Vodafone Group PLC (VOD) 0 Q0 法說會逐字稿

Good afternoon.

Thank you very much for coming today again.

We will follow today the usual program.

I will give you the highlights for the quarter just ended and the year, then I will hand over to Nick who will do the usual financial review.

And then I come back and this time talk about the six large units, their performance and their priorities, and then go through the key elements of our strategy.

Of course we will be joined by our colleagues for Q&A.

Full-year highlights.

First of all financial performance, our Q4 service revenue declined 3.8%, 4% if you include Italy at 100%.

This was really two stories.

One is Europe where service revenue declined 8.5%.

We have to say, and we'll comment, we have seen some improving trends in UK and Spain, and then a very good performance in emerging markets; 6% with India and 12%, Vodacom of 5.1% data, and the data story will be a key topic here.

In this quarter we have improved our fixed broadband performance, our customer base is now 9.3 million customers, the third largest in Europe.

And despite some headwinds and some underperformance that we will talk about, we have met our full-year guidance, both in terms of AOP at GBP4.9 billion, and in terms of free cash flow at GBP4.8 million.

Key topics for the strategic review that I will cover later.

Vodafone Red 12 million customers in 20 markets, some good signs of improvement in churn and MPS.

4G now available in 14 markets with, again good ARPU, and good user data that we will share with you.

Good enterprise acceleration in our key growth areas, Vodafone Global Enterprise and machine to machine growth,; and I would say more growth in recent quarters than in the average over the year, which is a good sign.

Project Spring has started, it's underway, we are accelerating the [natural grid down].

The initial focus has been on India and Germany, we'll comment on that; and then of course unified communication with the fiber being laid down in Spain, Portugal, continuing and actually continuing the commercial efforts, now in Italy, about to start.

Ono is about to come, it's expected to be completed in the second quarter.

And of course, just for the records, we have closed the US transaction with $85 billion returned to shareholders.

We will then turn to Nick and then get back for the operation review.

Thank you Vittorio, good afternoon everyone.

Firstly I would like to take the opportunity to go through financial highlights of the year and then move on to my personal financial priorities for the year ahead.

The first point I would like to point out, is that this is a more complicated set of results than normal, given the very basis of preparation and the M&A activity over the course of the year.

To keep things simple I have prepared the presentation on a management basis, unless otherwise stated, which obviously means that we account on a proportionate basis and include five months of the Verizon Wireless profits.

Turning to slide five, the highlights are as follows.

Total group revenue declined 3.5% to GBP43.6 billion year on year, with group organic service revenue down 4.3%.

If you remove the MTR impact, it's 2%.

Our AMAP region continued to perform strongly, growing at 6.1%.

However, this was offset by ongoing pressures in Europe.

As Vittorio has already highlighted in his first slide, group service revenue in the fourth quarter was down 3.8%, a 1 percentage point improvement in the third quarter which was primarily MTR effect.

EBITDA at GBP12.8 billion gives us an organic margin of 29.4%, down 1.3 percentage points, as the impact of revenue declines and increased customer investment in Europe offset improving margins in EMAP.

Adjusted operating profit for the period fell 9.4% year on year, and this includes GBP3.2 billion contribution from Verizon Wireless, up until September 2.

Moving on to the lower half of the income statement on slide 6, which is presented on a statutory basis.

Financing costs, which I will take you through in more detail later, are a little lower than the previous year, primarily due to mark-to-market gains.

Tax at GBP4.4 billion is higher than the prior-year and includes tax paid for the reorganization of our US group prior to sale.

I will expand on our tax position later.

On impairments we have taken a GBP6.6 billion charge in the second half related to Germany, Spain, Portugal, Czech Republic, and Romania.

These were driven by lower projected cash flows within the business plans, resulting from the tougher macroeconomic environment, and heavy price competition, we have suffered over the course of the last 12 months.

We have recognized a deferred tax asset of GBP19.3 billion, slightly up on H1 due to finalization of the calculations.

This deferred tax relates to historical losses that we've disclosed in our accounts.

The US disposal gave us better clarity and certainty over the future structure of the group and removed significant uncertainty around the utilization of those tax losses and future income streams.

This takes our total deferred tax assets to GBP20.6 billion.

As a result of the Verizon Wireless transaction and the disposal of our US group, we've also recognized a GBP45 billion pretax gain on disposal.

For the purposes of our earnings per share calculation and to align with our peers, we have excluded the amortization of customer bases and brand intangible assets; and as a result our overall statutory profit for the period was GBP59.3 billion and our earnings per share was 17.54p, down 12.8% year on year.

Finally, we have announced a final dividend per share of 7.47p given total dividend of 11p, an 8% increase year over year.

Now onto slide 7. Vittorio will be talking about our performance of each of the countries in a little bit more detail later.

However, I thought it would be helpful to go through the changing profile of the group.

Looking at the pie charts at the top, in red we have Europe and in blue we have AMAP.

As you can see from the metrics, AMAP is strong and growing.

The AMAP customer base is up 9% in the year and now accounts for over 70% of the total group.

In terms of service revenue and EBITDA, AMAP grew by 6.1% and 16% respectively, with margins continuing to expand, now well over 30%.

And finally, 38% of the operating free cash flow of the group, now comes from the AMAP region.

On the bottom of the slide you can see full-year service revenue growth pre-MTRs, the group as a whole was down 2%, with AMAP growing at 7.8% and Europe declining at 6.5%.

Clearly on the left-hand side you see the countries from emerging markets growing strongly, and on the right the more challenged European markets.

Now going to our service revenue walk.

Full-year reported service revenue declined 2.4% to GBP39.5 billion.

On an organic basis after adjusting for foreign exchange and M&A, this figure was a decline of 4.3%.

As you can see we continue to increase our mobile in-bundle revenues, up GBP1.2 billion in the year.

With 61% now of our mobile revenues in Europe now in-bundle, clearly this comes as a cost on our out-of-bundle, which was down GBP1.8 billion.

Finally, we lost GBP900 million because of MTRs.

One of the important positives looking forward is that the MTR drag this year was around 2%.

Next year's projected to be around 1.3% to 1.4%, and that includes the South African recent rate reduction.

As we previously highlighted, a number of our MVNO relationships did not fit our strategic priorities.

In total we terminated five contracts in four countries and renewed a further three.

Though the impact was relatively small this year, in 2014, 2015 the impact will have a drag factor of around GBP150 million to GBP200 million on both service revenue and EBITDA.

Turning to our EBITDA performance on slide 9. Across the group, our reported margin declined by 1.1%, and 1.3 percentage points on an organic basis.

In Europe competitive pricing and increased customer investment in the second half of the year resulted in a compression of the margins.

The impact of this was partially mitigated by the ongoing cost optimization program we have, and we managed to save a net GBP0.3 billion in Europe OpEx in the year.

In AMAP we continue to grow and expand margins through strong top-line performance, good cost control, and I am very pleased to see that Australia also contributed as we have now started to turn the business.

Moving to slide 10, financing costs, which on an underlying basis were GBP1.2 billion, broadly consistent with the prior year.

However, on a fully reported statutory basis, our net financing costs have decreased primarily due to the recognition of mark-to-market gains.

Overall the average cost of debt decreased slightly to 4.7% in 2013, 2014.

For 2014, 2015, the cost of net debt will increase to slightly over 6%, and this is a factor of US debt being retired, whilst the mix of India as an overall [comp tick] going up.

Onto slide 11 and tax.

Our group effective tax rate for the year was 27.3%.

This was higher than the prior year, primarily due to the lower UK tax rate reducing the value of the UK capital allowances and the impact of UK CFC rules.

You will recall we quoted a $5 billion estimated tax liability communicated at the entrance to do the Verizon Wireless transaction.

We finalized our tax position and we estimate that to be $3.6 billion.

In 2014, 2015, we expect our effective tax rate to be in the high 20%s, which is in line with the Group's continuing operations current-year rates.

Turning to slide 12 and our cash flow.

We generated GBP4.4 billion of cash in the year, which was down year on year, primarily due to those difficult trading conditions in Europe, that you can see on the top impacted EBITDA.

Capital additions were higher, primarily due to investments made in UK, India, Spain, and Germany.

Our working capital position was elevated in the year, primarily around the GBP0.5 billion that we spent to do with Project Spring, though the cash payment will be in 2014, 2015.

We received GBP2.8 billion of Verizon Wireless tax distributions during the year.

And we have received the final distribution in May, which was GBP362 million.

Overall, reported free cash flow per share was 16.6p.

However, it should be noted in addition to the free cash flow reported here, that we also received an income dividend of GBP2.1 billion from Verizon Wireless.

Moving on to our balance sheets on slide 13.

Net debt at the start of the year was GBP27 billion and it closed the year at GBP15.5 billion.

The key drivers were the acquisition of KDG for GBP8.5 billion, which includes not only our ownership but also the minorities at GBP1.4 billion; more than offset, obviously, by the US transaction of GBP19.5 billion.

Also included in the year-end figure is the tax payment on the reorganization related to the Verizon Wireless transaction.

And finally, also included was the deferred India spectrum license cost of GBP1.5 billion, and the debt from joint ventures was also included.

Looking at pro forma debt for 2014, 2015, we start by moving from a Management view to a statutory view to reach the opening position of GBP13.7 billion.

