Earnings call transcript Q4 2021, Vodafone Group PLC

Good morning and welcome to our results presentation. You’ll see on our website that you have the full detailed presentation, and now we will go into Q&A. But before we do, I just thought I’d just take a couple of minutes to just go through the key highlights.

I’m pleased with our resilient performance in FY’21 despite a very challenging period for everyone. We met all of our guidance, generated EUR5 billion of free cash flow pre-spectrum and confirmed a stable dividend of EUR0.09. We delivered 10 consecutive quarters of lower churn and added over 1.4 million NGN fixed broadband customers this year, exiting this year with growth. We’ll also continue to drive efficiencies and achieved our EUR1.2 billion net opex savings target we established three years ago. And we’re ahead of our plan on integrating Liberty assets and have successfully IPOed Vantage Towers.

So, I would say, a strong delivery across our strategic priorities. But the world has changed around us in many, many ways positive, negatively. But for us, I think this is a really unique moment in time. The pandemic has effectively accelerated digitalization by five years. And in addition to that, you have the EU recovery funds that are going directly to digital, further accelerating these trends. I feel the hard work and the focus that we’ve had as a management team over the last three years has really positioned us to grab that opportunity and advance to the next phase of our strategy to ensure that we capture that demand and our focus is being a new generation connectivity and digital services provider.

Now, today for the first time, we’ve provided mid-term ambition targets with a clear strategic focus on growth. So that’s growth in service revenue, importantly, in Europe, as well as Africa, growth in EBITDA and free cash flow and growth in return in capital, ultimately above WACC over the medium-term. We have a window of opportunity to deliver this growth and we’re choosing to invest more. Whilst our incremental investment in 5G will continue to be funded through internal efficiencies, we do plan to step up investment in high-return opportunities, particularly Vodafone Business and Vantage Towers. Underpinning all of this is a firm commitment to our dividend.

And with that, Margherita in Vodafone red colors and myself will take your questions.

Questions and Answers:
Operator
Thank you, Nick. Our first question comes from Jakob Bluestone at Credit Suisse. Jakob, your line is now open. Please go ahead.

Jakob Bluestone — Credit Suisse — Analyst
Great. Thanks for taking the question. Maybe if I just pick up on that final point around capex and investments, I guess, the capex is the main reason today that the free cash flow guidance is a bit below consensus. I think if we include the Vantage growth investments, your capex would be around 5% above consensus for FY’22. I was hoping you could maybe just expand a little bit on the capex, where is it going if we look at FY’21, in particular, you had a sort of quarter increase in network coverage and capacity? Does that where the money is going? And if you can sort of explain a bit what is it that gives you the confidence that this will drive top line growth? And is this the peak of capex or will you see it continuing to rise from here? Thank you.

Nick Read — Chief Executive
Well, Jakob, maybe Margherita you want to go through where we invest in the capex and then maybe I’ll return to the important subject of growth?

Margherita Della Valle — Chief Financial Officer
Sure. Jakob, I will, for simplicity, breach the capex between the pre-pandemic world, so FY’20, and where we are planning to grow post-pandemic and you’ve seen in my presentation slide that was effectively doing the bridge to FY’22. So, if you look at the increase between pre-pandemic and post-pandemic, the capex are going essentially into two different areas. The first one, which you mentioned is network performance, its connectivity. We have seen our customers’ behavior is changing significantly this year. And it’s a change that we now see a structural in a number of areas. I mentioned earlier in the presentation that fixed traffic is growing at a rate which is 50% higher today than it was before. So, we are spending more to service our network performance, which in turn will support our commercial momentum at a point in time in which customers have never been as focused, I would say, on quality as they are today.

And if you look at the increase in capex, I would say, about a third goes into this network performance investment, the remaining two-thirds are going into new growth areas. The first third is going to be focused on digital platforms and services because we believe we have some really strong business cases to grow in those areas, and as Nick mentioned, with the support of the European recovery fund in the background, mostly cities [Phonetic] areas such as Vodafone Business, where Vinod explained in the Capital Market Day that we have recently what type of opportunities that we believe we have.

The second growth area, so the final third of the spend is going into Vantage growth capex. And again, another area that, as business, is going to give us returns in excess of our cost of capital, and therefore, support our target to deliver returns above WACC in the mid-term.

You also asked, where are you spending in the networks? Is it capacity? You have seen a step-up in FY’21? As we move into FY’22 the capacity investment will go back down, but also we will have an acceleration of the 5G investment that will sort of compensate for that. So that’s why also in the mid-term I see this third additional capex going to network performance.

Nick Read — Chief Executive
And maybe just building on the growth and sort of confidence in growth. I think it’s really important to understand, we are exiting in growth and actually excluding roaming quarter four is at 1.7% growth rate, which, of course, will come through as we move into quarter one and start lapping the roaming impact. So, we have momentum. We are growing. This is not capex to create growth. It’s capex to accelerate our growth profile. And I look at it in three ways. First of all, Vodafone Business is up 30% of the Group. Vodafone Business, excluding roaming, growing at, let’s call it, around 2% and accelerating. I really think Vinod highlighted that we have a very unique position. It’s really important to understand that there is only two players in the business segment in each of the market, us and the incumbent, and we are taking market share. And we’re taking market share, because we have unique scale. We have unique scale in terms of footprint, in terms of platform, in terms of strategic partnerships. We address all of the segments from public, corporate, SME, SoHo. And now you’re going to get the EU recovery funds been very targeted into SME digitalization and we are the SME champion. So I think that is a natural growth area, plus public investments into e-government initiatives, smart cities and various others, eHealth, and therefore, we can also play a significant role in that.

