Arun Sarin Chief Executive Vodafone Group Plc This presentation is - - PowerPoint PPT Presentation

Arun Sarin

Chief Executive Vodafone Group Plc

This presentation is being made only to, and is directed at (a) persons who have professional experience in matters relating to investments falling within Article 19(1) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 and (b) persons to whom it may

• therwise lawfully be communicated (together "relevant persons") Any person who is not a

relevant person should not act or rely on this presentation or any of its contents. This presentation contains forward looking statements which are subject to risks and uncertainties because they relate to future events. Some of the facts which may cause actual results to differ from these forward looking statements are discussed in the final slide to this presentation and others can be found by referring to our Interim Results release for the six month period ended 30 September 2003 and the “Risk Factors” in our Annual Report & Accounts and Form 20-F for the year ended 31 March 2003.

Agenda

• Overview and Highlights

Arun Sarin

• Results and Financial Position

Ken Hydon

• Operational Performance

Julian Horn-Smith

• Outlook and Q&A

Arun Sarin

Industry Leading Results

• Solid performance in challenging competitive and

regulatory environment

– Over 125m customers – Strong double digit turnover & EBITDA growth – Significant cash flow growth – Continued improvement in capital efficiency

• Increasing returns to shareholders

– 20% increase in interim dividend – Introduction of share buy-back programme – £2.5bn allocation

Statutory Highlights

* Before goodwill, amortisation and exceptional items

Turnover

H1 02/03 H1 03/04

£16.9bn 13%

H1 02/03 H1 03/04

£4.6bn

Operating Profit*

£5.7bn 23%

H1 02/03 H1 03/04

3.28p

Earnings per Share*

4.78p 46% £14.9bn

Proportionate Highlights

* Before exceptional items

Turnover

H1 02/03 H1 03/04

£16.5bn £19.7bn 19%

H1 02/03 H1 03/04

£6.2bn

EBITDA*

£7.8bn 26%

H1 02/03 H1 03/04

37.6%

Group EBITDA Margin*

39.6% 2pp

Sep-02 Sep-03

107.5

Customers

125.3 16%

• Capital expenditure of £2.2bn
• Improved mobile capital efficiency

to 12.7%

• Reduction in net debt to £10.9bn

H1 02/03 H1 03/04 £2.9bn

Free Cash Flow

£4.6bn 61%

Outstanding Cash Flow Growth

Strong Growth in Mobile Revenues

H1 02/03 H1 03/04

H1 02/03 Total Mobile Revenue Organic Mobile Growth Exchange Rate Effect

16%

10% Organic Mobile Growth

£13.4bn £15.6bn

Better Churn Leads to Strong Net Additions

20 40 60 80 100 120

Sept-02 Sept-03

Mobile Customers (Millions)

UK & Ireland Northern Europe Southern Europe & MEA Asia Pacific

* All subsidiaries

15% 17% 19% 21% 23% 25% 27% H1 02/03 H2 02/03 H1 03/04 Total Contract Prepaid

6 Month Annualised Customer Churn* Customer Growth*

11%

Underlying ARPU

• MOU increased to 126 min / customer
• Termination rate cuts in UK, Italy, Ireland and Portugal

* Annualised 6 months rolling ARPU. All subsidiaries

ARPU on a Constant Currency Basis*

H1 02/03 H1 03/04

£274 £273

Strong Data Growth

H1 02/03 H1 03/04 * All subsidiaries

Total Data Revenue* 12 Month Rolling Data % of Service Revenue*

13.2% 15.5% 14.6% Sep-02 Mar-03 Sep-03 £2.2bn 29% £1.7bn

Vodafone live! Gaining Momentum

Germany UK Italy Spain Others

*Based on a European sample

Over 3 million customers Incremental ARPU*

Pre Vodafone live! Post Vodafone live!

