint was a drag on technology costs of EUR0.2 billion.

And, finally, support costs increased by EUR0.1 billion, given inflationary pressures in emerging markets. I think it's really important to register that Europe support costs actually went down around EUR50 million year over year.

So, to conclude on EBITDA, the revenue performance combined with the cost control is delivering operational leverage across our businesses from an EBITDA decline of EUR800 million last year to a growth of EUR300 million this year, with the big six all in positive territory.

Turning to our capital expenditure moving forward.

Since launching Project Spring we explained that our central case was to return to capital intensity of 13% to 14% from FY17 onwards. However, we consistently stated that we were willing to spend above that level if we saw clear opportunities, as long as we could see the delivery of the incremental EUR1 billion by year 5 for Project Spring.

Having concluded our budget and LRP, we identified incremental opportunities we wanted to capture, whether IT transformation, expanding mobile data services in emerging markets or targeted fiber footprint build and the momentum that Vittorio has discussed already in fixed. So we're guiding post Spring to a mid-teens outlook.

Moving to free cash flow, it's a relatively similar picture to last year; elevated CapEx of EUR8.6 billion, with the completion of Project Spring delivering EUR1 billion of free cash flow, essentially in line with last year.

However, I just wanted to briefly comment on two items.

Firstly, cash interest at EUR1 billion in the year was similar to last year, even though average net debt was EUR6 billion higher, given lower financing costs because of the ratio with CP we were holding.

And secondly, post the consolidation of our India structure our cash tax will be around EUR900 million with an effective tax rate of mid-20%s over the midterm versus the EUR1 billion and the high-20%s previously communicated.

Turning to our balance sheet.

As the top chart demonstrates, it remains a robust position with net debt rising to just over EUR29 billion, driven by four factors: a significant year of spectrum auctions, including EUR2 billion of deferred consideration for India spectrum, one in late FY15 but not awarded until FY16; the payment of our dividend; the issue of our mandatory convertible, which is aligned to our Verizon Wireless loan notes; and, finally, the adverse FX movement, principally euro strengthening.

This takes our leverage to 2.5 times net debt to EBITDA, maintaining our BBB+ target rating.

We have also successfully raised EUR6 billion in euro bonds, average rate 1.55%, average life 6.6 years, ensuring a strong liquidity position at a time of macroeconomic uncertainty.

Concluding on guidance for FY17, which, given our change in reporting currency, requires me now to seamlessly move into euros for this chart.

So let me walk you through our EBITDA movement from our FY16 results to our guidance for FY17 so that you have the context to the 3% to 6% growth range we've set.

If we take the reported EBITDA on the left of the chart and restate for guidance FX and exclude the UK ladder settlement, you get to EUR15.3 billion.

Then we have four significant drag items in FY17, which we have highlighted previously: roaming, Spanish content, Spain's handset financing FY16 EBITDA benefit that significant reduces in FY17 and, finally, the steady decline in MVNO revenues and margins altogether are worth EUR0.6 billion.

On top of that we have the annualized technology OpEx for Project Spring that I had previously mentioned, now in euros, EUR0.3 billion.

Therefore, to absorb these drags and still produce a 3% to 6% growth requires our business to produce what you see here of a EUR1.3 billion to a EUR1.8 billion underlying improvement in EBITDA, which clearly requires a lot of execution.

At the bottom, free cash flow, we are guiding greater than EUR4 billion for FY17.

And maybe the most important chart of my presentation, because we cover a lot the topic of dividend cover, on the left you see our free cash flow guidance before spectrum. When trying to understand our true underlying free cash flow you need to factor in the negative Project Spring working capital drag of EUR0.8 billion in FY17, shown in the middle bar.

On the right-hand chart I highlight the fact that the management is aligned with shareholders on focusing on driving free cash flow growth. The chart shows our LTIP target range between the EUR13.8 billion and the EUR18.8 billion. Clearly the target and the maximum show significant headroom, but even at the minimum we are covering the dividend.

Now, importantly, this is clear evidence that our cost plans remain on track and Spring remains on track to deliver the EUR1 billion incremental free cash flow by year 5. Coupled with our robust balance sheet position, this gives us confidence regarding our progressive dividend policy.

And, on that note, I hand back to Vittorio.

Just to conclude, I will not go again through what we have achieved. I just have to say return to growth of service revenues, EBITDA and customer appreciation, which, for me, is very important.

What are the priorities that myself and my team have for the year?

I would say five operational priorities. Clearly, the continuation of the CARE program; very important to stabilize and improve the relationship with customers and, therefore, the monetization of data; More4Mmore across the piece, mobile and fixed; technology road map Johan clearly has a multi-year plan post Spring to bring us in the new space of 2020; Nick mentioned engage with the regulators on avoiding the risk of re-monopolization and having better conditions for our expansion; and then efficiency and margin expansion that Nick has presented.

