Vodafone Group PLC (VOD) 2024 Q2 法說會逐字稿

Good morning, everyone, and thank you for joining us for our half year results conference call. I'm pleased to be joined today by Luka, our new CFO. Welcome, Luka.

Thanks a lot, Margherita, and great to be with all of you this morning.

Now since I've been CEO, I have said that Vodafone must change, and we are changing. As you know, my priorities are to focus on our customers, become a simpler business and accelerate growth. To set us on this path, we have taken significant actions over the last 6 months.

First of all, on customers. We have reprioritized our focus and resources on customer experience and start to see some results. In half 1, our NPS position, relative to competitors, improved in almost all markets.

Second, simplicity. We have just completed an end-to-end review of our shared operations and the services they provide to the markets. We will now transition to a commercial model with clear MSAs, volume-based pricing for all services. And yesterday, we announced an agreement with Accenture that will allow us to accelerate this transformation.

Last, but not least, growth. We returned to service revenue growth in Germany this quarter, supported by our commercial model reengineering and our broader broadband price actions. Beyond Germany, we have delivered a broad-based improvement in service revenue in Q2 with 14 of 17 markets growing, and we have reiterated our financial guidance for the year.

In May, I said we would focus our investments on markets where we see the right combination of sustainable market structures and sufficient scale to grow and to deliver returns above our cost of capital and take actions where these conditions are not met. As a result, we have announced our exit from Spain.

In the U.K., we are progressing with approvals for our merger with Three and we are continuing to explore a range of options in Italy. Overall, we are making progress on our priorities. But of course, we have significantly more work still to do to improve the experience for our customers, cut complexity and operate in a simpler way.

We are now ready to take your questions.

Thank you, Margherita. Our first question is from Maurice Patrick of Barclays. (Operator Instructions)

Can you hear me okay?

We do.

Yes, we do.

Great. Always good to check. If I could ask a bit about capital allocation priorities for the group, please. At the full year results, you made a comment around the shape of shareholder returns changing as the parameter of Vodafone changes. And it doesn't look as though the parameter is now changing. After the U.K. deal, you've announced a EUR 5 billion proposed sale to Zegona. When you announced that deal, you did say you would review the optimal use of proceeds in the context of a broader capital allocation review at closing.

So even though maybe today is a bit premature to spell exactly what you're thinking. It would be great to understand a bit more about your thinking around optimal leverage, what happens in rates they have for longer? How do you think about buyback, dividends? Those sort of priorities, I think would be very helpful.

Maurice, you're right, back in May when we were talking about capital allocation, I said that we would reevaluate our capital allocation if the shape of the group was to change. We have just chosen to exit Spain because it's a very challenged market. And it's really important for me that in Vodafone, we focus our time, pension, resources to markets where we have good opportunities to grow markets with sustainable structures, markets where we have sufficient scale to drive returns ahead of cost of capital.

In that context, we'll do our capital allocation review at the point in time in which the Spanish deal will close. We expect this to be in the first half of calendar '24. And at that point, we will review the allocation of the EUR 4.1 billion of proceeds that we have from the sale of Spain.

In terms of logic that we will follow, the sort of guiding principle will not change. We have three capital allocation priorities around investment, balance sheet and returns. But perhaps as we now have Luka, our new CFO, Luka, how do you see this?

Yes, perhaps for me, it's just important to take a step back because before capital allocation comes capital generation. And my first priority actually will be to ensure that the company overall is able to return sustainable growth in cash flow. That's very important, and there is no shortcut there. This will only come through the focus on operational excellence. You have set the right priorities around customer simplicity and growth, and we will drive them hard across all of our markets.

And in those markets where this operational excellence focus will not be sufficient, as we have just now seen in Spain because of the market structure, then we will not shy away from taking decisive action, either through market consolidation or through an exit. That's important as a baseline.

Now my thoughts around the capital allocation priorities are as follows: First of all, on the investment side of the house. I am actually comfortable with the levels of capital intensity and capital investment that we are showing to date across our markets. And so I don't think that you will need to see a departure from that. I also must say that I'm very pleased with the strength of the balance sheet of Vodafone.

