Q2 2026 Vodafone Group Public Ltd Co Earnings Call

[music].

Margherita Della Valle: Good morning, everyone, and thank you for joining us today. Before moving to Q&A, I will briefly provide an update on our transformation progress and financial performance. I want to specifically talk you through our operational execution in H1 in Germany and the UK. In Germany, our turnaround continues, and in the UK we are now driving the integration of Vodafone and Three, both of which remain top priorities. First, a quick recap on our position as a group. As you know, over the past two and a half years we have changed both where we operate and how we operate. In the last six months, we have completed the reshaping of the group that I announced in May 2023. We have completed the merger of Vodafone and Three in the UK and the acquisition of Telekom Romania's assets.

Good morning, everyone.

And.

Thank you for joining us today.

Before moving to Q&A I will briefly provide an update on our transformation progress and financial performance.

I want to specifically talk you through our operational execution in the first styles in Germany, and the U K.

In Germany, our turnaround continues and in the U K. We are now driving the integration of Vodafone and three both of which remain top priorities.

But first a quick recap on our position as a group.

As you know over the past two and a half years, we have changed both where we operate and how we operate.

In the last six months, we have completed the reshaping of the group that I announced in May 23.

We have completed the merger of Vodafone and three in the U K and the acquisition of Telekom, Romania of assets.

Margherita Della Valle: All of Vodafone's operations are now in a strong position at scale in all our markets, importantly, all these markets have sustainable structures. Our capital structure has also been reset, with appropriate investment levels, a stronger balance sheet, and over EUR 5 billion returned to shareholders via buybacks and dividends over the last 18 months, with a further EUR 1 billion of buybacks to come over the next 6 months. Most importantly, we have also delivered a step change in our operational transformation. Whilst we still have more to do in our drive to operational excellence, we have boosted customer satisfaction, we have simplified our operations, and powered growth beyond traditional connectivity by expanding our digital and financial services. Now, mentioning growth leads me on well to our financial results. We performed well in H1, in line with our expectations.

All of Vodafone operations are now in a strong position at scale in all our markets.

And importantly, all of these markets as sustainable structures.

Our capital structure has also been reset with appropriate investment levels, a stronger balance sheet and over 5 billion euros returned to shareholders via buybacks and dividends over the last 18 months.

With a further 1 billion euro of buybacks to come over the next six months.

But most importantly, we have also delivered a step change in our operational transformation.

Whilst we still have more to do in our drive to operational excellence, we have boosted customer satisfaction, we have simplified our operations and power growth beyond traditional connectivity by expanding our digital and financial services.

Now mentioning growth leads me on well to our financial results.

We performed well in the first half in line with our expectations.

Margherita Della Valle: Our group service revenue growth has accelerated to 5.8% in Q2, supported by growth across Europe and Africa. On the profitability front, group EBITDA grew by 6.8% in H1, with nearly all our markets posting EBITDA growth. With this solid performance across the group and a positive outlook, we have confirmed today that we now expect to close the year at the upper end of the growth guidance that we set out in May. Alongside solid financial results, we have also made good operational progress in Germany and the UK. Our two largest markets have different starting points and different competitive landscapes, but both markets are demonstrating the impact of our strategic priorities: customer, simplicity, and growth. Taking each market in turn, Germany is the largest telecom market in Europe, and we operate at scale across both mobile and fixed.

Our group service revenue growth has accelerated to five 8% in Q2.

Supported by growth across Europe and Africa.

On the profitability front group EBITDA grew by 6.8% in the first half with nearly all our markets posting EBITDA growth.

With this solid performance across the group and the positive outlook. We have confirmed today that we now expect to close the year at the upper end of the growth guidance that we set out in may.

Alongside solid financial results. We have also made good operational progress in Germany, and the U K.

Our two largest markets of different starting points and different competitive landscapes.

But both markets out of demonstrating the impact of our strategic priorities customer simplicity and growth.

Taking each market in turn.

Germany is the largest telecom market in Europe.

And we operate at scale across both mobile and fixed.

Margherita Della Valle: In mobile, our 5G standalone network covers over 90% of the population and now serves over 40 million customers, including 1&1, as well as almost 60 million IoT SIMs. On fixed broadband, we can offer gigabit connectivity to 3 out of 4 German households, more than any other operator in the country. Our gigabit broadband reach has indeed continued to expand during the quarter. We are now marketing OXG fiber to 1 million homes. Our brand is strong, and customer satisfaction in Germany has stepped up in the last two years. We have simplified customer journeys. We have introduced GenAI in customer care across chatbots and agent assistants, and our improvements across all call center KPIs are being recognized by independent testers. In terms of growth, we have followed a disciplined execution focused on value.

In mobile our five just Standalone network covers over 90% of the population.

And now serves over 40 million customers, including one in one.

As well as almost 60 million Iot Sims.

And on fixed broadband we can offer gigabit connectivity to three out of four German households, more than any other operator in the country.

Our gigabit broadband reach has indeed continued to expand during the quarter. We are now marketing <unk> G fiber to 1 million homes.

Our brand is strong and customer satisfaction in Germany has stepped up in the last two years.

We have simplified customer journeys, we are introduced gen AI and customer care across Shopbots and agent assistance.

And our improvements across all core center Kpis are being recognized by independent testers.

And in terms of growth, we have followed a disciplined execution focused on value.

Margherita Della Valle: We have introduced new propositions in mobile, driving differentiation and upselling, and we have continued to increase front book ARPUs in fixed. We also continue to expand our capabilities to satisfy the growing demand for digital services. Just two weeks ago, we announced the acquisition of an established cloud service specialist active across Germany and Europe. Looking at Germany as a whole, we are well-positioned to drive structural growth as we have the right assets and the right team in place. A team that is fully focused on becoming the market leader in customer experience, a one-stop shop provider for fixed, mobile, and TV, and a trusted B2B partner of choice. Now on to the UK. We are the largest mobile operator in the country, serving almost 30 million mobile customers.

We have introduced new propositions in mobile driving differentiation in Upselling and we have continued to increase phonebook arpels in fixed.

We also continue to expand our capabilities to satisfy the growing demand for digital services.

Just two weeks ago, we announced the acquisition of an established cloud service specialist active across Germany and Europe.

Looking at Germany, as a whole we are well positioned to drive structural growth as we have the right assets and the right team in place.

A team that is fully focused on becoming the market leader in customer experience.

A one stop shop provider for fixed mobile and TV and the trusted b to b partner of choice.

Yeah.

And now on to the U K.

We are the largest mobile operator in the country, serving almost 30 million mobile customers.

Margherita Della Valle: We are also the fastest growing broadband provider with the largest gigabit footprint of any operator, just like in Germany, as we are able to sell fiber to about 22 million UK households. Vodafone UK is already the market leader in customer satisfaction, and we are now extending our customer experience standards to Three customers. All of our customers are set to benefit from our GBP 11 billion network investment as we build the best-in-class 5G network for the UK. We have made a very fast start. Independent tests are already confirming noticeably better speeds and coverage in less than 6 months. In terms of growth, as you know, we have good commercial momentum in the UK, which is now being supported by our cross-selling opportunities. With Vodafone broadband offers now open to Three customers and FWA open to Vodafone customers.

And we're also the fastest growing broadband provider.

With the largest gigabit footprint of any operator, just like in Germany.

We are able to sell fiber to about 22 million UK households.

Vodafone U K is already the market leader in customer satisfaction.

And we are now extending our customer experience standards three customers.

And all of our customers are set to benefit from our 11 billion pound network investment as we build the best in class five Jeanette or for the U K.

We have made a very fast stopped independent tests are already confirming noticeably better speeds and coverage in less than six months.

In terms of growth as you know we have good commercial momentum in the U K.

Which is now being supported by our cross selling opportunities.

With Vodafone broadband off first now open to three customers and SWA open to Vodafone customers.

Margherita Della Valle: Our multi-brand approach is proving effective in making the most of the market demand opportunities. The combination of these revenue synergies with our GBP 700 million cost and CapEx synergies gives us a strong growth trajectory in the UK. We will leverage our unique assets in the market to extend our customer experience leadership, monetize our improved mobile network quality, and continue to drive fixed service growth. This is just our two largest markets. We hold leadership positions across our African markets, where yesterday the team reported another strong set of results in line with their medium-term double-digit EBITDA growth guidance. We are excited about the future in Africa as it combines structural opportunities across all our services from core connectivity to financial services to B2B. Coming back to group in closing.

