Vodafone Group PLC (VOD) 2022 Q2 法說會逐字稿

Good morning, and welcome to our H1 financial results.

And I'm joined with Margherita.

You will, of course, have the chance to read our results and see the videos on our website.

If you've not had the chance, please do so.

I hope it gives you a very good detailed summary of how we're performing.

And we're going to go to Q&A.

But maybe before we do, I just thought I would just cover really four key points.

The first is the financial performance in the half demonstrates the sustainable growth engine that we're building at Vodafone.

Our results are in line with our expectations for the year and the medium-term financial ambition.

Service revenue grew 2.8% in the first half.

We had EBITDAaL growth of 6.5%.

I think importantly, return on capital, which is very important to us, moved up 80 basis points to 6.3%.

And that combination gave us confidence to move up guidance to the upper half of the range for EBITDAaL of between EUR 15.2 billion and EUR 15.4 billion and move up our adjusted free cash flow expectation to at least EUR 5.3 billion.

Second, we're regaining commercial momentum across our European Consumer business, obviously in light of some of the negative pressure that we had, given the pandemic over the last 18 months.

Importantly, we've seen our gross add performance reach about 90% of the pre-pandemic levels that we were experiencing before.

Third, we've delivered broad-based growth.

We continue to make good progress on our strategic execution.

But we're obviously always focused on a number of priorities.

And we single out three priorities, operational priorities that we're focused on: first is strengthening our commercial momentum in Germany; secondly, accelerating our operational transformation in Spain; and third is positioning Vodafone Business to ensure that it really captures the maximum opportunity from the EU recovery funds.

And then fourth and final point, we're committed to improve shareholder returns through ongoing at sustainable growth, alongside targeted portfolio actions.

I really think we've done a lot of heavy lifting over the last 3 years to structure Vodafone to capture value creation moving forward.

And we see a number of opportunities, both medium term but also near term in terms of that portfolio.

So on that, I will open up for Q&A.

(Operator Instructions) Thank you.

Our first question today comes from Polo Tang from UBS.

I have one question.

So can you maybe just talk about the trajectory of service revenue growth into the second half?

So specifically, are there any headwinds or tailwinds to call out?

And can you maybe talk about what you're seeing in terms of commercial trends and competitive dynamics for the different European markets?

One question but quite broad.

I'll start on the trends.

In terms of what we see for the coming quarters, I'd say probably a couple of more technical headwinds to keep in mind.

In particular, as we move into Q3, we are now lapping a price increase we did last year in November in Spain.

And then as we get into Q4, we will have further MTR reductions.

You know we are on a new glide path from the EU.

We had MTR reductions drag in this quarter.

They will roughly double in Q4.

But of course, as we're talking about MTRs, this won't have any impact in terms of EBITDAaL and cash.

On the other hand, a couple of tailwinds.

We'll still have some benefits in Italy from the recent MVNO migrations into Q3.

And then you have seen our commercial momentum reaccelerating.

And that will also obviously flow into the service revenue performance.

Admittedly, these puts and takes are all relatively small if you think about it in the near term.

As we move into the next financial years, it's important to talk about two aspects.

In Consumer, we should start to see some support from the new pricing models we are embedding into our European contracts.

We discussed the CPI plus investment-linked pricing, so on one hand.

And then on Business, as Nick was mentioning, we will start really the Europe -- to see really the European recovery fund coming to its own in terms of support to business demand.

So generally speaking, I would say, on the service revenue front, we are well on track with our mid-term guidance of sustainable growth in Europe as well as in Africa.

And then I focused on revenues because that was the angle of your question.

But before moving maybe to the commercial trends into the markets, let me also reemphasize the points that Nick was making earlier on the financial performance more broadly.

We are also pleased to be already on track with the mid-single-digit EBITDAaL growth and having had the chance to bring both our EBITDAaL margins and our return on capital today after 6 months, ahead of where we were pre pandemic.

So I would say good financial progression overall.

Yes, Polo, maybe if I could just build -- I mean, sort of stepping up a level rather than getting down into quarters.