Those are the five things that operationally myself and my team will work on.

Of course, we will continue to look at portfolio optimization opportunities and the Indian IPO and everything, with the view of supporting good shareholder returns. That is, as always, our long-term Board objective.

I would like to ask Johan and Nick to join me now for Q&A, and my colleagues also in the front row are here to share questions.

And I have a small request. Given that I did an extended presentation, I know it's against the culture and the DNA, if you could have one question at a time and not 16.

So I'll just stick to one question, which is just in terms of EBITDA growth, because you've obviously guided towards 3% to 6% EBITDA growth for the coming year. But that's despite 5%-plus EBITDA growth headwinds.

So I suppose the question, therefore, is how optimistic are you that these headwinds will eventually fade and, therefore, EBITDA can actually accelerate to something much higher than the 3% to 6% going forward?

If we give you 3% to 6%, it's because we believe that 3% to 6% is the right range. I think I mentioned in my presentation there are some areas that are watch-out areas. Clearly, pricing in Italy is a watch-out area. There are two players, Three and Fastweb, doing things which are not -- and Telecom Italia is wobbling a bit in their commercial response. We have to look at that.

We have to look at Deutsche Telekom. Deutsche Telekom, I think they liked when we were clearly in a different space. The fact that we are coming back to what it used to be and it should be, they're reacting on subsidies in consumer and on ARPU in enterprise in an aggressive way. We need to see Jio. Jio will come, how they will come, what they will do exactly.

So there are three or four areas. Content cost in other markets. Spain is sorted out. We are clearly reiterating that we would prefer to distribute content but if we have to buy, we buy.

So there's three or four commercial things that have to be watched out and that's, at this point, difficult to call where it will go.

Maurice, Barclays. A question on consolidation life post Hutch/O2. The UK deal failed, whether it was Commissioner Vestager focusing on the creation of a fourth network provider, so structural remedies, or maybe the JV structure.

But moving on to Italy and your thoughts on the deal there. You've talked in the past about not being supportive of bad M&A. I think only this morning you were saying you were supportive of the EC's decision in the UK to cancel it.

So your thoughts on the likelihood of Italy going through, how supportive you'll be on that. And if you think Fastweb as a fourth mobile network operator is a good thing.

Listen, the problem with UK was a specific problem. UK has two network sharing and our network sharing is the one that goes against BT, which is the dominant player in the country. Clearly, if the merger that they proposed could strengthen our network sharing, probably the deal would have gone through.

But trying to stay in two network sharings and flip flopping between one and the other, which, of course, from an economic optimization point of view, sounds good, clearly, was a breach of competition law and a weakening of competition.

So I think it was a UK-specific decision and, quite frankly, we support this decision because we honestly think that the EU did not have another choice. The remedies were not good enough.

Now, Italy is a different case because there's no network sharing there and the Commissioner will have to make up her mind on that specific case. But it's a case-by-case thing. Our problem with the UK was not an in-principle problem; it was a very pragmatic problem relative to our joint venture.

John Karidis, Haitong Securities. Now I'm 1,000% clear that it's not Vodafone's policy to promote handset financing. Even so, I'd like to understand what the benefit to EBITDA was from the accounting for handset financing in H1 and H2 of the year you've just reported. And was that only in Spain but also somewhat a little bit also elsewhere?

Nick, do you want to take this one?

So, essentially, we don't have any material handset financing elsewhere. Spain, in terms of EBITDA for the year, benefited to the tune of about GBP170 million.

Thank you.

Sorry, GBP180 million. Sorry, just to counter, Spain benefited GBP180 million there and then lost about GBP110 of increased content costs and regulatory TV tax.

Thank you.

Robert, Deutsche Bank. Just on the revised capital intensity target, it seems from the graphic that that is about fixed. That's where the ambition has been increased. And a lot of that seems to be around fiber. Is that fiber spend more about targeting the consumer broadband opportunity? Or is it about more fronthaul, backhaul for the virtualization of the [ramp]? Thanks.

Could I just do one slight correction? So the increased capital intensity was on a number of fronts. It wasn't just fixed.

So fixed, yes, we have significant momentum; so higher CPEs, higher builds. That's one. But also we have very good progress in 4G, 3G in emerging markets. So we want to expand our footprint there in mobile. And also we want to accelerate the IT transformation because there is a significant cost opportunity for us to get to that prize quicker.

