Vodafone Group's CEO Discusses F4Q13 Results - Earnings Call Transcript

May.21.13 | About: Vodafone Group (VOD)

Vodafone Group Plc (NASDAQ:VOD)

F4Q13 Earnings Conference Call

May 21, 2013 4:30 am ET


Vittorio Colao – Chief Executive Officer

Andrew Halford – Chief Financial Officer

Paolo Bertoluzzo – Chief Executive, Southern Europe

Philipp Humm – Chief Executive, Northern & Central Europe

Nicholas Jonathan Read – Chief Executive Officer, Africa, Middle East and Asia Pacific Region

Stephen C. Pusey – Chief Technology Officer


Tim D. Boddy – Goldman Sachs

Akhil Dattani – JP Morgan Cazenove

Stephen B. Howard – HSBC Bank Plc

Nick Lyall – UBS Ltd.

Nick Delfas – Morgan Stanley

Andrew Beale – Arete Research

Jerry Dellis – Jefferies International Ltd.

Simon Weeden – Citigroup Global Markets Ltd.

Maurice Patrick – Barclays Capital

John Karidis – Oriel Securities

James Ratzer – New Street Research

Vittorio Colao

Good morning. Welcome thank you for coming to today’s presentation. We will follow the usual order today. So I will give you the highlight then Andy will cover the financial review. Steve Pusey and I will come back covering commercial, strategic, and technology update, and then after my summary I would be joined by the three regional COOs for handling your questions.

So, these are the highlights of the year, fully organic service revenue is down 1.9%, Q4 minus 4.2%, this is a similar underlying performance to Q3, once you take into account MTRs impact and working base effect which amounts to about 1.5 percentage points.

Europe remains difficult for us especially in Southern Europe due to the macroeconomic environment and also we continue to have an adverse impact from regulatory environment. On the positive front, data keeps growing 14% and emerging markets continue to display a good performance India plus 11, Vodacom plus 3, Turkey plus 17.

Adjusted operating profit, up 9% to £12 billion guidance exceeded and free cash flow at £5.6 billion again it’s at the high end of the guidance and actually if one takes into consideration FX and cable and wireless, we are at the top end of the guidance of cash flow as well.

Dividend announced this morning to be up 7% as planned 22% increase over the last three years. Verizon wireless continuing strong growth and continuing strong cash flow, of the £2.4 billion dividend decided in December, we have committed £1.5 billion to buyback. Of the £2.1 billion dividend in June, which was announced last week we decided that would be retained in the business.

I will cover later the strategic progress mostly I will talk about Vodafone Red, which is going very well for medium customers about our continuing unified communication strategy, purchases of cable and wireless TelstraClear being integrated, additional fibre deployment announced and start in a couple of markets and of course very good deal with DT on wholesale of last week, and of course continuation and Steve will cover it of 3G and 4G investment.

I will then hand over to Andy for the detailed financial review.

Andrew Halford

Thank you Vittorio and good morning everybody. So let’s just go through the key numbers here. So, £44.4 billion of total revenue, £40.9 billion of service revenue; service revenue was down 1.9% for the full year. If you ex-out MTR effect, it was up very slightly by 0.2%. And as Vittorio said, the fourth quarter was down 4.2%, a little bit worse than third quarter, but that difference wholly explained by the leap year effects in the fourth quarter and the slightly more adverse MTR effect in the fourth quarter.

The EBITDA at £13.3 billion, which was stated after £300 million of restructuring charges gives an organic margin down 0.5 percentage points, but of that 0.4 relates to the restructuring charge, so essentially on an underlying basis, the margin was only down 0.1 percentage point year-on-year.

Depreciation and amortization pretty similar to the previous year, the associate income, Verizon Wireless income up very strongly 30% or so to £6.5 billion, and the consequence of all of that is an adjusted operating profit that was £4 billion up 9.3%. If you state the adjusted operating profit on the same basis as we did the guidance, the equivalent number is £12.3 billion, which is above the top of 11.1 to 11.9 range that we guided at the start of the year.

So moving on to lower half of the income statement, the financing costs were about £200 million lower year-on-year, primarily due to a lower level of fixed in the business on average and some of it due to lower market-to-market costs. The tax costs was about £300 million higher, I will cover this in a little bit more detail later, but that is primarily about the higher mix of U.S. profits with the higher tax rate.

Other net gains we have done a fair value exercise on the assets we have acquired as part of the Cable & Wireless acquisition compared that with the purchase consideration and we have put a again there or about £1.5 billion.

On impairments we have taken a further £1.8 billion charge in the second half to do with Italy and that brings the total charge of the year to £7.7 billion, which is to do with Italy and Spain for that full amount.

Adjusted earnings per share 15.65 pence per share, which is up 5% year-on-year and the ordinary dividend as Vittorio mentioned is going up by 7% consistent with the three year promise we made on 7% increases a while ago. Free cash flow I’ll go into more detail on this later 5.6 is the final number, free cash flow on the same basis we get the original guidance that is 5.8 that is therefore absolutely at the top of the original guidance range for the year.

So, let’s move on to the service revenue and the walk from the previous year to last year. So the previous year 42.9 take out the impact of foreign exchange particularly Sterling strengthening adjust for Cable & Wireless and comparable number is 41.7. So 41.7 has become 40.9. Key moving parts moving across the page there as usual the MTR effect is something just shy of ₤1 billion, the underlying voice revenues down about 6% primarily pricing pressures overall volume of minutes actually it was up 8% and a similar story actually on messaging where prices were down but the messaging volumes were actually up 12% to over 350 billion text messages delivered in a year.

Data revenues continue to grow strongly so those grew 13.8% to ₤6.7 billion and those now represent 16% of the total service revenues for the group. The fixed revenues were fairly stable a little bit of increase on wholesale revenues particularly Germany, Italy and Spain and overall ₤40.9 billion of service revenue for the year. In Europe about 50% of the mobile service revenues are now in bundles.

Just in terms of the growth in the split by region, just as a reminder of the three control regions obviously doesn’t have U.S. on it, northern and central Europe which is just under one half of the total revenue pool that had essentially a flat growth profile for the year. The second largest revenue pool is the AMAP emerging markets region which grew revenues by just under 4% and the challenge has been in Southern Europe, which is just under a quarter of the revenues where the revenues went backwards by 11.6%.

So just looking at the weighted average 1.9 by country, not a great surprise on the left hand side of the countries that have already grown very strongly, the Ghana’s, the Turkey’s, the India’s businesses we bought around 4-5 years ago. Interestingly, on the average, all of those businesses are at least now double the profitability when we brought them and then on average, all of them have grown their revenue market share by a percentage point per annum since acquisition.

Egypt then moving across the chart, good performance in quite a difficult market still. Vodacom are 3% as a group, but within that, particularly strong growth in their international businesses, which is roughly about 23% and then the other European markets, which Vittorio will commented upon later on, and on the right hand side, the Southern European markets and their adopted brother, Australia, all in the 11% to 13% sort of negative territory.

The MTR effect was about 2.1 percentage points of the group overall last year and we would expect it to be similar in the year that we are just in before the following year 2014, 2015, we will see a reasonably sharp production and drop below 1 percentage point of MTR drag for the first time in many years.

If we do the same chart with Verizon Wireless in on a proportionate basis, then Verizon Wireless in 60% or so of our net worth, comes in at number four slot with an 8.1% growth in its revenues and that moves the Group’s minus 1.9% to a plus 1.2% and actually if you then do it on an ex-MTR basis, that number further moves to plus 2.7% pre-MTR proportionate revenue.

So on to margins; I said earlier that the impact of restructuring being quite significant. I think this chart just does the walk across published margin a year ago was 31.2. If we normalize for FX and M&A from Cable & Wireless something lower margin, then the rebased equivalent is 30.4 and the actual number is 29.9, so a reduction of 0.5.

Just going across the chart. Italy has dropped primarily because of the top line pressures. Germany was a little bit weaker particularly year-on-year in the first half, slightly lesser in the second half. India and Vodacom both making significant progress now in really getting scale, efficiencies and scale economies coming through. And then the restructuring of 0.4 to give the 25.9 overall and we guided for the year, we are narrowing to a slight reduction in the margin which is obviously not a major precise number, to be able to forecast huge accurately but a slight reduction.

So onto operating expenses, significant focus continues to get costs out of the business, to become more efficient, to become more effective. The three-year trends that you can see here, so £0.1 billion reduction last year compared to the previous year that is against the backdrop of a very significant increases in network volumes, data volumes et cetera and the target for the year we are now in is to get to £6.5 billion, so £8.3 billion reduction.

On the right-hand side, a number of initiatives there listed on projects that we are undertaking, a reduction in the number of operation centers, network operation centers, down to more active sharing particularly shared services area, the journey we started about four years ago. We have gotten out to about 8,000 employees in those centers we will go up 10,500 by this time next year, saving about £100 million per annum.

Procurements which we have centralized in large part the terminal prices is in with the rest of our procurement and we will see the overall volume now going to the centralized team jumping from about €5 billion to €11 billion. And then on support costs and non-customer facing costs, we have done a very significant review and are taking out a little bit cost in that space with about 10% reduction targeted.

So a number of other initiatives in the businesses and closing down, relocating of less utilized base stations, e-billing and things of that ilk, but a significant focus of this will be our biggest year-on-year reduction in our cost of the end of 2013, 2014 year.

So, let me change then and move across to Verizon Wireless two charts. First one is primary focused upon quarterly information. And then the one after thought just a bit more about the longer-term, so top left here is the service revenue, which is you can see has grown very nicely, very steadily of around 8% over that period. The Share Everything plans that have now been launched in the U.S. and now accounting for about 30% of the postpaid base and smartphones now around 61%, the customer base in the U.S.

The net debt at the end of March down to just over $6 billion, and free cash flow generation at $13 billion during the year. Chart on the bottom left, quite interesting one this is the margin in the fourth quarter, but each of the last three years. Three years ago 43.7% then 46.3% and most recently 50.4% and the business is guided to a full year margin somewhere in the 49%, 50% range for the calendar year we are now in.

And then the chart on the bottom right, showing the progression on LTE where Verizon Wireless clearly have a significant market lead and now have about a quarter of the retail connections on the LTE network.

This slide just takes a slightly broader perspective and looks back over a five year period, and so top left revenues going up from £48 billion to £69 billion over that period of time, a 43% increase.

