arun sarin - investors.vodafone.com · arun sarin chief executive vodafone group plc. this...

Arun SarinChief ExecutiveVodafone 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 otherwise 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

£16.9bn13%

H1 02/03 H1 03/04

£4.6bn

Operating Profit*

£5.7bn23%

H1 02/03 H1 03/04

3.28p

Earnings per Share* 4.78p46%

£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

Customers125.316%

• 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 03/04H1 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

0

20

40

60

80

100

120

Sept-02 Sept-03M

obile

Cus

tom

ers

(Mill

ions

)

UK & Ireland Northern EuropeSouthern 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 minutesPower of 3G

Improved high quality contentPower of 3G

Greater productivity and mobilising applicationsPower 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 HydonGroup Financial DirectorVodafone 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

Mobilevoice

growth(organic)

Mobiledata

growth(organic)

Othergrowth

(organic)

Foreigncurrency

Disposals

Cha

nge

(£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&AFXOrganic growth

Analysis of Operating Profit* Growth

Statutory Results


6 months to 30 September

2003£m

2002£m

Increase%

Turnover 16,899 14,898 13

Group operating profit* 5,722 4,640 23Net interest payable (356) (390) (9)

Profit before tax* 5,366 4,250 26Tax (1,792) (1,602)

Goodwill amortisation (7,651) (6,837)Exceptional items 293 267Minority 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

3.283.53

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 2004Interim

Div

iden

d Y

ield

(bas

ed o

n 30

/9/0

3 cl

osin

g sh

are

pric

e of

£1.

20

Dividend Growth and Yield (2000-4)

Cash Flow 6 months to 30 September 2003

£m2002

£mIncrease

%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 32Tax paid (283) (154) 84Net interest received/(paid) 256 (211) N/ADividends received & other 791 296 167

Free cash flow 4,641 2,878 61Acquisitions (1,075) (1,600)

Disposals 105 686Group dividends (612) (511)Other (126) (116)

Net debt decrease 2,933 1,337Opening net debt (13,839) (12,034)

Closing net debt (10,906) (10,697)

Germany20%

Italy23%

United Kingdom

11%

Japan18%

Other Mobile

3%

Other5%

Other Europe

20%

Analysis of Operating Cash Flow

• Around £5bn• £2.1bn additions

Tangible Fixed AssetsSeptember 2003 March 2004

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

– 9/03: 12.7% (9/02: 13.4%)

March 2005

• Around £5bn

Germany17%

Italy14%

United Kingdom

11%

Other Mobile27%

Japan28%

Other Operations

3%Germany17%

Italy11%

United Kingdom

11%

Other Mobile26%

Other Operations

5%

Japan30%

0

1

2

3

4

7Years

£bn

(15.5)

(10.9)

• September 2003

– Gross debt

– Cash & investments

– Net debt

• Solid credit profile

Net DebtDebt 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


Julian Horn-SmithGroup Chief Operating OfficerVodafone Group Plc

Delivering on our objectivesVodafone 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%

14,38914,540

13,912

13,26912,949

12,618

17.9% 18.0% 18.1% 18.5% 18.7% 18.6%

CustomersMarket 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%

0

20

40

60

80

100

120

140

160

180

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

Cus

tom

er B

ase

Cos

t (¥

billi

ons)

SRC SAC % Service Revenue

30.6%32.4%

24.3%

32.0%

0

200

400

600

800

1,000

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

BIT

DA

(£ m

illio

ns)

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 03/04Ye

ar o

n Ye

ar g

rowt

h

Service RevenueAverage CustomersTotal Minutes

21.3%20.3%18.1%

15.1%

0

25,000

50,000

75,000

100,000

Mar 02 Sep 02 Mar 03 Sep 03

12 m

onth

rolli

ng A

RP

U (¥

)

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

23,26123,780

22,94022,732

21,81021,399

38.3% 38.3% 38.4% 38.2% 38.0% 38.0%

CustomersMarket 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)

0

200

400

600

800

1,000

1,200

Prepaid Net AdditionsContract Net AdditionsContract % of Total base

(‘000s)

Q1 Q2 Q3 Q4 Q1 Q2

2002/03 2003/04

0

500

1,000

1,500

2,000

2,500

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

Vod

afon

e S

tars

Mem

bers

('00

0s)

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

Ann

ualis

ed H

alf y

ear C

hurn

%

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 m

onth

rolli

ng A

RP

U (€

)


• 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 03/04Y

ear o

n Y

ear g

row

th

Service Revenue Average Customers Total Minutes



Vodafone Germany

10.0% 10.3%

14.8%

12.4%

0

100

200

300

400

500

600

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

Cus

tom

er B

ase

Cost

(€ m

illio

ns)


44.3%40.8%

46.7%46.2%

0

200

400

600

800

1,000

1,200

1,400

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

ITDA

(£ m

illion

s)EBITDA EBITDA Margin

• SAC/SRC % of Service Revenue higher than last year due to accelerated market growth.

• EBITDA margin almost 47%


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


12 m

onth

rolli

ng A

RP

U (€

)


• 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 03/04Y

ear o

n Y

ear g

row

th

Service Revenue Average Customers Total Minutes



Vodafone Italy

4.8%

3.5% 3.3%2.6%

0

20

40

60

80

100

120

140

160

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

Cust

omer

Bas

e Co

st (€

milli

ons)


42.4%

49.3%

54.8%

49.4%

0

200

400

600

800

1,000

1,200

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

BITD

A (£

milli

ons)


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


Vodafone UK – Market Leader

O224.3%

Orange25.8%

T-Mobile23.9%

Vodafone26.0%

Vodafone O2 Orange T-Mobile

O222.4%

Orange25.7%

T-Mobile19.4% Vodafone

32.5%

Customer Share (September 03) 1

1 Company Data2 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)

0

100

200

300

Prepaid Net AdditionsContract Net AdditionsContract % of Total base

Q1 Q2 Q3 Q4 Q1 Q2

2002/03 2003/04

(‘000s)

13,00912,957

13,22413,300 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


12 m

onth

rolli

ng A

RP

U

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 03/04Y

ear o

n Y

ear g

row

th

Service revenue Customer revenue

* 12 month rolling Data % of Service Revenue


Vodafone UK

12.5%11.8% 12.0%

13.1%

0

50

100

150

200

250

300

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

Cus

tom

er B

ase

Cos

t (£

mill

ions

)



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

EB

ITD

A (£

mill

ions

)


12.3

36.0

23.4 21.9

15.612.1

VerizonWireless

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%

0

200

400

600

800

1,000

1,200

1,400

1,600Net 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 m

onth

rollin

g AR

PU ($

)

ARPU

33.0%35.3% 35.1% 35.7%

0

200

400

600

800

1,000

1,200

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

opor

tiona

te E

BITD

A (£

milli

ons)

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 servicesand handsets availablein 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 NetworksThe 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 propositionConnect 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 of 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 03/04May 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 04/05FY 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 superiorreturns

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 operations 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 integrationof 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 our 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

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