Vodafone Group PLC (VOD) 2013 Q2 法說會逐字稿

So, good afternoon, and welcome. Thank you for coming today.

Today, the organization is a little bit different. Given the recent changes, we thought it was a good opportunity for us to go more in detail with our future plans, and how we see Vodafone evolving going forward, and also give you a chance to see and talk, and hopefully also talk over drinks and over coffee with some of the senior managers of Vodafone, some of whom have changed jobs, and expanded their jobs, so it was a good opportunity to have a longer and broader exposure than usual.

The agenda for today, therefore, is this. Andy will as always go through the financial results. I will then come back and cover the strategic overview of what we intend to do.

Paolo and Steve Pusey will cover the technology and the commercial differentiation plans, and then we will have a break and we will a Q&A, if possible, focused on those topics. After the break, we will start with a review of the three businesses, Philipp Humm will talk about Europe, and Nick Read about emerging markets, and Nick Jeffery about enterprise, and then we'll have a second Q&A session, which I assume will be more focused on the performance in those three areas. Wrap up at the end, two minutes and then drinks and again chatting together.

You have for sure gone through all of the highlights of the announcement of this morning, so I don't need to go too much into detail. Let me give you my high level comments. First of all, performance.

Performance I'd call it okay minus, probably with a capital markets especially in Europe, that should improve in the coming times, but very good performance in emerging markets. We are very pleased with the results there. Confirmed full guidance for the year and of course, approved the increase in the interim dividends by 8%, and increased -- the intention to increase the full year by the same amount.

On the strategic progress, I will cover the progress that we made in the various areas. We are very pleased with Vodafone, Paolo will cover in his presentation, some of the detailed KPIs, and why we think that this initiative that we undertook a year ago is very good.

Good progress on enterprise, we continue with integration, successful at this point of Cable & Wireless. We are about to start, once the legal process is on track, the KDG integration, and of course, thanks also to the Verizon transaction, we will have a very good dividend cover, and a commitment to continue to improve dividends over time.

And finally, Project Spring, which is also another important topic for today. We see it, and we announced today, Spring as an opportunity to really spring ahead, to really prepare for the upturn that we expect will happen in the medium term in the business in Europe, and also satisfy the demand that now we still -- we really see picking up for data services, both in mature and in emerging markets.

Spring has been increased to GBP7 billion, we'll comment about that. The incremental Free Cash Flow target is in excess of GBP1 billion by the fifth year of the program.

We'll cover all of these in the various sections. Let me now turn to Andy for his financial review.

Right, well, thank you, Vittorio. Good afternoon, everybody.

So a slightly more complicated set of numbers than recently, as you'll have seen from the press release. Statutory management view, discontinued operations, joint ventures, et cetera. I shall try to explain what is going on in the clearest way I possibly can do.

First point is that the changes now to the way we have to report under the statute review are taking businesses particularly, like Italy, and no longer do we have a line in there for their revenue and their costs. We just basically take the share of the bottom line profit. That is not the way that we're managing our business, and hence the management view, which I'm going to use throughout this presentation, does include 77% of the revenue for Italy, its costs, its EBITDA, et cetera, as we have done in the past.

The other reason why we'll stick with this, is because when we do get the other 23% then in the future, we will actually have the whole of it, numbers right through the way through. The second complication is the US deal has actually caused a few complexities, which we'll come on to in just a second.

So briefly then, the key numbers for the half year following the service revenue at GBP20 billion, that is for the most recent quarter, the second quarter, 4.9% down year on year, with the regional split of that being AMAP, a strong performance, 5.7% up, Northern Central Europe 4.9% down, and Southern Europe 15.5% down. For the half year, it's a reduction of 4.2%, and if you take out the MTR effect, it is down 1.5%.

The EBITDA at GBP6.6 billion before restructuring costs, and before one regulatory settlement in Spain, GBP6.6 billion, which is a 4.1% reduction year on year. The margin, which I'll go through in a little bit more detail later on at the headline level is down 0.8 percentage points. If you normalize it, it is down only 0.3.

The associate income line is the first one that has a distortion because of the US deal, so the accounting rules say that as of the date of the announcement of our intention to sell, the 2nd of September, we no longer record the profits from the investment in Verizon Wireless, so this half year has essentially got a five month contribution in, whereas the equivalent period in the previous year had a six-month contribution. That is the reason why the adjusted operating profit down there at GBP5.7 billion, that is a headline level, it is down 8.3%, but actually if we have Verizon Wireless in on a five month basis in both periods, it is actually a 0.5% increase, so the 0.5% is the more comparable number there.

So, moving then on to the lower half of the profit loss account, the financing costs, which I will talk about in a little bit more detail later, are a little lower than the previous year, primarily due to mark-to-market benefits. The tax is slightly lower. On the face of it, that looks fairly straightforward.

We have, however, got one complexity, which is the accounting rules say we should start booking our share of the profits at the end of the 2nd of September. The accounting rules very perversely say that we should continue to book our share of the corporate tax charge on the profits from the 3rd of September through to the deal completing. That is clearly a mismatch, and therefore, what we have done here is put into the tax line the GBP1.3 billion to GBP1.6 billion, the Vodafone normal tax charge, plus the five month tax charge for Verizon Wireless, and then down in the line below other, net losses we have included the tax charge for the US for the period from the 3rd of September to the 30th of September.

So above the line, the GBP3.717 billion is on a comparable five month period for both the profit and the tax. The other net losses and gains therefore has about GBP180 million of tax charge relating to the US, which of course, remember, we get a cash tax dividend from Verizon Wireless, still, so it is neutral in terms of cash. It has also got about GBP100 million of restructuring charges and about GBP100 million for the settlement of the TV tax Spanish regulatory case.

Now, another quite big item here, GBP14.7 billion of deferred tax, I will just touch upon this at a high level now, and go through it in a little more detail in a moment. There are essentially two aspects to this.

The first one is a GBP17.7 billion asset that we have created, with regard to the historic losses that we have disclosed in our accounts, but not put on the balance sheet previously. Offset against that is the $5 billion or GBP3 billion tax charge relating to the restructuring ahead of the US disposal, so the net of those two is the GBP14.7 billion number, and that results in the slightly unusually large profit for the year at GBP18 billion, not quite exceeding our turnover, but GBP18 billion. And hopefully in the second half of the year, when we book the accounting profit on the disposal of Verizon Wireless, then we should end up with a profit that exceeds our revenue for the full year.

GBP7.85 is the adjusted earnings per share. That is 2.6% reduction, but again, this has got the five month contribution from the US in for the current year, but six months the previous year.

If you normalize that to five months for both, then the adjusted ordinary earnings per share was up by 10.4%. As Vittorio has mentioned, the interim dividend being increased by 8% to GBP3.53 per share, and free cash flow for the half year, which again, I'll come on to more detail at just over GBP2 billion.

So, a quick walk then on the service revenue, the first half of the previous year on the left, here, was GBP20 billion and on the right hand side for the most recent first half was also GBP20 billion, but a few items have moved in the middle. So on the left-hand side, if one normalizes for foreign exchange and one includes the particular the Cable & Wireless contribution, the like-for-like number for the previous year was GBP20.9 billion.

And then you can see here, consistent with the 4% reduction in the service revenue overall, that the increase in the income, particularly from the in-bundle has not been quite sufficient to offset some of the pressures in the outer bundle, and the normal mobile termination rate cuts, which is roughly 2.7% of revenues in the period. We have now got 57% of our mobile service revenue in Europe coming in bundles, that is up from 48% a year ago, so getting more and more of our customers with their revenue streams committed is clearly moving significantly in the right direction.

This chart is then looking at the service revenue build up by country, by operating business. This is focusing upon the exclusive of MTR numbers, so the minus 1.5% for the half year, and no great surprises.

On the left-hand side, you can see many of our emerging markets, with particularly strong performances from Ghana, India, Turkey and Vodacom, and on the right hand side, has been largely the more challenged of the European markets. One of the good things looking forward is the mobile termination rate effect of about 2.7%, should, in the fourth quarter reduce somewhat and then be at a lower level for next year.

Now, we've got sessions later on where Philipp and Nick will talk about the regions in more detail, and the operating businesses in more detail, so I will not be repetitious here, but I thought just useful as a reminder, just to show you the contribution that each of the regions makes to the overall numbers. So in Red here, Northern and Central Europe 47% of the group's service revenue, 43% of the EBITDA, and 33% of the operating and free cash flow.

Southern Europe equivalent numbers 22%, 23% and 26%, and I think pretty noticeably, AMAP in the darker blue here is now roughly between 30% and 40% across all of those metrics, with particularly the operating free cash flow, the AMAP region now being the biggest contributor. In Europe, again more of the themes here, we pull that later by Philipp, but a big push on smartphones, continuing now 39% of our customers compared with 31% a year ago. And in AMAP, a lot of work on data and selling data through, and some very beneficial impacts upon margin.

So talking to the margin a little bit more, last year, the margin was 30.8%. If we normalize that for foreign exchange and M&A, the equivalent number was 30.3%, and the number for this half year was 30.0%, so on a like-for-like basis down by 0.3%.

And by country, you can see that is the Northern and Southern European markets, so some of those have seen compression of margin during that period, but we have made very good progress in the emerging markets, and hence the overall balance is that small reduction. The second half, we are saying we expect the rate of reduction to be a little bit higher, partly because some of the investment we'll be putting in on A&R in markets like Germany.

The costs, the focus continues unabated, and indeed accelerated in several respects. So we said at the start of the year that we would take GBP0.3 billion out of the operating expenses of the business. That is something that we are on track to achieve.

A number of initiatives there, taking down the number of network operation centers by circa 85%, sharing increasing amounts of our network, our shared services that we set up the centers there, three or four years ago, now it's an annualized run rate of about GBP100 million of cash cost saving. And we will for the first time have over EUR10 billion worth of procurement going through the central procurement activity that we set up also around that point in time, and at the start of the year, we took out a lot of costs in the support area, with our run rate there being 10% lower than it was previously.

Now, on to the topic that I seem to have had a fair number of questions on during the course of the day, for some reason, tax. So let me just start, and two or three parts to this.

We have, as many people will know here, had a significant number of agreed tax losses for many years, and going back pretty much to the time of the management deal, all of which have been disclosed in our annual report and accounts. Up until recently, because of clarity about structure of the group and various other factors, we have only recognized a small proportion of those actually as value on our balance sheet, so about GBP2.8 billion.

Now that we have got the clarity of the future direction with the US, and we're now clear as to the structure of the group going forwards, the application of our fact pattern to the accounting standards means that we have got to put a value on those losses and actually put it on the balance sheet for the first time. So we have put a GBP17.7 billion asset on the balance sheet on top of what we had already, so that the closing deferred tax asset is now about GBP20 billion.

The effective tax rate for the period and all of the US complexities, et cetera, hopefully are ironed out 31.3%, so a little bit higher than where we've been before, primarily due to the higher mix, in particular the first five months of the US business profits versus the rest of the group profits. The split of the 31.3%, which is probably the most important thing going forward, is the continuing operations at about 28% and the discontinued operations at 33.5%.

So on a go forward basis, we would expect once the US deal is done, that our P&L and indeed, cash, tax rate will be in the mid to high 20%s, and then on top of that, we will have to amortize the deferred tax asset that we are setting up. But somewhere in the mid to high 20%s is what you should be thinking for the P&L and cash tax rate going forward. And then finally, we have taken charge in the first half for the tax cost of preparing essentially for the US disposal, so $5 billion or GBP3 billion liability now sitting on the balance sheet in respect of that.

