Earnings Call Transcript - VOD Q2 2026

Margherita Della Valle, CEO

Good morning, everyone, and thank you for joining us today. Before moving to Q&A, I will briefly provide an update on our transformation progress and financial performance. I want to specifically talk you through our operational execution in the first half in Germany and the U.K. In Germany, our turnaround continues. And in the U.K., we are now driving the integration of Vodafone and Three, both of which remain top priorities. But first, a quick recap on our position as a group. As you know, over the past 2.5 years, we have changed both where we operate and how we operate. In the last 6 months, we have completed the reshaping of the group that I announced in May '23. We have completed the merger of Vodafone and Three in the U.K. and the acquisition of Telekom Romania's assets. All of Vodafone's operations are now in a strong position, at scale in all our markets. And importantly, all these markets have sustainable structures. Our capital structure has also been reset with appropriate investment levels, a stronger balance sheet and over EUR 5 billion returned to shareholders via buybacks and dividends over the last 18 months, with a further EUR 1 billion of buybacks to come over the next 6 months. But most importantly, we have also delivered a step change in our operational transformation. Whilst we still have more to do in our drive to operational excellence, we have boosted customer satisfaction, we have simplified our operations and powered growth beyond traditional connectivity by expanding our digital and financial services. Now, mentioning growth leads me on well to our financial results. We performed well in the first half, in line with our expectations. Our group service revenue growth has accelerated to 5.8% in Q2, supported by growth across Europe and Africa. On the profitability front, group EBITDAaL grew by 6.8% in the first half, with nearly all our markets posting EBITDAaL growth. With this solid performance across the group and a positive outlook, we have confirmed today that we now expect to close the year at the upper end of the growth guidance that we set out in May. Alongside solid financial results, we have also made good operational progress in Germany and the U.K. Our 2 largest markets have different starting points and different competitive landscapes, but both markets are demonstrating the impact of our strategic priorities, customer, simplicity and growth. Taking it to market in turn. Germany is the largest telecom market in Europe, and we operate at scale across both mobile and fixed. In mobile, our 5G stand-alone network covers over 90% of the population, and now, serves over 40 million customers, including 1&1 as well as almost 60 million IoT SIMs. And on fixed broadband, we can offer gigabit connectivity to 3 out of 4 German households, more than any other operator in the country. Our gigabit broadband reach has indeed continued to expand during the quarter. We are now marketing OXG fiber to 1 million homes. Our brand is strong, and customer satisfaction in Germany has stepped up in the last 2 years. We have simplified customer journeys. We have introduced GenAI in customer care across chatbots and agent assistance. And our improvements across all call center KPIs are being recognized by independent testers. And in terms of growth, we have followed a disciplined execution focused on value. We have introduced new propositions in mobile, driving differentiation and upselling, and we have continued to increase front book ARPUs in fixed. We also continue to expand our capabilities to satisfy the growing demand for digital services. Just 2 weeks ago, we announced the acquisition of an established cloud service specialist, active across Germany and Europe. Looking at Germany as a whole, we are well positioned to drive structural growth, as we have the right assets and the right team in place, a team that is fully focused on becoming the market leader in customer experience, a one-stop shop provider for fixed, mobile and TV and a trusted B2B partner of choice. And now, on to the U.K., we are the largest mobile operator in the country, serving almost 30 million mobile customers, and we are also the fastest-growing broadband provider, with the largest gigabit footprint of any operator just like in Germany, as we are able to sell fiber to about 22 million U.K. households. Vodafone U.K. is already the market leader in customer satisfaction, and we are now extending our customer experience standards to Three customers. And all of our customers are set to benefit from our GBP 11 billion network investment, as we build the best-in-class 5G network for the U.K. We have made a very fast start. Independent tests are already confirming noticeably better speeds and coverage in less than 6 months. In terms of growth, as you know, we have good commercial momentum in the U.K., which is now being supported by our cross-selling opportunities, with Vodafone broadband offers now open to Three customers and FWA open to Vodafone customers. And our multi-brand approach is proving effective in making the most of the market demand opportunities. The combination of these revenue synergies with our GBP 700 million cost and CapEx synergies gives us a strong growth trajectory in the U.K. We will leverage our unique assets in the market to extend our customer experience leadership, monetize our improved mobile network quality and continue to drive fixed service growth. And this is just our 2 largest markets. We hold leadership positions across our African markets, where yesterday, the team reported another strong set of results, in line with their medium-term double-digit EBITDAaL growth guidance. We are excited about the future in Africa, as it combines structural opportunities across all our services, from core connectivity to financial services to B2B. Coming back to group in closing, our objectives continue to be the same, to improve our customer experience across our markets, further simplify our business and deliver sustainable cash flow growth in FY '26 and beyond. The turnaround of Germany, the U.K. integration and our strong positions in growing markets across Europe and Africa, all give me confidence in our growth outlook. With the reshaping of the group behind us, now is the right time to deliver on our ambition to grow our dividend over time. We announced today that we are moving to a progressive dividend policy. And now Luka and I are looking forward to your questions.

