Vittorio Colao - CEO Nick Read - CFO

Polo Tang - UBS John Karidis - Haitong Securities Maurice Patrick - Barclays David Wright - Bank of America Sanvir Dhillon - Exane Jerry Dellis - Jefferies Andrew Lee - Goldman Sachs Nick Delfas - Redburn Robert Grindle - Deutsche Bank James Ratzer - New Street Steven Hurst - HSBC Guy Peddy - Macquarie Simon Weeden - Citigroup

Thank you, Vittorio and good morning. Talk about numbers, otherwise ZBB, you can tell we're building up for the budget with the shortness of my headcount.

So, right turning to the key highlights of our financial performance. Starting on the left hand chart, organic service revenue for H1 grew 2.3% with Q2 slightly stronger at 2.4%.

This was a little ahead of our expectation with good performances in many markets, but especially Germany at tight cost control under our Fit for Growth program, so EBITDA accelerate a faster pace in service revenue at 4.3% year-over-year expanding margins. Headline EBIT return to growth at 7 5% year-over-year but excluding the D&A benefit from holding the Netherlands asset for sale, the underlying performance was down 3% year-over-year.

However, with the leverage affect of growing EBITDA, a normalize capital intensity we would expect to see EBIT stabilize as we go into next fiscal year. Turning to the lower half of the P&L, I just wanted to briefly cover a number of points.

Lower adjusted earnings per share is driven by two factors. First, the increase in financing costs reflects lower capitalized interest in India, as we can begin to put into service previously acquired spectrum.

In addition, we experienced FX losses on intra group landing. Excluding these factors, our underlying net finance cost with stable year-over-year despite our higher average debt.

Secondly, our share count has been increased materially given the mandatory convertible bonds, but it's our intention to buy back those shares with the proceeds from the Verizon loan notes. Finally, our reported loss for the period was impacted by net 5 billion non-cash impairment of goodwill and assets in India, driven by our expectation of lower projected cash flows following increased competition in the markets.

Turning to our operational performance. You can see from both charts, our service revenue growth is broad based.

Top right, you see Europe continue its acceleration Q2 plus 1% year-over-year versus negative 1% this time last year even after absorbing the negative impact from roaming this year. It’s pleasing to see the 10 out of 13 European markets are now in growth.

AMAP produced another strong quarter of greater than 7% growth whilst absorbing price pressure in India with strong performances in Turkey and Egypt, which you can see on the far left of the main chart. On the far right, we see the U.K.

and Netherlands stay with negative territory, we expect to see an improvement in Netherlands in H2 as we lap the change in VAT treatment. In the U.K.

we see a similar underlying performance in Q2, given the ongoing mix shift towards SIM only contracts in the marketplace and a drag from lower MVNO revenues. Still on service revenue, I wanted to give another view.

This time focused on our three growth drivers and the contribution they make. As you see on the left, mobile data is our largest contributor to growth, with Europe consumer mobile delivering the largest improvement year-over-year stabilizing as we drive more for more pricing strategies in our market.

AMAP consumer mobile continues to be the largest contributor at 1.8 percentage points. Consumer fixed contributing 0.6 percentage points, having added 1.5 million customers over the past year.

And finally enterprise contributing 0.8 percentage points continuing to take share given a unique international footprint with the local routes. It is worth nothing the black bar where we've taken conscious action to eliminate very low margin international voice transit which represents 0.6 percentage points of the 0.8 percentage points drag highlighted.

This is set to reduce in H2. So if we look at H2 trends in service revenue growth, we see a similar underlying performance to H1 when adjusting for the previously highlighted last year Q4 70 basis points leads and one-offs and the MTR cut in Germany from December, with a group benefiting from a lower carrier drag and a solid European performance, broadly offsetting the negative impacts on India slowdown.

Turning to EBITDA and our work on cost through our Fit for Growth program. As you can see on the first blue bar, we were able to deliver approximately 60% incremental gross margin in H1 given our focus on more for more pricing actions and so the penetration of our fixed NGN footprints.

I was pleased with the progress that we made on cost at which overall we helped flat but produced a far higher output in terms of commercial performance as seen in the top box. Let’s take a closer look at how we're managing to hold our cost base stable using the key building blocks for Fit for Growth program.

Our direct cost base continues to increase, up 2% year-over-year given higher wholesale fees on $0.5 million customers of net broadband customers since H1 last year as well as the impact of 85 million increase in content costs in Spain and Portugal, content costs are expected to have a further rise of 70 million in the second half and should then plateau, given limited content auctions over the next couple of years in our key markets. Customer costs remain stable.

Thanks to our focus on A&R efficiency, which further improved by 30 basis points in Europe and good progress in Spain, particularly offset some market pressure in Germany. Technology costs also increased due to Project Spring footprint expansion year-over-year of about 5%, which moderated in H1 with only a 2% additional build.

This increasing cost was more than offset by 14% decline in support costs, as our ZBB initiatives began to take an impact. When looking at the potential of further cost reductions, I want to remind you that our Fit for Growth has two parts to its execution.

First, through A.T. Kearney Benchmarking, we breakdown all of the processes within an OpCo to determine whether the operation is at top quartile by process.

If it's not, we size the opportunity by process. The OpCos are then targeted on a multiyear improvement program to reduce the performance gaps.

In addition, we have the small program office to coordinate and drive best practices and accelerate progress. Secondly, we identify and develop group programs where we see the opportunity to see at global scale and bring competitive advantage.

The pie chart on the left gives you an illustration of the mix we have achieved in Phase 1. Phase 1 was 2016 to 2017 and all the initiatives are now identified and been executed.

So we remain on track to achieve our FY 2018 targeted run rate. We therefore take the opportunity to develop Phase 2 which has similar savings ambition to Phase 1.

You’ll also see the composition change between the two phases, procurement was heavily centralized in Phase 1, the opportunity moving forward will be toward dot, a manufacturing teardown model to cost each components and avoid over engineering specifications. Shared services rent up quickly, so we are yet to see the full financial benefit to date.