Now, on to financing costs, GBP0.6 billion of Financing costs this year, compared with GBP0.8 billion last year. One major factor, and one small one.

The small one is that level is a little bit higher on average this half, than in the comparable half a year ago, but the more significant feature is because of the amount of fixing we have done, and slightly rising interest rates, we have actually gained from that this year, whereas we lost slightly last year, and hence that is the largest part of the swing in those numbers between the two periods. The average cost of our debt at 5.2%, quite influenced by a proportion of our debt that is in India, which is much more expensive, so without that, we have been more at around 4.2%.

So in terms of the cash flow for the business, we have got GBP2 billion of cash flow in the period, which is slightly lower than same time last year. No major movements here between periods, EBITDA just a fraction down. The capital additions plus the working capital were about GBP3.4 billion, GBP3.5 billion in both periods.

The interest costs we just talked about. The tax, which in part is covered by the tax distribution dividend from Verizon Wireless, the net number there has remained at about GBP1.25 billion, and then net dividends that we have paid out during the period. So overall free cash flow down slightly, consistent with the EBITDA but broadly in the same range.

So on to the balance sheet. The net debt at the start of the period was GBP27 billion and net debt at the close was GBP25.7 billion. Key components there, the GBP2 billion of the free cash flow that was on the previous slide, the back end of the share buyback program, that was the remaining GBP1 billion of the GBP1.5 billion.

Verizon Wireless dividend that we received earlier at GBP2.1 billion, our own equity dividends paid GBP3.4 billion, small amounts on the spectrum. Foreign exchange has worked to our advantage for the debt sense, both dollar and rupee primarily, and other is relatively small in the overall scheme of things.

So closing net debt GBP25.7 billion. Obviously, since the end of the period, we have closed on the KDG deal, and hence that level now is a little bit higher, but hopefully that will then bounce back once the US deal closes.

So we showed this chart on the 2nd of September just to show what broadly will be the profile of our debt, as we go through the balance of this year. So GBP25.7 billion is the closing September debt, then the KDG acquisition overall.

Now, this is actually assuming that we have bought in 100% of the equity, we've obviously bought in a little bit less than that, at this point in time, that would increase it by GBP9.2 billion, and then the US transaction, the retained cash from that, that's GBP20.4 million, bringing us to a pro forma of about GBP14.5 billion. This assumes that all of the US tax will be paid on completion, that is unlikely to happen, so if anything, the debt level may be a little bit lower than it is on here.

So in terms of returns, we have announced an 8% increase in the interim dividend, consistent with what we said back in September. We have said that if this deal goes ahead, that we will be proposing an 11p dividend for the year in total, which will be an 8% increase with the intent of growing it thereafter. The level of dividend cover through the reduction in the share count will significantly improve as a consequence of the deal, and hence the US deal will be accretive to free cash flow per share.

Now guidance, which at one level has got a little bit complicated. We said at the start of the year we would be in the GBP12 billion to GBP12.8 billion range. When we announced the US deal, we said well, actually, on a go-forward basis, it's probably a little bit more meaningful to know what the numbers would be without the US in, but with the extra 23% in for Italy.

So directionally, we take something like GBP7 billion or GBP8 billion out of the original number, being the estimate at that time of the profit contribution from Verizon Wireless. We then add in GBP0.3 billion for the 23% of Vodafone Italy, that in the future we will own, and then because of the change in the rules on joint venture accounting, a small amount of change to make there, to give a figure of around GBP5 billion for this year on essentially the basis that the group will be in the future.

And the same work on the free cash flow, where we started with around GBP7 billion, roughly GBP3 billion comes out for Verizon Wireless, Vodafone Italy GBP0.2 billion, the JVs GBP0.2 billion, and a range of GBP4.5 billion to GBP5 billion. Those are the numbers that we gave out in September, and that is where we expect to be still for the full year.

We said at the start of the year capital expenditure would be roughly the same level this last year, that is still our view, with the one exception which you'll hear about later, that we would expect that some of the Project Spring capital spend will come into the current year, probably about GBP0.5 billion; however it will come into the current year very late, and therefore it is not likely to have a significant tax, sorry, interest and cash expense in the current year. So the GBP0.5 billion is CapEx, but not a cash item.

Half two margin, we said will decline a little bit more than in the first half, and of course, all of these did not assume anything to do with KDG, because that was just getting a little bit too complicated. So general shape of it is that we should be around GBP5 billion and between GBP4.5 billion and GBP5 billion on the cash side.

So finally, just sort of in summary, I think we are in reasonable shape, and especially after the deal on the US closes, we have reconfirmed the outlook. The balance sheet will be in a very strong position, an 8% increase in the dividend for the interim, and then for the final dividend cover, significantly improved, and the funding is in place essentially for the Project Spring.

In fact I was looking at the man on the right who I think turned up on the last chart last time, and I thought maybe it was an update to this, and the caption here should be, let me check, is this the GBP130 billion bag size? With that, I will hand it back over to Vittorio.

Very good. So what I would like to do now in the next 20 minutes or so is to cover the strategic update, give you a little bit of the sense of how we feel about the markets and the market conditions, and then, of course, cover how we think we can grab the opportunities that in the short to medium term we have in front of us.

Those of you who have met with me recently have heard me talking about Chapter 3 of Vodafone history, Chapter 1 being formation of Vodafone, and especially the great ride of mobile penetration and voice and the glorious years of Mannesman AirTouch. Chapter 2 has been the long 10 years during which we expanded internationally into emerging markets, but we also rationalized a different pace, the minorities, and what I would call the leftovers from Phase 1.

And Chapter 3 is basically now, it actually started a little bit earlier, it started last year with the Vodafone 2015 strategy. It's about moving from a traditional old metered Company, mostly voice Company into the data world, to be more convergent, go deeper into existing markets, being more enterprise-focused, and of course, continue to leverage on the group scale. That's basically where we are today, and that is what we see as the development for the next phase.

Now, we already made progress in that direction, and we are already different from what people used to think. Two-thirds of our customers are coming already from emerging markets, and about a third of our revenues.

We have already a pretty seasonable data component in our revenues, 35%. I personally believe it will get to 50% very quickly, and of course, enterprise, especially after the Cable & Wireless and the KDG transaction is now about just a little bit below 30% of our total, with fixed line pro forma here for KDG being now 21%. So there has been already a quite consistent shift, a strategic shift of Vodafone that started one or two years ago, into the direction that the Chapter 3 is indicating.

In the meantime, we I think, have been pretty -- how can I say, balanced probably, in allocating the resources of the Company between investment into the business, be it organic, be it spectrum, be it mainly CapEx, and reward to our shareholders. Of the GBP71.4 billion that the business has generated, about GBP32 billion, or GBP37 billion if you include M&A, have been invested into the business. About GBP27 billion have been returned to shareholders and this is clearly before the additional GBP54 billion that will come from the Verizon transaction.

And if you look at the left part of the chart, and you see the kind of sources of funds, more than two-thirds come from the business itself and about GBP15 billion from disposing assets. This is I think a very balanced and also very telling, I hope, story of how we manage the business, balancing good return from our own assets, and of course, return to our shareholders over time. And this is what we continue, intend to continue to do, with the new situation and the strong balance sheet that Andy has described before.

Now, what is there for Vodafone today? This is a bit of a pictorial presentation. I apologize if this doesn't fit all of the IR criteria.

The bubble on the top are the way Vodafone used to be described before, when I was talking to some people. They were saying well, you are basically a big minority, more than half of our profits coming from Verizon Wireless, and then another thing, which is Europe, with an attached emerging market business.

The way we are now, now that we have full control, 100% of what we have is really what we manage, we really look at the business, and this is the way you will look at the business this afternoon, with the second half of the day, as three main different businesses, a European consumer business, an emerging market consumer business, and an enterprise business which is predominantly European but not anymore European only, and much more spread across also territories where we don't have [mentos]. And this is very important, because this is the shape that we want to give to the business going forward.

We will have a number one and number two position across the three of them, more number ones in certain areas than number twos, and of course the recent trends and future trends are different. In Europe, we have got clearly some headwinds from the recession, and from the pressures.

And as we see signs and I will talk about it, of this potentially bottoming, and starting to go in a bit of a recovery mode, very different in the second business in the emerging market consumer, where we have decided to put pictorially two green arrows up. One is because the trend is good, and the second is because we think it's going to be better with data.

Quite frankly data in emerging markets, I have said this already probably two or three times in these type of occasions, data is going to be the positive story, Nick Read will talk about it, and I will also elaborate on it in emerging markets. And then enterprise is a more steady regular growth that we see in front of us.

It's not going to be only mobile. We'll talk a lot about it. It's going to be a lot of opportunities for us to come from services, from solutions, from things that already today we are selling. And as I said, not just necessarily only what we have our own network footprint or so outside of it.

So where do I want to bring the Company? And here, I took the five years from now vision, because it's five years before, five years after, taking a longer term view of what we can really achieve.

We are very determined in European consumer to be a converged player in all markets in different ways, but clearly to provide full services to all the customers that we serve in the main markets. Maintaining and strengthening, as you will see, a strong leadership in mobile, which is where we come from, and which is what is recognized to be our strength.

In emerging markets, the objective is simply to be a strong leader. We are de facto a strong leader in all of the emerging markets where we work, and to be the first choice for data, not defining whether data is mobile or fixed, but clearly, it's going to be more mobile in emerging markets, because of the absence of fixed line.

In enterprise, the ambition is to continue to be a major international player. We are already today, think number two in voice and number five overall, to be a major player, following or supporting our customers wherever they go with services, and with any kind of need they might express.

Now, Project Spring for me is the opportunity to super charge this vision, and I will talk a bit about also the economic environment that we expect, and to really push ahead with a stronger differentiation vis-a-vis our competitors, based on the elements that Paolo will also cover in his presentation, which we highlighted to you one year ago, which are the best connection part, the customer experience, and the integrated worry-free solutions, with plus of course an efficient organization that we need to achieve.

But it's a great opportunity in my ambition to see the Vodafone brand spring ahead. It's not enough ahead today, I think, relative to some competitors, and again, put some clear water at least against number three, number four in our markets but possibly also against some of our co-contenders.

We're not starting from scratch. As I said, we started one year ago, we announced the new Vodafone 2015 strategy, to be covered by my colleagues. I would say we have made some good progress. In consumer, Vodafone Red is a good success, 7.5 million customers, Paolo will give in his presentation some KPIs and some details.

For me the most important thing is the financials are in line with what we expected. Data usage is higher, satisfaction is higher, so this means customers like it to a point that even if there is a little bit of disagreement between myself and my team, I'm raising the target for the year, and it's going to be 11 million or 12 million, we don't know but say between 11 million and 12 million, not 10 million as we declared early on.

We continue of course to have a lot of other innovation and new services in emerging markets, in consumer and enterprise, the progress is good. We have created the division that Nick Jeffery will introduce today. The integration of Cable & Wireless has been a success, and we continue very well in the areas of growth that we have selected, especially machine to machine, carrier services, and Nick will cover with a few words hosting and some other initiatives that we have there.

On network, we have now that the spectrum is available, eventually, 4G working in 14 markets. We have unified communication capabilities in 12 markets. It does not mean that we are big in unified communications in 12 markets. That's the ambition, but we have 12 where we can, if we want, to deploy solutions.

