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Vodafone Group Plc (NASDAQ:VOD)
H1 2022 Earnings Call
Nov 16, 2021, 5:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Nick Read -- Chief Executive

Good morning, and welcome to our H1 Financial Results; and I'm joined with Margherita. You will, of course, have the chance to read our results and see the videos on our website. If you've not had the chance, please do so, hope it gives you a very good detailed summary of how we're performing. We're going to go to Q&A, but maybe before we do, I just thought I would just cover really four key points. The first is the financial performance in the half demonstrates the sustainable growth engine that we're building at Vodafone.

Our results are in line with our expectations for the year and the medium-term financial ambition. Service revenue grew 2.8% in the first half. We had EBITDA growth of 6.5%. I think importantly, return on capital, which is very important to us, moved up 80 basis points to 6.3%, and that combination gave us confidence to move up guidance to the upper half of the range for EBITDA between EUR15.2 billion and EUR15.4 billion, and move up our adjusted free cash flow expectation to at least EUR5.3 billion.

Second, we're regaining commercial momentum across our European consumer business, obviously, in light of some of the negative pressure that we had, given the pandemic over the last 18 months. Importantly, we've seen gross ad performance reach about 90% of the pre-pandemic levels that we were experiencing before.

Third, we've delivered broad-based growth. We continue to make good progress on our strategic execution, but we're obviously always focused on a number of priorities and we single out three priorities, operational priorities that we're focused on. First is strengthening our commercial momentum in Germany. Secondly, accelerating our operational transformation in Spain. And third is positioning Vodafone Business to ensure that it really captures the maximum opportunity from the EU recovery funds. And then fourth and final point, we're committed to improve shareholder returns through ongoing at sustainable growth alongside targeted portfolio actions. I really think we've done a lot of heavy lifting over the last three years to structure Vodafone to capture value creation moving forward and we see a number of opportunities, both medium term but also near term in terms of our portfolio.

So on that, I will open up for Q&A. And I have to say, please can we have one question per analyst. I know you love to do these three-part questions, but we want to make sure we get through everyone. Thank you.

Questions and Answers:

Operator

Thank you very much, Nick. Our first question today comes from Polo Tang from UBS. Polo, please go ahead.

Polo Tang -- UBS Limited -- Analyst

Hi, thanks for taking question. I have one question. So, can you maybe just talk about the trajectory of service revenue growth into the second half. So, specifically, are there any headwinds or tailwinds to call out? And can you maybe talk about what you're seeing in terms of commercial trends and competitive dynamics for the different European markets? Thanks.

Margherita Della Valle -- Chief Financial Officer

One question but quite broad. I'll start on the trends. In terms of what we see for the coming quarters, I'd say probably a couple of more technical headwinds to keep in mind, in particular as we move into Q3, we are now lapping a price increase we did last year in November in Spain. And then as we get into Q4, we will have further MTR reductions. You know, we are on a new glide path from the EU. We had MTR reductions dragging this quarter. They will roughly double in Q4, but of course, as we're talking about MTR, these wont have any impact in terms of EBITDA and cash.

On the other end, a couple of tailwinds. We still have some benefits in Italy from the recent MVNO migrations into Q3. And then you have seen our commercial momentum reaccelerating. And that will also be the flow into the service revenue performance. Admittedly, these puts and takes are all relatively small if you think about it in the near term. As we move into the next financial years, it's important to talk about two aspects. In consumer, we should start to see some support from the new pricing models with that embedding into our European contracts. We discussed those CPI plus investment-linked pricing on one end. And then on business, as Nick was mentioning, we will start really the Europe -- to see really the European recovery fund coming soon in terms of support to business demand.

So generally speaking, I would say on the service revenue front we are well on track with our mid-term guidance of sustainable growth in Europe as well as in Africa. And then I focused on revenues because that was the angle of your question, but before moving maybe to the commercial plans into the markets, let me also reemphasize the points that nick was making earlier on the financial performance more broadly. We are also pleased to be already on track with the mid single-digit EBITDA growth and having had the chance to bring both our EBITDA margins and our return on capital today after six months ahead of where we were pre-pandemic. So, I would say good financial progression overall.

Nick Read -- Chief Executive

Yeah, Polo, maybe if I could just build, I mean, sort of stepping up a level rather than gain down into quarters. Why do I think Vodafone is uniquely placed to drive sustainable growth in the sector that frankly has been flat to declining? I already think we have a structural advantage and it really is in three elements. I mean, European consumer, and Margherita has touched on a number of these. We are the challenger in fixed and convergent. So, we see that as a growth engine for us. We also see that -- we got opportunities in wholesale and we're driving device life-cycle management, which I think will become more of a service going forward. How do you finance handsets and devices, insurance, etc.? We're really ramping up the science behind that.

