Hello and welcome to the Vodafone Group PLC Trading Update Analysts and Investors Conference call. Throughout this call, all participants will be in listen-only mode. And afterwards, there will be a question-and-answer session. And just to remind you, this is being recorded. So with that, I’m very pleased to present Vittorio Colao, CEO of the Vodafone Group and Nick Read, CFO of Vodafone Group. Gentlemen, please begin.

Good morning, everybody. Welcome to our trading update for the first quarter of ‘18/’19. I will take you through the quarter’s highlight and discuss the important positives of Vodafone from the new EU electronic communication code. And then Nick will focus on the trading performance in our major markets and his priorities as the incoming CEO, before we turn then to Q&A. So I will start on slide 4 with the highlights for the quarter, starting on the left. During the first quarter, the group's organic growth rate slowed in line with our expectations to 0.3% on our historical accounting basis. This quarter along with the rest of the industry, we have adopted IFRS 15, which eliminates the drag from handset financing and therefore gives a more accurate representation of our performance at 1.1% growth. Nick will explain more about this accounting change later on. The majority of our markets are performing well, however, we were impacted by increased competitive intensity in Italy and Spain, together with the seasonally higher drag from our EU roaming regulation. The foundation of our growth is our differentiated network quality versus the value players, which we continue to extend, thanks to sustained investment. In mobile, our 4G coverage increased to 94% of the population in Europe and we have the best network MPS in 14 out of our 20 largest markets. In fixed, our high speed broadband coverage is now 70% of the households in the European footprint, pro forma for the acquisition of Liberty's assets in Germany and the CE. We will have access to around the 150 million homes with 54 million on net, allowing us to compete head to head with the main incumbents and this network leadership drives our three growth engines. First, mobile data, which continues to grow fast…

Thank you, Vittorio and good morning, everybody. Turning to page 11, let me start with a short explanation of the impact of the new S15 accounting standard on our financial reporting. I will not go into the changes in great detail as you’ve already heard this many times before from our peers with the December year end. We are adopting S 15 for the current fiscal year and will not restate our historical reported results. We will however provide you with pro forma data for the last four quarters on an S 15 basis prior to our H1 results in November. Through this year, we will continue to disclose our results on the historical basis, so that you can understand our like-for-like performance. In our presentation today, we're focusing on our growth trends under the historical basis. However, the key impacts can be seen on the chart. Our total revenue was around 300 million lower under S 15. This primary reflects the requirement to net off certain dealer commissions from service revenues. On the other hand, our organic service revenue growth under S 15 is 80 basis points higher. This is entirely due to S 15 eliminating the impact of handset financing in the UK, which dragged on our growth rate at a group level under the historical basis. Importantly, our guidance for underlying EBITDA growth of 1% to 5% this year already excludes UK handset financing effects as well as settlements, so we do not anticipate a material impact on our EBITDA growth from the move to S 15 and there is no impact to our free cash flow guidance. Moving to page 12, as you can see in the chart on the left, on a historical accounting basis, our underlying service revenue growth adjusted for EU regulation and…

[Operator Instructions] And we’ll now go to the line of Dhananjay Mirchandani of Bernstein.

First of all, my very best wishes to you Vittorio for your future endeavors, given that this is, if I’m not mistaken, your last earnings call. Now, moving on to my question, which is related to Spain, but it’s much broader, I mean, given that your portfolio strategy in Europe would see you as a fully converged player with the benefits of owner economics across most of your important markets, I mean, Spain is a converged market and yet the benefits of churn protection against intelligent pricing have been thrown into doubt. I mean, to what extent, is this a peculiarity of the Spanish market versus the fundamental question mark on the benefits of being an integrated operator of fixed and mobile infrastructures?