And I have to say that our network and technology performance, if I'm honest, it is not what I would like it to be everywhere, but it has improved quite a bit. 80% of our data sessions now are above 1 megabit per second, which means that they are video capable, and half of our network is already in Europe at the highest HSPA rate, but we will do more there.

And finally, as Andy said, we are continuing to try to leverage on lower cost part of Vodafone, the shared service center will get to above 10,000 people sharing their competence for different topics, and we are on track to deliver our own GBP300 million savings which means that Spring is charge of an existing problem, but it is also I think a big strengthening of our ambition to go towards the five year objective, or five year vision that I described before.

One aspect of what we have is very important, because often, we talk about spectrum. Now we don't have the spectrum strength of my friend Lowell McAdam, of which course, I'm very jealous of his spectrum, of course, but we have a pretty good position in spectrum, that sometimes it's a little bit overlooked.

We spent money to buy 800 frequencies, we spent money to buy enough also at the higher frequencies, to guarantee infill of our networks, but basically, today, we have in all our actually large markets, a very solid number one, or just by an inch, number two position in spectrum notation, and especially measurable and external independent agency, a first or co-first already delivered speed of network with the exception of one country, Germany, where I want to be there soon.

The network is being modernized, I had a lot of questions over time by you, will you be able to cope with an increase of data. Now the good news is, data is increasing a lot, Steve Pusey will talk about it.

This quarter again, we have another acceleration of data growth, but no deterioration of performance is visible. We have, this is happening because we have half of our network, which is already modernized, and two-thirds which is already capable of transmitting in the backhaul at high speed. So the constant investment level that we have got in the last five years, at least in the years of my tenure, actually is paying off because we never cut CapEx in any way, because we knew that this would happen.

Now, in terms of market, how is this strategy, what type of markets is this strategy going to find? Are we going to get much better markets, much worse markets?

Now, I can not say that things will happen overnight, but we are turning mildly more optimistic about the European telecommunication market. We think it is approaching a turning point, as I always say I'm cautious in not calling quarters or not being over-enthusiastic about things, because I learn that life doesn't change suddenly one morning. But we are becoming a little bit more optimistic.

I would like to cover the four elements, economic environment, demand, supply, and regulation, one by one and go quickly through them. On economic environment, I mean, I don't have to explain to you that the last five years have been probably among the worst that we could have, only Germany got positive growth in the last five years. There are forecasts for a return to growth in the next two, almost everywhere in Europe, and clearly the expected situation of the next five years is much better than what we had to have.

Now of course, who knows whether the numbers would be exactly, the ones who are on the green map, probably by definition, they would not be those. But for sure what we had behind us was probably the worst period in this telecom sector in Europe.

Now it's important, and I'm often asked, especially by investors, how correlated we had with GDP and the economy, and is the degree of correlation increasing or decreasing. And here I don't have, I'm not an economist. I don't have a quantitative answer.

For sure, what we have seen, however is that discounting and price pressures in a recession have been particularly negative. Because clearly, with low consumer confidence and lower disposable income, people are much more sensitive to that. We are not completely correlated to GDP, and of course industry structure waits a lot, but this type of change in outlook clearly will help.

More positive is on the demand front. As I said, data is accelerating again. The blue bar is the data European total consumption, you see the bar suddenly goes higher. Steve will have some more comments on that, but the last quarter, again we have seen a re-acceleration of data.

And the other part of the chart, the right hand part indicates why. The why is clearly smartphones, but not just smartphones, it's also tablets.

Cheaper Smartphones are good because they bring on board, and quite frankly, variety of operating systems are good, because they bring on board customers who have different spending capabilities. But also what is really very good is that tablets are finally starting to make a difference.

You see the Red part of the chart, last year I think tablets have over-sold laptops, and I have to see the multiplicity of devices, and Paolo will talk about it in his presentation. The multiplicity of the devises is something that is not just restricted to people like us, professionals, or people who have very intense intellectual type of life, but is becoming more of a norm also in the families. And this of course will continue to push up the demand side of data, and that's good news, because, as I said we have prepared and we will prepare even further our networks for that.

The other big trend is the request for unified communication, this is not the same across all markets, and sometimes people challenge me and say oh, but this is a big threat for Vodafone. The way I see it is, it's not a big threat, because the European market is about GBP80 billion in mobile, and we have about 30% of it. Of course we can have the ambition to go up and get GBP35 billion, GBP40 billion, GBP50 billion but that will come at a cost, and the cost will be price and that's the history of our sector.

It's difficult to go much more beyond market share without triggering price reaction, so you can have the market share, but it's a lower value market. Instead there's another GBP80 billion market in broadband, fixed communication, and TV, where Vodafone has a very limited share, a few percentage points on a European basis, which we see as an opportunity to get into. Of course, it's an opportunity that has to be exploited in intelligent ways with different formulas, with different strategic approaches.

That's what we are doing, and again progress has been made here as well, with the KDG acquisition, with the decision to build fiber and launch VIP TV in Portugal, where we have about almost 100,000 customers on IPTV. With the decision to invest in Spain and today, we will talk about a similar decision for Italy.

Regulation. Regulation is the final aspect of Europe. I have to say that we have talked a lot about regulation, and the most common term used was always headwinds, headwinds, headwinds.

Again, I'm not here to say this is going to be tailwinds but at least it's going to be absence of headwinds, or much weaker headwinds going ahead. Why? The way I look at regulation is three things.

First, the rates. The regulated rates, we're talking about MTRs and roaming. MTR have come down quite a bit.

Roaming, there's a glide path and there is a solution. If you think that if you take the whole sector, 80% of the reduction in revenues in our mobile component have come either from MTR or from roaming.

Both of them, MTR, because of the low level where they are today, and roaming, because there is a glide path, in any case will have a lower weight in our future. So, I think that will be less impactful going forward.

The second aspect that has created competition or artificial competition as recorded here is the presence of asymmetries to help new entrants, so spectrum reserved or stranger spectrum auctions conditions or even mandated MVNOs. Here again, the intention in the proposal from the European Union seem to indicate a much stronger support for a Pan-European consistent, or more consistent approach to these topics, taking away some of the extreme conditions that in the past have created this level of artificial competition.

And finally, on consolidation. Again, we haven't seen yet the practical manifestation of the new positions, but at least in the statements, the so-called mood music, is changed now, the word coming out of the European Commission is more to favor cross country integrations, and to be less demanding in terms of number of players in each market. And a little bit more inclined to favor return on investment, as opposed to sheer number of players in a market.

As I said, these are intentions. We recognize those intentions, we now have a couple of test cases, and one, particularly in Germany, which would be very important to assess the situation. But as I said, in general, if one looks at Europe and looks back for a second, we pose, I look backward at the last five years, I look forward, I can see a better environment materializing.

Materializing when? In the next two years, maybe at the back end, maybe at the front end, maybe in the middle, but we can see a better business environment for our sector.

Different music in emerging markets. Completely different music, because of course, here, it's easy to be optimistic with emerging markets. The question is how optimistic, how much you want to be optimistic?

And here, economic environment is better, clearly reaccelerating. Demand is not just for data, but it's also for voice, and voice is priced low, so there's less risk there. Data traffic growth in emerging markets has been above 100% with India now second largest country, and there's also demand for other services, especially financial services like money transfer and so on.

Integration, we cannot say that it is particularly predictable in emerging markets, but at least it's becoming more foreign investor friendly and we see there is a better understanding of the long term dynamics of foreign investment, infrastructure investment, and then GDP growth in the country. Which we think will be more positive for us.

Vodafone has been, I think, fairly successful in choosing local partners which really deliver value. In all markets, almost all markets with the exception of Turkey, we have local partners that actually have strengthened our companies, and we think that this is proof that in those environments, with the right recipe, you can be successful. And finally, again, consolidation, I expected more into emerging markets, the big win here would be clearly India.

I will not comment on the expected growth in emerging markets. I will just use this chart. Actually the part of the chart which is less important, which is geographic map, to say the big emerging markets where we are the ones, the good ones, the ones where everybody would like to be, because of the size of the population, because of the wealth of the economy, because of the prospects, so India Turkey, Egypt, South Africa.

These are the good ones. And there is something in those markets that I always say it is completely under-assessed or underestimated, and it's not the one on the left part of the chart, that everybody knows. Of course, there is no fixed line or very limited fixed line in those markets, and a huge mobile opportunity, which means that the whole opportunity coming from bringing communication into the markets would be more on the mobile side than on the fixed side.

The one that is overlooked is the one, often, on the right hand side where the demography of the population makes a population the same type of total numbers more appealing than in mature markets. In a normal European country you can have 18% but also 15% or 16% of the population being in the young bracket, and many more in the old ones. In emerging markets, you can get as high as 35%.

So the same 80 million people in Turkey or Egypt or India are worth much more in the world, if you buy the vision I described before, a vision of data, a vision of application, a vision of stronger uptake of all these services, are worth more in emerging markets because the population is young, and this is where the smartphones will go, and this is where the entrepreneurialism at the small Company level, will actually generate much more uptake of our services, than in emerging mature markets, where actually you're talking about very few or much fewer young people.

So good news on that front, but if you put everything together, you put the emerging markets and the mature market situation together. And you put together our strategy that we described before and the three -- the vision for each of the three businesses together, I think you'll understand why I see Project Spring as the opportunity to really accelerate and extend our current strategy and really strengthen the Company for the future.

The things that are written in the pink part of this chart are already happening, whether it's 3G or 4G, which is starting to deliver very high data, whether it's a unified services, which are happening and we are making an inroad there, whether it is the opportunity to expand to large accounts in new services or in new geographic areas, Spring is for us the opportunity to strengthen a strategy, which was already starting to be implemented, and three clear missions for the three areas of the business, to really leap ahead and to really strengthen and ride these trends that I just described.

So we looked at it. I said we would work hard between, we started looking at a Spring type of concept in the spring, believe it or not, and -- but that's not why it's called Spring. We partially knew this was coming, which also explains why we decided to retain the Verizon dividends, because we thought it was an intelligent thing to do while we are working on things.

When the Verizon thing came, we announced GBP6 billion. Now we looked at all the opportunities, and we decided to make the total GBP7 billion.

As you can see in the right column, it's GBP3 billion on European mobile, GBP1.5 billion in AMAP mobile, GBP1 billion in unified communication, GBP0.5 billion in enterprise, GBP1 billion in customer experience. So the total is GBP7 billion. The initiatives are quite big.

What is listed in this chart is just an example, and they use an example of incremental deliverables, so things that we will anticipate from the original plans, and we will step up our investment. Here you're talking about 20,000 new sites, 32,000 new 3G sites, 36,000 to 37,000 FTE, we're talking about Wi-Fi being stepped up significantly, and small cells being stepped up significantly. Much more investment in enterprise premises equipment, because we again -- getting into that service requires much more presence at the facilities of our customers.

There is a big component of fixed line, fiber-to-the-curb. In Italy we are announcing today we decided to go ahead with 150 cities, no matter what others do, if they want to join, they're welcome, but we can not wait.

We are increasing our investment in Portugal, which we, as I said, is already delivering customers. And we have already I would say a good start because we already have a 20% penetration in our footprint, which is not bad.

And we will clearly continue to invest in fiber also in emerging markets in the urban areas, in the places where we think the density of this traffic will justify this investment. To support enterprise, stronger machine to machine presence in more countries than where we have the footprint, clearly, and stronger IP VPN extension to follow our customers.