Why do I think Vodafone is uniquely placed to drive sustainable growth in a sector that frankly has been flat to declining?

I really think we have a structural advantage.

And it really is in three elements.

I mean, European Consumer and Margherita has touched on a number of these.

I mean, we are the challenger in fixed and convergent.

So we see that as a growth engine for us.

We also see that we've got opportunities in wholesale.

And we're driving device life cycle management, which I think will become more of a service going forward, how do you finance handsets and devices, insurance, et cetera.

We're really ramping up the science behind that.

And you'll see in a little bit of that execution in the U.K. for us.

And that's why we're doing so well with the iPhone, where we're having a disproportionate market share gain versus our natural share gain and, of course, the CPI.

And then you take Vodafone Business, 30% of our business.

We have a really good digital services roadmap that's growing at double-digit growth rates.

And we have the EU recovery funds flowing into that.

So we should see that as an accelerator.

And then of course, Vodacom continues to do very strongly.

We're obviously moving Egypt into Vodacom as well, which is also strongly performing.

And we have obviously, Financial Services, which I really think is a standout opportunity within Africa.

You've seen what we're doing with M-Pesa, VodaPay.

I mean, Financial Services for Vodacom is growing at over 20%.

So you take a number of these structural aspects that maybe are a little bit different from maybe some of our traditional competitors.

As a result of that, we're taking market share in the U.K. We're taking market share in Italy.

We're holding in Spain, slight loss in Germany because of that sort of pandemic lockdown, really good performance across Africa, really good performance across Other Europe.

So we've got good momentum.

Our next question today comes from Akhil Dattani from JPMorgan.

I've got a question around Vantage Towers.

You've outlined two key messages today.

One is around eventually deconsolidating the business.

So I guess, I'd love to understand the thoughts behind that.

Is that about a view that the asset is not being fully reflected in your price?

Or is it a bit more strategic?

And the second piece to that is you've also talked about an industrial deal with co-control.

Is it fair to say an industrial deal would be with another telco?

And I guess, there's only two major partners out there that would be big enough to drive co-control.

And if you do a deal like that, is that about scale?

Is it synergies?

Or is it something else?

If you could just elaborate on that, please.

Yes.

Akhil, what I would say is I think we made a good early decision about separating our towers and forming Vantage Towers ahead of the 5G cycle.

So the first priority is capture organic growth.

They went out with the results.

They're showing progress on that.

We want to drive high utilization of our assets.

And they're adding new tenancies and growing well.

And I think there's further opportunities to come in that direction.

I'd say the second aspect is I really see bolt-on acquisition opportunities, whether they're in-market to drive more synergies or whether that's new footprint.

I really think that they have a good pipeline of opportunity ahead of them.

And then the third aspect for us is to say, well, actually, I think there's an opportunity to do an industrial merger, as you say.

I think an industrial merger has two aspects to it -- well, maybe three aspects, I would say.

First of all, yes, there are synergies to be had with -- and they can vary depending on maybe who the partner is.

I'd say second aspect is it can widen out your footprint so that you're covering more territories, more opportunities going forward.

And then the third thing for me is the deconsolidation because though we're not holding back Vantage Towers at all, you go on a couple more years.

I think that we would not want any balance sheet constraint for Vantage Towers.

And it can optimize its capital structure once deconsolidated.

And we would want co-control with a like-minded industrial player.

You highlight two players.

Yes, there's Orange with TOTEM, there's Deutsche.

These are two really credible, really high-quality operators that we have a very strong relationship with.

So of course, they are opportunities.

Of course, we don't discount others.

But I think importantly, we want to really look at the landscape and shape the landscape across Europe now.

Now that we did all the hard work to do the separation with a view to really move at pace to shape the landscape, it will consolidate.

There will probably be, let's call it, three large players across Europe.

We are definitely going to be one of those players to capture that 5G opportunity coming through.

Our next question today comes from James Ratzer from New Street.

So a question, please, just regarding your potential network upgrade plans, in particular in Germany, is now we have a lot of discussions with investors on.