Operator, Operator

The first question this morning comes from Maurice Patrick at Barclays.

Maurice Patrick, Analyst

If I could ask a little bit about the EBITDA run rate for the second half and also next year, so you've delivered 6.8% organic year-on-year growth, you tightened the guidance towards the upper end of the range. I think if I look at the full-year guidance, it implies 4%, 5% growth for the full year. So your guidance, even at the high end, seems to imply a slowdown versus the first half, despite Germany probably having easier comps. As you exit the MDU drag, maybe you could help us understand some of the EBITDA sort of levers in second half. I know you called out higher SAC in the U.K., for example. And it's probably a bit early to talk about FY '27, but if you could give us some indications of some of those building blocks, that would be very helpful.

Margherita Della Valle, CEO

Sure. Luka, all over to you.

Luka Mucic, CFO

We are very pleased with our performance in the first half of the year regarding EBITDA. This strong performance was driven by significant growth in emerging markets, particularly in the U.K., along with improvements in Germany, where the impact of the MDU is fading and we benefited from wholesale. Looking ahead to the second half, while our outlook at the high end suggests a slowdown, there are three key factors to consider. On a positive note, we expect Germany to continue improving in the second half since there will be no MDU impact, and we will reach the full run rate of our wholesale migration for 1&1 this quarter, amounting to around EUR 11 million. However, on the downside, we anticipate that the growth contribution from emerging markets will decline as inflation eases, a trend already observable in the first half. The U.K., which performed well in the first half, is expected to experience a slowdown in EBITDA growth due to tough comparisons, especially in Q3, as our B2B business had a one-off boost last year. This situation is expected to improve going into Q4 and into FY '27, but it will still dampen overall performance. Additionally, our planned marketing expenses in the U.K. are back-loaded into the second half, which, combined with the slowdown in emerging markets, shapes our expectations. FY '27 seems quite distant, but we expect the U.K. to significantly contribute positively with strong EBITDA performance due to anticipated synergies from the merger, which were minimal this year but will increase next year. In Germany, we will have various factors to consider; we'll no longer see benefits from the MDUs, and there will still be a ramp-up effect from the wholesale migrations. Hence, we need to monitor market conditions to assess their impact on German performance. Furthermore, in FY '27, I foresee ongoing challenges from the growth in emerging markets. On a positive note, we are witnessing a favorable shift in the balance of our EBITDA contributions towards Europe, enhancing predictability, which should yield positive results.

Operator, Operator

The next question this morning comes from Akhil Dattani at JPMorgan.

Akhil Dattani, Analyst

I've got a question around Germany, just to unpack a bit of what you mentioned, Margherita, around the turnaround initiatives that you've taken so far, and how we see the fruits of that bearing into the numbers. You talked just to a lot of different things that you've done in Germany. But if we look at the moment and we strip out the MDU effect and the 1&1 impact, the German revenue trends are still declining 2% to 3%. So I'd love to understand what you think it takes in the timeline to see the underlying momentum starting to improve. And then, if we layer on to that, the scale effect of 1&1, how should we think about the H2 outlook for Germany for revenue and EBITDA?