Actually, as I've been diving deep into it, it's actually quite remarkable. Yes, we have, of course, significant net debt but it is having a very long maturity, on average 11.7 years. It has a very decent low-interest rate attached to it, on average 2.5%. Actually, in the next 18 months, we have very limited repayments that are coming up. And over the next 5 years, it's actually in total only EUR 13 billion or so. So I'm, based on that, also comfortable with round about 2.5x net debt-to-EBITDA ratio that we are currently showing.

When you then take a look at returns to shareholders, as Margherita has said, we will take our time to look at the optimal use of proceeds and the overall capital allocation framework when the sale of Spain has closed. However, based on what I can see is, obviously, we are round about looking now for EUR 3.3 billion in free cash flow for FY '24. We are on a positive track towards achieving that. The sale of Spain will, of course, reduce this cash flow a bit. But on the other hand, we are also focused on operational excellence, as I said at the beginning, and we will have a much better way at judging the effect of all of these parameters as we approach the closing. So we'll update you on that. And since you have asked that question, of course, buybacks could be part of that mix as well.

Our next question is from Polo Tang of UBS.

It's just about German commercial trends. So with the bulk of the repricing in the broadband base done, how confident are you that broadband declines in Germany can improve going forward? Also, what are your latest thoughts in terms of how much basic cable TV revenues you will lose and how much of an impact will we see in January 2024?

Thank you, Polo. On broadband, we will definitely see an improvement on the volume trends, The disconnections of the past 2 quarters have been driven by our repricing. It was admittedly a very low level of disconnection. We are talking about low single digits. And I think our customers now appreciate the quality of our products in Germany. We probably mentioned this before, but we continue to be rated as the best fixed broadband product in the market, thanks to our network performance and our speed performance and it's competitively priced.

As we look into half 2, we'll still have some disconnections because we have now [covered] with price increases 60% of the base. We have one last 10% to go through during Q3. So there will be some disconnection also coming from that in the second half. Beyond that, we look forward to take our fair share of the German fixed broadband market going forward.

On MDUs, the second part of your question. This is something where we will start to see movement from the first quarter of calendar '24, so our Q4. We have had very small volumes of movement throughout the summer. We have completed the 3 tests, one of which was ongoing last time we spoke. And we have seen that the redemption rates, the conversion rates towards the new billing have been between 35% and 65%. As a reminder, 65% is, I would say, the top end also because it corresponds to the level of customers actually using the service.

Our teams in Germany are now busy to prepare for January when we will start the first volume, and we expect the transition to happen gradually between January and July. We have focused on testing all our processes internally in terms of migrations across all channels, online, retail, telesales to make sure that everything runs smoothly from a process perspective. But most importantly, we have been calibrating our commercial approach, our communication, the marketing side of things to ensure that we get the maximum possible results in terms of penetration. It is really a very, very strong focus from our organization in Germany right now.

In summary, a first impact on service revenue growth in the last quarter this year. You know that our trend of growth in Germany is actually improving and will continue to improve if you set aside the MDU transition to allow you to see this underlying acceleration trend, we will actually report from Q4 the MDU impact separately so that you can work out the two components. And then we expect FY '25 to have the largest impact from that.

Next up, we have James Ratzer from New Street Research.

I was wondering if we could talk a little bit about the EBITDA growth phasing going ahead? You've just reported flat organic EBITDA growth, but I think you're saying there's about a 5-point drag in there from energy headwinds. So could you give us some thoughts maybe over the next 2 or 3 half yearly blocks, how that energy headwind might unwind and kind of become a potential tailwind on your growth and then to what extent that might be offset by some of the German cable TV losses? Do the two offset each other and do we actually see overall organic EBITDA growth rates improve from here?

Yes, perhaps I'll take this question because I've already heard some questions whether our EBITDA outlook confirmation is a sign of German conservatism. So if that is the case, I take that as a compliment. But let's -- to outline what we are seeing here, you're absolutely right in half year 1, energy was a EUR 300 million drag on EBITDA. It was actually outperformed slightly on the organic side through the strong revenue performance and also through continued focus on OpEx savings. We added another EUR 100 million under our OpEx program.