And Nick, thank you for the materials and the presentation you gave.

I heard some of the comments you had there.

So it would be great to explore those in a little bit more detail, in particular around comments upgrading to fiber in Germany.

You suggested that you might now look at some opportunities with MDUs with a new business model.

How big of an opportunity could that be?

How much the footprint would that be?

You talked a bit about wholesale.

Again, I'm just intrigued what new opportunities there might be in Germany with wholesale.

Then you hinted at off-balance sheet financing, I think, for the first time.

So again, just interested to hear what you see as the benefits from that.

Is that something that is just to kind of potentially keep CapEx at current levels if there is any incremental investment?

Just love to hear more thoughts and commentary around all those initiatives.

Yes, James, this is an important subject to us.

And we invest a lot of time in terms of how we're going to evolve our networks generally and Germany in particular.

Every network, especially every fixed network, is very different country-to-country in terms of the model.

You can't read across just because there's a trend in one particular market, that's going to happen in another.

So if we go to Germany specifically, what I would say is look at Germany as in two parts.

You've got out off-footprint, our off-cable footprint area.

And in that area, we encourage fiber-to-the-home builds.

Now that can be us as an anchor wholesale tenant.

So I mean, obviously bringing the Vodafone brand to a build and committing volumes is very attractive to investors.

Or we could be part of consortiums and make investments in that infrastructure if we think the returns are attractive and if it's targeted in the right way.

So we remain very actively engaged in options in the off-cable footprint.

Then you go on-cable footprint, so in other words, that 25 million homes.

And what I'd say is it breaks that again into sort of two areas.

You've got the housing associations, which is, let's call it, 2/3 of our sort of cable customer base.

And then you've got 1/3, which is single dwelling units.

And we've been going through obviously an upgrade cycle on our network that we are very committed to.

We're very excited about.

We've obviously been very quick as part of the integration, to prioritize the upgrade to 1-gigabit speeds.

So we're now at 23 million households.

Just to make sure that everyone understands, when we're upgrading and adding capacity, we're effectively taking fiber closer and closer to every home, every housing association as we do node splitting.

So that is just what we do generally.

So that's why it's a hybrid fiber network is because fiber is getting increasingly deeper.

So we've been doing that execution.

We've been increasing the amount of node splitting we've been doing through the country.

And then next year, we start the cycle of high split.

And high split starts to provide you 1-gigabit upstream capability as well as increasing downstream to 3-gigabit speeds.

So frankly, as a customer, you don't need anything more than that.

And so therefore, it gives us a really good runway of capability moving forward.

And then of course, further out, you've got DOCSIS 4.0, et cetera.

So I think we've got a very good road map of upgrading our capability.

Now clearly, as part of the new regulation around TV, which comes in at 2024, so in other words, rather than bulk contracts, you go into single contracts.

We have been going through an engagement with those housing associations.

And we've had an engagement, let's say, of about half of them.

And in that engagement, it's been really interesting.

Because that engagement has really fallen into, I'd say, three buckets of reaction.

Because what we've been doing is explaining the road map for TV, but we've also been explained in the road map for our cable upgrade.

And what we found is there's bucket number one, which is the housing associations are saying they could be interested, not definite but could be interested, in fiber-to-the-building.

But one other thing they have specifically said is, "We are not interested in taking fiber through the building.

We would only do that through the natural refurbishment upgrade of the building," which is every, let's call it, 5, 10 years.

So they don't want disruption in the building.

But they quite like the idea that maybe fiber goes to the basement.

Of course, connecting fiber to your cable network, we are excellently placed to be able to do that as the natural partner.

And then I'd say the second bucket of housing associations are ones where they've said, "I really like the upgrade path.

It seems to provide everything we need, thank you very much." And then the third bucket are, "Do you know what?

This isn't even on my road map or thought process at the moment.

I don't consider our priority.

No one's talking about the need for any upgrade."

So I would say these are the three buckets.

We have to continue to engage with the housing associations and just get an idea of demand as we move forward.

And while I see this as something that evolves, it's not a rush.

