Earnings Call Transcript - VOD Q4 2025

Margherita Della Valle, CEO

Good morning everyone and thank you for joining us today. As you will have seen from our results, our performance in FY '25 has been in line with expectations. But before we move to Q&A, I want to provide an update on what has driven the results, the actions we have taken and the key priorities for FY '26 and beyond. Two years ago, I set out a transformation agenda centered around 3 key pillars: customers, simplicity and growth. Whilst we still have much more to do, 2 years on, Vodafone today has changed. We have reshaped the structure of the group, simplified how we operate and improved our customer experience. Therefore, not only changing where we operate but more crucially how we operate. Looking closer at each of these 3 areas, we have rightsized our portfolio with the sales of Spain and Italy and the merger of Vodafone and Three U.K. We've also taken actions in a number of areas within our investments portfolio, including the further monetization of Vantage Towers and a simpler ownership structure in India. With these actions, we have reset our capital structure, strengthened our balance sheet and returned €2 billion to shareholders through buybacks on top of €1.8 billion of dividends over the last year. And the first tranche of the next €2 billion buyback program is starting today. On customers, we have refocused the culture of Vodafone on delivering the seamless and consistent experience our customers expect. And we have changed. Just 2 examples. In the U.K. and Germany, we have achieved a number of best evers on customer experience. In the U.K., our market-leading NPS has been driving the lowest ever levels of churn for both mobile and broadband. And in Germany, where there is clearly more to do, we've made a real step change, delivering our best ever Net Promoter Scores and halving the gap to the incumbent in the market. At the same time, we are becoming a leaner organization. We have actioned the planned 10,000 role reductions and the introduction of commercial models in our shared operations will now enable us to accelerate productivity and efficiency gains. Financially, we have delivered our transformation and the MDU transition within the adjusted free cash flow outlook communicated in May '23. As a result of the transformation done in the last 2 years, we are now well positioned to grow our adjusted free cash flow over the medium term with 2/3 of our adjusted free cash flow coming from growing assets, while the remaining 1/3 is generated from Germany which we are turning around. Let me start with Germany. Over the last 2 years, we have faced a number of challenges with a declining broadband base, the massive task of implementing the MDU transition and more recently, heightened competition in mobile. Against this backdrop, we have been single-mindedly focused on driving a structural reset of our operations centered around delivering a better service to our customers. Two years on with the new management team, investments in our networks and customer experience and the company-wide restructuring heading towards completion, we are looking at a number of positive trends in our structural leading indicators. Reversing the inertial decline in our customer satisfaction, we have now delivered our best Net Promoter Scores with dramatic improvements across all products. And whilst we are still far from where we want to be, we're already seeing the benefits in terms of increased loyalty. We will continue to invest in our operational transformation throughout FY '26. And whilst we expect market conditions to remain challenging, our results will benefit from our now stable customer base and from the growing contribution of the 1&1 customer base migrating onto our network. But whilst Germany is our priority market, we should not lose sight of the fact that 2/3 of our adjusted free cash flow is generated across what we can call our growth footprint. In the U.K., we have had a strong performance in FY '25, both in terms of KPIs and financials. We delivered strong EBITDA growth of 8% and are now the NPS leader in the market across both mobile and fixed, resulting in record low level of customer churn. Looking ahead, through our merger with Three which will complete soon, we will be uniquely positioned for EBITDA and adjusted free cash flow growth as leaders on all dimensions in mobile and leading challenger in fixed broadband. As you know, we will also benefit from our integration with €700 million annual cost and CapEx synergies and additional revenue synergies, for example, in FWA. Across Africa and Turkey, we have strong local positions in each market and significant growth opportunities beyond core connectivity. We will continue to grow cash flows in euros through the cycle alongside delivering good returns. And finally, we should not forget our Vodafone Investments division and its operational infrastructure and innovation businesses. This provides a mix of dividend flows to us and the potential for value realization when appropriate. And with that, I'll pass over to Luka to discuss our financials.

Luka Mucic, CFO

Yes. Thank you very much, Margherita. So first off, I'm obviously pleased to report that we delivered our FY '25 group guidance for both EBITDAaL and adjusted free cash flow. Looking forward then, our guidance for FY '26 which is on a pre U.K. merger basis, is that we expect to deliver continued underlying growth, both for adjusted EBITDAaL and adjusted free cash flow. We expect adjusted EBITDAaL for the group to be between €11 billion and €11.3 billion. Within this, we are targeting between €7.2 billion and €7.4 billion for Europe. We also expect to deliver an acceleration in group adjusted free cash flow growth to a range between €2.6 billion and €2.8 billion. As far as the U.K. merger is concerned, we expect the pro forma FY '26 impact to be around about €400 million of EBITDAaL contribution and around about €200 million of an adjusted free cash flow drag on a full year basis due to front-loaded investments into the committed post-merger network build-out, integration investments and interest payments on the debt of Three U.K. that we will consolidate post-merger. And last but certainly not least, I'm happy to say that our detailed work with Hutchison around the validation of our joint business plan for the merger in the last few months has reconfirmed our expectations from the time when we agreed the original deal. We still expect, as Margherita has said, to reach a full run rate of GBP 700 million of annual cost and CapEx synergies by the fifth year and free cash flow accretion of the merger by the fourth year. And with that, back to you, Margherita, to close us out.