And our multi brand approach is proving effective in making the most of the market demand opportunities.

The combination of these revenue synergies with our 700 million pound cost and Capex synergies gives us a strong growth trajectory in the U K.

We will leverage our unique assets in the market to extend our customer experience leadership.

Monetize out improve mobile network quality and continue to drive fixed service group.

And this is just our two largest markets.

We'll leadership positions across our African markets.

Well yesterday the team reported another strong set of results in line with our medium term double digit EBITDA growth guidance.

We're excited about the future in Africa.

As it combines structural opportunities across all our services from core connectivity to financial services to be to be.

Coming back to group in closing.

Margherita Della Valle: Our objectives continue to be the same, to improve our customer experience across our markets, further simplify our business, and deliver sustainable cash flow growth in FY 2026 and beyond. The turnaround of Germany, the UK integration, and our strong positions in growing markets across Europe and Africa all give me confidence in our growth outlook. With the reshaping of the group behind us, now is the right time to deliver on our ambition to grow our dividend over time. We announced today that we are moving to a progressive dividend policy. Now Luka Mucic and I are looking forward to your questions.

Our objectives.

Continue to be the same.

To improve our customer experience across our markets.

Further simplify our business.

And then if a sustainable cash flow growth in FY 'twenty six and beyond.

The turnaround of Germany, the U K integration and our strong positions in growing markets across Europe, and Africa, All give me confidence in our growth outlook.

With the reshaping of the group behind Us.

Now is the right time to deliver on our ambition to grow our dividend over time.

We announced today that we are moving to a progressive dividend policy.

And now Luca and I are looking forward to your questions.

Pilar López Álvarez: Thank you, Margherita. As a reminder, please only pose one question to give all analysts a chance to speak. The first question this morning comes from Maurice Patrick at Barclays. Maurice, please go ahead.

Thank you Margarita as a reminder, please only pose one question to give all analysts a chance to speak.

The first question. This morning comes from Maurice Patrick of Barclays. Morris. Please go ahead.

Maurice Patrick: Hi, guys. Hope you can hear me fine. If I could ask a little bit about the EBITDA run rate for H2 and also next year. You've delivered 6.8% organic year-on-year growth. You tightened the guidance towards the upper end of the range. I think if I look at the full year guidance, it implies 4% or 5% growth for the full year. Your guidance even at the high end seems to imply a slowdown versus H1, despite Germany probably having easier comps as you exit the MDU drag. I know you called out higher stack in the UK, for example.

Yeah, Hi, guys Hope you can hear me fine.

If I could ask a little bit about the EBITDA run rates for the second half and also next year.

So you've delivered.

6.8% organic year on year growth you tighten the guidance towards the upper end of the range I think if I look at the full year guidance. It implies four 5% growth for the full year. So your guidance even at the high end seems to imply a slowdown versus the first half.

Despite Germany, probably having easier comps or would you actually be MDU judge maybe you could help us understand.

Some of the EBITDA levered.

Leaders in second half.

I know you called out higher shack in the UK for example.

Maurice Patrick: It's probably a bit early to talk about FY 2027, but if you could give us some indications of some of those building blocks, that'd be very helpful. Thank you.

Too early to talk about FY 'twenty seven.

If you could give us some indications of some of those building blocks that'd be very helpful. Thank you sure Luca all over to your excellent well first of all of course, we are very very pleased with our performance in Asia.

Margherita Della Valle: Sure. Luka, all over to you.

Luka Mucic: Excellent. Well, first of all, of course, we are very, very pleased with our performance in H1 on the EBITDA front. This was really a combination of very strong emerging markets growth, the UK doing very well, and then Germany improving as well over the last year, given that the MDU impact is now dissipating and we had the benefit of wholesale. If you look forward to H2, yes, our outlook at the high end of the range implies a slowdown. There are three factors that I would call out for that.

One <unk>.

It's really a combination of a very strong emerging markets growth.

<unk>.

And then Germany, and Sweden as well over the last year.

No.

Uh huh.

If you look forward to the second half yes.

Or.

Outlook at the high end of the range implies a slowdown.

There are three sectors that I would call out on.

Luka Mucic: On the positive front, we absolutely expect Germany to continue to improve in H2, because then we have 0 MDU impact, and we will reach the full run rate of our wholesale migration of 1&1 this quarter. From Q4, we will then be at full run rate just standing at around 11 million. This will help, of course. On the flip side, first of all, we continue to expect that our emerging markets growth contribution will trend down given that inflation moderates. You have seen some of that already in H1. I think that trend can be expected to continue.

On the positive front, we absolutely expect Germany to continue to improve in H. Two because then we are a serial MDU impact and we will reach the full run rate.

Or wholesale migration of one on one.

This quarter. So from Q4, we will then be it for.

<unk> run rate.

Standing at around 11 million, so we're almost done with the.

Migration there so this will.

Of course, but on the flip side.

First of all we continue to expect that our emerging markets growth contribution will trend down.

Given that inflation moderates you have seen some of that already in the first half year I think that trend can be expected to continue and also the U K, which had a very good first half.

Luka Mucic: Also the UK, which had a very good H1, will see a slowdown in EBITDA growth, first, because I know I've talked about that already on the last earnings, but there should be a slowdown in top-line growth, in particular in Q3, as we're facing very tough compares, in particular in our B2B business, where we had a positive one-off last year, which should then sequentially increase and improve going into Q4 and beyond into FY 2027, but it will dampen the performance.

You see a slowdown in EBITDA growth.

First because.

I know I've talked about already on the last earnings, but there shouldn't be a slowdown in topline growth in particular in Q3 as we're facing very tough compares in particular in our B to B business, where we had a positive one offs last year, which would then sequentially increase.

Improve going into Q4 and beyond into FY 'twenty seven but it will dampen the performance. We also had some phasing impact in the strong performance in the first half year.

Luka Mucic: We also had some phasing impacts in the strong performance in H1. In the sense that the marketing expenses that are planned for this fiscal year in the UK are more back-end loaded into H2. If you pair that up with the emerging market slowdown that's driving the expectations. Now FY 2027 is in particular for me very far out, obviously. I'm sure Margherita and Pilar will be back to give you a precise outlook going into FY 2027. From my perspective, perhaps just some high level puts and takes.

In the sense that.

The marketing expenses.

Expenses that are planned for this fiscal year in the UK are more back end loaded onto the second.

Yes.

If you pair that up with the emerging market slowdown that's driving the expectations now FY 'twenty seven is in particular for me, it's very far out obviously I'm sure Margaret earned pillar will be back to give you a precise outlook going into <unk>.

<unk> 27 from my perspective, perhaps just some high level puts and takes.

Luka Mucic: First of all, we would expect the UK to be a very positive contributor and have a strong EBITDA performance, based on the fact that we expect for the first time, more sizable synergies from the merger coming together. For this year, there was really basically no contribution from synergies, but it will start to step up in the next year. In Germany, we will face puts and takes. Obviously, in H1, the benefit from the MDUs being fully out of the numbers. In Q1, still, a ramp-up effect from the wholesale migrations. For the remainder of the year, they will be out of the numbers in terms of a year-over-year help.

First of all we would expect the UK to be a very positive contributor and have a strong EBITDA performance are based on the effects that we expect for the first time.

More sizable synergies from the merger coming together for this year there was really.

Basically no contribution from synergies, but it will start to step up in in.

In the next year.

In Germany, we will face a puts and takes obviously in the first half the benefit from the MD use being fully out of the numbers and in Q1 still a ramp up effect from the wholesale migrations, but then for the remainder of the year they will be.

Out of the numbers in terms of a year over year.

Luka Mucic: We will have to see what, you know, the market conditions do to see what that means for the German performance. Also in FY 2027, I would continue to see a year-over-year challenge from an emerging markets growth perspective. On the positive note, I think what we are seeing is that the mix in our EBITDA contribution continues to shift back more favorably to Europe now in the balance between emerging markets and Europe. That obviously drives also good predictability, which should be a net positive.

So.

And then we will have to see what.

The market conditions to to see what that means for the German performance and then also in FY 'twenty seven I would continue to see a year over year challenge from an emerging markets growth perspective on the positive note.

We are seeing is that the mix in our EBITDA contribution continues to shift back more favorably to Europe now in the balance between emerging markets in Europe and that obviously drives also good predictability, which would be a net positive.

Akhil Dattani: Thank you.