Stephen Howard, HSBC. I wanted to ask you a question about vectoring and the situation in Germany at the moment. Obviously, the Commission is reviewing the decision by the local regulator to permit vectoring and I would imagine this is something you're quite concerned about. What I wanted to know is --

No, quite happy about. Happy that they are reviewing it.

I see, happy that they are reviewing. Concerned about the original. Quite so. Concerned about the original decision from the German regulator.

So what I wanted to know was what do you think might emerge from that review? Are you genuinely hopeful that the vectoring decision might be substantially overturned? And is there a risk that this situation becomes very acrimonious and, thereby, destabilizes the German market at just the point when it seems to be showing signs of turning less dysfunctional? Thanks.

You are really smart and you asked two questions in one but I will answer both questions about the state of the acrimonious market and the vectoring one.

First of all, position of Vodafone on vectoring. Vectoring is an intermediate technology. Nobody can discuss that. Fiber is the ultimate solution that we all need to have in the true gigabit market, gigabit society because you need fiber for that; two-ways, latency, all these things in the end. Point number one.

Point number two. Vectoring as an intermediate technology has re-monopolization risks because it's a technology that, essentially, the incumbent can deploy to his own advantage. Hence, it needs to be looked very carefully at.

What are the four conditions that Vodafone is strongly -- I don't know if it will emerge but should emerge from the review? We welcome the review of the EU. It should come with an answer to four questions.

One, we want to be able to connect at the central office level, so up in the hierarchy not down in the hierarchy because otherwise that's anti-competitive.

Second, we want to be able to use whatever technology we want to connect customers, to connect base stations, to connect enterprise, to do what we need, regardless of constraints that artificially the incumbents are putting.

Third, we want a price which is competitive to the current VULA situation, or the current best VULA situation. And I don't think this is unreal any more.

And fourth, something that nobody discusses, we cannot continue to live with service levels from incumbents at 60% to 65%, which means one out of three customers is not served. We should go to the 90%, 95% that we have in cable or in other things.

These are not unreasonable requests. These are about competition and decent operating life. And I think we welcome the decision of Commissioner Oettinger to look into this because it is not about being against an intermediate technology; it's about being against re-monopolization.

Acrimonious situation in Germany. I really hope this is not the case. I know that Deutsche Telekom took this pretty badly and, probably, they attribute this to us. I think Deutsche Telekom is a great company. I think they have done a fantastic job of turning the company around and re-launching it also in Germany.

They should accept that there is a market situation that requires competition and Vodafone will be a player there. If they accept that I don't see why it should turn into anything acrimonious. It's just the normal way regulation and competition should work. It's the opposite which would be strange, like the re-monopolization thing.

Emmet Kelly, Morgan Stanley. You showed a graph of acquisition costs and retention costs. I think if we look at the graph these have fallen from consuming 20% of revenues to broadly 18% of revenues. How much further lower can acquisition and retention costs go? And what would the key drivers be? Thank you.

Well I don't know if I can come up with a magic number. I think there are a couple of things I'd factor in. Increasingly, as you've heard from Vittorio, we're driving on the fixed side. We're driving more convergence. When you look at convergence you've seen the churn profile reduce. You've seen a number of people do SIM-only plans, so separation of handset. You're seeing handset cycle times maybe in a couple of areas go a little longer.

So I think there's a number of reasons why combination of market structure, combined with our efficiency and our approach to commission and channels, can improve it further. But, obviously, it does depend on market situations.

So, as Vittorio highlighted, Germany has got a little bit of channel competition at the moment in terms of increased subsidy by some of our competitors. We need to remain competitive. If everyone is more rational then, of course, there's opportunity.

Guy Peddy, Macquarie. Just a quick question on the UK. BT have a quite aggressive set of revenue synergies and a large part of that they're targeting from UK enterprise. And the competition in there is they combine fixed with mobile. Have you got anything in your plans for 20 -- do you see anything in your plans for 2016/2017 as a potential competitive challenge from BT? Or do you think that is still further out into 2018/2019, rather than the next financial year?

No I think BT is already a competitor and will become a stronger competitor the more they combine fixed and mobile.

Enterprise is the place where I feel, quite frankly, better because we had a good performance in enterprise. Enterprise fixed in the UK is actually good. And we traditionally had also very good experience in mobile. So, for us, combining fixed and mobile in enterprise in UK is less of a challenge.

If anything, it's more on residential where we need to ramp up our capabilities. We are starting to do it. But I don't feel that there is a special new thing happening specifically on the enterprise front.

Andrew Lee, Goldman Sachs. Just a question on your -- on slide 43 where you talk very clearly about the underlying EBITDA growth stripping out those temporary effects. Just to give us an idea of the sustainability of that growth, what proportion of that underlying growth is coming from efficiency gains? And what proportion is coming from the operational gearing and mix effects, if we strip out the cost of analyticals?

