Interim Results - Part 1

Vodafone Group PLC 14 November 2000 PART 1 VODAFONE GROUP PLC INTERIM RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2000 FINANCIAL HIGHLIGHTS Six months Six months Increase to to /(decrease) 30 30 September September % 2000 1999 Pro forma proportionate basis - mobile businesses (1) (2) Proportionate customers at period end 65,493,000 42,298,000 55 Proportionate turnover £10,170m £7,680m 32 Proportionate EBITDA - before exceptional items (3) £3,282m £2,657m 24 Proportionate Group operating profit - before goodwill and exceptional items (3) £2,302m £1,928m 19 Statutory basis (1) Total Group operating profit - before goodwill and exceptional items (3) £2,420m £1,015m 138 Profit on ordinary activities before taxation - before goodwill and exceptional items (3) £1,823m £879m 107 Basic earnings/(loss) per share - before goodwill and exceptional items (3) 1.70p 2.25p (24) - after goodwill and exceptional items (3) (7.85)p (0.31)p Dividend per share 0.688p 0.655p 5 (1)Pro forma proportionate customer and financial information is calculated on the basis that the merger with AirTouch Communications, Inc. (now Vodafone Americas Asia, Inc.) and the acquisition of Mannesmann AG took place on 1 April in each period presented, which is further described on page 27. Statutory financial information is calculated on the basis required by accounting standards and includes the results of AirTouch Communications, Inc. from 30 June 1999, the date of closure of the merger, the results of Verizon Wireless from 3 April 2000, the date on which the Group's US wireless assets were contributed to the joint venture partnership, and the results of Mannesmann AG from 12 April 2000, the date that clearance for the acquisition was received from the European Commission. (2)Pro forma proportionate customer and financial information is presented for the Group's mobile telecommunications businesses only, excluding paging customers and businesses sold or held for resale. (3)Exceptional items comprise exceptional reorganisation costs and profit on disposal of fixed asset investments. Exceptional reorganisation costs in the current period are in relation to the formation of Verizon Wireless and the acquisition of Mannesmann AG. Exceptional reorganisation costs in the prior period relate to the merger with AirTouch Communications, Inc. Group Highlights: * Excellent progress following the acquisition of Mannesmann and formation of Verizon Wireless in the United States, reflected in substantial increases in mobile pro forma proportionate turnover (up 32%), EBITDA (up 24%), operating profit (up 19%) and customer numbers (up 55%). * Worldwide customer base of approximately 65.5 million proportionate customers, including the addition of 12.2 million net new customers in the six month period to 30 September 2000. * 116.2 million customers in ventures the Group controls or invests in. * Mobile pro forma proportionate EBITDA, before exceptional items, of £3,282m, up 24%. Excluding D2 in Germany, which connected over 5.4 million net new customers in the period, mobile pro forma proportionate EBITDA increased by 39%. * Mobile data, which includes Short Message Service (SMS), data and internet services, accounted for 5.5% of Group ARPU during the period, equivalent to annual proportionate revenue of over £1 billion. * Substantial progress on the integration of Mannesmann, with agreements for the sale of non-core assets for an aggregate value of approximately £35 billion. * Group net debt at 30 September 2000 of £13.2 billion represented 8.5% of the Group's market capitalisation, after payment for 3G licences in the UK, the Netherlands and Germany. * Acquisition of an approximate 2% ownership interest in China Mobile for US$2.5 billion and agreement of terms for a strategic alliance in mobile services, technology, operations and management. * Strategic partnership with Swisscom Mobile announced and an agreement to acquire a 25% equity interest in Swisscom Mobile for Swiss francs 4.5 billion (£1.8 billion), to be paid in cash or shares, or a combination of both. Chris Gent, Chief Executive of Vodafone Group Plc, commented: 'These first half results clearly demonstrate that, even with the better than expected growth in customer numbers, the Group continues to report strong increases in profitability in all its operating regions. In addition, we are particularly encouraged by the initial trends we are seeing with respect to mobile data and internet usage, even prior to the introduction of the more user friendly, enhanced technologies that we will be rolling out during the course of the next year. With the majority of UMTS licences now purchased, and our disposal programme largely complete, the strength of our balance sheet will enable us both to continue to fund the ongoing needs of the business and at the same time take advantage of opportunities to expand strategically and geographically as they arise. We expect significant improvements in the percentage growth figures for both operating profit and EBITDA in the Group's full year figures.' Regional Highlights: Continental Europe * Pro forma proportionate customers increased by 31% in the six month period to over 37.4 million. * Record customer connections by D2, which remained market leader in Germany, with an approximate 49% increase in customers during the six month period to over 16.5 million. * Excluding the results of D2, mobile pro forma proportionate EBITDA, before exceptional items, increased by approximately 37% compared with the corresponding period. * 3G licences awarded in Germany, Italy, the Netherlands and Spain. * Vizzavi Europe, Vodafone's and VivendiNet's European joint venture multi-access portal company, launched the Vizzavi brand in France, the UK and the Netherlands. United Kingdom * Market leader with over 10.2 million customers, an increase of 16% in the six month period. Share