Yeah. Dhananjay, thank you for your kind comment. Let me say that you basically answered yourself. I really believe that Spain is a special case and it's the only case that I'm aware where one of the other operators -- main operators enabled a newcomer to have not only a full unrestricted access to 4G, but also access to fiber. So it's the only market that I know where you have four players, all of them selling with the possibility and capability of selling converged. In the other markets, we see different market structures and there, we see a benefit in churn. The other specific thing of Germany is this thing that we have been – sorry, Spain, we have been trying to change, which is the fact that there are no contracts in Spain, so you have homes for example with students that get a fixed broadband subscription for nine months. They finished the school year and then they disconnect and then they reopen in the new apartment where they live or the new ones open in the new, so there is much more fluidity in the market. It's not good practice and of course, it has to be addressed, but it requires the whole market to go there. So, I would say both commercial practices and structural characteristics of the Spanish markets are a bit unique.

Okay. We now go to the question from San Dhillon at Exane BNP Paribas.

My question is on the dividend. The market gives you very little credit for the dividend, put another way, the market thinks that the current dividend is unsustainable. Is there any point at which you think that it's just better to rebase the dividend to more prudent payout ratio or at the very least, change the composition of the shareholder remuneration?

San, I think, we stand back and we say, we've really reinforcing -- we are on plan from what we communicated in March. In March, we communicated the fact that at the midpoint LTIP, we had 17 billion of free cash flow before spectrum. So after dividend distribution, you’re talking about 5 billion of headroom for spectrum, which is significantly above our sort of long-term average of 1.2. We're reinforcing EBITDA guidance today that EBITDA guidance is growth going forward. We think digital was a big opportunity to contribute to growth going forward. We're also actively working in the portfolio. So, I think we have a number of levers on top of also the Liberty Global transaction being accretive to free cash flow over time. So we feel that we're in a good position regarding the dividend and we remain committed to it.

We’ll now go to the line of Georgios Ierodiaconou of Citi.

I just wanted to ask your views around some of the co-investment models that are available. You mentioned the broader approval in Europe for co-investment arrangement. There are some specific proposals with Deutsche Telekom, both with regards to co-investment with wholesale only networks and also for ISPs to co-invest. Do you mind sharing your views on the proposal and where you stand? Thank you.

Yeah. I think I can basically reiterate what I said in my remarks. First of all, what was Vodafone objective? Vodafone objective is to be a player in convergence and not be at a disadvantage versus incumbents. Of course, there was very heavy lobbying from incumbents to try to get, what I would call, not completely genuine co-investment solutions. The outcome of the EU processes that co-investment must be genuine in order to kind of relax the regulatory provisions, which we think is fair, because if there is genuine co-investment, which by the way Vodafone might be part of, it is then not restrictive of competition and therefore it should be encouraged. This is coming out in the right space. And then of course the second one is a wholesale only network becomes an infrastructure for the market, gives the same conditions to every operators and therefore should not be subject to regulation. This also came out in the right space. So in each market, there will be a situation, you can have the Italian open fiber solution. Open fiber is wholesale, is open to everybody. We are perfectly happy to cooperate with them, but also of course to have others that we use their infrastructure. There could be instead situations where we decide to co-invest together with others, could be specialized, could be a competitor. In that case, again, it would be open to everybody. It's pro-investment, not a restriction or competition. I would not call it a victory of Vodafone, because of course Vodafone is one of the player, but for sure, the outcome of the EU process is very aligned with what Vodafone has been working for the last three years, I would say.

We now go to the line of Jakob Bluestone at Credit Suisse.

I had a question on Italy please. There are obviously a lot of moving parts during the quarter. Can you maybe comment a little bit on how you exited the quarter? Did you see a significant step change in competition in terms of sort of, that supports revenue trends during the end of the quarter, just to give us sort of sense of what sort of impact Iliad’s sentry has had since they launched? Thank you.

Yeah. I don't think we'll breakdown by month results, but what I would say broadly is, if we look at Iliad, I think they had a decent commercial entry into the marketplace. We're not surprised by their numbers. When you analyze the port data, about 25% are coming from us as opposed to say 25% from TI, about just over 40 from Wind 3, MVNOs are under a lot of pressure. So I'd say they’re the first ones to feel a lot of pressure. I would say when you analyze the type of customer profile we're losing, these are customers that typically, the ARPUs are lower than average and their usage is higher than average. So I think there is a degree of questioning the sustainability of the offer and profitability potentially for Iliad in that situation. Let's see. I think from our perspective, I think the team has done a great job in terms of the commercial actions. I think they've done a lot of base management work, driving convergence, done the loyalty scheme, promoting the network and of course we’ve launched our second brand. And I'd say, our second brand has performed well. The question now is more about optimization. At the moment, it's sort of – the cannibalization is in line with our sort of broader market share and we want to obviously bring that down over time.