The final block would be the customer experience block. This is basically three things, on one hand it's retail and shops, stronger and more accelerated redesign, based on the earlier results of the first 1,300 shops that we have already changed, but we would basically multiply by 5 the effort there. And strong system redesign to move into this data converged capability that has already to be simplified for the sake of the experience of the customer.

Now, what are the financials of this? The GBP7 billion CapEx will be spent by March of 2016. We decided to anticipate to this year the beginning of the deployment, there was no point in waiting, so about GBP0.5 billion will be spent already this year.

It is intended to be EBITDA neutral by 2016-2017. There's going to be a higher OpEx impact, clearly given the fact that we are stepping up the network in a major way.

Steve Pusey here will have a very interesting chart that I will really like you to focus on, because I talked about the incremental of Spring. If you look at the plan for the next three years, the number of sites, the size of the network, or the size of the fixed investment that we are going to make in the next 2.5 years, is basically of the same magnitude of -- let me say not the whole of Europe, but probably a good chunk of Western Europe.

So we are recreating a second Western Europe on top of what we have, so it's a huge effort, hence there will be extra costs that we will have to carry. The target are in excess of GBP1 billion by the fifth year.

If you ask me, where is GBP1 billion coming from, it's going to be ARPU, mostly at the high end, not necessarily across the piece. It's going to be enterprise revenues, and it's going to be broadband and fixed line market share. Cash buyback is about GBP7 billion -- Seven years.

Now, put Spring on top of what we have been investing, as I said, fairly regularly for the last five years. The total, as you can see in this chart, is in excess of GBP19 billion, which means that in less than 2.5 years, 2.25 years, we are going to deploy the biggest investment program of Vodafone ever.

As you see, two-thirds of it will be on mobile networks, so GBP18 billion Europe, GBP4.5 billion in emerging markets. The unified communication investment is in excess of GBP2 billion, clearly there was already a lot in the existing budgets, including for example, Spain. Now we are adding Italy, we are adding emerging markets, we are adding Portugal, and enterprise is on top of whatever is already in the network component.

There is a focused enterprise services and coverage for GBP1 billion, extra GBP1 billion. And then customer experience will be GBP3.5 billion. There was already quite a lot in the existing plans, we are basically turbo charging also that component.

This is an incredibly relevant and big investment plan. Clearly, we also have a solid balance sheet, so I will continue to look at inorganic opportunities.

The inorganic opportunities must be consistent with our strategy, so in areas or in priorities that I have indicated and shared with shareholders, and again namely unified communications, enterprise, and the emerging markets in the areas where we are focused. And we will continue of course to apply to both the organic and the inorganic component, the usual financial discipline that we have displayed so far.

So to summarize before passing to my colleagues, Europe, as I said, a possibility that we are approaching a turning point, performance has to improve in a couple of markets. We have strong mitigating actions and recovery actions in those markets, but very, very strong, and very good outlook in emerging markets, with margins also improving. And as Nick would say, now emerging markets represent a pretty important part of Vodafone, strong cash flow, coverage of cash of dividends would very solid after the Verizon distributions, so strong intention to continue to reward shareholders in a constructive way.

Good strategic progress in our shift from voice to data, pleased with the enterprise progress, and we have to continue and be determined in continuing on the unified communication side. And finally, Project Spring.

I am personally very confident, this is the most defining beginning of Chapter 3. I would say the first pages of Chapter 3 are investment pages, which usually turn the rest of the chapter, and the rest of the novel into a pretty good one. We are all very convinced and committed to this.

I personally, I whenever the time is appropriate after the Verizon transaction, will personally invest all of the Verizon net proceeds into Vodafone. The same will be done by Nick Read who is CFO-designate, and the same will apply to the majority of the shares owned by my Executive Committee members, because we are all convinced that this is really the beginning of a very, very positive chapter for Vodafone.

And with that, I will turn to Paolo to start digging into the commercial aspects.

Thank you, Vittorio. This was Vittorio's station, sorry about that.

Good afternoon, and welcome again. Over the next 20 minutes, I will take you through what we mean for Vodafone differentiation and give you a high-level view of what we are doing, and what we plan to do, to strengthen our differentiation especially in the context of Vodafone Spring Project.

We believe that building a stronger and stronger differentiation for Vodafone is important, not just to be able to over time win more customers, and actually retain those customers. But more and more it is important to have a completely different dialogue with the customer, there is too much focus on price. And over time, we want to move in a different direction, focusing the customers more and more on what we do.

Let me start by explaining to you what we want the Vodafone brand to stand for, and most importantly where we want to be different and better from our competitors. You are normally used to seeing Vodafone Power To You as the external representation of our brand; however, the purpose of Vodafone, our core purpose is in fact to empower everybody to be confidently connected.

To be confidently connected to friends, to be confidently connected to their families, to be confidently connected to their businesses, to the content and information which is relevant for them. And we want to do these across different geographies, we want to do these across consumer and enterprise customers, we want to do it across the more sophisticated and the less sophisticated customers.

And as we do it, we want to do it in a different way, better way compared to our competitors, basically in three areas we consider our differentiation pillars. First of all we want to be recognized by our customers for those offering them the best network, the best connection.

Number two, we want to be the ones offering to our customers the best experience in interacting with us across the different channel and media. And number three, we want to be the ones offering to our customers the best integrated solutions for worry-free communication, both in a traditional communication space, and more and more in the connection space across different services and technology.

I will try to give you a better sense of what we are doing, how we plan to do in these different three areas, starting from integrated worry-free solutions, then customer experience, and finally network. And I will try to do it as much as possible taking the perspective of our customers.

Let me start from worry-free solutions. Here our flagship product is Vodafone Red. You know what Vodafone Red is, but in actual is, at least of Vodafone specific benefits, integrated with unlimited voice and messages, and largely which are normally tiered to satisfy the different customer needs.

As you may remember, we launched Vodafone Red back about a year ago. It is now available in 17 markets, and we now have -- or actually we had at the end of last quarter, 7.5 million customers on Vodafone Red, more or less one-third in the enterprise space and two-thirds in the consumer space.

Today, we have more or less 18% of our consumers, if we take the four largest markets where we could run in the best way, we have more or less 18% of our consumer customers and 27% of the value of our consumer customers already on Red. While we look at the enterprise segment, we have more or less 12% of our customers and 17% of the value of our customers in the enterprise segment already on Red.

Clearly Red is attracting the highest value customers as it was perfectly expected. Today, more or less one-third of the customers that we are acquiring in the contract space are actually coming with us on Red, a bit more than a third in the consumer space, a bit less than a third in the enterprise space.

As Vittorio said, we are ahead of our plan. You may remember we gave a target which was about 10 million customers by the end of this fiscal year. We are ahead of this plan, and we currently see us landing anywhere in between 11 million and 12 million customers, probably closer to the latter number.

When we measure the impact of Red, we take two views. If you like the more traditional/financial shorter term view and then the customer view, which we believe in the case of Red is actually more strategic.

If you consider the impact of Red from a financial standpoint, we look at the acquisition, and obviously the migration side of it. In terms of acquisition, Vodafone Red is allowing us to acquire a better mix of customers, so in general, we acquire more or less the same customers that we were acquiring before in the contract space, depending on the market, depending on the [face] a bit more, but the key point is that the mix is better, which basically means for us that we are acquiring share in the higher value segment, both for consumer and enterprise.

Then, as far as migrations are concerned, what we see are actually improving trends. If you look at consumer, today, we have an impact in terms of ARPU addition of Red, which is back to where it was before, and will always be in line with more Red products more or less.

If you look at enterprise, we had an early period where actually we had a slightly higher impact, a slightly higher dilution of ARPU on migrations, which was justified by the fact that we had the biggest spenders, the highest spenders migrating faster. But actually now the trend is positive and the ARPU is back in line with where it was before, and where it is for our non-Red customers. As you can imagine, every single market, today we have our commercial teams, which are heavily focused in making sure that this trend of improvement continues, and the impact of this solution can actually be turned around very, very rapidly.

If we then turn to the impact of Red on customers, actually, the picture is all positive. First of all, the Red customers are using our products and services much more than before. The analysis that you see on this page is as much and also on the previous page is as much as possible on a like-for-like basis.

Customers as they migrate to Red, they talk more with us, they message more with us, actually they use data twice more than what they used to do before. At the same time, these customers are happier customers. We are tracking NPS as you can imagine, specifically for Red, and these customers are happier than the average customers, and we see this trend every where across our major markets.

It's too early, obviously, to talk about churn, because Red in most of the cases is a product which comes with a commitment, and so churn has yet to be fully understood. However, whatever we do in measuring it, we only see again, also in the case of churn, positive signals, which obviously we will continue to track and these signals are consistent with what our expectations were.

All-in, as Vittorio said, we are satisfied where Vodafone Red is right now, it is in line with our expectations, but most importantly, we are even more convinced than before that Red is for us, the best platform for the future. It's a very robust platform, as you can imagine, is protected from IP cannibalization, and also more protected from potential Wi-Fi cannibalization.

And we really believe that this is the right platform for the future, and in fact more recently over the last few months, we've started to work on this platform, to try and increase the value of these customers that are now on this platform, that we see more and more actually as account, with a value which we can develop over time.

Here you see for example, things that we are doing, family, multi-device, insurance, and data add-ons. In most of our markets, we are already working at a point of sale, but also with later on CVM activities across the life cycle of the customer, in order to offer these products and services to them.

Here you see on the right, some of the results that we are obtaining. We have penetrations which range from the 10% to 20%, and we see it coming more and more and more in the mindset of one of over time, enlarging the value of the account for us.

The second area of differentiation is -- sorry, the second very important for us in the space of worry-free proposition, differentiation, the worry-free proposition is roaming. We know that roaming has always been a pretty big topic for our industry, because it is a lot of accessibility with the customers around roaming. And over time as customers migrate to more data, to more smartphones, to more tablets, we see roaming becoming more and more important.

This is exactly the reason why, over the last few months, we have decided to accelerate across our European markets, and we have decided to offer our customers what we consider to be the right worry-free proposition. Basically, our customers have the possibility by paying a daily fee to use around Europe in more countries of Europe the same type, and pay the same type that they pay at home.

We did launch this, as I said, before the Summer. We have extended it across different European markets.

Today, we already have more than 8 million customers on this option, but most importantly, we need to see how many of those which in fact, when they roaming, are really using this option. And the data that you see here in the middle, actually the data from the month of August, which is a special month for roaming in particularly the consumer space, and you see that for some markets, actually already one-third of the roaming customers in consumes are already are on these tariff, and enjoying the benefits of this offer, while you see growing also in enterprise over time.

What are the results from the customer point of view, again we see roaming days going up, in the sense that people use more their smartphone when roaming than what they used to do before. We see voice usage going up for these customers, and most importantly we see data usage tripling, because here this is not a marginal increase. This is actually customers that instead of switching off the smartphone, they are actually keeping it on, and using exactly the way that they used to use it, or in any cases even more because when they are on the move that's clearly where the need is.

We already started to track NPS and actually, we see satisfaction of these customers also increasing, especially compared to what our competitors can see on their own roaming customers. The second pillar of differentiation is, as I said, customer experience.

And customer experience, we are taking two parallel views but two integrated views. On the one side, we're investing short-term, we are investing to improve now the customer experience across channel in retail, in customer care. And in doing it more and more consistently across markets, sharing as much as we can best practices, and making sure that we leverage as much as we can on the same solutions in the same IT application and platforms.