What I was trying to show from that chart was that, if you compared it to H1, the gross margin leverage is increasing. So what we're really focused on is driving the gross margin up.

At the same time, if we can hold down customer costs and make more efficiencies, hold down support costs, once we annualize on the impact of the footprint of Spring, then I would like to think that all the new technologies coming in and the fact that it's a shiny new network is going to be pretty efficient.

So I'd like to think that we've got good opportunity and as one of the key drivers in terms of operational leverage going forward is holding down the rest of the costs.

Simon Weeden, Citi. I wondered if I could offer you the opportunity to clarify your dividend guidance in respect of sterling DPS. So is it conceivable that the dividend per share will fall in sterling terms in FY17 as you transition to euro? The wording of the guidance suggests it could be.

But, as that was an offer of clarification, I wondered if I could sneak in a question as well, which would be you've said 24 of 26 markets are going to see EBITDA growth over the next few years. Rather than asking you to list the 24 markets, I wondered if you could tell us who the two are.

So on the first clarification point, we are guiding euro dividends. So we will be announcing euro dividends and it's our intention to grow euro dividends. So, of course, I can't predict impact of whether we vote in, out, Brexit, whatever in FX movements. There are certain things that are just not in Vittorio's control. So I would say that's the clarification on dividend.

I'd say on the 24 to 26, let's call them minor markets that you shouldn't worry about but we do.

Nick Delfas, Redburn. So it's a question on content. Nick just mentioned the increase in costs in Spain. You've obviously got some increased costs in Portugal. EE has access to content now in the UK via BT. Mediaset Premium getting together with TI as part of the Vivendi grouping. And we don't know what's going to happen in Germany. So what is the Vodafone content policy to offset these threats?

I think you've got a good example in Spain of what is our policy. And I think I have to say I keep reanalyzing but I haven't changed my mind on this one. If you look at Spain, in Spain everybody has the same content that we had before. We just pay twice as an industry.

I was asked this morning by some newswires, will we be able to put everything back into the customers? I don't know. I have some doubts that 100% of an increase of this size can be put back to the customers.

Once everybody has the same content, I think, more or less, we're all in the same space. So if we can we would like to avoid strong competition for content. But we also have to be minded that in the classic prisoner's dilemma if one gets it then you have to play. And that's why we played in Spain. And we will play in any other market where it is required in order to have a competitive offer.

Of course, it depends a lot on our position in convergence, in TV, in each market. But I can guarantee to you that in our main markets we will not accept to be at a disadvantage versus the main players.

Just a quick question on spectrum. When you highlighted the different trends between EBITDA and EBIT, you highlight that EBIT was impacted by EUR200 million increase roughly on spectrum charges amortization. We don't see spectrum in free cash flow. Now going forward you're going to have spectrums renewed in Italy, new spectrum to buy in India, potentially new auctions for 700 megahertz at some stage.

So the question is that if you can give us a bit of an idea how amortization charges in your cash payment can evolve. This year you had almost EUR5 billion. It's random. It goes up and down versus recurrent. And I'm sure that it will consume cash.

So the question is that if there is -- so, first, if you can guide in terms of which sort of charges both in the P&L and the cash we can see. And if there is at some stage the plan to cover your dividends after spectrum rather than before. Thanks.

Let me comment on the general spectrum thing and then, Nick, you take the financial and, Johan, maybe you can comment.

In front of us we have Italy. We have India. India is two different things. There is one which is pretty unaffordable and one which is more needed. And then maybe South Africa, I think, is the other one that is a bit unclear when it comes and so on. It is less than what we had in the past. So, from a commitment point of view, we think it is less.

The point which is very important is what Johan commented about. We start re-farming now we start having such a generous, or at least a wide, spectrum portfolio that we can start to optimize. And technology progresses a lot. So the more you aggregate, the more you do use spectrum efficiently, the more growth can be accommodated within things.

So, in general, for, let me say, the near future, the time of horizon that we are talking about here, we think it should be less than what it has been in the recent thing.

And, of course, one of the goals that Johan has now is really to work hard on this because we spent money, we spent shareholders' money, to buy spectrum everywhere. Now we need to use it organically in a very efficient way. And this is the technical mission and this is the Company strategy.

In financial terms, our amortization, I'm not capable of comment.

What I would say in terms of financials is over the last five years we've averaged about GBP2.3 billion over the last five years, given that heavy 4G acquisition across Europe and 3G and 4G in India.