of UK corporate sector increased to 54%. * Proportionate EBITDA increased by 10% to £495m. * Continued strong growth of SMS, with over 160 million messages carried on the network in September 2000, compared with 49 million last year. United States * Successful integration of the Group's US wireless assets into Verizon Wireless, a new joint venture partnership, creating the market leader with a nationwide network serving over 26 million customers and covering almost 90% of the US population. * Proportionate EBITDA, before exceptional items, of £815m, an increase of 41% over the corresponding period for AirTouch's US wireless assets. * Introduction of a new national mobile internet access service, Mobile Web, with over 0.4 million active customers at the end of the period. Asia Pacific * Proportionate customers of 4.9 million, an increase of 19% during the period. Proportionate EBITDA of £285m, a pro forma increase of 128% on the corresponding period. * Revenues from messaging and web usage in Japan now account for over 9% of total revenues, with web customer ARPU now exceeding SMS customer ARPU. 3G licence awarded in July 2000. Middle East and Africa * 40% increase in proportionate customers during the period to 1.7 million, reflecting continued strong growth of the Group's profitable operations in Egypt and South Africa. CONTINENTAL EUROPE Following the completion of the Mannesmann transaction on 12 April 2000, good progress has been made in integrating Mannesmann's telecommunications interests into the Group. Proportionate customers in the Group's mobile telecommunications businesses in Europe increased to 37,426,000 at 30 September 2000, representing pro forma growth of 70% on the comparable period last year. The region's total pro forma proportionate operating profit, before goodwill and exceptional items, increased to £1,093m and total pro forma proportionate EBITDA increased by 10% to £1,593m. This includes the results of D2, where connection costs on record customer growth reduced EBITDA. Excluding D2, pro forma proportionate EBITDA for the period to 30 September 2000 increased by 37%. D2 - Germany Financial Highlights Six months Six months Increase to to /(decrease) 30 September 30 % 2000 September 1999 Pro forma proportionate customers 16,400,000 8,128,000 102 Pro forma proportionate turnover £2,056m £1,655m 24 Pro forma proportionate EBITDA £620m £740m (16) - before exceptional items Pro forma proportionate EBITDA 30% 45% margin The period to 30 September 2000 saw rapid expansion of the mobile phone market in Germany. D2 had a record 5,420,000 net connections during the period, maintaining its market leadership and increasing proportionate customers by 49% to 16,400,000. Pro forma proportionate turnover increased by 24% to £2,056m, compared with £1,655m for the corresponding period. Pro forma proportionate EBITDA before exceptional items was £620m, a reduction of 16% compared with last year, and EBITDA margin decreased from 45% for the corresponding period to 30%, these reductions being due to connection costs arising from the exceptional level of new customers. The underlying trading performance of the business was very strong. The EBITDA margin excluding connection costs was 55% for the six months to 30 September 2000. In the first half, total churn was 10.5% compared with 14.8% in the year to 31 March 2000. This was due in part to the increased proportion of prepay customers connected to the network. At 30 September, over 50% of the total base was connected to the prepay tariff, 'CallYa', compared with over 30% at 31 March 2000. Whilst ARPU has declined to EUR 487, as a result of the mix of customers, D2's ARPU is still above the level of most comparable mature networks. Cost to connect increased in the six months to 30 September 2000, as D2 maintained its market leadership despite aggressive market activity by its main competitor. During the period, D2 was the first mobile operator in Germany to offer on-line services to its customers, enabling customers subscribing to D2 services to choose tariffs and access customer service information via the Internet. D2 offers its customers who roam to the major European holiday destinations (such as Italy, Greece and France) virtual home network functionality, enabling them to dial their customer service in the same way as when at home. D2 was also the first mobile network in Germany to carry General Packet Radio Service (GPRS) calls during the period to 30 September 2000, and commercial service is expected to be launched in the first calendar quarter of 2001, subject to handset availability. D2 had over 250,000 active WAP users at 30 September 2000 and, in early October, its WAP portal was judged by 'Connect' magazine to be the best mobile internet portal in Germany. In August 2000, D2 was successful in acquiring a licence to operate UMTS services in Germany for EUR 8.4 billion. This was one of six licences awarded, including licences to two new operators. Vodafone believes that D2 is better placed than its competitors to capitalise on this opportunity with the quality of its existing network. D2 expects to launch service in 2002, subject to handset availability. OPI - Italy Financial Highlights Six months Six months to to Increase 30 30 % September September 2000 1999 Pro forma proportionate customers 10,349,000 6,784,000 53 Pro forma proportionate turnover £1,137m £915m 24 Pro forma proportionate EBITDA £515m £362m 42 Pro forma proportionate EBITDA 45% 40% margin In the period to 30 September 2000, Omnitel Pronto Italia (OPI), one of four GSM network operators in Italy, also saw strong customer growth. Its total customer base increased to 13,591,000, with net connections in the six month period of 2,369,000 customers, representing growth of 21%. OPI reported growth in pro forma proportionate turnover of 24% to £1,137m in the six months to 30 September 2000. Pro forma