We are expecting outflows of GBP6 billion related to the acquisition of Ono, positive free cash flow for the year, post all of our capital investments, and finally a dividend of around GBP3 billion.

As a result, our net debt position at the end of the year will be approximately GBP23 billion, or 2 times net debt to EBITDA.

We remain comfortable at this level of leverage, maintaining a degree of flexibility as long as we see a clear path back to 2 times in the medium term.

It is worth noting that the pro forma debt position does not include the Verizon loan notes or potential spectrum.

Turning to slide 14, my priorities as the incoming CFO, and there's essentially three.

First of all delivering the integration synergies from acquisitions.

Secondly, delivering Project Spring returns.

And finally, keeping a relentless focus on cost reduction through the Group.

Let's take each of those in order.

So the first is our recent acquisitions starting with cable and wireless.

We consciously prioritize the integration of the assets, which represented about 90% of the value we ascribed to the business.

So what have been our achievements to date?

75% of the new high-speed UK network is now complete.

Over 50% of our international IP traffic is now on net.

Additionally, we have done further reviews and see additional opportunities around network synergies going forward.

All of this whilst launching unified communication product through an integrated sales force.

TelstraClear is also ahead of expectations, where 87% of the cost in CapEx synergies have already been secured and we have launched converged products to market, both for enterprise and for consumers.

Finally, KDG integration started on April 1 this year.

We already have completed our post-acquisition review, confirmed our cost CapEx synergies, and have started to do joint commercial activities together.

Moving on to the second priority, which is Project Spring.

It is fully underway and it forms, obviously, a material part of the GBP19 billion investment we plan to make over the next two years.

Project Spring really has four clear phases as you see on the charts.

For each of the phases we are committed to report on a quarterly basis so that you can track the KPIs on the slide.

Obviously to achieve phase four, the financial returns, we have to deliver on the first three phases.

I look at my colleagues in the front row, firstly Steve, executing the network build on time and on budget.

Secondly, Paolo delivering the propositions to leverage the differentiating [build] in the network.

And thirdly, Philip and Serpil driving the commercial momentum across the regions.

And my job is to report back to you on the returns that we get.

Turning to slide 17, the third priority of cost.

As we've said we have delivered the European net cost reduction objective of GBP0.3 billion.

So look at cost in three phases that are overlapping.

The first phase in our history as a Company has been around the centralization and driving central procurement enrollment.

The second phase was around backend services utilizing shared service centers.

And now we are really trying to push aggressively on the third phase, which is the standardization of the frontends' processes.

These will revolve around driving penetration of overlying use and endcare apps, which will allow us to give superior service experience, obviously without the cost of expensive person support.

We want to drive tariff and product rationalization and common IT architecture in each of our OpCos.

This is more complex area of execution, so it will need a lot of careful management.

Onto guidance on page 18.

As Vittorio already said in his opening slide, we have met pro forma guidance of AOP of GBP4.9 billion and free cash flow at GBP4.8 billion.

We reflected on what was appropriate profit measure post Verizon Wireless, and we concluded and strongly felt, that EBITDA being the industry standard should be the metric on which we should quote our guidance going forward.

We established a range of GBP11.4 billion to GBP11.9 billion.

I thought it was pretty important to have, if you like, a waterfall to show how we get to that guidance.

As you can see we start at GBP12.8 billion for this year, we then restate that to guidance exchange rates and it drops GBP0.6 billion.

We put in KDG for a full year effect, so add in GBP0.4 billion.

We just the JV accounting to get to a like-for-like GBP12.5 billion.

Obviously we said prior at the interims, we would be investing in Spring this year, and the estimate is around GBP0.5 billion.

And then of course we have that drag factor of MVNOs I mentioned earlier, of between GBP150 million and GBP200 million, that will also be a hit to us in 2014, 2015.

So that brings us down to the range of GBP11.4 billion to GBP11.9 million.

We also feel that once we have done the two-year investment program of GBP19 billion, we will then have a lead-in operation in each of our markets; and therefore, can bring our capital intensity down to 13% to 14% on an ongoing basis, giving us plenty of headroom for our dividends; which we have the intention to grow from the 11p that we announced today.

In summary, financial performance this year has been mixed.

Clearly Europe has been challenging.

AMAP continues to strongly grow.

2014, 2015 is an important year to deliver some critical priorities, namely, successful integration of our acquisitions, driving the returns of our Project Spring, and being relentless about cost reduction going forward.

We have a healthy balance sheet well-positioned for our GBP19 billion investment and our inorganic program.

And finally, during the year we delivered record returns to shareholders following the Verizon Wireless transaction, and while cash flows will be depressed during the organic investment phase, our intention is to grow dividends per share annually.

With that, I will hand back to Vittorio.

Let's now go through first the performance of the six large units.

Let me start with probably the two more challenging situation.

The first one is clearly Germany.

In Germany we had got, what I will call, a tough year with some underperformance on our side.

Marginal improvement as you can see from the chart in the last quarter, but frankly very marginal.

The story in Germany, I think, is well known by now.

We had some metric issues in the previous year, both in voice and in data.

We had also a little bit of inconsistent commercial strategy very focused on discounting, and while our main competitors were focused more on delivering commercial investment, quite frankly, which was supported by what in those days was a network superiority.

And in general there was a reset of the prices that in Germany historically have been high.

We are now regaining momentum.

First of all, as you can see in the bottom part of the chart, we are again in positive territory for our contract net adds, and we are stabilizing the output decline.

In the second half of the last year we have improved metric, and I have to say, not in the eyes of the customers yet but in the actual parameters and metrics we have recovered the quality of our network.

We have an improved fixed line performance; not yet positive, but going up as I will show later.

Of course KDG, which in the meantime has come into the family and continues to do well.

This general situation has created a contraction of our EBITDA margin which is down 3.4 points due to commercial spend that we have increased in the second half.

With that our priorities for Germany, first of all continue to improve the commercial performance; second, clearly leverage on the KDG integration, not only on the cost side, of course, but also on the offer side.

And then continue to consolidate the metric improvements on the 4G direction, on the voice direction, and (inaudible) the invested Spring money to improve the distribution for the consumer business.

Overall I would say we are improving in Germany.

It will take some time.

My expectation is that towards the second half of the year, the signals will be visible and measurable of the successful turnaround.

The second challenging situation is Italy here, Italy is now 100% owned, it's a little bit of a different story.

And I have to say Italy is still challenging.

We had this massive price war last year.

A couple of price increases that actually were successful, but still have drove the prices below where they were one year ago, so there is a continuing but on the customer base.

I have to say that recently, we also have seen, very recently in the last quarter, some resurgence of tactical promotions on below-the-line promotions, which are coming a little bit on the fixed side and a little bit on the mobile side.

These are not completely signaling that the market has really repaired.

On the positive, there is good 4G opportunity.

4G, as you know in Italy was launched a little bit later because of the release of spectrum.

But the opportunity here is the same as in Germany, which is pretty good.

Enterprise, bottom part of the chart, is doing very well.

We have relaunched Enterprise very successfully, churn is down, the right line, and activations are up.

Notice the fixed broadband base is now growing plus 4.5%, we have 1.8 million customers.

I have to say, and will make the same comment for Spain, we are very well placed here to reap and get the benefits of convergence.

The EBITDA margin down 4.7 percentage points.

This resulted revenue, the general revenue effect we have reduced cost, but clearly this was not enough to compensate for the revenue impact.

Priorities clearly drive ARPU, drive the ARPU recovery through [Rida], through our 4G services, and of course broadband plans.

Continue the good momentum in enterprise and in fixed-line.

Continue to reduce costs.

Italy has a good tradition of reducing costs, and continue the network differentiation services, especially on the fixed side; where we have at this point, working our resale offer from Telecom Italia, the possibility of using the [Nakobreb] alliance in the places where Nako is present, and of course our own FTTC plan, which has 6 million homes into the works.

I would say, in Italy we have a very strong focus on improvement.

But I also want to say, we will have to respond to the tactical price moves of some of our competitors to discourage further deterioration of the structural pricing on the market.

Now two good stories after the two challenging ones.

The first one is clearly India.

India had another strong year.

We have as you can see on the top part of the chart, consistent double-digit revenue growth.

We have margin improvement.

It says somewhere in the text almost 32% EBITDA margin.

And most importantly, very, very good accelerating data metrics.

The bottom part of the chart indicates that in less than five quarters we have increased our data volumes by 2.5 times.

Now India is the biggest carrier of data in the Vodafone Group.

Some of you might remember, that a year and half ago, I said data is going to be the second biggest opportunity in Vodafone after India.

Now data is in India the second biggest opportunity after India.

We are very pleased with the progress there.

We also have achieved in India an increase in the actual price per minute, which was quite an interesting exercise.

We don't expect this to continue.

At some point there will be a lapping effect with last year.

But clearly again, another positive of the market.

Traffic, as I said, doubled.

3G rollout is good, but not only is 3G rollout good, we have got back after the decision of the TDSAT, the possibility of doing intra-circle roaming, which was at some point suspended.

This happens in a country where smartphone penetration, data penetration, is still relatively low.

We have 50 million customers on data, but only 7 million or 8 million on 3G; but also, in urban areas where smartphone penetration is 30%.

