Vodafone Group PLC

LSE:VOD

Earnings Call Transcript 2023-Q4

[Margherita Della Valle]

Good morning, everyone, and thank you for joining me for our Full Year Results. Our challenge today, as you see in our results is that three of our largest markets have declining revenue and our returns are still below our cost of capital.

Our performance relative to major competitors has also not been good enough. This requires Vodafone to change. And by change, I mean a significant redesign of where we focus our efforts and how we organize ourselves. We need empowered and agile markets focused on our customers. We need to scale up Vodafone business, and we need to take out complexity and simplify how we operate. To support our transformation, we also need to focus our resources on a portfolio of products and geographies that is right-sized for growth.

I've set out my road map for Vodafone in a video presentation that I hope you will have time to watch. We will deliver our transformation by focusing on three priorities, customers, simplicity and growth. Starting with customers, our focus has to be on what customers actually want. The simple and reliable service they expect, doing the basics well. I developed commercial authority fully into the markets in January, so decisions can happen faster and accountability is clear with customer experience now a key element of our CEO incentive plans.

On simplicity, we will undergo a redesign of our group operates by making a clear distinction between headquarter corporate services, which must be as lean as possible and shared operations, which we will operate on an arms-length basis on commercial terms. As we simplify our group center, but also our market operations, we have planned the reduction of 11,000 roles over the next 3 years. You may have seen announcements in Germany, Italy and our HQ recently. This simplification will increase agility in our markets. The resources, it will free up will be reinvested in customer experience and in brands to support growth, which is my third priority.

The turnaround of our operations in Germany, in particular, is essential to our growth. We have delivered a number of improvements to our commercial model over the last few months, but we have more work to do to restore competitiveness.

To grow we'll also scale up Vodafone business, where we have a strong position in a large and rapidly expanding market. Our service revenue exit rate was around 3% in Q4, with all Europe markets growing in FY '23, except pay [ph] We are already investing in deploying new SME customer journeys and enhancing our sales management with new incentives to drive penetration of digital services.

Before handing over to questions, let me reiterate. Vodafone must change, and we will change the level of ambition, speed and sizes of execution. Thank you.

[Operator]

Thank you, Ms. Margherita. Our first question today comes from Andrew Lee from Goldman Sachs. Andrew, please unmute yourself and go ahead.

[Andrew Lee, Goldman Sachs]

Yes. Good morning, Margherita. And just had a question on your strategic plan, which is very clear, and I think it kicks all the right notes in terms of ambition. But I guess the key question that we're getting from investors is how quickly towards the evidence of execution on that strategic plan, particularly where the inorganic actions are implied. And obviously, that question touches on the outlook for in-market mobile consolidation deals, but also on a decision on our sale of Spain, which is now on the strategic review.

[Margherita Della Valle]

Thank you, Andrew. Major changes coming for us. And as you know, in telcos, we are a momentum business. So time wise, I think it will take time to see all the benefits from the transformation flowing through in our results.

I think the first things you will see there is the impact of our simplification. As you've heard, we are taking out layers to make our HQ leaner, and we are also transforming our shared operations, plus in the markets, we are really reviewing how we're on our consumer operations.

This simplification will make us faster in how we go to market, and that's the main objective, but they will also drive efficiencies. And the other thing you will start seeing happening already in these months, is that we will be able to reinvest these efficiencies in customer experience and in brand, as I was mentioning earlier. These are big changes for us. I'm not sure how much of that, of course, is already understandable externally.

But it's not just about numbers. It's really about how we operate. The fact that now the markets will be fully autonomous in taking decisions related to their customers and their commercial strategy will make us faster. And I will never stress enough, both externally and internally, the importance for me on focusing on our customers and focusing on what our customers really want. So simplification first with reinvestment. But of course, we will need to do more, as you mentioned, both organically and inorganically.