However, that is something that we are also looking to reinvest in our customer experience initiatives, but it has helped to offset those investments, which is very important. When I take a look in the second half year, we're actually by now almost entirely hedged 94%. So what is remaining is actually in certain markets that we don't have mechanisms to hedge further. So I can be relatively precise in the sense that we will see actually half year 2 versus half year 1 a relief of EUR 200 million roughly in terms of energy headwind that we will not face.

Now in terms of the puts and takes on top of that energy topic. There are a couple of important ones. On the positive side, half year 1 results in the U.K. were negatively influenced by the roll-off an MVNO agreement with Virgin Media that is now lapping and therefore, will also not affect the U.K. numbers any longer. So we would expect the U.K. actually to return to EBITDA growth.

In Germany in turn, first of all, we will face the initial impact from MDU transition. How much it will be? A little bit hard to assess. Margherita has covered the trial results, and it will certainly take some time before this is fully transpiring. But on top of this, we also are investing, from a program OpEx perspective, of course, into all of the processes to now go after the retention of our MDU customers, and this is requiring investments from a marketing perspective, from an operational door-to-door and other retention measures perspective.

So we have planned for round about EUR 100 million of investment under this notion. Not all of that will actually happen in half year 2, but a significant portion of it will happen in H2. So when I take a look at that in combination, I see us actually well on track towards our full year ambition, and we will see where we end up. For next year, we are actually already round about 70% hedged from an energy cost perspective and we'll see this ratio going up fairly soon to round about 80% already.

So I would expect energy to become a tailwind in FY '25 even though will likely not yet fully return to the levels of FY '23. In FY '26, I then fully expect us to be back to levels, let's say, perhaps slightly above what we saw in FY '22. And then, of course, the underlying growth that we are seeing in the business should translate into stronger EBITDA growth than what you have seen in H1.

Perhaps bringing it altogether, James, we have been very clear when we issued our guidance for FY '24, that the number we are achieving this year is going to be a base to grow from. And we are intending to grow in FY '25. As we have just highlighted, we will have the MDU transition impact, but on the offset, we will have the energy unwind, plus all the other typical business puts and takes, net of this, it will be growth.

Next up, we have David Wright of Bank of America Merrill Lynch.

Okay. I hope you guys can hear me. I guess just on the whole capital allocation issue, we haven't talked for some time about German fiber. You've obviously got an allocation and an agreement with Altice to co-build around 7 million lines or so in Germany, but that leaves a lot of cable lines to be invested over time. You obviously have decisions to make with the proceeds of Spain coming up.

I'm just wondering to what extent fiber build is something that you could look into owning a little more or whether you're going to continue to pursue the joint venture structure? And if I might just segue that a little into Holland, where there is a broadly similar situation with a full cable network that needs overbuild. Just any plans there because that business looks very unlikely to pay dividend next year, given its leverage and poor operational performance. What is the future for VodafoneZiggo do we think?

Thank you, David. Starting from German fiber. I think that Luka has been clear earlier in saying that we are comfortable with the level of capital investment we have in the business now. And this does include continuing to invest in the evolution of the cable network in Germany. Our plan is to build fiber on the 7 million households through the JV, as you mentioned, but also continue to evolve our cable network.

And in that respect, on top of being now well invested and delivering very strong performance, it's worth noting that we have just put into our live network, high-split DOCSIS in Germany, which, as you know, allows us to achieve multi-gigabit speeds. So cable itself has its own strong technology road map. And by the way, in the Netherlands, we have also trialed commercially DOCSIS 4 already. So we will keep evolving, and we are happy with where we stand in that respect.

Back to the Netherlands, I would say that we are actually competing effectively there. It's not the only market. There are more that have cable and fiber side by side. And you may have noticed that in the last quarter in the Netherlands, we have been growing in consumer fixed. We are focusing really on the areas which do matter most to the customer at the moment. If you look at what's on offer today. From cable, it's satisfied entirely all the consumer use cases for fixed broadband.

What people mostly care about is their experience in the house, the experience in WiFi, that's what makes the biggest day-to-day differences. And this is an area where VodafoneZiggo has been particularly active. And as I said, service revenue is growing again in fixed in the Netherlands. Other dynamics that you see in markets like the Netherlands between cable and fiber are frankly driven by pricing, by promotions. It's not linked to the actual service.

