Interim Results - Part 2

Vodafone Group Plc 12 November 2002 Vodafone Group Plc Interim Results For six months ended 30 September 2002 PART 2 Southern Europe Financial highlights Six months to 30 September 2002 2001 Increase #m #m % Statutory turnover - Italy 2,086 1,739 20 (note 1) - Other Southern Europe 1,791 1,489 20 ------ ------ 3,877 3,228 20 ------ ------ Statutory total Group - Italy 777 676 15 operating profit - Other Southern (note 2) Europe 484 390 24 ------ ------ 1,261 1,066 18 ------ ------ Proportionate turnover - Italy 1,598 1,328 20 (note 1) - Other Southern Europe 1,411 1,080 31 ------ ------ 3,009 2,408 25 ------ ------ Proportionate EBITDA - Italy 789 655 20 (before exceptional - Other Southern items) Europe 524 394 33 ------ ------ 1,313 1,049 25 ------ ------ Proportionate EBITDA - Italy 49.4% 49.3% margin (note 2) - Other Southern Europe 37.1% 36.5% Key performance indicators (Italy only) ARPU (note 3) Eur 345 Eur 345 Churn (note 3) 18.5% 19.0% Cost to connect Eur 26 Eur 38 (1) comparatives have not been restated for the effect of a change in the accounting for distributor discounts on prepaid top-up cards (2) before goodwill amortisation and exceptional items (3) ARPU and churn information represents the twelve month periods ended 30 September 2002 and 31 March 2002, respectively Italy The results for Vodafone Omnitel demonstrate continuing strong operational performance, with Vodafone Omnitel consolidating its position as the second largest operator in the 90% penetrated Italian mobile market. Statutory turnover increased by 20% which was mainly attributable to an 18% increase in service revenues driven by higher usage levels, increased average customer base and improved margins on prepaid top-ups, which more than offset Vodafone Omnitel's decision to reduce termination rates during the period and lower revenues from national roaming. After adjusting 2001 results onto a comparable basis for distributor discounts on prepaid top-up cards, statutory turnover and service revenues increased by 15% and 14%, respectively. Service revenue growth was also boosted by data revenues, which increased by 50% compared with the six month period ended 30 September 2001 and for the month of September 2002 represented 10.4% of service revenues, with almost 53% of customers using data products. This increase was primarily due to higher SMS revenues reflecting successful promotional activities. Proportionate EBITDA, before goodwill amortisation and exceptional items, increased by 20%. The proportionate EBITDA margin, after adjusting 2001 results onto a comparable basis for distributor discounts on prepaid top-up cards, increased from 47.3% to 49.4%. Prepaid ARPU remained stable at Eur 296 for the twelve months to 30 September 2002 compared to Eur 297 for the 12 months to 31 March 2002. Contract ARPU benefited from Vodafone Omnitel's targeted acquisition and retention policy and increased from Eur 769 in the year ended 31 March 2002 to Eur 794 for the twelve months ended 30 September 2002. Total average cost to connect reduced to Eur 26 as a result of Vodafone Omnitel's commercial policies. Since 31 March 2002, Vodafone Omnitel's registered customer base increased over 3% and, at 30 September 2002, stood at 18,316,000, 91% of whom were connected to prepaid tariffs and only 6% of whom were considered inactive. On 7 October 2002, the number of competitors in the Italian market reduced to three following the split-up and sale of Blu's assets, part of which have been acquired by Vodafone Omnitel. Competition was further intensified following the introduction of mobile number portability and as other operators sought to emulate the success of Vodafone Omnitel's Omnione loyalty programme by developing their own commercial offers and incentives aimed at sustaining customer loyalty. In this environment, Vodafone Omnitel was able to slightly reduce its churn rate and make net customer gains. Furthermore, in the most recent customer satisfaction survey carried out in the period, Vodafone Omnitel confirmed its leadership over competitors. During the period, Vodafone Omnitel increased its focus on providing innovative value added services to its customer base, introducing MMS services, which were successfully launched in June 2002 making Vodafone Omnitel the first to do so commercially in Italy, GPRS roaming and international prepaid top-up facilities. In other developments, the Italian Government agreed to extend the duration of 2G and 3G licences from fifteen to twenty years. Other Southern Europe The Group's other interests within Southern Europe continued to achieve strong results. The increase in statutory turnover over the period was principally driven by a combination of an increased customer base and higher usage levels. Turnover was adversely affected by outgoing and incoming tariff reductions in Spain from March 2002 and incoming tariff reductions in Greece in August. The period also saw the introduction of a fourth mobile operator into the Greek market. Data revenues grew particularly strongly, largely as a result of higher SMS revenues and in response to successful launches of premium SMS products and services within Spain. The launch of MMS in Greece and Portugal, where