If we look at the three-year horizon coming out it will be lower because, essentially, Italy is a renewal of 900 MHz in FY19; the 700 MHz is probably past that date. So 700 MHz in Europe is not in the next three-year envelope and we will be very rational in India. If you look at the pricing of the low-band spectrum, it looks a challenging business case. So we will definitely be rational on the Indian.

So, of course, we don't guide specifically, because that would give away our auction strategy.

And then to add on finally as one comment, we have got around seven spectrum bands in the markets where we are. And, of those, it's typically four or five that are utilized today. So we still have two spectrum bands with quite high capacity not used for adding on capacity in certain areas.

On top of that, when we move spectrum from 3G to 4G we get double the capacity, due to technology.

So there's still some miles to go with what we have.

James Ratzer, New Street Research. Thank you very much indeed for all the cost guidance that you have given. A couple of your peers have actually gone one step further and given guidance on net total OpEx outlook. Do you think Vodafone could see a situation where your total OpEx base net actually declines? Or do you think some of the savings you've announced have to be reinvested in other growth initiatives?

James, one of the things I asked specifically to Tim when he came into the job and I said, look -- we went to a conference in March together and I had a group of people saying, why don't we have guidance on this, guidance on this? What about guidance on that, etc.?

So I asked him to do a piece of analysis on how many bits of guidance are given by our competitors. And I came away with two conclusions of that. Number one, the more points of guidance they give, the more they miss. And secondly, the longer timeframe they go out, the more they have to do a reset at some point and start all over again.

So, look, we try to do the guidance on the ones that we think are materially important, and that's why we give EBITDA guidance.

Clearly, there are a lot of variables between top line, what type of top-line growth we get, is it wholesale fixed, is it on footprint fixed, is it data monetization, determines the margin and the acceleration that we get.

So I'm trying to break down the cost to say, here are the costs, here are the initiatives we're working. Depending on the profile of cost, we will be working the cost agenda hard. So I don't think I have anything more to add over the comment I gave before.

Andrew Beale, Arete Research. I guess I wanted to ask you about the new capital-intensity guidance in relation to the LTIP cumulative CapEx -- accumulative free cash flow payment that you get.

I guess the implication is that you think that you got a relatively rapid return on investment from the extra capital spend. And I wondered if you could put some context around where you think that return comes from. How much is from incremental revenue? How much is from better gross margin by having more network, particularly on the fixed side on NGN? How much is enabling more cost savings, for example on the IT estate? Can you just give us any sort of rough color on those sort of sources?

I put that chart up at the end because what I really wanted to emphasize was, if you take those sort of GBP16.3 billion midpoints, take off, let's call it, GBP4 billion for next year just to make the numbers easy, you've got GBP12 billion. GBP12 billion over two years, GBP6 billion. So you're seeing a rapid increase in free cash flow.

So we wanted to demonstrate the confident -- our plans are still tracking to what we said on both M&A, we're ahead, and on the GBP1 billion incremental free cash flow.

So, on that basis, where we see the opportunity -- and Fit for Growth was about how can we drive a zero-based approach on the current cost base to then reinvest on further growth opportunities going forward.

So I'd say the large amount of the incremental CapEx was very much driven from incremental revenue opportunities that we see going forward.

I'd say the cost-efficiency program is being driven as hard and fast as it was before, with maybe the only exception being when Johan came in we sat down, we were talking about IT transformation and just the speed at which we could go at IT transformation and get that cost down.

David Wright, Bank of America Merrills. Just a question on India. I think, Nick, you've alluded to the 700 MHz being pretty shockingly expensive, I guess, on the reserve prices. There's obviously the 2,100 MHz, which I think you guys could probably use very effectively. But what you've also got is a potential IPO, which creates a currency, of course, in that business.

Is there an opportunity, do you think, to acquire spectrum smartly through consolidation of the Indian market? Is that a round-and-about way of avoiding some of these (inaudible) costs?

It is possible. As you know, the rules now allow that. So it is possible. And, I have to say, there's a number of players who are probably not very long-term committed to the country. So yes, that's a possibility.

And that's, let's call it, one of the primary drivers of getting the local listing there is to use the currency.

I wouldn't like to call anything a primary driver. We want to consider the IPO, and I say consider because it's not decided yet, because it makes sense to have some local funding, local shareholders' capital who is more interested and more committed to India. There is capital in the world who wants invest in India and just in India and maybe not in other parts of the world.

And it makes a lot of sense also, like in the Vodacom model, to have a more local broad base. Part of the reason is also, of course, the financial reason that we can use the local funding to support the business.

But whether it's to support the spectrum or support the acquiring spectrum from others, we don't know it. It will depend on the opportunities but those opportunities we do consider, of course.

Okay. Thank you.

I think it has the secondary benefit, obviously, in the sum of the parts. I think there's quite a wider range on the view on India. And I think it would also help narrow that range in terms of what the true value is of the India business.