proportionate operating profit before goodwill increased by 33% to £395m, whilst pro forma proportionate EBITDA increased by 42% to £515m. OPI recorded total churn in the first half of 12% compared with 13% in the year to 31 March 2000. Due to the relatively constant proportion of prepay customers in the base (89% at 30 September 2000 compared with 87% at 31 March 2000) OPI's ARPU, which was EUR 367 for the twelve months to 30 September 2000, is less exposed to the mix dilution experienced by many large European mobile operators. OPI continues to benefit from lower cost to connect than networks of equivalent size elsewhere in Europe. OPI is pursuing its strategy of offering increased data services to its customers. SMS usage has steadily increased to average levels in excess of 5 million outgoing messages per day. OPI launched the first music portal during the period, in addition to its voice portal services and its on-line shopping mall. The Italian Government is in the process of issuing five licences to operate UMTS services. Following completion of the auction process on 23 October 2000, OPI has been assigned a UMTS licence for approximately EUR 2.5 billion. Mobile operations in the rest of Continental Europe Financial Highlights Six months Six months to to Increase 30 September 30 September % 2000 1999 Pro forma proportionate customers 10,677,000 7,046,000 52 Pro forma proportionate turnover £1,454m £1,249m 16 Pro forma proportionate EBITDA £452m £343m 32 Pro forma proportionate EBITDA margin 31% 27% Libertel NV, the Group's 70% subsidiary, is one of five cellular operators in the Netherlands. In July 2000, Libertel was successful in acquiring one of five licences to operate UMTS services in the Netherlands, obtaining one of the largest frequency allocations (2x15 MHz) for a total of EUR 0.7 billion. Libertel's customer base at 30 September 2000 was 2,983,000, an increase of 22% in the period. Libertel received a rating as the best network in the Netherlands in an independent study conducted in the second quarter of 2000. It has continued to upgrade its prepaid service, which represented approximately 69% of its customer base at 30 September 2000, with the introduction in August 2000 of direct top-up by credit card, by phone or on-line. In early September, Libertel tested its GPRS capability, the first mobile network to do so in the Netherlands. Commercial service is expected to be launched before the end of 2000, subject to handset availability. Libertel's WAP facilities are being developed through the network's co-operation with Vizzavi Netherlands, in which it owns a 20% interest. Panafon, the Group's 55% owned subsidiary in Greece, increased its customer base by 16% to 2,060,000 in the six months to 30 September 2000, consolidating its position as market leader in Greece. It has the only portal in Greece to offer personalised services to all its WAP customers and was the first to offer a search facility to WAP users. Telecel, the Group's 50.9% owned subsidiary in Portugal, reported net connections of 225,000 in the period and a customer base at 30 September 2000 totalling 2,020,000, of whom 72% are connected to its prepaid tariffs. Telecel is one of three network operators in Portugal. Telecel consolidated its internet activities into TelecelOnline in October 2000. In addition to strong growth in SMS usage, Telecel maintained its innovative position with the launch of share dealing services for its WAP customers during the first half. Europolitan, the Group's 71.1% owned subsidiary in Sweden, reported a customer base at the end of September totalling 957,000, with net connections of 72,000 since 31 March 2000. In September 2000, Europolitan submitted an application for one of four licences to operate UMTS services in Sweden. The Government is expected to award the licences by 'beauty contest' before the end of November 2000. In line with its innovative data strategy, Europolitan launched mobile internet surfing capability for all its customers using WAP during the period and extended its unified messaging by launching a service which translates e-mails into voice messages by mobile. Europolitan also signed agreements during the first half with a number of telematics operators to develop improved services both in vehicles and for remote meter reading. Since its launch in November 1999, Vodafone Hungary, in which the Group has a 50.1% ownership interest, has connected a net 134,000 customers to its network, of whom 87,000 were connected in the six month period to 30 September 2000. Network rollout is progressing well and the company's reliance on national roaming on existing networks has now been terminated in the Budapest area. The Group's ownership interest in Societe Francaise du Radiotelephone (SFR), one of three network operators in France, increased from 20% to an effective ownership interest of approximately 31.9% following the acquisition of Mannesmann. This additional ownership interest arises from Mannesmann's 15% shareholding in Cegetel, which has an 80% shareholding in SFR. In the six month period to 30 September 2000, SFR increased its customer base by over 13% to 8,944,000. Approximately 40% of SFR's customers are connected to its prepaid service. Airtel Movil, in which the Group has a 21.7% shareholding, is one of three cellular network operators in Spain. Airtel connected 966,000 net new customers during the six month period to 30 September 2000, increasing its closing customer base to 6,590,000. Approximately 59% of Airtel's customers are connected to its prepaid tariffs. Through a number of agreements entered into in January, July and September 2000 the Group has agreed to acquire an additional interest of 52% in Airtel, increasing its holding to a controlling interest of 73.7%. Subject to the receipt of regulatory approvals, the transactions are expected to complete by the end of 2000. Other Operations