And actually the usage of smartphone in urban areas in India is exactly the same as in Europe.

So we have a very good continuing data story ahead of us, and we also launched the M-PAiSA, which we'll talk about a little bit later.

What is the plan for India?

Accelerate [Sangsterstring] 3G and 2G, 2G for call, and 3G for data and rollout.

We are starting to include in India things that you are familiar with in Europe, so small sales and further fiber, because the fiberization of our Indian network is an important element of our future strategy.

Strength in enterprise, continue to strengthen enterprise and fiber to the premises.

And then continue to work on the optimization of the commercial offer if there is an opportunity to increase price.

India is a good story and continues to be a good story.

The other good story is Vodacom, and particularly here, I'm talking about South Africa.

As you can see from the graph, we have again back into positive territory, in terms of growth, 0.75% at the Group level.

I have to say how they did it is really through let me say two things.

One, the traditional network superiority that comes from investing, that comes from a very big infrastructure that we have always had there.

But also through very smart pricing.

The bottom part of the chart indicates that we have been proactive in reducing prices to face competition.

But this, and this is the blue line, but this has actually been done through very dynamic, intelligent dynamic pricing.

And that has brought up the usage, which is the red line.

As a result, the green line, ARPU, has remained relatively flat.

As to that, data, data is growing 22% in South Africa.

Add to that the fact that the penetration of data is only 21%, and you can see why we are very confident that the South African operation is very, very solid one.

There will be MTR cuts, we are planning to react to the MTR cuts a little bit in the same way, through dynamic pricing, trying to increase usage, and make sure that we can stimulate a much more-for-more type of strategy.

EBITDA margins are flat despite the fact that we gained share and we are big.

International, just one word, they're growing 15%, it is very good, we have M-PAiSA everywhere.

And again it's another area, where in the past, there was a bit of doubt that we could really succeed outside of South Africa.

I think my South African colleagues are demonstrating that they are capable to work also very well in Africa.

The priority going forward, I would say for South Africa is keep doing what we are doing essentially; so continue to invest in network differentiation, 3G, 4G, integrate Neotel, which we announced yesterday.

And if we can, accelerate our 2G and 3G coverage in the [new] South African business where we have of course the frequencies and the possibility, because we are very convinced that those stories will be good as well.

And of course M-PAiSA as I said, even here will be important element of the strategy.

Two stories, which instead, I would not define them as challenging, but they are not yet where would like them to be.

First one is UK.

UK, you can see on the top chart, some improving of the trends, some improvement in the trends; but we are still in negative growth which is not the right place to be.

We now have 2.6 million Red customers in the UK.

They make 42% of our contract base.

We have over 600,000 4G customers with almost 50% of them activating the higher paying content package, which again is ARPU accretive.

And we have, the bottom part of the chart, improved our commercial performance from the 75,000 net adds per quarter of one year ago to the above 150,000 recently.

I have to say that we are now, I think, in terms of commercial performance where we should be.

On the network side we have improvements.

I have now 99.2% availability of the network in the UK.

It is not the 99.6%, 99.7% that I would like to have, and that we are working to have.

We still have to improve some of the indoor coverage in London and some of the major routes outside of the country.

But clearly this is going to come this year with Project Spring.

We are not there yet but we will be there.

EBITDA margin is a little bit down.

This clearly reflects the inclusion of Cable and Wireless, and the Cable and Wireless [laygution] on the UK, given our wireless integration is going well, we are on time, and we're actually a little bit ahead on the financial case.

And also includes the higher commercial investment that we have made.

Priority, continue to work on enterprise, Cable and Wireless integration, and strengthening of our enterprise presence, fix and improve even further our network, and really get into the best network position, including London, including indoor.

Get the 99% 4G outdoor coverage, strengthen distribution, we announced 150 new stores, 1,500 more people in [rigay] to try to manage in a more effective way our commercial costs, which are big in the US.

And of course continue to grow through the cost reductions with the joint venture [window 2] and our own internal effort, because there are also some regulatory headwinds coming, roaming being one, and of course premium rate numbers being the other one.

So more work to do, find then gently in the right direction, but not there yet.

Now Spain is the other, again, case of positive trend versus the recent past; with I have to say, a still negative number, therefore not where we would like it to be.

But again, here we see positive things.

For sure 4G, which is going well, 800,000 customers with 50% coverage of 4G in Spain.

Our convergence proposition in Spain are doing fine.

Now this is an important point, you might remember one year ago more or less, one year and a half ago with the launch of [Fusion and De bol] Telefonica, we're going to completely change the market.

There was a sense of Vodafone doesn't have a strategy in Spain.

Actually, we said we would have a strategy and now the numbers start coming through.

We have 6% growth in broadband, but we have fixed line addition growing positive.

We have 5 percentage points of churn improvement thanks to Red, and we have positive enterprise net additions in the fourth quarter.

I would say even before talking about fiber, which is just launched, and you know that the program is to go to freemium homes together with Orange plus the Ono thing; that will clearly change again, for better, clearly our position.

I would say Spain is starting to turn around in a positive way.

Priorities, we go ahead with our converged market offers at this point, including also fiber.

We do more differentiation with 4G and retake more control over distribution.

And continue to be in the fiber, also to complement the Ono metric, and the two investments will be very complementary and will leverage on each other.

Once it is completed integrate in a successful way.

This is the situation of the largest two challenging, two good, two improving, but not there yet.

Let me now go to the broader topics.

This is the chart I used last time to say, what is Vodafone after Verizon?

Vodafone after Verizon, I said is an [ilufian] consumer business, an emerging market consumer business, and an enterprise business.

The three of them with clear objectives will be accelerated, I said would be accelerated through Project Spring, which is (inaudible) challenging the possibility of pushing each of the three businesses deeper and stronger into the new phase of Vodafone's history.

Let's start from 4G.

These are some interesting statistics we have doubled our 4G base, the red bars on the left top, in one quarter to around 5 million customers.

These are active paying 4G customers.

If you look at how may people have the 4G phones in their hands, you get a number which is double that.

Of course we are going to push that up.

The 4G usage is around 2 times the 3G usage in data terms.

These are two examples of UK and Spain but the same applies to the other markets.

An important thing is, and this is an interesting point, that for the first time really, is that all applications we have to use more on the 4G environment.

It is not just a matter of YouTube or BBC or these things.

As you can see, the use of everything goes up.

We have to say, the interesting thing is that the propensity to use Wi-Fi goes down.

Because once you integrate a really good experience and a decent pricing package, people use Wi-Fi where Wi-Fi is really worth using, and not necessarily as a way to reduce their cost, which was exactly part of our strategy.

I have to say anecdotally, no signs please, don't quote me in your notes; but I hear more and more people saying once you have two, three gig, you don't need Wi-Fi anymore.

I don't think it is completely true, but I think it is a sign that our theory of integrating technologies was the right one.

An important element of this is content.

In the UK as you know we have integrative packages with Sky and [touch 45].

Again this doubles the usage again versus 3G.

The question of how much net ARPU these offers take to us gets as tentative answer on the right.

Let me say around GBP4, or the equivalent of GBP4 in other markets once you pay for content cost, which is of course an ARPU-increasing action.

The other interesting stat is the one on the bottom left, which is what would customers on 3G choose in terms of data allowance versus 4G?

I don't pretend that this is 100% linked to the previous content point, because of course there is no science behind this.

But clearly there must be something there.

Before on 3G, the majority of customers, 57%, tend to get packages of 1 gig and below.

On 4G, they tend to get packages of 2 gig and above.

Part of it is our commercial push.

But again, the picture that I'm giving you is kind of two slides; is really that we are not just in a revolutionary moment, we are in a big discontinuating moment, where customers are really starting to look more American, if I can use that expression; the model seems to be moving in that direction.

And customers who are on low bundles, the light blue lines, actually tend to exceed and go over more than in the past.

So they should eventually move to the higher bundles.

All of these are encouraging signs for us that our strategy, which is right 4G content in European consumer markets, is going in the right direction.

Before moving to convergence and unified communication, I want to give you the update on the Vodafone Red.

Vodafone Red is 12 million customers.

It is clearly something that we have done also to address the concerns of intermigration, the WhatsApp, the Skype, the over-the-top risk.

Vodafone Red has 12 million customers, these customers churn between 6 and 11 points less than the equivalent customers on non-Red plans.

So they seem to be happier.

They have a much higher satisfaction with the surveys, they use more data but they also use more voice, and again here we are a bit indifferent if the use our voice or an over-the-top VoIP voice because, in any case, they are included in the plan.

But it seems that they are still using more of our voice.

As a result, bottom left chart, 61% of our revenues in Europe now are in-bundle, I can't say guaranteed, but protected, from this intermigration.

This is a very important point because Red is not simply a price plan.

Red is a way we have chosen with some cost, I have to say, with some commercial cost, to immunize our revenue base for the future.

The more successful we are in Red, the more relaxed we are in the discussions with the over-the-top, and we can say to our shareholders that we have a more stable revenue base with some cost in the short term.

Final point, on the bottom right chart, what is happening in the world of multi device and family, clearly we are starting to push multidevice and family plans.

You see Italy and Spain in two different ways; in Spain the family is more important, in Italy, the tablets seem to be more important.