It's just something that we need to engage, understand demand.

And then obviously, as we understand more, we can come back and give you more color.

I don't know if you want to talk a bit more about CapEx and...

Sure.

From a funding perspective, our CapEx envelope within the mid-term guidance doesn't include any fiber investment as such.

I'm talking about FTTH or FTTB.

Our CapEx envelope includes the natural upgrade cycle of the cable network that Nick was just describing, so gradually, fiberizing the network as we add capacity and following the natural technology evolution of cable.

That's what's in our mid-term guidance.

As we have these conversations, it is possible that fiber-to-the-building business cases become attractive in certain circumstances.

And from that perspective, as you were mentioning earlier, we see also the possibility of infrastructure investment through JV being attracted to the opportunity.

We see this a lot at the moment across Europe.

And clearly, Vodafone could be considered a very interesting partner for infrastructure capital for these type of builds.

Being absolutely clear, if these business cases were to become material at scale, you should not expect us to use our balance sheet to fund this.

However, it's really early days.

And frankly, today, we are really focused on effectively marketing our current 23 million gigabit households.

And the cable evolution is giving us options as we've just discussed.

So if something was to change, then we would update you on it.

But that's our focus at the moment.

Our next question today comes from David Wright from Bank of America Merrill Lynch.

So I'm going to ask a slightly different question.

I was terribly -- I always get very nervous, Nick, when anyone says that's all the speed you need.

But I'm going to stay away from the fiber questions for now.

The other thing you have mentioned in your presentation is the potential for pursuing strategic in-market consolidation.

And I guess, the question there is could you also consider that off-balance sheet?

Or for instance, do you -- when you look at the actual servicecos, is it a priority for you to keep the servicecos consolidated?

Or could you actually consider an off-balance sheet solution in an in-market consolidation opportunity?

Well, David, I think we have demonstrated that we have always been pragmatic when it comes to in-market consolidation.

Because ultimately, the most important thing is you unlock the synergy, you unlock the scale required.

And I think we demonstrated that in Netherlands, we've demonstrated that in Australia.

So I think we're always pragmatic.

I think the important thing, if I sit back -- because you could say, "Well, look, we've been here before on in-market consolidation as a topic.

So why are you dialing into this?" And I think it's really important to understand we've just been through a pandemic.

In that pandemic, the engagement I have had with governments, with the regulators has been super high compared to ever before in terms of them really saying, "Well, thank you, Vodafone, for being there for us, helping society remain connected." Of course, our peers were doing that as well.

So the sector was more appreciated, I would say.

But at the same time, they're really understanding we are critical national infrastructure.

And for them to truly compete on a global basis by market, they know that they need inward investment in next-generation technology.

So whether it's the upgrades we were talking about on our fixed or 5G, they want to see that as fast as possible.

And in that conversation, I'd say what holds back investment is the return on capital within some of these markets.

And we need to accelerate return on capital to an acceptable level and then inward investment would come into the sector.

And so when you start to have that conversation, they say, "Well, what are the levers that you need to see improved?" And I said, well, there's four.

There was spectrum, and we've seen significant progress in spectrum recently.

So whether it's Spain, Greece, U.K. Taxes, we're seeing taxes come down on the industry.

So you're seeing that in Spain again.

Or whether it's network sharing and deployment.

So I can go through lots of examples, I won't do it now unless you want me to.

Yes, lots of examples of progress being made.

But the fourth topic is consolidation.

And what I'd point to is America sits there with 3 scaled players on average with 95 million customers each; China 3 players at scale, 400 million customers each; India, 3 players; Netherlands, 3 players.

But some of our markets in Southern Europe are at 5 players-plus.

And what I'm saying is -- and this is why return on capital is so low.

And what we need to do is consolidate going forward without punitive remedies.

So I think that there's a real understanding now of returns.

The importance of returns linked to investment, which is what they want from a policy perspective.

And therefore, I think there's a more openness to engage on the topic of consolidation.