The Group's other operations in Europe mainly comprise interests in Arcor, the German fixed line business, which had over 1.8 million contract customers at the end of September, Telecommerce, the German IT and data services business and Vizzavi Europe, the Group's 50% multi- access consumer portal joint venture with VivendiNet. Pro forma proportionate turnover for these operations was 9% lower at £372m, reflecting the impact of exchange rate movements, and proportionate EBITDA was maintained at £6m in the six months ended 30 September 2000. Pro forma proportionate operating losses reduced by 4% to £92m, and included start-up losses of £10m in Vizzavi Europe. UNITED KINGDOM Financial Highlights Six months Six months to to Increase 30 September 30 September % 2000 1999 Customers 10,240,000 6,865,000 49 Proportionate turnover £1,662m £1,350m 23 Proportionate EBITDA £495m £448m 10 Proportionate EBITDA margin 30% 33% The UK mobile phone market grew by 7.4 million net new customers in the six months to 30 September 2000, resulting in a total market of 34.4 million customers. Market penetration is 58% compared with 46% at the beginning of the year. Vodafone UK has maintained its clear leadership in this highly competitive market place with 1,449,000 net additions, closing the period with a customer base of 10,240,000 and a market share of 30%, 1.5 million customers ahead of its nearest competitor. The company has focused on high value customers, with its share of the corporate sector increasing to 54%. Proportionate turnover in the UK increased by 23% from £1,350m to £1,662m, with proportionate EBITDA increasing 10% to £495m. Strong growth in the contract customer base continued throughout the period, resulting in net additions of 232,000 and giving a closing contract customer base of 3,944,000. At 30 September 2000, Vodafone UK's service provider companies accounted for 61% of its contract customer base. The addition of 154,000 contract customers in the July to September period was the highest since the quarter to December 1998. The contract customer base continues to be profitably managed, with ARPU increasing from £421 (£554 before trade discounts) for the twelve months ended 31 March 2000 to £424 (£557 before trade discounts) for the twelve months to 30 September 2000. Cost to connect rose to £115 for the six months ended 30 September 2000 from £94 for the twelve months ended 31 March 2000, reflecting the competitive market and the connection of higher value customers in the period. Prepaid products continued to drive the growth in the UK mobile market. The introduction of new tariffs and products stimulated this growth, with the result that 1,217,000 net connections were made in the six months ended 30 September 2000. Pay as You Talk (PAYT) customers totalled 6,296,000 at 30 September 2000 and represented 61% of Vodafone's UK customer base. Prepaid ARPU has declined from £175 at 31 March 2000 to £165 due to the impact of lower usage customers being added to the base. PAYT cost to connect for the six months ended 30 September 2000 was £56 compared with £50 in the twelve months to 31 March 2000, reflecting competitive pressures. Vodafone UK continues to enhance the service provided to its customers through improved call-centre facilities, an increased high street presence through the addition of 34 new shops during the period, bringing the total to 306 at 30 September 2000, and investment in network quality. In the six months to 30 September 2000, £275m was spent on network infrastructure including the installation of 540 base stations, bringing the total in operation to 7,240. These measures have contributed to a reduction in network churn in the last six months to 24.1%, compared with 28.3% in the previous six months, reflecting improving levels of customer satisfaction. SMS experienced strong growth in the period. The number of messages being carried on the network in September 2000 increased to over 160 million compared with 49 million in September 1999. Successful field trials of GPRS have been undertaken and full customer trials started in November, with live network rollout already under way. GPRS is expected to be in commercial service during the first half of 2001. Following the award of a 3G licence in April 2000, an implementation programme has commenced with the commercial launch of 3G services in the UK currently anticipated for April 2002. The UK internet portal experienced increasing activity during the period, with over 75,000 active customers being registered at 30 September 2000. Migration to the new Vizzavi multi-access portal, which offers a range of services that will bring information from the Internet to the PC, mobile phone and WAP mobile, took place in September. Over the next few months further new content services will be added and the UK will adopt the Vizzavi platform by the end of this year. UNITED STATES On 21 September 1999, Vodafone, Bell Atlantic and GTE announced an agreement to combine their US wireless assets to create the largest mobile telecommunications operator in the United States. The first stage of the transaction, involving the contribution of the US wireless assets of Vodafone and Bell Atlantic, was completed on 3 April 2000 and the combined entity was launched as Verizon Wireless. Following the completion of the merger of Bell Atlantic and GTE to form Verizon Communications, the second stage of the transaction was completed by the contribution of the US wireless assets of GTE to Verizon Wireless on 10 July 2000, creating a nationwide network on a single digital technology, covering almost 90% of the US population and 96 of the top 100 US mobile telecommunications markets. Vodafone owns a 45% interest in the new venture. Verizon Wireless is the leading mobile telecommunications provider in the United States in terms of number of customers, network coverage, revenues and cash