But they are going up nicely and we will do it more everywhere.

Interesting, a stat which left me a surprise when I was preparing for this presentation, in Europe there are 70 million tablets.

Of these, 22 million have radio capability and known Wi-Fi, which means that two thirds actually do not.

And of the 22 million, only 12 million actually are active today on a 3G or 4G network.

And Vodafone has 4 million of the 12 million, so 30%.

Now the opportunity of the multidevice thing, there is out there already today, without any further penetration, there are 48 million tablets that can be connected.

Now this is clearly our attempt to move Europe into more of the American model, probably cannot be at the same price level but the opportunity is there.

Second pillar of our strategy -- again I forgot the roaming point.

Roaming, again another area that I often hear as a concern, is roaming is going to be regulated in Europe.

Yes it will, but let me say first of all, roaming is 6% of our European revenues and 60% of it is outside of Europe.

So the kind of exposed part is a small part.

I am pleased to say that thanks to our take-your-home-tariff-abroad tariff and which works in all of the countries which are either Red or Purple, so Vodafone and friends.

Today we have 14 million customers using the take-your-home-tariff-abroad, and again in different percentages clearly across the markets, it depends whether it's [ofleen or thout]; clearly in some markets we have more difficulty, in other markets it is easier.

The interesting thing is that once they get there, their usage of data goes up immensely.

This is very intuitive.

I think you all experienced going abroad, going to Barcelona, going to places, and turning off data roaming because you perceive it as cost too much.

Now for GBP3 per day it is included in your package.

Now put this together with Vodafone Red, put this together with 2 gig, with 3 gig, suddenly roaming data is another great opportunity to increase our usage and the customers' loyalty.

So, I am pleased that what was a threat is being turned proactively and it will take some time to get to the big numbers, but it has turned proactively into an advantage for us.

Now moving to unified communication.

We have made great progress this year, if you look at the chart in the enterprise segment in all major markets we have the possibility to offer an enterprise converge service, either through [engendersade] or through our own fiber or cable.

In the consumer markets, in most markets we have already activated our offers and the results are positive as you can see on the right part of the chart, all the trends in fixed line are going up, including Germany which is still negative but still going up.

In most of them we also have, where it makes sense, Italy being the exception, a TV offer which is either an IPTV or a cable TV offer.

UK is the market, where from a consumer point of view, we are looking at; first of all, whether we need it, and second, at our alternatives.

But I have to say, clearly this is another area where we have made good progress this year.

Emerging markets I said already a lot, what is really striking is the growth of data in emerging markets, keep in mind that emerging markets have, as Nick said, 70% of our customers, 28% of revenues, 40% of cash flow; with data this can really actually increase significantly.

And I have to say, the absence of fixed line, as we were saying a couple of years ago, is actually proving a great booster for broadband both in the companies and in the residential areas.

So data will be a great story.

The other great story is, quite frankly M-PAiSA.

M-PAiSA is not just a Kenya thing, for years we've talking about M-PAiSA and everybody used to say yes, but that is only Kenya.

It's kind of a strange thing happening in Kenya.

Now it is active in eight or nine markets.

We have 17 million active customers in countries like Tanzania, it's 19% of their revenues.

We have worldwide 200,000 active M-PAiSA agents and we processed 2.8 billion transactions last year.

It's becoming really meaningful in the economies where we work, and the clear, big opportunity is India.

In India we are now nationwide; we have 56,000 agents.

This means 65% coverage of rural areas.

To give you an idea, the banks in India cover 5% of rural areas; this does not mean that we want to replace the banks.

This means we can actually be the fertilizers before them.

We are the pre-banking facility that is coming to India.

1.1 million registered customers and clearly B2B and bills and utility, TV payments, is going to be the first area.

I'm very, very optimistic about the potential of M-PAiSA in emerging markets.

Enterprise.

Enterprise, I want to be honest and transparent, what is not on this page is that overall enterprise is still negative, and it is still negative because of southern Europe essentially.

But we have a very good traction in the verticals that we run across the group.

First of all, Vodafone Global Enterprise service revenue plus 2.1%, but the interesting number is the second one, plus 5% in the second half, so reaccelerating again.

Of course, part of it is more positive economy around the world, but also it is our format that as soon as the economy turns positive, actually delivers more.

Even more interesting in emerging markets, VG is going up 15%,16%, and again, the importance of places like India, South Africa, Turkey, to Vodafone also comes very evident when you look at this number.

And interesting enough we have a pipeline of GBP6.5 billion, which of course means nothing to you, because there is a probability that you need to attach to it; but the interesting number is 60% of this pipeline is in total communication, it is not a mobile-only thing.

So in the high end of the market in enterprise as I showed you before, Vodafone is already a player into that converged space.

Of course, now the job will be to come down into the smaller and medium enterprise, which we do through a number of offers essentially under the One Net brand, which is our brand for converged services.

It is now in 10 markets, we're going to add another 10 or 15 next year.

Nick, right?

3.5 million customers plus 20%.

Today 23% of our enterprise services are already fixed line.

So again the transformation of Vodafone in enterprise is already more advanced.

Good results from machine to machine, 21% growth in revenue, 16 million connections, we've got Audi, we've got Volkswagen, we've got BMW; there are some verticals in which clearly we have established a leadership here.

And small, but I have to say for the first time, growing again, cloud and hosting, which we got out of our German and our cable and wireless business, and created a business unit, again is starting to grow.

So positive signs in enterprise and I have to say I'm more optimistic, because of what I said about Italy and what I said about Spain, where we start again having positive numbers.

Before concluding, one word on Project Spring as Steve doesn't have a presentation today.

I have to say we started and we are happy, we started and we are now, 20% into the program.

Our objective is to really deliver a better experience.

The first top chart indicates what we've improved the experience today; the experience today is, and here be careful, because we use a more stringent requirement than most competitors.

We measure 3 megabit per second downlink, which is what you need to have on an HD video, on a relatively bigger screen, not on a TV screen, but on the second biggest screen.

Not on the first, on the second, which is the tablet or whatever, the PC or the large desk screen.

In three quarters of the cases, we deliver already 3 megabit per second.

Our goal is to get to 90%, which is where people would say it always works.

Our objective is 3 megabit per second, it always works with Vodafone.

Of course always is not always; always is 90%.

It is very important that it also works everywhere, and therefore our objective for coverage, which is the second one, is to go to 91% 4G coverage by March 16.

You see that in some countries like Germany we are ahead, hence my more positive comments about Germany going forward.

In other countries where we got the frequencies later, we are a little bit more behind, and Spain is an intermediary situation.

Both countries have a 90% again, target in the next two years.

Where are be in the plan?

You can see the first set of numbers to the left of the arrows are what we have done in six months.

It is pretty impressive.

They're all pretty good numbers leading into the year-end 2016 target, which is the one on the right of the arrows.

The clear big effort and big churn, and I want to be again transparent, is the 4G side; we have done 7,000.

We need to 70,000.

So there is another 70,000 to be done in two years.

The good news is, that what we always said, we are preparing our networks, we are doing single-run, we are preparing the network for the future, it is now there.

It is a lot of work, [CPU-Z], and the technology people we have a lot of work, but the base is there for the data, and I have to say also the partners are helping a lot there.

So heading towards the conclusion.

The wrap up is investing massively organic, this is a great moment of discontinuity for Vodafone.

We are massively investing in organic.

We're also investing commercially at the same time where we do the organic investment, and we are trying and working hard to make the turnaround of a couple of situations that I mentioned, quicker and deeper.

We didn't talk about other countries that actually are doing pretty well, if you figure out the math.

Clearly the rest of Europe is doing better, but again Turkey, whatever, Ireland and so on; in the scheme of things they are smaller, but I am pleased that they are doing well.

We are very focused on the transformation of Vodafone, but of course we are still prioritizing shareholder returns as an important element of what Vodafone is.

I cannot promise that I will return another GBP57 billion in the near, nor in the medium term.

I don't know about the long, I never say never, but still, GBP57 billion is a pretty challenging number.

But for sure, our Board is very focused in its intention to grow the dividend.

As Nick has said, some of you in your notes you said that dividends will not be covered and the answer is technically, they will not be covered for a couple of years because we're in a massive investment transformation phase which was financed by the Verizon transaction.

Once the investment level returns to the normal level, which will be GBP13 billion, GBP14 billion, potentially less maybe not, but at least that is what we think is normal.

Again, we think that the intention to grow the dividend will be very clear and the issue of two years of cover or not cover will be a temporary issue.

And of course, I also have to add relative to the comments that Nick has made about our target leverage; we, the Board, has a very strong intention to remain very disciplined in capital allocation so our balance sheet structure will clearly take shareholders' interest as the most important metric for any evaluation of potential acquisitions, or other things that you might read about in the newspaper almost every day.

To conclude, we're in an important transformation phase.

We are going from being a mobile Company to a unified communication company, from Europe to Europe.

But more and more emerging markets, from consumer to consumer enterprise, and from metered VoIP voice into data and newer services.

The year that just closed has been challenging from the regulatory and competitive position.

I also, have to say we have underperformed in a couple of places.

We are already addressing it.

The results will come, I hope more towards the second part of the year.

We still have very strong headwinds in emerging markets, unified communications, and enterprise, and despite all of this we have met anyhow our full-year guidance for the year.

