Q2 2024 Vodafone Group Public Ltd Co Earnings Call
In a bull market structures and sufficient scale to grow and to deliver returns above our cost of capital.
And take actions when these conditions are not met.
As a result, we have announced our exit from Spain.
In the U K, we are progressing with approvals for our free for our merger with <unk> and we are continuing to explore a range of options in Italy.
Overall, we are making progress on our priorities, but of course, we have significantly more work still to do to improve the experience for our customers cut complexity and operate in a simpler way.
We are now ready to take your questions.
Thank you Margarita.
Our first question is from Maurice Patrick of Barclays.
Yeah.
And if we can remember everyone. Please just keep to one question. Thank you very much.
Good morning can you hear me okay.
We do yes, we do.
Great always good to check onvia. Thanks for taking the questions if I could ask a bit about capital allocation priorities for the group. Please at the full year results you made comments around the shape of shareholder returns changing as the permit to Vodafone changes and to look at other parameters now changing.
After the UK deal you've announced the 5 billion Euro IV sale does it go down when you announced that deal you did say you would review the optimal use of proceeds in the context of our broader capital allocation view of closing so even though maybe today as they mature to spell out exactly what you're thinking it would be great job understand a bit more about your thinking around optimal leverage we're happy.
If rates stay high for longer how do you think about buybacks dividends that are sort of priorities I think it'd be very helpful. Thank you.
So Murray.
Youre right.
Back in May when we were talking about capital allocation I said that we would reevaluate.
Our capital allocation, if the shape of the group was to change.
We have.
Just chosen to exit Spain <unk>.
It's a very challenged market.
And it's really important for me that in Vodafone, we focus our buying our financial resources to markets, where we have.
Good opportunities to grow markets with sustainable structure markets, where we have sufficient scale to drive returns ahead of cost of capital.
In that context, we will do.
Our capital allocation review.
The point in time in which the Spanish deal will close we expect this to be in the first half of calendar 'twenty four and at that point, we will review the allocation of the $4 1 billion of proceeds.
That we have from the sale of Spain in terms of logic that we will follow this.
A guiding principle will not change we have three capital allocation priorities around investment balance sheets, and Rita, but perhaps as we now have Luca <unk>.
<unk> CFO Luca <unk>, how do you see this perhaps for me.
It's just important to take a step back.
Before capital allocation comes capital generation and my first priority actually will be to ensure that the company overall is able to return to sustainable growth in cash flow. That's very important and there is no shortcut. There. This will only come through the focus on operational excellence you have set the right priorities around.
Customer simplicity and growth and we will drive them hard across all of our markets and in those markets, where this operational excellence focus will not be sufficient as we have just seen in Spain because of the market structure. Then we will not shy away from taking decisive action either through market consolidation.
Or through an exit that's important as a baseline now.
My thoughts around the capital allocation priorities are as follows first of all.
On the investment side of the house.
I am actually comfortable with the levels of capital intensity and capital investments that we are showing to date across our markets.
So I don't think that you will need to see a departure from that.
I also.
Must say that I'm very pleased with the strength of the balance sheet of Vodafone.
Actually as I've been deep diving deep into it.
Actually quite remarkable.
Yes, we have of course significant net debt, but it is having a very long maturity on average 11 seven years. It has a very decent low interest rate attached to it on average two 5%.
Actually in the next 18 months, we have very limited repayments that are coming up and over the next five years, it's actually in total only $13 billion or so so I'm based on that also comfortable with the round about two five times net debt to EBITDA ratio.
We are currently showing when you then take a look at returns to shareholders. As Margherita has said we will take our time to look at the optimal use of proceeds and the overall capital allocation framework.
Sale of Spain has closed however, based on what I can see is obviously we are around about looking now for $3 3 billion in free cash flow for FY 'twenty form we are on a positive track towards achieving that the sale of Spain will of course reduce those cash flow a bit.
But on the other hand, we are also focused on operational excellence as I've said at the beginning and we will have a much better way of chartering the effect of all of these parameters as we approach. The closing so we'll update you on that and since you asked us that question.
Of course buybacks could be part of that mix as well.
Great. Thank you.
Thank you Morris.
Thank you. Our next question is from Polo Tang of UBS polo, if you've put on mute yourself. Please.