Margherita Della Valle, CEO

I will maybe ask Luka to take the last part of your question on 1&1, and then, I'll talk to the actions that we are taking. We seem to have a mic to fix, apologies for the...

Luka Mucic, CFO

Okay. Sure. So first of all, in terms of our expectations for Germany overall, we certainly expect that Germany will continue to grow in the second half year. The wholesale support will obviously be a factor, in that I would also expect that towards the end of the year, our B2B performance will start to move upwards because we had very good success of contracting new digital services business that always takes a while to come into the numbers, but that should be helping also the year-end performance there. In terms of the impact that it has had, I really prefer always to talk about wholesale as a whole because in conjunction with the 1&1 win, so to say, we had also then a subsequent loss of another smaller MVNO, Lyca, which went the other way around. If you make the math out of those, the contribution of both in the quarter was just above EUR 80 million as a whole. And then, in the second half year, we would expect that the contribution from 1&1 will also be around EUR 100 million. In Q4, we are lapping then the loss of Lyca. So those are kind of the puts and takes to take into account in terms of wholesale momentum. Yes.

Margherita Della Valle, CEO

In terms of underlying performance, so if we exclude wholesale, Akhil, you are absolutely right, it's broadly stable. And if I look at the second half of the year, you shouldn't expect to see big step-ups quarter-on-quarter. But over time, the actions I was referring to in my introduction, which are all speaking to the long-term health of the business, will actually support our topline performance. It's a bit early to talk about '27, as Luka was mentioning before because, I mean, also in Germany, we will obviously have to see what the environment will be, both from a macro and from a competitive perspective. But whilst we should expect the headwind in TV to continue, and equally, we don't have full control of the dynamics in mobile, the topline will benefit from these actions. And let me maybe bring this to life a little bit. So first of all, we have talked about customer experience improving. With customer experience improving, we are seeing churn reducing. It's coming through in our numbers. Clearly, the customer experience is improving because of the investments in our networks, because the changes to our approach to customer service. Overall, net-net, the NPS is going up. We are continuing to beat record levels for us in fixed and stepping up in mobile. In some subsegments, we are now actually leading in the market. Clearly, there is more to do, but all this is playing in our numbers to churn. I talk to the work we are doing on ARPU and supporting value in the market. We're really focused there on all what is in our control, and this is going to, again, help us. In fixed, you will have seen, for example, us gradually moving up front book ARPU in the last 6 months. The last moves were only 3 weeks ago, and we are seeing the benefits of that in mobile. We have upselling. And finally, actually, Luka mentioned B2B. B2B is perhaps one of our biggest growth opportunities in Germany. We are investing in digital services. Again, you've heard the Skaylink acquisition. It's growing double digit. We see this as supporting growth going forward. So all this, as a package, is really the result of the actions we have taken supporting our long-term health of the business as we go into FY '27.

Operator, Operator

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

Carl Murdock-Smith, Analyst

That's great. I wanted to ask about the U.K. You touched in the presentation on making a fast start on integration. Can you provide a bit more color on your early actions and synergy delivery? And also comments on in what ways the commercial performance in Q2 and revenue has been a bit better than the decline you had suggested we could expect when you spoke at last quarter's results.

Margherita Della Valle, CEO

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

Luka Mucic, CFO

Yes, I'm happy to. Typically, CFOs prefer to avoid surprises, but in this instance, I will make an exception. We anticipated a combination of a slowdown at Three, which we discussed in our last earnings call, along with challenges within our own business prior to the merger due to B2B managed services terminations. This led to a cautious approach. Additionally, the team has been focused on integration tasks. However, I must say that the teams have been effective in implementing positive initiatives, such as rolling out our base management practices to Three, achieving early improvements in network quality through spectrum sharing, and increasingly activating MOCN, which positively impacts performance on the Three network. As a result, we've seen improving churn trends and strong consumer performance, particularly in home broadband, which experienced the largest net adds we've ever seen in Q2 in the U.K. We've also noted early successes in cross-selling, and FWA has been a very positive development for us. This combination has mitigated the decline in B2B legacy managed services more than we initially expected. Overall, I should mention that the current commercial performance is encouraging not just in consumer, but also in B2B, although it hasn't yet shifted the managed services trend for this year. Nonetheless, it's a positive sign moving forward.