So far, we've been focused on building captive scaled centers in our emerging markets footprints. But moving forward, we see significant opportunities from AI and in-sourcing of application development.

Sales and distribution are constantly optimized. As we drive, My Vodafone App and direct distribution was improving the customer lifetime value economics of indirect channels.

In network and IT, we achieved material savings in driving network standards during Project Spring. In Phase 2, we are focused on bringing our IT costs as a percent of revenue down from the 5.5% to the low 4%.

And finally we use ZBB in group reviews in Q4 of last year and it's now being rolled out to all countries as part of the budget process in this quarter four. Bottom-line adds systematic focus on driving efficiency in all areas of the business while growing our topline line gives us confidence, a margin expansion moving forward.

To close on costs, we've concluded our latest A.T. Kearney Benchmark review to inform our Phase 2 execution.

The recent result shown here, we have made the greatest improvements over the last three years when compared to any previous review cycles with some excellent performances as highlighted by those above the horizontal line. There is opportunity for all the OpCos, but this chart shows the largest opportunity to the bottom left quadrant, where the gap to top quartile is still significant.

It highlights the U.K., Irelands and Germany where we have further work to do, and the local management teams are working on the plans over the coming quarters. I have talked in last two results presentations about the broad-based nature of our topline recovery.

I am now pleased to see the combination of this recovery along with systematic cost control feeding into broad-based margin improvement. In Europe INR and OpEx are generally declining driving higher margins in all our major businesses except the U.K.

which as Vittorio has already stated had had some well-documented operational challenges. It is worth commenting on Germany which despite reaching 100% of our targeted cost and CapEx integration synergies six months ahead of plan and cost rose year-over-year due to increased subsidy levels during H1 given competitive aggression in indirect channels.

Whilst in AMAP despite inflationary price pressure in cost we’re improving margins everywhere by India given our rapidly expanding 4G footprint. Consequently as you see on the left-hand chart our group EBITDA margin continues to improve up 70 basis points year-over-year.

Now 19 of our 26 OpCos are expanding margins with ambitious three-year improvement targets set for the vast majority of the businesses moving forward. Moving to capital expenditure.

We continue to take a disciplined approach as we drive down investment levels by around 25% following project Spring normalizing at mid teens capital intensity. During H1 we've invested to support our growth in AMAP noticeably India where we're executing our 4G plans post the spectrum auction.

You will see this reflected in seasonally higher CapEx levels in H2 bringing us towards the upper end of our guidance range on capital intensity as we indicated in May. In Europe we have continued to invest in 4G densification and mobile backhaul.

We now have fiber to the sites in 69% of our open sites versus the 95% target we've set for 2020. Despite strong traffic growth at 40 utilization at busy hours has only increased by 1 percentage points with the project Spring investment given our substantial headroom in the future allowing us to lower investment levels in capacity.

In fixed line we’re investing in incremental footprint expansion in Southern Europe predominantly Spain and Portugal while CP costs remain high due to strong customer growth. Finally we’ve increased investment in IT consistent with our long-term cost saving ambition.

It goes without saying that capital expenditure and discipline is also critical when acquiring spectrum. In the recent India auction we invested 2.7 billion in line with our plan.

However, I want to take the opportunity to build on Vittorio's India’s summary and explain our investment strategy. Since 2010 post the expansion of competition in India which brought a step change in the pricing environment and cost to spectrum we've been focusing our investments in India on the circles where we believe we can in an appropriate long-term return on capital.

There are 12 circles where we enjoy a leading position with an average 27% revenue market share and attractive margins. As you can see from the charts 93% of all our spectrum spending since FY '10 including 92% of the spend in the recent auction was focused on these circles.

We now have 325 data carriers in every circle giving us significant capacity for future data growth. In addition, we have the option to re-farm 900 megahertz for low band data services reducing our need to participate in future 700 megahertz auctions.

Impulsively we are gaining revenue market share in our leadership circles both in Q1 and in the last two years. The spectrum investments we've made in our most profitable circles gives us a position of strength from which we can shape future potential consolidation.

There are five further circles where we have a strong challenger position typically number two and three with rising revenue market share and improving margins. You can see that from the chart that in FY ‘16 we invested CapEx to rollout of 3G in the circles to replace our 3G ICR arrangements.

Moving forward I think we're well-positioned to achieve scale. Finally there are five circles where our market share and margins do not justify costly spectrum investments.

Here we will retain our Pan India presence through ICR arrangements with various partners on top of our core urban presence. These contracts have recently been renegotiated on improved terms and we can expect these circles to be free cash flow breakeven moving forward.

Moving to free cash flow which was breakeven in H1 mainly as a result of the final payments associated with project Spring completion in FY ‘16 driving the year on year increase of just over 700 million in capital creditors. A large seasonal outflow in working capital is not unusual in H1 and in fact the swing was lower than in prior period.

Cash tax payments reflected the benefit of the reorganization of our Indian businesses which took place at the end of last year. For the full year we expect cash taxes of around 1.1 billion with a similar effective tax rate for the first half.

We continue to expect a mid-20s underlying effective tax rate in the medium term. Finally despite a higher gross debt level our cash interest cost declined in H1.

We expect the full year to be around 1.1 billion with a higher H2 given the timing of the bond interest payments and KDG minorities paid in October. Our balance sheet remains robust with leverage at 2.6 times.

Net debt increase as expected to 40.7 billion mainly due to the payment of the final dividend and FX impact. We expect net debt to reduce during the second half despite payments for spectrum in India and Egypt given strong free cash flow and the monetization of the first tranche of Verizon loan notes.

We also expect to close our JV with Ziggo the in the Netherlands which would lead to an approximate 0.5 billion net cash inflow given the refinancing. We've taken advantage of benign funding conditions during the period to significantly extend the duration of our maturities.