7+%

Increasing Controlled Mobile EBITDA and Margin

1H 02/03 1H 03/04 UK Germany Italy Japan Other

£5.2bn £6.3bn

39.0% 40.7%

• Small improvement in acquisition and retention costs
• Efficiency in network operating costs

Committed Investment in 3G

• Over £800m in first half

Germany UK Italy Japan Other

Cumulative 3G Spend- Approx £4bn

• Major 3G push planned for

middle of next fiscal year

Drive more mobile minutes

Power of 3G

Improved high quality content

Power of 3G

Greater productivity and mobilising applications

Power of 3G

Great Opportunity

The Journey has Begun…

• Disposal of non core fixed

business

• Acquisition of service

providers

• Extended Partner Network

reach to 10 countries

Ken Hydon

Group Financial Director Vodafone Group Plc

Statutory Results

• £16.9bn
• Up 13% (£2.0bn)
• Mobile organic growth

– Total: +10% – Data: +23% – Voice: +8% Turnover Analysis of Turnover Growth

( 0.1 ) 0.8 0.4 0.1 0.8

• 0.5

1.0 1.5 2.0 2.5 Mobile voice growth (organic) Mobile data growth (organic) Other growth (organic) Foreign currency Disposals Change (£bn)

Statutory Results

• £5.7bn
• 23% increase
• Depreciation

– £2.2bn – £0.2bn in Japan Telecom Group Operating Profit*

*Before amortisation of goodwill and exceptional items as detailed in notes 3 & 4 of the Interim Announcement dated 18 November 2003 16% 6% 1% M&A FX Organic growth

Analysis of Operating Profit* Growth

Statutory Results

*Before amortisation of goodwill and exceptional items as detailed in notes 3 & 4 of the Interim Announcement dated 18 November 2003 6 months to 30 September 2003 £m 2002 £m Increase % Turnover 16,899 14,898 13 Group operating profit* 5,722 4,640 23 Net interest payable (356) (390) (9) Profit before tax* 5,366 4,250 26 Tax (1,792) (1,602) Goodwill amortisation (7,651) (6,837) Exceptional items 293 267 Minority interests (470) (414) Loss for the period (4,254) (4,336) Basic loss per share (6.24p) (6.36p) Adjusted earnings per share* 4.78p 3.28p 2.51 2.64 3.28 3.53 4.78 H1/02 H2/02 H1/03 H2/03 H1/04

Adjusted EPS* (pence)

Shareholder Returns

• Interim dividend

– Up 20% on 2002/3 – 0.9535p per share – £650m

• Share buyback programme

– Allocation of £2.5bn

5% 5% 5% 15% 20% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2000 2001 2002 2003 2004 Interim Dividend Yield (based on 30/9/03 closing share price of £1.20

Dividend Growth and Yield (2000-4)

Cash Flow

6 months to 30 September 2003 £m 2002 £m Increase % Operating cash flow 6,081 5,676 7 Capital expenditure (2,202) (2,670) (18) Licences (2) (59) (97) Operating free cash flow 3,877 2,947 32 Tax paid (283) (154) 84 Net interest received/(paid) 256 (211) N/A Dividends received & other 791 296 167 Free cash flow 4,641 2,878 61 Acquisitions (1,075) (1,600) Disposals 105 686 Group dividends (612) (511) Other (126) (116) Net debt decrease 2,933 1,337 Opening net debt (13,839) (12,034) Closing net debt (10,906) (10,697) Germany 20% Italy 23% United Kingdom 11% Japan 18% Other Mobile 3% Other 5% Other Europe 20%

Analysis of Operating Cash Flow

• Around £5bn
• £2.1bn additions

Tangible Fixed Assets

September 2003 March 2004

• 40% on 3G
• 40% on 3G
• Mobile capital efficiency

– 9/03: 12.7% (9/02: 13.4%) March 2005

• Around £5bn

Germany 17% Italy 14% United Kingdom 11% Other Mobile 27% Japan 28%

Other Operations 3%

Germany 17% Italy 11% United Kingdom 11% Other Mobile 26% Other Operations 5% Japan 30%

1 2 3 4 <1 1-2 2-3 3-4 4-5 5-6 6-7 >7 Years

£bn (15.5) (10.9)

• September 2003

– Gross debt – Cash & investments – Net debt

• Solid credit profile

Net Debt

Debt Maturity at 30 September 2003 (£bn) 4.6

Total = £15.5bn

Summary

• Growth

– Turnover – Operating profit* – Adjusted earnings per share* – Free cash flow

• Increasing returns to shareholders
• Healthy financial position

*Before amortisation of goodwill and exceptional items as detailed in notes 3 & 4 of the Interim Announcement dated 18 November 2003

Julian Horn-Smith

Group Chief Operating Officer Vodafone Group Plc

Delivering on our objectives

Vodafone live!