But it feels like you're going to have -- the regulator is never going to say, "Hey, guys, come on, doors are open and go do your best." You're going to have to provoke the regulation of that, right?

It's going to need a brave telco to say, "Okay, we want to do this.

We want to go [4:3], whatever it might be." You're going to have to kind of provoke that reaction, if that makes sense.

Yes, we're a brave telco.

We're going out with a very strong message because I think the climate is there to have a real conversation, an honest conversation with governments and regulators and the European Commission.

And I think that there are other players suffering out there.

Let's face it, the market cap of the whole sector is down.

So I think that there are a number of players that would say, "We would like to find a solution to drive shareholder value." Now of course, I can say we're pragmatic.

I can say we're reasonable.

I need the other side to be pragmatic and reasonable.

And that means reasonable on valuations, et cetera, to try and unlock the synergies and the potential going forward.

And so we will actively engage on that basis.

Our next question today comes from Andrew Lee from Goldman Sachs.

I had a question on operational gearing.

So you've obviously delivered 30 basis points of European organic service revenue growth and 1% of German organic service revenue growth.

But you delivered 5% of underlying EBITDAaL or European EBITDAaL growth ex the Italian one-off and 7%-plus of German EBITDAaL growth.

So I know there are some German synergies in there.

But I wonder if you can talk us through the steps between revenue and EBITDAaL growth and how sustainable this seemingly high and attractive operational gearing is.

If I maybe start from the end, Andrew.

In terms of sustainability, you know that we have consistently delivered pre-pandemic margin expansion and significant operational leverage.

And you have seen our mid-term guidance, which is effectively predicated upon exactly the same type of equation going forward.

And as you pointed out, we have already started delivering this in the first half of this fiscal year.

In terms of moving parts between revenues and costs, this is a little bit of a special year because we are lapping the COVID crisis of last year.

And so there are a number of moving parts that affect half 1 that will look different in terms of how the second half of the year will look like.

So if I try to paint a little bit the picture for you of how this translates, clearly in half 1, we had the benefit of higher revenue growth, good margin revenue growth because we were lapping the COVID crisis last year in Q1.

We called out there were a number of one-offs.

So this was supportive to service revenue growth.

We also had a roaming tailwind that, to be fair, will last for the years to come but stronger in half 1 because of the roaming seasonality.

And then we had the benefit of the Italian settlement in the numbers, which is EUR 100 million of effectively straight EBITDAaL with no -- obviously, no revenue implication.

As we move forward, what you will see in half 2 is you won't have the same push in terms of revenue growth and roaming.

Margin, in particular, you won't have the recurrence of the settlement, which, of course, was a one-off.

On the other hand, what you will start seeing playing through in the second half is our operating cost reductions.

You have seen that in half 1, we have not had any incremental OpEx reduction year-on-year.

This is because last year, clearly we intervened very quickly on cost as COVID struck.

And we had a big step down of EUR 300 million in half 1. Some of these has reversed actually this year because we have spent more clearly than last year in things like advertising, sales and the like.

We will -- we are well on course to deliver our target of over EUR 200 million OpEx reductions for the full year.

But this is now going to be all geared towards the second half.

So a different make in terms of revenues and cost element.

But still, starting from your earlier point, good operational leverage to continue into the second half and into the future year according to the guidance.

I think you have seen our EBITDAaL growth profile implicit in the guidance we have just restated this morning.

And so you will have seen that we will continue with good EBITDAaL growth into the second half, and again beyond according to our mid-term ambition.

So operational leverage will continue to be a significant feature.

Our next question today comes from Sam McHugh from Exane.

I just wanted to follow up on the M&A stuff like Andrew's.

I think, Nick, you called out the U.K. in the press at the weekend.

And given you've all implemented CPI plus price increases, to a degree, you've all reintroduced roaming charges in the space of about a month of each other and the industry still has 10%, 20% free cash flow margins.

In that context, how do you convince the competition authorities that you need consolidation with no remedies, when you've got this such tight oligopolistic characteristic?

Is there anything in the discussions you've had that would suggest that they'd be more open with that kind of market structure.?