We now go to the line of Akhil Dattani at JPMorgan.

Just a question on spectrum please. I guess in the context of both your comments earlier and I guess just kind of broader debates around industry returns, I was just keen to kind of get your views around how spectrum conversations go in your markets at the moment. And where the question is coming from is firstly that in France, we've seen the French authorities agreed to a new spectrum for free in return for operators agreeing to just white spots. Are you seeing any sort of similar conversations taking place and if you're markets, are there any kind of hopes that the way auction processes work, a change at all? And then secondly in Italy, I don’t know to what extent you can comment on this, but there have been headlines around operators saying that they may not want to participate in auctions. Obviously, I understand the broad rationale, given new entrant issues and returns, but just really trying to understand from a comfort perspective, how do you think about need for spectrum and any sort of color you can give around utilization rates and things like that would be really interesting?

Akhil, Vittorio here. Let me say, first of all, I don't think we can comment specifically on Italy, because I think we are now too close to the moment where making comments could be not completely legal or advisable. Let me give you a general answer rather than an Italian specific one. Of course, we are engaged in a lot of conversation I had -- the last one this Monday actually with the Prime Ministers and governments on spectrum and I would say the type of conversation that you refer to is actually taking place. So it's not that policymakers or governments are not sensitive to the fact that they want and they need quality coverage, introduction of 4.5G, 5G and they understand that if squeezing too much, by squeezing too much out of spectrum, they might actually delay or make the investment more selective. So that conversation, yes, is taking place and is more frequent than in the past. In that sense, it's a positive. I cannot tell you that everywhere, we are then successful in translating that conversation into the type of solutions like the French one that you describe, because of course then there are short term budget issues in some countries and in other countries, there are also competitive issues in the UK, for example, we had a pretty heated auction, which was for local reasons turned up to be expensive. So I would give mildly optimistic comment, saying, yes, there is more sensitivity to what you say, but still the budget pressures in some markets might be the number one factor in the mind of governments. The good news is that with the wide range of spectrum available now and the ability to combine different bands, as I already said in the last call, over time, we are seeing a less dramatic and urgent need to get spectrum at any cost. Now, we do that, our competitors do that. This could ease off some of the pressures in the coming years. But I cannot be country specific, sorry.

Okay. We’re over to Mandeep Singh at Redburn.

I wanted to come to EBITDA. I know you’ve reiterated the range of 1% to 5%. Consensus appears to be 8 42:38. I'm just trying to think about the quarter you’ve just delivered and the quarter you will deliver next, given some of the pressures you've articulated. So just really wanted to understand what the moving parts are that should give the market confidence in or what the levers are that you have that the market feels confident that, you’re not going to come in at the bottom end of the range versus the midpoint of the range or anywhere else for that matter, just understand Italy and Spain are under pressure but if you could just tell us what the other moving parts are, that should give us confidence that consensus is on track as well?

Yeah. Mandeep, I think that’s a real key question, because I think that we reinforced when we went out with guidance that it was a prudent guidance. And that was our way of saying that we understood the commercial actions we would need to take in Spain and we did not underestimate Iliad’s entry into the market and I would say that we have called those correctly in terms of what we anticipated. We have actioned the commercial actions, we had plans in the quarter, so we’re in line with what we wanted to execute. I think what I would do is just stand back from that situation, so you got two situations where we're on track with our plans of what we're executing maybe Spain is a little tougher, but I would say and maybe we had the repricing challenge of Italy, but if we stand back from that, I'll tell you Germany is performing well overall, UK is recovering well. So UK will be a good contributed to our results as we move forward, especially in the second half. You look in the second half and you've got the Italy and Spain also will be lapping, if you like, tougher comps and so that will underpin the results to some extent and then we're working of course very hard across the portfolio. It was always part of the plan. We see digital as a big opportunity and we’ve got a comprehensive fit for growth program. And then finally, what I would say is look at the rest of the portfolio, whether it's AMAP, whether it's the cluster or the other smaller European countries, we’re getting good performance. So I would say, we're a big group, broad based, we’ve got some challenges. We always tend to have a few challenges. We've taken the commercial actions and so we're confident that we remain on track.