We've talked about his priorities, let me talk about my priorities now.

My first priority is clearly the better performance in commercial, driven by both metric and customer experience, that's priority number-one for my coming 10 months.

The second is the operational integration of KDG and Ono, and Nick will make sure that also the financial integration will be successful.

But the operational integration is clearly one priority because we have spent a lot of money for those two assets.

Continue the progress in unified communication, enterprise, and emerging markets.

I will have to dedicate some time to supporting a more favorable [lengratic] environment, I have to say especially in Europe in light of the net neutrality discussions.

And then finally, I want to make sure that the money that we spend on Project Spring have adequate returns, in as short a time frame as possible.

I thank you very much for your attention.

And I now ask my colleagues to join me for Q&A.

So we'll start here, and go there, and then we'll come back here, as always.

Maurice from Barclays.

Question around this dramatic commercial spend, the SAC your company is spending in Europe.

Are we at a level where we are at even more catching up from perhaps underspend previously?

Should we think about the current amount you're spending as a more normalized level, or perhaps as you're looking to increase the SAC further in the market in Europe?

Maurice, I think the sense of it, if I give it to Philipp, he will say is not enough.

Your question at the same time is easy to answer and difficult to answer.

It is obvious that we have invested more in the second part of the year, and we have all supported Philipp in his turnaround effort.

We were underspending in Germany clearly, we were a tad underspending in UK, now it is not the case anymore, for both of these things.

Are we going to say, and call it what it is?

Well, we are making a lot of investments in retail also to take back into our hands more control of commercial spending.

So, can I see a future where through online and retailing, we start reducing that investment?

Yes, but of course it depends also on what the competitors do.

The first part my answer is easy, the answer is yes, we are increasing our commercial spending and we are now competitive, as competitive as the main players.

Can we reduce it, or can we keep it there?

It will depend also on the markets.

In the guidance range you've given us for the March 2015 year, does that an assume an increase in total SAC for the year?

I don't think we really want to explain it component by component, but I think it is fair to say that we uplifted our expense, especially in the second half of the year, and that will have a degree of momentum into the first half, as well.

And of course, you are annualizing in the second half.

Akhil with JPMorgan.

First, just to continue on Maurice's question on the commercial momentum.

We have started to see, as you mentioned, improving contract and attach trends in a couple of markets.

I guess what I am trying to understand here particularly in the context of the EBITDA guidance you have set, do you feel that we are at a point where excluding all of the MTR drags and changes that we have, we're at a point where the underlying momentum at the group level is starting to improve?

Or do you think some of the other points you made around Italy, or maybe some of your pricing in Germany or other issues that you need to contend with, that we need to factor in here?

The second thing was just on your comments around net debt and investments, and I guess the importance of dividends.

Your leverage is going to be up around 2 times post-Ono.

I guess one of the big initiatives over the last 12 months has been doubling up in key markets, to strengthen your businesses.

I just wondered if it made sense in that context to consider any sort of portfolio restructuring?

Maybe reducing exposures in non-core markets so that you have ongoing flexibility in the main regions?

And I will leave it there.

Let me give you the second answer, and a bit of the first, and then I will pass to Philipp for the rest.

The answer to second question is yes.

Yes, of course it make sense to consider non-core markets.

It's obvious that when you decide to go deeper in the important situations, where either you don't want or you can not go deeper, you should consider alternatives.

That does not mean that we have made any decisions on, but of course, as I said, many times the Board regularly looks at all the situations and we will make whatever appropriate decision we have to make.

There is no sacred cow, if this was your question, that we consider in our portfolio outside of the core areas, as we have defined them.

The answer to the first question on momentum and these things.

There is one situation which is difficult for us to predict in Italy.

Three months ago I would've told you that it is going in the right direction, price raises, blah, blah, blah.

Today I have heard from Philipp and from the CEO of the market that again, finding offers, below the line offers are being pushed into the market, Telecom Italia has priced their fibre at EUR29, which seems a little bit aggressive to me.

And so we might have to respond.

It is very difficult to see what happens to the response, after the response.

Do we try again the market, into [cares] or not?

That is the only one that makes a little bit difficult.

For the rest, Philipp, you'll--?

Let me just add to it.

We see some strong improvement on net adds overall and net add trends.

That being said, we still have actual pressure, as actual, as the repricing washes through the base, which is mainly in the first half of the year, you see north of [SAC rate].

Thereafter, we really depend, as Vittorio was saying, how the market continues to react, we tried in Italy and successfully did so with repricing of our prepaid space.

We've repriced more than 3 million customers.

We're trying to do whatever is possible to stay calm and then work on op improvements.

This a quick follow-up to that.

In Germany, do you think the initiatives that you have taken so far were sufficient to drive that H2 inflation, or do you think there is anything more that you might feel is necessary in the market, given competitive pricing levels at the moment?

I think if you look at our rate plan portfolio overall, I think we have a very competitive rate plan portfolio right now.

In the markets, if you look at our -- in our levels, we are following very closely competition, again with the same objective, not to drive, but to follow, so if there's a possibility to take out money than we have done so in the past, as we are very cautious there.

But I think we have all the plans in place.

We now started on May 2, with our first integration of commercial offers, which started quite promising.

It's obviously a little bit early to tell but it started very well.

We're focusing on cross-selling in each other's bases.

We've really got both organizations very excited to sell the respective products.

I think we have all of the necessary momentum and elements in place now in Germany, commercially.

James?

If you could raise your hands again, so I can see.

James, Nomura.

A few quick financial questions and a strategic one.

Firstly, how much will Project Spring OpEx increase during years two and three when the network is fully laid down?

Secondly, just a twist on Akhil's momentum question, that's directed to Nick.

In terms of margin momentum for Vodafone, if you strip out the Project Spring breakeven, strip out synergies from the acquisitions, do you think the underlying business can actually improve margins in the medium term?

And then the strategic one, is really around pricing increases, which has been pretty rare in mobile, I would say.

But the Project Spring guidance does imply a return to pricing power, as you make a return on these investments.

How would you envisage these price increases being presented into the consumer?

Is it going to be part of an annual cycle that we see in UK broadband?

This is the easy one.

If everything showed in terms of usage of data, higher packages, possibly reducing the association of the handset to the price plan and putting more emphasis on the value of the price plan, and also more competition among the handset manufacturers and device and tablet manufacturers and so on keeps growing at this pace, I would call about ARPU increase not price increase, as a customer and get much more.

And this is what is happening in the UK.

This is what is happening in the Netherlands.

Will it work everywhere?

I cannot promise you, James.

But this is where we are going.

There are some interesting sign, it is another interesting one.

Nick, the other two questions, and then we go to Stephen, and then Tim.

Just in terms of Project Spring, year two and three, if you remember when we came out with the original program, those metrics we still stand behind.

We are saying that this year, 2014, 2015, we are at a GBP0.5 billion.

And by year three it will be EBITDA neutral going forward.

You can bridge between the two points.

I think in terms of margin momentum, I just pick up on the points that Philipp is making.

You look at the second half, what we have done we've started from Italy price erosion, and also Germany repricing.

And to some degree enterprise in the UK.

These are the three repricings going through.

Obviously, they feed through to the first half of next year as well.

It is only when you get to the point of the second half that you start to have a little bit more stabilization, as long as pricing stays at the current level.

And of course, A&R spend will have stabilized year-over-year as well.

I would look to the second half, showing more positive signs, in terms of the trajectory of margin.

Stephen, Tim, Justin, and Andrew, and then I will look another.

I will move there.

Stephen Howard, at HSBC.

A question about German consolidation and guidance.

DT has been pretty vocal recently and criticizing some of the [remedies] that have been tabled in Germany.

And questioning the impact to the concessions that are being offered to the MVNOs.

Given the MVNOs are the one thing that you've particularly called out in that waterfall chart of the EBITDA guidance, what is the risk that the remedies necessitate your making that negative impact larger?

And as a tandem question, if you will.

You claim you are doing an awful lot in terms of investing in Project Spring.

It seems only fair that you be given credit for that by the regulators in Brussels.

How are you communicating the fact to them that you are putting your money where your mouth is, because after all this is an industry that in past has often been criticized for underinvesting and leaving Europeans short?

Thanks.

Yes.

It is a multi-dimensional question, Stephen.

First of all, Tim Hoettgess in his position, he is very vocal in this.

I think he is right.

He is right in saying that this more for the previous meeting with the journalists, and saying that there is no point in allowing consolidation if you then mitigate away the benefits of it, which does not make sense.

I think he is right.

I think our choice is not to cut out MVNOs, but not to keep MVNOs who are not willing to pay the full price of the services is the right one, because you avoid the direct comparison and direct disintermediation.

If others make different choices and they want to give away their 4G 2-gig, 3-gig, for whatever EUR5, that is their choice.

But eventually I can guarantee to you, they will be cannibalized by their own MVNOs.

Which is fine, if that is part of their strategy.

We are not willing to do that.

On the other hand, good MVNOs, who are willing to pay, and say you know what, I have a channel, I have something, I pay a decent discount and I contribute to actually amortizing the infrastructure, those we are perfectly fine with them.

We have to qualify what we have done.

We have not continued the relationship with those who are not willing to pay.