flow. At 30 September 2000, Verizon Wireless had a total mobile telecommunications customer base of 26,282,000. Financial Highlights Six months Six months to to Increase 30 September 30 September % 2000 1999(1) Proportionate customers 11,212,000 9,138,000 23 Proportionate turnover £2,414m £1,751m 38 Proportionate EBITDA £815m £576m 41 - before exceptional items Proportionate EBITDA margin 34% 33% (1) Proportionate customers, turnover and EBITDA for the period to 30 September 1999 are presented on a pro forma basis for the merger with AirTouch, and comprise the pro forma proportionate results of AirTouch's US wireless assets. Pro forma proportionate EBITDA, before exceptional items, was £815m for the six month period to 30 September 2000, representing a 41% increase over the corresponding period for AirTouch's US wireless assets. The increase in the pro forma proportionate EBITDA margin to 34% reflects the underlying profitability of the new venture. Growth in the number of digital customers, which was stimulated by new digital tariff plans, SingleRate national pricing and bigger bundled minute options, has met expectations. Digital customers represent almost half of the total customer base. The average cost to connect for the six months to 30 September 2000 was £132. Although the costs to connect customers from analogue to digital is higher, due to handset costs and subsidies, increased utilisation of company-owned retail outlets has partially offset pressures on margins. Sales efforts have actively focused on selling tri-mode handsets to new customers as well as existing customers. The impact of an increasing number of customers on the network with tri-mode handsets will improve margins by providing an opportunity to reduce roaming expenses. Average monthly ARPU for the six months to 30 September 2000 was £32 (giving an annualised ARPU of £384). Increased ARPU is expected from continued digital migration and the impact of a greater array of value added services such as Web access. Higher monthly recurring access charges are a function of increased digital customers. However, in the short term, per minute usage revenue has decreased due to large bundled minute plans. Annualised churn on Verizon Wireless's networks during the six months to 30 September 2000 was 30%. Innovative churn management programs such as 'New Every Two' were launched to drive increased customer loyalty by addressing equipment upgrades. Digital subscribers are eligible to receive a free digital handset, or handset credit, after two years of service with a two year contract renewal. A national internet access service, Mobile Web, was introduced during the period. Users are able to personalise the information they receive directly from their handset or via the MyVZW.com web site. Mobile Web customers can access a variety of web sites ranging from personal finance and shopping to news and entertainment. At 30 September 2000, Verizon Wireless had over 500,000 data customers, including more than 400,000 Mobile Web customers. Verizon Wireless has indicated its intention to make an initial public offering of a minority stake in the partnership. It will monitor market conditions to assess the optimal timing for such an offering. ASIA PACIFIC Financial Highlights Six months Six months to to Increase 30 September 30 September % 2000 1999(1) Proportionate customers 4,904,000 3,421,000 43 Proportionate turnover £1,234m £582m 112 Proportionate EBITDA £285m £125m 128 Proportionate EBITDA margin 23% 21% (1) Proportionate customers, turnover and EBITDA for the period to 30 September 1999 are presented on a pro forma basis for the merger with AirTouch. The Group's interests in the Asia Pacific region primarily comprise Vodafone Pacific and the J-Phone Group. At 30 September 2000, the Group had 4,904,000 proportionate customers in the Asia Pacific region, representing an increase of 19% in the six month period. The region's pro forma proportionate turnover and EBITDA increased by 112% and 128% respectively, compared with the corresponding period, including the effect of increases in the Group's shareholdings in the nine J-Phone companies in Japan during the six months ended 30 September 1999. Eliminating the impact of these stake increases, the growth in pro forma proportionate customers and EBITDA compared with the six month period to 30 September 1999 is 37% and 49%, respectively. Vodafone Pacific Vodafone Pacific, comprising the Group's 91% interest in the Australian operations, 100% interest in New Zealand operations and a 49% interest in Vodafone Fiji, experienced a period of strong customer, revenue and EBITDA growth. Proportionate customers increased by 24% to 2,233,000 during the six month period, with significant increases in market penetration for each business. Proportionate EBITDA margin increased to 25% for the period to 30 September 2000, compared with 21% for the corresponding period, on proportionate turnover of £320m and £243m, respectively. Australia and New Zealand have strongly enhanced their services to contract and prepaid customers with the introduction of a fully integrated mobile and fixed line internet portal, 'My Vodafone'. My Vodafone is a new mobile data and internet service providing personalised information and entertainment services, as well as e- commerce capabilities. SMS service was also introduced to both contract and prepaid customers, enabling customers to send and receive SMS text messages across networks. Since launch, My Vodafone and SMS have led to dramatic growth in data traffic, with more than one million text messages carried on peak days in both Australia and New Zealand. With the Globalstar fully integrated GSM/satellite service now operational in Australia, Vodafone provides 100% coverage across Australia with its mobile phone service - the only carrier to do so. Vodafone Pacific did not launch its proposed initial public offering