We’re now over to the line of Jerry Dellis at Jefferies.

As you look ahead across the whole year, you’ve indicated that main driver of the basic cost reduction will be your ability to deliver convergence and churn reduction and so forth. So, your current expectation, the pace of net cost reduction in the group will be similar to last year or could it be better than last year, leading us either I suppose the discretionary items such as the Spanish football rights? Thank you.

Yeah. I think, so we've historically talked a lot about operating costs, but actually if you go one level lower and look at net operating expenditures, or OpEx, last year, Europe and our sort of group activities, we say broadly 300 million in absolute terms year over year and we'll at least be targeting that level, if not higher for the year ahead. So I'd say we definitely see opportunity to keep that pace of improvement. Obviously, last year, we had a slight offset that reduced that net operating costs because of AMAP inflation. Clearly, that remains a factor to consider, but I would say on European group, we see a substantial improvement year-over-year.

Can I just quickly ask whether – is it fair to say that that stuff might be sort of overtaken by whatever sort of commercial initiatives that you have to sort of undertake in order to sort of keep competitive in Italy or Spain or are you confident enough is already sort of taken into account in the guidance there.

We feel confident that our commercial plans are in line. So if you're looking at the previous definition, if you like of operating cost being absolute down, they would be absolute down again for the third year running and we think that there's probably a higher opportunity than we had last year.

We are now over to Jonathan Dann at RBC.

With 5G, I mean since the UK auction, one of the smaller competitors has talked about 5G as a 4G like opportunity to take share. Do you think that we'll start to see more 5G announcements from the larger operators, including Vodafone?

Listen, I wouldn't call out a specific entry. You will see in the coming months and year, more announcements of trials. I mean we ourselves are running some very large and important pilots or trials in several European countries. Yes, you would see much more of that. Will this be a single technology opportunity for newcomers? I doubt. 5G integrates -- will integrate very well with 4G. 4G is already evolving into 4.5, which gives a lot of speed and a lot of capacity. And over time, as we said many times, networks would be 4, 5 and 2 in overlap and two will remain as a safety layer. So we see more 4 and 5 as an integrated network and a single technology player is not very likely to be at scale, let me say.

We're now over to Andrew Lee at Goldman Sachs.

I just had a question on Germany and the fixed line growth outlook there. So, we saw that at DT’s announcement in terms of support that we received to rollout, kind of just wondered if you had any updated comments on the regulatory setup and how that affects your confidence in the growth outlook and returns to German cable, given a potentially accelerating fiber to the home rollout.

Listen, I can only repeat what we said when we did the acquisition of Liberty, with the completion of Liberty, we would be able to reach in a relatively short timeframe 25 million homes in Germany. With DOCSIS, we will be able to take a gigabit speed. We announced an extra plan for business parks and we have another plan for a corporation with municipalities. So, as you could imagine, we see this is a very strong and powerful platform in Germany. If Deutsche builds more fiber, it's fine, it's more competition. I mean, building is slow and expensive. So I'm happy today if they do it, it will take time and money, but we are convinced that our acquisition would give us an entry in the majority of the German homes. It doesn't mean that we will be owning all of them, but we will be a formidable competitor to Deutsche. I always welcome when competitors invest. There's no problem with competition at our end.

Okay. We’re now over to Usman Ghazi at Berenberg.

I had a question on spectrum again. I mean, if you look at the UK, there is a coverage obligation or seems that there is a coverage obligation on the 5G spectrum for three years and I was just wondering on how that aligns with the slide that you presented in the last set of results where you were saying that look, 5G deployment will happen over a much more extended timeframe than 4G and therefore, the CapEx risk can be contained.