However, in parallel, we are preparing for a more strategic transformation, which is actual based on the concept of the one single product catalog across the group, one single set of standard services, to be supported both by our one single set of IT platforms. Here, clearly, the ambition is to be able to offer the opportunity to all our markets, and all the customers of our markets, to enjoy the broadest possible portfolio worldwide on the best possible services worldwide, with the right level of customization when necessary, and doing it in the most efficient way from the IT systems, which is necessary to support it.

Now we try to give you a little bit more focus on what we are doing now, in terms of improvements in retail, online and customer care. These take into account, going back to what Vittorio was saying before, that on this journey of customer transformation, we're investing one of the EUR7 billion that we plan to put into Project Spring, excellent investment we put into Project Spring over the next couple of years.

Let me start from retail. In the retail space, as you know, we already launched our transformation plan. We have a new store format, which basically allows the customer to interact in a more engaging way with our products and services, and to have a richer sales and service experience as well.

We now have the new store format being rolled out. We are almost at 1,000 stores in 15 countries, and when we reach the 1,300 number that Vittorio was talking about by the end of this fiscal year. And we are starting to track the results and the results are so far, positive.

We see an increase in the satisfaction of the customers, and we see most importantly, also an increase of productivity of our sales activities. Obviously, the productivity increase is not just due to a better format. It's also due to the work that we do with our people, with other teams which work in the stores, because when the store closes for three to five days for the refurbishment, we take the people, we reassess them and we retrain them to be able to have a better sales and service relationship with the customer.

On the basis of what we are seeing, we are accelerating in the concept of Spring our plan, and therefore, we will extend to the new format to the full footprint of Vodafone branded stores, exclusive branded stores, which is about 1,000 around the word and we will do it over the next couple of years. While in general we are not increasing the number of stores around the world, we will take this opportunity also to deepen our better presence very selectively in two or three countries, where we believe that adding a stronger direct control distribution and customer experience is actually needed in the environment that we operate.

Let me now move to mCare. mCare is all about giving the possibility, as you know, to our customers to interact with us in a very simple way for information and assistance on a simple smartphone application.

We did pass the different solutions in mCare over the last couple years, and by now we are fully convinced that the future of customer interaction for care and assistance, and those who have information and potentially cross-sell is actually smartphone application, and will be this space or this channel for the mCare. This is the reason why today we work with the ambition, we see if we are available to deliver it to be the best-in-class in our industry with mCare and actually I think we also have the recognition to be the best-in-class, not just around our industry, but across industry, given what we do for leading as Vodafone.

Here on left you see one of the most advanced solutions that we have, which is in this case, the one which we are rolling out in the other markets at the moment. We are allowing our customers not only to interact for information and assistance, but actually they can enter into a live chat from the smartphone with a live assistant, with a person, with a specialized person, and if necessary, they can click to be called back by the person from the chat to receive an assistance, which becomes more and more sophisticated as you go throughout the process.

Again here, we see the NPS of these customers and the touch point of this NPS service increasing over time, it's already above the one of the traditional customer care for this specific segment of customers. And at the same time, it's interesting, because we see customers interacting more with Vodafone through the application, which is also very personalized, because it has all the information which is specific to that customer for their plan and products and services that the customer has.

But at the same time, the number of live contacts, which also come with a cost, is actually halved. So we see a 50% reduction of frequency of contact with a more engaging relationship with the customer. As I said, we will continue to push this because we believe this is really the future core channel for customer interaction.

Finally, we will continue to invest in more traditional customer care, that while we push more and more mCare and we invest in retail, we believe we will remain a key channel for more specialized assistance, for all of the different customer segments, probably more for certain segments than for others, but still, it will remain a very important channel. And here, we will continue to invest and improve the experience and maximize the revenue opportunity out of this channel.

In terms of maximized experience here we have a list of initiatives we are more and more driving consistently across markets. We have our representatives available 24/7 in all European markets at the moment. We are offering more and more the possibility to the customer to be called back by us, instead of waiting for us to respond to him.

In some cases, they can also book a callback at a certain time. I'll give the possibility to the customer to follow-up with us, if he asked to be called back in case it needs to be contacted again. We have more and more personalized approach, we have more and more personalized relationships that we are testing in different markets and we will continue this direction.

So far we are in the early phases of the journey, we see an improvement already in first call solution which is a key element for the customer, because this is the number which basically says I don't need to call you back to get my problem solved or to get the information complete. And when you see this First Call solution index, which is going actually up, because the recalls are going down, and we see customer touchpoint NPS in the case of customer care going down.

In parallel, as I said, we will continue to use more and more channel of customer care to create more opportunity for revenue generation, by increasing the number of calls that we use. Also for upselling and making sure that we also increase the probability of success of this, as the more we develop products, such as Red, is clearly an opportunity which is out there for us.

Let me move to network differentiation, which is the most important pillar of our strategy, as Vittorio said in the beginning. Steve Pusey will take us through the network plans, and will give you a better view of what we plan to do in this space.

Let me try to address the issue from the customer point of view, which is actually the point of view that we use to drive these investments and these choices globally, and most importantly, locally on the ground. We believe that the customer has in mind when thinks about using our networks and products and services, three types of perception around our quality.

Number one, voice, is voice working or not, is voice able or not. Number two coverage, do I get access to my applications, to my e-mail, to my information to the internet.

And number three, is the performance good enough for doing something more. First downloads, video, and so on and so forth.

And this is the reason why our differentiation strategy on network will be based on a perfect voice foundation. We believe there is no differentiation strategy on network that can be successfully developed, without starting to give to the customer the basics in the perfect way, and with that we are not there. It depends very much market by market.

We have different situations as you can imagine. But an important part of our Spring investments, despite we have the smartphone area and the tablet area and everything else which we connect in the future, will still be on voice, we deliver a perfect voice foundation to our customers.

And then on top of it, we will extend our coverage, because we want to have data wherever we have voice. We have a minimum speed that will allow customers to have a dependable browsing and good speeds for downloads and streaming.

And finally on top of it, we want to be excellent in terms of performance, which means HD video, which means very fast download speeds, which basically means seamless browsing and 4G will be a key visible component of this differentiation. Overall, in this area, we'll be investing more or less GBP4.5 billion over the next couple of years, on top of what our normal plans would have been.

Obviously we know that, at the end of the day, when we talk about differentiation, they are not necessarily what we do, but most importantly for what the customer perceives, in terms of the experience that they have for us. And this is the reason why, why we invest, why we make a lot of effort to deliver all of this for our customers, from the technological point of view.

We are also increasing our share of communication that we dedicate to network differentiation. Today, we are about 25% of the spend invested in this space, and this, we will continue to increase over time.

On the screens here, you see some of the print and outward advertising that we have on air at the moment around the world, and here you see a mix across the different three layers of the ladder. You see some coverage, voice coverage communication, you see some digital ability communication, you see some speed communication, you see some content, and video content in particular, communication. And we'll continue obviously in this direction.

Let me also share with you a video which, I believe, talks about differentiation, in a very simple way, and network differentiation in a very simple way. (video playing) So obviously the baby is not yet our customer, because he could not be, but the father clearly is, and this is actually coming from South Africa.

It's fine to see -- it's always nice to see after a lot of pages and words and numbers that you continue to see throughout the day, then a baby with a smile can deliver the message on why actually having a good connection is so important for people. Most of what we're seeing so far in terms of differentiation has been focused on mobile, our old and good mobile, if you wish.

Obviously, Vodafone is moving more and more into unified communications, and therefore we need to extend more and more this concept of communication and the -- sorry, the differentiation, the focus of our efforts also in a fixed space. It doesn't mean in practice, it means from a network point of view, being able to deliver at least a good service in terms of DSL, in terms of quality and reliability, but more and more being able to offer as part of the best access to next generation networks to enjoy the speed, and obviously the TV services which are associated to it.

In the space of customer experience, we will be able to serve our customers across the traditional channels, but also in some cases going to assist the customers at home or at office, that we are already doing, which is what we are doing in several markets, where we are deeper in fixed already, and we will integrate service and billing to serve the customer across fixed and mobile.

Finally, in the proposition space, in the integrated [where we are efficient space], we will add more and more to the proposition, and we are doing it integrated for the household and the family, not just for the individuals, and more and more fixed mobile integrated for the enterprise, as well as we are doing with products such as One Net. In the space of fixed, particularly in the space of fixed network deployment we're investing GBP1 billion of the GBP7 billion of Project Spring, and Philipp later on will give you more detail on what we're doing in that space.

So in summary, we have a clear brand purpose which is empowering everybody to be confidently connected. We'll continue to invest to build our differentiation more visibly across three pillars. The best network, the best connectivity, the best customer experience across channels, and worry-free communication and connectivity proposition for our customers.

Vodafone Red, we are satisfied with the first year of Vodafone Red, and most importantly, we believe it's a very robust platform on which we can continue to build our future. Roaming, very encouraging results from this change of mind in the way we offer roaming to our customers. Very happy customers, which are really using our services, worry-free, also roaming, and also good signals of revenue protection for us, and finally we'll continue to work to extend our differentiation of unified communications.

With this, let me hand over to Steve, which will give us much more information on our technology and network plans.

Thank you, Paolo, and good afternoon. In this section, I would like to share with you the progress that we have made in the last six months, in developing our networks this year.

And most importantly, I'll give you the details of how we plan to deploy this significant additional capital on the Project Spring, which we believe will both transform our customer experience, and deliver us and secure a competitive advantage, and from the video, make babies smile. So let's see if we can achieve that.

Firstly, what I'd like to do is share with you some of the most recent customer trends that are driving the behaviors of our network investments. If you look at the top left, as you look at it firstly, as Vittorio and Paolo highlighted, smartphone growth is very healthy across the footprint. That's married with traffic on individual smartphone growth, as we've seen in the last six months.

We're up to nearly 400 megabytes per device. Red is higher than that. 4G is higher than that, again, and if we take some of our most aggressive users, a good example is here in the UK, as we've added content with Spotify and Sky Sports, we're up over 1 gig. So, traffic growing healthily with our customers.

Those two elements conspire to drive the overall traffic growth, and you can see on the top right, the first six months of the year, traffic is still growing healthily. It's up 62% year on year, and something to highlight here is in Europe, now 4G is 16% of the European traffic, and India is some quite spectacular growth. It's now the second largest operation that we have in terms of data traffic, and it was up -- it equates to 40 petabytes. About 85 in the first half-year, so it's doubled year on year.

When we look at what our customers do with their devices, and this is a similar picture for fixed, a little more aggressive, even with video, but clearly we're servicing video and web browsing. Within the web browsing, it's predominantly video. So we have to build infrastructure that caters for that, as we look forward.

The bottom right graph is important I think for your consideration as we look forward, and we share with you what we build. Through the center column in the video standards, and the right-hand side is a typical service need for that standard. What speed would you have to provide to deliver a video standard that you see in the middle.

High definition starts at 720p. Not to get too technical, but just to share with you, standard definition versus high definition.

Now, if you look to our networks, and this is taken straight off of our footprint in the last month, so it's the very latest, you can see that we have moved through the 240p, hence in the past, we talked through 400 kilobit consistent connections, and you have heard many people around the world talking about that, we have moved up through the 360p, and now you can see that we're moving into the 480p, and we're starting to see, in the blue there, the first eventualities of the high- definition video content through our networks. This actually is a YouTube reference stream that you can see here.