And you will see in a little bit of that execution in the U.K. for us, and that's why we're doing so well with the iPhone, where we are having a disproportionate market share gain versus an actual share gain. And of course, the CPI. And I would say Vodafone business, 30% of our business. We have a really good digital services road map that's growing at double-digit growth rates and we have the EU recovery funds flowing into that, so we should see that as an accelerator. And then of course, Vodacom continues to do very strongly. We're obviously moved in Egypt into Vodacom as well, which is also strongly performing. And we have obviously financial services, which I really think is a standout opportunity within Africa. You've seen what we're doing with them, pays of VodaPay. I mean, financial services for Vodacom is growing over 20%. So, you've taken a number of these structural aspects that maybe are a little bit different from maybe some of our traditional competitors.

Polo Tang -- UBS Limited -- Analyst

Yeah, thank you.

Nick Read -- Chief Executive

And as results for that, we're taking market share in U.K. We're taking market share in Italy by holding in Spain, slight loss in Germany because of that, so the pandemic lockdown. Really good performance across Africa. Really good performance across other Europe. So we've got good momentum.

Polo Tang -- UBS Limited -- Analyst

Thanks.

Operator

Thank you very much, Polo. Our next question today comes from Akhil Dattani from J.P. Morgan. Akhil, please go ahead.

Akhil Dattani -- J.P. Morgan -- Analyst

Hi, good morning, Nick. Good morning, Margherita. I've got a question around Vantage Towers. You've outlined two key messages today. One is around eventually deconsolidating the business. So, I guess I'd love to understand the thoughts behind that? Is that about a view that the asset is not being fully reflected in your price or is it a bit more strategic? And the second piece to that is you've also talked about an industrial deal with co-control. Is it fair to say an industrial deal would be with another telecom? And I guess, there's only two major partners out there that are big enough to try co-control. And if you do a deal like that, is that about scale, is it synergies, or is it something else? If you could just elaborate on that, please? Thanks a lot.

Nick Read -- Chief Executive

Yeah, Akhil, what I would say is, I think we made a good early decision about separating our Towers and form involuntary sales ahead of the 5G cycle. So, the first priority is capture organic growth, they went out with the results, they are showing progress on that. We want to drive high utilization of our assets and there are already new tenancies and growing well. And I think there's further opportunities to come in that direction. I would say the second aspect is I really see bolt-on acquisition opportunities where the in-market to drive more synergies or whether that's new footprint, I really think that they have a good pipeline of opportunity ahead of them.

And then the third aspect for us is to say, well actually I think there's an opportunity to do an industrial merger as you say. I think an industrial merger has two aspects to it, well maybe three aspects I would say. First of all, yes, there are synergies to be heard with -- and they can vary depending on maybe who the partner is. I'd say second aspects are, it can widen out your foot print so that you're covering more territories, more opportunities going forward. And then the third thing for me is the deconsolidation because though we're not holding back Vantage Towers at all, you've got one a couple more years. I think that -- we would not want any balance sheet constraint for Vantage Towers and it can optimize its capital structure once they consolidated and we would want co-control with a likeminded industrial player.

You highlight two players. Yes, there's [Indecipherable] there's Deutsche. These are two really credible, really high-quality operators that we have a very strong relationship with. So, of course, they are opportunities. Of course, we don't discount others. But I think importantly, we want to really look at the landscape and shape the landscape across Europe now. Now, we did all the hard work to do the separation with a view to really move at pace to shape the landscape, it will consolidate. There will probably be, let's call it three large players across Europe. We are definitely going to be one of those players to capture that 5G opportunity coming through.

Akhil Dattani -- J.P. Morgan -- Analyst

Great, thank you.

Operator

Thank you very much, Akhil. Our next question today comes from James Ratzer from New Street. James, please go ahead. Your line is now open.

James Ratzer -- New Street Research -- Analyst

Great. Good morning, Nick and Margherita. Can you hear me OK?

Nick Read -- Chief Executive

Yeah, good morning.

Margherita Della Valle -- Chief Financial Officer

Hello.