Hi, Thanks for taking my question I was just like German commercial trends with a bulk of the repricing and the broadband base done how confident argued that group and declines in Germany can improve going forward also what are your latest thoughts in terms of how much basic cable TV revenues you will lose.
Luiz.
Much of an impact what we see in January 2024.
Thank you Paulo on broadband, we will definitely see an improvement on the volume trends the disconnections of the past two quarters has been driven by our re pricing it.
It was admittedly a very low level of disconnection, we are talking about low single digits and I think our customers now appreciate the quality of.
Our product in Germany, we probably mentioned this before but we continue to be rated as the best fixed broadband product in the market.
Two our network performance and our strong performance and it's competitively priced as we look into our store, we still have some disconnections because we have now coupled with price increases 60% of the base.
We had one lost 10% to go through during Q3, so there will be some disconnection also coming from that in the second half beyond that we look forward to take our fair share.
Of the German fixed broadband market going forward.
And news in the second part of your question.
This is something where we will start seeing movement from the first quarter.
Calendar 'twenty four so our Q4, we have had very very small volumes of movement throughout the summer.
We have completed the <unk> tests.
One of which was ongoing last time, we spoke.
And we have seen that.
The retention rates the conversion rates towards the new building.
<unk> been between 35, and 65% as a reminder, 65%.
I would say the top and also because it corresponds to the level of customers.
<unk> using the service.
Our teams in Germany are now busy to prepare for January when we will start the first volume and we expect the tenant diesel too often.
Ideally between January and July.
Yes.
Focused on testing all our processes internally in terms of migrations across all channels online retail sales sales to make sure that everything runs smoothly from a process perspective, but most importantly, we have been calibrating our.
Commercial approach, our communication to the marketing side of things to ensure that we get the maximum possible.
Any help in terms of penetration it is really a very very strong focus from our organization in Germany right now.
In summary, assess the impact on 77 new growth.
The last quarter this year.
That's our plan of growth in Germany is actually improving and will continue to improve if you set aside the <unk> transition to allow you to see this underlying acceleration trend we will actually report from Q4 the MDU.
Impact separately, so that you can work out the two the two components and then we expect FY 'twenty five to have.
We have the largest impact from that.
Thank you very much for your question Carlos.
Next up we have James Ratz Huh.
From New Street research, James if you could on mute yourself and.
Give us your question. Please thank you.
Hi, Yes, good morning, Mark return. Thank you very much for taking the question.
I was wondering if we could talk a little bit about the EBIT dollar growth phasing going hard you've just reported flat organic EBITDA growth, but I think youre, saying thats about a <unk> five point drag.
From energy headwinds.
So could you give us some thoughts maybe over the next two or three half yearly blocks, how that energy headwinds might unwind and kind of become a potential tailwind on your growth and then to what extent that might be offsets.
By some of the German cable TV losses, due to our strategic chartering do we actually see overall organic EBITA growth rates improved from here. Thank you.
Perhaps I'll take I'll take this question because I've already heard some questions.
Our EBITDA outlook confirmation as a sign of German conservatism. So if that is the case I would take that as a compliment but.
Just to outline what we are seeing here.
Absolutely right in half year, one <unk> was a 300 million drag.
On EBITDA.
It was actually.
<unk> outperformed slightly on the organic side through the strong revenue performance and also through continued focus on Opex savings, we added another $100 million under our Opex program. However that is something that we are also looking to reinvest in our customer experience initiatives.
But it has helped to offset those investments, which was very important when I take a look in the second half year.
We're actually by now almost entirely hedged 94%. So what is remaining is actually in certain markets that we don't have.
Mechanisms to hedge further so I can be relatively precise in the sense that we.
We will see actually half year, two versus half year, one a relief.
200 million roughly in terms of energy headwind that we will not face now in terms of the puts and takes.
On top of that NRG topic, and there are a couple of important ones on the positive side half year. One results in the UK were negatively influenced by the roll off of an MEP an old agreement with Virgin media that is now lapping and therefore will also not affected the UK numbers any longer so we would.
Expect the U K actually.
Turn to EBITDA growth in Germany in turn.
First of all we will face the initial impact from the MDU.
Transition how much it will be a little bit hard to to assess a margarita has covered the trial resides.