The EBITDA has gone from $21 billion to $31 billion, I think average consensus this year near $34 billion. Operating cash flow has gone from $14 billion up to $22 billion, so most metrics give or take 50% increase over a five year period. Retail postpaid net adds have started to gain traction again with the LTE rollout and out backup to the levels they were at four or five years ago. So, overall a great and hugely valuable asset to have in our portfolio.

Now, on to tax, the published effective tax rate of 24.5%, though one or two one off items more deferred tax benefits. If you strip those out, the underlying rate about 28%. We are now of the view that the effective tax rate for the group is more likely to be high-20s than mid-20s going forward and that is primarily because of the increase in mix of the profits of the U.S. which have gotten the higher tax rate. Now the good news is, if we get a tax distribution from Verizon Wireless that fully covers those payments, but overall a slightly higher tax rate as we go forward.

So, free cash flow as said earlier, that is at or around the top of the range. This gives a quick sort of walk of the major component path. So, £13.3 billion of EBITDA, the cap adds at £6.3 billion were pretty much flat with the previous year. Steve will talk to that in a minute. Working capital, another push on the working capital. Net interest as I said, just slightly low. Tax costs are higher that is mostly U.S related, partly because the profits in the U.S are higher, partly because the bonus depreciation allowances are slightly lower and partly because some internal restructuring has put more of the tax on the partners, as lesser the tax as you within the business and therefore has changed the mix between the AOP and the tax line by about £300 million.

Tax distribution then have gone up commensurately in order to cover that. So next, next those washed the face and then very small Verizon is down below say £5.6 billion and at in the Verizon Wireless income dividend that we received during the year at £2.4 billion and the total cash income for the group was £8 billion. And as Vittorio mentioned earlier and as you are aware we recently announced that we will have further £2.1 billion coming in physically in June and that we will retain the business the general business purposes including upcoming spectrum auctions like in India and other countries as and when those occur.

So moving onto the balance sheet and the overall debt position £27 billion of debt at the end of the year, pretty comfortable position I think on the debt front moving parts there the £5.6 million of free cash flows I’ve just talked about, the equity dividend paid at £4.8 million, so the dividend well covered also the ongoing cash flows. The Verizon Wireless income dividend is £2.4 billion, share buyback program is £1.6 billion and clearly was still mid flow on the last of those.

SoftBank proceeds received earlier in the year £1.5 billion. The net effective acquisitions, primarily Cable & Wireless and TelstraClear £1.7 billion, Licenses and spectrum cost is £2.5 billion, and then FX which has good impact and slightly at the end of the year, particularly to get the £27 billion of debt.

I think the chart on the right is an interesting one, this is taking a four year view, we have generated £51 billion of cash in the business. We have received £5 billion of income dividends from Verizon Wireless. We have benefited by £10 billion from the net impact of disposals and acquisitions and out of that we have spent £25 billion, up £24.5 billion on CapEx. We have spent £8 billion on spectrum, largely buying the raw material for the business for the next 15 or 20 years. We have returned £27 billion over that period to shareholders and we have got a net debt figure of £7 billion lower than what we started with.

So onto guidance, as I said earlier for the ‘12, ‘13 year we had guided on adjusted operating profits £11.1 billion to £11.9 billion. We have come in at £12.3 billion. Free cash flow £5.3 billion to £5.8 billion, we're coming up to £5.8 billion. We said the margin erosion will be lower at minus 0.1, it is lower and the CapEx pretty similar to the previous year. So it ticks across all those boxes and we have even guessed the euro still have FX rates through an accuracy of 0.5% on average over the last two years as well.

2013/2014 guidance; so we are targeting £12 billion to £12.8 billion of adjusted operating profit and £7 billion including the June dividend from Verizon Wireless for the free cash flow. As I said earlier, margin may be a little bit weaker than the current year, but only slightly and capital expenditure at similar levels or bit slightly higher mix towards (inaudible) and to other spent in the fixed world.

Now complete change of topic, highlight of my presentation, accounting changes just so that we haven’t gotten yet the proportionate accounting of JVs seizes from here on in and that means particularly for Italy, but we will in the future account for that the same way that we have accounted for Verizon Wireless in the past. So we don’t have its revenue, EBITDA, et cetera we just take the net income down to the bottom.

We have published the previous results on the new basis and dependencies we have got these results on the new basis, it takes roughly 15% out of the revenues and the EBITDA by the time it get down to net income and EPS. You come back to exactly the same place as you started. And on the right hand side, slightly a different topic, one of the things we’ve been giving a lot of thought to recently is the classification of the different revenue streams in a increasingly bundled world.

How we actually allocate a bundle between voice and messaging and data is becoming incredibly subjective and therefore we are going to move on to a new basis where instead we will look at revenues that are in bundles by contracted and by revenues that also bundles and separately to look at mobile incoming and text and other revenues, so that actually we have got something which I think is more tangible and more actionable.

So, finally re-summary from me, ₤5.6 billion of free cash flow, ₤5.8 billion on a guidance basis, £8 billion if you include the overall dividends from Verizon Wireless. We have grown the adjusted operating profit and EPS even though it has been quite tough in Europe. The balance sheet continues I think to be in a very good place, the focus upon cost has limited the impact of margin erosion. Shareholder returns continues to be center-staged at 7% growth in the dividend, a commitment to atleast maintain the current level of the EPS going forwards, £1.6 billion of buybacks during the year and another £1.1 billion, for the remainder of the commitments and then the forward guidance £12.8 billion on profit and £7 billion including the £3.1 dividend from the U.S.I was trying to think of the right caption for the man on the right, which I think should be man with £2.1 billion in his bag checking delivery address.

With that, I will pass to the Vittorio.

Vittorio Colao

I wonder where did you find that picture. Very good. So detailed operations review, this time I will not go by geographic order, and from now on, I think we will follow the order which is more relevant, which is EBITDA contribution and as you will see, thanks actually are changing. Let’s start with Germany, which has not changed, it is still the most important contributor to the group.

We overall service revenue declined 3.5% in Germany in the quarter. If you look at the mobile service revenue, it is a little bit better, but still negative minus 2.8. Positive development on data revenue, data revenue growth, 11% in Germany, smartphone penetration is up 12 percentage points. If you look at the bottom chart you will see contract penetration 53%, the average is 35%. We continue to push at the in Germany. We have now 61% operational coverage and around 0.5 million customers who are either on fixed or on mobile contract. A little bit of contraction in EBITDA margin, 1.2 percentage point, it’s a reflection of pushing our contracts and trying to remain competitive on the contract side. A part of it however is also restructuring cost about 30 basis points.

We have made the deliberate decision to invest more in Germany this year. So even if the total CapEx envelope is constant, we actually have reallocated money depending on returns. We have invested €286 million more than the previous year and this is mostly network enhancement, transmission, core LTE and basically future network priority.

So going ahead, priorities for Germany are to continue to push the Red pricing plans, clearly to leverage on the new capability acquired in fixed line with the deal that we have announced last week with DT and NGN access and maintain the leadership on 4G/LTE.

Second by relevance is still Italy. Now, Italy, service revenue in Italy are down 17%. There is a very big impact of regulation, so 7 percentage points of that are MTR cuts, but clearly there is an economic adverse environment in Italy. In Italy, we have enterprise down 17%, prepaid down 23% and even fixed line is down 8%.

On the positive front, very good success of Vodafone Red. Now, 40% of our contract consumer customers are on Vodafone Red. This is driving in bundle revenue, which is a very healthy and positive thing for us and also fueling mobile Internet growth, which is now at plus 29%.

We have got some contraction of EBITDA margin. It’s 4.3 percentage points; this is partially the much higher weight of contracts in our customer base, which per se is positive, but also of course pricing pressures in the market which is becoming pretty belligerent on the pricing front. We have partially compensated the impact of those with cost initiatives, most of them have been really announced, but clearly we need to continue to do more in that space.

In the meantime, we have not stopped the IT investment in Italy, we now cover 21 cities, and we want to maintain the price premium that we have declared. So priority going forward for Italy is clearly to improve the commercial performance and to maintain, to try to stabilize the business in an environment which is still from an economic point of view difficult.

Now the third relevance here is Vodacom. Vodacom has a service revenue decline in the quarter of 0.9 percentage points. However if you strip out MTR impact, the number becomes 1.4 positive. South Africa has slowed down to 2.2, again there is bit of an economy effect, but also price rebalancing that our colleagues have deliberately activated in the market. Very positive is the growth of the international business of Vodacom plus 23%, Tanzania 34%, Mozambique 25%, so international is becoming bigger and more of a reality in the Vodacom operation.

We continue to use network in Vodacom as our key differentiator. First we launched 4G in South Africa, first launched 3G in the DRC. And most importantly, the money transfer platform which used to be a Kenyan thing, for years we have been talking about Kenya as this unique country, now it is becoming a more widespread solution across Africa. Tanzania now, we have 15% of revenues and about 5 million customers active there, we launched in the DRC, I think we launched in November in Mozambique. We will launch in Lesotho this is becoming a key strategic feature of Vodacom and I will cover a little bit later because it is important.

On the positive front, margin expansion in South Africa from 34% bottom part of the chart to 36%. This is the result of tighter cost management, but also the more discipline in managing prepaid calling cards and distribution in South Africa. So priorities going forward we want to continue to have network and quality leadership in South Africa. We want to continue to push for penetration in the African market and of course M-Pesa, as I said.

Now the fourth topic by relevance is now India. India is the fourth contributor to Vodafone. Service revenue growth in the quarter is reported at 7.2%, it is lower than in the past. This is mostly let me call them, regulatory constraints. On one hand customer verification procedures that have been introduced which have slowdown the growth of the base. And on the other hand, also some regulatory changes on processing fees and SMS opting rules.

However, the competitive performance of India continues to please us. We gained market share. We are now 21%. We are clearly the number two player challenging the number one in many areas. The base quality has also improved, clearly it’s also consequence of the strict rules, so we cannot take full credits for it, but 96% of our customers are now active and ARPU is up 8%.

Now the most important thing about India is data. Now, data revenue grew 29% with browsing revenue up 50% and the usage up 100%.