I'm not sure I can answer in detail your question. I don’t know if Nick you have anything or let me say, let me say in general, 5G will start in highly dense areas. So I can see areas of the UK where definitely we would go. And of course, we will then integrate it, as I said, with 4.5. In terms of total envelope, keep in mind that we are already making a lot of investment, again to extend 4 to many areas and 4.5 to even many more. So the way we see it is with our current guidance of mid-single digit, sorry, mid-teens, I wish it was mid-single digit, with mid-teens, we can really deploy in an organic way, a combination of good wireless broadband and fiber, it will be progressively more 4, 4.5 and then 5. As I said in my earlier answer, we don't think about this single, we think about customers and broaden the experience. We don't think about single technology.

We are now over to Maurice Patrick at Barclays.

So a question on UK fiber. Currently, you're using providers, as you have fiber in the UK. But with the change in regulation on passive infrastructure, before I think, it was just residential access, now, there is talk about it being applicable for wireless backhaul and enterprise. I wonder if your ambitions for UK fiber investment had changed in terms of your, whether using or doing yourself?

Again, it’s very consistent with everything we always said. First of all, we welcome the increased pressure on BT to give an access to passive infrastructure. We welcome the higher pressure for lower prices in accessing their services. All of these clearly is consistent with our strategy. From the beginning, we always said, we will build or we will co-build or we will co-operate, depending on the make versus buy economics. Everything that provides an alternative is positive. Having said that, Nick, who will run the company, I'm sure, will continue to look at pros and cons and make very disciplined financial decisions. If there is a case for a co-build or a builder accessing existing docs or polls, fine, if the incumbent provides services at reasonable and equitable conditions, fine as well. So it's just more choices, a bit what I said in my presentation. I think we've said for a long time that this was going in the right direction and actually it is going in the right direction for both the customers and the competitors.

We’re now over to David Wright of Bank of America Merrill Lynch.

I’m just interested a little in Spain. I think, Nick, you made a comment that even if you lost all of your football paying customers, you would be economically, let’s use the word beneficial, it would be economically better. Just want to just double check on that, because I think the 60, 70, I think it's 340,000 customers. You'd be losing about EUR217 million of EBITDA. I think the content in total costs you with the new contract and the new rights, so probably about sort of 280, 290. So possibly, yes, you might be sort of 15 million or so EBITDA better, but you're losing 25% of your customers in Spain and does that feel like a risk reward you could even consider? And then does it not also expose you more to the mid and the lower end of your whole value proposition, where competition is clearly much tougher. I just don't quite understand the strategy in Spain that's clearly not been good over the last 12 months, how you could possibly look to reduce your customer base and exposure yourselves more to the price intense element of the market. Could you explain?

David, just on the math side of it, I would just say that you’re mixing some ARPUs, which is just revenue versus then pure cost that's coming out of the business. So I'd say that the delta is a little bit different from that. You're not taking into account other related costs. But what I would – I’d stand back from this. When you look at it, we're really saying sort of 10% of households care about -- and will pay for football. And if you look at those households, we have over the last couple of years done several promotions, Orange has done several promotions and we've not really expanded that universe of people that are willing to pay. Then you take into account the tariff has locked in effectively over 50% of those customers of that marketplace. So our ability to use it as a lever to attract more customers is proving very difficult and then you stand back from that and say, well, okay, given that amount of investment, could we earn a higher return in other things and we still believe in high quality networks. We still believe in giving compelling commercial offers and we still believe in premium content, which would be film, series, et cetera. This is a lot of money that we can invest to basically give a stronger commercial offer that people really care about going forward. And at the same saw, this formula has a way of basically taking that cost and putting it back on to our competitors. So the cost for them to service those customers increases.

And just, I know in your presentation, you gave the monthly contract adds, but I think that is a less important statistic. The sensitive one is the monthly broadband adds. Can you give us an indication, if you’ve launched mid-May of how the broadband adds have kind of progressed through the quarter and the exit run rate please?