Then you go into what is just over 50%, which is European consumer, we see that moving into growth. We see it moving into growth because we have effective second brand strategy in the value-tier, in the main mid- to high-end with the Vodafone brands. We’re taking fixed share. We’re driving unlimited and driving convergence, adding digital services on top. We’re also looking to the UK change, which has moved toward CPI, RPI model and we are taking that model and putting that condition into our contracts through Europe to provide us optionality to move toward a more investment-led pricing model going forward.

And then I take the last, let’s call it, just over 15%, which is emerging consumer and here, we are obviously going through a path of upgrading from 2G, 3G, 4G penetration that moves ARPUs up through higher usage of data and, of course, we’ve got financial services, which is already over 10% of — well, digital services and financial services combined over 10% the service revenue of our emerging markets and growing in double digits, which we see as a really differentiated position versus other players in the market and then, of course, you’ve got roaming, which we lap, and then we’ll start to contribute to growth. And I see that contributing over next two to three years. And then, finally, wholesale deals like in Italy that we’ve managed to secure. So, we have many drivers of that top line growth that it gives us confidence.

Jakob Bluestone — Credit Suisse — Analyst
Thank you.

Operator
Thank you, Jakob. Our next question comes from David Wright from Bank of America Merrill Lynch. David, please go ahead. Your line is now open.

David Wright — Bank of America Merrill Lynch — Analyst
Thank you very much guys for taking the call. I might just have to follow a little on Jakob there. So if we think about those moving parts, the Vantage growth capex on the BTS is obviously there is a home [Phonetic] to that you’ve got the build of the towers, maybe sort of coming through full year 2024 — full year 2023, 2024, but then that should slow. I guess, the question is then whether the digital services and platforms investment is a little more accelerated upfront. Ultimately, the answer I’m trying to find is whether this kind of EUR8 billion capex that seems to be broadly baked into the mid-term guidance is now the levels you want forward or whether there is a little bit of upfront investment in that that we could see that capex level sort of dipping beyond there.

And, I guess, just the obvious follow on your comment on the fixed line capex that then is surely quite focused in Spain and I’m still struggling to understand how Spain looks like it’s going to meet your return on capital framework. And obviously, any comments on what may or may not happened with MASMOVIL would be super interesting. So thank you.

Nick Read — Chief Executive
Well, maybe I’ll cover the latter Spain point and you want to cover the home [Phonetic]?

Margherita Della Valle — Chief Financial Officer
Sure. In terms of capital intensity, now we see this unfolding over time. As you have seen, we have been very specific on the expectation as you mentioned for FY’22. As we look to the mid-term, we have been giving you two important reference points. Our expectation of EBITDA growth mid-single-digit and free cash flow growth, also mid-single-digit. We have not guided to a specific mid-term number of capital intensity or capex as such because we think it’s important to retain a degree of flexibility in this equation. And this is very much linked to the part of the capex that we are investing into growth, growth capex for Vantage, which, of course, will be lumpy by nature and also, the growth opportunities in the digital services, which in turn will depend on our business cases.

But if you want to sort of work out a little bit the financial equation in all this, if you look at the midpoint of mid-single-digit EBITDA growth and you bridge it to the free cash flow growth, you will realize that once you take into account tax, of course, as EBITDA grow it will be tax and then also the gradual unwind of the working capital support that we have had in the year just gone, you will realize that actually the variability is quite limited.

I think you also asked whether we expect then capex to decrease after the ambition period of the mid-term, and I think this gets us a long way away, I would say, so maybe what we can call out today is, yes, there could be scenarios going in this direction, I would say, mainly for two reasons. One is, again, the business cases of the growth. I mean, we will invest for as long as we see the significant opportunity. And as Nick mentioned, I think this is a really important point in time for that. So, we will have to see in the long-term what happens. And also, in terms of technology cycles, I suppose at some point we will move over the 5G cycle and we will need to see what’s the next technology there. But again, it’s a bit of a long way away, and I think it’s worth noting that we have been, for the first time, detailing quite clearly what our overall mid-term ambition is, and I think this gives you some pretty clear goalposts overall.

Nick Read — Chief Executive=
Just maybe David just turning into Spain. I mean, look, I’m not going to engage in a narrative around market speculation. I don’t think you would expect us to. What I would say is that, we have made it very clear that we are always open to market consolidation, that adds value for our shareholders and we are — we actively engage with players throughout the whole of Europe and our markets.

What I would say is that, obviously, MASMOVIL has gone for a, let’s say, very logical, very safe option in terms of consolidation with another value player. I see that having moderate impacts on the marketplace. I think for us, personally, we are very much focused on our organic strategy. And to your point about market WACC in Spain, we worked very hard with the team in terms of what was going through the local plan. And what I would say is, it’s a number of elements. First of all, we will be accelerating Vodafone Business. We see it as a huge opportunity with the EU recovery funds, actually, Spain will be received in the largest amount of EU recovery funds. You see that in one of the charts in the presentation. And that plays very much squarely into our advantages as a Company. I would say, we’ve got a very effective dual brand strategy in consumer, Lowi has been very effective at the low-end and what we’ve done at the higher end with the Vodafone brand is really drive unlimited into the base and in commitment into the base and convergence. So, I mean, we have a very resilient position. I think that’s showing in our commercial performance.