Sam, I feel very strongly against the oli comment.

I think it's a super competitive environment.

It remains a super competitive environment.

I mean, you've got some massive brands, BTEE, Virgin, O2, Sky, ourselves, TalkTalk, Three.

I mean, that's a big market of players.

I think, look, in the end, what's really important is that you have to have scale locally and then we have the additional benefit of scale on a regional basis.

And I think if we can bring the two together, we earn decent returns.

And those returns mean that we can continue to invest and provide the infrastructure that governments are looking for.

So I mean, the case is clear.

Returns are below market WACC in the U.K. and therefore need to improve.

And therefore, they understand that.

And I think that they understand there is enough competition even if there were one or two players less in the marketplace.

So I don't think it's a difficult narrative.

Our next question today comes from Emmet Kelly from Morgan Stanley.

I have a question, please, on Vantage Towers, just as a follow-up on Akhil's question earlier on.

So if I look at the statement that you made on the presentation, you talked about monetization over time.

So could you maybe just say a few words about how we should think about that monetization, how that might manifest itself and also maybe some of the lessons that you learned from the Verizon Wireless asset sale back in 2014 in terms of how that monetization happened and how that was for shareholders and for the group?

Well, look, in terms of Vantage Towers itself, I think we are really well placed at this moment in time to really explore an industrial merger.

And that is our preference.

And through an industrial merger, of course, you always, let's say, equalize size with co-control.

And so obviously, if we start at 82%, there is a monetization opportunity because we can bring down our stake, equalize with someone else and still have co-control of Vantage Towers.

We did something similar, if you remember, in INWIT with TI in Italy.

So imagine that sort of model is an opportunity for us.

Of course, an industrial merger might not happen.

And in that case, we do have the ability at 82% to bring down our stake further.

We would obviously want to stay in control of Vantage Towers for a moment in time and we can bring a degree of monetization.

So we would definitely do some.

We have a lot of interest from strategics.

We have a lot of interest from infra funds.

So this -- the demand is definitely there.

It's just us sequencing the right actions.

And we have an order of priority of what we would really ideally like to do.

Of course, proceeds of that we received in, if you're comparing with Verizon experience, our focus, by far, number one is deleveraging.

So we would use those proceeds to delever.

We always said that from a capital prioritization perspective, number one, we want to invest in our networks and growth platforms.

We went out in May, we told you where we wanted to invest, so you all know where we're investing.

The second is deleveraging and then the third is return to shareholders.

Our next question today comes from Georgios Ierodiaconou from Citigroup.

It's also on Vantage.

And I wanted to maybe hear from you what your plans will be medium term in an ideal scenario on the structure of the assets.

So you highlight on Slide 6 that you have a lot of radios that are now being run by Vodafone.

It's obviously cloud capabilities and other things that perhaps belong more to Vantage on the Vodafone Group.

So I'm curious to understand from your perspective in the event of deconsolidation whether you see more opportunities for those kind of predictable investments to be done on your behalf by Vantage instead of the communication operation itself.

And if I could just ask a clarification on some of your previous comments on whether any consolidation you see, there is a preference between in-market or footprint expansion.

I guess, you could get both.

But what would be your preference in seeking a partner for Vantage?

Yes.

So what I would say, unless I misunderstood the first part of the question, I mean, Vantage Towers is about passive infrastructure.

It doesn't own the radio.

We own the radio of our equipment.

We have no plans to change that model.

One of the things Vantage Towers could do is obviously fiber-to-the-site.

So previously, we would have done fiber-to-the-site.

They could obviously do fiber-to-the-site.

We would be open to those type of opportunities.

Of course, you've got small cells and other types of models that Vantage Towers would be open to going forward that maybe we might have done in the past and now Vantage Towers can do.

So I think there's a number of things that we could explore with Vantage.

It's another reason why co-control with another industrial partner, we think, is a good long-term model for us for all of these reasons.

I would say in terms of the right partner, I think it's finding a partner that shares your vision of what the growth opportunity is for Vantage Towers going forward.