James Ratzer -- New Street Research -- Analyst

Great. Yes. [Speech Overlap] Yes. For the time being exactly, hope it stays that way. So question please, just regarding your potential network upgrade plans, in particular in Germany is an area we have a lot of discussions with investors on and, Nick, thank you for the materials in the presentation you gave. I heard some of the comments you had there. So it'd be great to explore those in a little bit more detail in particular around comments upgrading to fiber in Germany, you suggested that you might now look at some opportunities with MDUs. How big of an opportunity could that be? How much the footprint would that be? You talked a bit about wholesale. Again, I'm just intrigued what new opportunities there might be in Germany with wholesale? And you hinted at off-balance sheet financing, I think, for the first time. So again, just interested to hear what you see as the benefits from that? Is that something that is just to kind of potentially keep capex at current levels if there isn't any incremental investment. Just love to hear more thoughts and commentary around all those initiatives. Thank you.

Nick Read -- Chief Executive

Yeah, James, this is an important subject to us and we invest a lot of time in terms of how we're going to evolve our networks generally, in Germany in particular. Every network, especially every fixed network is very different country to country in terms of the model, you can't read across just because there's a trend in one particular market that's going to happen in another. So, if we go to Germany specifically, what I would say is, look at Germany in two parts. You go out off footprint or off-cable footprint area and in that area we encourage fiber-to-the-home builds. Now that can be assets that anchor wholesale tenant. I mean, obviously bringing the Vodafone brands who have build and committing volumes is very attractive to investors or we could be part of consortium's and make investments in that infrastructure if we think the returns are attractive and if it's targeted in the right way. So we remain very actively engaged in options in the off-cable footprint. Then you go on cable footprint, so in other words I had 25 million homes. And what I'd say is it breaks then again into sort of two areas. You've got the Housing Associations, which is, let's call it two thirds of our cable customer base and then you got one third which is single dwelling units.

And we've been going through obviously an upgrade cycle on our network that we are very committed to, we're very excited about. We've obviously been very quick as par the integration to prioritize the upgrades to 1 gigabit speed, so we're now at 23 million households. Just to make sure that everyone understands when we're upgrading and adding capacity, we're effectively taking fiber closer and closer to every home, every house in association as we do note split-in. So that is just what we do generally. So that's why it's a hybrid fiber network is because fiber is getting increasingly deeper. So, we've been doing that execution. We've been increasing the amount of those split-in we've been doing through the country. And then next year we start the cycle of high-split and a high-split starts to provide you 1 gigabit upstream capability as well as increasing downstream to 3 gigabit speeds.

Frankly, as a customer, you don't need anything more than that and so therefore it gives us a really good runway of capability moving forward, and then it goes further out, you got DOCSIS 4.0, etc. So, I think we've got a very good road map of upgrading capability. Now, clearly as part of the new regulation around TV, which comes in at 2024, so in other words rather than bulk contracts you go into single contracts. We have been going through an engagement with those Housing Associations and we've had an engagement of about half of them. And in that engagement, it's been really interesting because that engagement has really fallen into, I'd say three buckets of reaction because what we've been doing is explaining the roadmap for TV. But we've also been explaining the roadmap for our cable upgrade. And what we found is there's bucket number one, which is the Housing Associations saying they could be interested, not definite, but could be interested in fiber to the building. But one of the things they have specifically said is we're not interested in taking fiber through the building. We would only do that through the natural refurbishment upgrade of the building, which is every, let's call it five, 10 years. So, they don't want disruption in the building, but they quite like the idea that may be fiber goes through basement. Of course, connecting fiber to your cable network, we are excellently placed to be able to do that as the natural partner.

And then I'd say the second bucket of Housing Associations are ones where they've said I really liked the upgrade path. It seems to provide everything we need. Thank you very much. And then the third bucket are, do you know what this isn't even on my road map or vault process at the moment, I don't consider that priority. No one's talking about the need for any upgrade. So, I would say these are the three buckets. We have to continue to engage with the housing associations and just get an idea of demand as we move forward and so I see this is something that evolves, it's not a rush, it's just something that we need to engage, understand demand and then obviously, as we understand more we can come back and give you more color. I don't know if you would talk more about capex?

Margherita Della Valle -- Chief Financial Officer

Sure. From a funding perspective, our capex envelope within the midterm guidance doesn't include any fiber investments as such. I'm talking about FTTH or FTTB. Our capex envelope includes the natural upgrade cycle of the cable networks that Nick was just describing. So gradually fiberizing the network as we have capacity and following the natural technology evolution of cable. That's what's in our mid-term guidance. As we have these conversations, it is possible that fiber to the building business cases become attractive in certain circumstances. And from that perspective, as you were mentioning earlier, we see also the possibility of infrastructure investments through JV being attracted to the opportunity. We see this a lot at the moment across Europe and clearly Vodafone could be considered very interesting partner for infrastructure capital for this type of builds.