Gareth Jenkins, UBS. Just a quick question on IoT. You talk about taking leadership. I wonder if you could give us some sense of your M2M business and what targets you have for non-human revenue.

Nick, you want to take it? We have here Nick Jeffery, who's the Head of Enterprise, and I appeal, of course, to him. So talking about the commercial side of it. We already talked about the [net of one]?

Yes. Non-human revenue's a new category on us, so we'll work on that one for sure. (laughter) But it is. Our IoT business is something we've grown up over the last six years. It's founded on a set of technologies, which Johan and his team have built, which are unique to Vodafone, which give us the ability to have a single SIM that works on any network, anywhere in the world. And that platform, as you heard from Vittorio earlier on, is already deployed in 30 countries around the world.

It's a rapidly growing business for us; as you saw, a 20% to 30% year-over-year growth. We see that continuing into the future. The main verticals for us are automotive, consumer electronics, smart metering, healthcare and, in some sense, some part of the world, agriculture.

So it's important part of the business. It will continue to grow fast. And I'm not sure we can add much more than that.

Also we can add the other part of the business, we're also considering the consumer part of it. As you would imagine, it's more fragmented, depends a lot much more on market by market and product by product.

But I would say that the original choice -- it's one of the things that honestly we are very proud of, because the original choice of focusing on enterprise and having a proprietary platform, actually is very important. If I look at the rumored price at which the other platform has been transferred to Cisco for, we have much less created a bigger, better and more successful platform. So it's a strong, strong, strong basis for future growth.

Narrowband IoT will come. My prediction is also that wideband IoT will come pretty quickly, but I think Vodafone will be among the first ones to launch it.

And I think there's some really interesting things with this technology that will drive a lot of new business opportunities. The cost point for the connectivity, the target is less than $5. The battery consumption will mean that it can be up to 10 years with an AA battery. And, as I said, the penetration levels, since it's a 6 times stronger signal, you get in houses everywhere and also increased rural coverage.

So it opens up a completely new business opportunity. And also with the launch of e-SIM, where Vodafone is very early out in the market to support that, if you add those things together you have a lot of new business opportunities for companies to offer.

My guess is that you will hear about this for the next 10 years in these meetings, 15 years maybe.

Just a quick follow up. You're planning to roll off 3G at the end of 2021 because you're going to basically potentially lose the spectrum. So I just wanted to make sure that was the primary reason why you're rolling off that technology.

And on a secondary point, your networks in the UK and Germany are behind where you were originally planning. Is that just down to timing? Or is there something to do with the fact that you're partnering with O2 in the UK, which is becoming a little bit of a -- it's making it difficult for you to roll out networks? Is there anything else that we should be aware of?

So, first of all, the spectrum we have on 3G we use two frequencies; it's 2,100 MHz and 900 MHz. And what we are starting with in some markets is you take it in portions. So if you have 20 megahertz of 2,100 MHz, you take it in blocks of 5 MHz. So you do a gradual switch of the capacity from 3G to 4G. And we've started doing the 2,100 MHz.

When that is done, we have in most markets or so 10 megahertz of 900 MHz, and that's the one we save to the last. That's where you do voice calls and we have some data traffic. And eventually you take 5 megahertz of that for 4G. And then, finally, you take that final piece away. So that's the strategy.

The buildout, let's say, in UK and Germany was behind our original plans. We have had good progress anyway in the last timing. In the UK it's dependent on a multitude of factors. And we have roughly had the same speed both in the Telefonica part as in the Vodafone part.

I would say the Beacon side was a bit painful to start off with but I wouldn't say that now. I'd say that it's running in line with the run rate. It was just a little bit slow to deploy. And, therefore, we've been running behind since the start.

Simon Weeden. On Italy, and Enel in particular, I wondered what you could share with us in terms of your confidence about how this is going to work and if it's going to work. And also if there isn't an independence clause in the agreement, which means that Enel's fiber to the electricity meter network can't, at some point, be taken over by TI, for example.

Sorry, I didn't get the second part of the question.

The second part was -- the first part was (multiple speakers) --

What happens to the fiber of Enel if TI does what?

Could they buy it? Could they buy the fiber piece off Enel? Is that possible under the agreement that you have with --?

First of all, let me say, will it work? It does already work in Ireland. So this idea of putting fiber into electro ducts and on the poles is very obvious. You only need to go to certain Eastern European countries to see cable on poles. And, of course, it is not probably done in a completely coordinated way but, once you start thinking about it, it is the cheapest way to reach homes.

The other thing is the electro ducts. Electro ducts are another type of duct. And assuming they have the right amount of space and everything, it's also a cheap way of getting there.