• Today in 15 markets
• Over 3m customers
• Attracting new customers
• Increasing usage
• Higher customer satisfaction
• Higher ARPU

Better investment in customers

• The Group’s largest business by revenue
• Rebranded to Vodafone Japan (1st October)
• Seamless services - GSM roaming

Vodafone Japan

Vodafone Japan

• Competitive market
• Stable market share over 18%

14,389 14,540 13,912 13,269 12,949 12,618 17.9% 18.0% 18.1% 18.5% 18.7% 18.6% Customers Market Share 2002/03 2003/04 Q1 Q2 Q3 Q4 Q1 Q2 Net Additions Q1 Q2 Q3 Q4 Q1 Q2 2002/03 2003/04

Vodafone Japan

28.0% 20.0% 23.7% 18.1% 20 40 60 80 100 120 140 160 180 H2 01/02 H1 02/03 H2 02/03 H1 03/04

Customer Base Cost (¥ billions)

SRC SAC % Service Revenue 30.6% 32.4% 24.3% 32.0% 200 400 600 800 1,000 H2 01/02 H1 02/03 H2 02/03 H1 03/04

EBITDA (£ millions)

EBITDA EBITDA Margin

• Acquisition and retention costs reducing

as a % service revenue

• Increase in operating expenses due to

additional network maintenance costs for 3G resulting in flat margins

Customer Base Costs EBITDA

Vodafone Japan

• Decrease in ARPU due to increasing penetration levels, but Data % still improving

13% 10% 8%

15% 14%

13% 9% 6%

20% 0% 5% 10% 15% 20% 25% H1 02/03 H2 02/03 H1 03/04

Year on Year growth

Service Revenue Average Customers Total Minutes

21.3% 20.3% 18.1% 15.1% 25,000 50,000 75,000 100,000 Mar 02 Sep 02 Mar 03 Sep 03

12 month rolling ARPU (¥)

ARPU Data % of Service Revenue*

* 12 month rolling Data% of Service Revenue

ARPU & Data* Year on Year Growth

Vodafone Japan – Strategy for Growth

• New pricing plans

– Packet Discount – 2 year Contract Discount – Vodafone Happy Time

• New commercial pricing

– Rebalance retention and acquisition costs

• Improve services and handsets

Vodafone Germany

• Strong customer growth
• Contract % increasing
• Maintaining market share

23,261 23,780 22,940 22,732 21,810 21,399 38.3% 38.3% 38.4% 38.2% 38.0% 38.0%

Customers Market Share 2002/03 2003/04 Q1 Q2 Q3 Q4 Q1 Q2

44.5% 45.3% 45.8% 46.6% 47.1% 47.6% (600) (400) (200) 200 400 600 800 1,000 1,200 Prepaid Net Additions Contract Net Additions Contract % of Total base (‘000s)

Q1 Q2 Q3 Q4 Q1 Q2 2002/03 2003/04

500 1,000 1,500 2,000 2,500 H1 02/03 H2 02/03 H1 03/04

Vodafone Stars Members ('000s)

19% 22%

Vodafone Germany

11.4% 11.1% 8.0% 7.2% 0% 5% 10% 15% 20% 25% 30% H2 01/02 H1 02/03 H2 02/03 H1 03/04

Annualised Half year Churn %

Churn % Upgrade %

• Higher volume of upgrades and successful loyalty scheme helped reduce churn

Churn & Upgrade % Vodafone Stars

Vodafone Germany

14.4% 15.4% 16.4% 17.0% 250 260 270 280 290 300 310 320 330 Mar-02 Sep-02 Mar-03 Sep-03