So it might be a partner that has in-market synergies, in which case that's great.

But I think what's more important is do we share the same vision of the opportunity and the expansion opportunity.

We believe in growth.

We think there's a lot of value to be created through Vantage Towers.

And we want that exposure to that growth.

So I think the most important thing is shared vision.

And then secondly, fine, if it brings new markets, then as we develop new platforms and new opportunities for Vantage, of course, you have a bigger geographical platform on which to do it.

Our next question today comes from Stan Noel from Bernstein.

I've got a question about Germany.

So this quarter, you added a large number of convergent customers.

I think it's more than 300,000 net adds in Q2.

That's probably 6 to 10x more than in any quarter over the past couple of years.

What specific commercial activities have been driving these numbers?

And what level of discounts are these new convergent customers getting?

Just telegraphic answer, no discounts.

And what we are doing is simply adding benefits to the customers who have both fixed and mobile with us.

And it's additional traffic that they can enjoy.

But of course, we are protecting the ARPU without any discounts, so classic, I would say, of the convergence playbook.

You will see further growth in the coming quarters.

We are taking the opportunity of the post-pandemic normalization of the market to really drive convergence now at scale, again without discounting.

Our next question today comes from Maurice Patrick from Barclays.

Just a question about your -- the level of your ambition in U.K. broadband, I noticed you only added 22,000 net adds in the quarter despite being a challenger.

But you have announced a deal with CityFibre and Openreach to extend your fiber reach.

I believe in the article on the weekend, you talked about maybe a desire to co-finance or co-invest or invest in fiber with Virgin Media.

So maybe a few thoughts in terms of your level of ambition to actually invest in U.K. fiber infrastructure despite the plethora of networks out there.

And maybe sort of related to that, do you have plans to accelerate your broadband net adds in the quarters and years to come?

Yes.

Look, what I would say is I think there's a little bit of a phenomena, where the pandemic happened, it accelerated a lot of people making choices on their fixed broadband.

So there may be a degree of, if you like, pull-forward of activity.

And therefore, as we've come out of the immediate pandemic, you're sort of seeing a lower switcher market.

So in the U.K. specifically, it's down about 15% from what it was before.

So I'd say, generally, when we look at the statistics around our gross add performance, our market share is where it was before.

So we're pleased with the gross add.

It's just slightly smaller market at the moment.

I don't know if that's temporary and then starts to expand again.

I think you're right to say, I'm very pleased we have leveraged the wholesale market and have struck a deal with Openreach and also CityFibre.

So now we have the available, the largest footprint of fiber-to-the-home in the U.K. We are more than happy to add to that in terms of other people if they were happy to wholesale.

So if Virgin wanted to wholesale and the terms are attractive enough for us to do some volume on them, then clearly we would do that.

We're always open, as I've said before, about Germany off-footprint.

If there's opportunity of fiber builds that have good economic return for our shareholders, of course, we think about it.

If I look at the U.K. though, I think there's quite a lot of infra fund money coming in very cheaply, and therefore, whether our equity is really required, I'd question mark.

But what people are really attracted to is having the Vodafone as an anchor tenant to some of these builds to ensure they're protecting the IRR.

So that's an opportunity for us.

And of course, what we want is multiple opportunities.

And therefore, we get the right economic terms so that we can drive convergence in the market.

So at the moment, we're really pleased.

I mean, if you take the U.K. performance, we are taking revenue market share both on consumer and enterprise, excellent iPhone launch, great proposition in Flex.

If you haven't seen it, very, very creative, something that we really think has many, many benefits, including increasing the tenure of customers on our contracts.

And if I may add one point, you have seen us presenting the latest edition of the usual industry benchmarking that we share.

And the U.K. position on relative efficiency is now 1 of the top 3 operators across the whole of Europe.

We have 2 operators in the top 3 now, 1 is Italy and the other is the U.K. They've done a fantastic job on efficiency in the last couple of years.

Yes.

But [off-net], your budget will still be challenging.

Our next question today comes from Nick Delfas from Redburn.

Just a quick question on M&A again.