So as we look forward, we've got to build for what we expect to be an increasing definition, as we move more towards that blue segment, and high definition on our devices on our footprint. I think that's quite important to track, as we look at future needs.

To respond to these trends, what have we done in the footprint? We've increased the coverage, as Vittorio said, a reference point here, now we're at 32% coverage in Europe here on 4G as well.

We've doubled the amount of 43-megabit capability on the 3G, because it will still take some time for the devices to filter through towards 4G only. That might take a few years. So we've got to have an excellent 3G footprint to complement our 4G build.

Similar story on the right-hand side as we look at AMAP, very aggressive builds continuing on 3G, particularly as we move forward in India. And we have increased the 43-megabit capability in anticipation of future needs there as well.

Just a reference, because we've covered it, we keep looking with an eye on the future, single RAN is very important. I'll explain why on the next chart in a moment, but single RAN, we aggressively push forward on the footprint, build European sites, 53% covered now. And the one that we keep focusing hard on, which is our high-speed backhaul capability, we reference this as 1-gig capable.

Already today, as we hit September, 19% of our European sites are directly connected with fibre, so that's increasing by the month. And as we look to our fixed assets, we've increased slightly the self-build DSL. We're now between 60% and 70% household coverage with our fixed DSL build.

We complement that with Bitstream in a number of countries, so just a few examples here, but that's rapidly being overbuilt and complemented now with next-generation build, as you heard Paolo talk about, and I'll leave some of this because Philipp has a lot of definition market by market. But as we move into the next-generation builds, be it cable in Germany, or fibre to the curb in a number of markets, and of course fibre directly to the home in some of our markets, like Spain and Portugal.

Evidently, or as importantly, in the capabilities of those infrastructures we're seeing, as a reference point, up to 50 gig a month on a fibre to the home installation, where we've got IPTV and multimedia services. So plenty of opportunity for usage and traffic growth.

Now, we're very proud of what we've built. As we measure it, we feel that we're in first or equal first, co-best in 13 of the 19 networks that we've measured in capabilities.

But we truly believe with Project Spring, we can create a differentiation that you will go and tell your friends about. We truly believe we can make that kind of difference.

There's a lot of installations to go through in a moment, but perfect voice. We recognize the frustrations. We recognize the highways or the railways on the commuter routes.

We're not forgetting voice. I'll give you a definition as we see perfect voice, but we're going build that voice capability, and we're going to build something that people will tell their friends about.

If we look at data in two different definitions here, we want the best 4G in Europe. We want a competitive 3G, meaning at least co-best.

As we look at AMAP, we want the best urban data, places like India have a huge footprint to cover. And we want the co-best nation-wide, worst case.

We want high-speed transport to bring the best out of that radio infrastructure everywhere. And when we look at our unified communications, we will extend the fibre build quite extensively, and we will also target extended DSL coverage, complementing that next-generation build, both in fibre to the home and fibre to the curb.

What difference does it make? We thought that this might help in the definition of what we're going to build and how we'll extend it.

In the gray, you can see where we are today. In the pinky color, in the center columns, what was in our existing plans? And in the red, how we plan to extend those with the Spring-accelerated investments.

Perfect voice, significant build in 2G sites in Europe. This GBP3 billion will cover, and with the existing investments on top, another 24,000 2G sites, and we will put single RAN everywhere. Single RAN is important for performance, as well.

There's something called active antennas, and again, not getting too deep into this, we can deliver up to a 3db gain on every site. What that means for the customer is it can extend that cell coverage up to 15%, so it really helps to fill in those gaps, particularly with voice.

We are going to complement with that with a large volume of in-building coverage systems. We started those here in London, by way of example, where we're getting those multi-story blocks where it's difficult to get in the nooks and crannies and deliver an extended experience, and we're going put high-definition voice everywhere.

What effects will that have with the customer? Well, we believe those irritation of dropped calls, we will halve the dropped call rate. And the reference you see on the chart there, on the top right, is a worst-case scenario, we expect all of our footprint to be better than 0.5 dropped call rate, and similar for core set up success improvements.

As we look at best 4G and competitive 3G, we are going to build over 70,000 4G sites. That is a spectacular build, and it will make a difference. Along with that, we're going complete a build on 3G.

We are going to extend high-capacity backhaul to every single site. We expect that circa 30% of the European sites by this point in time, in two years, will have directly connected fibre to them.

And we will put carrier aggregation, a new science that we will launch -- we announce now, but we will launch with devices middle of next year. We will put carrier aggregation, which can double the speed that the customer can receive, in all the major cities in Europe. That will be supplemented by small cell delivery.

What will that do for the customer? 4G coverage virtually everywhere. 3G experience and data experience better than 3 megabits for that video capability of high definition, so over 90% of connections consistently.

In AMAP, similar definitions. I'll focus on a few things here. We will improve the dropped call rate in AMAP with similar investments. Another 23,000 2G sites.

But really the AMAP story on mobility is down at the bottom of the chart. We are going to deliver another 27,000 sites in India of 3G. We are going to start our journey on 4G, where spectrum allows in all of the AMAP territories.

Probably the most important factors are on the right-hand side of the charts. We will take, in our covered areas, our outdoor 3G coverage to over 90% of the urban areas in India.

And if I just give a second reference on that, we will extend the number of towns that we are in India by over 200. So we're both increasing the coverage and the depth of footprint in India on 3G. So a major investment in that footprint.

If we look at the fixed infrastructure builds, we are going to take fibre to the curb in Italy, that Paolo referenced earlier, to 6.4 million households. We're going to accelerate the fibre to the home in Portugal, taking us to 1.5 million. And in Spain, we're going to increase the self-build DSL to 82% of the footprint, an addition to the fibre to the home build that we previously announced to 6 million households.

In the AMAP region, significant investments in fibre. We are going to build 14,000 kilometers in 40 cities in India, and we are going to take, in South Africa, 15,000 enterprises and directly connect them with fibre. So this is dramatically expanding our opportunity in both of those markets.

So to Vittorio's point, this is a significant build program. We are very excited that we can make a huge difference with this. If you are an engineer in this Company, this is a really, really exciting program to be excited with.

This will make a huge difference for our customers. If you look at the numbers down the left-hand side, 47,000 2G, 72,000 3G, 77,000 4G. These are massive programs.

We are very confident that we can deliver it. Not just with our own resources, but we've checked all of our suppliers. We have gone through the numbers. We've gone through their volume production capabilities, we've gone through their in-country resources.

And once we're mindful of the challenges, we can do this. We've delivered some of these volumes before. We can do this. And of course, we also have to bring to bear with our supply community a large volume to get the best prices in the marketplace as we deliver this.

So in short, an extra GBP5.5 billion of network investment in the next two years, bringing it to a total of GBP15 billion. That's a very major program. We truly believe that Project Spring will deliver network differentiation.

Thank you. So now we're going move to Q&A. I'll hand back to Vittorio, and we'll take any further questions on this and everything else that you've heard this morning.

Very good. Shall we start over here? Then we go back, then we move to Robin, and then, James, and then back.

Nick Lyall, from UBS. Can I ask why the investment in Germany in the second half? Secondly, on unified communications why have you decided to extend via DSL in Spain and not to extend the fibre? Is it just economics? You've got to the point where fibre is not economic, or is there some other issue with either Orange or Telefonica pricing? Thank you.

Paolo, do you want to take it?

On Spain, the point is very simple. In the sense that we are accelerating deployment of fibre starting from the main cities, where we have the biggest density. However, we already have a footprint of DSL in Spain, which I think is about 70%, I don't know the exact number. Which as you can imagine being 70% of population arrives into the smaller cities, and almost the villages.

Our competitors' coverage is anywhere between the 75% and 80%, so we want to extend to the level of our competitors on DSL, which will allow us to have better control of the quality of the service to the customer, and obviously much better economics because the variable cost of DSL, as you know, is much lower in a bandwidth scenario than what it is in a traditional [bee mersala] scenario. Obviously we are talking about areas where fibre to the home will not arrive for a long time, and therefore, we're also comfortable with the fact that investment will pay back much faster.

If you don't mind, kind of country specific questions, we'll keep them for the second session when Philipp is here. Yes, shall we go back one, and then --

Maurice at Barclays. On the Spring I wondered how quickly you'll start to see an impact on the [KPIs] or financials, and how we'll see that starting to impact.

Of what? Sorry.

Of the Project Spring investment. The incremental investment.

I think it's going to be incremental over time. We will start the capital sort of ordering in the back end of this financial year. Clearly a year on from now, we'll start to see things coming through, but it is just going to be incremental over a period of time.

Shall we go one back there? Stephen.

Stephen Howard at HSBC. Just another question on Project Spring. What are you anticipating by way of a competitor response?

In other words, what gives you confidence that this isn't merely a negative sum game? Clearly, the sums involved are very considerable.

I'm wondering, in a sense, you haven't decided to do this before. Something must have changed, perhaps in the regulation, or perhaps elsewhere? Thanks.

It's a very good question, Stephen. I would give you an as in three levels. First level is, we are fine if competitors follow, because the more in Europe, and I'm talking about the European pace, not the -- emerging market, obviously, there is growth we are following there.

The more the sector in Europe invests in quality and in delivery and in enrichment of the services, the better it is, because it will create more sensitivity to the quality and to the value of the service, and potentially create an accretion opportunity, from an ARPU point of view, given the fact that ARPU are lower in Europe than elsewhere. First answer.

Second answer, I don't think everybody can follow. Some players will follow, but some won't, and the more I expect some of our competitors to be able to invest as much as we are. Others, probably not, which again is good because probably the others will take the low end of the market, we'll take more of the MVNOs, we will take more a certain type of segment, like it happens in many mature consumer goods industries.

And third, why now and not before? As I said, we have been thinking about a step-up of our investment since the beginning of this financial year. We are becoming marginally more optimistic now, because we see data uptake, because we see the Vodafone Red customers who are actually, as Paolo said, using two times the data.

We are seeing the Vodafone Red 4G UK customers using even more and going up. So we are getting more and more confident that the combination of high-speed 3G with 4G actually is giving an opportunity to really have a good return on the extra investment.

So, A, I'm not very worried. B, I'm not sure I should be very worried. And C, actually I'm more positive on the opportunity, and not really be worried.

Shall we go to Robin, and then back to James and Emmet? And then I will --

It's Robin Bienenstock from Sanford Bernstein. Two questions, if I may.

First, Andy, you mentioned the tax assets that you have talked about could be harder to use for other people, if Vodafone doesn't keep its current structure. So I'm just wondering if you can elaborate a little bit on how that might be harder, and what would have to stay the same about the structure in order for the tax assets to have the same value?

And secondly, I guess I'm curious to know a little bit more about your fixed line experience. So you said unified services are important. You are going to spend GBP1 billion of the GBP7 billion on unified services.

Can you just tell me where in your organization do you have the most fixed line experience? Who is that outside of KD8, and do you think that you have enough right now?

Yes, so on the first one, the structure of the group as we have got it today, that is the shape of it, and for tax, that is the way it works. My point purely was that if one was talking about structures with other people involved, it depends entirely about their structure, and how it inter-relates with ours. And that is very unique to that particular circumstance.

So if our structure is maintained, it should be maintained. If it's dismantled or disturbed, then it becomes less clear as to quite what the consequence is.