I'm not sure that's entirely what KPN is saying. But at the same time, we've just had a benchmark data point from Telefonica with 2026 domestic CapEx sales guidance of 10%. And that's a function of full fiber build-out, but more importantly, full copper decommissioning. So fiber networks of the incumbents are moving to new levels of capital efficiency and OpEx efficiency over the coming years, which I think will massively outstrip the ability of cable. So is cable to fiber, a, when not if, and it's the when you're currently debating? Or you actually do think cable has a future as a competitive technology, not just for the consumer, but economically to you as a group?

The cable networks themselves continuously fiberized. When I was talking about segmentation, it means more fiber work gradually over time. Then at what pace you go, how do you move also depends very much on market conditions. And as you know, the conditions of Spain are completely different, for example, for the condition of Germany. So what actually makes sense is very different for different operators in different markets.

Next up, we have Ottavio Adorisio from Societe Generale.

Perfect. A couple of questions on my side. The first, I would start is from Spain. You announced the transactions, whereby, effectively, you will be selling the asset to a company where you were holding 75% of the equity, nonvoting equity but still 75%. Therefore, you will be participating in any potential downside if the turnaround is not successful.

So clearly, you believe the turnaround to be successful. Therefore, my question would be what -- why didn't do the turnaround yourself? There is an issue that you don't have or the management of Vodafone doesn't have the skill set? You believe that your investors are not patient enough? So why you would leave the upside to a third-party?

And considering that also if the turnaround will not be successful, you don't have a new recourse on the asset of Zegona. So therefore, you will be left participate in the downside. So therefore, the associated question is that why did you leave the stake into the asset? So at least you got your EUR 900 million back on tangible assets rather than a pledge from Zegona?

The second one, it's basically related to your leases. And we have Luka, so welcome to the call. The question is on the leases is trying to understand how you capitalize your lease and liabilities? Because whenever I do ratio between how much you pay on leases and how much you capitalize, Vodafone comes really at the bottom. Now some agencies like -- credit agents like S&P do make their own adjustments because they feel that the lease is too low. So therefore, if you can share with us the assumptions you use to NPV, the future leasing payments, that would be great.

Ottavio, I would say probably on the second question that you raised, it's best follow through with IR later. I'm sure we would be able to share all the details with you. I'll take the Spanish question instead.

Let's be clear. What we have done in Spain is a clean exit for the market. We have EUR 4.1 billion of cash up front and we have EUR 0.9 billion of deferred compensation. Then the deferred compensation is supported by a financial mechanism, which is the one that you had described, but essentially in a nutshell, we will get up to EUR 0.9 billion whenever there will be liquidity events for the company.

We're not exposed to downside of such and we will not be part of any decision making. It's a clean exit. We have sold 100% of Vodafone Spain. Why did we sell Spain? I go back to what I was saying in the beginning. The Spanish market is incredibly fragmented. Over 70 retail brands, 5 fiber infrastructures competing to the point we were touching on earlier with David, in the same cities, in the same regions.

It is a market that will require more than one round of consolidation. And I really want us to focus on the market where we can drive the best growth and the best returns. That's our mission. The Zegona mission will be for themselves to deliver as much value as they possibly can. We are focused on spending our time and attention on markets where we have greater growth opportunities.

If consider the leases questions will be asked a different way. Can I ask a different question? This one on the working capital. So when we look on H1 results in free cash from Vodafone, it's always deep red. And of course, we always attribute this working capital. This working capital swings are becoming bigger and bigger. So we just want to -- if you can give us a bit the elements? And what Luka is going to do going forward to avoid these big swings from one year to another?

Yes. That's perhaps the one that I can cover. As I said, I mean, I will be really strongly focused on sustainable cash flow generation. So -- and that covers all of the aspects, not only working capital management, but also how to improve the general cash conversion across the business. Significant part of that mix should also be in the future, the accelerating growth in Vodafone business because that has a much lower capital intensity and actually, therefore, a higher potential also in the short term to improve the cash flow generation.