But up to 100% to about 150 meg per month, which is very low compared to any standard. So the potential I think is very good. And again like Vodacom, if you look at the bottom part of the chart the EBITDA margin in India has been reported at 28.7%, which is higher than several European markets.

Going ahead with India, our priority is to continue to support operation and commercial momentum to drive data. We only have $3 million 3G active customers in India out of a customer base of 152. So there is a huge opportunity in data and the early signs finally are positive to roll out them. Pesa, and again, I will cover later and then to manage the usual regulatory set of issues including spectrum expansion, 3G roaming and all the other things that we are all aware of.

Fifth country by relevance, the U.K. in the U.K. the market continues to be competitive. We have been performing well. We have $11.1 million customers at the contract customers. We have added 800,000 in the year. The account of customers are now 58% of our base in the U.K. and I have to say, we start seeing also some term improvement, Vodafone Red is doing very well in the U.K., we have some churn improvement. We have got a little bit of a margin contraction, half percentage points, but I would like to point out as my colleague Guy Laurence always remains me that despite the fact that we are not the biggest player in the market, we still have the best EBITDA in the market.

So going forward, what are the priorities, first of all the launch of two LTE are the good well working LTE at 800 megahertz that will be coming before the end of summer. Continue to grow enterprise and the integration of cable and wireless clearly is adding strength in that area in the UK and deliver the cost reduction program, not just but mostly on the network side with the joint venture with O2.

And finally Spain, Spain continues to be a difficult market for both macro and employment conditions. Their service revenue is down 13%. They are literally below the previous quarter. Our sense is that we are still paying the consequence of the decisions to slow down on subsidies, and at some point in the year we made and clearly that has a little bit of an impact which we are seeing now.

On the positive front data, is good in Spain plus 17% in data growth. Smartphone penetration is also accelerating in Spain, 15 percentage points which is quite remarkable and also in Spain Vodafone Red is taking some momentum especially recently.

Margin in Spain has improved, it’s at kind of lower margin than what we were used to, but it has improved and this is actually the positive side of the decision on subsidies. So everything has to be seen in compass.

Important news in Spain are conversions, there has been a part of talk about Fuziune and the impact on the market. We estimate that little bit less than half of the new market is now converted within 45% and 48%. The chart bottom left indicates the impact of our decision to bundle DSL into Vodafone Red, so to have our own quadruple play and as you can see, we have turned a negative 20,000 net add performance in fixed program into a positive 38%. So that is also helping us to be more active in and more competitive in fixed line.

Priority going forward, clearly, to continue to reduce the cost and push Vodafone Red. We are about to commercially launch our own VDSL. We need to continue with implementation of the agreement with Orange on deployment of FTTH. It will be active before the end of this financial year and we will also have some fund challenging the regulatory position of Telefonica on high speed fiber leg of access.

So if I rise a little bit out of the operations, where are we in the implementation of our strategy? The challenges that we have today are basically the same that I illustrated to you six months ago in November. Macro, essentially in southern Europe and regulatory pressures, but the positives are also the same thing, actually the positive have reinforced as I will indicate to you with a couple of slides.

There is growing demand for data and there is growing demand in enterprise to get mobility into their workforce and most important into the way they work. We illustrated, in November, our vision. We want Vodafone to be a scale data company in the home and in the office. We want to be a leader in emerging markets, in the profitable emerging markets, selectively innovating where we have something, which is unique to us and, of course, be cost effective. And as I will illustrate in two or three slides, I think we have made some good progress there.

So first of all, data; few factors, one in three people used their smartphone to watch video now and of course that is driving data growth. Tablet penetration, tablet has been talked for a lot of time about is it happening, is it not happening? Now in the UK, 20% of people have tablet, so it is happening. And our progress in data has indicated in the chart, is pretty good. As you can see, we continue to increase the percentage of revenue that come from data. We had 87% of our traffic in Europe are now being data.

But as Steve will cover, we continue to have an average utilization and an average saturation in line with the historical parameters, which means that we are able to follow the data growth with good quality and good performance. And on the right hand of the chart is basically I think is more reassuring plus 38% usage at individual level, 350MB, lower than the U.S. or other market, but clearly, an indication that we have an opportunity. And the way we phrase this opportunity internally is 40% target penetration for tablet to out of three people using mobile devices to watch TV, to get entertainment, and three connected devices per average user. Keep in mind that today the number is below two. So we think that in the next two or three years there will be a great opportunity in this space.

If you see what we have been doing in the last three years, the left hand part of the chart indicates a 67% of our revenues are coming now in the contract consumer space from integrated tariff, this is voice, data and SMS together. So we are in a way future proofing our revenues relative to these intermediation WhatsApp, Skype, all these things. What I like of this chart is that not only we have the kind of sophisticated batch and breaks using smartphones, but you see the increment in Spain or in Italy is now very significant, which means that what we announce and, of course, Red is an important part of this, is happening, we are future proofing our revenue.

On the right hand part of the chart you see that we moved in one year from 47% to 54% of our revenues being in bundle and we are reducing the dependence on metered traffic. So when I get the questions about how do you feel about Skype, how do you feel about WhatsApp? I say, I feel that these are just services used on our access and as long as customers paid for that, we are happy with those things.

Now Red is of course an important element of this. Red is not just a pricing plan, of course, it is a pricing plan, but not just a pricing plan. It is unlimited voice, unlimited SMS, generous data more than fancy on the device costs so allowing customers to choose a little bit more how much they want to pay. Additional services, additional options and the possibility to attach family and other devices. We are now active in 14 markets in Europe, 4.1 million customers as of I think last week. 2.9 million in consumer, 1.2 million in enterprise, amounting to 8% of our contract base. And in the chart, we put an example, this is just one of the many different implementation of a small, medium and the large different level of data and different price attached.

I got a lot of questions in my meeting with investors and analysts on about how is it going? And these are the statistics. So first of all, Red customers use twice as much data as the non-Red customers. So we are eventually pushing into the, let me call it, American space. We are not at the 1 gig yet, but 700 meg per month. Red customers are much happier, much more satisfied with the value for money that they get. It varies by market of course, but it is between 10 and 16 percentage points of higher NPS.

We have an ARPU dilution of about £4 between those who upgrade and those who downgrade. This is in line with our expectation. And we have a better, let me say, economic efficiency of the handset device and subsequent thing by about 7 percentage points versus a non-Red customer. So this is very reassuring and this is why we have basically decided to, first of all, have a target of 10 million Red customers by the end of the year. We are adding additional features, so more SIMs, more family plans, more options. We want clearly to consider other services to be part of the main Red, especially the high end Red plans. And we have plans to introduce also to prepaid. So 10 million is our target and we are convinced that this is turning us, if not in a full fantastic accretion situation like the U.S. one, at least it is going in that direction. And our intention is, of course, to be as close as possible to that model.

Now emerging markets are different. But there is a big data story in emerging market as well. First of all, emerging markets are now an important part of Vodafone. As you can see from the chart, 30% of revenue, 31% of EBITDA, 33% of cash flow. This is happening because as Andy has said, we have been in the last five years able to improve the profitability of those markets, but we have been able to be very efficient in where we put the CapEx and investment money.

As you see from the bottom part of the chart, 28% of the customer base in the market use data, the equivalent number for Europe is 48%, 50%, so huge potential and only 12% of revenues are coming from that. And of course voice is much cheaper there. So the kind of cost over or compensation effect that we are seeing to some extent in mature market is not there.

Going ahead, there is no fixed line, there are cheap smartphones and a lot of applications and a lot of very affordable customer experiences that we can offer to that. So data would be, together with penetration, an important dynamic in emerging markets as well.

Two words on M-Pesa, as I said, it’s not Kenya anymore, it’s 18% in Kenya, but it’s also 14% in Tanzania. We launched in another African market. But there is one big price out there, and the big price out there is the 700 million unbanked individuals of India. We launched in three circles in India. We have the plan to launch nationwide progressively by the end of 2015. And we are convinced this could be another great case of innovation based on an asset that we actually own and we actually can monetize.

In the meantime, in the more advanced mature M-Pesa market of Kenya, we’re growing more into real banking products with fully fledged financing and credit products. M-Shwari has already 1.2 million customers there. And again we will learn and we will try to migrate into other markets.

One word on enterprise Vodafone 2015 is also enterprise. First of all, enterprise has slowed, but as you can see from the chart, the real factor here again is Southern Europe. Enterprise today is 27% of Vodafone service revenues. So as much as we are a little bit less Europe and more emerging markets, we are also a little bit less consumer and more enterprise. We have good growth in AMAP and our key services and products are doing very well. As you can see from the chart, Vodafone One Net is up 26%, Machine-to-machine is up 20%.

We have 11 million connections just on our global platform, so excluding the local machine-to-machine connections. And Vodafone Global Enterprise continues to grow nicely in a tough year plus 5%, $6 million connections. We also have Vodafone Red, not worth spending too much time other than for saying that all enterprise customers use much more data once they get into Vodafone red. So twice as much as what they use before. So enterprise is another important pillar of our strategy where we have made progress.

Now you cannot, of course, talk about strategy in the future without talking about convergence. In November, I said if you want to be big in the home, if you want to be big in the office, we need to have a flexible approach and we need to have access to infrastructure with the market-by-market strategy.

We indicated three pillars, one was wholesale, which is, of course, low capital, but requires regulatory clarity and good conditions. I am glad to report that as of last week, we have been able to conclude an agreement with Deutsche Telekom for access to Layer 3 and Layer 2 NGN including IPTV services and with a lot of both operational and economic positive conditions for us. That was one of the three ways we indicated we would proceed. But we also indicated that we would proceed with our own fibre deployment, where either there is no access to somebody else’s infrastructure or we see a concentration case.

We announced that we want to double the homes passed in Portugal from 0.5 million to 1 million with I think about 100 million investment. And we announced the deal with France Telecom with Orange in Spain to pass 3 million homes and then 6 million homes with FTTH solution.

And finally, M&A, we did the TelstraClear deal. We have Cable & Wireless clear, whether its value creation, whether cost synergies that’s another option and I have to say the UK, as I said, is benefiting from a much stronger set of assets that allow convergence mostly in the enterprise as a strategy in the UK.