Thank you.

Pilar López Álvarez: Thank you. The next question this morning comes from Akhil Dattani at J.P. Morgan. Akhil, please go ahead.

Thank you. The next question. This morning comes from killed Attorney at J P. Morgan. Please go ahead.

Akhil Dattani: Hi, good morning. Thanks for taking the question. I've got a question around Germany, just to unpack a bit of what you mentioned, Margherita, around the turnaround initiative that you've taken so far and how we see the fruits of that bearing into the numbers. You talked us through a lot of different things that you've done in Germany. If we look at the moment and we strip out the MDU effect and the 1&1 impact, the German revenue trends are still declining 2% to 3%. I'd love to understand what you think it takes and the timeline to see the underlying momentum starting to improve. If we layer onto that the scaling effect of 1&1, how should we think about the H2 outlook for Germany for revenue and EBITDA? Thanks a lot.

Hi, Good morning, Thanks for taking my question a quick question around Germany just to unpack.

You mentioned Margarita around the turnaround initiatives that you've taken so far and how we see the fruits of that bear into the numbers you talked to a lots of different things that you've done in Germany.

But if we look at the moment and we strip out the <unk> effect and the items that impact the German revenue trends are still declining 2% to 3%. So I'd love to understand what you think it takes and the timeline to see the ongoing momentum starting to improve and then if we layer onto that the scaling effect vines and items how should we.

Think about the H two outlook with Germany for revenue and EBITDA that's law.

Margherita Della Valle: I will maybe ask Luka to take the last part of your question on one-on-one, and then I'll talk to the actions that we are taking. We seem to have a mic to fix. Apologies for the

I will maybe ask Luke to take the last part of your question on one and one and then I'll talk to.

The actions that we're taking.

We seem to have a mic to fix apologies for the.

Luka Mucic: I hope I was still able to be heard in my first answer.

Hope I was able to be hurt.

In my first answer.

Pilar López Álvarez: Yes, you were. Please go ahead, Luca.

Yes sure. Please go ahead. Thank you.

Margherita Della Valle: Thank you.

Luka Mucic: Thank you.

Yeah.

Margherita Della Valle: 1&1 first.

One on one first okay sure. So first of all in terms of our expectations for Germany over oil.

Luka Mucic: Okay. Sure, first of all, in terms of our expectations for Germany, overall, we certainly expect that Germany will continue to grow in the second half year. The wholesale support will obviously be a factor in that. I would also expect that towards the end of the year, our B2B performance will start to move upwards because we had very good success of contracting new digital services business. That always takes a while to come into the numbers, but that should be helping also the year-end performance there.

We certainly expect that Germany will continue to grow in the second half year.

The wholesale support will obviously be a factor in that.

I would also expect that towards the end of the year, our b to B performance will start to move upwards, because we had very good success of contract and new digital services business. It always takes a while to come into the numbers, but that should be helping also.

The year end performance there in terms of the impact that it has said I really prefer always to talk about wholesale as a whole because in conjunction with the one on one wins. So to say we had also then a subsequent loss of another smaller ambien or unlike her which went the other way around.

Luka Mucic: In terms of the impact that it has had, I really prefer always to talk about wholesale as a whole, because in conjunction with the 1&1 win, so to say, we had also then a subsequent loss of another smaller MVNO, Lyca, which went the other way around. If you make the math out of those, the contribution of both in the quarter was just above EUR 80 million as a whole. In H2, we would expect that the contribution from 1&1 will also be around EUR 100 million. In Q4, we are lapping then the loss of Lyca. Those are kind of the puts and takes to take into account in terms of wholesale momentum.

If you make the math out of those.

The contribution of both in the quarter was just above $80 million as a whole and then in the second half year, we would expect that the contribution from one on one will also be around 100 million.

Q4, we are lapping the loss of like US. So those are kind of the puts and takes are.

Two to take into account in terms of wholesale momentum yeah.

Luka Mucic: Yeah.

Margherita Della Valle: In terms of underlying performance, if we exclude wholesale, Akhil, you are absolutely right. It's broadly stable. If I look at the H2 of the year, you shouldn't expect to see big step-ups. Yeah. Quarter on quarter. Over time, the actions I was referring to, in my introduction, which are all speaking to the long-term health of the business, will actually support our top line performance. It's a bit early to talk about 2027, as Luca was mentioning before. I mean, also in Germany, we will obviously have to see what the environment will be, both from a macro and from a competitive perspective. Whilst we should expect the headwind in TV to continue, and equally, we don't have full control of the dynamics in mobile, the top line will benefit from these actions.

In terms of underlying performance. So if we exclude wholesale.

Youre absolutely right.

Broadly stable and if I look at the second half of the year, you shouldn't expect to see big step ups yeah quarter.

For third quarter on quarter, but overtime the actions I was referring to in my introduction, which are all speaking to the long term health of the business will actually support our topline performance.

It's a bit early to talk about 'twenty seven us as Luc I was mentioning before because I mean also in Germany. We will obviously have to see what the environment will be both from a <unk>.

From a macro and from a competitive perspective.

But whilst we should expect the headwind in TV to continue and equally we don't have full control of the dynamics in mobile.

The top line will benefit from these actions and let me maybe bring this to life a little bit. So first of all we have talked about customer experience improving with customers since experienced improving we're seeing chunks, reducing its coming.

Margherita Della Valle: Let me maybe bring this to life a little bit. So first of all, we have talked about customer experience improving. With customers experience improving, we are seeing churns reducing. It's coming through in our numbers. Clearly, the customer experience is improving because of the investments in our networks, because the changes to our approach to customer service. Overall, net-net, the NPS is going up. We are continuing to beat record levels for us in fixed and stepping up in mobile. In some sub-segments, we are now actually leading in the market. Clearly, there is more to do, but all this is playing in our numbers to churn. I talked to the work we are doing on ARPU and supporting value in the market. We're really focused there on all what is in our control, and this is going to again help us.

Through in our numbers clearly the customer experience is improving because of it.

The investments in our networks, because the changes to our approach to customer service overall net net the NPS is going up.

We are continuing to be record levels for us in fixed.

And stepping up in mobile in some sub segments. We are now actually leading in the markets. Clearly there is more to do but all this is playing in our numbers too to churn.

I talked to the work we are doing on our.

Our pool and supporting value in the market, we're really focused there on or what is in our control and this is going to again help us.

Margherita Della Valle: In fixed, you will have seen, for example, us gradually moving up front book ARPU in the last 6 months. The last moves were only 3 weeks ago, and we are seeing the benefits of that. In mobile, we are upselling. Finally, actually, Luca mentioned B2B. B2B is perhaps one of our biggest growth opportunities in Germany. We are investing in digital services. Again, you heard the Skaylink acquisition. It's growing double-digit. We see this as supporting growth going forward. All this as a package is really the result of the actions we have taken supporting our long-term health of the business as we go into FY 2027.

In fixed you will have seen for example off.

Gradually moving up front book Apple in the last six months. The last moves we're only three weeks ago and we have seen the benefits of that in mobile we are upselling.

And finally.

Actually Luca mentioned B to B B to B is perhaps one of our biggest growth opportunities in Germany. We are investing in digital services again, you've heard the scaling acquisition, it's growing double digit we see this as supporting growth.

Going forward so.

All of this as a package is really the result of the actions we have taken supporting our long term health of the business as we go into FY 'twenty seven.

Akhil Dattani: Great. Thank you much.

Great. Thanks, so much.

Pilar López Álvarez: Thank you. The next question this morning comes from Carl Murdock-Smith at Citigroup. Carl, please go ahead.

Thank you. The next question. This morning comes from Carl Murdock Smith at Citigroup Com. Please go ahead.

Carl Murdock-Smith: That's great. Thank you very much. I wanted to ask about the UK. You touched in the presentation on making a fast start on integration. Can you provide a bit more color on your early actions and synergy delivery? Also comment on in what ways the commercial performance in Q2 and revenue has been a bit better than the decline you had suggested we could expect when you spoke at last quarter's results. Thank you.

That's great. Thank you very much.

I want to talk about the U K.

You touched in the presentation of making a fast start on integration.

Can you provide a bit more color on your early actions and synergy delivery and also comments on in what ways. The commercial performance in Q2.

And revenue has been a bit better than the decline you have suggested we could expect when you expect that last quarter's results. Thank you.

Margherita Della Valle: Maybe again, I will let Luka Mucic start with, the outperformance on the revenue front, and then I will pick up on the integration.