Margherita Della Valle, CEO

Thank you, Luka. So to summarize, alongside delivering on our financial commitments in the last 2 years, Vodafone has changed. We can now look forward to a new market mix. Across 2/3 of our portfolio, we have a solid growth track record, strong assets in good positions and significant potential for further growth with clear execution plans. Within this, the U.K. business which will now represent 1/4 of our service revenue is well positioned for growth as we roll out our best-in-class 5G network and deliver our merger synergies. Separately, in Germany, we will continue to drive our turnaround in what is fundamentally a good market, delivering better financial performance. This all adds up to good growth in adjusted free cash flow for FY '26 and of course, even stronger growth on a per share basis. But most importantly, puts us on a new growth trajectory for the years ahead. And with that, let me open to you all for questions.

Operator, Operator

Our first question this morning comes from Akhil Dattani at JPMorgan.

Akhil Dattani, Analyst

My question is really around the guidance and the German outlook. I guess, first, if we look at the comments you've given us for Europe, you've guided to €7.2 billion to €7.4 billion of EBITDA. And as you said, Margherita, most of your markets are now growing. So if I try and back out what that means, it would imply probably sort of a mid-single-digit decline for Germany. So I just wondered if you could help us understand, is that the right starting point for what you're thinking? And I guess more concretely, what I'd love to understand is really how I should think about the pace and timing of that German recovery you talked about. You talked about significant improvements in NPS. Maybe you could talk us through what you've done to get there. Maybe some comments underlying to what you're assuming there. And finally, the big topic that people really seem focused on is German pricing. Do you see a need within your guidance to respond to what your peers are doing?

Margherita Della Valle, CEO

Thank you, Akhil. I think you've done a catchall question which probably is anticipating some of the other questions we will get later. So maybe I suggest I take the pricing point first and then Luka can build on the guidance. Market pricing in mobile is clearly a very important topic after we touched on it last time in February. We have seen a few positive moves in the market. But whilst it's fair to say there were some positive moves, definitely not as much as we would have liked, as you know, better than most. And we've assumed in our guidance for reference, in our forecast that the environment now stays where we are. I think it's the appropriate set of expectations for financial reasons which means that we will continue to see ARPU pressure in mobile within our numbers for the remainder of the year. This is coming mainly from the fact that whilst there were some positive moves, I think, as again, you know very well, particularly in the mid to high end of the market, the price points are still very aggressive and therefore, we will continue to have pressure from that. I can talk to what we are doing. And of course, I mean, I've majored on the most important step change in Germany for us earlier in my introduction which is the results on customer experience because, as I said just now, this is really something which we are single-mindedly focused on. But we have also taken action in mobile, as you may have noticed, to reshape our propositions in the last few months. And in particular, we have now introduced new handset bundles with device financing which is really important for us in terms of the range of proposition we have in the market. But just concluding on pricing before handing over to Luka on the moving parts of the guidance, I'd say that one thing is certain which is, as I said in February, with all operators in Germany having big customer bases and big back books, the current situation is certainly damaging for each and every one of us.

Luka Mucic, CFO

Yes. Thank you. So first of all, on the implied assumptions on the EBITDAaL evolution in Germany, I mean, these are new numbers, obviously. I think we have done our best to provide a pretty clear range for Europe as a whole and I would add a relatively narrow one. Within that, there can be puts and takes across all of the markets. So what I can talk about is more than the momentum that we see for the German EBITDAaL recovery. Obviously, as Margherita has said as well, there is going to be an unknown in all of that and that's the further evolution of the market surrounding us. What I can say with confidence, though, is that we are looking at a significant improvement of EBITDA as we move through the year that is partially somewhat mechanical in nature. As you know, we are going to lose the year-over-year drag from the MDUs from the second quarter. In parallel, we are progressing with the ramp-up of the 1&1 migration. That was off to a slow start when we came together the last time but I have to say since then, it has picked up. So we have now a better line of sight and I think can expect that from the second half year on, we will operate at the full run rate there. And therefore, this will, of course, be a big benefit to the second half performance. Outside of those mechanical impacts, we are obviously happy that we have now stabilized our commercial performance in broadband. We believe in the potential of our overarching transformation efforts for the German market. And I think as we progress through the year, this will more and more gradually add to the strength of our results in Germany.