12 month rolling ARPU (€) ARPU Data % of Service Revenue*

• ARPU is stabilising and Data % of Service

Revenue increasing

5% 7% 8% 3% 9% 4% 4% 6% (1%) (2%) 0% 2% 4% 6% 8% 10% H1 02/03 H2 02/03 H1 03/04

Year on Year growth Service Revenue Average Customers Total Minutes

* 12 month rolling Data% of Service Revenue

ARPU & Data* Year on Year Growth

Vodafone Germany

10.0% 10.3% 14.8% 12.4% 100 200 300 400 500 600

H2 01/02 H1 02/03 H2 02/03 H1 03/04

Customer Base Cost (€ millions)

SRC SAC % Service Revenue 44.3% 40.8% 46.7% 46.2% 200 400 600 800 1,000 1,200 1,400 H2 01/02 H1 02/03 H2 02/03 H1 03/04

EBITDA (£ millions)

EBITDA EBITDA Margin

• SAC/SRC % of Service Revenue higher than

last year due to accelerated market growth.

• EBITDA margin almost 47%

Customer Base Costs EBITDA

Vodafone Italy

• Penetration almost 100%
• Declining Churn

19,982 19,412 18,316 17,711 19.8% 17.4% 17.4% 16.7% H2 01/02 H1 02/03 H2 02/03 H1 03/04

Closing Customers Annualised Prepaid Churn

(‘000s)

Vodafone Italy

10.1% 11.3% 12.2% 8.7% 300 310 320 330 340 350 360 Mar-02 Sep-02 Mar-03 Sep-03

12 month rolling ARPU (€)

ARPU Data % of Service Revenue*

• Increase in both ARPU and Data % of Service Revenue

11% 11% 14% 10% 9%

7% 8% 11%

11% 0% 2% 4% 6% 8% 10% 12% 14% 16% H1 02/03 H2 02/03 H1 03/04

Year on Year growth

Service Revenue Average Customers Total Minutes * 12 month rolling Data% of Service Revenue

ARPU & Data* Year on Year Growth

Vodafone Italy

4.8% 3.5% 3.3% 2.6% 20 40 60 80 100 120 140 160 H2 01/02 H1 02/03 H2 02/03 H1 03/04

Customer Base Cost (€ millions)

SRC SAC % Service Revenue 42.4% 49.3% 54.8% 49.4% 200 400 600 800 1,000 1,200 H2 01/02 H1 02/03 H2 02/03 H1 03/04

EBITDA (£ millions)

EBITDA EBITDA Margin

• SAC/SRC % of Service Revenue reducing…
• …impacting directly on the EBITDA Margin

Customer Base Costs EBITDA

Vodafone UK – Market Leader

O2 24.3% Orange 25.8% T-Mobile 23.9% Vodafone 26.0%

Vodafone O2 Orange T-Mobile

O2 22.4% Orange 25.7% T-Mobile 19.4% Vodafone 32.5% Customer Share (September 03) 1

1 Company Data 2 OFTEL figures

Vodafone UK

• Positive Net additions
• Contract % stable

39.5% 40.6% 41.3% 41.3% 41.3% 40.7% (400) (300) (200) (100) 100 200 300 Prepaid Net Additions Contract Net Additions Contract % of Total base

Q1 Q2 Q3 Q4 Q1 Q2 2002/03 2003/04

(‘000s)

13,009 12,957 13,224 13,300 13,313 13,483 2002/03 2003/04 Q1 Q2 Q3 Q4 Q1 Q2

Total Customer Base (000)

Vodafone UK

11.8% 13.2% 14.4% 15.0% 200 220 240 260 280 300 320 Mar-02 Sep-02 Mar-03 Sep-03

12 month rolling ARPU

ARPU Data % Service Revenue *

• Increasing ARPU

8% 8% 6% 6% 7% 11% 0% 2% 4% 6% 8% 10% 12% H1 02/03 H2 02/03 H1 03/04

Year on Year growth

Service revenue Customer revenue * 12 month rolling Data % of Service Revenue

ARPU & Data* Year on Year Growth

Vodafone UK

12.5% 11.8% 12.0% 13.1% 50 100 150 200 250 300 H2 01/02 H1 02/03 H2 02/03 H1 03/04

Customer Base Cost (£ millions)