On the fixed end, question, Robin, we have experienced in Germany, Portugal, New Zealand, I would say stronger. Italy, Spain, we are gaining market share, and we have positive performance, especially in the last one, two quarters, in a number of these markets.

We have perfectly working, and actually pretty good IPTV solutions, that I personally tried, and I couldn't believe we really were that good. Someone told me at the end of the day, IPTV is IPTV, it doest require a lot of science, but at least we have that science.

Now to your question, do we need more? Absolutely yes. Absolutely yes, and we will acquire it.

Cable & Wireless for us has been a fantastic experience because not only we have acquired good value, certain assets, and we have integrated them very quickly, but we also have acquired a lot of people who have in enterprise, not in consumer, quite a good experience in the area. But we, yes, we will need more going forward. No doubt.

James Britton from Nomura. I've got a question for enterprise. How do BlackBerry's troubles impact your large corporate customers? Do you expect a surge in retenders for those contracts, increasing competition, or do you also expect a massive increase in data consumption, and how would you expect to monetize that?

I mean, I don't know if Paolo or Nick, but the easy answer is, no, we don't see a retendering because of BlackBerry, we see retendering because companies retender on a regular basis. And yes, there are moves away from BlackBerry into other platforms. Of course, mostly iOS, and to a lower extent Windows, and yes there is an increase in data when people move to those platforms.

But it's an opportunity in the general sense that deeper growth is an opportunity. Companies are getting more data as a normal thing, not specifically because of the BlackBerry thing.

Do you see it driving a step change enterprise spending, as people move away from BlackBerry?

No. You're talking about -- no.

If I may say, obviously the more they do it, we are rebundling our own products and services, such as security and device management, to create an experience which is richer, or as rich as possible, and actually more ownable by Vodafone.

Can I just ask two questions, please? It's Emmet Kelly from Merrill Lynch. Firstly, just a question on consumer behavior. You put up a few graphs showing how the economy has evolved in Europe over the last five years. And I guess one of the characteristics of the -- what they call the great recession, has been that consumers across Europe have been very focused on price, and price has been the main driver of consumer decisions. And if you look across multiple industries, you've seen companies like Aldi, Lidl, [Reiner], companies like that do very well.

However, maybe we're reaching a turning point at the moment. We've seen a bit of a backlash against companies like Reiner. I'm wondering, have you seen any change in consumer behavior yet, in the mobile industry, and maybe a little bit more focus on quality, rather than prices actually coming through. So the feedback you're getting from consumers.

And second question again, is on the taxes. Andy, if could just maybe give us a hint into the domicile of where some of these deferred tax assets are based? I know you got approval from the German government on the management write-down back in 2009 so I guess some of them are domiciled in Germany, some of the NOLs are domiciled in India as well. If you just give us a breakdown that will be great.

So Emmet, let me give you the quick first answer. I can not say that I see hard and strong evidence of what you describe, but we all sense that what you say is absolutely correct.

The more the life of people depend on the devices, the more you get used to maps, to writing, to reading, to doing all these things, the more you are sensitive to the fact that the service quality should be high. And 3G plus and 4G actually are magnifying that sense.

So we are absolutely in agreement with your statement, even if it's early days. And that's also part of the choice that we've made in three occasions recently to say no to a new launch, because we don't think it is worth going after a part of the market which will be more confined in the future, when people start getting 700,000, 800,000, 900,000, 1 gig, 1.5 gigs, when you start [making up all of our pictures], when you start having all of our streaming becoming a normal part of your daily life, it becomes more tolerable to pay GBP3, GBP4, GBP5 more, and not go with the cheaper version.

That's exactly the trend that I hope I will comment with you and use your examples, if you will allow me in my next speeches. I promise we will go there. I notice Tim and Simon, but we will come back. No worry. Andrea.

Yes. The countries -- on your report it is primarily Luxembourg and to some extent Germany.

So Andrew, and then we do two, three questions there, there we come back.

Andrew Beale from Arete Research. You obviously talk about your Chapter 3 in Vodafone, and I very much support the network differentiation initiatives and all of that, but is it not possible there is going to be a Chapter 4 where someone else, possibly with a blue rather than a red logo comes along and says, I can do what you are going to do even better? And are there not things that you should be doing nearer-term to deliver value from some of your, what I might call hidden assets, and structure of the group, to try and express more confidence in what you can deliver?

I'm not sure what Chapter 3, Chapter 4 is. The important thing is never to end up in Chapter 11, I think. (Laughter)

So in terms of hidden assets, I am not so sure what are the hidden assets that you are referring to. All of our assets now are controlled or, I mean, now, after the Verizon thing. We still have technically a small investment in a privately-owned company in India which is going to be difficult and long to monetize.

And the rest is about strong performance and convergence. Now, would we consider -- could we consider some portfolio rationalization? Yes, if the right opportunities arise.

But I am not sure I see huge hidden assets. The assets are there, and they should show it. That's the way I see it. Yes?

John Karidis from Oriel. Two quick questions, please. The first one is, you said that the EBITDA drag will be the biggest next year of Project Spring. What's the aggregate EBITDA drag of Project Spring?

And then secondly, about a couple of months ago, Lowell McAdam was talking about owning not just fixed and mobile assets, but also tell telematics assets, security software assets, and cloud assets. And that, I think, also, it's not just about unified communications, but also speaks to 4G services rather than just connectivity.

And so to what extent are you well equipped on these three separate asset classes? and to what extent do you need some of these extra assets by way of acquisition in order to reach the GBP1 billion extra free cash flow that you have in year five?

Andy, you want to take the first half, and why don't I answer the second.

The very fact we'll be building out more network locations brings with it some operating costs, so obviously there is some EBITDA impact through that. We've said for the next financial year that we'd think about the GBP0.6 billion on the EBITDA as a consequence, but hopefully should then lessen as the revenue starts to come through. We'll start essentially to pay for it, so GBP0.6 billion for the next financial year.

On the second question, let me tell you, the GBP1 billion is linked to Project Spring, is not linked to inorganic activity. We discussed many times the kind of emerging things in enterprise and I think my colleague Nick will describe.

I'm not excluding that we might look at some telematics or some security/cloud solutions, whether it's organic or whether it's corporation will depend on the conditions. We already have in the security space and a number of products and a number of agreements with different companies for consumer and for enterprise. If opportunities arise, these are, as I said in my earlier remarks, some of the things that we will look at as well.

But is not part of the GBP1 billion. The GBP1 billion will be generated by what we have organically. One more there, then we start coming back to here.

Robert Grindle from Espirito. The first question, how does your big mobile investment push affect the relationship with some of your network sharing partners across Europe?

And then secondly, Andy mentioned the high cost of interest in India. Can that debt be refinanced, particularly if you take full control, or because of hedging policies, would you keep that high interest loans in India? Thanks.

Robert, on network sharing our agreements have very specific conditions which regulate the case of us investing more and the other part not being willing to follow. If in general, the rule is that you get what you pay for, so if you don't pay for it, you don't get it. It's as simple as that. On the cost of interest, I pass.

Look, I think the key in India is going to be getting the operational free cash flow to increase, and hence over time, to start to bring that level of debt down rather than refunding from elsewhere within the group.

Can we move back here, and then back to Tim, and then we go to Justin, then we come to Simon. Sorry, there's somebody else. You also had a question.

Akhil Dattani from JPMorgan. Firstly, just on Project Spring and the incremental GBP1 billion of cash flow that you are targeting for March 2019.

I just wondered if you could help us understand, within the way that you think about that progression, are you assuming that CapEx within the group reverts back to the current CapEx levels, or do you think that if you start to bear fruit from Project Spring, there could be a sustainable structure difference in CapEx? Obviously not the Project Spring levels, but at a maybe high level.

Then secondly, when we look at the GBP1 billion extra that you are targeting from Project Spring, can you help us understand the building blocks? Is that a pure revenue growth story, is that driven by pricing differentiation and market share, or is there a margin component to that?

And then very finally, just on restructuring charges, just wondered if you could give us a bit of color on what your expectations are for this year, and maybe also for next year as well? Thanks.

On the first question, the answer is clearly the usual one. We have a plan. We will incorporate that into our long-range plan. If we have good surprises in the form or either money comes earlier, or comes higher, we would consider whether we should maintain higher investment levels.

The current plan says that finish Spring, we revert back to normal investment level. So that's the current plan, but of course, I'm always happy to consider good surprises. On the other, Andy, do you want to take it?

It's a mixture of both. I think is the answer to it. Obviously, it's not a precise science, but we're saying with the better network coverage, we should be able to capture a greater share of customers, we should be able to drive more revenue up with that.

With what we're doing in the customer space, but we should be able to get some improvement in the churn, and hence begin, the revenue benefit should flow, and on enterprise, the reach there will move us into new areas that we should be able to monetize. It's difficult to split it specifically into pricing at a micro level, but I think overall, it's a larger customer base and a larger reach that should give us the greater revenue.

Your last question on restructuring, we have not forward-guided on it. We've spent about GBP100 million in the first half.

There will be some more to come in the second half, but we haven't put numbers specifically on it. At the moment there's nothing specifically planned.

David Wright, from Deutsche Bank. Couple of questions, please. I think you showed in one of the slides the opportunity in Europe from mobile to fixed telephony, then into TV.

Could you just tell us how important TV is for each of those European markets? Do you feel you need a TV product in each of those markets? And if I could flip that question as well by saying, if you do not have TV, are you at risk from triple, possibly even quad play services?

Then my second question is just a bit more higher level, we read about Facebook and Google and these guys getting huge multiples at the moment, huge expectations on the mobile advertising opportunity. Now, mobile is your game. Can you tell us what are you doing in that space to exploit what the market seems to be saying is this absolutely enormous opportunity, or does it feel like you're gifting these guys a fortune, just presenting the network, and they're going to make all the money?

I'll give you the answer, David. On the first one, it is going to be pretty quick. The second one, could be a little bit more elaborate.

On TV, the answer is, it depends on the market. But if you ask me long term, I think that the very concept of TV is probably passe. If you talk to the Americans, they talk about video, which I think is more appropriate.

Because what is TV? Is it over the top? Is Netflix TV? Do you call the Netflix TV or not? Do you call the BBC iPlayer TV or not?

So then rephrasing, would we have to deliver video over multiple screens? The answer, I think, is yes. What shape and who owns what could be different market by market, depending on how the channel distribution and the content rights distribution will go.

It's a fascinating field. The last three days we've been all thinking a lot of consequences of the BT move, but it will be different by market. You have different situations of the traditional TV thing. But, of course, content will flow, and flow will be very important to have the multiscreen capability. That's the way I think about this.

Facebook, all of these things. On the mobile advertising thing, I always have a little bit impression that we confuse things. Facebook, Google, they own the content that goes on the screen. So in that sense, they own real estate, which is useful for advertising purposes.

Google, Facebook own also the profiling of the words that people type into their own things. So if you write on your Facebook page that you feel that you have a headache and maybe you would be sick tomorrow, there are companies buying that space, or actually that opportunity to communicate to you, because they know that they sell well paracetamol, or something like that.

That is something that they have and we don't, because if we start looking into the pipes, it's not what we do for a living. So it's a different type of thing, so you have to be careful to say we are gifting them with anything, because the reality is that they have their own real estate, and their own assets, which are very important for advertising purposes.

Now, that does not mean this our customer profiling does not have a value, and that does not mean that the more we get into the market screening for the home thing we can try to monetize that, but I have a sense that other communication companies are in a bit of a different part of the business system, at least today. So I'm jealous of their advertising revenues, but I don't think that they are taking them away from me, if I'm honest.