Akhil Dattani, Analyst

Great. And Luka, congratulations on your role and best of luck for the future as well.

Luka Mucic, CFO

Thank you very much but you will still be with me for a couple of more occasions in this. But thank you.

Operator, Operator

The next question comes from Emmet Kelly at Morgan Stanley.

Emmet Kelly, Analyst

My question is on the customer experience and infrastructure in the U.K. market. So Margherita, when you presented your strategy before, you mentioned that improving the customer experience is probably your number 1 aim going forward. The U.K. market seems to be the market where perhaps you're having amongst the greatest success. There's obviously a big push to develop infrastructure across Europe, especially you see this in Germany at the moment. Just tying all these thoughts together, can you say a few words on what customers can expect to see in the U.K. from the merger, in particular, from a network perspective. This has clearly been a pain point in the U.K. I know if I look at Opensignal, the U.K. networks rank so far behind other developed markets. So, can you maybe just say a few words on what's going to happen in the network as a frustrated U.K. network user. I do remember sitting in a presentation in the late '90s with the former CEO of one of the telco companies talked about bringing, for example, service to the tube in London and that still is a pain point. So can you maybe just say how the MergeCo will progress on the network side?

Margherita Della Valle, CEO

Sure. I'll begin by addressing the situation and then expand on the broader topic of customer experience, which I believe is very significant. For you, Emmet, the key takeaway about the U.K. is that in our guidance slide we have shared extensive details about the merger. One highlight is the €1.5 billion in capital expenditure that will be invested in the U.K. market this fiscal year. We are genuinely excited, and our teams are prepared to move forward with the merger, as it presents a valuable opportunity. From an infrastructure standpoint, you are already familiar with the €11 billion network plan. I want to emphasize that in the first year of operations, customers across the country, including Three customers, will notice immediate improvements. The combining of two networks will lead to increased coverage and capacity. While we will need to monitor where we are in this roadmap, we will begin seeing the impact immediately. As the year progresses and the €11 billion investment is fully executed, even more advantages will emerge. In a broader sense, this is transformative for us, as it allows us to increase our presence in the U.K., with 25% of our service revenues coming from there. Additionally, we will possess a unique array of assets in the U.K. Whether considering spectrum, network, or customer bases, we will be in an excellent position to enhance EBITDA and free cash flow growth, even before accounting for the €700 million in cost and capital expenditure synergies that have been fully outlined and confirmed in our joint business plan. Furthermore, there will be revenue synergies, such as those derived from the network for fixed wireless access. This represents a significant milestone for us in the U.K. and occurs in a market where we have consistently outperformed. As you noted, we are now leaders in customer satisfaction, up from being ranked third just a few years ago. This brings me to the significance of customer experience and our ongoing journey, a topic I've been discussing for the past two years. I saw a unique opportunity in this area for two reasons. First, as I have mentioned, the telecommunications industry has not excelled in customer experience, which is something we can improve. Second, and crucial for today’s discussion, is that customer experience is the leading indicator of customer loyalty, and ultimately, our overall performance. We have observed the positive outcomes in the U.K. and across the organization; ensuring that our customers are happy and loyal remains our top priority. One of my greatest joys over the past two years has been witnessing how the company culture has embraced the mission of providing our customers with the service they merit and earning their trust every day. This shift has created considerable enthusiasm throughout the teams. Importantly, there are no quick solutions to enhancing customer experience. It requires sustained effort, which is why after two years, we are pleased with our investments in improving the network, refining customer journeys, and enhancing our processes. This has resulted in a decrease of 5 million detractors across Europe. The most critical area of improvement is Germany; we still have much work ahead, but the positive trajectory and results we've seen so far are promising, reflecting our market investments and their impact, which I can elaborate on in terms of reduced churn in segments like fixed broadband. Customer experience is an essential leading indicator, and it will consistently be featured in our performance scorecards.

Operator, Operator

Next question this morning comes from Andrew Lee at Goldman Sachs.

Andrew Lee, Analyst

I just had one question, the German recovery, just following on from Akhil's question and the improvement through FY '26 specifically. Are you in a position yet where you can see strong potential to grow the ex 1&1 by underlying revenues and EBITDAaL in Germany in the third or fourth quarter of this year? And if not, why not? And the follow-up to that really is you highlighted broadband customers are flat at the moment in Germany. But with those ARPU pressures that you're assuming through FY '26, if you can't grow in the second half of this year at some point, what needs to change for you to grow in FY '27? And do you think either execution needs to continue to get better? Or do you think the growth is out of your hands?

Margherita Della Valle, CEO

Thank you, Andrew. I may build on FY '27 and what we need. But first, Luka, on the service revenue trajectory during the year.