Talking about Cable & Wireless towards here, first of all, with Cable & Wireless dimension of Vodafone has changed. We now have about a quarter of our revenues, as you can see from the pie chart, which are non-mobile, in enterprise. The revenue pipeline is going very well, is up 26% versus last year. We have decided to accelerate the integration. We accelerated the brand integration, we accelerated the integration of the two organizations. We have execution underway to put the fiber into our sites, in the UK. And we already had at the end of the year, 30% of the international IP traffic internalize on Cable & Wireless. I think the most recent number is more closer to 40% in 2013.

So there is another benefit there. And of course we are reducing corporate overhead. We are integrating procurement and doing all the other things. So it has been a good position so far. We are on track to deliver the £150 million to £200 million of synergies that we had declared.

Before handing to Steve for the part he feels more comfortable with, I would say one last word about regulation in Europe. Clearly, a regulation in Europe has been historically or has been seen as negative for the mobile sector, too much help to new entrants on spectrum. A perception that NGN regulation would help incumbent and a penalization of MNOs with obligation to MVNO, our spectrum and our access at conditions which are not good.

Now I have to say we perceive that there is a change in attitude and there is more dialog to move the policies in the direction of helping both in fixed and in mobile investment driven operators. For us, there are two points which are very important, have more clarity and have certainty of regulation and three, specific important I think matters for us. The first one is clearly allow consolidation. But not just allow consolidation, but allow consolidation without punitive undertakings. There is no point in allowing consolidation, but then asking to give away synergies because otherwise consolidation would not happen.

The second is spectrum auctions have to be fair to investment driven operators, which is why we, as Vodafone, are challenging with Dutch government for what we see as a subsidized help given to one of the operators, which also has pushed up in the price of the auction. And finally, NGN rules, which are to be based on strict and timely implementation of the equality and the non discrimination on price test. I am glad to see that the Italian antitrust has sanctioned and the competitive behavior from Telecom Italia. And we will do our best to make sure that other antitrust authorities will and, if not the European authorities, would take similar steps in case the NGN regulation is not implemented in full accordance to the principles behind it. For the technical part, I think I should hand over to Steve.

Stephen C. Pusey

Thank you, Vittorio, and good morning. What I’d like to do is share with you our technology priorities and the progress we’ve made in the last 12 months. And to start with, I’d like to share with your our CapEx journey.

As Andy said, year-on-year, we’ve kept a pretty consistent investment in capital. That’s because we truly believe that network quality is paramount and we want to maintain a competitive advantage in our networks. As we look at the two splits of our market regions here, I will talk you through the changes in investment year-on-year. If we start with Europe and common functions, this was the year of advanced 4G investments as we either launched or prepare to launch in most markets, particularly notably Germany and the UK with support in transport from (inaudible). We lowered our IT investments in most markets. This is in preparation for a consolidation and standardization of our IT assets as we move towards a more aggressive transformation of Vodafone.

And fixed, particularly, driven by Cable & Wireless. We’re very proud of the integration journey so far with Cable & Wireless. We invested as well upgrade some of those assets and integrate them more aggressively into the core Vodafone infrastructure as Vittorio has just explained.

As we look at AMAP, a slightly lower investment year-on-year. This was largely driven by a lower roll out of 2G in India, as we move forward towards the 3G roll out in India. So we cover the investments in Australia, so we brought the network back up to the stands we would expect, particularly in the metropolitan areas, where we had some customer feedback on poor performance. We launched first, as you’ve heard, in South Africa, 4G and also launched in New Zealand. And we’ve been investing to support the growth of the properties of Vodacom international activities for the opportunity that we have there.

If we move on to have a look at what customers are doing with their infrastructure, year-on-year, 53% increase in traffic, carrying a very healthy 330 petabytes of traffic on the infrastructure now.

If we look at the top right hand side, you can see the changing traffic mix, as has Vittorio said, the average smartphone now is carrying about 350 megabytes a month, a couple of point example there are, iPhones are up from 310 megabytes to 425 megabytes on average. Our Android devices are up from just over 200 megabytes to just over 300 megabytes. Vodafone Red is showing very healthy early signs of increasing traffic. And our first volumes on 4G as you can see there again are over 600 megabytes, so a healthy increase in the growth of traffic.

If you look at the bottom left pie chart, which I’ll share with you an example of what people are doing with their devices predominated by surfing the web and looking at videos and listening to stream audio. 74% of the data traffic comes from those two activities that is growing in line with the average growth in traffic, and we need to build our infrastructure to service that.

I pulled out for you a couple of examples of application type growth whilst YouTube is growing at 40% almost in line with average network traffic growth, particularly notably, Facebook grew 300% year-on-year, new TV applications like Sky Go, 240% growth and (inaudible) a BBC iPlayer, up 200% year-on-year as well. So healthy increase in video and this year TV on the move.

If we look at where the investments have gone, we really feel that the consistency of the experience is very, very important going forward. The ubiquity of smartphone is everywhere as moved out of the city is very important to service. So data population coverage has been one of our key focus areas in the major markets in Europe. We’ve taken that now to 94%, up 94 points year-on-year. A similar story in AMAP and you can see India, we started to aggressively roll out in the metropolitan areas there with 3G.

The capability has to match the coverage and we’ve taken almost the entire base of 14.4 speed capability that’s really important because the vast majority of all devices today in customers hands at 14.4 or lower of modem functionality. Of course while you are servicing the existing base, one prepares for the future, so we pushed heavily on the 43 megabit base, we’re up to 45% coverage now. Most of the newer devices either have 43 megabits and/or LTE, so we’re servicing going forward and keeping ahead of that demand curve.

And if you look at the top right, that of course has to be supported by the high speed backhaul, our definition of that is capable of 1gig throughput and we’re up to 57% of the base that capable of carrying that performance right now. And we support that with a general transformation through single RAN, which is 2G, 3G, 4G in a box, which gives us the flexibility to move to LTE both swiftly and economically.

If you look at the bottom left, as we talk about LTE, we’re now live in seven markets and we’re also very pleased of acquired our preferred spectrum in our target markets 800, which has better performance in coverage and deep indoor and the capacity layers that we can either use for growth of capacity in the future or for a speed offer if we so choose to back that up and supplement it in further markets.

If we look at fixed, we’re now live in 16 markets with fixed offer, predominantly today you can it’s an ADSL base, ADSL2 that’s up to 20 megabits performance for the customer. That footprint is moving. It’s moving either to VDSL or it’s moving to fibre to the home so keeping pace with market demand and with customer demand as we move through to VDSL with very latest fibre to the home capabilities.

So do we expect in the future and how is the network evolving. Usage is growing healthily. We are planning an infrastructure to manage a customer, which is generally exceeding more than 1 gig a month in monthly consumption. We can see that group, how can we expect that to happen, driven by office like Vodafone Red, the increased use of video, improvements in devices and network speed.

Of course to service that, bottom left we are installing trailing now and moving forward to installation in some cases, all of the latest technology that are supply base and they are partner based, [risk] including small scale technology, heterogenous network, is the market closing, smart antenna technology been forming which has quite dramatic improvements in performance we are rolling out now.

Backhaul is really important. We are in there in most cases with a 1 gig performance right now. We are trailing 2 gig and we have tested with customers 10 gig microwave capability. I give you a reference on that, the very busiest LTE side we have, which is in Germany which is carrying the fixed mobile substitution traffic of 13 gig a month. So a very heavy traffic loads requires 150 meg backhaul capability. So we are way in advance of the demand curve right now capacity for backhaul something we keep an eye on.

Network virtualization, you get to hear a lot more of this from our supply base as they go to a software defined network. We are at the forefront of that. The first elements will go softer, then we will go into our data centers towards the end of this year as we look to virtualize them for offset means efficiency in the server basis, it moves to industry standard IT hardware and a greater consolidation opportunity.

And lastly on the fixed infrastructure, we will move of course to more advanced copper technologies as they evolve we will be testing GFAST, which those you haven’t uncovered it yet is 1 gig over a copper, as we test that towards the end of the year and of course more advanced fibre to the home technologies, we have had the luxury of installing the very latest in the new installations of course.

And then lastly, what is that meaning the key metrics that we target ourselves with, I try to give you a mix here of what we will be challenging our community to achieve. But firstly on coverage again with data coverage basically ubiquitous coverage 97% taking into the very edges, but we need consistency of that coverage everywhere.

In the radio capabilities, we extend 43 megabits inline with the device capability that’s 80% of the base. And of course complement and supplement that as we have evolved LTE, and that’s LTE, it’s 40% of the base stations of course using 800 frequencies that would be a much larger population coverage than it is of course the base station coverage. So you’d expect to see that with wider population coverage.

High-speed backhaul as you move through the 2 gig to inline with the radio capability. And probably lastly, but most importantly, I’ll close on the performance KPI, the customers touch. We’ve been moving away from a raw speed definition to a customer experience definition. Today 75% in the connections in those markets, customers would receive a 1 megabit performance consistently.

That’s important I’m going to give you one subjective reference on that, 85% of all the video used for our smartphone pulls down the standard code 240p, I won’t get too nerdy on you, but that’s the video standard pull down and that requires 400 kilobits, which is the reference we gave you last year. So we’re trying to keep ahead of that assuming the higher definition larger device type et cetera will pull down the higher order of specification. We want the consistency to move by 2015 to a consistent 3 megabit experience through our customer base. Of course most customers will get more, this is the standard that we would hope everyone gets and at least 75% of the base of the minimum.

So in terms of our networks, we feel it is a key strategic advantage. We must continue to invest to keep it that way. Convergence is a normal evolution we will build network costs to our access agnostic that can add multiple types of access and going the efficiencies as such. And Vodafone network today is future proof and we’re into keep it that way and I’ll now hand back to Vittorio.

Vittorio Colao

So, before the summary one look at shareholders returns. I think that here our track record is pretty strong and proven. We have returned £23 billion to shareholders in the last three years and this excludes the £1.1 billion of the buyback just still on going. The 7% grow of dividend for the third year that we’ve committed to is being confirmed, and today we’re balancing returns to shareholders with investment need. The Board declared that we aim to maintain at least the dividend level at the current level, which we think is an attractive level in the industry, and we’ve decided to retain the £2.1 billion special dividend from Verizon for investment in the business.

So, to sum up the year, I’d say that we’re continuing the transformation of the business towards data enterprise and emerging market, you can see from the chart, four years ago we had about 50% of our revenues coming from let me call it expensive old mature market wise. The number is now 33%, emerging markets are becoming more and more important, and of course data is becoming more important.