And that is I think is the best commercial response.

Brussels is in transition, as you know.

I think they give us credit for the investment.

They don't fully yet understand this point of consolidation.

They don't understand completely that consolidation actually relates to more concentrated investments, and therefore to more ability to reinvest in the business, and therefore in the end, better services for the customers.

And the comparison they make in the US and they need some convincing.

It's going to be very crucial to see the new commission.

It is not making any sense that my second last priority for the year that I shared with you is work on regulatory.

I will have to spend more of my personal time on it.

I think we had Tim and Justin, Andrew, and then move there.

Tim Boddy, Goldman My question is around your conviction that this is the trough.

You clearly laid out a scenario where it's a number of leaders the group are working to drive the return to growth.

I guess the question I have is how long will that take?

How fast can you turn around customer perception, if you've any case studies that you could share with us?

And then, I guess related to your point about MVNOs, is there any signs that the signals you're making are being picked up, because I think if typically the other leading mobile player in the market follows your lead, we would say yes, this is working, there is going to be a clear differentiation between the leaders and the laggards in quality.

Any anecdotes you could share would be reassuring.

Thanks.

I am looking at our legal counsel sitting here, and I am not so sure how much you want me to go into the second question.

You have to be very careful.

This is a territory where public comments have to be really only about facts that are known, so I cannot -- that I can tell you is that there are different positions and different players.

Some players, some important more long-term oriented players that have taken a similar position to ours, I think, from what I see in the markets.

Others clearly not, this is part of what is called free market.

What I said before in my earlier answer, and I think it's to your point.

In the short-term, you always get a benefit from MVNOs, because it is money that flows directly into your bottom line.

If you have a one to maybe three-year horizon, then you would take all the MVNOs on this earth.

Because it adds and feeds our capacity and you look good.

After two or three or four years, customers start saying, you know what, I am better off if I take -- I don't know.

I speak about mine, not about yours, but I speak about Vodafone.

This is the same service as Vodafone for half the price.

And then is where you start losing traction with your own customers.

I don't have two or three years of long-term short-term orientation.

I think companies should be around for shareholders forever.

Therefore we made the decision.

I cannot comment on what others will do, or case studies or things like that.

It is not a territory where I should go.

The first point is how fast.

Nick, do you want to have a comment on that?

We don't give long-term guidance, we don't want to be specific in the numbers.

I think you're seeing the numbers.

We're gaining 1.5, 2 percentage points quarter-over-quarter which should be a good indication.

In some situations, as I said, in Italy, it could take longer.

We will see.

In theory, Italy was one of the places where in theory you could have come back earlier rather than later.

But it depends a lot on the competition also.

Tim, you were also saying how committed are you to Spring and where the differentiation will start to show, and come through in the metrics?

I was given an example this morning of India, where we made a sustained investment for two years in a market that had 14 players.

You look at the market now, and the top three players have taken 95% of the incremental revenue market share.

I would argue that we have created a two-tier market with ourselves and Bharti and to some extent Idea, separated from the rest of the market.

I think you can build network differentiation, because we certainly did not have it when we bought the business, and we have distanced from the rest, and you're seeing the results and returns from it now.

But we are a big infrastructure company, and we said Project Spring was a seven-year payback.

So you have to be a long-term investor to get those returns.

Justin, Andrew, and then I have to go there and then I come back for Simon, and then we go here again.

Could you -- maybe this has been announced already in a roundabout way.

Could you quantify what your revenue EBITDAR is from MVNO in Europe in the year to March 2014, or give us just a ballpark?

How far are we through this decision whether to cut MVNO contracts?

Have you done it basically?

Or is there more to go?

Nick has indicated GBP150 million to GBP200 million impact next year.

But I'm not sure we disclose, also for competitive reasons, exactly the amount by country and by partner.

Is it done, pretty much?

It is a reasonable percentage.

GBP150 million to GBP200 million.

Secondly, margins growth in AMAP.

You've got M-PESA, you've got data growth, not too much risk from SMS cannibalization.

Can this surprise us over next 12 months, could you see revenues accelerating, margin expansion?

What does M-PESA due to margins, for example?

What is the data growth due to margins?

And against that, you said you are lapping a price increase in India.

How much is that a headwind over the next 12 months?

Why don't we pass the question to Serpil, with a clear instruction of not being specific guidance.

So answer qualitatively, please.

First of all, during the fiscal year, we have seen in AMAP significantly increase in its [perfect] contribution as well as cash contribution.

That represents about 40% of the total group's cash, so that is very encouraging to see.

And already the total AMAP portfolio is yielding a margin of 31%, which is 16% growth.

We can say we can already see that there is a very encouraging trend already, and this is coming on the back of a couple of things.

One of them is there is continued customer growth still in AMAP, which is the first point, so we have seen a 9% net customer growth in the year.

Second, we have also effectively increased pricing, especially in the bigger markets.

One example is definitely India, where we have increased the revenue price per minute by 6% across the year.

We're also seeing the ARPU effect on it.

Thirdly is the mix of customer so we've really opted for a better quality of the mix, so we have seen activity ratios increasing, and data is also picking up.

Data growth is 40% growth year-on-year.

In India.

All of this is going to continue.

I would say that the data contribution is still in its early phases, so we should even see a further pick up in the next year ahead.

M-PESA I think we need to look at this business differently than the core mobile business.

And here what is very important is the loyalty contribution of M-PESA to the customer base.

We are seeing the stickiness effect of M-PESA.

And that is a big learning already from Kenya, and in Tanzania right now, M-PESA is about 20% of our revenue already.

In India it is very early days, but we have already hit 1 million customers.

We need to look at M-PESA in a different -- with a different view because it is really generating a commission out of the big transaction and it is yielding immediately to the bottom line, but you need to look at this as a different business, I would say.

But look at the incremental loyalty effect M-PESA is bringing.

Just finally you talk about asset disposals and I guess we may do something about things like Australia, and Fiji I suppose.

Could we talk about something bigger?

Some people argue that you should spin off AMAP.

Is it crazy to think about spinning off M-PESA at some point?

Are the bigger things you could do?

If you listen to what Serpil said, the answer is no.

Because she said that M-PESA is great, delivers to the bottom line.

It requires big volumes of transaction and is great for the loyalty of the customer.

So it requires the support of a vast dealership or dealers network.

It requires and it gives back also in loyalty terms, so why would you spin it off?

Why would you not get the benefits on one that allows the funding of the other?

The answer is no to M-PESA.

To AMAP, quite frankly, it is another no as a whole.

It is an engine for growth, as I said in enterprise, not being in India is a disadvantage.

In the relationship with the over the top, the Googles, the Facebooks of this world, Turkey, India, South Africa are becoming more and more of the topic that Paolo has to deal with.

Quite frankly, we have more and more of a great contribution to the group profile.

I don't perceive that there are multiple arguments really works very well to be honest.

Every time we do the math with the Board we go back always to the same conclusion, that the sum of the parts applies in different markets, but in the end, you get the weighted leverage.

The answer is no.

That does not mean that we think the portfolio of Europe or emerging markets that could not be assets that we're willing to dispose of, if there is somebody who believes that there is a higher value in their hands.

Andrew, and I definitely need to go there.

Yes.

John, and then you'll follow, yes.

Can I ask you about your view on the split of equipment to installment plans from the service plans, the accounting that relates to it and all of that.

I guess some of your competitors are doing it in Europe, it's been pushed very hard in the US at the moment.

The consumer seems to have some attractions to the ability to upgrade a bit faster, to have no notional contract, to have zero down, in some cases in particularly in the US.

And on the lower headline service price.

There is also a financial presentational benefit, in terms of earnings and EBITDA drag when you push harder for gross adds, and obviously, that is something that you're doing and planning to do even more, as you go through Spring.

What I really want to understand is what is your view on the consumer attractions to that offer, or that proposition, and also, whether you think there is anything in the financial presentational aside?

Perfect question for Paolo.

I would just speak one thing that you said.

I and the Board are not keen to do things because of the financial representation of things.

I don't think we are willing to do things for the sake of presenting or embellishing or doing cosmetic stuff to our numbers.

If there is a genuine customer advantage, we like to do things.

But if my internal cost of financing, for example, is lower than the external cost of financing, why on earth should I take a higher cost just to look better?

There are very good notes that have been taken on this topic.

Yes, we are looking into it, and we're doing it in some markets.

But it must be following the customer, and not following the cosmetics of it.

I think the way we are approaching it because normally you take it from accounting point of view, which where you're wrong.

We're doing a lot of work in the space and we're really starting from the customer perception of what they are buying, and where they are allocating the value between the device and the traffic.

The reality is that there is not one answer which fits all of the markets.

In the very much depends also on our competitive dynamics.

In some markets, we are convinced that by splitting we may be perceived even if a higher price, if our quality is much higher, more competitive than what we can be perceived if we still bundled, because obviously the total deal is higher.

In some markets, we still believe that by bundling, you can call a higher premium, which is really the nature of the discussion, which is based on what the customer perceives, and how we can capture more value independently from the accounting.

We believe that there is a clear advantage, if you split it, you can separate the duration of the content of the device from the content of the traffic because sometimes we realize that we force customers to renegotiate traffic pricing simply because they want to have a new device.