Luka Mucic, CFO

Yes. I mean, as we have said, we expect to return to growth in service revenues during FY '26. A major component of that will be the 1&1 contribution, obviously. And again, I think we had this conversation before. I would always argue that this is a commercial agreement as you would also see other agreements in the wholesale space with MVNOs and others that contribute simply to the results. And so from that perspective, it's for me really a bit hard to disentangle this from the overarching performance of the country. The rest is essentially going to be a function of competitive intensity in mobile. This plays a significant role. And in terms of the rest of the performance there, from a service revenue perspective, keep in mind, we have just talked and discussed about broadband. We're actually very happy that we have stabilized the base. This was a significant part of the underlying performance outside of the MDUs in FY '25. This is now stable. ARPU actually also quite in a reasonable shape. But what you should not forget is that we have also a constant underlying TV drag, as I would call it, because TV has been for a while, even outside of the MDUs, in a structural decline. And I think that will continue into the midterm. So if you make the math out of that, then you will obviously understand that 1&1 is an important contributor that will materially help to bring us back to growth.

Margherita Della Valle, CEO

Just going straight actually to the point Andrew, you made around the ex 1&1 growth rate. I think the final answer will very much depend on the pricing conditions in mobile. And the jury is still out on that one. But let me say upfront that I think in the current market environment that we just discussed with Akhil, I think it is unlikely that ex 1&1 which I agree with Luka, shouldn't be taken in isolation. You could talk about like and others. But that's where we are. In terms of '27 then, so much better exit, of course, in Germany in '26. Overall results, much better than in '25 but, in particular, second half with a better exit. As we go into '27 then, I mean, Luka could also give you lots of new moving parts because there will be more of 1&1. There will be no more MDUs. There will be full annualization at that point of the commercial investments that we have made, including the A&R which as you know, transitions through the years or all sorts of mechanical support like this. But you are spot on, on the fact that we count on also the improvement we are making structurally in the loyalty of our base and in the fact that, by then, we will have had a full run rate or a fully stable based on all front to, of course, support us for the longer term in growing Germany.

Andrew Lee, Analyst

Okay. I won't take the time to discuss the fundamentals now, but I believe that's what investors need to see regarding growth in fiscal year 2027. It seems we require a favorable price environment to achieve that, assuming we maintain a stable customer base as a basic scenario.

Margherita Della Valle, CEO

I think everyone can make its judgments. I was really keen for this year to be quite specific on our expectations for Europe to allow you to center. But beyond Europe and Germany, what I think is really important in the discussion today and we may have a chance to pick it up later, is the guidance of the group growth just for FY '26, where the numbers are on the page and also for the midterm. But I leave that to other questions.

Operator, Operator

The next question this morning comes from Joshua Mills at BNP Paribas Exane.

Joshua Mills, Analyst

I hope you can hear me. I wanted to shift back slightly and move to the B2B segment. I think in the report, you called out some headwinds from the U.K. B2B market and specifically managed services and also some ARPU pressure in the mobile space. I wondered if you could give us a bit more color on what's happening there and maybe broaden the question into how you're seeing the B2B landscape more broadly across your different geographies and what you're assuming about the B2B growth in your FY '26 guidance. And then perhaps just more specifically, could you remind us now what percentage of Vodafone Group service revenue and also group EBITDAaL is coming from the B2B segment?

Luka Mucic, CFO

Yes. I guess, if you don't mind, I will take those questions. So first of all, we are actually very happy about the growth trajectory that we have achieved with our B2B business during FY '25. You have seen that we have shown quarterly acceleration every quarter as we had expected at the Q1 earnings call. We exited with 5.1% growth in Q4 and we continue to believe into that potential and actually would expect this good growth at the group level to continue. Now in terms of the market performance, it was obviously differing by market. In the U.K., we had a decline in the full year. Q4 was actually positive but for the full year, it was slightly negative. And there are a couple of reasons for that. One is that the same actually year-over-year price increase pressures applied to B2B that we also saw a bit in Consumer, where essentially the annual price increases came in due to the lower inflation at lower rates. That has been weighing on the growth in B2B. From a go-forward perspective, yes, we have outlined that we are losing a couple of pretty old, I have to say and also relatively low-margin managed services contracts in the U.K. Otherwise, the kind of performance in the U.K. as elsewhere in Europe will clearly differ between a core connectivity business which will be lower growth and then additional support from our digital services business that we are investing into where we have been adding additional agents where we continue to build out our product portfolio and where we're clearly expecting continued growth opportunities. So yes, U.K. will be challenged in FY '26 from a B2B perspective. But in the broader sense, we continue to expect positive growth in B2B from a group perspective and certainly see the strength of our portfolio, in particular, in what we call beyond connectivity as a strong underpinning of that where we have much higher growth rates than in core.