The average life of that debt has now risen to 9.4 years up from 7 years lost year and we've achieved this while leaving our underlying cash interest cost flat year-over-year. Turning to guidance, overall we remain on track to hit our internal plan of the year.

Europe is ahead of plan driving modest upside to our internal expectations in the first half. However given increased competition in India the top ends of our original EBITDA guidance range needs be slightly modified narrowing the range.

During the second half we expect revenue growth to be broadly similar to the first half on a underlying basis our at performance in Europe compensates for lower India growth. We continue to expect to deliver free cash flow of just about 4 billion.

And given at performance and outlook the Board approved a 1.9% increase in our interim dividend. And on that, I will hand back to Vittorio.

I think I need t summarize too much. I think for me the key chapters are, we continue to work on differentiation, technology and commercial as I explained.

Pleased with the commercial momentum in Germany, Italy and Spain and South Africa prepared for competition in India and I would say not deteriorating but still we need to improve in the U.K. Modestly ahead of expectations in the first half and I have to say focus on driving operational leverage, we will continue to do it in the ways that Nick has illustrated.

And with that I think we should open to question.

Hi sir, Polo Tang from UBS. I just have two questions.

The first one is on India. Are you seeing negative service revenues for the December quarter, given promotional activity by Reliance Jio?

And do you think the entry of Jio into the market triggers further consolidation in India? The second question is really just a follow up in terms of Fit for Growth Phase 2.

Is there any - can you actually give some color in terms of what the financial impact of this Phase 2, in terms of Fit for Growth, might involve? Thanks.

Let me start the answer on India, then maybe you complete India and you go. Clearly, let me take the broader thing.

What's happening in India is very interesting. You have somebody who invests $25 billion in a market whose EV is I don't know what, you tell me probably I don’t know, 60, 70, 80 I don’t know, but it’s basically a massive investment relative to the size of the market.

Clearly there are couple of players who are investing, Airtel is the market leader so they are basically digging their heels in and Vodafone in the way that Nick has explained, we are strengthening our position a little bit more selectively because we are smaller. What will this result into, I think consolidation is the answer and there will be pressure on unit prices, not necessarily dramatically clients of ours are pushed but definitely there will be bigger volumes of minutes, bigger volumes of data, there would be a challenge on how to serve this from an OpEx point of view but you cannot defy the rules of economics.

The marginal players on the cost curve will eventually have to consolidate and so it will work back into the metric. At some point, a new equilibrium will be found and potentially things will start going up again.

That's a little better way we think and Vodafone has the ambition to, in our leadership service, in a very disciplined way, in a very financially smart way have the intention to be one of the players that we will enjoy the longer term consolidation of the sector. Nick, you want to be more precise?

If I just brought it down sort of like visibility over the next one or two quarters, I would say what are the trends already saying is, we have refreshed for Vittorio's presentation, a commercial offering and we have seen good traction in the market. So in terms of net ad performance, actually the net ad performance for the quarter didn't look so strong but if you looked at September and you look at October, we are trading well on customer growth.

So, I'd argue we are not losing customers, we are losing some data growth because obviously if there is a free service out there, who is going to be predominantly a second SIM in the marketplace, we are going to lose some of that data. What we have to see is what happens when as per the TRAI, the regulator, says the promotion has to stop from the 3rd of December and they have to start charging, what we have to see is how many of the customers want to stay on Jio as a primary SIM as opposed to being a secondary SIM.

So we could see volumes come back to us on that basis, but we will have to see. On your second question in terms of, so to conclude, on India in terms of topline Q3, of course we are going to have a little bit more of a slowdown.

I mean let's not get overly dramatic is what I would say. On Fit for Growth in terms of sort of the financial goals, we had said all along that we were driving a systematic approach to efficiency within the company.

We said that we were targeting 24 out of 26 businesses on a three year basis, on a multiyear basis to improve margin. I think the first half was a good illustration of how serious we are taking that.

70 basis points improvement year- over-year is a good start point I would say and clearly we want to be able to accomplish similar type goals on a multiyear basis. Now, will we give exact this is the guidance on, no, because we are a large group, big portfolio, lot of moving parts, composition can be different, you have heard it all from me before, so I don’t think we should get down into, and it’s going to be this number because that's very hard for us to predict but I think each one is a good illustration of our ambition.

John Karidis

Thank you very much. So it's John Karidis from Haitong Securities.

I also have two questions if I may. The first one is to do with your fixed line business, is it right to assume that the size of the off-net broadband networks is likely to increase faster than your all-net broadband networks and therefore what does that mean about the profitability of your fixed line revenue going forward?

And then secondly, specifically in the U.K., as you may know Ofcom is looking for volunteers to help them build a third all fiber network to about 40% of the country, Sky have already said thanks, but no thanks. Under what circumstances would you be - step up to the plate and be one of those brave volunteers, please?

Yes, I think first of all I believe that we should think about return on capital more than profitability. In this industry we always talk about EBITDA, EBITDA, EBITDA, you should start thinking about EBIT, EBITDA on a return, which by the way next year we have intention to kind of emphasize stronger.

Yes, you are right, the off-net the kind of resale is less profitable but the capital allocated to it is also lower. So the more we use not our network, the more we will require economic conditions that allow a certain margin to be made, hence a certain kind of pension with incumbents.

And at the end of the day, this is also the answer to the second question, the reason why it’s important to have access to ducts and poles is exactly to have an alternative which is economic. And then I can look whether I prefer in a specific area to build or to raise, but if Ofcom helps me, open reach should have a competitive rate here and should give access to ducts and poles here and then we will make the tradeoff.

So it’s impossible to give an answer in general. It’s a little bit like in Italy you have areas of the country where it’s going to be very hard to deal to the point that there would be subsidies.

Now whether to be won by Enel or by Telecom Italia, in the end we prefer Enel because we have a better contract. But if then Telecom Italia at some point improves the condition of the contract that is still good for us.

So you cannot give a black and white answer to that type of question regardless of conditions and geography. Maurice, Akhil, yes.