And I understand the question on timing. Let me share how we look at things. If the returns are below cost of capital in any market, it means we will have to look at structural change options there, but it's very clear to me that each and every transaction, each and every opportunity will have to be assessed on its merits. And so I'm sorry, but it doesn't make sense to me to set an arbitrary time lines on the inorganic side. It's - let me just reiterate, it's a priority. So organic and inorganic change are both a priority to drive long-term shareholder value.

[Andrew Lee, Goldman Sachs]

Thank you.

[Operator]

Our next question comes from Polo Tang at UBS. Polo, please go ahead.

[Polo Tang, UBS]

Hi. Thanks for taking the question. Just have a question on Germany. So trends have weakened notably in Q4, both in terms of financials and subscribers. Now you've recently put through a 10% price increases on broadband. So where is the risk that subscriber losses accelerate from here and that you have to start discounting to retain or stabilize your base? So what gives you the confidence that Germany, is that a trough that things will improve from here? And can you maybe touch on NPS trends in Germany and how you think about the trajectory of German service revenue growth from here? Thanks.

[Margherita Della Valle]

Thank you, Polo. We'll try to take all this point and in general, give you the perspective of what's happening in Germany, starting from the service revenue trajectory, you should expect to see a step change in growth in Germany already in Q1 as we are going through it now. And this will also enable a reacceleration of growth within Europe. It's not the only component. Other markets are also improving, but Europe will reaccelerate now. And the same is true, by the way, for the group overall because the one-offs we had in Vodacom in Q4 won't recur. So expect, first and foremost, a reacceleration from here at Germany level.

In terms of then the moving parts there, I think we have said it before, but our execution in Germany has been consistently disappointing as we were going through the challenges of the pandemic, the telco low [ph] you've heard this before. But also, it's fair to say that from a competitiveness perspective, we have been a little bit left behind by the evolution of the market as we were busy addressing our internal issues, the market, in particular, in mobile has evolved towards new propositions around family plans, loyalty programs, and we have not really been part of this conversation so far, which is why you mentioned we are making some changes. So we are really taking action to reengineer our commercial model in Spain very broadly around pricing, around products, around channels, really pulling all the levers.

First, let me cover pricing, fixed broadband. You mentioned there are price increases. The way we are looking at it is we have seen a significant quality step-up in our cable products as we have accelerated our investment in fiberization in the market. There is a slide also talking to that in the presentation. And we now have a fixed broadband service, which has just been voted actually by an external benchmark, the best in the market.

This has allowed us to reset the pricing to the level where it should have been. We first changed the retail pricing in November as you know, and now we are going through an execution on segments of our customer base of repricing, and this will keep us busy for the first half of the year.

Clearly, there is and there will be a trade-off between pricing and customer numbers. And you should expect to see some additional churn from the execution of the back book repricing on the base. But of course, this will be accretive to value and supporting our service revenue trajectory.

And then more broadly, in terms of competitiveness in mobile, there is much more to do, but you have seen us active in the market with above-the-line campaigns on partner card in February, reset of our mobile promotion lineup in April. We now have family plans coming out for June, and there will be more propositions coming through over time.

Altogether, these actions will support the reacceleration I was talking about before. Just checking that I have addressed on your points. NPS on cable, we are now well above the pre-pandemic level of our NPS and it actually keeps increasing. So please do it our trajectory there.

[Polo Tang, UBS]

Thank you.

[Operator]

Apologies. Our next question comes from Georgios at Citi. Georgios, please unmute yourself.

[Unidentified Analyst]

Yes, good morning and thank you for taking my question. So another follow-up on Germany, Margherita, if you don't mind. I'm just curious just to be a bit more specific about the trend of customer numbers in the coming quarters because my understanding is the price increases were notified around March. There's usually a bit of a delay in the customers notifying and then churning away. So should we expect the next couple of quarters to be weaker than what we've seen in the fourth quarter of last year?