This is the reason why more and more, in different markets, for example Germany recently, for example in Spain last year, we are starting to launch device options and device solutions, which already are going in that direction where you have an ongoing plan, traffic plan and then you can renew the device on top of it separately.

Not one solution, but over time, I think we see more of this coming on a market by market basis.

Maybe just to add a few elements to it, if you look at the different countries already today, if you take Germany we do more than 40% of SIM only, which is if you want a formal contract, because it is really a SIM-only based rate plan, and you get the device separately.

We do installments already in Italy today, we do the combination in Czech Republic today, we do a leasing model in Spain.

We have different, based on the market needs, different models in the markets already.

First of all, just want to clarify when you showed the ARPU between 3G and 4G in the UK, was that net or gross of the pay away to the likes of Sky and Spotify?

Net.

Thank you.

I know you have models, and you don't basically spend money unless you can see the revenue sometime in the future.

But given what you said about 4G ARPU in the UK, and given that BT's plans seem to be a bit more credible, let's say, than their previous attempt at this, and given also that Ofcom as of this morning has made it much easier for you, if you wish to wholesale broadband, why wouldn't you preemptively, I stress and underline that, get into fixed broadband before BT comes out with its own quad play or equivalent tariff, please, or offering?

Are you asking me why would I not consider that?

The answer is I would.

But can you enlarge upon this, please?

No.

Thanks very much.

The answer is very simple.

Of course, it is exactly we what I said in my comments.

I said, we have a variety of alternatives.

We have proven in a number of European markets that the combination of your own, build, rent, and eventually buy, if you need to buy, can be actually effective and from a capital point of view, better.

Don't forget that in this country we are already going to have thousands of exchanges, thanks to cable and wireless.

Again we consider all possibilities.

But we would not like to elaborate at this phase.

I don't believe too much in the preemptive, don't pay anything.

You need to play the strategic game to attend.

If you do something, somebody else will do something else, so you need to think very carefully about your moves.

Clearly we are contemplating all possible moves.

Polo Tang, UBS.

I have two questions.

The first one is on Spain.

If you look at Telefonica, they've obviously moved to acquire Digital Plus or Prisa TV.

Wondering in terms of what are your thoughts in terms of how this changes the dynamics in terms of the Spanish market.

For example do believe Ono will still get wholesale access to Digital Plus' content?

The second question is really just about what you done in the UK already.

You mentioned that things like Sky and Spotify, that content has significantly driven data usage.

Can you remind us, in terms of where you are with content deals, across the rest of Europe?

Thanks.

Is this a good question for Paolo or Philipp?

If you want I can comment more in general.

I think the UK experience is probably our flagship experience, also because we are here in the UK, and it's one of the most visible ones, but actually, we have content partnerships of a similar type in most of our European countries, and by the way, we are extending this to some of our emerging markets, the most advanced part of the emerging markets.

Music, if you like is the easiest one and most visible one, with Spotify in most of the places where we can.

Also Napster or video is the other one that we are expanding with local solutions.

Obviously as you can imagine, we are in conversation also in other spaces.

What you're seeing here in the UK is an experience that we're replicating everywhere else, so we that we believe that content and music in particular are going to be a big driver.

On Spain, I think the situation is very specific, in a sense that today we have access and consolidation of content at Telefonica.

In case it happens we'll probably again create a risk of a monopoly, and therefore, I think from a regulatory point of view, there is a discussion to be had.

Let me be a bit blunt.

We will not clearly allow Telefonica to buy what they want to buy, and not be obliged to wholesale content.

That will be a completely unacceptable position from a European legislation point of view.

I don't know about the Spanish one, because Spain interprets things their own way.

For sure in Europe, that would not go through.

Thanks.

We have another couple there, and then we start coming back.

Guy Peddy from Macquarie.

Just a question really for Nick.

I just want to get a picture of this guidance profile, because essentially, if I look at your range, you're either settling very small down EBITDA, or down 5%.

Can you talk about what are the drivers, the differences in variances, and how much of the range is dependent on what happens in the second half of your financial year, as you start to annualize the reinvestment levels, and you start to talk a little bit better, hopefully, revenue trend?

Could you just give us a sense of what you're looking to see whether you'll come out at the top or the bottom?

What I would say, there's a number of levers, I think, are quite clear, whether it's OpEx, A&R, et cetera.

Of course, our competitors can increase the level of A&R intensity, but I'd say it's at a reasonable level of intensity now.

But I think it goes back to pricing in the marketplace.

If repricing goes annualized, and then pricing drops again in a number of markets, if price wars break out again in a number of markets, it's very difficult for us to mitigate all of the downside of a repricing in the marketplace.

Regardless, we have to be competitive.

So the bottom line is, we see a number of positives, whether it's in net add performance, whether it's our churn coming down, whether it's data growth, whether it's enterprise traction with macroeconomic, you see all of these positives, but it can get overwhelmed by repricing in markets, if the base drops again.

So that would be the delta.

One more on that side, and then we start coming back here.

Robert from Espirito.

[ESEE] has made some proposals, some more helpful than others.

But on the spectrum side, they seem to be talking about 25-year lives.

Do you think that's an opportunity for scale operator like yourselves, maybe other operators can't afford to pay as much for those extended durations, or is it just more cash out, when those spectrum renewals come up in Germany and Italy in a year or so?

And just going back to the UK, I wonder, were you invited to join the Sky TalkTalk trials up in York on the fibre?

Second question for Phillipp, because I follow in detail the group, but I don't get to York.

It's a level which goes a bit beyond.

25 year is good.

I'm not sure I would really bank on the fact that others can not afford, but it's good because the longer is the life of the spectrum, the more inclined you are to invest, to eventually anticipate investment, to have a long term view, and you take away the sense, if I have success in the last three years, than I will pay more on the renewal.

Now, of course, I was for eternity.

My position with Vice President Cruz was forever.

They should be ours, and be prepared to pay more, and then have it forever, rather than having to wait.

But anything which is longer is better, because it stabilizes the long-term view of the industry.

To York.

I haven't been to York either, which was looking at ultimately whether [she knows where that's leader], but I would assume that as an assumption, so not a fact, I would assume we have not gone there because we don't really have a business yet to represent there.

We are very active observers of what has happened, and also [probably leaders].

But I don't think we went to York.

But we can check.

It's very nice.

Should we get back here in the middle, and then we go there.

Anybody here in the middle?

Yes.

John Davies from Santander.

Just on roaming outside of the EU, it's still a fairly unpleasant experience if you go outside of the EU and make a data connection.

Clearly, you have many assets outside of the area.

Is there anything technical stopping you from providing on-net roaming at a more sensible, but still quite high rate, or are you obliged when the customer leaves the country that they're resident in, to offer roaming across cities to the host networks?

Paolo.

I think for us, it was honestly very important, to learn from experience on the European side, which is what we launched last summer, and I think Vittorio has shown you the results, which are very positive for what we had in mind.

Even if we are not satisfied at all, he seen that we are still at 19% because that type of proposition is taken by 100% of roamers in Europe, and it's actually our real ambition.

Based on that experience, we will expand very rapidly outside the footprint, the European footprint.

More or less with the same logic, not necessarily as you can imagine, at the same price points.

Again, as you extend beyond Europe, you have to be obviously conscious of where your own customers go, because people from Portugal are roaming to different places from where Germans roam, or Italians roam.

Based on that, the market to market, will signal the market, and we'll have different areas and zones, and obviously our own footprint, the Vodafone branded footprint, which is more important for certain nationalities than others is going to be a part of this initiative.

Shall we go here?

Yes.

James Ratzer from New Street.

Two questions, please.

The first one is just regarding your cost structure, as far as the revenue trends that you see, something we hear also from your other peers, but all of your other peers talk more publicly about being very aggressive trying to reduce the cost base to offset some of the revenue pressures.

Last year, you said a GBP300 million cost reduction target in Europe that you hit, but you don't seem to have quantified a target for this year.

I was wondering if you could help us in thinking about why haven't you quantified it?

Is that something you can exceed this year?

Just any discussion around what you can do on costs to support margins would be helpful.

And the second question I had is regarding your fixed line strategy in Italy.

So, you've reiterated the FttC build to 6.4 million homes.

Telecom Italia on their conference call suggested you signed a contingent fibre deal with them, and the conversations I had with them indicated that they were now no longer expecting you as a result to build out this FttC network.

Maybe the truth lies somewhere halfway in between.

Can you help me understand what's going on there?

Thank you.

Let me pass the second question to the specialist of Italy, Philipp, and I will give you the answer to the first one.

We do have a quantification of our cost reduction targets, but we have decided not to communicate externally.

To be honest, it is a very practical reason.

There are many moving parts.

There's Spring, there's change of perimeter, there's incoming companies like KDG for the full year, like Ono for a part of the year.

We felt it would have been incredibly complicated to give a target and then present all of the explanations, and Nick and I made the decision that at the end of the day, what really matters is EBITDA and cash flow.

And so we have internal programs and from time to time in countries you see the impact sometimes because of forward cost reductions, or sometimes because of agreement of things, but we prefer not to complicate too much our reporting in a year where the year-on-year would be very complicated to manage.

So we'll talk about it as an actual, not as a separate target.

Philipp, Italy.