Yes, it's Maurice from Barclays, a couple of regulatory questions please. The first one on roaming, so you quantified the resettlement of roaming on your numbers that drag this year and next year, there are proposals in parliament to have a much lower wholesale rate I believe the 8.5 year number would become possibly one euro per gigabytes.

You presumably insulated against the OpEx risk because of your diversified nature but say the Finnish operators talking about wanting lower rates, are you worried about lower rates being imposed at one year levels and the potential impact that could have on Op charge or OTGs entering? And just secondly, you made the point I think about 95% of your sites being further back on in the urban areas, and as you start thinking about the European framework of EU and how the final recommendation will come out, how important is cost orientated access to back on networks to fulfill your 5G vision?

Thanks.

Yes, on roaming, it's a combination of two things. It’s the price and it’s also the fair usage conditions which are important.

The price is important. Clearly one euro per gig is too low, if you start talking about the current proposal, the one that has been debated that talks about 8.5 going to 5, which okay, some operators are not happy with, in the end Vodafone could live with it and we are always more modern than the others of course because we have more on net and we have an advantage, blah-blah.

The real point is the fair usage conditions. And there was proposal of 90 days, it has been kind of turned down.

I am not sure how much higher they can go, because if you think of weekends where you should leave in your country hopefully, and if you think about working abroad 50% of your time you actually get to 145 or 150. So there is nothing huge amount of margin there that can be played.

So this will be the important element of the discussion. Now, Northern countries don’t like it, clearly for one reason.

Southern countries don’t like it for another reason, my sense is that big countries like Germany or like France, will not allow the wholesale rate to go at a point where their own industry is threatened. And again in the current climate, I don’t think see many people being really very happy to sacrifice their own industry for the greater common good.

So in that sense its probably one of the positives of the balance situation that has to be found. Second question was the importance of cost orientation to get to the 95% fiber.

Of course, as I said the lower we get the better it is but also don’t underestimate we have alternatives, we can work with third parties and especially and that’s why I raised the point about access to infrastructure. We can build ourselves, if we have access t that and that’s why access to that is the clean conditions for accessing passive elements of the incumbency per session is very important for competition.

These countries really care about competition that’s the single element that they should work on.

I would like to say one thing on roaming. Sometimes there’s an appreciation.

So assuming no domestic arbitrage opportunities, so that’s covered. Two-thirds of our roaming traffic is on footprint.

So its within our operations and that final third is on a balance trade flow with our partners. So actually you could argue from an economic perspective we are in a lot more favorable position to say some other operators that might be had in balances.

Two questions. Firstly, just on the outlook, and I guess, specifically just on the point you have around India.

As you both mentioned the H1 performance has been better than you’d expected across the board, yet you chose to trim the top end of the guidance. I guess, I'm just trying to understand within that, is that a function of the fact that to keep such a wide range doesn't seem credible going to H2 implies typical range for the second half, so this implicit prudence for H2 or the specific things in India, and I guess, when you talk to India .

And I guess, when you talk to India, I completely take your points around there are going to be affects within the business, but as we look to what you have seen so far half with the Q4, are there specific you are seeing or is it just you are worried about them sustaining the data pricing of free post December 3rd? And then secondly on Enel, there’s been a lot of rumors in discussion around whether their rollup targets were actually on plan at the moment or not, so just any sort of color around what you're seeing how comfortable are you with what they’re doing?

And you also mentioned that currently your penetration is 5% of your 5 footprint and it leave us in 20% elsewhere, what steps are you thinking to try and drive that off to a more pay group average sort of number? Thanks.

So, just in terms of thinking on the guidance range. I mean you did a pretty good summary yourself actually.

So when you look at the guidance clearly we tried to narrow the range down as we get to this point in the year to be more helpful. But, so how you have to look that range is sort of what could happen on the top end.

The top end is Jio, start charging from 3 of December. We see reasonable dynamics happens through quarter four.

In other words a slight normalization situation. We also see potentially, Italy, which now the consolidation happens, what happens to the below the line promotional activity.

There has been pretty aggressive over the first half of the year if it gets moderated that could be quite beneficial for Italy. So these are I would say the two higher ends.

At the lower ends of the guidance range clearly, can we say Jio will definitely start charging from 3 December? No we can't.

and therefore if they sustain free for another that is a big variable and what happens in the marketplace generally and on top of that you could a large European market gets suddenly more competitive of course, it can. So unfortunately have to keep that slightly lower end of the range in place just in case a number of things go against us in terms of the headwinds.

Yes, on the Enel, on the Enel project what we can report is that Enel is getting to up to speed so there are now 30,000, 40,000 homes per month which is pretty good. Now there’s no homes these are apartments.

Its easier of course, but it is families in the end. There theoretical maximum speed that they can get is 100,000 which we come overtime.

We don’t hear any operational issue in their deployment. Now its up to us to convert existing customers into NGN customers as soon as they come available.

Of course, you have to go by area because you don’t want to go more times in the same area. Now if you think about our footprint there, we will have 1.5 in phase one plus 1 million of metro plus 2 million of FTTC which is 4.5.

This will go up to 8 or 9 on phase one and then we see what happens in the poor areas, the C&Ds areas where there will be a Telecom Italia versus NL kind of subsidized rates. But potentially, Italy could become in a matter of few years pretty weatherized country.

And I would say probably 60% of it competitive and 14. What we need to do is basically go block by block, its geographic marketing is not much marketing, but again, if you take today carrier wholesale you see Vodafone’s advertising at 1 gigabit per second, today, this morning I saw the first one.

That’s what we are doing. I think that we go here and then.

Hi, its David from Bank of America. So I had two questions please.

Just first one on Spain, it's quite clear that Orange has gathered a lot of momentum. It looks like you guys are holding your own and Telefonica starting to really lose, but Orange Jazztel us definitely disrupted historically favorable environment.