Margherita Della Valle, CEO

Just maybe a quick build on this point of the digital services. I'd say the way that our demand is moving, we've always had strong demand across Europe and Africa for digital services. The recent sort of geopolitical-induced focus on sovereign technology services on defense areas is also something that will be supportive for continued good digital services growth for us.

Joshua Mills, Analyst

And maybe just to follow up, if we can get a ballpark figure on the revenue and EBITDAaL exposure to the B2B segment, that would be helpful.

Luka Mucic, CFO

Yes, we are getting close to 30%. We are still a bit below that, but it has become a significant part of our business. Regarding the EBITDAaL performance, the structural margins in the B2B sector are somewhat lower since digital services have a reduced EBITDA margin compared to our core connectivity. However, what excites me the most is that the capital intensity of this business is very low. We operate in an asset-light model in this area and depend not only on our own capabilities but also on our strong strategic partnerships to deliver solutions to the market. From both a return and cash flow perspective, this is very favorable for us. Therefore, I view this business not just in terms of EBITDAaL, but especially for its contribution to cash flow.

Operator, Operator

The next question comes from Carl Murdock-Smith at Citigroup.

Carl Murdock-Smith, Analyst

And Margherita, as you're kind enough to tee it up, I'll step in and ask. So one of the highlights of today's guidance was the strength at a group level, largely due to Africa and Turkey. Kind of what gives you confidence of the medium-term growth opportunity in those markets in euro terms? What has driven that step change in growth and cash flow generation? And what synergies are there across the group? And what options might you consider in the medium term if investors continue to apply different weightings to euro of free cash flow from Europe versus euro of free cash flow from elsewhere in the group?

Margherita Della Valle, CEO

I would call out the fact that when I talk about 66% of cash flow generated within our current growth portfolio, it's not just Turkey and Africa but it's going to be increasingly the U.K. and of course, the consistent position of our other European markets for completeness. Now if I look then at Turkey and Africa and the reasons behind the performance that you have seen where we have demonstrated hard currency growth in all our geographies, I would say a 2-part answer. The first is the discipline where you have high inflationary environment to grow revenue ahead of inflation and cost below inflation applied in the day-to-day execution in these markets. And this is a muscle I think we have trained quite well by now. But it's not just that. There are also 2 other aspects. One is the quality of our performance and the second is the actual market potential per se. So if I maybe start from the market potential, I mean, it's visible to everyone that these are markets where connectivity has still potential to grow. The population is growing. Data is growing, data is being monetized. But what is most attractive is that there are also what we would call nonlinear growth opportunities in these markets that we are exploiting, again, talking about digital services, right? Whether you are talking about financial services, of course, for Africa or whether you are talking about other digital services. For example, sovereign data centers in those territories are already making an impact. So there is a broad range of services where Vodafone in those markets is effectively the provider of choice that give us confidence on a multiyear growth. And then on top of that, we are pleased with our execution in those geographies, whether you look at Turkey, whether you look at Egypt, whether you look at Africa more broadly. I mean, we discussed, I think, a couple of calls ago about what is driving the growth in Turkey, for example. You will have seen we continue to build on our highest ever market share. We outperformed market growth. And we have really clear execution plans and strong teams in place to make the most of this potential opportunity. And then you closed with saying, okay, this is all well and good. I see the growth coming. But in all the calls, we talk about Germany. And therefore, is there anything you want to change about that. And I think what you will see us doing is continuing to bring to life as we did in the results presentation today that the group is covering a number of different geographies, Europe, Africa, Germany, other countries, the U.K. That's what we are going to continue to work on driving performance. And ultimately, we have a single goal which is sustainable midterm adjusted free cash flow growth. We said back in March '23 that we had the goal to use the cash flow level of those days as a base to grow from. And I think we have proven in the last 2 years that we have executed on our financial guidance. And now it's time to go into the proper growth phase, also thank you to all these opportunities.

Luka Mucic, CFO

Yes. And perhaps just briefly because you have mentioned synergies, actually, there are synergies both in terms of leveraging the scale of the group between the emerging markets and Europe. We are doing that already today on the procurement front when we acquired RAN capabilities and so on, we leveraged this. But there is also an exchange of best practices which can be very fruitful. Like, for example, in AI, we have capabilities here in Europe that we are leveraging also to help our emerging markets to quickly adopt those practices. On the flip side, in Turkey, for example, we have excellent digital nurturing skills. We have a great apps innovation there that we are also bringing to other European countries. So all of that just makes the combination so much stronger than the single parts alone.

Operator, Operator

The next question this morning comes from Adam Fox-Rumley at HSBC.