Being absolutely clear, if these business cases were to become material at scale, you should not expect us to use our balance sheet to fund this. However, it's really early days and frankly today we are really focused on effectively marketing our current 23 million gigabit households and the cable evolution is giving us options as we've just discussed. So if something was to change, then we would update you on it. But that's our focus at the moment.

James Ratzer -- New Street Research -- Analyst

All right. Thank you. Really appreciate that.

Operator

Thank you very much, James. Our next question today comes from David Wright from Bank of America Merrill Lynch. David, please go ahead.

David A Wright -- Bank of America Merrill Lynch -- Analyst

Okay, guys. Hopefully, you can see and hear me. It's nice to be on video instead of that picture from -- I think it was 2005. So I am going to ask a slightly different question. I was terribly -- I always get very nervous, Nick, when anyone says that's all the speed you need, but I'm going to stay away from the fiber questions for now. The other thing you have mentioned in your presentation is the potential for pursuing strategic and market consolidation and I guess the question their it could you also consider that off-balance sheet? Or for instance, do you -- when you look at the actual service COS, is it a priority for you to keep the service COS consolidated? Or could you actually consider an off-balance sheet solution in NNN market consolidation opportunity? Thank you.

Nick Read -- Chief Executive

Well, David, I think we have demonstrated that we have always been pragmatic when it comes to a market consolidation because ultimately the most important thing is you unlock the synergy, you unlock the sky required. And I think we demonstrated that in Netherlands, we've demonstrated that in Australia, so I think we're always pragmatic. I think the important thing, if I sit back, because you could say, well we've been here before on a market consolidation as a topic. So why are you dialing into this? And I think it's really important to understand, we've just been through a pandemic.

In that pandemic, the engagement I have had with governments, with regulators has been super high compared to ever before. In terms of them really saying, well thank you Vodafone for being there for us, helping society remain connected. Of course, our peers were doing that as well. So, the sector was more appreciative I would say. But at the same time, they're really understanding we are critical national infrastructure. And for them to truly compete on a global basis by market, they know that they need inward investment in next generation technology. So, whether it's the upgrades we were talking about on our fixed or 5G, they want to see that as fast as possible.

And in that conversation, I'd say what holds back investment is the return on capital within some of these markets. And we need to accelerate return on capital to an acceptable level and then inward investment will come into the sector. And so when you start to have that conversation, they say well what are the levers that you need to see improved? And I said, well, there's four. There were Spectrum and we've seen significant progress in Spectrum recently. So, whether it's Spain, Greece, U.K. Taxes, we're seeing taxes come down on the industry. So you've see that in Spain again. Or whether its network sharing and deployment. So I can go through lots of examples. I won't do it now unless you want me to. Yeah, lots of examples of progress being made. But the fourth topic is consolidation. And what I point to is, America sits there with three scale players on average with 95 million customers each; China three players, at scale 400 million customers each; India, three players; Netherlands, three players. But some of our markets in Southern Europe are at five players plus. And what I'm saying is, and this is why return on capital is so low and what we need to do is consolidate going forward without punitive remedies. So I think that there's a real understanding now of returns, the importance of returns linked to investment which is what they want from a policy perspective, and therefore I think there is a more openness to engage on the topic of consolidation.

David A Wright -- Bank of America Merrill Lynch -- Analyst

But it feels like you're going to have -- the regulator is never going to say, hey guys, come on, doors are open, go do you best. You're going to have to provoke the regulation of that, right? It's going to need a brave telco to say we want to do this. We want to go four to three whatever it might be. You are going to have to provoke that reaction if that makes sense?

Nick Read -- Chief Executive

Yeah, we're a brave telco. We're going out with a very strong message because I think the climate is there to have a real conversation, an honest conversation with governments and regulators and the European Commission and I think that there are other players suffering out there, let's face it. The market cap of the whole sector is down. So I think that there are a number of players that would say we would like to find a solution to drive shareholder value. Now, of course, I can say we're pragmatic. I can say we are reasonable. I need the other side to be pragmatic and reasonable. And that means reasonable on valuations, etc., to try and unlock the synergies and the potential going forward. And so we will actively engage on that basis.

David A Wright -- Bank of America Merrill Lynch -- Analyst

Thank you very much, guys.

Operator

Thank you very much, David. Our next question today comes from Andrew Lee from Goldman Sachs. Andrew, please go ahead.