Maybe again I will let Luca start with.

The outperformance on the revenue front, and then I will pick up on the integration, yes happy to I mean normally as Cfos don't like surprises, but in this case I will make an exception because indeed, we are.

Luka Mucic: Yeah, happy to. I mean, normally, CFOs don't like surprises, in this case, I will make an exception, because indeed, we saw obviously coming into the merger a combination of a slowdown in Three that we have discussed at our last earnings call. Plus, we had the underlying challenge in our own business, so to say, before the merger with the B2B managed services terminations that we had to fight against. That was underpinning, I would say, a cautious stance. Also, if you take into account that the team, of course, was to be very busy on all of the integration steps.

So obviously coming into the merger a combination of a slow down and three that we have discussed at our last earnings call plus where the underlying challenge in our own business. So to say before the merger with the B to B.

Managed services terminations that we.

We had to fight against so that was the underpinning I would say a cautious stance also if you take into account that the team of course was to be very busy on all of the integration steps, but I have to say.

Luka Mucic: I have to say the teams together and driving for very, very positive actions in terms of rolling out our base management practices to Three, making early wins on the network quality and improvement front with the sharing of spectrum, and now increasingly the activation of MOCN, which obviously is positive, in particular, also helping performance on the Three network. So, in that sense, we have seen a combination of improving churn trends, very good consumer performance, in particular in home broadband, which I think had the biggest net adds jump in the quarter that we have ever seen in a Q2 in the UK. Then also initial cross-selling benefits and successes.

The teams together and driving for very very positive actions in terms of rolling out our base management practices to free.

Making early wins on the network quality and improvement in front of us to sharing of spectrum and now increasingly the activation of Morgan.

Yes.

Is.

Positive in particular also helping our performance on the three network. So in that sense, we have seen a combination of improving churn trends.

Very good consumer performance or in particular in home broadband.

Think of it the biggest.

Net at jump in the quarter that we've ever seen in our Q2 in the U. K then also initial cross selling.

<unk> and our successes F. W. A was a very positive.

Luka Mucic: FWA was a very positive story for us. That in combination has outweighed the underlying decline in B2B legacy managed services to an extent that frankly was a bit better than what we would have expected. Very positive. I should perhaps add as a last point that the good actual current commercial trading performance was not only in consumer, but we had actually also a good performance in B2B. Not enough, of course, to change the trends from the managed services side for this year, but of course, encouraging if we move further beyond that.

Sorry for us.

And that in combination has outweighed the underlying decline in b to b.

Our legacy managed services to an extent that frankly was a bit better than what we would have expected. So very positive I should perhaps add as a last point. The good actual current commercial trading performance was not only in consumer but we had actually also a good performance in b to b not enough of course.

The change did the trends from the managed services side for this year, but of course encouraging as we move further beyond that.

Margherita Della Valle: Just a bit more color on the actions. I'd say and reiterate, as Luca said, the team is doing a really great job. I think we are progressing at a pace that has not seen before in UK telcos in terms of bringing the two companies together. Just to give you a sense, we are only a few months in, and we are already completing the integration of the third levels in the organization. On networks and on other operations, what are the things we are seeing? On the network front, we talked in Q1 about higher speeds for Three customers, the whole customer base of Three, because of how we are using the spectrum together. I'd say Q2 was all about rolling out our multi-operator core network to allow customers to use seamlessly both networks.

Just a bit a bit more color on the actions are I'd say and reiterate as Luca said the team is doing a really great job I think we are progressing at a pace that has not seen before.

In our U K telcos in terms of bringing the two companies together just to give you a sense. We are already a few months seen and we are already completing the integration of the <unk> levels in the organization.

And Oh.

Networks and on order operations what are the.

The things we are seeing on the network front.

We talked in Q1 about higher speeds for three customers the whole customer base of three because of how we are using the spectrum together I'd say Q2 was all about rolling out our multi operators core network to allow customers to use seamlessly.

Both networks you May remember me, saying that we had a target of 8000 Psi.

Margherita Della Valle: You may remember me saying that we had a target of 8,000 sites upgraded for MOCN by year-end. Well, actually, it will be, I think, by tomorrow is the latest. We will get there this week. This obviously talks to the reduction of not spots for our base, you know that we are targeting a surface of 10 times the size of London. It's actually really visible today. You don't need to take my word for it. Opensignal has already published a report saying it's noticeable and measurable. I can't wait to tell you more about this in the coming quarters as we will also see the customer reactions, but it's a very strong pace. Operationally, beyond the networks and the teams coming together, what is also coming together really well now is what I would call our multi-brand strategy.

Upgraded for marking by year end, well actually it will be I think by Tomorrow is the latest we will get there this week.

And this obviously talks to the reduction of not spots for our base you know that we are targeting.

Surface of 10 times the size of London.

And it's actually really visible today, you don't need to take my word for it open signal as already published a report, saying, it's noticeable and measurable I can't wait to tell you more about this in the in the coming quarters as we will also see the customary.

Actions, but.

It's a very strong pace.

Directionally beyond the networks and the teams coming together what is also coming together really well now is what I would call our multi brand strategy.

Margherita Della Valle: We now have a single team, for example, in consumer managing across all our brands, and these brands allow us to cover all market needs and do this in a consistent, coherent way, is quite powerful. As Luca mentioned, we have been opening cross-selling. That's obviously supporting our commercial momentum. We were already the market leader in growth in broadband. We are now offering our broadband offers to the whole Three and the FWA offers to the Vodafone base. As you can see, almost the first things we are excited about at the moment are the revenue synergies, and these come, of course, on top of the GBP 700 million cost and CapEx synergies that are, of course, part of our business case. Good momentum in the UK, and you will see this continuing ahead of us.

We now as a single team for example in consumer managing across all our brands.

And these brands allow us to cover all market needs and do this in a consistent coherent ways is quite powerful.

And then as Luca mentioned, we have been opening cross selling so that subsidy supporting our commercial momentum where we're already the market leader in growth in broadband we are now offering a.

Our broadband offers to the whole three base and yes, the BLA offers to the Vodafone base.

As you can see.

Almost the first things we are excited about at the moment.

Revenue synergies and these come of course on top of the 700 million cost and Capex synergies that are of course part of our business case. So good momentum in the U K and you will see this continuing ahead of us.

Carl Murdock-Smith: That's great. Thank you very much.

That's great. Thank you very much.

Pilar López Álvarez: Thank you. The next question comes from Polo Tang at UBS. Polo, please go ahead.

Thank you. The next question comes from Polo Tang UBS Polo. Please go ahead <unk> morning. Thank you for taking the question just a question on Germany. So that our proposed changes to legislation that will make it easier for operators such as Deutsche Telekom to access and do use can deploy fiber. So what's your view on the impact.

Polo Tang: Morning. Thank you for taking the question. It's a question on Germany. There are proposed changes to legislation that will make it easier for operators such as Deutsche Telekom to access MDUs and deploy fiber. What's your view on the impact of these potential changes? Can you also talk through the economics for the OXG fiber JV? From memory, it's about EUR 7 billion of CapEx to build a footprint to 7 million homes. Can you remind us what the equity injections that are required for the JV, and how should we think about the wholesale costs that the German unit has to pay to the OXG JV longer term? Thanks.

Two of these potential changes and can you also talk to the economics for the Xg fiber JV from memory. It's five 7 billion of Capex to build a footprint 7 million homes can you remind us what the equity injections that are required for the JV and how should we think about the wholesale cost of the German has to pay.

To have xg JV longer term thanks.

Margherita Della Valle: Thank you, Polo. I think I will take both sides of your questions, maybe starting from the draft Telecommunications Act, which is being discussed in Germany. There are a lot of measures as part of this that are all geared towards simplifying and accelerating high-speed network builds in Germany, for example, by simplifying permits processes. This is actually really good. It's good for the fiber build-out. It's good for the 5G build-out. I think the government is really pushing in the right direction in the country. Now, as part of all the discussion going on, there are some elements, and you referred into the in-building wiring debate that we feel are unnecessary, and we're openly sharing our what I would call our real-life insights on what's happening on the fiber building.

Thank you Paul I think I will take both sides of your questions maybe starting from the.

Telco arc, which is being discussed in Germany, and there are lots of measures as part of this that at all.

Geared towards.

Simplifying and accelerating high speed network deals in Germany for example by simplifying permit processes and this is actually a really good it's good for the fiber build out its good for the fiber build out. So I think the government is really pushing in the right direct.