I’d say, the other added extras that we’ve been working on is engagement with government. I went to see the President, the Economy Minister, very good meeting. They really understand the criticality and importance of our sector and our business. And they’ve been very proactive in terms of coming up with initiatives, you will have heard discussions around extending spectrum from 20 years to 40 years, also some tax concessions to support the sector. So, I think there is a really positive moves to improve returns and that was my point to the President. We need to improve returns for the sector. You need our services to be competitive as a country.

And then finally, what I’d say is, network sharing, we’ve yet to see the benefits of network sharing. We continue to look at ways we can share more and accelerate digital capabilities, so that we drive more efficiencies in channel mix and various other things.

Margherita Della Valle — Chief Financial Officer
Just maybe, David, coming back to a point you made just to reposition. You said, we may invest significantly more into Spain on the back of this additional envelope. And I think it’s important to point out, that’s not the case. Our capital allocation is clearly a process, very much driven forensically by returns and the majority of the additional investment is essentially going to two areas, one is, Germany, as it should, of course. And then the other for platforms and, of course, for Vantage is central activities. You will have seen that we have recently changed our operating model in technologies to have a single team driving Europe technology and we want to make sure that this new development, these new investments are down once for the benefits of all the markets. So, just wanted to point out, it’s really Germany and central development.

David Wright — Bank of America Merrill Lynch — Analyst
That’s super clear. Maybe just one follow on just on the return on capital profile of Spain. I mean, you’ve kind of been lagging sort of two, three years since you really made ROCE a kind of a core hurdle for these regions. Do you think Spain is a cost of capital plus business on a two-year view if you’re kind of putting a five-year envelope around this kind of return on capital ambition? Is Spain there or do you need to — does it need some kind of additional restructuring you think to make the grade?

Nick Read — Chief Executive
I think it needs three things, it needed, first of all, digital acceleration. We’re going to get that post-pandemic. So, we’ve revised our plans in terms of the pace at which we’re moving on digital. It needed network sharing and deeper sharing and we’re engaged on that. And the third, it needed a little bit more support from the government and funding and we’re getting both of those things. So what I’d say is, we’re tracking well for the blend [Phonetic].

David Wright — Bank of America Merrill Lynch — Analyst
Very good. Thank you.

Operator
Thank you very much, David. Our next question comes from James Ratzer at New Street. Sorry, James. There you go. Your line is now open.

James Ratzer — New Street Research — Analyst
Great. Yeah, thank you. Good morning, Nick. Good morning, Margherita. So I had two questions, please. The first one was just regarding your medium-term growth ambition mid-single digits and tying that in with the accelerated investment you’re making at the moment. I mean, I think your guidance for this year would imply around 3% to 5% organic EBITDA growth. So to hit mid-single-digit growth and tying in with incremental investment you’re making, is it fair to assume you’re baking in EBITDA growth beyond FY’22 going above 5% to start seeing the return from these new investments that you’re making?

And then secondly, just on a point of detail around the Vantage growth capex for this year that you’re taking out of the free cash flow guidance. I mean, I’m thinking that should be around EUR200 million. Could you just give us some steer if you think that’s a sensible number for this year? And could you explain to us what’s the logic for taking out the build-to-suit capex out of the free cash flow guidance, given Vantage, I think, is doing all of its build-to-suit for Vodafone? I would thought you’d have been making that investment anyway whether Vantage of being an independent company or not. So just keen to understand the logic for stripping that out of the official free cash flow guidance? Thank you.

Nick Read — Chief Executive
James, I’ll let Margherita handle your three-part question.

Margherita Della Valle — Chief Financial Officer
Sure. If we start from maybe the last question. And actually, thank you for asking about this today because I think it’s an important point. It’s a change of perimeter on our free cash flow guidance. So it’s helpful that we have a full discussion. First of all, the reason why we are doing this is because, clearly, we now have a tower company in our mix. And we need to adopt the standards of the sector of the tower companies, because the growth capex are by nature lumpy in the towers world and we can have new opportunities of build-to-suits or ground lease buyout programs. Clearly, this will vary over time. And in that sense it is appropriate to give a guidance before this variability.

Now, I’m specifying guidance or ambition in this case before Vantage growth capex because, clearly, as we will publish our results in actuals you will always find our free cash flow net of everything to the bottom line. So, clearly, full transparency there. But we want the flexibility for Vantage Towers to invest when the good business cases come up essentially.

You also asked about why do you include build-to-suit in the growth capital, given it’s mostly dedicated to Vodafone? Again, following industry practice, what is in and what isn’t in the growth capex? First of all, what is not, is the ongoing maintenance capex of Vantage, expects those to be fully embedded in our guidance and in our targets. What is out is, again, it’s project activities and typically it’s build-to-suit and ground lease buyout and lease renegotiation CDs, are the sort of three big buckets. And if you think about it, as I think I already mentioned previously, when Vantage will make its investment choices, it will prioritize areas where Vodafone would have behaved differently. I think it’s perfectly clear when we talk about ground lease buyouts, we would never have prioritized this in our capex envelope.