Andrew Lee -- Goldman Sachs -- Analyst

Yeah, good morning Nick and Margherita. I have a question on operational hearing. See, OCC delivers 30 basis-points to European organic service revenue growth and 1% of German organic service revenue growth. But you delivered 5% of underlying EBITDA, while European EBITDA growth

[Indecipherable] plus Germany EBITDA growth. So I know you there are some German synergies in there. But wonder if you can talk us through the steps between revenue and EBITDA growth and how sustainable this seemingly high and attractable operational gearing is? Thank you.

Margherita Della Valle -- Chief Financial Officer

If I may be start from the end, Andrew. In terms of sustainability, you know that we have consistently deliver pre-pandemic margin expansion and significant operational leverage. And you have seen our mid-term guidance, which is effectively predicated upon exactly the same type of equation going forward. And as you pointed out, we have already started delivering this in the first half of this fiscal year. In terms of moving past between revenues and costs, this is a little bit of a special year because we are lapping the COVID crisis of last year. And so there are a number of moving parts that affect half one that we look different in terms of how the second half of the year will look like. So, if I try to paint a little bit the picture for you of how these translates, clearly in half one we had the benefit of higher revenue growth -- good margin revenue growth because we were lapping the COVID crisis. Last year in Q1, we called out there were a number of one-offs. So these was supportive to service revenue growth.

We also had roaming tailwind that, to be fair, will last for the years to come. But strong half one because of the roaming seasonality. And then we had the benefit of the Italian settlements in the numbers which is EUR100 million of effectively straight EBITDA with no -- obviously no revenue implication. As we move forward, what you will see in Half two is you won't have the same push in terms of revenue growth and roaming, margin in particular. You won't have the recurrence of the settlement, which of course was a one-off. On the other end, what you will start seeing playing through in the second half is that operating cost reductions. We have seen that in half one. We have not had any incremental opex reduction year-on-year. This is because last year clearly we intervened very quickly on cost as COVID struck and we had the big step down of EUR300 million in half one.

Some of this has reversed actually this year because we have spent more clearly than last year in things like advertising, sales, and the like. We will -- we are well on course to deliver our target of over EUR200 million opex reductions for the full year. But this is now going to be all geared toward the second half. So, a different make in terms of revenues and costs element. But still starting from your earlier point, good operational leverage to continue into the second half and into the future year according to the guidance. I think you have seen our EBITDA growth profile implicit in the guidance we had just restated this morning and so you will have seen that we will continue with good EBITDA growth into the second half and again beyond according to our midterm ambition. So operational leverage will continue to be a significant feature.

Andrew Lee -- Goldman Sachs -- Analyst

Thank you.

Operator

Thank you very much, Andrew. Our next question today comes from Sam Mchugh from Exane. Sam, please go ahead.

Sam McHugh -- Exane -- Analyst

Yeah. Good morning, everyone. Just wanted to follow-up on the M&A, If I can please. I think, Nick, you called out the UK in the press release. And given you've all implemented CPI plus price increases to a degree, you've all reintroduced roaming charges in the face of latter month of each other. And the industry still has 10%, 20% free cash flow margins. In that context, how do you convince the competition authorities that unique consolidation with their remedies when you got this such tight oligopolistic characteristic?. Is there anything in the discussions you've had that would suggest that they'd be more open with that kind of market structure? Thanks very much.

Nick Read -- Chief Executive

Sam, I feel very strongly against the oli comment. I think it's a super competitive environment and remains a super competitive environment. You got some massive brands, BT, EE, Virgin, O2, Sky, SLT, Total, Three, that's a big market of players. I think, look, in the end what's really important is that you have to have scale locally and then we have the additional benefit of scale on a regional basis. And I think if we can bring the two together, we earn decent returns and those returns mean that we can continue to invest and provide the infrastructure that governments are looking for. So, I mean, the case is clear, returns of the low market WACC in the U.K. and therefore needs to improve and therefore they understand that. And I think that they understand there is enough competition even if there were one or two players less in the marketplace. So, I don't think it's a difficult narrative.

Sam McHugh -- Exane -- Analyst

Great. Thank you, Nick.

Operator

Thank you very much, Sam. Our next question today comes from Emmet Kelly from Morgan Stanley. Emmet, please go ahead. Hello.

Nick Read -- Chief Executive

You're on mute.