And maybe just to follow up on that, in anticipation of the changes in the rental privilege next year, are you aiming to take action for customer numbers to start growing strongly ahead of that, just to offset perhaps the headwinds you may have on the top line in the next 12 to 18 months when that regulation kicks in? Thank you.

[Margherita Della Valle]

Thank you, Georgios. On the customer numbers now, you're absolutely right. Things will get worse before they get better because we will see in the first half of this year, the incremental churn that we will get from the base repricing. I need to say, we are quite pleased with where we are. We have done trials before our executions and the churn level we are seeing at the moment on our cable customers, talking about low single digit well in line with the trials and better than the business case. But of course, they will affect the net debt numbers.

In terms of, therefore, fixed broadband net adds, which I think is your focus, also thinking about the future of TV, you should wait for the second half of the year to see the customer numbers reaccelerating. But of course, all these moves, let me reiterate it once more are value accretive and we'll see the impact on our service revenue trajectory.

[Operator]

Our next question this morning comes from Nick Delfas at Redburn. Nick, please unmute yourself?

[Nick Delfas, Redburn]

Yes. Thanks very much. Just a question on the dividend, Margherita. I'm interested in how you and the Board think about the dividend in FY '24? And what are the parameters they're going to watch to judge dividend sustainability?

[Margherita Della Valle]

Thank you, Nick. As we had anticipated, the Board has reviewed our overall capital allocation at the completion of the Towers transaction, and we have reviewed all our three priorities, leverage, capital investment and returns to shareholders.

As far as leverage is concerned, we are now at around 2.5 times, and this is the level we are comfortable with in the context of our overall environment from a broader macro perspective. Also from a capital investment, you have seen us now in the Post-Vantage world at around 17%. And that's also where we are comfortable to be in. And as a result, have reconfirmed the dividend at $0.09.

Now importantly, let me say that if the shape of the group was to change materially in the future, of course, the Board at that point would have to reevaluate our position.

[Nick Delfas, Redburn]

Can I also ask the question in a slightly different way, how much extra energy costs are you bearing in FY '24 versus what you might think is going to be the case in 2 to 3 years? I know that of judging energy 2 to 3 years out is difficult, but maybe what's the extra energy cost in FY '24 versus FY '20? Or..

[Margherita Della Valle]

Sure. Versus the pre-Ukraine war, we are talking about just under 700 million in Europe in FY '24. So if you do '24 versus '22, '23 U.K. Now we know that then the peak is going to unwind and by FY '26, we will have recovered the 400 million increase that we expect in '23 against '24. So of the 700 million, 400 million will be unwound.

Now hopefully, there is more to come, but I think there we become a bit more speculative as we look longer term. But that's what the curves tell us today. And as you know, we have now resumed our normal hedging strategy. So 90% of the energy cost in '24 is locked in. And beyond that, we have a good level of PPAs to rely upon.

[Nick Delfas, Redburn]

Right. Thanks very much.

[Operator]

The next question this morning comes from James Ratzer at New Street. James, please unmute yourself and go ahead.

[James Ratzer, New Street]

Yes. Good morning, Margherita and also many congratulations on your appointment as permanent CEO for the group. And I was wondering if I could focus this morning on Germany. So I mean now you have been appointed permanent CEO, I was wondering if you could just kind of reiterate formally your views in particular on the CapEx outlook in Germany. I mean there continues to be a lot of questions about whether you might need to invest more in fiber in that market. So it would be great to get your views on that. Now you're in the CEO seat.

And specifically within the kind of MDU market, you mentioned in the presentation that you've started now some initial transitions from bulk contracts to individual billing. It would be great to hear any feedback you can give on the transitions you are getting so far and success you're getting on converting people over to individual billing relationships? Thank you.

[Margherita Della Valle]

Thank you, James. I'll start with the CapEx outlook. I was reconfirming earlier our capital intensity moreover - more broadly for the group is now around 17% Post-Vantage within Germany, specifically you see that within this envelope, we are constantly accelerating the fiberization of our cable network as we do node splitting. Our run rate today of capacity addition is 2.5 time what it was 2 years ago.