How long you are going to give them before you guys feel the need to react is my first question? And then second of all, it was a curious move to introduce that very aggressive broadband pricing in the U.K.

It felt like you would always be a little bit more reactive to BT and EE rather than necessarily proactive. So I am just interested in how you guys came about that strategy?

Thanks you.

Yes, thanks, David. Let me answer both questions in a very pretty and very short way.

How long we will wait to react to Jazztel. For those who are not familiar it’s the kind of second brand of Orange that plays systematically €7, €8, – €7, €6 €5 below our price points.

And the answer is very short, not very long. We said it last time and now its becoming not very long the answer, and it is what it is.

On the U.K. thing, you say our pricing is very aggressive.

I think the U.K. has done some kind of addition of thinking on the situation on the market and we found two things.

One, that this is a market which is going very quickly over the top. So because of the English content, because of whatever all the things that we know.

And therefore, it would have been a better strategy to have a clean pricing without line rental. Focus on naked broadband, focused on our customer base.

And this is also why we are holding the launch of TV, because we preferred to build scale and in our customer base on naked broadband because there are so many people and so many customers that surely now are appreciating that. Now of course, we are anticipating a request often, so its not that we are doing something completely crazy.

It’s a request from come to have integrated pricing without the hidden line rental, we did it and we did it at commercial level. And the take up, which is only partially visible in our number is actually good, so we are pleased with that.

And we think that build scale that’s the best enter strategy into the U.K. rather than going with traditional offer than the hidden line rentals and things like that.

Go there, then, yes.

Okay. Two questions.

Sanvir Dhillon from Exane. Yes, working - the first question questions is on organic EBITDA.

Nick, you said its relatively broad-based and it is but within the mix, AMAP is growing nearing up 10% given what's happening in India, and Egypt as well with the currency devaluation, what kind of level of organic EBITDA growth can we expect with that within that region? And secondly, given that organic EBITDA has been a growth phase for some time now.

What type of leverage do you think a growing EBITDA company in the telecoms can sustain going forward?

Sorry, I missed the second one.

Leverage.

It was just a question on leverage, given that Vodafone has been growing EBITDA sustainably for some period of time now, what leverage can a growing telecom company sustain?

Yes, I mean we’ve gone out with our range at 3% to 6% type growth and we said when we went out with that guidance range, the midpoint was broadly where our plans were as a business and therefore we remain in line with our plan. So yes, we had anticipated slowdown in India, but some of our other AMAP countries are performing very strongly, I pick Turkey, Egypt et cetera.

So I mean I remain confident in our outlook in terms of the guide. We have obviously as we go into leverage think about in terms of more-for-more.

There is really two things I would draw around in terms of the growth drivers. The first is the data side clearly if we are monetizing data that has a strong leverage effect, and the second which is a point already made, which is selling fixed on that has a big leverage effect as well because we’ve already got the network there.

So those two have if you like high margins throughputs, lower margin throughput would be selling our footprint in fixed. So that composition depends on our leverage.

As you say I think we’ve done a good job outside the direct costs, which have a wholesale in the content. We’ve done a really good job of holding cost down and we’re looking to get further efficiencies going forward.

Jerry, yes.

Yes, good morning. It’s Jerry Dellis from Jefferies.

Two questions please. Firstly you mentioned in the slides that you are making personalized offers available to customers in 2017 market.

So I just wondered whether you could give us some more detail perhaps about the level of customer take up and what typically happens to a customer’s ARPU when they adopt one of these personalized offers? And then the second question is really on Italy.

I suppose Telecom Italia managed to reduce line loss last quarter with a quite an effective quad play campaign and they seem to be investing with more urgency in fiber. So just wondered sort of commercially on the ground what impact that is having upon you and to what extend you now need to activate bit more urgently there?

Yes, it’s difficult to give you a general answer on personalized offers because by definition as the name says they are personalized. So it’s very difficult.

But let’s say, what’s the purpose of this? These are kind of data analytics driven strategies, which are aimed at identifying opportunities to up sell based on a more generous type of offers, so they are usually ARPU accretive and unit price dilutive.

I give you more of this – of that if you use in certain times of the day, in certain months, in certain days more versus the previous – I mean there is a huge variety of offers. But essentially that’s the – and the take up, it’s very difficult to generalize because it depends on what you’re talking about.

There are some who had a fantastic take up. For many of them now we’re using My Vodafone app, the digital app because of course it also create a certain kind of stickiness to the Vodafone experience.

And I think it’s actually an interesting question we might – in one maybe do a dedicated kind of investor and analysis focus separately from these events because it’s becoming more important and it’s one of the areas where we’re investing so maybe we will follow-up. Second question on Italy, listen on Italy, I mean yes, Telecom Italia is doing well.

Everybody else is doing, so building more fiber and trying to do quadruple play. We are going to push ourselves.

We’re going to launch TV again different strategy from U.K. for a different reason.

We are already at a good kind of broadband customer base. So we can now add the TV offer.

And what do I see in the market. I see the only thing I don’t fully understand is a very aggressive entry point at €19 from Telecom Italia.

You kind of not expect, but accept from Fastweb. From Telecom Italia, I would have expected a bit of a premium versus Fastweb also because Fastweb is their partner on the deployment of fiber, so it’s a bit of a strange thing.

But having said that, we will play the game that we need to play, it’s – I think there is an opportunity in Italy with a consolidation of Wind and 3 and the preparation for that arrival of the new entrant in nine months time. There is an opportunity to uplift ARPU in a healthy way.

Andrew?

Yes, thank you. Andrew Lee from Goldman Sachs, and I thought one of the bright spots from your results is the operational leverage that we started to see and more than a glimmer of particularly in Europe.

So just specifically on Europe given your confidence on cost control and I wonder if you could talk about what the outlook for the operational leverage trend is on a 12 to 18-month horizon. Should we see that accelerating?