Margherita Della Valle, CEO

I want to provide more insight into our actions and reiterate what Luka mentioned: the team is doing an excellent job. We are making unprecedented progress in merging the two companies in the U.K. We're only a few months into this process, and we've already integrated the third levels of our organization. Regarding our networks and operations, we discussed in Q1 the increased speeds for Three customers as a result of our combined spectrum usage. In Q2, our focus was on rolling out the multi-operator core network, enabling customers to use both networks seamlessly. You might remember our goal of upgrading 8,000 sites for MOCN by the end of the year. In fact, we will achieve that this week. This is significantly reducing the areas with poor service for our customers. We aim to cover an area ten times the size of London, and the improvements are already apparent. Opensignal has published a report confirming these positive changes. I'm looking forward to sharing more details in the upcoming quarters, along with customer feedback. Our pace is strong. Operationally, in addition to our networks and team integration, our multi-brand strategy is also coming together effectively. We now have a unified consumer team managing all our brands, which helps us meet various market needs consistently. As Luka noted, we have started cross-selling, enhancing our commercial momentum. We were the market leader in broadband growth, and we're now extending our broadband offers to the entire Three customer base and FWA offers to Vodafone customers. We are particularly excited about the revenue synergies we are seeing, which complement the GBP 700 million in cost and capital expenditure synergies included in our business case. The momentum in the U.K. is encouraging, and we expect this trend to continue.

Operator, Operator

The next question comes from Polo Tang at UBS.

Polo Tang, Analyst

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

Margherita Della Valle, CEO

Thank you, Polo. I'll address both sides of your questions, beginning with the draft Telco Act being discussed in Germany. This legislation includes various measures aimed at simplifying and speeding up the construction of high-speed networks in Germany, such as streamlining the permitting process. This is very positive for our fiber and 5G rollouts. The government seems to be taking the right approach in this regard. However, in the ongoing discussions, there are elements like the in-building wiring debate that we consider unnecessary, and we are sharing our real-world insights on fiber construction. It's evident that the bottleneck in fiber construction in Germany is not related to housing associations but is influenced by factors like construction capacity limits. As for now, these are just discussions with no concrete draft law to comment on. Even if all the discussions result in a law, the actual impact will likely be minimal, potentially accelerating the fiber rollout to housing associations and benefitting all market players, including OXG. It's uncertain whether these discussions will lead to a draft law and when that might happen. If it occurs in 2026, it's important to note that by that time, OXG will already be reaching millions of customers in housing associations. So, I don't view this as having a significant impact on any ongoing speculation. Looking at the broader picture, the discussions around the Telco Act and the copper switch-off appear to be progressing positively and should generally support the telecom sector. Regarding OXG's economics, the equity injections needed are minimal. As we mentioned when establishing the joint venture, the financing will largely be self-sustaining over time, making the equity requirements very small. Concerning wholesale costs and revenues, there has been analytical work to clarify this, but three important nuances are worth mentioning. Firstly, Vodafone cable customers are not obligated to migrate to fiber in OXG, so there's no requirement there. Secondly, 20% of the OXG area will be outside the cable zones. Lastly, household penetration in OXG will develop gradually over the rollout period of six years, continuing beyond that timeframe. This gradual growth leads to a different conclusion than some calculations we've seen, and our IR team can assist further in addressing this. Overall, we are pleased with OXG's progress. The initial 1.5 years were challenging for setup, but we've built out to 350,000 households, opened sales to 1 million households, connected the first customers, and established wholesale connections with 1&1 and a regional operator. Additionally, 3 million households have active construction orders, and we have over 30 construction partners working across numerous cities in Germany. We look forward to seeing these developments reflected in our results.