And finally, the third point is if you have to put a meter into a home, anyhow you have to go into the home. And so putting also the end of the fiber cable doesn't really cost much more in addition.

So it is clearly a synergetic type of deployment. We are confident that this will happen. Enel is very committed. The initial commitment is good. There's a number of cities that are already in the plan and then there's a question mark about the C and D areas, which actually would have also the support of government money.

So the project is very solid. We're committed to it. We signed. I think Wind either has signed or are signing together. So this is becoming a clear alternative to Telecom Italia.

Well, what happens, Telecom Italia can do a variety of things. They can join, which is good because this will lower also our costs. So there are provisions which say that, depending on the number of people, both on the horizontal and on the vertical, the costs go down.

They can try to buy, in which case we have a certain set of protections and clauses that would describe what happens if Enel decides to sell the fiber.

So I'm pretty confident that that is a good project.

Now Enel and Telecom Italia are both trying to buy Metroweb. From a competition, again, point of view, I believe that the dominant player buying the only alternative is a little bit dubious. But if it happens it will have colossal remedies. So, fine, we can live with it. And, in any case, we will still have access to Metroweb after that.

So Italy, I think, is going in the right direction and their reliance of -- we had all these questions about the Fastweb, do you need to buy Fastweb and so on. Over time that question will fade away.

Nick Delfas, Redburn. So just a quick question on European mobile service revenue growth. So it's minus 1.1% in the spreadsheet. Obviously, more people are going to SIM only and handset cycles are lengthening. I wonder if you've got a figure stripping that out. In other words, gross profit to Vodafone after you take account of the fact that people are repaying handsets less in the service revenue.

So is the minus 1.1% in Europe already growth if you strip out the handset effect? Or is it still --?

That sounds like a really nice technical question that I want to do afterwards, so that I don't rush an answer. I'll handle it afterwards.

Okay, but broadly it's better than the minus 1.1%, obviously, if handset cycles are lengthening.

This is a Nick to Nick conversation.

I'll take it after.

We'll do it afterwards. Okay, thanks.

So a follow-up question, it actually follows on a bit from Simon's question. I'm just interested in understanding the Enel agreement in Italy a little bit further. As a result of this agreement, have you now suspended your FTTC build in Italy and all the future emphasis is now on FTTH with Enel?

Did you also design the network rollout with them? Because it's encouraging to see they're saying there's a 7.5 million build, of which 5.5 million actually don't overlap with your existing footprint. Is this something that is actually more economically attractive for you? Or is the attraction actually going to FTTH rather than FTTC?

So, as I said, we are consistent with our position. Clearly, FTTH is better and, therefore, everywhere we will have the opportunity to go FTTH, we will. It is also economically beneficial to us.

So this is a win-win because Enel will get their money back earlier and we will give to our customers better performance at better conditions for us. And this also, I have to say, proves my evergreen point that all these incumbents are overcharging for their services because, otherwise, things would not work.

Now having said that, FTTC is still useful because, actually, we are doing pretty well in that area. We will, of course, design our future FTTC investment based on where Enel is going or is not going. So, of course, now the primacy is to supporting the Enel deployment rather than our own, which also has implications on when we will migrate and so on because, of course, we will try to support the new partner as much as we can.

But it's a good deal. And it's a fairly visionary thing for the country. And, as I say, it's interesting Italy and Ireland are doing it. We're now looking into other electricity companies. I have to say, though, the idea is interesting.

Can I -- sorry, a very quick follow up --

No, no second questions.

How do you get to the C and D areas? I missed that bit in your report.

The C and D are areas where the Government has found that there is not economic incentive to invest because they are market failure areas. And, therefore, they will put money to whoever bids in those areas. They could be won by Telecom Italia. It could be won by Enel.

So the intention here with you, Enel might be interested in bidding for those areas?

Again, we separated very clearly the first bar, the second bar and the third bar because the third bar is subject to auctions. So who knows who will win them but it's a further opportunity.

Great. Thank you.

So my question's about the UK and Ofcom. So in February they said that they want to incentivize companies such as yourselves to invest heavily to give Britain alternative fiber networks. And, as part of that, they said they'll look at the Openreach prices because, in their words, they don't want to make it too easy for you to wholesale capacity when you have scope instead to be building your own network.

So what do you think are the practical implications of that for you? And could you talk about your appetite to invest heavily to build Britain alternative fiber infrastructure?

I would say the first point is the important one. Openreach overcharges for what they do. I think it's proven that they had excessive profits over time. Excessive not in the sense that it were undue profits; excessive versus a certain expectation ex-ante.