And I wondered if you can just talk about the mix within that between kind of mix improvement in terms of your revenue growth and the cost control you are delivering. And then just secondly on AMAP, where we’re not seeing as much of that operational leverage coming through, is there anything that can be done, is there anything we should look for that’s changing that could start to deliver a bigger gap between revenue growth and EBITDA growth?

Thank you.

What I would say about Europe, it sort of somewhat goes back to my answer before, which is if we can drive more-for-more strategies and monetize data, there is clearly strong operational leverage because we did the Project Spring spend. The network is built.

It has a higher amount of capacity therefore incremental throughputs are very high. We’re working very hard on support cost.

We’re working very hard on customer costs to bring those down over time and I think we’ve demonstrated in the vast majority of markets we’re doing that. So if you like the jewels should work well as long as we are monetizing data what do we rely on.

We rely on rationale incumbents in the Tier 1 along with us to price appropriately and not undermine the more-for-more pricing strategy and keep strong networks, which we are doing. I think on the fixed side, I don’t think we’re relying on anything.

I think we are driving the penetration on the fixed side and content is a little bit behind us because most of those auctions have taken place. I’d say only emerging markets a lot of that was network built.

There is always inflation in emerging markets and we try and suppress as much as possible through efficiency savings. So it really does come down to the top line growth in emerging markets, customer growth and data monetization.

Can I just follow on the fixed side? You’re very confident with the operational gearing on the fixed side of things.

I think all you have to do is look at the results that Vittorio demonstrated. I mean our net add performance on the fixed side has got real momentum.

We’re the fastest growing in Europe. So if your commercial engine is running well, we’re going to slowly penetrate on to our own net base.

Should we go clock wise, yes, back there and then we come down again.

Thank you. So one question and two clarification actually, the question is about the emphasis on return investment that is welcome and I was wondering about India.

Over the last six years, I think more or less we invested just in spectrum €11 billion. You generated after tax around €2 billion to €3 billion.

So I was wondering given your projections when the Indian subsidiary is going to earn its cost of capital on the back also what’s happening with Jio entrance? And the clarification, the first one is one Side 13.

You talk about 28% convergence of your fixed line customer. Can we have also the same percentage for your mobile customers?

How many of them are convergence? And the other one is on your CapEx.

You basically during the speech, you referred to the fact that you did 14.3% on the first half. You mentioned about seasonality.

Looking last three or four years normally you do 300 to 500 basis points more for the second part of the year. And therefore you said that we are going to end up on the upper end of range on the CapEx to sales.

The problem that we never had a range on that one, you always already faired to mid-teens. So I was wondering are we talking 18%, 19%, 17%.

If you can tell us what sort of upper end of the range means? Thank you.

Yes, let me take the broader question on India and maybe small clarification on the mobile things and then maybe Nick, you take the CapEx. On India, I think you are correct.

India is not earning its own return on – cost of capital. It’s a market situation, I have to go back to my answer Polo, it’s really about consolidation and it’s really about the post stability or the opportunity to be one of the beneficiaries of that.

This is the reason why we have decided to be more focused, more selective and as Nick has shown in his chart, we are putting most of our money, 90% of our money where we have the highest chance, which is where we are leaders to have a good return. But we are very minded to continue, to be disciplined and to be focused in India, in general, but in India in particular.

The percentage you ask is interesting. We don’t have it yet.

We are trying to measure it with through prepaid and so on. This is one of the big system changes that is necessary.

So I don’t have – unless you have it I don’t have the number. You can multiply whatever take the percentage and multiply two points something seems per household or something like that, but it is not completely accurate.

So we are getting organized to measure also the other number, which I agree is very relevant. On CapEx intensity?

Yes. I remember when we went out with mid-teens that here was a big debate amongst you all about whether 11 and 12 counted in the range of mid-teens whether that was only 13 to 19 and what did it exactly mean?

I would say the consensus fell ultimately to 14 to 16, 17 type range and therefore we’re saying we are at the upper end of that type of range, so no 18, not 19.

Dhananjay, and then Robert, and then we will come back here, yes, Steve.

Thank you very much for taking my questions. I have a question on proposition - the mobile proposition strategy for Europe.

In Germany, we've seen through launching is proposition, which are provide pretty decent data experience once you [inaudible] and more importantly, do not – was not allowed an MVNO, an [inaudible] basis to easily replicate that type of proposition. What is preventing the management board from the Telecom, for example replicating that and utilizing this market versus market you have today.

I think that what's stopping them from doing that, probably nothing stopping them from coming up with similar type of propositions. I mean I would say if I stand back…

I think the question is what was stopping us, correct? Shall I take it?

I think the answer is nothing. I think it’s just a matter of how well you are doing with your main brand and your second brand.

You say a similar experience, what the German market is telling us is that Deutsche Telecom and Vodafone on the main brand clearly have established a gap, which we want to continue. Clearly not having unit based MVNOs is helpful for us.

Are we going to use more aggressively our second brands in the lower – in the mid-end and low-end of the market. I am not so sure, we might do it a little bit more.

The answer is – but preserving this kind of separation, I think is healthy and it is – I think so far it has proven to be a pretty good strategy. Will we be a little bit more active second brand, a little like my earlier reply for Spain, probably yes, but we need to be sure that there is no contamination between the direct and indirect channels and between the main brands and second brands, because that’s the way the market is working today.

So I would say openness of minds, but caution with the wallet. Yes, Nick.

I am sorry, Rob. Okay, Nick and then Robert.

Yes, thanks very much, Nick Delfas from Redburn. So first of all, I just wanted to understand that we’ve got all the drags that are already in the numbers.

So we got a carrier drag at the top line, which is about 60 basis points. You got the content drag, the Spain accounting drag and the roaming drag on EBITDA, which I guess is dragged EBITDA by about three percentage points.

You also got a drag in common functions, which is another 60 bits to EBITDA. So I just want to make sure we’ve got all the things that are already baked into the numbers this half.

And then secondly question on BTEE and Openreach, and duct and poles question. Who do you think is actually going to put real money into fiber in the U.K.

by duct and poles?