So we have had a significant acceleration there. And we are also keeping evolving our technology road map. In cable, we have just executed a trial in Germany of high split DOCSIS that, as you know, has the potential to bring us to speed up to 1 gigabit per second downlink, 3 Gigabit per - sorry, uplink, 3 gigabit per second downlink and we really see cable as competing effectively from a technology perspective with fiber over time. And of course, we have set up our JV for dedicated fiber build of 7 million households over time. So we think we are where we should be in this space. So that's the first part.

Housing Associations and where are we on the process there? It's a 2-step process. First, we are re-contracting in framework agreements, the housing associations and then we market directly to the customers to transfer their bills across to Vodafone. We are well on to now the first part of that execution, and it has reconfirmed that we are the partner of choice of the Housing Association themselves.

But we have only just started now the individual customer bills transition. We have done a couple of trials so far. The first one which has completed has delivered a 65% redemption rate from our basic TV customers transitioning to the individual billing and we now consider this as probably near perfect execution because the 65% also coincides with the estimates we have of how many customers are actually regularly using the service within our 8.5 million households base.

But it's fair to say that this was a trial, which was done with plenty of lead time, significant resources, and we have another one ongoing, which has not completed which is currently delivering only a fraction of that number. So it will be a big complex execution for us.

In terms of financial impact, we are talking about a baseline of €800 million of revenues in Germany from the MDU customers in the housing associations for basic TV. And the main impact on this would be in FY '25 because the law changes in July '24. So it doesn't touch us this year. But you may have heard us commenting this morning on the fact that some impacts would be visible already in FY '24. So important that I call this out because three things will happen.

The first, as you have seen in our cash flow guidance is that we will have a change in working capital because the Housing Associations were typically paying services in advance for the full year. The second is going to be on customer numbers. We'll start to see migrations at scale, let's say, in Q4 from January. And as we do this, we may see oscillations in customer numbers because there may be lead times between when you disconnect the Housing Association and you actually reconnect the individual customers.

And then finally, we are already put into our budget for this year, significant resources in Germany to actually execute the transition, and I mean people processes and commissions. So this will impact our EBITDA in Germany this year by about €0.1 billion. But as I mentioned, the main impact is FY '25. And for Vodafone overall, it's worth noting that this is going to be a material headwind in '25. But we will have the unwind of the energy costs we were talking about before, which is why when we have given guidance today on EBITDA and cash flow for '24, we have been clear that this guidance has been rebased to a level, we will now deliver sustainable growth from in the midterm.

[James Ratzer, New Street]

Yes. Thank you. That's really helpful. Good color there. So just one thing on the TV migrations for 35% you say you have lost on these initial trials. Have any of those been with loss of broadband customers? Or is it just pure TV only?

[Margherita Della Valle]

TV. I'm referring to TV.

[James Ratzer, New Street]

Great. That's really clear. Thank you.

[Operator]

The next question this morning comes from Emmet Kelly at Morgan Stanley. Emmet, please go ahead.

[Emmet Kelly, Morgan Stanley]

Yes. Good morning, Margherita and good morning, everyone. So my question, please, is on the phasing of EBITDA growth in full year '24. But there was clearly a difference in the phasing last year. I think it was minus 3% in H1. And broadly last in the second half of the year, could we expect a different phasing again in full year '24 or a difference between H1 and H2 [ph] And could you maybe just refer to some of the individual countries within that mix, like you did last year in terms of Germany, Italy, U.K., Spain, maybe just a couple of drivers there? Thank you very much.