And it will certainly take some time before this is fully transpiring, but on top of this we also are investing from a program Opex perspective of course into all of the processes to now go after the retention of our MDU customers and.
This is requiring investments from a marketing perspective from a.
Operational thought too.
<unk> and other retention measures perspective, so we have planned for around about 100 million of investment under this notion not all of that will actually happen in half year, two but a significant portion of it will happen in <unk>. So when I take a look at that in combination.
<unk> I see us actually well on track towards our full year.
Ambition.
And we will see where we end up.
Next year, we are actually already around about 70% hedged from an energy cost perspective, and we will see this ratio going up fairly soon to round about 80% already.
So.
I would expect NRG.
NRG to become a tailwind in FY 'twenty five even though we will likely not yet fully returned to the levels of FY2023.
Slide 26, I fully expect us to be back to levels, let's say, perhaps slightly above what we saw in FY 'twenty two.
And then of course, the underlying growth that we're seeing in the business should translate into stronger EBITDA growth than what you have seen an H one.
Perhaps bringing.
Altogether, James we have been very clear when we ship.
Our guidance for FY 'twenty four that's the number we're achieving this year is going to be a base to grow from and.
We are intending to grow in FY 'twenty five.
As.
We have just highlighted we will have one bu transition impact, but on the offset we will as the LNG on why.
The typical business puts and takes net of this it will be growth.
So it's really clarifying keeping up.
Thank you for your question James.
Next up we have David rights.
Of Bank of America Merrill Lynch.
David if you could on mute yourself please.
Oh, Okay. I hope you guys can hear me clicking mute Amit.
Thank you so much for the presentation today.
Just on the whole capital allocation.
Issue.
We haven't talked for some time about German fiber, you've obviously got an allocation in an agreement without piece to co build.
Around 7 million lines or so in Germany, but that leaves a lot of cable lines to be invested.
Over time, you, obviously have decisions to make with the proceeds of Spain.
Coming up I'm, just wondering to what extent fiber build.
Something that you could look into.
Owning a little more or whether you're going to continue to pursue the joint venture structure.
I might just segue, Dr. Dolittle into Holland, where there was a broadly similar situation with a full cable network, but need to overbuild.
Just any plans that because that business looks very unlikely to pay dividend next year, given its leverage and poor operational performance.
What is the future for Vodafone takeover to rethink. Thank you guys.
Thank you David starting from.
Gentlemen, fiber I think that the.
Luke has been clear.
Earlier in saying that we are comfortable with.
The level of capital investment we have in the business now and this does include continuing to invest in the evolution of the cable network in Germany. Our plan is to build fiber under 7 million households through the JV as you as you mentioned, but also continue to evolve.
Our cable network.
And in that respect.
Top of the now adding west invested in delivering very strong performance, it's worth noting that we.
We have just put into.
Our lives network high fleet DOCSIS in Germany, which as you know allows us to achieve multi gigabit speeds. So cable itself as its own strong technology roadmap and by the way in the Netherlands, We have also trials.
Commercially DOCSIS four <unk>.
Already so we will keep evolving and we're happy with where we stand in that in that respect.
Back to the Netherlands, I would say that we are actually competing effectively there.
It's not the only market that are more that as cable and fiber side by side.
That you may have noticed that in the last quarter.
In the Netherlands, we have been growing in consumer fixed.
We are focusing really on the areas, which do matter most to the customer at the moment.
If you look at what's on offer today from cable it satisfy entirely all the consumer use cases for fixed broadband where people mostly care about is that experience in the house, the extent and Wi Fi and that's what makes the biggest day to day differences and this is an area where Vodafone.
<unk> has been particularly active in as I said 77 is.
Is going to gain in fixed in the Netherlands, or the dynamics that you see in markets like the Netherlands between cable and fiber are frankly, driven by pricing by promotions, it's not linked to the actual service.
I am not sure that Santali KPN is saying.
But at the same time, we've just had a a benchmark.
Data points from Telefonica with 2026 domestic capex sales guidance of 10%.
That's a function of full fibre build out but more importantly for copper decommissioning.
So fiber networks that the incumbents.
I'm moving to new levels of capital efficiency in Opex efficiency over.
Over the coming years, which I think will massively outstripped the ability of cable so.
As cable to fiber.
When not if and it's the one you're currently debating.