At the same time, I believe we showed you we have an attractive type of assets and this pie chart indicates that we have a big division which is about half of the Company broadly stable and we have a growing and very profitable emerging markets; one, enterprise is 27% of the group not only with opportunity for growth in mobile, but also in fixed.

And our convergence strategy market by market through a combination of a smart combination of wholesale own deployment and M&A is starting to deliver and we have made quite a bit of progress in the last six months. And Verizon of course is a very good performing asset I don’t need to say that.

So we maintain cost efficiency, investment discipline, and shareholder returns as priorities also from next year.

Now, I’d ask my colleagues to join me for the Q&A session.

Question-and-Answer Session

Andrew Halford


Vittorio Colao

Tim starts and then.

Tim D. Boddy – Goldman Sachs

Yes, thanks it’s Tim Boddy from Goldman. I wanted to ask if you agree with Verizon CFO’s assessment that your tax position, and if the your subsidiary and if so, does that change your willingness to potentially sell the asset for the right price?

And then secondly moving towards sort of convergence sort of discussion perhaps you could walk us through in your mind the pros and cons of M&A particularly of cable assets which will have compelling brand and operational expertise in the triple play market, and I guess with that, is there a kind of maximum limit you do willing to take the balance sheet in terms of net debt to EBITDA, thank you.

Vittorio Colao

Yeah, on the operational question about tax, listen it’s difficult to, can you hear me? Is this working? Yeah, it’s difficult to give an answer to a question, which is undefined. There is a number of possible transactions, then a numbers of jurisdictions involved there would be in under of different solutions, so any answer on tax will be depended up on the specific situation you’re talking about and the joke that I could make is that if the CFO of Verizon is so sure, it means that he will send a fax in one day that’s good, know, so it’s a theoretical point.

On convergence M&A as I said and I think we have been very consistent in this and I sense that the investors appreciate this. We want to be in the home. We want to be in the office. And we want to be services to the customers. Now how you do it is different, is different by market, is different by to be honest those are by the physical distribution of homes and offices can make different solutions more or less appealing. We are considering all options today I can say we are very happy with the results, we reached in Germany, but we are also happy to invest our self where we need to invest, and as I said if we can see good M&A opportunity we do consider as we did in the cable & wireless thing, but again it’s not about the architecture of how you get into the home, it’s about getting into the home and having a customer relationship. And the balance sheet I don’t know Andy you want to…

Andrew Halford

What was your question with…

Tim D. Boddy – Goldman Sachs

How far would you go…

Andrew Halford

We’ve been at A minus for quite a while, we could go to triple-B-plus this quite considerable capacity in that move and we have to be pull the right asset with the right value opportunity. I think somewhere in that zone is perfectly workable for us. We’ve always said we try to get back to an A minus overtime, which is what we would include and tends to, and I think running the balance sheet relatively cautiously has been beneficial, it’s enabled us to move for instance on cable & wireless very quickly when we had to do that so there is some capacity there if we want to use it.

Vittorio Colao

Yes, Akhil do two, there here and then I come there.

Akhil Dattani – JP Morgan Cazenove

Thanks, hi, Akhil from JP Morgan and firstly just in your core key service revenue and outlook, and I appreciate there is clearly quite a lot of uncertainties on the macro front, but I just wondered how you are thinking about the outlooks this year specifically you’ve mentioned the annualization of the leap year effect into next quarter, you’ve talked about how the MTR headwinds start to ease at the very back end of the this year particularly Germany and Italy, so is it reasonable to assume that the Q4 number you have just reported at the low end of growth or do you feel that visibility is not strong enough to allow to comment on that.

And then secondly on spectrum, you’ve highlighted in the presentation that you spend £2 billion a year on average over the last four years and you’ve also said that positive reason for retaining the Verizon Wireless dividend was to help fund potential spectrum spend, so should we interpret that in anyway telling us something about your beliefs in terms of potential spectrum build for this year, are there certain swing factors that are particularly material in terms of why you want to retain that cash?

And then looking forward medium term, given the 700 megahertz frequency option that will overtime come from Europe, can you just comment on how valuable and important you believe that spectrum is and when you think about the next four, five year period, do you actually see spectrum spend coming down relative to the current £2 billion year number? Thanks.

Vittorio Colao

So Andy why don’t you take the leap year, MTR kind of trend question, then we will distribute the other two questions?

Andrew Halford

Yeah, I mean I would hope the fourth quarter is a low point unless a leap year recurs with greater frequencies than in the past. The MTR effect will be overall for this year at a similar level to last year, so I don’t think we are going to get a lot of relief for the year as a whole on MTR, but the year after we will do. And then I think the rest really is about sort of macroeconomic and just where that goes to.

Vittorio Colao

Yeah, on spectrum I think Nick you are probably after the Europeans, probably you are the next in line, so maybe you have to say few words about spectrum in your region.

Nicholas Jonathan Read

Yeah, I mean basically there is lots of spectrum coming up this year, so we have got India maybe. If we can get the government to come out with reserve pricing, the magnitude of the spectrum they went to auction, already that process is running late, so it’s not going to happen in June, and I think it’s going to push on for a couple of more months and of course we’ve got the whole debate going on around 900 MHz renew and it’s going through the Delhi High Court. I would say in terms of South Africa, you have got the 2.6, I don’t see that being too significant and of course we got the renewal payments in Australia.

Andrew Halford

700 MHz Steve?

Stephen C. Pusey

700 MHz similar properties to 800 MHz, we’re quite well suited in our major markets on 800 MHz. That Maybe an either all and we got two times standing most markets if seven comes up and in markets we don’t have 800 MHz, it maybe attractive. We don’t need it for capacity of performance via, so again it reached right now. Of course with my point of view is having more is better. So price economics need at the time really, we are well suited in the cities, because we’ve got the 2.6 and 1800 MHz and one presumes by the time we get out to the 700 auctions will be reforming some of the 2.1 as the traffic moves on to the LTE layers. So I think we have enough spectrum I can foresee but if it is the right price, it’s going to mix.

Vittorio Colao

Steve, I was just checking I think we have what 60% second carrier, 20%, 25% third carrier used today. So we have a pretty good rotation of spectrum, and it is part of the strategy over the last few years to put enough into the house so that we can exploit. So, I don’t foresee that there is a huge urgency to move to that.

Akhil Dattani – JP Morgan Cazenove

And quickly a little together, do you think your spectrum can stop or reduce of (inaudible).

Vittorio Colao

Indeed we just have what one more year, one more year…

Andrew Halford

It will take one more year.

Vittorio Colao

If one more year if Nick behaves.

Nicholas Jonathan Read

I will try my best.

Vittorio Colao

Yes, Stephen then one back and then we move totally to the other side to Nick and we come back.

Stephen B. Howard – HSBC Bank Plc

Thanks, yes, Stephen Howard here HSBC. Two questions firstly slide 39, you highlighted some of the battles you could have fight on the regulatory front. And could I just ask you perhaps to be a bit more specific the commission is throwing up proposals to create a single market, what in particular after that are you looking to see in terms of concrete proposals and are there any areas that we should be particularly concerned about for instance proposals overwhelming. So that’s the first question.

And the second question is, just looking at wholesale NGA arrangement that you’ve come to in Germany, which is quite a departure I feel from some of the comments we’ve heard in the past after the German market and encouraging to see that you can work with the local incumbent, if an equivalent product have been available in Spain, would you have used it or whether other factors behind your decision to build that? Thanks.

Vittorio Colao

Yeah, I’ll take the regulatory question and then I would leave to Paolo and Philipp to comment on the contra stores, the two different situations. Listen on the European single marketing, we need to understand exactly quite frankly what they mean by it and I am not so sure, there is a thorough understanding of what exactly they mean. This means more harmonization, more pro-investment, pro-competitive rules. We’re fine. The practical implications is always in regulatory matters are what really will define whether there is something very good there or just another step in a long path.

On roaming, roaming is about 5% Andy, of our revenue today. It’s about 5% there are moves, there is this new regulation of unbundling and splitting roaming. Quite frankly we are working to adapt to it. I have the sense that once the roaming new regimes will be in place and once everybody has adopted it, it might be a much less relevant issue because roaming is more and more included into pricing packages for large companies that is the case, for high-end consumers it is and it will be more and more the case, so I have a sense that it is something that will be less, it’s very prolifically nice to talk about it, but it would be less and less.

We have 3 million customers using our daily allowances, we will push it again next summer in a massive way with the big penetration of smartphones. By the time the new regulation and the new model will be in place, I’m not so sure it will be such a big thing. Philipp and Paolo, they are good and the bad.

Paolo Bertoluzzo

Why don’t we let Philipp start with a comment on Germany and then I come on Spain.

Philipp Humm

Yeah, I think in Germany we have a strong regulation and we’ve a rational incumbent and we evaluate the NGA deal, we’ve Deutsche Telekom as being positive in particular because we’ve a layer 3 and layer 2 product, which will be very important for us to basic control, quality of service and also be able to differentiate our products. That’s Germany and now I’ll hand over to Spain.

Paolo Bertoluzzo

I will not compare on your opening point on strong regulation rational incumbent, because that will be tricky. I think that what is being done in Germany is very sensible. I think is as mammoth for both companies and as if there was anything similar to that possible in Spain we’ll definitely consider it. We don’t believe that for the industry building a favor for the infrastructure is by itself, the most forward-looking move that’s what we’re doing, because it feel positive for us do it. You should not forget that building in Spain or in Portugal is much over cost than building in places like Germany or the Northern European countries, but nevertheless we’ll definitely consider this because it’s better for the industry and better for Vodafone and we believe also better for the incumbent.

Vittorio Colao

Good, we go one back and then we move to the other side to me.

Nick Lyall – UBS Ltd.

Yeah, morning, it’s Nick Lyall from UBS. Could I ask two please on the cost cutting Andy, what extra flexibility do you have into March ‘14. Because it seems like you’ve cut IT spending quite heavily already and obviously quite an uncomfortable position with slight cuts in Spain. So, is it more than you could do if the top line turned out to be more difficult than you expect, and which areas would you have to attack do you think?

And secondly on the medium-term cash flow guidance as gone, 5.2 billion to 6.2 billion is that something you expect to come back to over time or is that lack of visibility, now that distributes out completely?