Luka Mucic, CFO

Just very quickly on the equity. So in 3 years, the equity contribution and injection was just above EUR 70 million. So it's really to underscore the point for Margherita, very, very small.

Operator, Operator

The next question this morning comes from Emmet Kelly at Morgan Stanley.

Emmet Kelly, Analyst

My question, yet again this quarter, is on Vodafone Turkey. On my numbers, it represents, I think, almost half of the organic EBITDA growth that we've seen since last year. I guess, most notable is the EBITDA margin uptick at your Turkish business. So could you talk a little bit about the topline trends you're seeing there and expect to see? And on your cost management program, if you could say a few words on that.

Luka Mucic, CFO

Türkiye has achieved remarkable success in recent years, particularly in terms of financial performance. Over the past two years, they have increased both EBITDA and cash flow to nearly EUR 300 million each, which is a significant improvement given the size of the business and is measured in hard currency. Although this growth has started to slow down due to decreasing inflation, it continues to outperform inflation significantly. In euros, service revenue grew in the mid-teens last quarter and was over 20% higher in hard currency for the first half of the year. This success is attributed to a unique set of capabilities. The team has been proactive and effective in managing costs amidst inflation. Türkiye boasts some of the best digital capabilities within the group, with a high share of digital sales and a flexible base management model that utilizes targeted micro-segment marketing to enhance upsell opportunities and customer transitions. They have developed a robust system around these digital capabilities, which we are also implementing in other markets, like the loyalty app known as the happy app. Their approach is not solely about cost-saving or riding the inflation wave; it is built on a well-established and effective management model. As we look ahead, we anticipate that inflationary trends will continue to diminish, which may affect growth; however, their competitive standing in the market has strengthened, and I believe the management team will maintain this momentum.

Margherita Della Valle, CEO

If I can just build on that, Emmet, for a second, looking at the group as a whole, we are extremely proud of Turkey, but I need to say, we're equally happy about all our countries. We regularly publish in our reports the service revenue growth ex-Turkey given the hyperinflation environment, and you have seen this growing to 3% in the quarter. And this is a reflection of the strength of the portfolio. We have Africa, of course, also growing strongly, double-digit EBITDA growth, which is in line with our upgraded guidance there. And then, overall, taking on the opportunities in the U.K. that we have just described, and the turnaround in Germany, where we have now turned the corner with the topline, but obviously are looking forward to the profitability improvement, all these taken in aggregate is, I would say, where we wanted to be through the group transformation. And it's the reason why you hear us talking about an outlook of midterm free cash flow growth. Yes, every part of the group is contributing.

Operator, Operator

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

Joshua Mills, Analyst

I wanted to come back to the U.K. market and focus on your FWA proposition in particular. So following the Three U.K. merger, you had a very strong spectrum position. You mentioned in your comments earlier that you're happy with how the FWA business is developing. Could you give us a bit more detail about the net adds on that business? And what your longer-term ambition with FWA might be? How you balance that against the desire to grow on the fixed broadband base as well? And just one short clarification, when you have your FWA customers, are they included in your broadband numbers or your mobile customer numbers?

Luka Mucic, CFO

Yes.

Margherita Della Valle, CEO

I'll cover everything at once. The net additions in mobile are primarily due to the supporting technology, and I believe it's 17,000 for the quarter. They have increased, but let's discuss how we view fixed wireless access (FWA) more broadly. It's a significant opportunity for us to leverage our overall advantages in the market. We have the largest fiber footprint available to our customers, reaching 22 million households, although fiber isn't yet available everywhere in the U.K. We will be offering FWA to the entire population, thanks to our current capabilities. We see this as a chance to serve areas until fiber is available and possibly to reach rural areas where fiber may never arrive. If fiber does expand, we prioritize bringing customers onto FWA and then transitioning them as time goes by. We truly view this as an opportunity within the market. As I mentioned earlier, it's accessible to everyone, regardless of whether they are with Three or former Three and Vodafone brands, and we anticipate this will support our growth.

Operator, Operator

Now to the next question from David Wright at Bank of America Merrill Lynch. David, we cannot currently hear you.