But also when you think about coverage investments and the build that Vantage is now doing for Vodafone, in the pre-Vantage world, we would have chosen a different type of mix on delivery of the coverage expansion, which would not be just build new stats but would also, of course, include, and I think you have seen us doing that include third-party sites and leases. So, a very different approach now that Vantage is there. And I think you will also see it when you look at FY’21 where Vantage started operating but still didn’t accelerate and the growth capex similar definition were effectively in material in FY’21 but we see this as clearly positive and we want to Vantage to invest because it allows us to take a greater share of industry value going forward. So, we want to take that opportunity.

And I think you said what number should we expect, here, may be two reference points. At the Capital Market Day, Vinod, I think showed a very clear slide on the plans that he was foreseeing on build-to-suit, GLBO and the like. And I think if you take the numbers in that slide in aggregate, you come to a conclusion of around EUR300 million per year of run rate. Please keep in mind that on top of that, we have given Vantage the ability to, within its leverage, have another EUR1 billion of additional investment box that can be either dedicated to inorganic, so M&A, but equally could go, if the right opportunities come up, for build-to-suits for many other operators to go toward organic. Of course, this will be phased over time.

Going back to your previous question then, I think it was around how do we read the mid-term, mid-single-digit EBITDA phasing? On the first year where we have the traditional guidance, actually, the growth rates are slightly higher than the one you mentioned. The lower end of the range is 3%. The higher end of the range is above 5%, is around 5.5% if you work out the math. So, I would say, we are getting clearly into the trajectory. How you read the trajectories? We’re not giving annual guidance with this mid-term ambition. We are rather setting, if you want the view, you should have — if you come to mid-term and you look back and you look back at what has been the average over the years and there will be some years, which will be a little bit higher, some years may be a little bit lower. I think we have already given quite a lot of visibility in these numbers around how we see the trajectory unfolding.

James Ratzer — New Street Research — Analyst
I think versus [Phonetic] given new investments you’re making you’d have, I mean, high levels of confidence we could hopefully get up toward the higher end of that range over the medium-term.

Margherita Della Valle — Chief Financial Officer
I think actually, you’re right. I wasn’t sort of completing your question. I think in terms of phasing, you were right, when you were explaining how you imagine in terms of sequence, in the sense that, we are growing to invest to grow in a way in our plan. So we have high confidence on the short-term growth because it’s happening now on the back of the execution of the strategy, and we will use some of this growth to invest as we have just described and in turn these investments will drive further growth, which, of course, will come in two, three years’ time depending on the type of business cases.

James Ratzer — New Street Research — Analyst
That’s clear. Thank you very much.

Operator
Thank you, James. Our next question comes from Sam McHugh from Exane. Sam, your line is open. Please go ahead.

Sam McHugh — Exane — Analyst
Great, thanks. Two questions, sorry. One is very short, just on tax. I don’t know if you are planning to make use of these goodwill amortization schemes in Italy. And whether what you’re assuming for cash tax in FY’22 and then maybe next year as well?

And then secondly just big picture on Vantage. Now the IPO has done, I think investors generally don’t like free cash flow definitions ex this and ex that, and people are a bit skeptical about looking through the growth capex. How do you feel about being the majority owner still of Vantage? It does feel like deconsolidating it could be more leverage, you wouldn’t have to recognize the growth capex. Has your views changed at all in the last six months around that? Thanks very much.

Margherita Della Valle — Chief Financial Officer
Can I take the tax first?

Nick Read — Chief Executive
Yeah. And then I’ll take the…

Margherita Della Valle — Chief Financial Officer
So in terms of Italy, yes, there is an opportunity to effectively for tax reason restart depreciations of assets which have been fully amortized already and we are looking into it. The only thing I would say at this stage is, in the context of the Group tax bill, don’t see these as very material as an opportunity. I think the best way to look at our capex projection — sorry, tax projections is, start from this year you have seen EUR1 billion of cash tax in our free cash flow and see these as growing over time together with our EBITDA growth. We’ve been quite specific in the press release in terms of our expectation on effective tax rates and we see these in the sort of high-20s going forward. So, I think you can easily do the math from there.

Nick Read — Chief Executive
Vantage Towers, I think it’s a short answer really. Look, whether it’s control or co-control like we have down in Italy, what we’ve done in Spain, we see the Towers and Vantage Towers has been an important strategic asset for us, mainly because of two things. I would say, look, this is still a fairly immature market in terms of Towers, mainly owned by other operators. Of course, that will change over time. And then the second thing is, obviously, technology visibility past 5G. We would like a little bit clarity. Again, that’s a matter of time. So, what I would say is, look, we’re focused on ensuring. We don’t miss any growth opportunities for Vantage Towers. We’re firmly behind them. I don’t think we’re constraining at all. And therefore, I think we have the right balance.

Margherita Della Valle — Chief Financial Officer
And it’s because we see the opportunity of these business cases which all deliver good returns that we are doing what we are doing in terms of obviously guidance and mid-term ambition.

Sam McHugh — Exane — Analyst
That’s very clear. Thank you, guys.

Operator
Thank you, Sam. Our next question comes from Robert Grindle at Deutsche Bank. Robert, please go ahead. Your line is open.

Robert Grindle — Deutsche Bank — Analyst
Thank you. Good morning, both. In your presentation, Nick mentioned shareholder returns are key focus on your next strategy phase. Are you thinking about the bottom of your leverage range as to be when to start talking about raising the dividend?

And second question is, Airtel Mobile Commerce did an interesting deal with Mastercard, which put a big value on their African payments business. Could you look at doing something similar with M-Pesa? Thank you.

Nick Read — Chief Executive
You cover the first and I’ll cover the latter.