And, at the end of the day, regulators have to be very pragmatic. The more they allow one player to charge more the others, the more they take away the investment case from the others. So it's a fine balance between, a little bit like the Italian example, between putting pressure on the incumbent to come down with their own prices to create an incentive for others to go there and also create the conditions for the alternative.

If they give us access to the DACS and they give us right of way at decent condition, of course, in certain areas of Britain it would make sense to consider an investment. But if we don't have access to the DACS and if we have to always be under a low level of service from Openreach, by definition the incentive will not be there.

So I really look forward to this consultation and this process as a moment where we redefine the role of Openreach in the country, for the good of both investment and competition.

Sorry, maybe I can take it offline. But, essentially, if they reduce the prices that you pay Openreach, you have less of an incentive to build your own network.

This is a false argument and I really say ideologically false because if they reduce the price, we have an incentive to invest commercially. You create a bigger base. Once you have a bigger base, you have an incentive to invest. Look at other cases.

So this argument that the incumbents put forward, they say, oh, we keep high prices because this will keep the market price high and give an incentive, is completely self-serving. They keep high price, everybody gives you money, you reinvest the money into [BTE] and nobody else will have any incentive to invest. So it's completely unproven, this point.

The reality is that what incumbents don't like is a chart like this, where you see Vodafone is the top red line and they are below. So they don't like there is somebody creating this.

Now part of this red line is also Turkey. Now in Turkey we are exactly able to invest in the business because we have decent margin to play with. If you don't have margin to play with, you stay out of the business. So it is a false line of reasoning -- sorry, false, it is self-serving. It's not false but it's not completely genuine, let me say.

It's a follow up on the Project Spring CapEx thing. The EUR800 million carryover into this year, the cash CapEx that has to be spent, will that still give some network advantage beyond what we saw at the end of March? Because I'm just looking at your Spring targets and you beat them all in AMAP but you didn't quite get there in Europe. Is that because there's a follow through --?

It's CapEx committed cash out because we have, let's say, 120 days' payment terms. So physically we -- sure, you can order, it can sit in a warehouse and then go out. So maybe there's a residual still to be deployed physically, yes.

So on those delivered base stations, are they actually in the ground today and yet to be cash paid for? Or is there some quality of service still coming through --?

There will be some because there'll be a degree of warehousing. Our warehouses are only so big.

So I will try to make quick. It's basically for Nick. It's on the cash. Through all this refinancing and the convertible issuance, now you sit on almost on GBP13.5 billion of cash, looking at the appendix to this presentation. I don't think that there is a lot of maturities, or at least not that particular magnitude, coming your way.

During your presentation you mentioned uncertainty macros and that's the reason why you want to carry a bit of cash. So if you can give a bit of granularity what you mean and what would be the use of cash you project going forward.

And this is a clarification. This GBP800 million of working capital or CapEx already spent and has to be paid, because you basically used that to create areas in your free cash flow, if you can give us a bit of color what sort of working capital cash outflow we have to expect for next year that is basically impacting your free cash flow. And that is overall free cash flow, not just -- overall working capital just coming from the CapEx that were mentioned in the previous question.

You were saying about -- sorry the first bit, just say the first bit --?

The GBP13.5 billion cash was the cash balance you have at the moment in your balance sheet. What's the --?

The reason why cash is high -- over the course of the past year, obviously, we were in earlier talks with Liberty that then closed while we were in talks. In terms of the bond market, though it was available to us, the pricing wasn't attractive.

So once the talks finished, we were able to go back into the bond market. We chose quarter 4 as the opportune time to do it. I think we got some great rates. But what we had was a high level of CP and then at yearend, effectively, a whole bond issue came in on top.

So we're sitting on CP. CP is less than one year of debt, so it matures off over FY17, unless we wanted to keep it open. So, let's say, Brexit and if there was disturbance in the market, we're sitting in a very good position from a liquidity position. Once we're through uncertainty, you would expect the CP to drop down. There's no other uses of cash. It's just more, I would argue, timing and tactical.

And, in terms of the working capital, what I was just drawing out is we've got an exceptional flow of working capital because the CapEx is at a very high level and we are bringing down CapEx in FY17. So we will just get a normalizing effect once we're past the GBP0.8 billion.

But just bear in mind, I'm not going to quote a working capital number for the Group because the Group at any given one day can have GBP500 million flow through. So there's a lot movement within working capital.

Thank you.

Very good. I thank you for your attention. I think key takeaways are good financial performance, I hope you agree with it, back to growth, good performance in fixed broadband, really accelerating enterprise and mobile data and growing guidance for next year; 3% to 6% in euro. With all the complexity we need to learn all the numbers again.

Thank you very much for coming. Thank you.