You are right, when I take a look at the historical evolution of the half year 1 versus half year 2 swings, they are becoming bigger. We are confident because we have anticipated what we are looking at now in H1 at our full year cash flow generation. It's also partially a result of the significant buildup that we have seen towards the end of the last fiscal year, which has resulted in the significant unwind here. So that's fully anticipated.

From a go-forward perspective, clearly, there are some levers, like, for example, taking a look at the way how we build up or build down the amount of trade receivables that we have. That's mainly driven by handset receivables financing that could be structured differently.

We will take a look at those options, but it is one of the strategic priority programs that I'm driving within the finance organization to derisk our profile in this respect for the future. But having said all of that, actually, where we are right now in half year 1 is exactly in line with where we thought we would be. And hence, we were also able to confirm our guidance for the full year.

Next, we have Georgios Ierodiaconou of Citigroup.

The main one is around Italy. And in your opening remarks, Margherita, you mentioned that Italy is under review. Just wanted maybe to touch on a couple of things. Firstly, the developments we are seeing in Spain, whether these encourage you or discourage you in pursuing in-market consolidation? I guess that's the objective in competitive markets like Italy. And that may also apply perhaps through many in other markets, but curious to hear from you if you believe, based on what we hear, whether the options are still available for you? And if you could also perhaps touch a bit on the legislation changes around the win back promotions that Vodafone and then [competitor] are having in the market and whether that could be a meaningful impact to your business?

And I hope you don't mind, I'll also ask one clarification given a few of my peers have gone beyond the first question, which is around common functions. There's been a significant reduction in losses this quarter. Curious if this cost cutting or charging the subsidiaries more? And also, if you can give us some indications of how the Spanish deal will affect this division in the next couple of years?

So perhaps Luka, I'll hand over to you the common functions question and I will start from Italy. The changes which are being discussed on buybacks for everybody's benefit, it's whether buybacks can be customized by the different provenance of the customers or not is what is being debated in Italy at the moment. I think the jury is out on the type of impact this is going to have. I've been reflecting that it can go either way in a sense because it can potentially lower the offers in general, but it could also drive more discipline in the approach that people take to the so-called below-the-line win back offers that are so prevalent in the market. Either way, I don't think that will change the substance of Italy being a very competitive market. But I think the incremental impact could grow in either direction. We will see.

Reflecting on Italy more broadly, where do we stand there? My focus remains on the three markets I called out in May, as I said at the beginning. So U.K., Spain and Italy, I said, in May would all benefit from portfolio actions. And therefore, in Italy, we will continue to explore consolidation opportunities.

Our position in Italy is very different from our position in Spain. We have a very strong company in Italy. As you know, you will have seen from the latest results that also this quarter, as we do consistently quarter in, quarter out for years, we have been outperforming all the other established players in terms of service revenue growth.

We have a strong brand, a strong network. We are outperforming also because we are very strong on the business side of things. Over 35% of our revenues are B2B in Italy now, and you will have seen as we have started reporting more granularity on B2B that we have effectively high single-digit growth in B2B in Italy now.

And we are competing effectively in consumer overall relative to the other players. That doesn't change the fact that it remains a very challenging market. None of the players in Italy delivers returns in excess of cost of capital. Prices are below cost. So no matter how many efficiency we drive, as we've done more recently with the latest 1,000 road restructuring, the market itself needs action which is why we will continue to review a range of options. As always, in this case, it's not possible to set deadlines or comment any further, but the market does require action.

Yes, and perhaps just to add against your question around common functions, you're absolutely right, last year, we had a significantly higher amount of costs in common functions that was then charged out in the second half of the year compared to this year. I think what you see this year is a combination, a, of slightly more even spreading and phasing, but also savings. As we have said, we continue to focus on lean corporate services and having our OpEx savings program. So that is partially contributing to the lower cost. So it will be a more even distribution than what you will see last year with also some net savings that will flow through to the year-end.

You also raised the question of what happens with the sale of Spain to our common functions. I think this links to what -- you may have seen an announcement on this also yesterday to the transformation we are doing in our shared operations. Our scale has been a great source of efficiencies for Vodafone. And we will [be looking] to make sure we continue to develop those efficiencies. So we are making our shared operations fully commercial with effectively MSAs in place between the group center and the countries to drive more efficiencies there and also to be more effective in selling to third parties, which could be JVs, which could be other partners in the industry so that we continue to benefit from our scale strength.