And in the County now as part of all the discussion going on there are some elements and you referred into the in building wiring.

Debate that we feel are unnecessary and we are we're openly sharing.

Or what they would call our real life insights on what's happening on the fiber building and I think it's very clear to everyone that the.

Margherita Della Valle: I think it's very clear to everyone that the bottleneck in fiber building in Germany has nothing to do with housing association and has more to do with other factors such as construction, capacity limits. Beyond that, today, these are discussions. There is no draft law to really comment upon. Just to take your point, even if all the discussions that are going on were translating into law for the reasons I've just described, actually, the impact is going to be just a marginal, maybe, acceleration of the fiber building towards the housing associations, and that will benefit all players in the market, including OXG. It's unclear whether this discussion will ever become a draft law, and it's unclear at this point when this draft law will become law.

Bottleneck in fiber building in Germany has nothing to do with housing Association and has more to do with other factors such as.

Construction.

Capacity limits, but beyond docs today. These are the discussions there is no.

Draft law to really comment upon but just to take your point.

Even if.

All the discussions that are going on we're translating into lower for the reasons I've just described actually.

The impact is going to be just a marginal maybe a acceleration of the fiber building toward the housing associations.

And that will benefit all players in the market, including <unk> G.

It's unclear whether these discussions will ever become a draft law and it's unclear at this point when this draft law will become law, but assuming it happens if it happens at some point.

Margherita Della Valle: Assuming it happens, if it happens at some point in 2026, you need to keep in mind, and I'm going to the next part of your question, that by then OXG will be already marketing anyway to millions of customers in the housing associations. Standing back, I don't see this as a major impact on whatever speculation is going on, definitely. The other point I would say is that actually if you take all the discussions that are going on in Germany across the Telecommunications Act and across the copper switch off, again, I think it's moving in the right direction overall, and it will be supportive for telecoms overall. You asked about OXG economics, I think. On the equity injections, these are very small.

In 2026, you need to keep in mind and I'm going to the next part of your question that by then or Z will be already marketing anyway to millions of customers in the housing associations. So standing back I don't see this as a.

Major impact on whatever speculation is going on definitely.

And the other point I would say is that actually should take all the discussions that are going on in Germany across the telco Ark and across the copper switch off again I.

I think it's moving in the right direction overall and it will be supportive for for telecoms overall.

You asked about OA X G.

Economics I think.

And so on the on the equity injections. These are very small I mean, obviously it looks like without any detail, but I think we said this when we were setting up the JV because of the I would call. It self financing over time, it's really at the margin in terms of equity.

Margherita Della Valle: I mean, obviously, Luca could add any detail, but I think we said this when we were setting up the JV because of the, I would call it self-financing over time. It's really at the margin in terms of equity requirements. Very, very small. On the front of the wholesale costs and revenues, depending on which side of the equation you look at, I think I know that there has been some work going on trying to, from an analytics perspective, get to this calculation. I think it's really important that you keep in mind that it's a very. Let me say there are three nuances to the calculations that maybe are worth sharing, and IR can help you sort of bringing them to life more precisely than I can do in a call.

Requirements very very small.

On a on the front of the wholesale.

Costs and revenues, depending of which side of the equation and you look at.

I think I have know that there has been some work going on on trying to.

From an analytics perspective get to this calculation I think it's really important that you keep in mind.

That.

It's.

A very.

Let me say there are three nuances to the calculations that maybe our setting and I can help you sort of bringing them to life more precisely that I can do in our call.

Margherita Della Valle: The first point is that there is no commitment or obligation whatsoever for Vodafone cable customers to be migrated to fiber into OXG. That just is not there. The second aspect is that 20% of the OXG footprint will be actually outside the cable areas. Finally, obviously, penetration into the OXG households will build over time. It will build during the 6 years of rollout, which are exactly planned as you are describing, but it will also obviously continue to build after that. All this is very gradual, and I think brings to, I would say, a different conclusion than some of the calculations we have seen. I would let really the IR team to help you out on where to go. I would just say that we are really happy with the progress now with OXG.

The first point is that there is no commitment or obligation whatsoever for Vodafone cable customers to be migrated to fiber into all X gene that just is not there.

The second aspect is that 20% of the O X gene footprint will be actually outside the cable areas.

And then finally, obviously penetration into the Air X gene.

Households will build overtime. So it will build during the six years of rollout.

Which are exactly plan as you were describing but it will also obviously continue to build after that so this is very gradual and I think brings to I would say a different conclusion.

And some of the calculations, we have seen but I would let really the IR team to help you out on a on where to go I would just say that we are really happy with the progress now with a Z.

Margherita Della Valle: You know that the first year and a half, obviously, were challenging to set things up. We have now already built to 350,000 households. We have opened the sales to 1 million households. We have connected the first customers. We have also opened wholesale. 1&1 and the regional operator are already connected. 3 million households are already, let's say, committed in the construction orders. We have more than 30 construction partners. I mean, it's a big building site across many, many cities in Germany, and we now look forward to see this coming through in our numbers.

Got it.

First area in the house, obviously, where we're challenging to set things up but we have now already built through 350000 households, we are opening the site. We have opened the sales too.

A million households, with connected the first customers. We are also open wholesale one on one and a regional operator are already already connected.

And 3 million households are already let's say commit are committed in the construction orders we have.

More than 30 construction partners I mean, it's a big building sites across many many cities in Germany, and we now look forward to see this coming through in our numbers.

Luka Mucic: Just very quickly on the equity. In 3 years, the equity contribution and injection was just above EUR 70 million. It's really to underscore the point from Margherita, very, very small.

Just very quickly on the equities.

Three years.

The equity contribution in injection was just just above 17 million. So it's really to underscore the point for Margarita.

Very small.

Polo Tang: Thank you.

Thank you.

Pilar López Álvarez: Thank you. The next question this morning comes from Emmet Kelly at Morgan Stanley. Emmet, please go ahead.

Thank you. The next question. This morning comes from Emmet Kelly at Morgan Stanley Emmett. Please go ahead.

Emmet Kelly: Yes. Good morning, everybody, and thank you for taking my question. My question, yet again this quarter, is on Vodafone Turkey. On my numbers, it represents, I think, almost half of the organic EBITDA growth that we've seen since last year. I guess most notable is the EBITDA margin uptick at your Turkish business. Could you talk a little bit about the top line trends you're seeing there and expect to see and on your cost management program, if you could say a few words on that. Thank you.

Yes, good morning, everybody and thank you for taking my question my.

My question, yet again this quarter is on Vodafone Turkey.

On my numbers. It represents I think almost half of the organic EBITA growth that we've seen.

Since last year I guess, most notable is the EBITDA margin uptick at your Turkish business. So could you talk a little bit about the topline trends, you're seeing there and expect to see and on your cost management program and if you could say a few words on that thank you.

Luka Mucic: Perhaps I can take this because indeed, I mean, Türkiye has been a tremendous success story in the last couple of years, not only in terms of the financial success, which has been clearly there. Just to give you some absolute numbers which are perhaps not so easily visible. Just in the last two years, they have increased both EBITDA as well as cash flow by close to EUR 300 million each, which for the size of the business is obviously a tremendous improvement, and that's in hard currency, so not in local currency.

Perhaps I can take this because indeed I mean, Turkey.

Has been a tremendous success story in the last couple of years not only in terms of the.

The financial success, which has been clearly there just to give you some absolute numbers, so much or perhaps not so easily visible just in the last two years.

<unk> increased both EBITDA as well as cash flow by close to 300 million each which for the size of the business is obviously, a tremendous improvement and that's in hard currency so not in local currency.

Luka Mucic: While that growth, of course, inevitably, as we had already indicated, has started to come down because of the lowering in inflation, it's still significantly outperforming inflation and in absolute terms in EUR, has still been in mid-teens on the service revenue front in the last quarter and was more than 20% up in some hard currency for the half year. Where is this coming from? It's coming from a set of unique capabilities. Yes, the team has always been very prudent and forward-looking and leaning into the inflation environment by managing costs very successfully. There is more to it from my perspective. Türkiye is probably among the best digital capabilities that we have across the group.

And while that growth of course inevitably as we had already indicated has started to come down a bit because of the lower than inflation.

<unk> significantly outperforming inflation and in absolute terms in euros.

Still been in mid teens on the service revenue front in the last quarter and was more than 20% up in AR and hardcore.