Margherita Della Valle — Chief Financial Officer
Sorry, I take the first.

Nick Read — Chief Executive
Yes.

Margherita Della Valle — Chief Financial Officer
Yes. In terms of relationship between leverage and dividends, I will look first at the near-term and in the near-term, you will see us very focused on deleveraging. As you know, it’s one of our three capital allocation priorities. And the ambition we have illustrated today is supporting this evolution through growth. You have seen us maintaining leverage stable at 2.8 times net debt-to-EBITDA in FY’21. Clearly, we have had the COVID drag and the currency drag from COVID affecting our EBITDA. But we have been able to maintain the leverage ratio stable. And looking forward, we see opportunities to leverage through growth as we deliver on the mid-single-digit EBITDA growth ambition. This will be the near-term priority in terms of dividend distribution. So you should expect it as EUR0.09 in the near-term. As we move beyond this phase, and to your point, we progress on the deleveraging, then, of course, we will reconsider our dividend distribution again in the context of our capital allocation priorities, invest in infrastructure, deleverage and deliver attractive returns to shareholders.

Nick Read — Chief Executive
Yeah. I think in terms of mobile money or fintech in Africa, I think you’re right to point out, it’s a huge opportunity. We believe in this vinyl [Phonetic], a good 10-plus years and we are a clear number one in the African market. We have a base, if you could include all of our markets on mobile money of over 60 million active customers. So we’re about three times the size of Airtel. What I would say is that, we are absolutely focusing on investment in the platform. So that’s the M-Pesa platform. But how the M-Pesa a platform evolves from what I would say is a feature phone world into a smartphone world, and what that’s going to involve is mini apps. So, a mini app would deal with, for instance, loans or insurance. So — and now it was how do we build additional financial services? And you’re going to see from Vodacom the launch of VodaPay, as a brand in South Africa, and ultimately, we want to evolve a super app strategy and I will leave Shameel to talk about that in a little bit more. So, it’s a priority — it was scaled priority investment unconstrained at the moment. We are separating those assets out into separate legal entities, because we think that the business will grow at a significant pace. But at this point in time, we are funding that expansion of the business. Clearly, there is intrinsic benefits between the fintech and the telecom business because things like distribution, churn, etc. But, look, let’s see how it evolves over the coming years. Super exciting space.

Robert Grindle — Deutsche Bank — Analyst
Thank you.

Operator
Thank you, Robert. Our next question comes from Carl Murdock-Smith at Berenberg. Carl, your line is open. Please go ahead.

Carl Murdock-Smith — Berenberg Bank — Analyst
Good morning. I just wanted to give you a bit more chance to talk again about the social contract, particularly with regards to the UK spectrum auction, which yielded a very good results, largely due to your decision that you were comfortable with three gaining sub gig, 1 gig spectrum. Can you talk through your approach to that auction and spectrum more broadly and the thought process that caused you to take your foot off the gas so early within the auction process? Thanks.

Nick Read — Chief Executive
Yeah. Carl, I would explain it, if you don’t mind slightly differently for that, that strategy because actually you have to back up what was nearly 18 months, two years of a process. Originally, when that auction was designed, it was going to be bundles of spectrum. So you were going to have the low band bundled with the higher band. So those 700 with the 3.5 and it would have come with coverage obligations. So for us, that was an artificial construct that would have driven up the auction pricing and the capital commitment for us and was not optimal for the industry. So what we did, we did actually show leadership here, we went to the rest of the industry and we said, look, really what we want is the bands to be auctioned separately, but we understand what the government want from a policy perspective, which is coverage. So why don’t we come together and offer proactively coverage. And if we offer the coverage what we’re asking in return was to separate the bands out and drop the coverage obligations against the bands. We engaged with Ofcom on that basis and the industry and everyone was supportive. And I think that’s what the perfect social contract is.

What you’re saying is, I understand, as a sector, you government your policies, but I think this is a way of achieving the goal in a more efficient way for the industry and allowing us to optimize and improve our returns. And so, as a result of that, they were de-aggregated, we could bid on individual bands. We already had a lots of low band between 800 and 900. We didn’t need the 700. If it being combined together, we would have had to a bid for the 700, which would have been suboptimum. So really what we did was we optimized our ability to go into auction and get exactly what we wanted. So now we have the second largest spectrum holding in the country, both the high and low band, we’ll launch 5G on 900 very effectively and at the same time, they meant that the option didn’t get overheated. So I think that’s a really good outcome.

I could also say, Greece has been a really great outcome. Netherlands has been a good outcome. Hungary has been a good, there’s only one country this year that I’ve been unhappy with and that’s Portugal. Round 515 or whatever it is, of course, it’s still about half of the European benchmark on pricing. But frankly, I have not been happy with the construct. I’ve expressed that before, but generally every other European country is heading in a good direction and it’s conversation with the industry.

Carl Murdock-Smith — Berenberg Bank — Analyst
That’s great. Thank you.

Operator
Thank you very much, Carl. Our next question comes from Nick Delfas at Redburn. Nick, please go ahead. Your line is now open.

Nicholas Delfas — Redburn Partners — Analyst
Thanks very much. Two questions, please. The first one is on net promoter scores and customer engagement. So, you haven’t been publishing those recently and obviously the KPIs in Q4 were a little bit on the weak side. So, could you talk to us a little bit about how you’re seeing customers and there, how they look at the Vodafone brands?