Or you actually do you think cable has a future.
A competitive technology, not just to the consumer but economically to you as a group.
The cable networks themselves continuously find their eyes, when I was talking about segmentation it means more fire.
Org.
Gradually over time.
Then at what pace you go or do you move also depends very much on market conditions and as you know the conditions of saying a completely different for example for the conditional ups of Germany, So what actually makes sense.
That is different for different operators in different markets.
Thank you. Thank you for your great questions. Thank you David next.
Next up we have a caveat at a ratio from Societe generale.
I'll caveat if you could.
Mute yourself place.
But when they are ready.
Thank you.
Great.
A couple of question on my side, the first I will start this from Spain.
You announced the transactions whereby.
Effectively you will be selling.
Asset.
Company, where you we held being 75% of the equity nonvoting equity sales <unk>, 5%.
Therefore, you will be.
Spacing any potential downside turnaround is not successful.
So clearly you believe the turnaround to be successful.
Therefore, my question would be.
Walk right.
Slide into the turnaround itself.
There is an issue that you don't have for the management of Vodafone doesn't have the skill set.
You believe that your best or not patient enough.
So why do you believe the upsides to a third party.
That's also a turnaround will not be successful.
Don't have any recourse on the assets of the Golar.
So therefore, you will be less.
Participated the downsides.
So therefore, yes. It's a question you said wage and leave the stake into the asset. So at least you got your $900 million back on tangible assets rather than a pledge from Ghana.
The second one.
Basically relate to your leases.
We have looked at so welcome.
On the call.
The question is on the lease is trying to understand how you capitalize your this might be too because whenever I had two.
Ratio between how much you're paying leases and how much capitalized multiple comes really at the bottom.
Now some agencies left for the agents like S&P to make their own adjustments because they feel that the lease up too low. So therefore, if you can share with us.
The assumptions you use to NPV that future.
Leasing payments that would be great. Thank you very much.
With that I would say probably.
Second question that you raised its best followed through with IR later until we will be able to share all the details with you.
Take the Spanish.
Questioning said, let's be clear what we have done in Spain is a clean exit for the market.
We have $4 1 billion of cash upfront and we had a 0.9 billion all deferred compensation.
Then we'll be circumstance compensation is supported by our financial mechanism, which is the one that you had described.
But essentially in a nutshell, we wouldn't get up to 0.9 billion whenever there will be liquidity event.
The company, we're not exposed to downside sauce, and we will not be part of any decision, making it's a clean exit we have sold 100% of Vodafone, Spain why did we sell Spain I'll go back to what I will say in the beginning.
In the Spanish market is incredibly fragmented over 70 retail brands.
Hi, <unk>.
That infrastructure can.
Competing to the point to touching on earlier with David in the same cities in the same ranges.
These are markets that will require.
More than one round of consolidations and I really want us to focus on the math, when we where we can drive the best growth and the best data.
That's our mission.
Is it going to mission will be for themselves to that either as much value as they possibly can we are focused on spending our time and attention on markets, where we have greater growth opportunities.
Thank you consider the leases questions will be asked in a different.
<unk>.
Wei.
Ill ask it a different question. This one on the working capital.
But when we look on H, one we saw some big cash from bolt on he sold his deep Reds.
And of course all of this.
We attribute this working capital the slip because its being are becoming bigger and bigger.
Just wanted to if you can give us a bit the elements.
And with Luca is going to do it going forward to avoid this big screens from when you spun out thank you.
Yes, that's perhaps in one that I can cover as I said, I mean I will be.
Really strongly focused on.
The sustainable cash flow generation.
No.
Let's cover all of the aspects not only working capital management.
But also how to improve the general cash conversion across the business.
A significant part of that mix.
Should also be in the future the accelerating growth in Vodafone business, because that has a much lower capital intensity.
And actually therefore, a higher potential also in the short term to improve the cash flow generation.
Youre right.
I would take a look at the historical evolution.
<unk> yuan versus half year to Sweden.
They are becoming bigger.
We are confident because we have anticipated what we are.
Looking at now in H, one at our full year cash flow generation. It's also.
Partially.
<unk> of the.
Significant build up that we have seen towards the end of the last fiscal year, which has resulted in a significant unwind here so thats fully anticipated.