Paolo Bertoluzzo

Nick, do you mind if I take the first one, because I want to give you more of a broader answer and then we will integrate. You are right in pointing, if you look at the speed trap we try to spend less on IT and services. And in spite of the simplification act that we’re doing, the reality is that I believe that telecos including Vodafone has spent huge amount of money on little products. When I made the comment about innovation that really differentiates that’s exactly what I was referring to.

We are progressively shutting down. You might remember we had a music service, we’re shutting down music service and we are trying to take away legacy. We have a big project that we didn’t talk about today, which goes for acquisition of our systems and we do believe that not unless we reduce the cost, but it will always take away lot of complexity for our company and thus factor it now. In the second half, in the bar chart, Steve you will see that already this year, the investment in fixed is going up. So we think take a better performing networks and a little bit more simplicity at the IT level is where you should go.

Now, Andy.

Andrew Halford

The medium-term loan, no I didn’t see it returning to that in the near-term. I mean, I think it is just difficult to go and forecast the sort of macroeconomic environment and the economist find that it’s difficult let alone us. So I think it’s better for us to guide on a period that we have some confidence about rather than have guesses over the longer-term.

Vittorio Colao

So to the other Nick, and then we will come back Andrew and yeah...

Nick Delfas – Morgan Stanley

Thanks very much, Nick Delfas from Morgan Stanely. So I just wanted to question you on the European consumer product, I mean it doesn’t sound as though European scale is –footprints is the major selling points to the consumer market. So what is the Vodafone USP to the consumer and if you think about your comments about unified communications, you will always have inferior scale to the incumbents on unified communications and that could be important when you got to buy content in the future. So have you got sufficient scale for unified efforts in Europe?

Andrew Halford

Yeah. If you don’t mind, I take the answer and Paolo and Philipp, if you want you can integrate. First of all, with the Vodafone, I think we are driving the industry towards what we think is data scale in consumer and Vodafone Red and all the developments of Vodafone Red that are in the pipeline, both at the high-end and in the low-end is what we are offering. Quite frankly, I’ve never seen in my life the NPS go up 16 points just because we launch something and that is to me the conformation that that sort of we do have a USP and we do have a proceed advantage and again anecdotally, I can tell you that if you go to Italy or even here in UK, where we have now more than 1 million customers, they tell us this is great, this is really working in the right way and the more we will add iPads and timing in these things, the more we would be similar, more similar to the U.S. market.

On the scale you see, of course if you put everything together, we don’t have a scale, which is why we have announced our strategy and we are implementing our strategy to get to the same economic possibility of that scale. Now I don’t need to have exactly the same scale. In Germany, we really have a pretty good scale. With a new deal, we would be able to increase it. In other markets, we are finding different ways. It’s not a universal European thing and that’s why we said, it’s market-by-market. And we have to be financially disciplined, because I also see other players implementing strategy that I am not so sure they are very financially disciplined. So it is a market-by-market thing and I am honest in saying, I cannot give you a blanket answer for Europe. Paolo?

Paolo Bertoluzzo

Maybe just two specific examples I think, Vodafone Red is a great one, if I for example take Italy which is, was not and it did not have a big contract market, and nevertheless 40% of our contracts today it comes from, out of Vodafone Red, it’s a combination of Vodafone communication which is actually what customers really love on a grid network and with a great service component attached to it. It has much service attached to it. And this is the reason why they’re choosing it at the end of the day.

On the scale, I think that we are finding solutions market-by-market which are also trying to be sensible to the scale that we have there and for example what we were talking about Spain and the possibility of course it is there, if they’re not available we are co-investing with a company for the scale which is almost similar to ours and therefore we are sharing investments and therefore building out 40% of the population in Spain. For us it is going to be £0.5 billion investment, what would be our (inaudible) been put by our competitors of our scale.

Nick Delfas – Morgan Stanley

Just a very quick follow up, how big are your upfront payments on the German fiber agreement and how does it accounts for?

Andrew Halford

We don’t disclose the details of the agreement at this point in time, so bare with us.

Unidentified Company Representative

Okay, Emmet.

Emmet Kelly – Bank of America Merrill Lynch

Yes, thank you. It’s Emmet Kelly from Merrill Lynch. Just had two questions please, the first question is on LTE pricing, just wondering if you can give us an update for LTE take up across your European footprint. Clearly it’s all placing in the US, but I think 28% of the base now using LTE handsets. I just noticed a little bit of a difference in higher pricing LTE compared to the Americans priced LTE with the launch couple of years back. I think Verizon charges the same for 3G as it did for 4G in a couple of years ago and that might have helped take up accelerate. Whereas in Italy, and I think in Germany, you are still charging a bit of a premium for LTE, I think it’s a premium for speed. I’m just wondering how you feel about that strategy and whether that is maybe delay in take up of LTE.

The second question is, one for Andy, pretty quick and just on your cash taxes. If you look year-on-year, profit before tax for the group is probably pretty flat somewhere around the £10 billion mark. And however your cash taxes have jumped from £2 billion last year to £3 billion this year. If you just give us a quick idea of what’s going on there and what the outlook is for cash taxes for the future, is it more £3 billion and £2 billion. Thank you

Andrew Halford

Yeah, first question, I will say Paolo and Philipp

Philipp Humm

I think as we’re starting to see some traction now and now that we start having smartphones of high quality in the higher end. As you know it well most of the high-end smartphones do the accounting with LTE functionalities and therefore you start seeing, it is going into the base as we speak, at least I am talking about Italy and Portugal, where we have launched (inaudible) rolling out pretty faster.

On the pricing point, I really believe that is an industry, you have to use this type of opportunities to try and ask our investment to wait back, because the service is much better than a good free service. The customer expense has really improved on all components from browsing to video to HD video, do whatever as you want to do with your smartphone or with your tablets. So I think user has to try and price it for what is the cost to deliver it. We are resisting on this point in Italy and in Portugal.

Our competitors are a little bit in all directions. We see in Italy, I think a similar position and therefore we have enough time in trying and do that, further operate in a different place, but they are also basically at this (inaudible) they don’t have, therefore it is a much easier position. Portugal incumbent and player are in a slightly different direction, but we believe we have to try and do it.

Unidentified Company Representative

Yeah. And the markets we’re currently in the UK, we at this point in time, don’t have LTE in the market that will be by the end of summer. If we look at the competitors it maintains a price premium which we think is the right strategy to do. Germany where we have LTE more than 800,000 customers on LTE, we try to sustain a price premium and we launched another rate plan besides our Red rate plan which is a smart way plan which actually offers 3G services at a lower price point to make sure that we’ve really stabilized a higher price point for LTE in the market.

Unidentified Company Representative

Good. One more question here and then I see Rob…

Nick Delfas – Morgan Stanley

So it was follow up on the tax. It is very largely about the U.S. and it is three components to the U.S., one is the profit of the U.S. it is significantly higher. The second is, bonus depreciation was lower this year and therefore (inaudible) tax and the third is that slightly more tax is being paid by the parents which is not at tax and slightly less being paid in price of wireless, which shows in the ALP line and is next to neutral. Overall, we had a cash tax about 0.3 billion higher than our group P&L tax charge and I guess going forward, it will be a couple of hundred higher on cash in P&L directionally.

Unidentified Company Representative

Andrew, then Robin, Jerry, Simon.

Andrew Beale – Arete Research

Hi, it’s Andrew Beale from Arete Research. I guess, it seems like it was potential for the shape of the group to be have quite a bit, a little bit different than it is time from what it is today. I guess most people sort of think that will enhance the Verizon, but theoretically you could do a lot more to your sales. And I was just wondering how we should way out your thinking about that as a priority and your agenda. How comfortable you are with the current shape of the group, what else you could do to optimize that for the benefit of shareholders.

Andrew Halford

Yeah, this is an excellent question. Thank you very much for asking it because you’re actually pointing to a very true point which is the two things I am not linked really, Verizon is one story as I said always we are the guardian of a great asset, we are very happy with the situation, but if a better situation surfaces of course we will consider it.

The change it was really my last slide, I really feel that we are not in the beginning, but we are already kind of progressing into a big shift from what Vodafone used to be which was to be mostly Europe, mostly consumer, mostly mobile, into a new thing which is more balanced, more enterprise and in the home and the office more converged. And we are going to move in that direction anyhow regardless of what Verizon, which is a huge part of us, but is a minority in the end will be. And all the steps that we made in six months actually indicated we are moving. So, I thank you for the question, the two things are not connect. You’re right.

Andrew Beale – Arete Research

Can I just come back to – you made some comments about European M&A rules and so I mean, those have been some pretty ugly persistence in terms of remedies in Austria. There is obviously a bit of disagreement between perhaps competition and digital agenda on some of these issues about M&A, what is it specifically that you think realistically might change the – makes deals possible?

Vittorio Colao

Here you’re talking about mobile-to-mobile really. So the point which is relevant is mobile-to-mobile, because mobile-to-fixed is not an issue and fixed-to-fixed does not match anyhow. The point is really, the remedies that are put in terms of conditions to MVNO’s and the real thing that I believe and we’re out advocating it, we should get out of the common practices, this concept that spectrum is on cost. I mean we pay spectrum, we pay spectrum upfront, it should be reflected in the conditions that we make to third party, and if a market goes from 4 to 3 and in my view also from 3 to 2.

But it depends on the size of the market. No punity of remedies should be put, I mean the reason why certainties and we had not mentioned which ones did not go through is because once you wait the synergies and the cost and everything it can take out and you take away the cost of the remedies basically most of the advantage is gone. So this is the single point that has to be taken out from the current approach of the regulators. I’ll leave it to individual companies to decide what they do.

Robin, Jerry, Simon, Maurice and then we go back there again, and then Justin and then we come back to, yes and then we come to this side again.

Andrew Beale – Arete Research

Thank so much, (inaudible), two questions from me, first you point to Verizon Wireless their impressive margin expansion over the last couple of years, wondering if you think in the context of the U.S. wireless market that those are peak margins of the sustainable, where do you think the wireless market is going given the reception of important part of your business. And secondly, obviously you have to have different solutions for each market but I am just wondering if you can explain to me in a bit more detail how it can be economically accretive for you to make the third or fourth NGN network in Spain? Thanks.