And the second question I had was thinking about other ways you spend capex, what about out of areas spending in Germany to extend your network into new areas? Is that something you’ve been thinking about or something you might do with a partner? Thanks very much.

Nick Read — Chief Executive
Yeah. Thanks, Nick. What I would say is, in terms of NPS, actually, what we are increasingly doing is, NPS has got lot more sophisticated now, there’s relationship NPS, the large corporates. We’re doing journey NPS, which I’m really excited about. So, NPS can be a sort of moment in time or a point in time questionnaire, where it’s now journey NPS is measuring, ends when journey of a customer. So, I would say, the reason why we don’t report because we have lots of definitions that we’re trying to target different outcomes. If I was aggregating a picture what I would say is, Vodafone Business NPS really good performance, strong across the board. I think people have really seen us really help in the pandemic. We were proactive, supportive and available with great products. So, really good. I’d say our second brand NPS is a really competing very strongly across the board. The Vodafone NPS for consumer, I’d say, steps up on the pandemic has been a bit flattish over the rest of the year. Obviously, we continue to work. I wouldn’t say it’s either positive or negative. I’d just say it was in a solid position.

If I stand back — so I would say the one thing I would point to is, we are also doing now reputational indexes to understand how the wider stakeholder community view Vodafone and that has positively lifted throughout the year because of the way we dealt with the crisis and the way we’ve lend into social contract with society. So, I would say, positive trajectory on the brand and, of course, we did together, we can, I think you see it here. I think, again, resonated well tonality-wise with the mood of people.

I’d say, in terms of Germany and capex, we are looking off footprint at various opportunities whether that, as I said before, consortiums is something that we look at across the board generally. Can we join consortiums that are doing fiber builds? Obviously that can either be as a strong anchor customer or it can be as an investor, and we are very open to those different models and we are having various discussions.

Nicholas Delfas — Redburn Partners — Analyst
Okay. Thanks very much indeed.

Operator
Thank you, Nick. Our next question comes from Georgios at Citigroup. Georgios, your line is now open.

Georgios Ierodiaconou — Citigroup — Analyst
Yes. Good morning and thank you for taking my question. It’s on Germany. And there are lot of developments in the market with some changes in cross-country [Indecipherable] and also ramping up of fiber deployment. So, my question has two parts, the first one is, there will be some headwinds from these changes. So, if you can talk us through what other things and action you are taking to offset those in the coming years? And then the second element is, you’re probably the — you’re the only player that support an infrastructure owner and occasionally reseller of Deutsche Telekom’s fiber. So I’d be interested to get your views about the commitment model that Deutsche Telekom has put forward? And whether you believe it balances the protections to infrastructure ownership in the way the wholesale rates are designed? Thank you.

Nick Read — Chief Executive
Maybe you want to deal with the second part. I just standing back in terms of the actions we’re taking, I mean, clearly, the priority for us was always to turbocharge our network. So we are now got gigabit networks to 22 million households, over 90% of our footprint. It’s really important to understand that is fiber, it’s like a hybrid fiber network, it’s getting closer and closer in terms of fiber build as we do note split in within the network. So, I’d say, increase in performance. We’ve also got a development roadmap. The next step for us is high split DOCSIS 3.1. High split delivers a 1 gig up speed — upload speed, 3 gig down. So we have a good path to that. And, of course, then you got DOCSIS 4.0 after that. So, I’d say, we’ve got a really strong roadmap in terms of increasing speeds on what is already a very differentiated network. And as I said, to Nick’s question, outside our cable footprint, we’re open to consortiums, either as a customer, or as an investor to accelerate fiber builds. I’d say, on top of that, we’re also working on strengthening our TV proposition. You know we inherited Unity’s TV premium TV proposition, which was a bit weak. We’ve now harmonized our proposition. We’ve launched Apple TV. We’ve launched Vodafone TV. So, I think we’ve got a good roadmap for the rest of the year coming through in terms of what we can offer on the TV front. And, of course, we continue to offer a leading mobile. So when you bring it all together, I think, again, great rational market, best economy in Europe, increasingly government funding and support in the industry and we have a really differentiated business.

Margherita Della Valle — Chief Financial Officer
On the contingent model, Georgios, I wouldn’t say this is a particularly — a particular area of focus. I think it’s the model we are familiar with and which was fully expected from a wholesale perspective. Clearly, our focus today is in penetrating our own infrastructure. We have added 1 percentage point of penetration of cable in the last year and we are eagerly waiting for the lockdown to ease in Germany to accelerate our growth there. As you know, we had put in place a number of measures, specifically in terms of integration of the Unitymedia footprint, as we couldn’t see the impact of because of the lockdown. But we look forward to an acceleration in penetration together with something I’m really happy about, which is the value we are getting. It’s not just about volume. It’s really about value. You may have noticed in our results today that our ARPU growth in cable in Germany at its [Phonetic] 4.5% in Q4, and this is really driven by our approach to drive the mix of value in terms of speed tiering. We have been very successful in doing so. We have half of the base already today which is at 250 megabit per second or above. And we have just hit actually 1 million customer on gigabit speed. And this is what — it’s the mix that is driving our ARPU. So the story for us of, I would say, fixed broadband in Germany is really penetration of our own infrastructure, with the best possible value mix.

Georgios Ierodiaconou — Citigroup — Analyst
Thank you.

Operator
Thank you, Georgios. The next question comes from Polo Tang at UBS. Polo, your line is open. Please go ahead.