Adam Fox-Rumley, Analyst

I'd like to ask a question on the share buyback, please. And I wondered if you could reflect a bit on the value that the buyback is bringing to you and your shareholders at the moment. You've spent €2 billion. You've got another €2 billion to go. It's a huge portion of the market cap. There's no reference to per share data in your presentation anywhere. So presentationally, at least, you're not really linking that huge commitment to the narrative that you're trying to tell us. The stock has got a 5% dividend yield, so it's not providing much valuation support. So I guess I'd just like to check, are you still certain this is the right allocation of capital? And to that sustainability point, clearly, given the free cash flow that you generate at the moment, the dividend that you've got looking into the medium term, €2 billion is unlikely to be the right number going forward.

Margherita Della Valle, CEO

I'll let Luka talk to the strategy around buybacks and returns more broadly. But there is one number, Adam, that I think is really important and your question is a really valid one. If you look at our adjusted free cash flow guidance for FY '26, at the midpoint of the guidance, we are growing adjusted free cash flow per share by 17% year-on-year. And I completely agree with you that the per share element of these KPIs is really important. But Luka?

Luka Mucic, CFO

And I would agree, it's underappreciated. But when you ask about the capital allocation strategy more broadly, I think when we first talked about this when I was coming in around 2 years ago, we were single-mindedly focused on a dividend that was back then considered as not properly covered by underlying cash flow and with no kind of fantasy for growth for the future. We had, in the meantime, 2 significant value creation events through the sales of Spain and Italy at a point in time where from our perspective, clearly, the share price levels did suggest that there was value in putting some of this capital to work by making sure that things like the ones that Margherita has talked about and that is growing the free cash flow contribution on a per share basis could come to fruition. So in that sense, I think we have followed through on the commitment that we have given. We have rebased the dividend but with an ambition to grow it over time and we stick by that commitment. In terms of the capital returns through share buybacks, I think we are executing on them because we believe it is from a value perspective, a positive and accretive investment. And certainly, I'm still a believer in the value accretion potential. That's why not only has Vodafone started a share buyback program today, I've also decided to buy back some more shares for my own personal account. And I think in that respect, it is, for me, a logical thing to do. Let's see what the future brings. The current program will probably take us around about through the end of the current fiscal year. And then we will reassess together as well, obviously, on the appropriate dividend levels.

Operator, Operator

The next question this morning comes from James Ratzer at New Street.

James Ratzer, Analyst

So a kind of bigger picture question which I think a lot of people would like to understand your longer-term financial outlook for the company. And I mean, I know there are a lot of moving parts in Vodafone at the moment. But when I look at your major peers, they also have a lot of moving parts and uncertainties and yet pretty much all of them provide detailed quantified 3-year financial targets. I mean, actually, even one of your own largest businesses, Vodacom provides 3-year quantified financial outlook. Now I do see you're now stating some medium-term free cash flow growth expectations but that's fairly vague. So would Vodafone consider providing detailed 3-year financial guidance so we can get more visibility on your longer-term outlook? And if not, what's holding you back?

Margherita Della Valle, CEO

I think that, James, you are coming from a very valid angle in terms of forgetting the numbers for a second, painting the picture of what we are targeting to achieve in the midterm, I think, is going to be important. You know that we have gone through 2 years of significant transformation. And this is actually the first time that I can look forward and say we are where we wanted to be in terms of shape. And hopefully, that will also simplify everyone's life in terms of the numbers and the moving parts. We have the shape of the group that we want to have which is why what you find in the presentation today is a clear outline of how this looks like, what are the growth opportunity and why we have the confidence to now state that we are moving from the base to grow from of 2 years ago to proper growth. We will now go through the U.K. integration. As soon as we close, we will start off very, very quickly and we will bring this shape back to life in our results. I think you should expect to see more from us in the future in terms of talking to the vision in the mid- to long term but we first needed to get the building site closed which is what we are doing now.

James Ratzer, Analyst

But now the business is in the kind of rightsized for all the big picture M&A, can we expect that maybe in the H1 guidance or the results, you would actually be willing then to give some 3-year detailed, let's say, revenue, EBITDA, free cash flow trends because let's say, the major peers in Europe and say even Vodacom are doing the same.

Margherita Della Valle, CEO

In various different ways but I would refrain for now to give guidance on guidance. It's definitely a consideration to give a more cohesive outlook. What's really important for us is now to move to this gradual sustainable free cash flow generation and give you the confidence of what are the moving parts for that.

Operator, Operator

The next question comes from David Wright at Bank of America Merrill Lynch.