From a go forward perspective.
Clearly.
There are some leave US like for example, taking a look at the way, how we build up or down on the amount of trade receivables that we have that's mainly driven by handset receivables financing that could be structured differently. We would take a look at those options, but it is one off.
The strategic priority programs that I'm driving within the finance organization towards the risk profile in this respect for the future, but having said all of that actually where we are right now in half year. One is exactly in line with where we thought we would be and hence we were also able to confirm our guidance for the premium.
Thank you.
Thank you for your question our caveat next we have George US here at the corner of Citigroup.
Joe just if you could on mute yourself. Thank you and go ahead.
Yes. Good morning, Thanks for taking my question.
The main one is around Italy and India.
Our opening remarks, Mark I think you mentioned that Italy is under review.
Just wanted to maybe touch on a couple of things firstly.
<unk>, we are seeing is spend whether it's diesel encourage or discourage you in pursuing in market consolidation I guess, that's the objective.
Competitive markets like Italy.
And Scott.
Scott May also apply perhaps through maybe on other markets, but curious to hear from you. If you believe.
Based on what we hear whether the options are still available for you and if you could also perhaps.
How did you bid on legislation changes around we Buck promotions that Vodafone and then companies are having in the market and whether that could be a meaningful impact to your business.
I Hope you don't mind I'll also ask one clarification given fewer bye.
Peers have gone beyond the first question, which.
Which is around.
Common functions and it's been a significant reduction in losses this quarter.
Curious if these cost cutting or charging the subsidiaries more and also if you can give us some indications on how the Spanish deal will affect distribution in the next couple of years. Thank you.
So perhaps local and over to you the Docomo <unk>.
And I will I will start from Italy.
The changes, which have been discussed on buybacks for everybody's benefit it's whether buybacks can be.
Customized by the different covenants of the customers or not is what is being debated in Italy at the moment I think the jewelry is out on the type of impact. This is going to as I've been reflecting that it can go either way.
In a sense because it can.
Potentially lower the office in general, but it could also drive more disciplined in the approach that people take to the so called below the line win back offers that are so prevalent in the market either way I don't think that will change the substance of Italy being.
Very competitive market, but I think the incremental impact could go in either direction, we will see.
Reflecting on Italy more broadly.
Do we spend that.
My focus remains on the team markets I called out in May as I said at the beginning so.
UK, Spain, and Italy, I said in May would all benefit from portfolio actions.
And therefore in Italy, we will continue to explore consolidation opportunities.
Our position in Italy is very different from <unk>.
Our position in Spain, we have a very strong.
Company in Italy, as you know you will have seen from the latest results that also this quarter as we do consistently quarter in quarter out for Es, we have been outperforming all deal with the established players in terms of service revenue growth.
We have a strong brand a strong last four.
We are outperforming also because we have very strong on the business side of things over 35% of our revenues would be to be in Italy, now and you will have seen as we have started reporting more granularity and b to b.
We have effectively high single digit growth in B to B in Italy, now and we are competing effectively in in consumer overall relative to the other players that doesn't change the fact that.
<unk> remains a very challenging market none of the players unitary delivers returns in excess of cost of capital.
Prices are below cost so no matter, how many efficiency will drive.
As we have done more recently with the latest that restructure.
Restructuring.
The market.
Itself needs action.
Which is why we will continue to review a range of options as always in this case.
Now possible to set deadlines are comment any further about the market <unk>.
Perhaps just to add.
Against your question around common functions, you're absolutely right.
Last year, we had a significantly.
Higher amount of costs in common functions that was then charged out in the second half of the year compared to this year.
I think.
What you'll see this year is a combination.
Slightly.
More even spreading and phasing, but also savings as we have said we continue to focus on.
<unk> corporate services and.
Having opened our opex savings programs. So that is partially contributing to the lower cost. So it will be a more even distribution.
What youll see last year with also some net savings that will flow through to the year end.
You also raised the question of what happens with the sale of Spain.
Two.
Someone functions I think this links to what you may have seen an announcement on diesel so yesterday to the transformation. We are doing an outstanding operations. Our scale has been a great source of efficiencies for Vodafone and.
That really.
It seemed to make sure we continue to develop those efficiencies. So we are making our sales operations fully commercial with affecting the msas in place between the group center and the countless to drive more efficiencies there.