Polo Tang — UBS — Analyst
Yeah, hi. Thanks for taking the question. I’ve actually got two quick ones. First one is, can you remind us what the key triggers are for your LTIP going forward? And have they been changed given that you’ve got new medium-term guidance?

The second question is, when you’re looking your portfolio, what are your latest thoughts on your 50% stake in VodafoneZiggo? And do you think you have sufficient scale in Ireland?

Nick Read — Chief Executive
Two fast answers to your to two fast questions. First of all, in terms of our LTIP, essentially it’s the same component, same construct, so cumulative free cash flow over the three-year period and TSR measure. So you won’t see any change in the construct or waiting.

I would say, secondly in terms of portfolio, look, VodafoneZiggo really good market, really good business. I think that their performance relative to others in the marketplace continues to do well. So, we’re really pleased. As they advance the upgraded their network, they are about 40% through DOCSIS 3.1 on the network, they’ll complete that by 2022. High convergence mix and importantly, a stable leverage and then bring in dividends, excess cash back to shareholders. So, look, we really love the business. We think it’s a good partnership with Liberty and a good financial model for us.

Polo Tang — UBS — Analyst
And Ireland?

Nick Read — Chief Executive
Great. Ireland?

Polo Tang — UBS — Analyst
Yeah. And then would you have sufficient scale in Ireland?

Nick Read — Chief Executive
We’re the number one operator in Ireland. So, on revenue market share, we’re number one. Of course, SIRO is something we’ve been building out on fixed and we have to look at whether we want to extend that. There is also wholesale opportunities on fixed as well, so we’re engaged with the various players. So, my view is, we’ve got real momentum. I mean, Ireland had a challenging period with second brands being launched into the market. We launched our second brands and immediately the response was pricing moved up on second brands, which is a healthy development, I would say.

Polo Tang — UBS — Analyst
Thanks.

Operator
Thank you, Polo. Our next question comes from Andrew Lee from Goldman Sachs. Andrew, please go ahead. Your line is open.

Andrew Lee — Goldman Sachs — Analyst
Yeah, hi. Morning. Good morning to you guys. I had two questions. The first, we’ve obviously got the capex outlook as a context. But you’re also guiding to revenue growth in Europe for the first time that certainly I can remember. I just wonder if you could talk a bit more about the opportunity from network investment-linked pricing with a note, maybe two or not to the inflation-linked pricing in the UK, and whether there is scope for that elsewhere.

And then the second question just had a bit of from certainly the investors have been around for a while today on capex is, I know that your — it’s basically about your outlook or confidence in your outlook on capex or visibility. I know there’s some success-based elements of the capex in your forecasts. But how much confidence can you give investors that covered you through the spring investment cycle that the risk of having to pay more capex to achieve the same growth outlook is limited? Thank you.

Nick Read — Chief Executive
Well, maybe I handle the first, and you handle the second. I think just on pricing, I think the important thing here is, it goes a little bit back to the social contract. We’re engaging with governments to say, look, you want to accelerate connectivity and high-speed connectivity in the country. You understand why it’s so critical given the pandemic and everything that went on that it’s core to the competitiveness of the country going forward. If you need that and you need more investment, like we’re trying to do, then we need the right policies and part of that is to say that we need to be able to charge appropriate pricing as an industry. So, this is really us taking a step, and I think the UK when the incumbent steps forward like they did in the UK to say, look, we want to invest but we need to earn the right returns that we cannot start have a conversation with policy makers and regulators to say this is a constructive way to move forward. And so, I think it’s landed well in the UK. I think customers have also appreciated it. They want high-quality connectivity and they understand now that pricing in our industry has been deflationary for so long. It is good pricing, you get a lot of value for money compared to any other industry. So I think it’s about the service that’s being provided now going forward.

And so, what we’ve said is, OK, given that why don’t we go through all of our contracts throughout the rest of Europe and put that provision in the contracts, which then provides us the optionality to go that route. Obviously, it depends on the competitive environment and responses. But we think that the industry really should reflect on this moment as an opportunity to go in this direction.

Margherita Della Valle — Chief Financial Officer
And on the capex point, let me say that this is really very, very different from spring. We are not talking about an exceptional program to establish the different positioning in terms of network leadership. We are very, very happy about our current position as one of the quality networks in Europe. The reason why we are investing more as I was saying in the beginning is to respond to the changes that we have seen in our environments and to take the opportunities that we have from that. You have heard me say that two-thirds of the extra spend is all about opportunities around business cases that deliver strong returns, and therefore, as such, clearly, we also have optionality. It’s again the equation of we grow, we invest part of this growth in order to accelerate future growth. So, we clearly have optionality around that and are firmly positioned around the capital allocation framework that we discussed already a year ago, which is invest in our infrastructure, delever and deliver attractive returns for shareholders. So, you will always see us taking the opportunities of growth as the option to accelerate growth. It’s very, very different set of circumstances.

Andrew Lee — Goldman Sachs — Analyst
Okay. Thank you.

Operator
Thank you, Andrew. The next question comes from Maurice Patrick from Barclays. Maurice, your line is open. Please go ahead.