Andrew Halford

Yes the – I take the U.S. and then Paolo you want to take the Spanish question. The U.S market is structurally very healthy and this sector is very healthy for two reasons, first of all the spectrum portfolio that Verizon has, and to some extent AT&T has is very good and the investment that they have made over the years constantly for the last 10 years is giving a very, very big I would say fit capability nationwide and not just in specific places which of course is turning into price premium that have been able to sustain.

Now will it be more challenge in the future? Quite frankly, probably but I am not so sure how much money and how long it will take to really change these conditions. If you look at the ARPU accretion, if you look at the trends in every parameter in U.S. is just fantastic and it’s very hard to see, even if you modeled the economics of new entrant or a consolidation to see how the situation can be structurally very different in the short run. So, our position is, this is going to be a good asset at least for the immediate future because of some structural elements of the market, not just because of good execution of things like that. On Spain Paolo?

Paolo Bertoluzzo

Well, I think as always it depends wherever you are in a sense that one or two years back billing for the infrastructure in fibre and Spain would have not been our priority in terms of where we put our money. Given the fact that, we have an incumbent, which is forcing through this accounts convergence into the space. Obviously, we have looked at the options that we had in front of us to go for it. Because we have to go for it given that, what we are seeing at the moment commercially and doing what you’re doing at the moment is by far the best of the available options. Again there was a common before around Germany maybe there would be better option that comes in the price. We have looked at other inorganic options, but we believe at the moment this is really creative and is by far the best.

Vittorio Colao

And the advantage of self deployment is that you can unlike mobile, which has a ubiquitous pervasive kind of characteristic, you can prioritize areas. So you can to put it bluntly, bring fiber to the – reach of fiber to the business before you bring fiber to the other, and with a modular investment.

Andrew Beale – Arete Research

So you think the return on the investor capital is going better than your what?

Vittorio Colao

If you share it with somebody who has a more or less or a similar scale, so if together you can go on a customer base which exceeds 30%, yes. And this is case of Orange plus Vodafone, but that’s why Paolo said, sharing gives the scale that Nick there first was referring to. I think Jerry, I think Simon, Maurice, whatever.

Jerry Dellis – Jefferies International Ltd.

Yes, good morning. This is Jerry Dellis from Jefferies here. Two questions please. When you talked to us in ’11, I think, it’s premature that your free cash flow guidance will change to include dividends received from Italy rather than your economic interest in the cash flows there. So I just wondered whether you expect the Italian dividend to have a similar size to cash flows this year and could you just confirm whether Verizon’s approval is needed to make that distribution? And then secondly on convergence, I think Verizon Wireless is also looking towards convergence maybe an announcement with Cable coming in the fourth quarter. I just wonder whether you could explain the management’s safeguards for dealing with profit allocation issues as uptake of convergence products becomes more material.

Andrew Halford

Okay. Let me take the first one. So, yes, you’re right. Under new accounting, we will deal with cash dividend received rather than share of cash generated. Recent history is actually the two have been pretty similar, so therefore it won’t produce much of a distortion and I wouldn’t expect that to be much of an issue going forward. Yes, it is a decision with Verizon on the dividend although history would suggest that they are keen to receive the cash.

Vittorio Colao

Yeah, on the safeguards and everything else, on Verizon, let me tell you, first I would not comment on what Verizon Wireless intends to do, because it wouldn’t be appropriate. And I have to tell you that we are pretty solidly convinced that nothing can happen which is detrimental to our ownership in the 45% of Verizon Wireless because of transfers. There is a process, it’s a very professionally run company. We have the Chairman of the audit committee here. So everything is under control. And by the way we are already allowing Verizon Wireless and Verizon Comms to do a lot of things between themselves because they’re turning into strength for Verizon Wireless. So it would not be sensible for us to say no if it makes more sense to do things across the two companies, of course, we want to have an arm’s length type of cost allocation.

We had Simon, Maurice and then I think again come back to you.

Simon Weeden – Citigroup Global Markets Ltd.

Good morning. Simon Weeden from Citigroup. Two questions, one is on small cells, I just want to have – where and how quickly you want to proceed with small cells and whether you’re getting the support that you need for searching rights, indeed you need searching rights from the authorities. Second question was around India, whether you could give us a bit more color on the outlook for rest of the year and whether or not IPO, LIBOE, one or both have indecent India sort of in the agenda.

Unidentified Company Representative

Yeah, I would say Steve and Nick.

Stephen C. Pusey

Okay, yes, small cell technology is quite advanced now. So from the supply point of view we’re very happy of having range in the specification and size and scale and everything that we need and cost you in the right ballpark. On the searching rights, that varies country-by-country. Some countries, they make sense – usually metropolitan areas, the business base is still challenged based on the cost of the leases they are asking for. So it’s really a country-by-country answer gated by the cost of deploy.

Unidentified Company Representative

Just on India, So, what I would say is fourth quarter service revenues were on an underlying basis, slightly down on third quarter. But I think if you stand back and look at the trajectory of the Indian market, I’d say there is four positives to look for. So the first would be, we are gaining customer minute share of the back of effective consolidation. Actually I was looking at the stats recently, you will see in stage one of the consolidation, so there was on average 13 players in every circle, that’s down to 8 and of the 8, the top 6 are taking 95% revenue market share. I think the 8 will drop quickly down to 6 because the top 4 are taking around that 80% of the revenue market share.

And the good news is we are in the top four in all but one circle and we will correct that this year. So I’d say we’ve got good scale across the piece. I’d say revenue per minutes starting to show signs of hardening and I think you will see that going into the new fiscal year. Third is the data opportunity that Vittorio talked about with 30% growth and we are reaching an annualization of the consumer regulation that we’ve got hit within the year. So generally positive that revenue growth should start moving back up again and I think we’ve done a good job of margins and scale and I think we should see that arise as well.

Unidentified Company Representative

Yes, one and then we go there again because otherwise John…

Maurice Patrick – Barclays Capital

Hi, guys. I am Maurice Patrick from Barclays. So a question on the Red tariffs, you’ve talked about the ARPU dilution, could you share some thoughts on the extent to which you are seeing people spinning down from higher tariffs onto that and possibly some signs of people spinning up in low tariffs onto that, is it a bit of mix around that? And then you talked about the SAC, the A&R efficiency within the Red tariff, so how should we think about overall SAC levels in the March ’14 year compared to ’13?

Unidentified Company Representative

Let me give you – if I am, importantly, correct me if I am wrong, we have about one third new customers, two third existing customers. So the two thirds they are more or less split half come down, half go up. And the net result is minus 4 points that we are seeing. Now in our Verizon experience and I can talk about that because they made public comments about it. After a while this starts balancing with the first one planning are of course the ones we are spending about 98 then immediately go. And then over time the true message comes across, which is data for data unlimited free that’s why Paolo was referring to as the true in answering to Nick Delfas question.

The true appeal that has to be there is not the saving because I spend less, but it is I am free to do what I need. This is a little bit what we are aiming to. We don’t get a time for that to happen because honestly there are so many moving parts, it’s very difficult to have a timing. But we are seeing gentle progress in that direction. And I am really happy with the reception that the customers have got because the more they’re positive, the more they would talk about it, the more they will pull the customers who have to go up more than just the ones were coming down. These are more or less dynamics. Philipp you want to add something you probably…

Philipp Humm

Maybe just one comment, because we’ve talked on one hand above the migration, which has the certain temporary diluted effect. But the other effect, which is important is that the average ARPU we achieve with our Red customers is significantly higher than the ARPU we achieve with the average smartphone customers. So, which is the other positive aspect as this goes through the base that we will have a positive after sale as we are able to maintain or win customers who are very attractive in the market. So talking about Germany and UK, we are talking about 6 to 11 depending on the segment enterprise or consumer in the country improvement relative to the smartphone base. So that’s another effect which all the time will play out quite positively on Red.

Unidentified Company Representative

Very good. Justin, John and then we will continue on that line.

Maurice Patrick – Barclays Capital

Thank you (inaudible) Couple of questions please. Do you think the German regulators going to an auction of the Turkish spectrum that expires in couple of years. I think a decision should be imminent. Secondly, do you think you can hold your price points on Red, you’ve seen in Italy, Spain, Germany to a degree, smaller bundles coming at much lower prices by challenges and quite a lot of activity down at the low end of the market. For example Italy gave a price points of €4 or €5 for a small bundle of voice but quite a lot of data. Is that a threat to the Red towers? There is the price levels, don’t agree with the (inaudible) just the price point.

And finally big picture question, you’ve got Charlie Ogun in the U.S. saying that there are major synergies from putting TV distribution company together with mobile. We take that analogy into Europe. Do you see similarly large cost savings from putting cable together with mobile? Could just the cost synergies alone make that sort of a deal worth doing?

Unidentified Company Representative

Why don’t we have Philipp on the German 2G kind of renewal, Paolo, on the crazy price points on our competitors, and then maybe I take the broader question on synergies.

Philipp Humm

Yeah, on the German renewal, we don’t’ really have final opinion at this point in time. So we are still waiting and once we have a better view on what the regulator will do, we will be able to communicate to you, but not at this point in time.

Paolo Bertoluzzo

I guess the question was more starting from can we defend the Red price levels we are into the moment, but then I can also comment, Vittorio, on the price points of our competitors if you wish. I think that we have seen a very different reactions in different markets from different players on our Red price point and I think overall is more or less what we expected I have to tell you in the sense that incumbent in general competitors with stronger networks and stronger assets and probably more reliable services tend to become on the pricing around Red because their big customer base is exposed to this type of pricing and therefore they’ve not necessarily matched in either to a downgraded the price immediately while obviously the factors which are trying to discount that as well as normally a factor discounting everything we do and that’s not a surprise either.

I guess we are now entering in a second phase for Red, which is making sure that we build the credibility that is not just of tariff plan as Vittorio was saying and therefore making uses in the network, into service, into multi-device, into family propositions, which at the moment are Vodafone exclusive type of thing and actually we would like to make it more and more relevant for the customers and looking at for one at what is happening in the U.S. can be very well up to the customers.