SRC SAC % Service Revenue

Customer Base Costs EBITDA

37.2% 39.6% 36.7% 37.0% 680 700 720 740 760 780 800 820 H2 01/02 H1 02/03 H2 02/03 H1 03/04

EBITDA (£ millions)

EBITDA EBITDA Margin

12.3 36.0 23.4 21.9 15.6 12.1 Verizon Wireless Cingular AT&T Sprint Nextel T-Mobile

Verizon Wireless

• Positive net additions
• Extension of market leadership

2002/03 2003/04 Q1 Q2 Q3 Q4 Q1 Q2

(‘000s)

September’03

43.3% 44.6% 46.0% 46.2% 47.6% 49.3% 200 400 600 800 1,000 1,200 1,400 1,600

Net Adds Penetration

Total Customer Base (m)

Verizon Wireless

500 520 540 560 580 600 620 H2 01/02 H1 02/03 H2 02/03 H1 03/04

12 month rolling ARPU ($)

ARPU 33.0% 35.3% 35.1% 35.7% 200 400 600 800 1,000 1,200 H2 01/02 H1 02/03 H2 02/03 H1 03/04

Proportionate EBITDA (£ millions)

Proportionate EBITDA EBITDA Margin

• Increasing MOU and ARPU
• Increasing EBITDA margin

Collaboration with Verizon Wireless

• Multinational accounts
• Integrated data card for PC’s
• Roaming
• SMS service interoperability
• Content purchasing

The power of 3G

3G-Powered Services Timeline

Dec Apr Middle Internal user trials Friendly user trials 3G-powered services available on limited basis Enhanced 3G-powered services and handsets available in volume

2003

2004

• Vodafone developing attractive portfolio with manufacturers to underpin service offering
• Initial handset costs to be higher than 2.5G models
• Longer term – 3G handset costs to come down

Partner Networks

The offering

• Vodafone offers

– Global product portfolio – Vodafone Brand – Global service footprint – International Account Management – Economies of scale

• Partner offers

– Additional footprint – Additional roaming customers – Increased Vodafone Brand value – Royalty fee

Enriching our proposition

Connect Card Content

Organisational Structure

• Lead the implementation of a

standardised architecture for business processes, information technology and network systems

• Provide leadership and

co-ordination across the full range

• f marketing and commercial

activities

Group Marketing Group Technology and Business Integration

Revenue growth Cost efficiency

Conclusion

• Excellent operating performance
• Best propositions and the right platforms for the year ahead
• Focus on delighting our customers

56

Outlook for FY 03/04

May 2003 November 2003 Average Customer Growth* > 10% > 10% on organic basis Revenue Growth* > 10% > 10% on organic mobile basis EBITDA Margin* Slightly higher Mobile margin slightly higher Capex Around £5bn Around £5bn Free Cash Flow > £5.2bn > £7bn

* Proportionate Basis

Outlook for FY 04/05

FY 2004/2005 Average Organic Customer Growth* High single digit Organic Mobile Revenue Growth* High single digit Organic Mobile EBITDA Margin* Flat to modestly ahead Organic Mobile EBITDA Growth* Approaching 10% Capex Around £5bn

* Proportionate Basis

Key Strategic Goals

Deliver superior returns

60,000 people globally focused on delivering

Extend our core business Build the best workforce Leverage global scale and scope Be a responsible corporate citizenship Delight our customers

This presentation contains “forward-looking statements” within the meaning of the US Private Securities Litigation Reform Act of 1995 with respect to the Group’s financial condition, results of

• perations and businesses and certain of the Group’s plans and objectives. In particular, such forward-looking statements include the statements with respect to Vodafone’s expectations for