Our next question is going to be from Akhil Dattani of JPMorgan.

Great. Margherita, can I maybe ask a question on your NPS comments from earlier in your presentation? Obviously, you've outlined on Slide 16 the trends that you're seeing at the moment. But I guess I was trying to understand better exactly how we should interpret this? And I guess what I'm trying to understand is that, firstly, when I look at your major European markets, you're not a market leader in any of these regions. And whilst you're highlighting some select gap reductions, we still don't know how big the gaps are. So how do we really try and interpret this data? Is it an improvement, but there's still a very wide gap? Do you think you're really structurally closing that gap and you can start to become a market leader? So maybe if you can just comment on that.

And I guess similar to the last one, I just had a quick clarification, which was just that you've announced on consolidation a Spanish merger despite the fact we don't yet know what the remedy situation will be from the Orange and MASMOVIL deal. And you also announced saying you're looking at potential options in Italy despite the fact we don't know that. So how do we interpret that? Is that to say you don't think this matters? Or could we even interpret that you're maybe concerned about how this might play out and you prefer to move ahead of that?

Maybe I'll pick up the second first. It's very simple. As I was mentioning earlier, I think the situation of the Spanish market will remain challenging, whether -- or with or without a merger between Orange and MASMOVIL because of the position it is in, which is why at the end of a thorough strategic review, having examined all options and discussed with a range of counterparties, we have taken the decision we have taken, and we have chosen the deal that was giving us the best combination between value creation and transaction certainty.

If I think instead about NPS, this for me is really, really important. You have not seen absolute NPS numbers in our reporting because as you can imagine, this is truly commercially sensitive, but we have started reporting on trends now, and we will continue to do so in the future. This is the first instance of the scorecard I announced in May, and it's the same data points that we will be looking at inside the company.

If you were walking into Vodafone now across the group, the focus on customers is the biggest change that you will notice. We are really single-mindedly obsessed with winning customers' trust every day. That's our mantra. And in order to get there, you know that we are reallocating more money to customer experience, EUR 150 million in the budget of this year, but we have also a wide range of initiatives. In every market, there are weekly, monthly reviews, all focused on how do we make our customer life simpler.

And I think this is a real opportunity, by the way, for all telcos. We see it in operational results. We have not done big starts, but we see simple things like waiting times in our core centers dropping and the like. On the big numbers, we look at two things primarily. We look at the mix of detractors and promoters within our own customer base, and we have also included that in our incentive plans from this year, and we look at our Net Promoter Score position relative to competitors.

As you were noticing, I think it was good to see. And clearly, there are no quick fixes on customer satisfaction. So we are talking about a long journey ahead. But it was good to see that despite, for example, the inflationary environment we have been leaving in, in the last 6 months, we are starting to see the numbers hedging in the right direction, both in terms of absolute and in terms of relative position, which is why we are reporting on the gap to competitors. So a long journey, but I think it's one which is really important for us. That's what Vodafone is about serving customers. And it was heartwarming to see that we are starting to see the KPIs hedging in the right direction.

Margherita, just to clarify, I mean, that's very helpful, firstly. How should we try and think about -- I understand not wanting to give absolutes, and I think that obviously makes sense. But how do we think about the gap? Like if you're trying to conceptualize for us like how big the gap is versus your peers in your major European markets, how do you think about that?

It varies enormously, and the gap we measure as well, Akhil, is the gap versus the best player and the best player can be a very different type of player as well in every market. It's not necessarily who you may think it is. We look at all the range of retail brands, and we compare ourselves versus them. Maybe the best way to answer your question is to say, we have published that, we have reduced that gap by 20% in the last year. That gives you a sense of progress, and we will continue, as I said, to report against that.

Next up, we have Jakob Bluestone from Exane.

Welcome back, Jakob.