Emmet Kelly -- Morgan Stanley -- Analyst

I'm indeed [Speech Overlap] What you're going to do, absolutely. I have a question, please, on Vantage Towers. Just as a follow-up on Akhil's question earlier on. So, if I look at the statement that you made on the presentation. You talked about monetization over time. So could you maybe just say a few words about how we should think about that monetization, how that might manifest itself? And also maybe some of the lessons that you learned from the Verizon Wireless asset sale back in 2014 in terms of how that monetization happened and how that was for shareholders and for the Group. Thank you.

Nick Read -- Chief Executive

Well, look, In terms of Vantage Towers itself, I think we are really well placed at this moment in time to really explore an industrial merger and that is our preference. And through an industrial merger, of course, you always let's say, equalize size with co-control. And so obviously if we start at 82%, there is a monetization opportunity because we can bring down our stake, equalize with someone else and still have co-control of Vantage Towers. We did something similar if you remember in [Indecipherable] with TI Italy. So, imagine that sort of model is an opportunity for us. Of course, an industrial merger might not happen. And in that case we do have the ability at 82% to bring down that state further. We would obviously want to stay in control of Vantage sales for a moment in time and we can bring a degree of monetization.

So, we would definitely do some. We have a lot of interest from strategic, we have a lot of interest from infra funds. So, there's -- the demand is definitely there. It's just us sequencing the right actions and we have an order priority of what we would really ideally like to do. Of course, proceeds of -- that we received in -- if you're comparing with Verizon experience are focused by far; number one, is de -leveraging. So we would use those proceeds to de-lever. We always said that from a capital prioritization perspective; number one, we want to invest in our networks and growth platforms. We went out in May, we told you where we wanted to invest. So, you will know where we are investing. The second is deleveraging and then the third is return to shareholders.

Emmet Kelly -- Morgan Stanley -- Analyst

Super. Very clear. Thank you so much.

Operator

Thank you very much, Emmet. Our Next question today comes from Georgios Ierodiaconou from Citigroup. Georgios, please go ahead. Your line is now open.

Georgios Ierodiaconou -- Citigroup -- Analyst

Good morning. And thank you for taking my question on, its also on advantage, and -- yeahI hope you can hear me. And I wanted to maybe hear from you what your plans will be medium, terminal and ideal scenario on the structure of the assets. So, your highlight on Slide 6 that you have a lot of radios that are now being run by Vodafone, is obviously edge cloud capabilities and other things that perhaps belong more to Vantage than the Vodafone Group. So, I'm curious to understand from your perspective in the event of the consolidation, whether you see more opportunities for those kind of predictable investments to be done on your behalf by Vantage instead of the communication operation itself. And if I could just ask a clarification on some of your previous comments on whether any consolidation you see there is a preference between in-market or footprint expansion. I guess, you could get both but what will be your preference in seeking a partner for Vantage? Thank you.

Nick Read -- Chief Executive

Yeah so, what I would say unless I misunderstood the first part of the question, I mean Vantage Towers is about passive infrastructure. It doesn't own the radio; we own the radio of our equipment. We have no plans to change that model. One of the things Vantage Towers could do is obviously fiber to the site. So previously we would have done fiber to the site. They could obviously do fiber to the site we would be open to those type of opportunities. Of course, you've got small cells and now that types of models that vantage towers would be open to going forward, that might be we might have done in the past that now Vantage Towers can do. So, I think there's a number of things that we could explore with Vantage, but I -- it's another reason why co-control with another industrial partner that we think is a good long-term model for us for all of these reasons.

I would say in terms of the right partner, I think it's finding a partner that the shares your vision of what the growth opportunity is for Vantage Towers going forward. So it might be a partner that has in-market synergies, in which case that's great. But I think what's more important is do we share the same vision of the opportunity and the expansion opportunity. We believe in growth. We think there's a lot of value to be created through Vantage Towers and we want that exposure to that growth. So I think the most important thing is shared vision. And then secondly, fine, if it brings new markets, then as we develop new platforms and new opportunities for Vantage because you have a bigger geographical platform on which to do it.

Georgios Ierodiaconou -- Citigroup -- Analyst

Thank you.

Operator

Thank you very Georgios. Our next question today comes from Stan Noel from Bernstein. Stan, please go ahead.

Stan Noel -- Bernstein -- Analyst

Hello. I've got a question about Germany. So, this quarter you did a large number of conversion customers. I think it's more than 300 Southern net adds and in Q2 that's probably six to 10 times more than in any quarter over the past couple of years. What specific commercial activities have been driving these numbers and what level of discounts are these new conversion customers getting? Thank you.