in the first half of this financial year due to market conditions and volatility in the global equity markets, particularly in the telecommunications sector. The Group will continue to monitor market conditions in order to assess the optimal timing for any such offering. Japan During the period, Vodafone and its partners undertook a restructuring of their ownership interests in the J-Phone Group of companies. The J- Phone Group encompassed nine operating companies, together offering a nationwide service in Japan. On 1 October 2000, the nine operating companies were merged into three regional companies, creating further opportunities for the J-Phone Group to increase its share of the rapidly changing Japanese market and for potential cost synergies. Following completion of the restructuring, the Group's ownership interests (both direct and indirect) were broadly unchanged. Despite intense competition, J-Phone added over one million customers in the six month period to 30 September 2000, bringing its total customers to 9,108,000, up 12%, with wireless penetration reaching 49% at 30 September 2000. J-Phone is taking advantage of the spectacular Japanese mobile internet boom, pioneering developments in multi-media messaging and youth oriented information services. It is well placed to move into the third generation era. Revenues from messaging and web usage now account for over 9% of total revenues, with web customer ARPU now exceeding SMS customer ARPU. J-Phone's data and internet services include 'SkyWalker', its multi- media messaging and e-mail service, and 'SkyWeb', which incorporates navigational tools and download capability from the Internet. J-Sky's new multimedia handset features a normal sized handset with integrated digital camera and multi-media enhancement through clearer colour and improved imaging. J-Phone has recently launched 'J-Sky Station', an adaptation of GSM cell broadcast-based local information and advertising service, a unique service offering in the Japanese market. In July 2000, J-Phone was awarded one of three 3G licences available in Japan. No licence fee is required by the Japanese government. MIDDLE EAST & AFRICA Financial Highlights Six months Six months to to Increase 30 September 30 September % 2000 1999(1) Proportionate customers 1,711,000 916,000 87 Proportionate turnover £213m £178m 20 Proportionate EBITDA £100m £63m 59 Proportionate EBITDA margin 47% 35% (1) Proportionate customers, turnover and EBITDA for the period to 30 September 1999 are presented on a pro forma basis for the merger with AirTouch. At 30 September 2000, the Middle East & Africa region had network operations in three countries; Egypt, South Africa and Kenya. The Group sold its investment in Celtel (Uganda) for a profit of £5 million during the period and acquired a 40% stake in Safaricom in Kenya. Customer growth was particularly strong in Egypt where the Group's 60% subsidiary, Misrfone, is the country's second GSM operator. Operating under the Click GSM brand name, Misrfone's customer base almost doubled during the period, with net customer additions of 385,000 increasing the total customer base to 790,000. New prepaid offerings stimulated this growth in the market. In South Africa, Vodacom, in which the Group has a 31.5% shareholding, increased its customer base from 3,069,000 at the beginning of the period to 3,895,000 at 30 September 2000, representing a 27% growth in customers in the period. Approximately 74% of the customer base is connected to the Vodago prepaid product. OTHER BUSINESS DEVELOPMENTS Internet and mobile data Vizzavi Europe is the Group's 50/50 joint venture with Vivendi of France which has been created to develop and implement a common European multi-access portal throughout the parties' respective mobile, fixed and cable television networks in Europe. Vizzavi Europe, which is based in London, has embarked upon its major portal platform development programme, in conjunction with internet portal businesses which already exist in many of the Group's networks. The aim is to provide a common platform, with a unique feel to customers in all of the main European mobile networks, within the next twelve months. Although the general format and branding ('Vizzavi') will be the same, content will be specifically tailored to local conditions, needs and interests. Vizzavi Europe received clearance from the European Commission, in July 2000, to operate its proposed services in Europe. The Vizzavi brand for the multi-access portal has been launched in France, the UK and the Netherlands, and is expected to be launched in Germany and Italy by the end of the year. The UK will be the first country in Europe to adopt the Vizzavi platform by the end of this year. Launch in other European markets will then follow throughout the next financial year. The global internet platform and Vizzavi brand is also being introduced in regions other than Europe, with its launch in New Zealand during November 2000 to be followed by Australia in January 2001. Synergies Initiatives have been developed during the period to realise the synergy benefits quantified at the time of the Mannesmann transaction, both in respect of cost (infrastructure, handset and overhead savings) and revenues. Projects currently under way, each encouraging a stronger organisational integration of the Group, are the introduction of the Vodafone name as a global brand, pan-European product development, the roll-out of new technologies, the introduction of Vizzavi to the main European markets and the consolidation of global purchasing volumes. Organisational changes resulting from these projects will be implemented during the current financial year, and are expected to deliver enhanced revenues, a quicker time to market for new products and a reduction of purchasing costs in the Group's operations. Commencing in January 2001, the Vodafone name will be introduced