Exciting to be back. I had a question on free cash flow, just following on from James' question earlier. Your free cash flow for the year, you're guiding for it to be down by about EUR 1.5 billion from EUR 4.8 billion to EUR 3.3 billion, who's down about EUR 1 billion in H1. So implicitly, you're guiding for a substantially better free cash flow development in the second half than in the first half. In your response to James' question, you said it's not coming through from better EBITDA growth. So can you maybe just help us understand what is it that's going to get better in the second half to drive what looks like a much better implied H2 free cash flow performance year-on-year adjusting for seasonality?

Yes. Sure, I mean, at the end of the day, it's, of course, the focus on reversing all of the trends that you have seen at play in H1. In H2, you typically have a much better positive impact on trade receivables. And from a working capital perspective, that's what we will certainly look to drive and to achieve the corresponding outcomes.

On the EBITDA side, you are right. We are kind of looking prudently at roughly similar performance than what we have seen in H1. So it's essentially the usual written of the seasonality of cash flows that will fully come to fruition. And then we are looking for next year forward for a more even spread as we look at the focus on change measures.

Just a point we may have covered in the past, Jakob, and I'm just trying to remember if we did. There are two technical drivers of a working capital swing between half 1 and half 2 in Vodafone. One is the phasing of CapEx. You have typically a sort of 40-60 split between half 1 and half 2 on CapEx. So obviously, you end up paying more of the CapEx in half 1.

And second, which is something that we may reconsider and Luka is working on now, is historically, we have done all our handset receivable sales in half 2. And this is why you accumulate in half 1 and then it swings back in half 2. And these two effects together are driving a very, very significant swing. I think we have opportunities going forward to re-phase the handset receivable technical execution during the year so that you can follow smoother trends.

Yes, at the end of the day, the growth in the business overall, then of course, results in the fact that the material that we have available for the swing and to drive it is actually getting bigger. But again, we are looking for ways to smoothen this going forward.

And we just have time for one last question this morning, and that's going to be from Andrew Lee of Goldman Sachs.

Okay. Yes. Welcome, Luka. I had two follow-ups, if that's all right. They're hopefully both relatively brief. The first one just follows on from what you were talking about to Jakob's question around working capital swings. Just checking that in terms of smoothing things you're not planning on using factoring or vendor financing, given obviously, telco investors and the market in general are hyperallergic to those approaches. I just wanted to check on that side of things.

And then I had a quick question follow-up on -- and also a follow-up to James' question earlier in the call on the revenue growth versus EBITDA growth. His question is around the energy swings. I just wanted to ask kind of more structurally, we had a couple of telcos talk to service revenue growth, but exhibiting limited operational gearing. And so I just wanted to ask your thoughts on the scope for operational gearing. Let's take Germany, just as your core market. I think Germany, you, for its 1% service revenue growth, delivered about 1% EBITDA decline exing out energy. But obviously, still, we're not seeing a translation of EBITDA growth. So is there something structural at splitting out energy and kind of volatile factors. Is there anything structural that's stopping this operational gearing, be it revenue mix deterioration or whatever?

On -- just on the vendor financing, because I know what you're thinking, Andrew, not the kind you are thinking about. And again, we can give you more comments on, but operational gearing.

Yes. First of all, on the first one, no new fancy mechanisms. It's just a matter of are we wanting to really put everything to the far end of the business here or perhaps come to a more even application of the programs that we have already in place. So on the EBITDA and the gearing side of the house, I think what you need to take into account is that we have not only the EBITDA challenge by energy at the moment, we are also consciously using this year, the savings that we are having under our OpEx program to reinvest very consciously in additional initiatives around customer experience. And that's the right investment to make from a long-term perspective because it will, at the end of the day, result in better retention, lower churn, and that will drive profitability.

So no, I don't think that there is something structural in the business and how it evolves, that will kind of dilute the potential of us to provide operating leverage. If anything, I would say I'm very confident that based on the cost leadership that Vodafone has always exhibited, we will continue to drive successfully for the EUR 1 billion in OpEx savings. And going forward, thinking about the next business year and further on, as we have righted the ship and focused appropriately on a customer experience, you will also see more of that translating then into further EBITDA growth.

That concludes the Q&A from this morning. Thank you for joining, and we'll see you again next time.

Yes. See you all.

Thank you. Bye.