So maybe before that, to underline how serious we are about costs, you might have read in the press, for example, that in Germany, we made a major redundancy -- voluntary redundancy programs, we had more than 807 FTEs reduction in a very short period time, so that tells you how serious we are in adopting our cost structure in the different markets.

This will reflect the European royalties.

Now on the contingent model in Italy, which is a German word actually, applied now to Italy.

We have some limited agreements there with Telecom Italia to some extent, but it's limited in scope so overall so that we're not changing our plan to basically connect 6.4 million homes with FttC through our own fibre built to connect FttC.

So what's therefore does your contingent model actually cover?

It will be a sub quantity of the 6.4 million.

[Essentially more].

Yes.

So it's still limited in scope.

If it becomes more one day, we can substitute more, but secure with the cost calculation.

Exactly.

At the end of the day it doesn't matter if anybody, not Telecom Italia, anybody gives fantastic conditions, you just say I don't build.

If they give you medium conditions, you say, you know what, I did what I can have a very good case and good market share for me, and then use that, which is not great but it's still better than building, and they give you bad conditions, you just build yourself.

It is a continual reassessment of the make versus buy, I think.

What I think, sometimes, incumbents do is to try to slow down your decision-making by offering a little bit, and hoping that the little bit is enough.

That's part of a very well known game in our industry.

But the way you should think of it is really it's costs versus CapEx trade-off, not more [rights].

Emmet Kelly from Morgan Stanley.

Just one broad brush question, please.

We saw a very interesting deal announced in the US a couple of days ago with AT&T making a move for DirecTV.

I guess it's interesting on a number of levels.

Firstly, the size of the ticket involved, nearly $50 billion.

Secondly, I think a few people were surprised by how much paper AT&T used in the acquisition as well, and then thirdly, if you listen to the conference call, an awful lot of chatter about video on mobile devices and the need to own content.

Just wondering if you could give us a few broad brush comments on whether you see any read across from that deal to Europe?

Do you think you need to own your content or are you happy having content agreements, mutual distribution?

And lastly, on the paper issue, if you were to find any very attractive acquisition opportunities, and given that your net debt to EBITDA is now 2 times, would you be happy to look at issuing shares for any acquisitions as well that you look at?

Yes.

So, the AT&T question is a very -- and the DirecTV question is a very interesting one.

Of course, we've been thinking about it, and of course there is one element that we fully understand, and it's the importance of video for the future.

The time horizon could be different by country.

It could be very different if you own fixed line, and if you don't own fixed line.

It can be very different if you have strong competition from a cable guy or somebody who comes from the TV world.

It is very interesting for us.

We are learning from Ono -- from KDG, and then we'll learn from Ono, how important this relationship with the content guys is, when you're in that business.

My prediction is, yes it would be a very important relationship for us.

It is -- we still need to be there.

Whether in every environment you will need to own or not, I don't know.

I think it depends so much, the US is very vast.

There are areas where they will never get with Uverse or with FiOS, there are areas where maybe satellite plus LTE would work.

Again, there will be a multitude of technical solutions to deliver video, and I understand very well why for a company like AT&T there could be an opportunity there, but don't ask me to comment on the detail, because I don't understand enough of the market to say it is a brilliant move or not.

I understand intuitively that content will be important, but whether you really need to own or not, I think we have very different answers.

Also, depending on your history a little bit.

If you are Rogers in Canada, you can, from that you consider just to mention an example of where a former colleague of ours is now.

For him now, content is much more important, but in our trajectory, we are still probably in a little bit of a different space.

Having said that, this is going to accelerate a lot.

So we watch, and analyze with a lot of attention.

On the second question, quite frankly it is a theoretical question.

I strongly believe that if you find a good acquisition, you first has to be very convinced of the synergies, and starting from the cost synergies and going to the revenue synergies, and the merit of the acquisition on its own content.

Then you look at the financing, and if it is very good, you do what you need to do.

That it's a bit of a theoretical question in this stage, at least.

Jerry, and then -- yes.

Sorry.

Jerry Dellis from Jefferies.

Two questions please.

One, on the Project Spring budget, is it certain that you will spend the whole budget, and how do the Project Spring milestones have to turn out, if you decide not to spend the whole lot?

On what sort of time scale would you make that decision?

And then just a question on pricing.

You referred quite a lot to competitor pricing action, and my understanding of Project Spring was that it was intended to at least some extent, to separate you from pricing action in the market, and to give you a bit of at least relative pricing power.

So at what point do you think you'll get to the stage where Project Spring is sufficiently complete, and you don't have to respond to every single competitor pricing move?

It's really two different questions.

One, the first one is, we're going to spend the Spring money on the current conditions, but then we go back to the earlier question.

If tomorrow, Telecom Italia or Telefonica or somebody, they completely change their position, and they say, you know what?

You need to be in this, you actually can get more access to my own thing, I make the investment, we would clearly evaluate it, as Peter said, we would evaluate the make versus buy case and we could transform some of the money from CapEx to OpEx, or from -- so the intention is to spend it under the current information, and the current conditions, but we have to retain the flexibility.

Steve, who has done some brilliant negotiation, and is still concluding some on Project Spring, gets a better price as he was partially getting than what we thought we would have the choice, to decide whether we will put the saving into more, from 70,000 to 80,000 4G stations or maybe we just say we just need to stay at 70, and we just pocket the money.

So I don't want to lock myself into something.

If conditions change, I have to be flexible.

On the price move, single price moves, my comment was specifically on Italy, and was specifically on the fact that not one competitor, but there seems to be a game, the EUR10 price point being mentioned in Italy, EUR6, I saw a EUR6 2 gig private offer, which really after the 80 is a EUR4.50 or EUR4.60, which doesn't make any sense.

Now those things you have to respond to, because otherwise they can take the market down very quickly.

But it is a different thing to talk about that, because that's why I use the word tactical, as opposed to structural.

And finally over here, please.

Did you have a question?

First is for Nick, it is on cash flow.

A third of your cash flow this year looks to be underpinned by working capital.

Going forward, and with Project Spring in full fashion, how would you think about working capital?

How much of the cash flow would be underpinned for that going forward?

The second one is for you Vittorio, it's about the [rents].

You acknowledged that over the next couple of years because of Project Spring, you're not going to cover the dividend, but in the three years time, obviously things will get better.

So if you could just give us, you talked about adequate cover so if you could just translate a number, what is an adequate cover for dividends going forward.

And the third is for Philipp, it's about Germany.

You've been investing heavily in Deutsche [on LT] you have the same spectrum holding, actually have a higher number of base station, what explains the fact that they have been performing better than you in that country?

That's something that I would be interested to hear, and how you can basically fix it because you said now is the basically the cap has been fixed.

And the fourth, if I may, it's on CGT and the capital gain tax.

You changed that assumption from 5 down to 3.6 and I was wondering if that basically, the change is triggered by the discussion with IRS or possibly by a different sort of assumptions you've used for the [credit facility]?

Thanks.

I will start, because mine are both relatively straightforward.

So in terms of working capital, I think we have done a good job over the last I would say three years, actually, in terms of improving our working capital.

I would expect that going forward the amount of contribution we can make for working capital will diminish, because we have really been systematic at how we have made working capital really work for us as a group.

And secondly, that capital gain, I was very specific on saying that it's tax due to the reorganization so it wasn't capital gains tax due.

We had to reorganize our group ahead of the disposal, so there was an element of tax due in the US as corporation tax, and there was an element of tax due in the Netherlands, which was withholding tax.

So why was it lower?

It's just we had an estimate before, and we were able to go through it, and it's a very complex process, many steps, and throughout the process we have refined it.

(inaudible - microphone inaccessible)

No.

I said the vast majority owed to the US and a small amount to Netherlands.

Philipp, you want to answer about Germany?

Yes.

On Germany the relative performance, really, in our eyes two things.

One, I think on the network side for quite some time, we overinvested in rural LTE and not enough on the voice side, and neglected voice.

And we have fixed that in the meantime, so we are getting called best in voice, so we're again at par here, and we get the feedback from our enterprise customers that this topic is fixed.

The second one is more on the commercial side, where we were trying to, let's say improve our overall margin in Germany.

As we said the market needs to cool down, Deutsche really ramped up in our investment quite significantly which was somewhere in June 2012, 2013.

And so we did not follow straight away, but we first waited because we thought this would be over after a certain period of time, or a temporary nature.

It was not.

We followed, but obviously, we followed them relatively speaking, late, which as you know, in this year's numbers.

And in the meantime the good news is quarter-by-quarter, our service revenue is improving again, so we have points 3% better.

As I said, the network voice is recovered, our net adds are positive, even our fixed line is trending in the right direction and our [occupancy] base is leveling out so we're basically saying these are working.

On the dividend cover we don't disclose numbers, but since we gave you all the elements, I think is very difficult to work out that we have a 15%, 14% normalized, or usual recurrent CapEx level, with a more or less GBP3 billion dividend [intention] with the current cash flow performance of this year.

We have in mind something which is north of GBP4, GBP4.5 billion.

If something that gives a margin which is enough to preserve the dividend, and still have room for the other things that are non-recurring.

Any more questions?

Then I thank you very much, and thank you for your questions, and thank you for your time, and I look forward to meeting you in the coming days in other settings and other meetings.