Hard currency for the half year, So where is this coming from.

It's coming from a set of unique capabilities. Yes. The team has always been very prudent and forward looking and leaning into the inflation environment.

Managing costs very successfully but there's more to it from my perspective.

Turkey is probably among the best digital capabilities that we have across the group. They have a very high proportion of digital sales to have a very agile base management model like very targeted.

Luka Mucic: They have a very high proportion of digital sales. They have a very agile base management model, like a very targeted micro segment related calls to provide them access to targeted upsell offerings, post to post migrations. The team has really built a machine there around the set of digital capabilities that are very unique, and that we are partially exporting also to other countries, such as the loyalty app, for example, the Happy App, that we're now also rolling out in other countries. It's not only a story of cost cutting and riding an inflation wave. Not at all. It's actually based on a very proven and successful management model.

<unk> segment related calls.

To provide them access to targeted upsell offerings.

Post to post migrations. So the team has really built a machine there around a set of digital capabilities that are very unique in that we are partially exporting also to other countries such as the loyalty App for example to happy up.

We're also rolling out in other countries. So it's not only a story of cost cutting in writing and inflation wave not at all.

Actually based on a very proven and successful management model and while I've shared before that as well.

Luka Mucic: While I've shared before that, as we think forward, certainly, the inflationary trends will continue to recede and therefore growth may come down. I think, they have been, you know, increasing also their relative competitive position in the market. I think that, based on the strength of the management team, will certainly continue.

Think forward certainly the inflationary trends will continue to recede and therefore growth may come down I think they have been increasing.

Increasing also they are relative competitive positioning in the market and I think that's based on the strength of the management team will certainly continue.

Margherita Della Valle: If I can just build on that, Emmet, for a second. Looking at the group as a whole, we are extremely proud of Turkey, but I need to say we're equally happy about all our countries. We regularly publish in our reports, the service revenue growth ex Turkey, given the hyperinflation environment, and you have seen this growing to 3% in the quarter. This is a reflection of the strength of the portfolio. We have Africa, of course, also growing strongly. Double-digit EBITDA growth, which is in line with our upgraded guidance there. Then overall, taking on the opportunities in the UK that we have just described and the turnaround in Germany, where we have now turned the corner with the top line, but obviously are looking forward to the profitability improvement.

If I can just build on that and that for a second looking at the group as a whole we are extremely proud of Turkey, but I need to say, we're equally happy about or.

Our counties, we regularly publish in our report.

The service revenue growth ex Turkey, given the hyperinflation environment and you have seen this growing two 3% in the quarter.

This is a reflection of the strength of the portfolio. We have Africa of course also growing strongly double digit EBITDA growth, which is in line with our upgraded guidance there.

And then overall taking on the opportunities in the U K that we have just described and the turnaround in Germany, where we have now turned the corner with the topline, but obviously I'm looking forward to the profitability improvement all of these taken enough.

Margherita Della Valle: All this taken in aggregate is, I would say, where we wanted to be through the group transformation, and it's the reason why you hear us talking about an outlook of midterm free cash flow growth. Yeah. Every part of the group is contributing.

Brigade.

Yes, I would say, where we wanted to be through the group transformation and it's the reason why you hear us talking about.

Now look of mid term free cash flow growth year. Every every part of the group is contributing.

Emmet Kelly: Super. Thank you very much.

Perfect. Thank you very much.

Pilar López Álvarez: Thank you. The next question this morning comes from Joshua Mills at BNP Paribas Exane. Joshua, please go ahead.

Thank you. The next question. This morning comes from Joshua Mills at BNP Paribas exam Treasurer. Please go ahead.

Joshua Mills: Hi, guys. Hope you can hear me, and thank you for the question. I wanted to come back to the UK market and focus on your FWA proposition in particular. Following the Three UK merger, you're in a very strong spectrum position. You mentioned in your comments earlier that you're happy with how the FWA business is developing. Could you give us a bit more detail about the net adds on that business and what your longer-term ambition with FWA might be, how you balance that against the desire to grow on the fixed broadband base as well? Perhaps just one short clarification. When you have your FWA customers, are they included in your broadband numbers or your mobile customer numbers? Thanks.

Hi, guys I'm, hoping you can.

Amy and thank you for the question I wanted to come back to the U K market and focus on your after February proposition in particular.

Following the three you can imagine we're in a very strong spectrum position you mentioned new comments earlier that you're happy with how they have to be ready.

Business is developing could you give us a bit more.

Each of them.

So on that business and what your longer term ambitions for that February might be.

Can you balance that against the.

This ought to grow on the fixed broadband base as well and that's just one clarification.

Clarification when you have your after jewelry customers are they included in your broadband numbers, so youll mobile customer numbers. Thanks.

Luka Mucic: Yeah.

Yeah, Yeah, I'll start from and.

Margherita Della Valle: I'll start from, I'll cover it all in one go. The net adds are in mobile because that's the supporting technology, and if I'm not mistaken, it's 17,000 in the quarter. They have accelerated, but let me talk to you about how we look at FWA more broadly. It's obviously a great opportunity for us to leverage what I would describe as our overall asset superiority in the market. I was talking earlier, the largest fiber footprint available to our customers with 22 million households, but obviously fiber in the UK is not everywhere yet. Whilst we will be offering FWA to all the population in the UK, thanks to the capabilities that we have today.

Convert it all in one go.

The net adds in.

In mobile because that's the supporting technology and if I'm not mistaken it's 17000 in the quarter.

They have accelerated but let me talk to you about our we look at F. W. A more broadly.

Its subsidy.

Opportunity for us to leverage what I would describe as our overall asset superiority in the markets.

We have we I was talking earlier, the largest fiber footprint available to our customers with 22 million households, but obviously fiber in the UK, it's not everywhere, yet, whilst we will be offering SWA to all.

All of the population in the U K, thanks to the capabilities that we have today and we see it as an opportunity because it allows us to bridge the time until fiber comes and maybe covered areas also where fiber may not come at all in the most.

Margherita Della Valle: We see it as an opportunity because it allows us to bridge the time until fiber comes and maybe cover areas also where fiber may not come at all in the most rural areas. If fiber comes, it's great to get our customers first on FWA and then moving them on as the time progresses. We really see it as an opportunity in the market. As I said before, it's now open to everybody, whether they are in Three brands or ex-Three brands, ex-Vodafone brands or we look forward to see this support our growth.

Floral areas in fiber comps, it's great to get our customers first one SWA and then moving them on as the time progresses.

So we really see it as a as an opportunity in the market as I said before it's now open to everybody whether they are in three brands are ex that would say X three brands ex Vodafone brands.

And we look forward to see this support our growth.

Pilar López Álvarez: Thank you. Now to the next question from David Wright at Bank of America Merrill Lynch. David, please go ahead. David, we cannot currently hear you.

Thank you now.

Now to the next question from David Wright at Bank of America Merrill Lynch. David. Please go ahead.

David We cannot currently I'm, sorry, I'm on there.

David Wright: Oh, sorry. I'm on the.

Pilar López Álvarez: Thank you.

David Wright: I do apologize and apologize for no video, although, maybe not a bad thing. But just a technical question, I suspect, just for yourself, Luca. Super, straightforward. In H1, adjusted EBITDA, common functions was maybe a little, excuse me, surprisingly negative. It shows EUR -14 million. It's been running a fairly consistent clip of EUR 22, EUR 23 million in the last couple of halves. Just any explanation there and just how we should think about that, full year number and maybe even into 2027. That's it from me. Thank you.

I do apologize I apologize Shneur video Aloha, maybe.

Maybe not a bad thing.

But just a technical question I suspect you'll see yourself Luca.

Super straight.

Straightforward in the first half.

Adjusted EBITA common functions was maybe a little excuse me surprisingly negative it shows modest 14 million, it's been running fairly consistent collective 22 23 billion in the last couple of hubs. So just any explanation there and just how we should think about that full year number and maybe even into 2020.

That's it for me. Thank you it reminds me of the old day, because when I was CFO that it was a recurring question ultimately it's actually quite structure, maybe you want to yes, exactly so if I go back in the history. Two Margherita stays served before I arrived I think historically.

Margherita Della Valle: It reminds me of the old days.

David Wright: Yeah.

Margherita Della Valle: When I was CFO, that it was a recurring question. Ultimately, it's actually quite structured. Maybe you want to.

Luka Mucic: Yeah.