alongside European subsidiaries' existing brands, starting a migration process to a single global Vodafone brand positioned to complement the Group's product strategy. Sales of businesses In April 2000, Mannesmann reached an agreement with Siemens AG and Robert Bosch GmbH for the sale of 50% plus two shares of its interest in Atecs Mannesmann, its engineering and automotive business, valuing Atecs at approximately EUR 9.6 billion. On 29 September 2000, Siemens and Bosch made a payment of approximately EUR 3.1 billion plus interest to Mannesmann in exchange for the pending transfer of 46% of the share capital of Atecs. Siemens and Bosch will also acquire additional Atecs shares from a capital increase, bringing their total shareholding in Atecs to approximately 50.1%, and upon closing will assume EUR 2.8 billion of pension and non-trading financial liabilities. Further proceeds of between EUR 3.7 billion and EUR 3.8 billion may be realised upon the exercise of certain options over Mannesmann's remaining stake between closing and 30 September 2002. The sale of Orange to France Telecom was completed on 22 August 2000, following the receipt of conditional approval by the European Commission and approval by the shareholders of France Telecom. The consideration comprised a cash payment of approximately EUR 21.4 billion (£13.2 billion), a EUR 2.2 billion (£1.3 billion) France Telecom loan note, redeemable no later than 31 March 2001, and 113,846,211 France Telecom shares, representing 9.87% of the outstanding share capital of France Telecom. The non-cash consideration, comprising the shares and the loan notes, is underwritten by France Telecom at £8.4 billion. In addition, France Telecom assumed Orange's existing debts, and its financial obligation regarding its UK 3G licence, totalling £4.1 billion. Mannesmann has also reached agreement to sell Les Manufactures Horlogeres, its luxury watches business, to Richemont S.A. for a cash consideration of approximately EUR 1.8 billion. The agreement is conditional on certain regulatory approvals. On 9 October 2000, Mannesmann completed the sale of its tubes business to Salzgitter for a nominal consideration. In the period prior to the completion of sale, Mannesmann made capital contributions to the tubes business totalling EUR 271 million. On 11 October 2000, Mannesmann announced that it had reached an agreement for the sale of its interest in Infostrada to Enel S.p.A. The consideration for the equity will be EUR 11.0 billion, consisting of EUR 5.5 billion in cash, EUR 2.5 billion of one-year unlisted bonds and EUR 3.0 billion of three-year listed bonds. The bonds will be guaranteed by Enel. The consideration is subject to an upward or downward adjustment by a maximum of EUR 0.6 billion for a period of approximately 9 months following the signing of the agreement, depending on the performance of certain agreed stock market indices. In addition, Enel will assume Infostrada's net debt of up to EUR 1.1 billion at closing. Subject to the receipt of regulatory approvals, the sale is expected to be completed in the first quarter of 2001. Recent transactions On 4 October 2000, Vodafone and China Mobile (Hong Kong) Limited announced that they had entered into a memorandum of understanding setting out the principal terms for a strategic alliance and co- operation between the two parties in mobile services, technology, operations and management. The arrangements contemplated by the memorandum of understanding are subject to entering into definitive agreements by 28 February 2001. Vodafone and China Mobile also intend to explore opportunities for joint ventures and other equity-based strategic alliances in areas such as research and development of wireless data services, international investment opportunities and regional and/or global alliances. Concurrent with the signing of the memorandum of understanding, Vodafone agreed to purchase an equity interest in China Mobile. In an offering that closed on 3 November 2000, Vodafone acquired newly-issued shares representing approximately 2.18% of China Mobile's share capital for a cash consideration of US$2.5 billion. On 8 November 2000, Vodafone and Swisscom AG jointly announced a strategic partnership between Vodafone and Swisscom Mobile and an agreement for Vodafone to acquire a 25% equity interest in Swisscom Mobile for Swiss francs 4.5 billion (£1.8 billion). Swisscom Mobile, which is the mobile telecommunications business of Swisscom AG, will be separated from its parent prior to completion of the transaction. The consideration for the 25% stake represents an enterprise value of approximately £7.3 billion for Swisscom Mobile, including net debt of £0.2 billion, and assumes that Swisscom Mobile will have obtained and paid for a UMTS licence. The consideration for the equity will be paid in cash or Vodafone Group Plc shares, or a combination of both, at Vodafone's discretion. Payment will be in two instalments. £0.9 billion will be paid at closing and the remaining £0.9 billion will be paid within twelve months of closing. The transaction is expected to be completed by the end of March 2001 and is subject to the approval of Swisscom shareholders as well as regulatory approvals. FINANCIAL UPDATE Acquisition of Mannesmann AG At 31 March 2000, the Group's interest in Mannesmann AG was included in fixed asset investments. The results and net assets of Mannesmann have been consolidated in the Group's financial statements with effect from 12 April 2000, the date the acquisition was completed, except for Atecs Mannesmann, Mannesmann's watches and tubes businesses, Orange, Infostrada and other businesses held for resale. These businesses, except Orange, are included as assets held for resale within current asset investments in the balance sheet, and the profit and loss account excludes their results. Current asset investments also include the France Telecom