Vodafone companies were the first operators to offer such services, is expected to contribute to future increases in data revenues. Proportionate registered customers increased 10% to 11,983,000, including the effect of an additional 2.2% stake increase in Vodafone Spain. Vodafone Portugal maintained its overall market position as the second largest operator in Portugal whilst strengthening its leadership in the contract segment. The Group's operations in Albania, Malta and Romania all continue to perform satisfactorily in terms of customer growth and profitability. In particular, Albania, which has only been operating for fourteen months, now has a market share of over 40%. In Romania, the Government is shortly to award four UMTS licences. AMERICAS Financial highlights Six months to 30 September 2002 2001 Inc/(dec ) #m #m % Statutory turnover - Verizon Wireless - - - - Other Americas 5 6 (17) ------ ------ 5 6 (17) ------ ------ Statutory total Group - Verizon Wireless 653 745 (12) operating profit - Other Americas (9) (5) (80) (note 1) ------ ------ 644 740 (13) ------ ------ Proportionate turnover - Verizon Wireless 2,841 2,754 3 - Other Americas 66 85 (22) ------ ------ 2,907 2,839 2 ------ ------ Proportionate EBITDA - Verizon Wireless 1,002 992 1 (before exceptional - Other Americas 8 8 - items) ------ ------ 1,010 1,000 1 ------ ------ Proportionate EBITDA - Verizon Wireless 35.3% 36.0% Margin - Other Americas 12.1% 9.4% Key performance indicators (Verizon Wireless only) ARPU (note 2) USD 574 USD 576 Churn (note 2) 29.8% 29.0% Cost to connect (note 3) USD 139 USD 120 (1) before goodwill amortisation and exceptional items (2) ARPU and churn information represents the twelve month periods ended 30 September 2002 and 31 March 2002, respectively (3) comparative restated by Verizon Wireless to be on a basis consistent with the current period Verizon Wireless Verizon Wireless operates in a highly competitive market place, which currently consists of six nationwide competitors and several regional and smaller rural carriers, and has retained its position as the leading mobile telecommunications provider in the United States in terms of number of customers, network coverage and revenues. Difficult economic conditions in the US have resulted in net customer growth slowing considerably from prior years. Nevertheless, Verizon Wireless has continued its strong growth in customer net additions for the last two quarters due to successful marketing campaigns. The increase in proportionate turnover for the period is primarily due to increased service revenue from the larger customer base, as well as additional handset sales for both upgrades and gross additions. The proportionate EBITDA margin decreased slightly as a result of higher retention costs and higher acquisition costs. Statutory total Group operating profit, before goodwill and exceptional items, decreased primarily due to a 43% higher depreciation charge resulting from increased capital expenditure to handle increased usage resulting from bundled tariffs and to improve network capacity in spectrum-constrained areas. The results for the period were also impacted by the relative strength of sterling against the US Dollar. Proportionate turnover and proportionate EBITDA in local currency grew by 9% and 6%, respectively. At 30 September 2002 Verizon Wireless' total customer base stood at 31,521,000. Approximately 94% of customers were on contract plans and there were approximately 1.5 million data users, the majority of whom were Mobile Web customers. SMS usage has grown significantly in the last six months due to the launch of inter-carrier interoperability earlier this year. However, competitive pressures have had an unfavourable impact on ARPU with competitors' tariffs now incorporating large numbers of bundled minutes and have resulted in increased cost to connect through higher handset subsidies and higher trade commissions. The period has also seen Verizon Wireless continue to roll out its CDMA 1XRTT network and extend total coverage to 172 million people, representing 75% of the Verizon Wireless national footprint. Verizon Wireless has USD 261 million on deposit with the Federal Communications Commission ('FCC') representing 15% of the payment made in relation to the re-auction of licences for 1.9GHz spectrum ('Auction 35'). On 12 September, the FCC issued a public notice seeking comment on either dismissing pending applications or allowing bidders to opt-out of Auction 35. Verizon Wireless and most of the other high bidders are urging the FCC to make a timely decision on this matter. Verizon Wireless believe that to meet expected usage demands in its most densely populated areas, they will require extra spectrum in the next eighteen to thirty months. Other Americas Grupo Iusacell increased its customer base from 1,995,000 at the beginning of the period to 2,176,000 at 30 September 2002. This 9% increase is primarily due to growth in prepaid customer numbers within a consolidating and increasingly competitive market. However, Grupo Iusacell experienced erosion of higher value contract customers and an increase in the number of inactive prepaid customers, resulting in declines in both ARPU and EBITDA. Strategic initiatives