David Wright, Analyst

I have a follow-up question regarding the U.K. I need some clarifications. You mentioned an EBITDA boost of €0.4 billion, but in your initial deal presentation, you referred to pre-IFRS 16 EBITDA of GBP 612 million, which seems to be roughly halved. I believe this is primarily due to handset accounting, so could you clarify that for us, Luka? Additionally, you indicated earlier that the free cash flow dilution included restructuring spend, but it seems it doesn't because your free cash guidance excludes restructuring. What restructuring spend should we expect on top of that? This ties into James' point about your free cash flow guidance being before restructuring, which has been considerable over the past several years. Recently, Telefonica broke down their free cash flow to show what's distributable at the end of the day. I wonder if you could provide some visibility on free cash flow after restructuring, as that is essentially what's distributable. I understand that the spectrum is more commercial, but those details would be really helpful. Lastly, Margherita, why hasn’t the deal closed yet? We all expected it should have been finalized by now, so if you could shed some light on that, I would appreciate it.

Margherita Della Valle, CEO

Yes, maybe I'll take that. I'd say watch this space. I mean we got the approvals from Ofcom and the CMA during the month of April. We have then been able to lock down the joint business plan which is done and we are now going through the customary closing adjustment. But watch this space.

Luka Mucic, CFO

Yes, the €400 million reflects the EBITDA contribution based on our initial assessment under Vodafone's accounting policies. There are several factors involved, such as lease and service accounting. For more detailed information on these factors, I suggest discussing them in an investor relations call, as this is our best estimate of how the results will appear under our accounting standards. Regarding restructuring, my focus has been primarily on integration investments rather than restructuring itself. In FY '25, we had a relatively stable cash outflow for restructuring, approximately €250 million. We expect a modest increase in restructuring costs as we enter FY '26, stemming from both the U.K. and the need to complete the second phase of our restructuring efforts in Germany. When considering the effect of the U.K. alone, it should be largely neutral since we will benefit from the spectrum sale proceeds to VMO2 upon closing. Thus, the merger itself will be broadly neutral from an adjusted free cash flow perspective in FY '26.

David Wright, Analyst

And the €500 million restructuring guide, that still applies though and we should probably assume that's quite heavily phased to the first couple of years, correct?

Luka Mucic, CFO

The €500 million across 5 years, absolutely, yes.

Margherita Della Valle, CEO

Yes but heavily phased upfront. But in year 1, to be clear, the €200 million you see are the same at AFCF and full FCF level. There isn't any additional drag below the line.

Operator, Operator

The next question this morning comes from Ottavio Adorisio at Bernstein.

Ottavio Adorisio, Analyst

My question is regarding free cash flow. You provided a detailed breakdown on Slide 23, indicating that Germany accounts for only 33% of your adjusted free cash flow. However, there seems to be a discrepancy when calculating operating free cash flow, where Germany is closer to 47%. Are you recording all interest in hard currency in Germany, and are the €20 billion in tax assets—actually €19 billion this quarter in Luxembourg—not usable to offset German taxes? Additionally, concerning free cash flow, you received approximately €307 million from Vantage Towers this year. The last time Vantage Towers was listed, it was generating about €430 million in cash. Based on that, it seems you might be overdistributing Vantage Towers. Are you over-leveraging the balance sheet similarly to VodafoneZiggo, or is this just due to organic generation?

Margherita Della Valle, CEO

So maybe just an observation and then I hand over to Luka for the detail. I suspect your numbers are from pre U.K. merger, Ottavio, because even on EBITDA, that's not what you find in our results for FY '25. But more broadly, Luka?

Luka Mucic, CFO

I think you are probably referring to the slide that has the distribution of free cash flow generation across markets. That's a very simplified view, obviously. And so from that perspective, you should not kind of 1:1 try to reconcile this with the group numbers.

Margherita Della Valle, CEO

Yes. But everything is attributed fairly. There is no extra interest or other things. It's EBITDA minus CapEx with then an attribution of interest across the markets irrespective of, if you want, specific technical elements. It's what you would expect to do. What is in there, just to be clear, is indeed the Vodafone Investments dividends, of course and all the dividends that the group received because it's a breakdown of free cash flow. It's not a breakdown of EBITDAaL. So the full perimeter, including the Vodafone Investment division which is 9% in the slides, comes into play.

Luka Mucic, CFO

If I can add to the discussion on the Vantage Towers results, the growth in both revenues and profits has been consistent. Additionally, Vantage Towers has made its own investments, such as in INWIT, which is performing well and is set to provide a special dividend in FY '26 for additional support. This strong performance of Vantage Towers enables us to distribute dividends not only to ourselves but also to our main shareholders from the consortium.

Ottavio Adorisio, Analyst

So you would expect to extract around €300 million of dividends from Vantage going forward annually?

Luka Mucic, CFO

There is no reason to not expect the same dividend levels from Vantage.

Operator, Operator

The next question comes from Polo Tang at UBS.