loan note and 113,846,211 France Telecom shares arising from the disposal of Orange, which was completed on 22 August 2000. The goodwill arising has been provisionally calculated as £79.9 billion and is being amortised primarily by reference to the unexpired licence period of the underlying acquired network businesses. The amortisation periods determined range between 5 and 10 years for the acquired mobile operations. Formation of Verizon Wireless joint venture The Group's interest in Verizon Wireless, which was formed on 3 April 2000, has been accounted for using equity accounting. The assets of the US businesses contributed to the Verizon Wireless joint venture have been treated as having been disposed, including attributed goodwill of £19.6 billion arising from the AirTouch transaction, and the Group's interest in the new venture is included within investments in associated undertakings. Exceptional reorganisation costs Exceptional reorganisation costs of £137 million have been incurred in the period as a necessary part of realising the synergies from each of the above transactions. Exceptional costs of £54 million relate to the restructuring of the Group's operations in Germany and the US, and the balance represents the Group's share of the restructuring costs incurred by Verizon Wireless. Measurement of prepaid churn The Group's global policy for the measurement of prepaid customer churn by subsidiaries is to adopt the local market practice agreed by operators for the purposes of market share comparisons. If a local policy is not in place, the Group policy is to exclude prepaid customers who have been inactive for over six months. Exchange rates Movements in exchange rates had a net adverse effect of £64m on the growth in pro forma proportionate EBITDA for the six months ended 30 September 2000. At constant exchange rates, the growth in pro forma proportionate EBITDA compared with the corresponding period is 27%. Interest The net interest charge of £597m was up from £136m for the comparable period, and includes interest on Mannesmann's debt which was assumed at acquisition on 12 April 2000. Group interest, excluding the Group's share of interest expense in joint ventures and associated undertakings, is covered 4.8 times by Group EBITDA (before exceptional reorganisation costs and excluding dividends received from joint ventures and associated undertakings). The ratio of Group EBITDA to interest is expected to increase in the second half of the financial year, reflecting the anticipated reduction in Group net debt. Taxation The effective rate of taxation for the period, before goodwill and disposals, increased to 34.5% from 32.5% in the year ended 31 March 2000, primarily due to the higher rates of taxation attributable to the acquired AirTouch and Mannesmann operations. Dividend The interim dividend is increased by 5% from 0.655p per share last year to 0.688p per share. Shareholders' funds Total equity shareholders' funds at 30 September 2000 decreased from £140,833m at 31 March 2000 to £136,559m at the end of the period. The reduction primarily comprises the loss for the period of £4,662m (after goodwill amortisation of £5,593m) and a declared dividend of £423m, offset by net currency translation gains of £582m. Funding Net debt at 30 September 2000 was £13,178m, representing an increase of £6,535m from net debt at 31 March 2000. The increase is primarily due to the consolidation on acquisition of Mannesmann's net debt (£12,526m), the purchase of intangible assets (£11,470 million), primarily 3G licences in the UK and Germany, offset by, cash receipts from the trade sale of Orange and the disposal of certain of Mannesmann's non-mobile assets (£14,924m), a debt reduction following the closing of the Verizon Wireless joint venture (£2,544m) and cash generated from operations. Net debt represented 8.5% of the Group's market capitalisation at 30 September 2000. As a result of the sale of Orange to France Telecom, the Group owns 113,846,211 France Telecom shares and a France Telecom loan note. The Group also expects to receive approximately EUR 5.5 billion of cash during the first quarter of 2001, and ENEL loan notes in the form of EUR 2.5 billion one-year unlisted bonds and EUR 3.0 billion three-year listed bonds, on the assumption that the sale of Infostrada to ENEL is completed. Further cash proceeds of between EUR 3.7 billion and EUR 3.8 billion from the disposal of the remaining minority stake in Atecs may be realised in 2002 or 2003 if certain options are exercised. The Group remains committed to maintaining a strong financial position as demonstrated by its credit ratings of P-1/F1/A-1 short term and A2/A/A long term from Moody's, Fitch Ratings and Standard and Poor's, respectively. The credit ratings reflect the financial strength of the Group after taking into account the acquisition of Mannesmann AG and payments for 3G licences. The Group's preservation of its credit ratings has enabled it to access a wide range of debt finance including commercial paper, bonds and committed bank facilities. The Group has dollar and euro commercial paper programmes for US$15 billion and £2 billion respectively, which it uses to meet its short term liquidity requirements. The commercial paper facilities are backed by a US$14.55 billion (£9.8 billion) committed bank facility, which expires in September 2001, with a one year term-out option. This facility replaced the Group's previous EUR 17.0 billion and US$7.5 billion committed bank facilities. The Group also has £13.7 billion (sterling equivalent) of capital market debt in issue, with maturities from March 2001 to February 2030. The combination of strong operating cash flows, proceeds from disposals and good credit ratings leaves the Group well placed to take advantage of value creating opportunities as they arise. MORE TO FOLLOW

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