are being implemented to improve performance including the appointment of a new chief executive officer, headcount reductions and an internal reorganisation. In August 2002, the sale of two Globalstar service provider companies, Globalstar USA and Globalstar Caribbean, was finalised. Efforts to sell the last remaining Globalstar service provider, Globalstar de Mexico, are continuing. ASIA PACIFIC Financial highlights Six months to 30 September 2002 2001 Increase #m #m % Statutory turnover - Japan 3,731 - - - Other Asia Pacific 395 366 8 ------ ------ 4,126 366 - ------ ------ Statutory total Group - Japan 696 167 317 operating profit - Other Asia (note 1) Pacific 38 18 111 ------ ------ 734 185 297 ------ ------ Proportionate turnover - Japan 2,602 2,018 29 - Other Asia Pacific 553 499 11 ------ ------ 3,155 2,517 25 ------ ------ Proportionate EBITDA - Japan 833 413 102 (before exceptional - Other Asia items) Pacific 209 154 36 ------ ------ 1,042 567 84 ------ ------ Proportionate EBITDA - Japan 32.0% 20.5% Margin - Other Asia Pacific 37.8% 30.9% Key performance indicators (Japan only) ARPU (note 2) Yen Yen 89,193 91,903 Churn (note 2) 23.8% 25.6% Cost to connect (note 3) Yen Yen 31,540 34,145 (1)before goodwill amortisation and exceptional items (2) ARPU and churn information represents the twelve month periods ended 30 September 2002 and 31 March 2002, respectively (3) Cost to connect information represents the six month period ended 30 September 2002 and the twelve month period ended 31 March 2002 Japan Proportionate turnover for J-Phone Vodafone increased significantly from the comparative period, and includes a full period effect of the stake increases that took place during the last financial year. The increase also reflects strong customer growth, together with the success of J- Phone Vodafone's data and content product offerings. The results of J-Phone Vodafone were not fully consolidated until 12 October 2001. Penetration in the Japanese cellular market reached 57% by the end of September 2002, representing growth of 2% over the period. Notwithstanding the slowdown in market growth, J- Phone Vodafone consistently captured a higher percentage of net customer additions in each month in the period compared to its cumulative market share. This can largely be attributed to the strength of the brand and the popularity of camera and internet enabled handsets. Furthermore, J- Phone Vodafone is using an attractive mix of handsets combined with innovative services to attract and retain customers, which has contributed to the reduction in customer churn. J-Phone Vodafone enjoys the highest ARPU of any company within the Vodafone Group and the success of data and content products resulted in further increases in data and SMS revenues, which exceeded 20% of service revenues in August and September 2002. However, the positive effect this had on ARPU was more than offset by the expected decline in voice ARPU. Total average cost to connect decreased following a reduction in acquisition incentives and more cost efficient and effective purchasing of handsets. Additionally, J-Phone Vodafone made savings on operating costs which contributed to significant growth in EBITDA. As a result, the mobile EBITDA margin increased from 20.5% to 32.0%. J-Phone Vodafone realised substantial capital expenditure efficiencies during the period as a result of the merger of J-Phone Vodafone's operating companies and from the improved purchasing position it enjoys as a member of the Vodafone Group. These efficiency gains have enabled J- Phone Vodafone to concentrate its capital expenditure on 3G infrastructure and pursue a faster and more efficient rollout of its 3G network as it prepares for commercial launch in December 2002. Other Asia Pacific In Australia, an extremely competitive and maturing market, EBITDA increased by 14% due to a continued focus on improving operational efficiency and a change in product marketing and distribution strategy. Cost base rationalisation has continued over the last six months with restructuring activities reducing the workforce by 12%. Handset subsidies have also been phased out on plans targeted at retail customers. Over the last six months, Australia experienced an initial decline in blended ARPU due to the increase in the proportion of lower spending prepaid customers. However, contract ARPU is now stabilising with an increasing trend in SMS and data revenue. In the six months to 30 September 2002 Vodafone New Zealand increased its EBITDA by 34%, revenues by 18% and blended ARPU by over 2%. China Mobile (Hong Kong) Limited ('China Mobile') saw monthly customer growth slow between June 2002 and September 2002 due to seasonal effects and aggressive marketing by a competitor that included bundled handset and tariff plans on its newly launched CDMA network. However, excluding the effect of the acquisition referred to below, the customer base still grew by over ten million in the period. Monthly ARPU continued to fall after showing signs of stabilising earlier in the year as a result of lower tariffs aimed at retaining customers as competition increased. SMS volumes continued to grow substantially with 7.8 billion messages sent in the first quarter of the current