David Wright, Analyst

I apologize for the technical difficulties and the lack of video. I have a straightforward question for you, Luka. In the first half, the adjusted EBITDAaL for common functions was unexpectedly negative at minus EUR 14 million, especially since it has been consistently around EUR 22 million to EUR 23 million in recent halves. Can you provide some insight into this and how we should consider the full year number and projections for 2027? That's all from me.

Margherita Della Valle, CEO

It reminds me of the old days because when I was CFO that it was a recurring question, ultimately. It's actually quite structural. Maybe you want to go to that?

Luka Mucic, CFO

Yes. Exactly. So if I go back in the history, to Margherita's days, before I arrived, I think, historically, common functions EBITDA was actually always negative. And then, in the last 2 years, it turned positive as a result of some of the M&A activity that was going on, which created one-time effects. And last year, it was also helped through a quite sizable central provision release, and that is obviously creating headwinds in the year-over-year. But structurally, from a go-forward perspective, should actually expect common functions EBITDA to rather be negative than neutral to positive. And the reason for that is just simply that the help from kind of the M&A transition to also above the line EBITDA recognition essentially is dissipating.

Margherita Della Valle, CEO

Just to return to the reason for the structural negativity, it's quite straightforward. Our shared operations' costs are covered in the markets, but this is not true for what we refer to as corporate services. Specifically, the headquarters cost, including the IR team supporting the core, impacts the central EBITDA level, which represents a cost, but I wouldn’t characterize this as significant fluctuations.

David Wright, Analyst

Okay. Can I take that H1 number and just double it for the full year? Is that reasonable just to get a proxy?

Margherita Della Valle, CEO

Well, it's an area that, again, because we are talking about small numbers, can have variations. So I think we wouldn't be very specific at that level of detail, to be honest.

Operator, Operator

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

James Ratzer, Analyst

So we haven't yet had a question on the dividend, I think. So it would be great just to get a kind of updated kind of thinking on cash return for kind of next year and beyond. Because I think in the past, you've set out you had a kind of ambition to grow the dividend and to be progressive. You've now been more quantitative. But just for this year, I think, you've just set out the 2.5% for this year, but really kind of not beyond FY '26. I mean, it looks to me like leverage is going to end up right at the bottom end of your 2.25x to 2.75x guidance. So, going beyond FY '26, how are you then thinking about what progressive dividend could look like and potential scope for any share buybacks going into next year?

Margherita Della Valle, CEO

Sure, James. I need to address this one now since this will be Luka's last call. Let me give you a broader perspective on how we view returns. First, we've provided good visibility on one aspect, which is dividends. We're implementing a progressive dividend policy, meaning we anticipate growth year over year. The first year's growth is expected to be 2.5%. We've shared quite a bit of detail, and we'll need to evaluate this annually moving forward. The reason for a progressive dividend policy is that when we reshaped the group and adjusted the dividend according to the new structure, we made it clear from the beginning that our goal was to grow the dividend over time. This half year, we've completed the reshaping with the U.K., so now is the appropriate time. We have positive midterm free cash flow growth expectations, making it the right moment to realize this ambition. Regarding buybacks, this is also part of our strategy for returning value to shareholders. Out of the EUR 4 billion communicated during various transactions, we have already completed EUR 3 billion. Starting today, we will focus on delivering another EUR 1 billion over the next six months. Going forward, we will evaluate our position based on where the company stands and the market conditions at that time. We will assess this within the framework of our capital allocation policy, which is well understood. We will provide full visibility on dividend decisions and buybacks when the timing is appropriate.

Operator, Operator

The next question this morning comes from Paul Sidney at Berenberg.

Paul Sidney, Analyst

I just had a question around the Skaylink acquisition. We've seen a lot of excitement in the sector around data centers, AI, cloud services, cybersecurity, you name it, obviously, Deutsche Telekom, announcing a pretty high-profile partnership with NVIDIA to build a data center and Telecom Italia having a recent event, looking at their AI capabilities. So just a very broad question about is this really a material revenue driver for your business looking forward? And could we expect more similar acquisitions to Skaylink in some of your other geographies?