[Margherita Della Valle]

Thank you, Emmet. There will be a significant difference in phasing. You are right to point this out. We are guiding to broadly flat EBITDA for the year, but actually half 1 and half 2 [ph] will look different, mainly because of energy. You know that energy has weighed heavily on our EBITDA performance this year in the second half, particularly in Europe. We have had a drag of 4 percentage points. And this will continue into half 1 because all the impact on energy in '23 was half 2 related, we had hedged before the war, all the way to basically December and then we had all this big impact in the last quarter. So now you will see that in between half 1 and half 2, you will have a significant energy drug in half 1, and then we will normalize in the second half.

[Emmet Kelly, Morgan Stanley]

Thank you.

[Operator]

Thank you. The next question comes from Sam McHugh at Exane. Sam, please go ahead.

[Sam McHugh, Exane]

Thanks. Hi, Margherita. Just a short follow-up actually on one of the questions earlier about capital allocation. We haven't seen any explicit [ph] of the medium-term ambition of mid-single-digit EBITDA and free cash flow growth or the 2.5 to 3 times leverage target. Are these still the midterm objectives in terms of leverage and free cash flow growth? And are they the right leverage targets, given that you don't consolidate or own your towers and you're losing some of the fixed infrastructure in Germany as well. So a bit more color around that would be super helpful. Thank you.

[Margherita Della Valle]

Thank you, Sam. As you remember, in November, we called out the fact that the original midterm ambition in the current macro environment, energy and the like was going to be achievable in the same time frame. And since then, obviously, we have seen a change in perimeter of the group with the transactions in Vantage and in Hungary. So we are restarting from there.

The ambition, of course, continued to remain to deliver return in excess of cost of capital. And actually, I was calling out earlier, as part of the transformation, we will discriminate, if you want, more strongly between the markets in which we are returning cost of capital or the segment in which we have good returns like business and make sure that we allocate our CapEx accordingly and consider inorganic structural actions where the returns are not there. So we have a clear ambition to deliver return in excess of cost of capital.

In terms of other financials, I'll go back to what I was saying earlier, we'll rebased FY '24 in EBITDA and cash flow generation as a base from which to sustainably grow in the midterm. On leverage, we have not – we are not a new range but feel that 2.5% in the current environment in terms of rate is an appropriate position to be in. So the lower end of the additional range - sorry, original range. So that's the picture we are painting this morning.

[Sam McHugh, Exane]

Okay. So more of a focus on the return improving versus the explicit targets?

[Margherita Della Valle]

Yes.

[Sam McHugh, Exane]

Super. Thank you.

[Operator]

The next question comes from Carl Murdock-Smith at Berenberg. Carl, please go ahead. Carl, your line is open. Please go ahead.

[Carl Murdock-Smith, Berenberg]

Sorry, can you hear me?

[Operator]

Yes.

[Carl Murdock-Smith, Berenberg]

Yes. Perfect. Sorry about that. I wanted to talk about the dual targets on Slide 8 of the presentation this morning or being best-in-class telco in Europe and Africa being Europe's leading platform to business. On the first of those, in terms of Europe and Africa, I was just wondering if you could expand on why they are actual bed fellows. And how strongly do you feel that Vodacom and the European operations naturally should belong to part of the same group? Thank you.

[Margherita Della Valle]

In terms of our position in Africa, it's very clear that it's one of our strongest assets. And you know that it is a strong contributor to our growth and returns. We are leading there in all the markets in which we operate. We have the leading financial services platforms also in all the markets in which we operate.

So it's a strong contributor to creating shareholder value for the group as a whole. And we have chosen to effectively focus our efforts on these two regions, Europe and Africa and in both I think it's absolutely fair for us to say that we belong to the category of best-in-class operators. And for me, Carl, that doesn't mean anything more complicated than saying that we should be delivering a good quality service for our customers.

So don't read anything else into it in terms of perimeters and combinations. It's about doing what our customers want and being successful in our execution. And I think we are doing very well already in Africa. We are doing very well in some markets in Europe where we are growing but not all markets in Europe.