financial year, up from 4.8 billion in the prior quarter. On 18 June 2002 Vodafone invested a further USD 750m in China Mobile and obtained the right to appoint a non-executive director to the China Mobile board. Subsequently on 1 July 2002 China Mobile acquired from its parent eight provincial cellular operations with a total of 25,143,000 customers. Vodafone's stake in China Mobile increased to approximately 3.27% as a result of these two transactions. The two companies' strategic alliance has been further strengthened in areas such as roaming, standards and best practice. MIDDLE EAST AND AFRICA Financial highlights Six months to 30 September Inc/ 2002 2001 (dec) #m #m % Statutory turnover 143 168 (15) Statutory total Group operating profit (note 1) 88 83 6 Proportionate turnover 238 252 (6) Proportionate EBITDA 109 108 1 (before exceptional items) Proportionate EBITDA margin 45.8% 42.9% (1) before goodwill amortisation and exceptional items Vodafone Egypt reported significant customer growth during the period of 261,000 to 1,979,000 at 30 September 2002. In South Africa, Vodacom continued to grow strongly with a 23% proportionate EBITDA improvement and customer growth of 9% to 7,130,000. Additionally, Vodacom's operation in Tanzania is now contributing a positive operating profit in its second year of operation. In Kenya, Safaricom consolidated its position as the largest mobile operator with 55% of the market as customer numbers increased by 32% to 581,000 during the period. OTHER OPERATIONS Financial highlights Six months to 30 September Inc/ 2002 2001 (dec) #m #m % Statutory turnover - Europe 441 466 (5) - Asia Pacific 1,017 - - ------ ------ 1,458 466 213 ------ ------ Statutory total Group - Europe (94) (181) - operating profit/(loss) - Asia Pacific 59 (32) - (note 1) ------ ------ (35) (213) - ------ ------ Proportionate turnover - Europe 380 381 - - Asia Pacific 678 453 50 ------ ------ 1,058 834 27 ------ ------ Proportionate EBITDA - Europe (2) (32) - (before exceptional - Asia Pacific 178 31 474 items) ------ ------ 176 (1) - ------ ------ (1) before goodwill amortisation and exceptional items The Group's other operations mainly comprise interests in fixed line telecommunications businesses, including Arcor in Germany, Japan Telecom, Cegetel in France, Vodafone Information Systems, an IT and data services business based in Germany and, until 29 August 2002, the Vizzavi joint venture. Statutory turnover for the Group's other operations increased primarily as a result of the stake increases in Japan Telecom which was consolidated from 12 October 2001. Proportionate EBITDA, before exceptional items, increased by #177m to #176m, primarily through the impact of the Group's increased interest in Japan Telecom and a substantial increase in its underlying EBITDA performance. Arcor Arcor provides fixed network services in Germany. The German fixed line market remains intensely competitive although Arcor has retained its position as the leading private operator and the strongest competitor to Deutsche Telekom, the market leader. Turnover from voice, data and internet businesses increased in the period compensating for the reduction in carrier business caused by the competitive market. During the period the contract voice customer base increased by approximately 150,000 to 2,500,000 customers. Total traffic volumes increased by 15% compared to the same period in 2001 to 11.2 billion minutes. In January 2002, a contract with Deutsche Bahn AG was signed to carve out Arcor's railway specific telecommunication and service business into the company Arcor DB-Telematik GmbH. Following completion of the sale in April 2002, the remaining 50.1% share of Telematik was sold to Deutsche Bahn AG in July 2002. Japan Telecom Japan Telecom is the third largest fixed line telecommunications operator in Japan, offering both voice and data services. Since Vodafone gained control in October 2001, Japan Telecom's profitability has improved significantly, with operating profit, before goodwill amortisation and exceptional items, of #59m for the six months ended 30 September 2002. This can be largely attributed to the implementation of a transformation plan entitled Project V. This plan specifically includes identifying the products and services that will contribute the most to profit both now and in the future, increasing focus on the core business, and an organisational re-alignment to improve operating efficiencies and capabilities. The fixed line market in Japan remains extremely competitive following the lifting of market entry restrictions and although the carrier designation service 'My-Line' was introduced in May 2001, the maintenance of market share continues to be a challenge in the customer voice segment. The main focus of the business in the period has been on high growth business opportunities and the delivery of innovative data products and services. The corporate customer base continues to expand due to the uptake of IP data related services, with the next-generation IP network 'PRISM', using optical fibres, being particularly successful. This information is provided by RNS The company news service from the London Stock Exchange

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