You take the first half.

Yes, you did a long, long list there. The only one I wasn’t too sure whether you said was MVNO in U.K.

second half, that’s the only.

Okay.

If you remember the start of the fiscal year I called out “a basket of drags”, one of which was MVNO in U.K., which we haven’t seen in the first half and we are anticipating in the second half tune of about 100.

And actually one of the faults is exceptional items. You’ve got a very small exceptional in H1, is that – should we expect very few exceptional items going forward as well?

Exceptional items…

37 million I think in the first half?

I will tell you what, let me pick up afterwards, I can’t….

So, this is very low relative to some of your peers.

Restructuring, I see. Yes

So on the open reach, my instinctive answer is that the first one we should put real management be open reach itself, that’s the real answer. And why they don’t do it I understand very well, but at the end of the day, if one wants to preserve a certain status in the industry should put real money.

In absence of that, then the opening of duct and poles is very important and the conditions at which they open duct sports and wholesale, which by the way is just the same problem we have in Germany, it’s in discussion we have in Germany. The European Commission has come back on – again wholesale conditions that’s imposed for Germany.

Despite the fact that Germany has a much lower price. In absence some of that I think its the other players in the market, ours, Sky, the others that with the right economic conditions can put money.

The question is of course, open reach, on one hand does not want to put money and on the other hand wants to keep conditions very high, so that there is no incentive to invest and that’s why I think they are ending in a difficult position and they are in a difficult debate, because they want to have two things which are now compatible with each other and that’s why the debate is going in the direction of the split. Whether the split happens or not, it doesn’t really change the reality.

They will always be under this pressure, so they need to find a solution. Now other players in Europe have found a solution by lowering wholesale cost.

So for example, in Germany there is no split debate, because Deutsche Telecom has lowered wholesale. In Italy wholesale is already low.

In Spain, there has been an agreement of competitive, non-competitive areas that works. In the U.K.

has been a bit frozen and there is discussion, and so now the discussion is becoming again heated. But, again, there’s a variety of players who could have an interest and eventually there could be also private players who start thinking that maybe it’s worth with the right access, conditions to build private networks like in Germany.

You didn’t say that you are willing to put material capital in…

No, I said it depends on the conditions. I am back to the earlier point, I mean, material capital, if it has a good return, you can put it, you can invest, you can do things like there glass fiber in Germany.

There‘s plenty of solutions okay, but there must be the conditions otherwise why would you do it. Robert, I think you have been waiting patiently.

Thanks. Robert from Deutsche Bank.

I wanted to ask you fewer thoughts on your equipment revenue trends, please. There’s been weaken your for few quarters, it was very strong a couple of quarters before that.

Does the handset upgrade cycle over, or are we in some sort of secular decline on handset upgrades or are we just in a cycle that’s going to recover? Are you seeing recovery in equipment sales in the quarter, is there an enterprise component to it, or is it a small consumer?

SIM only is going up. SIM only is going up, which is an interesting trend, which I remember I talked about it two years ago.

The reality that handsets kind of evolution is slow and there is not a huge difference between one generation and the next, and therefore some people are starting to say you know what, I am better off getting more data, higher ARPU for us and weight. I don’t think it’s slowing down necessarily per se but they are buying separately whenever they want and so on.

We will just do what's right for the customers. We will follow both models, and eventually this turns into more net ARPU for us, this is good.

But it’s a net ARPU concept that is starting to creep and we start using the expression of...

And clearly convergence is going to be a factor as well…

Yes.

Follow-on question is have you looked at your service revenues as extra handset effect?

We do.

And is it stronger…

We do because it’s an important element. As I say, we talk about net ARPU now, net in my pockets, meaning without the handset component.

So is it recovering faster than your headline service revenues?

Yes, it’s only really the U.K. We are seeing some sort of shift in the mix.

If you are saying, is your service revenues really actually stronger than it looks, because of a bigger shift in the marketplace. I would say the U.K.

clearly is moving that way. And of course, we got the only material handset financing impact is in Spain, which is a drag of about $80 million in the first half.

Yes.

Yes, thank you. James Ratzer from New Street.

Two questions, please. The first one was an industry-wide question, please, I mean, you’ve obviously seen very strong data growth in the first half, but yet you’re talking about your capacity utilization only going up by one point over the period.

Your other kind of peers are talking about similar trends as well. I mean as long as the industry can continue to grow capacity as quickly as you are.

I mean do you think it’s going to be possible to get pricing power and therefore revenue growth in your European mobile service revenues? And then the second question, please was just around German profitability.

You are seeing accelerating revenue growth there, but I think EBITDA trends was stable compared to H2, I mean you called out some of the rising A&R cost there, is that something you think can reverse and we can therefore see accelerating EBITDA growth in Germany in H2?

James, two different answers. First you talk about pricing power.

The way I see this slightly different. The way, why I mentioned that is this.

Look at Europe 1.5 gig per user. Look at the Nordics, seven, 10, 13.

Look at the high end of Europe, us, I don’t know make that this room five, six each probably unless you worked too much on the Wi-Fi in your official day. So, there is a potential to increase, not necessarily, what you call pricing power seems you can put a premium on it.

I’m talking upsell. I’m talking – you spent 30 this month, you go to 35 the next, may be you get 5 gig more, which sounds like “Oh My God”, you ‘re doubling and you’re only increasing 15%, but for us, and that’s why I showed the network statistics its actually doable.

So we can continue to follow this growth and data which will have small ARPU increment without massive capacity problems. That was the larger.

Now you call this pricing power, I don’t know, pricing power is usually and consumer goods are in fashion is used as, I can jack up because I have a differentiated brand, a differentiated premium relative to what is both. I think it’s more really ARPU, which ones quoted more than pricing power, ARPU power is probably what we are trying to achieve here.

On Germany, Nick will say something, but what I say is that I don’t know if you have noticed, I praised Italy for the great work they did on cost. I praised Spain for the great work they did on cost.