Yes, you are right. When you compare €39 price point for Vodafone Red in Italy in contract to €10 price point, which the competition is driving for 400 minutes, 400 messages, 1 giga bundle in prepaid (inaudible) perfectly right. I think we have to remain calmer in that situation in a sense that we are definitely responding now given the direction of message is taking the prepaid space. So we either right size of our premium because enough is enough, we will try to do whatever we could do to drive them back in different direction, but clearly this is not the phase, and I believe that we should wait to discount. We can do things, Andrew today the proposition you write is a very rich proposition for example it comes with 1 gigabit because that’s where the market is and the competition is, but for the moment I think we should try and stick to the core strategy because Red is not a short-term run, it is a longer-term type of think.

Unidentified Company Representative

Yes and then on the question on synergies, listen there are of course synergies when you put together infrastructures. We are incredibly aware and we see very well the mobile to mobile synergies, then you move kind of the fixed synergies, if you have a senior type of infrastructure, which is kind of a classic telco synergy than probably cable which at the end of the day is similar but it’s not exactly the same.

Honestly when you’re at into satellite, I would imagine that our synergies, how big they are I am unable to kind of say but it’s obvious that the more you put distribution pipes together, the lower your cost per unit (inaudible), but also the more powerful, the more resilient, the more performing, your infrastructure becomes it’s a continuum that goes from – and we have experienced ourselves, (inaudible) clear case of the cable and wireless case, it is clearly an appealing thing hence my comment about consolidation that the more they put the punitive conditions around and the more they take away the advantage from synergies. But yes there is a continuum of different size synergies that in any distribution platform you can achieve. John you have been so patient, so patient thank you.

John Karidis – Oriel Securities

Thank you. So John Karidis from Oriel, I just wanted to ask details around questions that were already been posed. So on the Red ARPU, you said ₤4 reduction. What are the absolute numbers? So £4 from what, has it fallen down to?

And then secondly, everything else being equal, how many Red customers would you have to have for the ARPU dilution to actually reverse and start sort of having people spin up. So, you said you want 10 million Red customers by the end of this year, does this have to be 30 million for the ARPU to start growing or 15 million?

And then on this issue on cable, all I am trying to understand is, whether you buy it or get the chance to wholesale it and how significant would be the operational challenge and to combine what you have now which is VDSL or DSL based with DOCSIS 3.0 when it comes to creating a sort of uniform service and offering to your customers?

Unidentified Company Representative

Okay. Why I don’t I give the question on Red and ARPU to my colleagues and eventually (inaudible) than if you want to chip in you can as well. And then Steven and myself will take the technology complexity of different platforms and different delivery mechanisms.

Philipp, Paolo, ARPU and how much drive we need?

Paolo Bertoluzzo

I don’t have handy in – my markets the ARPU starting point of the dilution delta is around for €12. That being said, as I said earlier the ARPU we achieved with new customer is significantly higher than the ARPU we achieved with our average smartphone customers in the order of magnitude of €6 to €11 depending on enterprise consumer and country we are looking at.

Unidentified Company Representative

And I guess a fair number would be ranging between €40 to €50 with the consumers being closer to €40 and enterprises being closer to €50. You have to take into account that our (inaudible) customers are almost package with our subsidiary, which basically gives a different value to this Apple, because our service is Apple, so it’s coming to us, it’s now going to terminals. In our plans, we were obviously assuming a gain in market share, and it can be more or less as we had expected, I think the key part of RED is actually stabilization of the customer base, stabilization of the spending and decrease of ARPU. And I think for these elements which you risk out, what you’re seeing is actually reassuring, but I think it’s still a bit early on these elements driven assessment.

Unidentified Company Representative

There is nothing massive, as Paolo said, I think net of the phone between 14, 15 changes by market to be honest. We are checking wide. Steve, how complicated is it to run variety of platforms keeping in mind that Red in our core or Germany today, we are running a variety of business solutions between resale different DSL and so forth.

Stephen C. Pusey

That doesn’t price as we’ve been done before in the world into racing, physical layout particularly optical layers since it was backwards et cetera, as well as have these lines or VDSL heading. The challenge will come on ubiquitous service interfaces where one would have to evolve user interfaces and IPTV and TV services et cetera. So most of the work will be get on a consistency, which perhaps on the day one, one might be but just not holding necessary overtime you’d want to maybe look similar in touch and feel, so physical infrastructure is okay, that prognosis has been done before and the terminal it will go into the service layer inspiration.

Unidentified Company Representative

Shall we take one question from there and one more from here you’ve been waiting, kindly and I think have – this is it.

John Karidis – Oriel Securities

Yeah, a few questions. Starting from slide 17, you basically pointed out that perhaps your cash flow was 9 year before, 8 this year and now you’re guiding 7 for next year. So if you can share with us, one – if and one cash can stabilize, taken and accounted to different drivers over our smallest dividend and your control operations.

Second it’s for Philipp, it’s basically to gain a bit of insight about your margins, making this wholesale agreements, back on the envelope exercise, you’re basically your cost almost double from (inaudible) €10 to almost around €20 - €19, €20, there is still sort of agreements you strike with Deutsche. Meanwhile, the cable keeps close, a pretty good capital pricing in terms of the retail, where a 50 max lines, already retail €26. Now you do well, basically as you pointed out at wholesale, a strong wholesale should come with a strong framework on price squeeze. But the problem is that, there is not a price squeeze, wholesale agreement or (inaudible) on the cables, because the cables are not swapped at regulations. So if you strike and also bring it to an incumbent, meanwhile the pricing on the retail market is being pressurized for the cables, are you not running a risk of actually you basically have lost 19 on this wholesale agreements.

And the third, it’s on spectrum, actually it’s a point out from my previous one and I basically cover that – you talk about only the new spectrum when you talk about £100 million projected for investments. Now there is a big elephant in the room, the U.K. renewal, it’s specially coming up pretty soon. Then you will be actually attached in Germany Eagle is coming also. So my suggestion is that it’s pretty difficult to just tell a number, but we have to budget 100 million source of product or in the billions in terms of investment to new spectrum in Europe. Thanks.

Vittorio Colao

Let me give the first question to Andy, and second to Philipp, and the third between Andy and my self we will deal with.

Andrew Halford

Yeah I think on the cash remember that the absolute cash amount has decreased from the U.S. but the time frequency of receipt has increased. So it really depends just upon the frequency of the dividend and clearly what we put into the guidance for this year, is the June dividend which we have clarity on, we’ll see what happens there after, and so I think U.S. is more about just the frequency of receipt and the cash and obviously a pattern now being established.

Control business as the cash flow has come down a little bit, you are right the included pressures in the Southern European has cools that to happen and our absolute believe that we should still spend on networks and keep to spend up during that period, we are obviously working on what we can do with the rest of the business, they cost out to make sure whether that cash trajectory stabilizes over time as the macro economic environment picks up, so should the cash flows.

Vittorio Colao


Philipp Humm

Yeah on the question on broadband and cable we are today from the price positions below Deutsche Telekom in the market in broadband and obviously above cable, which our margin lines in broadband on an existing infrastructure. Now if the pricing pressure in the market were to increase the one to notice it primarily and first we’d be obviously the market leader and if the market leader reduces prices as it is regulated from the outset, the wholesale price would have to follow which basically is always aware of regulating if you want also EBITDA margin.

We obviously do not make an EBITDA margin of an infrastructure player as we don’t have the same infrastructure, which is kind of logic, but we also don’t have the CapEx linked to the infrastructure. That’s all from our point of view it’s actually quite interesting product from the EBITDA and in particular from a cash flow point of view also going forward, while we think it’s financially interesting, but also from a differentiation point of view, interesting as we’re moving, not only layer 2, but layer, not only layer 3, but also on layer 2.

Vittorio Colao

And on spectrum, I think the correct answer, but Andy help me if I am wrong, is that we really don’t know what the conditions should be, we believe it’s going to be more likely to be yearly fees rather than big upfront payments, which is I think two, three years down the road and when we have news, we will update you. Yes, the final one.

James Ratzer – New Street Research

Yes, thank you. It’s James Ratzer from New Street Research. Two questions please. The first one, was if possible I have to push you a bit more on your thinking around Verizon Wireless, I mean you have had a lot of retreat from Verizon really since January on their willingness to do a deal, I mean what’s holding you back from your side, are you conceptually opposed to not having Verizon Wireless in the group, is it complexities around the structure of any deal, tax visibility, price, just be interested to get some more color on that?

And then on the second question with regarding your EBITDA margin guidance. Philipp last year, your EBITDA margin has been essentially flat. You are now guiding to slight weakness in EBITDA margin despite an acceleration in your cost cutting in the European business. So just again what’s causing that, is that more commercial cost? Is that a slowdown maybe in emerging market region in the margin expansion just to be helpful to get some more color on that?

Vittorio Colao

Yeah, James you can definitely try to push me on Verizon, whether I will move or not especially if what pushing is rhetoric, I think that I need something more solid and of greener color to be really move the way. I mean this conceptual opposition thing is just nonsense. I have said all the way through, I mean actually if you remember the first thing I did when I was appointed as CEO we took away Verizon from the operating units and we said this is really Andy and myself. This is a minority and I think I did about three, four months after being CEO, I said really minority, this is a great minority. This is fantastic minority and this is a minority that now sense and envelop every now and then, which we really enjoy opening.

So that’s where we are, it’s a great company generates a lot of cash, has advantage for our shareholders. And we are conceptually opposed to nothing other than anything, which is worse than the current situation, which is a nice situation to be in. So if there is an improvement in the value realization for our shareholders of course we are open to it, the Board is very open, we continuously look at things. And again the rhetoric is not enough to push me. Having said that mind is open, we listen and if things change, we would update you as soon as we have anything that we need to disclose. Andy?

Andrew Halford

And on the high net margin, I mean, trying to guide on the margin to [Spheris] degrees of accuracy is really quite tricky. I think all they are doing is saying if next year there is the opportunity to push one or two markets to get more growth, we will go through. So it is in the best interest of the business if that costs a little bit of margin. So there, you’re absolutely right what we do and the cost should help, what we do in the Red should help. So it’s just saying given unpredictable markets, if we have to spend a little bit more, but it is a good thing to grow the business in the long-term, we will not to be afraid doing it.

Vittorio Colao

Good, I would like to thank you all for your questions and again as a conclusion, throw your attention on the final chart. The transformation that is taking place is significant at Vodafone. And the assets we have, the three big bars for getting for second, the largest minority in the world are solid and moving, I think into the more appealing growth space of enterprise data and emerging markets. Thank you very much, and I look forward to interacting with you in the coming days.

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