Margherita Della Valle: Look at that.

Luka Mucic: Exactly. If I go back in the history to Margherita's days, before I arrived, I think historically, common functions EBITDA was actually always negative. Then in the last two years, it turned positive as a result of some of the M&A activity that was going on, which created one-time effects. Last year, it was also helped through a quite sizable central provision release, and that is obviously creating headwinds in the year-over-year. Structurally, from a go forward perspective, you should actually expect common functions EBITDA to rather be negative than neutral to positive.

Common functions EBITA was actually always negative and then in the last two years. It turned positive as a result of some of the M&A activity that was going on which created one time effects in net last year. It was also helped.

Through a quite sizable central provision release.

That is obviously, creating headwinds in the year over year, but structurally.

A go forward perspective, you should actually expect common functions EBITDA to rolla be negative or neutral to.

Positive.

Luka Mucic: The reason for that is just simply that the help from kind of the M&A transition to also above the line EBITDA recognition essentially is dissipating.

And the reason for that is just simply that the help from kind of the M&A transition.

Two also above the line EBITDA recognition essentially is dissipating.

Margherita Della Valle: Just to come back to why it's been structurally negative. It's a very simple thing, David. You know that our shared operations costs are paid for in the markets, but that's not the case for what we call corporate services. Just the HQ cost. I mean, if I take ourselves and the IR team supporting this call, right? These stay at the central EBITDA level, which is a cost, but don't see this as big movements.

Just to come back to why it's been structurally negative its a very simple thing David It's because you know that our shared operations costs are paid for in the markets, but that's not the case for what we call corporate services. So just the HQ cost I mean.

If I take ourselves and the IR team supporting this core rights are these are these stay at the central EBITDA level, which is a cost but don't see this as a big movements.

David Wright: Okay. Could I take that H1 number and just double it for the full year? Is that reasonable? You know.

Okay got it can I check the HR number and just double it for the full year is that is that reasonable.

Margherita Della Valle: I-

David Wright: just to get a proxy.

I've got a proxy.

Margherita Della Valle: Well, it's an area that, again, because we are talking about small numbers, can have variations.

Well, it's it's an area that again, because we are talking about small numbers can have variation so I think.

David Wright: Okay

Margherita Della Valle: We wouldn't be very specific at that level of detail, to be honest.

We will then be very specific at that level of detail to be honest that's great. Thank you guys.

David Wright: That's great. Thank you, guys.

Pilar López Álvarez: Thank you. The next question this morning comes from James Ratzer at New Street Research. James, please go ahead.

Thank you and our next question. This morning comes from James threats at New Street Research James. Please go ahead.

James Ratzer: Yes, thank you very much. Good morning, Margherita and Luca. We haven't yet had a question on the dividend, I think. It would be great just to get a kind of updated kind of thinking on cash return for kind of next year and beyond. I think in the past you've set out you had a kind of ambition to grow the dividend and to be progressive. You've now been more quantitative, but just for this year, I think. You've just set out the EUR 0.025 for this year, but really kind of not beyond FY 2026. I mean, it looks to me like leverage is going to end up right at the bottom end of your 2.25 to 2.75 times guidance.

Yes. Thank you very much Steve your boarding more return Luca So we haven't yet had a question on the dividend I think so would be great just to get a kind of updated.

I'm kind of thinking on cash return for kind of next year and beyond because I think in the past you've set out you had a kind of ambition to grow the dividend and to be progressive you've now be more quantitative but just for this year I think you've just set out the two and a half sensor this year, but really are not beyond that.

Slide 26, I mean, it looks to me like leverage is going to end up right at the bottom end of your two to five to seven five times guidance, so going beyond FY 'twenty six how are you even thinking about won't progressive dividend could look like.

James Ratzer: Going beyond FY 2026, how are you then thinking about what progressive dividend could look like and potential scope for any share buybacks going into next year? Thank you.

Potential scope for any share buybacks going into next year. Thank you sure James I have to take this one in this rounds given that this is going to be the last call from Luca.

Margherita Della Valle: Sure, James. I have to take this one in this round, given that this is going to be the last call from Luka Mucic. Let me give you a little bit the broader picture on how we think about returns as you're saying. First of all, we have given you good visibility on one component, which is dividends. We're talking about a progressive dividend policy, which means that we expect growth year after year going forward. The first year is expected to be 2.5%, so we've been quite detailed. Of course, we will have to assess this every year from now on. Why progressive dividend policy?

Let me give you a little bit the broader picture now how do we think about returns as a as you're saying. So first of all are we have given you good visibility on one components and which is the dividends.

We're talking about a progressive dividend policy, which means that we expect growth year after year going forward. The first year is expected to be 2.5%. So we've been quite detailed of course, we will have to assess this.

Every year from now on.

Why progressive dividend policy, it's simply because you have heard us say when we reshaped.

Margherita Della Valle: It's simply because you have heard us say when we reshaped the group and we right-sized the dividend according to the new shape, we were very clear from the beginning that our ambition was to grow the dividend over time. In this H1, we have completed the reshaping with the UK. The time is now. You know that we have an outlook supportive in terms of midterm free cash flow growth, it was appropriate to bring the ambition into reality. As far as buybacks, clearly, these are also a component of our toolbox for shareholder returns. We are GBP 3 billion in the GBP 4 billion that we had communicated at the time of the various transactions. Starting today, the penultimate tranche. In the next six months, we will be busy on delivering another GBP 1 billion.

The group and we right sized the dividend according to the new shape, we were very clear from the beginning that our ambition was to grow the dividend over time.

In this half year, we have completed the reshaping with the U K.

And so the time is now you know that we have an outlook supportive in terms of a midterm free cash flow growth. So it was appropriate to bring the ambition into reality.

As far as.

Buybacks clearly this also.

Component of our toolbox for shareholder returns.

We are a 3 billion in.

The 4 billion that we had communicated at the time of the various transactions.

And starting today the penultimate tranche. So in the next six months, we will be busy on.

On delivering another b b.

Margherita Della Valle: Beyond that, we will have to assess our position. We will assess our position depending on, and I think you're spot on, depending on where we will be as a company, where the market environment will be at that point, and we will clearly assess it through the lens of our capital allocation policy that you were referring to earlier, which I think is very well known. Full visibility on the dividend, decisions on the buyback when the time is right.

Beyond that we will have to assess our position we will assess our position depending on.

And I think just proton depending on where we will be as a company where the market environment will be at that point and we will clearly assess it through the lens of our capital allocation policy that you were referring to earlier, which I think is is very.

Well not.

So full visibility on the dividend decisions on the buyback when the time is right.

James Ratzer: Great. Thank you.

Thank you.

Pilar López Álvarez: Thank you. The next question this morning comes from Paul Sidney at Berenberg. Paul, please go ahead.

Thank you. The next question. This morning comes from Paul Sidney That's burned back Paul. Please go ahead.

Paul Sidney: Yeah, thank you very much for taking the question. Good morning, everyone. I just had a question around the Skaylink acquisition. We've seen a lot of excitement in the sector around data centers, AI, cloud services, cybersecurity, you name it. Obviously Deutsche Telekom announcing a pretty high profile partnership with NVIDIA to build a data center, and Telecom Italia having a recent event looking at their AI capabilities. Just a very broad question about is this really a material revenue driver for your business looking forward? Could we expect more similar acquisitions to Skaylink in some of your other geographies? Thank you.

Yes. Thank you very much for taking the question good morning, everyone and thanks for the question around the Skylake and acquisition and we've seen a lot of excitement in this sector around data centers AI cloud services. So I was curious are you name it.

See Deutsche Telekom announcing a pretty high profile partnership with Nvidia to build a data center and Telecom Italia, having recent events.

That AI capabilities, so just breathe.

Broad question about is this really a material revenue driver for your business looking forward and could we expect more similar acquisitions to skylake consuming.

Geographies. Thank you sure Paul let me try and give you a bit of an overview on OE I look at this so first of all.

Margherita Della Valle: Sure. Paul, let me try and give you a bit of an overview on how I look at this. First of all, digital services are now over a quarter of our B2B revenues, so it starts to become quite material, and it's growing really well. We continue to use the word double digit. It's basically double digit everywhere. It's double digit in Germany. Overall, I think there is a lot of potential for us to grow in B2B in these domains. That's why we have, even before the acquisition of Skaylink, continued to invest. I mean, 2 years ago, for those of you who remember, I was talking about again, for the long term out of the business, stepping up the investment in B2B in these areas, and it's all been about building capabilities to essentially respond to the demand of our customers.