Margherita Della Valle, CEO

Sure. Paul, let me try and give you a bit of an overview on how I look at this. So first of all, digital services are now over 1/4 of our B2B revenues. So it starts to become quite material. And it's going really well. We continue to use the word double-digit. It's basically double-digit everywhere. It's double-digit in Germany. And overall, I think there is a lot of potential for us to grow in B2B in these domains. And that's why we have, even before the acquisition of Skaylink, continued to invest. I mean, 2 years ago, for those of you who remember, I was talking about, again, for the long-term health of the business, stepping up the investment in B2B in these areas, and it's all been about building capabilities to essentially respond to the demand of our customers. Now, in terms of all the points that you have raised, I think it's really important for us to assess where there is demand, where this demand is best served by Vodafone as opposed to other areas, and where there are also good returns. We certainly see big opportunities to continue to grow on IoT. We could go on and talk for hours about IoT. We see equally very good growth for us already today in cloud, where Skaylink operates. Cloud is a big contributor to our double-digit growth, and also, security with cyber in mind. We also think that our, I would say, most biggest opportunity segment-wise are in the SME space on all these services, so middle-sized company. Why? Because these are the companies that are used to buy technology from Vodafone. We have been serving connectivity to them. We have strong partnership. They look at us to help them. In these days, for example, sovereign cloud is a super big topic of conversations. We are well placed to help them with that. The more you go in the value chain, especially in Europe towards things like gigafactories and other areas, I think you will see us sort of prioritizing in a very clear way because in some areas, the economics are still to be proven, the capacity utilization needs to be proven, and therefore, we are very rigorous in the way we go about the opportunity to serve the demands by starting to address the areas which really, for us, are low-hanging fruits. And to your question, yes, there will be more activity in this space in terms of building capabilities, and sometimes, this may continue to involve small bolt-on M&A.

Operator, Operator

We have time for one last question this morning to allow all participants to observe the 2-minute silence at 11:00 a.m. for Remembrance Day here in the U.K. This last question comes from Robert Grindle at Deutsche Numis.

Robert Grindle, Analyst

Great to see your stock get its mojo back. I hope that translates to Italy and Germany, especially before Luka moves on. Margherita, the footprints reshaped, you've merged the U.K., not to mention all the operational stuff. This was a large entrée. So what do you look forward to spending more time on with your new CFO colleague? We have the capital allocation question. You addressed that. More capabilities in digital seem to be underway. Do you see any footprint infill need? Any more consolidation opportunity? And conversely, do you see that the Vodafone balance sheet needs further simplification?

Margherita Della Valle, CEO

We are very pleased to have completed the building phase after the last couple of years, positioning ourselves strongly with reputable brands in all our markets. These markets have a sustainable structure, which serves as the foundation for good growth. Looking ahead, there is much more to achieve, but we won't be making headlines through mergers and acquisitions. Our focus will be on executing our transformation. To maximize our growth opportunities in Germany, the U.K., and Africa, we need disciplined execution and a focus on operational excellence. Our priorities remain unchanged, and the need for customer simplicity and growth is still paramount. While we have made significant improvements in customer experience, leading in 11 out of 15 markets isn't sufficient, so my top priority will be to drive further improvement. We have made progress in simplifying the group, including the reduction of roles as part of our strategy, but there is still more to be done to enhance our simplicity. One of the slides in our presentation highlights our focus on AI to help us become faster and more agile. Additionally, the B2B sector presents a great opportunity for us, given our strong competitive position and the trust we have built with businesses and governments across Europe and Africa. There is high demand for our services in all areas where we operate, so our goal now is to accelerate growth in the coming years, which is within our control.

Luka Mucic, CFO

Thank you.

Margherita Della Valle, CEO

Thank you. We're on time.

Operator, Operator

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

Margherita Della Valle, CEO

I want to take a moment to thank Luka for his support during this call. I appreciate your time today and I look forward to seeing everyone in the upcoming quarters. Thank you.