I think Tim has been patient and Simon, and then we go back there. Yes, and then we'll come back to Justin, and then we go again to the other side.

Tim Boddy from Goldman. I wanted to pick up this question about how quickly network differentiation can be established. I think the premise of people being willing to pay for better quality seems self-evident.

Do you have any case studies you can refer to, where you can show how long it's taken to really establish differentiation? I guess Australia is perhaps a good example the other way around when you get it wrong.

It's also an example of when you get it right, if you take Telstra.

True. How long is that process? (laughter)

Unfortunately, it was not asked, but I have to be -- fair play means that you recognize.

So is it quarters? Is it years?

Not quarters. Steve?

It's not quarters. It's a probably a couple of years if you look at the references. Australia, perhaps United States, has taken a couple of years of sustained incremental investment to create that gap that is talked about between customers, rather than the promotion of performance by the operator.

And just a quick follow-up, just about MVNOs. On your slide about the regulatory mood music becoming more neutral, I guess the one of the points in the slide was mandated MVNOs. How do you think consolidation is going to affect MVNO regulation, be clearly in Austria that was one of the issues, and may yet be in Germany. I guess the concern you would have, if you build this great network, you could actually have to end up giving away the access, or if you don't, someone else will.

I really think if I interpret the thinking of the competition commission, and if I interpret the thinking of the local regulators, it will depend a lot on who consolidates whom and what are the price levels in the specific market. And it will depend a lot on also what type of policies have been common practice in the market for awhile.

I sense, I hear that there is an understanding that investment-based operators in mobile, but also to an extent in fixed line, have to be safeguarded for their investments in some ways. Now, this would not go in any domain, neither mobile nor fixed, to the point of completely making known infrastructure based competition impossible, because for a regulator, that's the way to keep everybody honest. But it will not be the hyper inflated move that leads to 25 MVNOs, mandated marginal cost, completely long-term oriented costing.

In a number of cases recently, we have not said no to people who are asking to us get access to LTE, but we just said, yes, you can come, you are going to have to pay for the spectrum, and you don't pay for the cost of the spectrum in 10 years time, you pay for the cost of spectrum today. And time.

If somebody else is willing to do that, good. They will have then to support this with CapEx. At some point we do think we have to make sense.

It's not a 100%, will not exist, and it's not, it will be as incredibly easy as it was in the past. That's a bit what I see. As the future.

Simon? Simon, Justin, then we go back there. There's two hands up.

Simon from Citi. Couple of questions. First on network. I wondered how many of your new cells would characterize as small cells, if any, and if putting small cells into public areas, as in not in buildings, is more challenging here than it is elsewhere in Europe?

And the second question was regarding Italy and the build out of the fibre to the cabinet infrastructure. I just wondered if that, to some extent, overlaps with what Fastweb is doing, whether Fastweb might be of interest to Vodafone, particularly in the interest of Switzerland, who said last week, along the lines of they like it very much, and it would be very painful to part with it, and if that was intended for you or for us really.

I don't know whom do they want to inflict pain upon. (laughter) Steve, why don't you answer that question.

To your first point, we're planning through next year's build 70,000 plus small cells across the footprint. It varies by country on the degree of difficulty of getting the real estate, so one tries to get bulk deals either on lampposts or on other facilities to try and make that easier.

Planning rules are not just national, they're usually local. So we try and we aim and we started this program to get volume deals that allow us the certainty of deployment at fixed operational costs.

Is it more difficult in this country than others? Not particularly, but the prices vary.

Maybe taking advantage of the presence of Paolo, you can answer on the broader thing. Before we get to specifics of the FTTC, on the broader thing, to be honest, we see organic investment, we see inorganic, we value the cases, and we choose. It's not simple, but it's not complicated, either. Paolo.

No, I think you said it very well. In your presentation, we cannot continue to wait for options. We go ahead, obviously very happy to readjust our plans as we go ahead.

We build fibre to the cabinet and we put our technologies into the cabinet, also leveraging the regional infrastructure, which in a very advanced way is opening up, is putting an obligation to create space in the cabinet to competitors. You should not forget that Italy has no cable infrastructure, and therefore Telecom Italia is a monopoly.

Telecom Italia is not building fibre to the home, either. There have been long discussions about potential networks operations, and that so far is not happening, and before we go our way, again, happy to revisit our plans, to make sure that we invest in the most efficient possible direction.

So we are open to co-investment, but we are not waiting if the others don't make up their mind. I promised I would go back there, or, sorry, Justin. The microphone is there, then we go back there.

Just back to the Project Spring question first, and the inflection in EBITDA. Given that you are expecting the EBITDA to flex, still in the sort of second phase of the build, you'd still be lighting up cell sites during that time, incurring extra OpEx in that final year.

One is either assuming there's actually quite ambitious revenue inflection coming through or perhaps there's some OpEx savings that starts to come through, and if you invest in more virtual customer service, can you actually accelerate cutting some of the legacy costs. Is that part of the inflection that comes through in that latter phase?

Secondly, looking at the numbers you reported today, you can see a gradual improvement in operational gearing your business. Your revenues are down 4%, your EBITDA is as well. In the old days EBITDA would have been down twice as much as the revenue.

That something that's generally going on in your business now? Are you seeing revenue weakness and lower margin areas of the business, or is it something else that's changing the shape of the business?

Is it that we're shifting some early? Or are we missing something here? Should we become a bit more optimistic about your underlying projections over the next two or three years?

Thirdly, a nice simple one, in Spain is the DSL expansion in areas largely outside of this footprint of the cable operator?

Paolo, on Spain.

The short answer would be yes, if I think through the way it is organized. But in any case the investment to expand DSL is not, per se a big investment. If we look at what we're doing in Spain the vast majority of the investment is building out, just to make sure that we focus on what is real impactful.

Before Andy goes into more sophisticated answers, let me give you kind of the broader one. The broader one is we are continuously changing our molds. We need to do it. We have to restructure our cost position.

We are leveraging more and more of -- on lower cost locations, and quite frankly, also simplified business models in IT, in network, commercial, not yet. I think we'll get there with some of the investments we're making in simplifying the IT systems, but it is obvious that we need to produce the cost base of the company.

Now, hopefully there will be also a little bit of an uptake of revenues, and this would then be perfect. But we have to continue to do it. We don't talk too much about it, because it's always the same five boring things. But at the end of the day, it's what we have to do. Andy?

I think that was the sophisticated answer. (Laughter)

And the operational gearing question?

Just to take your point, the EBITDA impact in Spring we have said GBP0.6 billion for the 2014-2015 year, and we said neutral in the 2016-2017 year. So obviously by definition, it is slowly pulling through. And clearly two years out, when we have built the whole of the network that we are doing, we would expect there is quite a significant pull through on the revenue front, and hence how we get to GBP1 billion of free cash flow by 2019.

The margins and so on, I think is very much just about working the cost base a lot harder these days, and just every part of it is under scrutiny, and I think now, compared with three or four years ago, we are just in a different culture, different frame of mind. It is just part of running the business.

I don't want to stop anybody. I promised an opportunity back there, then we do the break. If you want, you can ask questions also during coffee.

Christopher Nicholson from ORACA. Two questions, if I may. The first one is, in terms of the rollout of the new cell sites, which is obviously quite considerable, have the contracts with your suppliers, have those actually signed or is that still a process under which you are negotiating? Have you invited in new suppliers that we may not necessarily expect you to talk to at this point?

And the second question is that if -- there's some expectations in some parts of the market that the likes of Google will actually get into your game, as you efficiently described it. If that happened, what is the competitive impact that you perceive from that, and would you respond? So for example, would you actually get involved in creating your own content real estate in some way? Thank you.

Steve, your answer.

On the first one, we have existing frame agreements with all our major suppliers, so obviously we can call down immediately for those. This gives us an opportunity with the increased scale to fine-tune those and improve on them, so we're going through that process right now. So we have something we can build on immediately, but obviously we'd like to see an opportunity to improve the terms.

Most importantly is really making sure that they got the resource space available to them in country, because they have to hire extra subcontractors. Most of our energy has actually gone into that and securing that, and they're ramping up towards it. So yes is the answer.

Yes, they're signed up?

They're already signed up because we have frame agreements that go down on day one. So what we're doing is highlighting, what we have done is highlight the increased volumes to them to allow them to forward component build and secure manufacturing facilities if they offshore or outsource the manufacturing, et cetera. And we are seizing further opportunity now to look at the increased volumes we have to get slightly better financial terms within that, but we can build against existing immediately if we wish.

On your question, your question is a very, very smart long-term focused question. Let me rephrase a little bit what you said, because I don't think it is exactly correct.

Will Google step into our own game, or will the over the top players step into our own game? I don't think they will if you define our own game as the access business and the transfer business.

I don't think they would do that, because it's not their business and does not make sense for them. I don't think they will step into our business if you talk about the customer management business.

It's not in the set-up of the Company. They are in the data processing business.

Now, are they stepping into our own business in terms of managing services, that traditionally were integrated within the telecommunication layers? And, therefore, through Google Plus, through Skype, through these things, through Facebook, by the way, you can start having communication sessions, which are managed by them, and not by us.

The answer is, it's not a question, it's a certainty that they're doing it. It's been happening for the last five or six years.

The reason why we are so convinced that the Vodafone Red approach is the right one, and the Spring approach is underpinning it, is because once customers establish a permanent relation, Paolo said 27% of the revenues in consumer contract are already locked into the kind of long-term access type of relationship, then our revenues are secure. So I wish I had 50 million Vodafone Red customers as soon as possible, not 20 million or 12 million or 15 million.

Once it's there then we can build on the quality, on the points that we're described before, and we will have our own communication services, which will come on top of them, probably will be for free, we will launch something in the coming months. But at the end of the day, if a customer who gives me 39 years on only Vodafone Red, uses Facebook messaging, Skype voice, Vibe, at the end of the day, it's fine, because if they were using my own, it would be exactly the same thing, ¶

But we need to accelerate the move there because, yes, absolutely, at that layer, they are already there. It's in the an eventuality, it's a certainty that they are coming.

On the content side, honestly I'm not so sure it is really so differentiating and such a different thing, but of course the distribution of content will become more important. Hence my earlier answer, we need to be on multi screen and we need to think very carefully about the consequences of different content strategies. So we will be focusing there, but not because of a reaction to Google or Facebook, just because customers want those things.

So the creation of Vodafone content, per se is not something that would come into your strategic response?

Not to the over the top disintermediation rates, because the best defense against over the top disintermediation is to do what Verizon has done, what we are doing, what others are doing, which is bundle up your services, create a sharing mechanism, multi-device, multi-screens. Eventually, if you want, we can put in the [fusion], and the Spanish [Mi Amor] is a lot of fair play vis a vis my competitors, into that type of family.

This is the way the telecommunication companies will bundle up things. Even if you had a Vodafone Red or Fusion or a Share Everything customer, you still use whatever you want, you still get content from Google. Actually, you get content from Google on your TV.

But it's fine, you know. Eventually you can buy from us, you can buy from them. You can buy from Netflix, by the way, because some things will come also from other players, but that is a different layer.

Our strong objective is to solidify and make very robust the access revenue component. I hope I answered your question.

And I thank you all for the patience. Coffee now. We can take 10 minutes probably, question to my colleagues, then we come back, then you can ask questions about the countries.