Look, we're not going to break down by month, but what I would say is that the key lever that we’ve been sort of focused on was in the retention side. So this was very much a retention play. So if you like, we are ramping those retention offers up. We’ve seen a slight improvement, I would say, but at this point in time, it's about fine tuning the propositions in retention to drive the redemption rates. So at the moment, the redemption rate is not quite where we want it to be and that’s what we're optimizing going forward. We’ve obviously, yeah, it goes back a little bit to the point Vittorio was making about contracts, at the same time, we've been wanting to implement contracts also to lower churn. And so we're just trying to get that balance in the market.

We’re over to James Ratzer at New Street Research.

And Vittorio, very best wishes for the future. I think my question might be slightly more phonic at this stage. I mean, redemption kind of drilling a bit more down on the cost side of the business, I mean given that service revenues are currently running below your EBITDA guidance growth rate, and I think a lot of the focus for hitting the full year target will come down to the cost side. I mean, you gave some commentary at the full year results around digitalization and talking about an EUR8 billion addressable cost base within that. I mean, I was wondering if you could help us to kind of quantify a bit more clearly, how digitalization can bring that cost base down, the pace of that, you've also this quarter talked about churn improving in a number of your markets, how should we think about that variable as well, helping to support your cost base for this year? Thank you.

Can I -- without sort of going back and repeating everything I've said previously for the March results, what I would say is, where are we really focused on the digital aspect of the execution. I would say very much in terms of sales online, so we’re driving an increased ratio of sales performance. We’re very much increasing the amount of data analytics we’re applying to CVMs, so that we're getting a better return of our retention spend. So I would say this is in the sort of commercial space. I would say in terms of customer management, this is where we're doing the AI and the bolts and we're getting good success there, also driving My Vodafone app and we're also doing on the back office activities. So I would say that sort of digital is improving, if you like, all of our cost metrics across the board as we ramp to scale. And then of course, I would say, we stand back, don't forget the rest of the fit for growth program. I mean, we are simplifying our business all the time. We are rationalizing areas, whether it’s IT, whether it’s network, whether it's procurement across all the moving parts. So I would say that we're expanding more detail in the November presentation in terms of where we're seeing the traction and where we're delivering the results.

Do you think the cost reduction from these initiatives in FY19 should be higher than what was delivered in FY18? And is there an incremental benefit from that churn improvement too?

I think you'll see that the net operating cost, which was down, let's say, 100 million last fiscal year, we will deliver a higher number this year. So and really where we see greater opportunity is in the European group activities where we're making faster progress.

Thank you. Okay. We unfortunately have now run out of time for today’s call. So Vittorio, can I please pass it back to you for any closing comments at this stage?

Yeah. Very good. Thank you. As this is the end of Q&A, I would like to give some final remarks as we wrap up my last call as CEO of Vodafone. So, clearly, it is very disappointing for me to be departing with the share price at this level. Obviously, I believe it does not reflect the progress that we have made and the significant opportunities that we have ahead of us. Having said that, I'm very confident that Nick as the new CEO together with Margherita and the whole team have now, especially after the Liberty Global acquisition and the merger in India, not only the right assets and commercial strategy, which I will comment a little bit more at the AGM on Friday, but above all, have the personal qualities and determination that will be required to ensure that Vodafone fulfills its potential as a converged communication leader, ready and competitive for the gigabit future and with a share price that would be much higher than today. And as long term owners of Vodafone, our investors can count on our and their determination to succeed and reward them. Now, this is also my last investor interaction other than the AGM and I hope you give me 30 seconds more. I have counted 40 results calls and 7 M&A calls over the last decade and I would like to thank all of the analysts, the ones who are in the call today and the ones who were in the calls before and the investors for the support and engagement over the years. I believe that all of you play a very important role in making the capital markets effective and efficient. But you also have an important role in checking, verifying and when needed, also challenging our thinking and our strategy. As many of you know, as a CEO, I have truly enjoyed and learned from our interactions and I am sure, Nick, will do the same. And last but not least, for nearly all of this time, our operator Hugh, who is on the call today, has been an invisible, but wonderful orchestrator of these calls. So, Hugh, I'm very pleased also to thank you for your help for 47 calls across 10 years. Best wishes to all of you.

This now concludes today's session. So thank you all very much for attending and you can now disconnect.