Margherita Della Valle -- Chief Financial Officer

Just telegraphic answer, no discounts. And what we are doing is simply adding benefits to the customers who have both fixed and mobile with us and its additional traffic that they can enjoy. But of course, we are protecting the ARPU without any discounts. So, a classic I would say of the convergence playbook. You will see further growth in the coming quarters. We're taking the opportunity of the post-pandemic normalization of the market to really drive convergence now, upscale, again without discounting.

Stan Noel -- Bernstein -- Analyst

Thank you.

Operator

Thank you very much, Stan. Our next question today comes from Maurice Patrick from Barclays. Maurice, please go ahead.

Maurice Patrick -- Barclays Capital -- Analyst

Yeah, hi, guys. Hopefully, you can hear me, OK? Just a question about you're -- the level of your ambition at U.K. programs. I noticed you've only added 22,000 net adds in the quarter despite being a challenger, where you have announced a deal with [Indecipherable] to extend your fiber reach, and I believe in the [Indecipherable] you've talked about maybe a desire to co-finance or co-invest or invest in fiber with Virgin Media. So maybe a few thoughts in terms of your level of ambition to actually invest in U.K. fiber infrastructure despite a plethora of networks out there and maybe sort of linked to that deal, do you have plans to accelerate [Indecipherable] in the quarters and years to come?

Nick Read -- Chief Executive

Yeah, look, what I would say is, I think there's a little bit of phenomena where the pandemic happened -- accelerated a lot of people making choices on their fixed broadband. So, there may be a degree of if you like, pull forward of activity and therefore as we've come out of the immediate pandemic, you're still seeing that lower switcher market. So in the U.K. specifically, it's down about 15% from what it was before. So, I'd say generally when we look at the statistics around our growth and performance and market share is where it was before. So, we're pleased with the gross as is.

It's just slightly smaller market. At the moment, I don't know if that's temporary and then starts to expand again. I think you're right to say, I'm very pleased, we have leveraged the wholesale market and have struck a deal with the operational CityFibre. So now we have the available the largest footprint of fiber-to-the-home in the U.K. We are more than happy to add to that in terms of other people, if they were happy to wholesale. So, if Virgin wanted to wholesale and the terms were attractive enough for us to do some volume on them, then clearly we would do that. We're always open -- as I've said before about Germany or footprint. If there's opportunity of fiber builds that have good economic return for our shareholders, of course, we'll think about it.

If I look at the U.K., though, I think there's quite a lot of infra fund money coming in very cheaply and therefore whether our equity is really required, I'd question that, but what people are really attracted to is having the Vodafone as an anchor tenant to some of these builds to ensure they're protecting the IRR. So that's an opportunity for us. And of course, what we want is multiple opportunities and therefore we get the right economic terms so that we can drive convergence in the market. So at the moment, we're really pleased. I mean, if you take the U.K. performance, we are taken revenue market share both on consumer and enterprise, excellent iPhone launch, great proposition inflects if you haven't seen it, very, very creative. Something that we really think has many, many benefits, including increase in the tenure of customers on their contracts.

Margherita Della Valle -- Chief Financial Officer

And If I may add 1 point, you've seen us presenting the latest edition of the usual industry bench marking that we share and the U.K. position on the highlights of efficiencies. Now, one of the top three operators across the whole of Europe. We have two operators in the top three now, one is Italy and the other one is the U.K. They've done a fantastic job on efficiency in the last couple of years.

Nick Read -- Chief Executive

Yeah, but [Indecipherable] your budget will still be challenging.

Operator

Okay, thank you very much, Maurice. Our next question today comes from Nick Delfas from Redburn. Nick, please go ahead.

Nick Delfas -- Redburn -- Analyst

Thanks very much indeed. Just a quick question on M&A again. So, you've talked about bolt-ons or mergers, you talked about off-balance sheet joint ventures. Could you just specify in a relatively large deal for four to three, are we definitely talking merger or are we talking acquisition possibly running into multiple billions? If you could just clarify that. Thanks very much.

Nick Read -- Chief Executive

Okay. I think, I would tend to look at merger opportunities of different varieties because merger opportunities take away some of the complexities of relative valuations, synergies, etc. You tend to get more focus on the size of the prize if you like, the synergies and building a stronger business. Doesn't always have to mean it's 50-50, it's combinations as I say, we're pragmatic.

Nick Delfas -- Redburn -- Analyst

And in terms of overall M&A [Indecipherable] if you like for bolt-ons, what kind of size are we talking about within your de-leverage plans?