Maurice Patrick — Barclays — Analyst
Yeah, hi, guys. And thanks for taking the question. It’s a question on just maximizing returns from your existing assets in Germany. When — if I’m not wrong, you have one of the lower in footprint market shares in cable in Europe in Germany. And looking at the numbers, it seems like operational momentum is slowing, such as, if you look at broadband net adds on cable ex migration at the [Phonetic] half in the last 12 months. I mean, Georgios talked a bit about improved momentum because of the IP migration. And maybe some thoughts in terms of why that sort of ex migration momentum is slowing? And does that impact your thoughts toward wholesale — and you got a wholesale deal with Telefonica, what is your attitude toward wholesale shipping? Thanks.

Nick Read — Chief Executive
Maurice, I think the simple answer is that, we’ve had a bit of an exceptional year with the pandemic and very exceptional lockdown situation and, of course, we are the challenger in the market and therefore, we need retail presence to keep the engine of growth going. So we’re very much looking for retail opening back up again in Germany and regaining the sort of momentum and numbers we were doing before. Clearly, lockdowns and shut retail favors incumbents as a more natural thing and I think you’ve seen that from other players in Germany as well.

I would say in terms of wholesale provision, we’ve just launched TAF [Phonetic], they have yet to really get going because of the lockdown. So, we look forward to them contributing. Clearly, this is always something that is open to us and clearly, we will always assess the opportunity.

Maurice Patrick — Barclays — Analyst
Great. Thank you.

Operator
Thank you, Maurice. Our final question today comes from Akhil Dattani from J.P. Morgan. Akhil, your line is open. Please go ahead.

Akhil Dattani — J.P. Morgan — Analyst
Yeah, hi. Good morning. Thanks for taking the question. Two, please from me as well. First is on return on capital, if you could maybe just disclose for us what the return on capital in the financial year just concluded was? And, I guess, the question more broadly to that is, given the construct of what you’re talking about which is meant what your [Phonetic] EBITDA growth versus spending a bit more on capex, how do we think about your ability to get return on capital above WACC, which is obviously ultimately what you’re guiding to? So if you could maybe talk us through those levers? And I’m sure there’s some P&L versus cash flow elements to that as well.

And then the second piece is just, you talked to Nick earlier about potentially being interested in buying stakes or partnerships with incumbents on infrastructure or even other partners. Can you just help us understand what the merits of that might be? Because in a lot of cases that doesn’t give you preferential wholesale term. So, it could create a lot of long-term value on infrastructure assets, but it wouldn’t necessarily change your wholesale economics. If you could maybe just talk to us a little bit about what the thought process is there [Phonetic]? What you might want to do those sorts of deals? That’s the interesting as well.

Nick Read — Chief Executive
Yeah. Akhil, maybe I’ll just cover the last one first and then you cover –. So, the reason why you would entertain them is, number one, these consultants, there’s a lots of conversations, but are they getting traction, are they getting build? We act as a huge brand to actually you get penetration behind these builds. So what it does is it gives confidence to investors to say this particular consortium is likely they’ll earn the right type of returns, since they’re likely to be successful. So that’s why I talk about an anchor tenant or a anchor customer. We don’t have to invest in this. If there is enough infra funds coming in and they just want us as an anchor customer to drive the penetration, we’re very happy to do that because we want penetration outside of their cable footprint, obviously, to get higher performance connectivity.

So I agree with you, if we can go that route, we will go that route. We did CityFibre on that basis as an example, in the UK. I’m just saying that there may be examples where people would like us to invest something. Yeah. And we would be happy to do that if it meant that a consortium got off the ground. So, I’d say, this is an anchor customer first and then potential to invest, if it got consortiums off the ground.

Margherita Della Valle — Chief Financial Officer
On return on capital, first of all, on actuals, the results we’ve published today have a pre-tax controlled return on capital of 5.5% and post-tax at 3.9%. So clearly, obviously still very much below cost of capital. In terms of dynamics in the last year, if I take the pre-tax control, we went down around 80 basis points, 6.3% to 5.5%. And essentially what does happen is, pandemic no growth in EBIT and therefore, changes of perimeter really affecting us. And this was the first 12 months in which we consolidated Liberty in full, as well as we moved some assets into INWIT, which is obviously not in the control perimeter. So that explains the trend.

Looking forward, our mid-term ambition has really been built around return on capital and the need and the possibility now to deliver return on capital above WACC. And we see really significant opportunities ahead of us. I think we see the opportunity of really material step changes in this year-on-year trend. I would say for four reasons. So, first of all, service revenue growth. Clearly, in Europe, as well as in Africa, accompanied number two by continued work on our digital transformation and cost efficiency. And you can see, clearly, from our mid-term ambition that we are talking about margin expansion on the back of that. So these are the first two points.

But then importantly third point is really this new investment profile. We are really, how can I say, obsessed internally in finding opportunities of business cases that give us a leg up in terms of returns. And this is where the two-thirds of new capex investment we are talking about are coming from. So really support from the capital allocation.

And finally, bit more technically maybe, we are also replacing in our financials the old 3G amortization with the new 5G license amortization and we will get a little bit of benefit from that. But really significant opportunity, plan built around returns and not just at total level, but as usual, you will hear us saying this a lot, also, at individual market level with a lot of focus by market and by initiatives to drive that. This is really our key objective.

Nick Read — Chief Executive

And on that, and I say thanks very much. Always thoughtful questions. Thank you for taking the time and invested in us to understand our direction as we’re really reinforcing that we are growing. We’re taking the opportunity on that growth to invest to grow faster. And I look forward, along with Margherita to seeing all our investors over the next couple of weeks. Take care. Bye.

Margherita Della Valle — Chief Financial Officer
Thank you.
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