So you talked about bolt-ons or mergers.

You talked about off-balance sheet joint ventures.

Can you just specify in a relatively large deal for [4:3], are we definitely talking merger?

Or are we talking acquisition possibly running to the multiple billions?

If you could just clarify that.

Look, I think I would tend to look at merger opportunities of different varieties because merger opportunities takes away some of the complexities of relative valuation, synergies, et cetera.

You tend to get more focused on the size of the prize, if you like, the synergies and building a stronger business.

It doesn't always have to mean it's 50-50.

It's combinations.

As I say, we're pragmatic.

And in terms of overall M&A war chest, if you like, for bolt-ons, what kind of size are we talking about within your deleverage plans?

No, don't get carried away.

I mean, we're talking -- so let me give you an example of a bolt-on, could be IoT, a small business that gives us capability that maybe would take us 2 years to build ourselves, accelerates the ability.

If I'll use the IoT as an example, is we're globally #1 on connectivity, 136 million devices connected growing at 2 million a month, so really strong connectivity platform that we want to scale.

But then what we want to do is develop end-to-end services by sector, yes?

So automotive, we're really strong; insurance, we're strong; health, we're strong, yes?

So we want to build capability.

And sometimes there's a small player out there that gives us capability in a sector that then we build on to our platform.

And suddenly, we get, if you like, a turbocharged position.

It's those type of things that we will be talking about.

And just to add to that, all this is happening obviously within a context for capital allocation, where, as Nick was reminding earlier, our #1 priority is to continue to progress on deleveraging.

You know that we are not yet at the bottom end of our desired leverage range.

And therefore, that remains top of mind.

Our next question today comes from Adam Fox-Rumley from HSBC.

Yes.

I had a question on the Spanish restructuring and some of the wider implications.

Also what you were saying about the -- sorry, the Spanish restructuring that you referred to, I think, is mostly within the commercial channels.

And it was interesting to also hear Margherita's comments in the prepared presentation around the structural changes in which the stores are being used post COVID.

So I was wondering if kind of in combination, that changes your view on the European store footprint.

And in particular, the primacy or otherwise of owned versus third-party channels, I seem to recall that the Spanish closing was reported as being more owned stores.

But those are usually held up as the ones the operators are more interested in keeping.

So any comments around that would be helpful.

Well, let me maybe say a few comments and then if there's something specific there.

Look, when we're looking at our channels, clearly our starting point is digital.

So our app and then obviously, our online channels, et cetera.

So we want to make the very best digital experience.

So that's number one.

Then what we do is on the retail estates, we're constantly modeling through big data analytics how an online execution is complemented with retail.

What I mean by that is store sizes change, locations change.

They could be express kiosks rather than standard format.

So we're constantly evolving the retail estate.

Over the last 3 years, we've reduced the estate by 15%.

But we're also reconfiguring the estate, so it's more effective.

So we're not really losing volume when we do that.

And then when we look at other channels, like Spain as an example, there can be other, let's say, door-to-door or other types of channel, push channels that are more supportive of, let's say, fixed broadband penetration or convergence penetration.

So we look at obviously customer lifetime value.

We look at paybacks by channel, optimize depending on the need of the market.

So that's what we've been doing in Spain, more digital, optimizing retail, maybe widening some specific channels for commercial performance.

And then what we also did in Spain was introduce Lowi, a second brand, into our retail estate, which has been an increase in footfall within our stores and conversion both on Lowi but also on the Vodafone brand as well.

So we've seen a good performance off the back of that.

I don't know if there was...

Nothing specific.

Sorry, Adam.

Did I answer everything you wanted on that?

Yes.

I suppose I was thinking that you...

I'm afraid that's all we've got time for today.

So I will hand back to Nick and Margherita to wrap up.

Yes.

On behalf of Margherita and myself, thank you very much for taking the time to join us.

Hopefully, you've seen in the H1 results that we are very much demonstrating sustained growth and driving shareholder value in the structure that Vodafone has.

We look forward to seeing everyone on the roadshow or at the next event.

Take care.