So to be more effective in selling to third parties, which could be JV, which could be all of their partners in the industry. So that we continue to benefit from our scale strength.
Thank you George Us.
Our next question is going to be from <unk>.
That's <unk> of J P. Morgan.
Our Q when you're already if you could ask the question. Please.
Great. Thanks, very much for taking the question.
Margarita cannot maybe ask a question on <unk>.
NPS comments from earlier in your presentation.
Obviously, you've outlined on slide 16, the trends that youre seeing at the moment, but I guess I was trying to incent peso.
How we should interpret this.
And I guess, what I'm trying to understand is that.
Firstly, when I look at your major European markets.
Youll note a market leader in any of these regions.
And whilst you are highlighting some select got productions, we still don't know how big the gap SAR. So how do we really try and interpret this data is it an improvement but still a very wide gap do you think youll really structurally closing that gap and you can start to become a market leader.
So maybe if you can just comment on that and I guess similar to the last one I just had a quick clarification, which was just that you've announced on consolidation of Spanish much.
Despite the fact, we don't yet know what the remedy situation will be from the Orange amongst mobile deal and Youre also announcing youre looking at potential options in Italy. Despite the fact, we don't know that so how do we interpret that is that to say you don't see mismatches or could we even interpret your.
May be concerned about how this might play out and you'd prefer to move ahead of that mix alone.
And maybe I'll pick up the second first it's very painful.
I was mentioning earlier I think the situation of the Spanish market will remain challenging weather.
With or without a merger between orange and mass market.
Because of the position it is in which is.
Why at the end of the sort of strategic review and then examined all options and discussed with the range of Counterparties. We have taken the decision we have taken and we have chosen the lien that was giving us the best combination between value creation and transaction certainty.
If I, if I think instead about NPS.
This for me is really really important you have not seen absolute.
NPS numbers in our reporting because as you can imagine this is commercially sensitive, but we have started reporting on plans now and we will continue to do so in the future. This is the first instance of this core cafe.
<unk> in May and it's the same data points that we will be looking at inside the company.
EQM walking into Vodafone now across the group.
Focus on customers is the biggest change that you will notice we are really single mindedly obsessed with winning customers Trust every day and Thats our mantra.
And in order to get there you know that we are reallocating more money to customer experience $150 million in the budget of this year, but we are also a wide range of initiatives in every market that App weekly monthly views all focused on our do we.
Our customer life simpler and I think this is a real opportunity by the way for or telcos.
We see it and operational results, we have not done the stats, but we see simple things like core waiting times in our call centers dropping.
And and the like all the big numbers, we look at two things, primarily we look at the mix of the.
Tractors and promoters within our own customer base and we have also included that in our incentive plan from Dcs and we look at our net promoter score position relative to competitors. As you were noticing I think it was good to see and clearly there are no quick fixes and customer satisfaction.
So we're talking about a long journey ahead, but it was good to see that despite for example, the inflationary environment, we have been leading in in the last six months, we are starting to see the numbers edging in the right direction. Both in terms of absolutes and in terms of relative position, which is why we are.
Reporting on that on the on the gaps to competitors. So a long journey, but I think it's one which is really important for us. That's what Vodafone is about serving customers and it was hard for me to see that we're starting to see the Kpis 18 in there in the right direction.
Marguerite you just to clarify I mean, thats a very helpful. Firstly, how should we try and think about I understand not wanting to give absolute some I'm asking that obviously makes sense, but how do we think about the gap like if youre trying to conceptualize for us like how big the gap versus your peers and your major European markets. How do you think about that.
It varies enormously and the gap, we measure as well <unk> is the gap versus the best player and the best player can be a very different type of player as well in every market. It's not necessarily who you may think it is we look at all the range of.
And <unk> brands, and we compare ourselves about vessels than maybe the best way to answer. Your question is to say, we have published that we have reduced that gap by 20%.
In the last year that gives you a sense of progress and we will continue as I said to report against that.
Thanks, very much thank you <unk>.
Next up we have Jacob bluestone.
From exam.
Jacob.
If you could on mute yourself please.
Welcome back many buttons to press.
Thank you very much exciting to be back.
I had a question on free cash flow just following on from.
Tim <unk> question earlier.