And maybe you give me an opportunity to explain a little bit better what I mean in terms of delivering good quality, simple service because we didn't have the chance to touch on this. But I believe our industry has really changed in the last few years. Our products to the customers have become much simpler in consumer, simple bundles of connectivity, fixed mobile converged.

What our customers want has also changed significantly. We have plenty of data, you would expect on that. And if you look, in particular, what we call our detractors, the one that rates zero to 2 in the interactions with Vodafone, the on-net [ph] ones, what they are want us to improve is really this simple service I was talking about. I know it seems basic, but I think it's quite important, and I think sometimes overlooked in telcos. They want to have a good experience when they upgrade, they connect, they call the call centers.

It's not about network performance. It's not about innovation, and it's not even value for money. The majority of our markets, if you were looking at the staff, you would see a very big difference in what people want more of or better off. And I think that's what we need to focus on and it's in our DNA to work on it in Europe and Africa.

[Carl Murdock-Smith, Berenberg]

That's correct. And just you mentioned the detractors there and the importance of reducing that. On Slide 12, you've given the 12 kind of metrics that you are focused on and you've committed in the webcast this morning to update us on that. Just in terms of that, it's our commitment in the annual report every year, you'll provide KPIs along each of these 12 metrics? Or will it be more regular than that?

[Margherita Della Valle]

The metrics are there to say that we will report regularly on those. Some of them may be significant in terms of movement on a quarterly basis or on a half year basis, presumably not all of them. So there will be a mix depending on what's appropriate. But our intention, as I said in my presentation, if you have listened to it, is really to have an honest, transparent conversation about what we generally believe matters, and this is the key list for me.

[Carl Murdock-Smith, Berenberg]

Okay. Thank you.

[Margherita Della Valle]

Thank you.

[Operator]

The next question this morning comes from Robert Grindle at Deutsche Bank. Robert, please unmute yourself. And Carl, if you could mute yourself and your video, please. Thank you.

[Robert Grindle, Deutsche Bank]

Good morning. Thank you. I'd like to ask about your plans to arm's length your shared service centers on commercial terms. Is that mainly a cost thing, as you said, you'd consider using third parties [ph] if more efficient? Is arms lengthening also a step towards either OpCo or sub-asset divestment optionality. I remember you did similar in Egypt before proposing that sale. How long does arms lengthening take, place?

[Margherita Della Valle]

Very different circumstances, I would say, in Egypt. But why we are doing this, and then I think you're asking how long will it take? This is a really important change for me because over the years, we've been very successful, as you know, in building shared operations in areas like IT, back office, procurement. This has been a key driver for me to drive productivity in the group. And it's one of the reasons why our scale and digitization, we have been leading then the industry benchmark on cost efficiency.

But I think it would be fair to say that not all third operations have been matched with the same level of rigor over the years. And by rigor, I mean this commercial model, Robert, I mean, essentially [ph] by charging model with price benchmarked to third parties and full transparency, therefore, on the business case.

The reason why this is really important to me, and we have got it right in a number of areas already like our procurement or our offshore call center, we've always worked with that model. But that's not true for all the things we do centrally. The reason why it's really important is that only if we have those measures, we know whether we are delivering on our business case, and we are getting the best service for our markets, which is why I'm saying there may be areas which have not worked so far with that level of rigor or where we may find out, we are not delivering to the business case. And in those cases, it may be true, for example, in some cases, of in-house product development, we may decide to stop the activity altogether or to source this differently. It's a big change for us, but it's a big change as for timing that is going to happen within this year. That's the target execution that we have.

[Operator]

The next question comes from Maurice Patrick at Barclays. Maurice, please go ahead.

[Maurice Patrick, Barclays]

Hi, there. Yes, thanks for taking the question. Just on the free cash flow and dividend side. I mean you guide on free cash flow of €3.3 billion for the year. That's, of course, before restructuring spectrum costs. Now spectrum cost is directly around €1.2 billion a year, I think, restructuring sort of3, 4,500 [ph] I've sent in the next 12 to 24 months, maybe we're going to a period of not quite so much happening on the spectrum side. On the other side, you have got 11,000 headcount reductions. So can you give us some sense of what you think we should expect on the below the line items for the next couple of years? That would be helpful. Thank you.