Digital services are now.

Over a quarter of our B to B revenues, so it starts to become quite material.

And it's growing really well we continue to use the word double digits, it's basically double digits everywhere, it's double digit in Germany, and overall I think that is a lot of potential for us to grow in b to b in these domains.

And that's why we have even before the acquisition of Skylake continue to invest I mean, two years ago and for those of you will remember I was talking about.

Again for the long term out of the business stepping up the investment in B to B in these areas and it's all been about building capabilities to essentially respond to the demand of our customers now.

Margherita Della Valle: Now, in terms of all the points that you have raised, I think it's really important for us to assess where there is demand, where this demand is best served by Vodafone as opposed to other areas, and where there are also good returns. We certainly see big opportunities to continue to grow on IoT. We could go on and talk for hours about IoT. We see equally very good growth for us already today in cloud, where Skaylink operates. Cloud is a big contributor to our double-digit growth and also security with cyber in mind. We also think that our, I would say, most biggest opportunity segment-wise are in the SME space on all these services, so middle-sized company. Why? Because these are the companies that are used to buy technology from Vodafone. We have been serving connectivity to them. We have strong partnership.

In terms of all the points that you have raised I think it's really important for us to assess where there is demand.

Where this demand is best served by Vodafone as opposed to other areas.

And where did that are also good returns, we certainly see big opportunities to continue to grow on Iot, we could go on and talk for hours about Iot, we see equally very good growth for us already today I in a cloud.

We're scaling operates cloud is a big contributor to our double digit growth and also security with Ciber in mind.

We also think that our I would say most.

Our biggest opportunity segment wise or in the SME space on all of these services. So middle size company why because these are the companies that are used by technology from Vodafone we have been serving connectivity to them. We have a strong partnership they look at us to help them.

Margherita Della Valle: They look at us to help them. In these days, for example, sovereign cloud is a super big topic of conversations. We are well-placed to help them with that. The more you go in the value chain, especially in Europe, towards things like gigafactories and other areas, I think you will see us sort of prioritizing in a very clear way because in some areas the economics have still to be proven. The capacity utilization needs to be proven and therefore we are very rigorous in the way we go about the opportunity to serve the demands by starting to address the areas which really for us are low-hanging fruits. To your question, yes, there will be more activity in this space in terms of building capabilities, and sometimes this may continue to involve small bolt-on M&A.

In these days for example, southern cloud is a super big topic of conversations we are well placed to help them with that.

The more you go in the value chain, especially in Europe towards things like Giga factories, and other areas. I think you will see us sort of prioritizing and in a very clear way because in some areas the economics of steam.

To be proven.

The capacity utilization needs to be proven and therefore, we are very rigorous in the way. We go about the opportunity to serve the demands by starting to address the areas, which really far off a low hanging fruits and to your question, yes, there will be more activity in.

This space in terms of building capabilities and sometimes this may continue to involve a small bolt on M&A.

Paul Sidney: That's really helpful. Thank you very much.

That's really helpful. Thank you very much.

Pilar López Álvarez: Thank you. We have time for one last question this morning to allow all participants to observe the two-minute silence at 11:00 AM for Remembrance Day here in the UK. This last question comes from Robert Grindle at Deutsche Numis. Robert, please go ahead.

Thank you we have time for one last question. This morning to allow all participants to observe the two minute silence at 11, a M for Remembrance day, he in the U K.

This last question comes from Robert Grindle at Deutsche Numis. Robert Please go ahead.

Robert Grindle: Good morning. Great to see your stock get its mojo back. I hope that translates to Italy and Germany. Especially before Luca moves on. Margherita, the footprints reshaped. You've merged the UK, not to mention all the operational stuff. This was a large in-tray. What do you look forward to spending more time on with your new CFO colleague? We had the capital allocation question, you addressed that. More capabilities in digital seem to be underway. Do you see any footprint infill need, any more consolidation opportunity? Conversely, do you see that the Vodafone balance sheet needs further simplification? Thank you.

Good morning.

Great to see you start to get its Mojo back I hope that translates to Italy and Germany.

Especially before Luca moves on a Margarita footprints reshaped you've merged the U K not to mention all the operational stuff. This was a large end right. So what do you look forward to spending more time on with your new CFO colleague, we have the capital allocation question you addressed that more capabilities in digital seem to be underway do you see any.

Footprint infill need any more consolidation opportunity and Conversely, do you see that the Vodafone balance sheet needs further simplification. Thank you.

Margherita Della Valle: As you indicated, we are really pleased to have, I call it, completed the building site after the last couple of years and get the group we wanted and see our position today being at scale with strong brands in all the markets in which we operate, and these markets being markets where we have sustainable structure. This is all the foundations we needed for good growth. Looking forward, there is obviously much more to go for, but you should expect that not to make the headlines through M&A. You should expect that to be our continued execution of our transformation. Really all we need today to make the most of our growth opportunities, be it in Germany, be it in the UK, be it in Africa, is disciplined execution focused on operational excellence to make the most of what we have.

As you indicated we are really pleased to have.

I call it completed the building site.

After the last couple of year and gets the group, we wanted and see our position today being at scale with strong brands.

In all the markets in which we operate and these markets being markets, where we have sustainable structure.

This is all the foundations, we need that for good growth.

Looking forward.

That is obviously much more to go for but you should expect that not to make the headlines are.

Through M&A, you should expect that to be our.

Our continued execution of our transformation.

And really all we need today to make the most of our growth opportunities be it in Germany in the UK beat in Africa is disciplined execution focused on operational excellence to make to make the most of what we have.

Margherita Della Valle: I mentioned earlier customer simplicity and growth. Our priorities have not changed. Our opportunities have not changed. It's great that today we are in a completely different position on customer experience. Lead and co-lead in 11 out of 15 markets is not enough. My number 1 priority will continue to be to push on that. Group simplification, we have made lots of inroads. I mean, we are completing this year the, for example, roles reduction that we talked about to simplify the group when we announced the strategy. There is always more to do, and we have the opportunity to become much more simpler. I mean, one of the slides, by the way, in our PowerPoint today is about AI, because there is a lot to go for to make us faster, more agile. Then you mentioned B2B.

And I mentioned earlier customer simplicity and growth our priorities have not changed our opportunities have not changed it's great that today, we are in a completely different position on customer experience.

But lead in call. It in 11 out of 15 markets. There's not enough. So my number one priority will continue to be to push on that group.

Group simplification, we have made lots of inroads I mean, we are completing this year. The for example rose reduction that we talked about to simplify the group when we announced the strategy.

But there is always more to do and we have the opportunity to become much more simpler I mean, one of the the slides by the way in our Powerpoint today is about AI.

Because there is a lot to go for too to make us faster more agile.

And then you mentioned b to B and.

Margherita Della Valle: It's been a feature of this call, which I really appreciate because I believe it's a strong opportunity for us. If you think about it, we have a really strong competitive position there. We are trusted by businesses and governments across Europe and Africa. It's a fantastic growth opportunities. In all the areas we operate in, we have strong demand for our services. It's about really accelerating the growth in the years ahead now, and it's in our hands.

It's been a feature of this call, which I really appreciate because I believe it's a it's a strong opportunity for us if you think about it we have a really strong <unk>.

Imperative position that we are trusted by businesses and governments across Europe, and Africa, and so it's a fantastic growth opportunities.

In all the areas we operate in we have strong demand for our services. So it's about really bringing accelerating the growth.

In our in the years ahead, now and it's in our hands.

Robert Grindle: Great to hear. Good luck, Luca.

Great to hear good luck Luca.

Luka Mucic: Thank you.

Margherita Della Valle: Thank you. We're on time.

Thank you. Thank you and then on time. This concludes the Q&A session and I would now like to hand, it back to Margarita for any closing remarks.

Pilar López Álvarez: This concludes the Q&A session. I would now like to hand back to Margherita for any closing remarks.

I would really like to take the opportunity to thank Luca last call. Luke has been a great support on all the things we've talked about in this call.

Margherita Della Valle: I would really like to take the opportunity to thank Luca. Last call. Luca has been a great support on, well, all the things we've talked about in this call. Thank you for your time as always today, and look forward to see you all in the next quarters. Thank you.

And thank you for your time as always today and look forward to see holes in the.

And the next.

Quarters. Thank you.

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Yes.

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