Polo Tang, Analyst

It's on Germany but specifically fiber and MDUs. Can you maybe talk through what impact your fiber upgrades are having in terms of your German broadband net adds and NPS? And can you give an update in terms of how the OXG joint venture is doing in terms of upgrading the footprint of 7 million MDU homes? And do you think you need to upgrade the remaining 19 million homes in your cable footprint to fiber? And just related to this point about MDUs, Deutsche Telekom last week on its call highlighted it now has access to 5.7 million MDU homes. So are you seeing any signs of increased competition in the MDU space? And longer term, do you think that there will be 1 or 2 fiber infrastructures in each MDU longer term?

Margherita Della Valle, CEO

Sure. I will discuss the impact of fiber on our numbers and customer satisfaction. Currently, fiber has no impact on that metric. We have recently expanded our sales capability to include wholesale agreements with fiber providers like Deutsche Telekom and Deutsche Glasfaser, which allows us to offer customers in the DSL sector access to fiber. Consequently, we are now able to provide gigabit products to three out of four households in Germany. This strategy is consistent across various markets, including the U.K. At present, the number of connections is minimal, with only single-digit growth in customer additions each quarter. The improvement in our overall results and customer satisfaction is mainly due to significant reductions in churn among our cable customers, as the market in Germany has reached a saturation point in terms of penetration. The stabilization of our customer base in recent quarters is attributed to this churn reduction. We are pleased to observe that our cable churn rates have aligned with industry expectations and are even lower than the growing churn rates for fixed broadband in the U.K. This reduction is a result of enhancements we have made to customer experience over the past few years, including network investments and improvements in customer management processes. Additionally, we have significantly reduced the number of legacy routers in our network. As a result, we have achieved the best-in-test results across all fixed broadband networks in Germany, experiencing a one-third drop in customer complaints and achieving our highest-ever Net Promoter Score for cable. This marks a fundamental transformation in customer experience, which we believe will lead to improved performance moving forward. Our goal remains to provide better service and a broader range of gigabit products, positioning ourselves as a one-stop shop for customers looking for fixed, mobile, and TV services. Regarding our fiber initiative and our presence in multiple dwelling units (MDUs), we have encountered delays with our OXG fiber deployment plan, primarily due to issues with our partner, Jodicia. However, we have since engaged 29 different construction companies across 22 German cities. To date, we have reached 200,000 households and aim to maintain a pace of 100,000 households per quarter while anticipating an acceleration in our efforts. We have already placed orders totaling €2 million. While competition in MDUs exists, we aim to leverage our economic advantages and strong partnerships, which have previously supported us during regulatory transitions, to establish a solid business case for fiber in these areas. In summary, our ongoing strategy will focus on continuing to expand our fiber network to meet customer needs while ensuring high satisfaction. We will also proceed with overbuilding in MDUs, as there is a strong economic rationale for doing so. Additionally, in regions where we currently resell DSL, we will grow in tandem with fiber builders in those areas.

Operator, Operator

We have time for one last question today which comes from Robert Grindle at Deutsche Numis.

Robert Grindle, Analyst

Alongside all the changes at Vodafone, the world has changed a fair bit, too, since we last met. You mentioned the opportunity on sovereign data as a result of geopolitical change. Perhaps German stimulus plans are good news there, too. On the less helpful side, are you expecting any impact on the trade tariffs on equipment pricing or equipment availability at this stage? Maybe we shouldn't be worried about CapEx though as mobile data in Q4 is growing at less than half the rate of a year ago. Is this more Wi-Fi offload or lower growth in demand?

Luka Mucic, CFO

Yes. Perhaps I can cover quickly the CapEx question and general cost question here, where I believe we are pretty well covered. Overall, we have mostly multiyear agreements with fixed terms which essentially put the onus of any tariff-driven changes on our partners and suppliers. So from that perspective, I think we are as well covered as one can be. I would add perhaps to all of that also the strong balance sheet position that we are in now also from a financial inflow perspective, I think we are now substantially deleveraged. We have a very long maturity of our outstanding debt which is very helpful. We sit on €16 billion of liquidity which gives us a lot of optionality in that respect as well. So while obviously, we are monitoring the situations carefully, I think on the cost and CapEx side, we are well covered. And from a financial stability perspective, we're also very, very well covered.

Margherita Della Valle, CEO

Yes, I would say for the general sort of tariff and macro, I mean, you know where we stand relatively insulated from these dynamics. On the mobile data front, let me add, Robert, that it's not necessarily a bad thing, what we are describing. It really depends on where and how data grows. And I think some of the reshaping of the group in Europe that we have done in the last couple of years is also impacting the volumes of data growth because there have been markets that had very, very low prices for what were essentially unlimited offers becoming the standards that are not part of the group anymore. So I think don't always see it negatively.

Operator, Operator

Thank you. This was the last question. And I would now like to hand back to Margherita for any closing remarks.

Margherita Della Valle, CEO

Thank you, Vanessa and thank you everyone for your time again today. See you in July.

Luka Mucic, CFO

See you then. Bye-bye.