[Margherita Della Valle]

So I think you have summarized it appropriately. So we have been guiding today to €3.3 billion of free cash flow generation as a new base from which to grow in the midterm. And in the short term, from a spectrum perspective, we are past the 5G cycle. And from a restructuring perspective, yes, there is a lot going on, and therefore, there will be a sizable amount into '24 and beyond.

But we are well past the peak of the restructuring costs also linked to the Liberty integration. These have now completely closed. And therefore, I think our peak was €800 million in FY '22. We have had €600 million this year. And although the sort of core turnover of the restructuring may increase, we will not go back to those levels.

[Maurice Patrick, Barclays]

Thank you.

[Operator]

We have time for one last question this morning, and that question comes from David Wright at Bank of America. David, please unmute yourself and go ahead.

[David Wright, Bank of America]

Hopefully, I'm muted. Okay. Last question. All right. So first of all, just on Africa, investors can buy Vodacom. What is it - what do you do with Vodacom? What is the group synergy from owning Vodacom? And why would you not ever entertain a potential approach in that asset if the price was right?

And if I could just extend a little on inorganic activity. Your leverage is now fine. And I think actually this year, with your EBITDA stable and the remainder of the Vantage proceeds, you're probably going to deleverage a little more. So you could be sub-2.5. And you're comfortable with your capital allocation.

Therefore, any inorganic actions that could see assets sold, what would you do with the proceeds? If leverage is fine, if capital intensity is fine, then surely the proceeds come back to investors? If you could comment on that. Thank you.

[Margherita Della Valle]

Sure. So I will take the two steps, maybe starting from the leverage and the potential excess capital. We have talked about the capital allocation as it stands. And we are at 2.5%. But as you have seen, also looking at our guidance, it will take time for us to have another [ph] material step-down in leverage.

We are guiding to broadly stable EBITDA in FY '24 and €3.3 billion of free cash flow. As you do the math, you see that it will take longer to have an organic step down on leverage. And for that or for that matter, any other exceptional proceeds that may come, the Board will consider the situation when it presents itself. So I wouldn't prejudge on that today.

On Vodacom, I will reiterate what I was saying earlier. It's a very strong asset for us as a group. And of course, you mentioned options and situation. The Board will always consider options that create shareholder value, but Vodacom is a very strong contributor to our performance and our returns, which for me are really important today.

[David Wright, Bank of America]

But that's a stand-alone business. How does Vodafone create value through its ownership of Vodacom? What are the shared commercial services, the procurement, et cetera, that means you create value through owning that emerging market asset.

And for instance, on the flip side, you create risk through two days ago we had a massive spike in the currency because of typical emerging market volatility. So you create risk. So how do you create value by owning Vodacom? Thanks.

[Margherita Della Valle]

We are used to manage emerging market volatility. Typically, what we see upcoming, but probably not the time to get into a lot of detail, is that free cash flow gets hit at the time of the devaluation. But if you grow revenues ahead of inflation and cost below inflation over the cycle, you go back on the other side with growth.

This has been our experience, and we are seeing already today, Turkey, where revenues are growing ahead of inflation. Between Europe and Africa, the synergies are very different than the one we have within Europe. And therefore, we have talked in the past about, yes, there is cooperation of procurement, there is cooperation on large corporate customers. We share products. It's a different level of synergies than the one we have within Europe, I think is your point, and that's absolutely correct. But at the same time, once more, it is creating value.

[David Wright, Bank of America]

Okay. Thank you.

[Operator]

This concludes the Q&A session for this morning. And I would like to now hand back to Margherita for any closing remarks.

[Margherita Della Valle]

Thank you very much. Just wanted to say thank you for being with us today.