Nick Read -- Chief Executive

Don't get carried away. I mean, we're talking -- so let me give you an example of a bolt-on, could be IoT, a small business that gives us capability that maybe would take us two years to build ourselves, accelerate the ability. IoT is an example -- is we're globally number one on connectivity, a 136 million devices connected, growing at 2 million a month. So really strong connectivity platform that we want to scale. But then what we want to do is develop end-to-end services by sector. So automotive, were really strong. Insurance was strong. Health was strong. Yeah, so we want to build capability and sometimes there's a small client route that gives us capability in a sector that then we build onto our platform and suddenly if you look at turbo charge position is those types of things that we would be talking about.

Margherita Della Valle -- Chief Financial Officer

And just to add that this is happening, obviously within a context for capital allocation, whereas Nick was reminding earlier. Our number one priority is to continue to progress on deleveraging. You know that we are not yet at the bottom end of our desired leverage range and therefore that remains top of mind.

Nick Delfas -- Redburn -- Analyst

Great, thanks very much.

Operator

Thank you very much, Nick. We have time -- apologies, apologies. Our next question today comes from Adam Fox-Rumley from HSBC. Adam, please go ahead.

Adam Fox-Rumley -- HSBC Bank plc -- Analyst

Thank you. I had a question on Spanish restructuring and some of the wider implications, also what you were saying about the -- sorry. Spanish restructuring that you referred to I think is mostly within the commercial channels and it was interesting to also hear Margherita's comments in the prepared presentation around the structural changes in which the stores are being used post COVID. So, I was wondering if in combination that changes your view on the European store footprint. And in particular the primacy of it all otherwise of owned versus third-party channels seem to recall that the Spanish closing was reported as being more owned stores, but those are usually held up as the operators are more interested in keeping, so any comments around that would be helpful. Thank you.

Nick Read -- Chief Executive

Hi, Adam. Let me maybe say a few comments and then if there's something specific then. When we're looking at channels, clearly our starting point is digital. So app nd then obviously our online channels, etc. So, we want to make the very best digits or experience. So that's number one. Then what we do is on the retailer states, we're constantly modeling through big data analytics, how an online execution is complemented with retail. What I mean by that is store sizes change, locations change, they could be expressed kiosk rather than standard format. So, we're constantly evolved in the retail state over the last three years. We've reduced the stake by 15%, but we're also reconfiguring the site, so it's more effective. So, we're not really losing volume when we do that.

And then when we look at other channels, like Spain as an example, there can be other, let's say, door to door or other types of channels, push channels that are more supportive of, let's say, fixed broadband penetration or convergence penetration. So we look at obviously customer lifetime value, we look at paybacks, buy channel, optimize depending on the need of the market. So that's what we've been doing in Spain, more digital, optimizing retail, maybe widening some specific channels for commercial performance. And then what we also did in Spain was introduce Lowi, our second brand into our retailer's study, which is even an increase in foothold within our stores and conversion both on Lowi, but also on the Vodafone brand as well. So, we've seen a good performance off the back of that.

Adam Fox-Rumley -- HSBC Bank plc -- Analyst

I don't know if there's...

Margherita Della Valle -- Chief Financial Officer

Nothing specific.

Nick Read -- Chief Executive

Sorry Adam. Did I answer everything you wanted on that?

Adam Fox-Rumley -- HSBC Bank plc -- Analyst

Yeah, thank you. I suppose -- I was thinking that you -- Yeah, thank you.

Operator

Okay. Thank you very much, Adam. I'm afraid that's all we've got time for today, so I will hand back to Nick and Margherita to wrap up.

Nick Read -- Chief Executive

On behalf of Margherita and myself, thank you very much for taking the time to join us. Hopefully you've seen in the H1 results that we are very much demonstrating sustained growth and driving shareholder value in the structure that Vodafone has. We look forward to seeing everyone on the road show or at the next event. Take care.

Duration: 52 minutes

Call participants:

Nick Read -- Chief Executive

Margherita Della Valle -- Chief Financial Officer

Polo Tang -- UBS Limited -- Analyst

Akhil Dattani -- J.P. Morgan -- Analyst

James Ratzer -- New Street Research -- Analyst

David A Wright -- Bank of America Merrill Lynch -- Analyst

Andrew Lee -- Goldman Sachs -- Analyst

Sam McHugh -- Exane -- Analyst

Emmet Kelly -- Morgan Stanley -- Analyst

Georgios Ierodiaconou -- Citigroup -- Analyst

Stan Noel -- Bernstein -- Analyst

Maurice Patrick -- Barclays Capital -- Analyst

Nick Delfas -- Redburn -- Analyst

Adam Fox-Rumley -- HSBC Bank plc -- Analyst

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