Your free cash flow for the year, you're guiding for it to be down by about 1 billion and a half.
Two to $3 three two is down about $1 billion in H one.
So implicitly youre guiding for substantially better free cash flow development in the second half than in the first half.
And your response to James's question, you said, it's not coming through from better EBITDA growth. So can you maybe just help us understand what is it that's going to get better in the second half to drive what looks like a much better implied H two free cash flow performance.
Year on year.
Jessica.
Sure.
At the end of the day.
Of course.
Focus on reversing all of the trends that you've seen it play in H. One in <unk> you typically have a much better positive impact on trade receivables.
From a working capital perspective, that's what we will certainly look.
Two.
To drive and to achieve the corresponding outcomes.
On the on the EBITDA side.
Right.
Looking prudently.
Roughly similar performance than what we have seen.
In H one so it's essentially the usual written off the seasonality of cash flows that will fully come to fruition and then we are looking for next year forward for a more even spread as we as we look at the focus on trade measures.
Just.
A point, we may have covered in the past Jacob and Im just trying to remember if we deduct two technical driver of working capital swing between <unk> and us too in Vodafone one is the phasing of Capex.
<unk> typically a sort of 40 60 split between alpine enough to on Capex. So obviously you end up paying more of the Capex in our plan and second which is something that we may reconsider our new case working on now is historically, we have done all our handset.
Receivables sales in us too and this is why you accumulate in Alpha one and then it swings back in a stew and these two effects together.
Driving a very very.
Significant swing I think we have opportunities going forward to re phase the handset receivables technical execution during the year. So that you can pull as motor trend.
The end of the day the growth in the business overall and of course <unk>.
It's an effect that.
The material that we have available for the swing them to drive it is actually getting bigger but again, we are looking for ways to smooth this going forward.
Okay. Thank you. Thank you very much Jacob and we just have time for one last question. This morning, and that's going to be from Andrew Lee of Goldman Sachs. Andrew If you could on mute yourself place.
Okay.
Good morning welcome.
<unk> Thanks for taking my question.
Two follow ups, if that's alright, hopefully both relatively brief the first one just follows on from what you were talking about.
<unk> question around working capital swings I'm, just checking that in terms of smoothing things.
Youre not planning on using factoring over into financing given obviously telco investors in the market in general.
Today's approaches, but just wanted to check on.
That sort of things and then I had a quick question.
Yeah.
James's question earlier in the call on the revenue growth versus EBITDA growth.
Questions around the energy swings, but just wanted to ask kind of a small structurally we've had a couple of the telcos.
Service revenue growth, but exhibiting limited operational gear.
And so I just wanted to ask.
Your thoughts on the scope for operational gearing, let's take Germany.
As your core market.
I think Germany first 1% service revenue growth delivered about <unk> EBITDA decline ex energy.
Obviously still we're not seeing a translation of EBITDA growth.
Is there something structural.
Entity and kind of volatile factors does this any structural that stocking this operational gearing.
When you mix deterioration or whatever thank you.
Just on the vendor financing because I know what youre thinking.
Andrew not the kind you are thinking about and.
Again, we can give you more comments on operational gearing, yes first of all on the first one.
No new fancy mechanisms, it's just a matter of we wanting to really put everything to the far end of the business here, perhaps come to a more even application of the programs that we have already in place. So.
On the on the EBITDA and the gearing side of the house.
But you need to take into account is that we have not only the.
The EBITDA challenge by energy at the moment, we are also consciously using.
This year.
On the savings that we are having under our Opex program to reinvest very consciously and additional initiatives around customer experience and that's the right investment to make from a long term perspective, because it will at the end of the day. It result in better retention and lower churn and that will drive profitability.
So no I don't think that there is something structural in the business and how it evolves that will.
Dilute the potential for us to provide operating leverage.
If anything.
I'd say I am very confident that based on the cost leadership that Vodafone has always exhibited that we will continue to drive successfully for the $1 billion in Opex savings and going forward thinking about the next business year end and further on.
As we have righted the ship and focused appropriately on our customer experience you will also see more of that translating into further EBITDA growth.
Thank you.
Thank you Lucas Thank you Margarita.
That concludes the Q&A from this morning.
Thank you for joining and we'll see you again next time.
So you all thank you Leigh.
Yeah.
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