the year ending 31 March 2004 as to average proportionate mobile customer growth, full year proportionate mobile revenue organic growth, proportionate mobile EBITDA margins, capitalised fixed asset additions, mobile capital efficiency, free cash flow and tax payments; statements with respect to Vodafone’s expectations for the year ending 31 March 2005 as to organic growth in average proportionate mobile customers and proportionate mobile revenues, proportionate mobile EBITDA margins and organic growth in proportionate mobile EBITDA and capitalised fixed asset additions; the statements with respect to the expected amount for additional depreciation and amortisation; and the statements with respect to the expected effective tax rates. These forward-looking statements are made on the basis of certain assumptions which Vodafone believes to be reasonable in light of Vodafone’s operating experience in recent years. The principal assumptions on which these statements are based relate to exchange rates, customer numbers, usage and pricing, take-up of new services, termination rates, customer acquisition and retention costs and the availability of handsets. The presentation also contains other forward-looking statements including statements with respect to Vodafone’s expectations as to launch and roll-out dates for products and services, including, for example, 3G services, Vodafone live! and Vodafone’s business offerings; intentions regarding the development of products and services; the ability to integrate our operations throughout the Group in the same format and on the same technical platform and the ability to be operationally efficient; the anticipated share repurchase programme; the rate of dividend growth by the Group or its existing investments; expected effective tax rates and expected tax payments; mobile penetration and coverage rates; expectations with respect to long-term shareholder value growth; our ability to be the mobile market leader, overall market trends and other trend projections. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as “anticipates”, “aims”, “could”, “may”, “should”, “expects”, “believes”, “intends”, “plans” or “targets”. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements particularly the statements regarding our outlook; expenses and expected effective tax rates referred to above. These factors include, but are not limited to, the following: changes in economic or political conditions in markets served by operations of the Group that would adversely affect the level of demand for mobile services; greater than anticipated competitive activity requiring changes in pricing models and/or new product offerings or resulting in higher costs of acquiring new customers or providing new services; the impact on capital spending from investment in network capacity and the deployment of new technologies, or the rapid obsolescence of existing technology; slower customer growth or reduced customer retention; the possibility that technologies, including mobile internet platforms, and services, including 3G services, will not perform according to expectations or that vendors’ performance will not meet the Group’s requirements; changes in the projected growth rates of the mobile telecommunications industry; the Group’s ability to realise expected synergies and benefits associated with 3G technologies, the integration

• f our operations and those of recently acquired companies; future revenue contributions of both voice and non-voice services offered by the Group; lower than expected impact of GPRS, 3G

and Vodafone live! and the Group’s business offerings on the Group’s future revenues, cost structure and capital expenditure outlays; the ability of the Group to harmonise mobile platforms and any delays, impediments or other problems associated with the roll-out and scope of 3G technology and services and Vodafone live! and the Group’s business offerings in new markets; the ability of the Group to offer new services and secure the timely delivery of high-quality, reliable GPRS and 3G handsets, network equipment and other key products from suppliers; greater than anticipated prices of new mobile handsets; the ability to realise benefits from entering into partnerships for developing data and internet services and entering into service franchising and brand licensing; the possibility that the pursuit of new, unexpected strategic opportunities may have a negative impact on one or more of the measurements of our financial performance; any unfavourable conditions, regulatory or otherwise, imposed in connection with pending or future acquisitions or dispositions; changes in the regulatory framework in which the Group operates, including possible action by the European Commission regulating rates the Group is permitted to charge; the Group’s ability to develop competitive data content and services which will attract new customers and increase average usage; the impact of legal or other proceedings against the Group or other companies in the mobile telecommunications industry; changes in exchange rates, including particularly the exchange rate of the pound to the euro, US dollar and the Japanese yen; the risk that, upon obtaining control of certain investments, the Group discovers additional information relating to the businesses of that investment leading to restructuring charges or write-offs or with other negative implications; changes in statutory tax rates and profit mix which would impact the weighted average tax rate; changes in tax legislation in the jurisdictions in which the Group operates; final resolution of open issues which might impact the effective tax rate; timing of tax payments relating to the resolution of open issues and loss of suppliers or disruption of supply chains. Furthermore, a review of the reasons why actual results and developments may differ materially from the expectations disclosed or implied within forward-looking statements can be found in

• ur Interim Results for the six month period ended 30 September 2003 and under “Risk Factors” contained in our Annual Report & Accounts and Form 20-F with respect to the financial year

ended 31 March 2003. All subsequent written or oral forward-looking statements attributable to the Company or any member of the Group or any persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. No assurance can be given that the forward-looking statements in this document will be realised. Neither Vodafone nor any of its affiliates intends to update these forward-looking statements.

Forward-Looking Statements