I hope in six and 12 months from now we’ll also praise Germany for the great work they have still to do on cost.

I think that would be a fair summary. I mean, I think, that’s Germany’s EBITDA won’t accelerate.

In the second half there will be somewhat similar performance, mainly because, we have to see what our largest competitor does in the marketplace around subsidies and the aggression in commissions in indirect channels. If they moderate behavior than maybe there could be further improvement.

What I’d say to Vittorio’s point, and to my chart in that bottom quadrant, basically said, Germany has a significant opportunity in terms of this cost base and we will help them on the plan. So hopefully next year we can see further improvement.

I think, yes.

It's Steven Hurst of HSBC. I got couple questions prompted by your generously proportioned risks section within the results.

So the first is how well should we be by things like the OECDs bips proposals and also the directive of the European Commission on tax and financial voting? I also had obviously enlightened particular things like the case DG competition has against Apple.

And the second thing is I see that you’re saying that the outcome of Brexit went on duly impact your U.K. investment which is obviously welcome for those of us living here.

But what I’m wondering is, at what point do actual market conditions in the U.K. begin to impact your level of investment here, you had an EBITDA margin of what south of 19%, Germany is over 30%, Italy is over 30%, even Spain is towards 30%.

You’ve got off come in the DCR suggesting that the industry here is generating substantial supernormal returns. You are not even free cash flow positive.

So it’s a never mind investment in fiber, what really is the case for incremental investment in mobile in the U.K.?

Steven, thank you for your question, because this links well with Ottavio’s point on return on capital before, and also with the previous question of Nick about real money. Yes, the U.K.

is the other place. We’re together with India, where our return on capital is not adequate.

And again our Board is now very keen and the dialogue between us and our Board is a lot on return on capital, a open wish that every other telco in the industry starts talking a little bit more about that and a little bit less about EBITDA only. And U.K.

has like Germany a, to do a significant work on cost, because we clearly have a structure, which is not appropriate for a 20% or 19% EBITDA margin. And b, we need better conditions around us.

I don’t know why you link it to Brexit, because honestly it has been the case for the last five years even before Brexit. So I don’t think it’s a Brexit thing.

I think it’s on one hand a difficulty to compete in fixed line, unless you are one of the incumbents, which essentially are Virgin and BTEE. And a need for us to be more efficient in our distribution in the country through a variety of things, but you’re right to point out that we will have to apply to the U.K., the same logic of everywhere else in particular some logic of India, which is a return on capital based allocation of investment.

Just on BEPS, I don’t see any material impact from BEPS. We’ve been working closely throughout the consultation period.

We have no aggressive structures, no efficient structures. Therefore there is no read across from any recent cases with other U.S.

multinationals.

So who wants the last? Okay, let’s two, you and Simon and then we close – I take both of them together.

Thank you. It’s Guy Peddy from Macquarie.

A very quickly, firstly Nick, on the U.K. margin, is there anything that is specifically one-off in this half that we should expect to rollout over time because of care for example?

Secondly, if you’re focusing on return on capital employed in the U.K., can we assume that you’re going to abandon TV because it’s too late? And thirdly, can you just give us what is actually now the carrying value of the Indian asset?

Thank you.

So, on the first one in terms of U.K., yes we have had a number of – I won’t call them one-offs, but we’ve had some additional costs related to the service challenges we have. If we then look to H2, I’ll be looking to – for the EBITDA to stabilize in the second half year-on-year given the additional costs that we’ve had in the U.K.

business. Clearly, we don’t give out carrying values for each of our businesses, and all I can say is everyone knows how much we paid for 100% of the asset.

It was – someone quoted the $11 million in spectrum, and you got the impairment charge. So I would say that you’re heading in the right direction brought some FX negative movement.

And on the U.K. TV thing, as I said, we decided to focus now on broadband because that’s where we see better returns and more important – it is more important to build the base.

We keep the platform there, which is the same platform we are using across the group in Italy and other places, and if needed, when needed, it’s going to be ready for launch. But we are focusing as I said today commercially on essentially selling broadband to our customers mostly, in the future we’ll see.

But yes, the U.K. will have a more careful return on capital type of capital allocation.

Simon, you have the privilege of the last question?

Thank you so much. I am going to…

We should be six questions, probably.

Europe, for us at least one of the more multinational – multinationals and then you touched on Brexit. But there is more than one country that are potentially reexamining their trading, international trading arrangements, and I wonder how you think about that from an operational capital point of view and if there are any countries where there is a greater risk at some point that you’ll find challenges in repatriating profits, and out of those countries that you operate in?

Yes, I mean, Brexit per se like all the as other things, I mean we have local businesses, they are established locally. They have licenses or has spectrum, which is issued locally.

We have a local management. So, right on one hand I would prefer in an idea were to have a single space, economic space in a single regulator and single rules at the end of the day we were actually born as Vodafone, in a word, which was not single and actually was fragmented.

So we can operate in both words pretty well. And again, the beauty of Vodafone is that we operate in very different environments and we have different operating models across Vodafone.

So we are very flexible in that we can adjust. In terms of repetition of money, I would say so far the issue is more currencies.

I mean there are some currencies where it’s hard to find or harder to find hard currency to take it out. So it’s not really that there are kind of constraints, but...

Yes, I would say that probably there’s sort of financial challenge we have is more – more, we would ideally like to be matching at debts to the discounted cash flows of our market, so that we are economically hedged. There are situations with some of our markets where we can’t inject the debts into those markets.

Generally, because there are highly profitable and generate a lot of cash. So, unfortunately we can’t put that in.

So I would say therefore we run a slight economic imbalance, some gaps.

Good, I thank you very much. Again I leave you with two comments, good quarter, good performance in a number of markets and the strategy continues, the evolution towards what we call gigabit Vodafone continues and I have to say continues in a balanced way across data, enterprise and convergence.

So we will keep working. Thank you very much.

Thank you.