Interim Results - Part 1

Vodafone Group PLC 13 November 2001 PART 1 VODAFONE GROUP PLC INTERIM RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2001 * Statutory turnover increased by 27% to £8,906 million. * Statutory operating profit** increased by 40% to £3,392 million. * Earnings per ordinary share** increased by 63% to 2.51 pence per share. * Proportionate EBITDA*** from mobile businesses increased by 46% to £4,778 million, with an improvement of 3% in EBITDA margin to 35%. * Operating cash flow per share increased by 69% to 5.37 pence per share. * Free cash flow of £606 million. * Interim dividend increased by 5% to 0.7224 pence per share. * Continued growth in customer base with a 15% increase in proportionate registered customers to 95.6 million since 31 March 2001. Venture customer base now over 210.1 million registered customers. * Strong financial position. Net debt of £9,240 million, representing 9% of market capitalisation. Single A credit ratings maintained. ** before goodwill amortisation of £6,697 million and exceptional items, which comprise exceptional operating costs of £4,515 million and exceptional non-operating items of £248 million *** - before exceptional items Sir Christopher Gent, Chief Executive of Vodafone Group Plc, commented: 'These results show excellent financial performance with robust growth in EBITDA***, operating profit** and earnings per share**, improved margins and strong cash flow generation. This growth in all respects is better than we expected following the realignments to our strategy announced earlier this year. 'Vodafone's enhanced global leadership position, excellent progress on new products and service initiatives, combined with our better operational performance, is delivering strong growth momentum which serves to highlight both the defensive as well as growth qualities of Vodafone.' Julian Horn-Smith, Group Chief Operating Officer, commented: 'I am pleased to report that the Group's performance reflects our shift in operational focus towards driving customer value and further cost improvements. Customer growth in the period was ahead of our expectations with a better mix of higher value customers. Service revenue growth continues to improve, with an encouraging trend in ARPU stabilisation. Our margin improvement resulted from more targeted customer acquisition and retention programmes and tighter cost control in all parts of the business. In addition, we have made excellent progress in rolling out the Vodafone brand globally and we remain on track to deliver the synergy benefits identified at the time of the Mannesmann transaction.' GROUP FINANCIAL HIGHLIGHTS Increased profitability Statutory basis Six months to 30 September 2001 2000 Increase (note 2) £m £m % Turnover 8,906 7,019 27 Total Group operating profit/(loss) - before goodwill amortisation and exceptional items 3,392 2,420 40 - after goodwill amortisation and exceptional items (Note 1) (7,820) (3,306) Profit/(loss) on ordinary activities before taxation - before goodwill amortisation and exceptional items 3,011 1,823 65 - after goodwill amortisation and exceptional items (Note 1) (8,449) (3,898) Exceptional items include an impairment charge of £4.75 billion in respect of the carrying value of Arcor and two other investments. No impairment charge necessary in respect of the Group's controlled mobile businesses. PROPORTIONATE BASIS Proportionate Proportionate Mobile turnover EBITDA * Telecommunications Six months Six months (Note 3) to 30 September to 30 September 2001 2000 Inc- 2001 2000 Inc- (Note 4) rease (Note 4) rease £m £m % £m £m % Northern Europe 3,133 2,582 21 1,028 785 31 Central Europe 2,343 2,115 11 1,026 624 64 Southern Europe 2,408 1,612 49 1,049 673 56 Americas 2,839 2,414 18 1,000 815 23 Asia Pacific 2,517 1,234 104 567 285 99 Middle East and Africa 252 213 18 108 100 8 ----- ----- ----- ----- 13,492 10,170 33 4,778 3,282 46 ===== ===== ===== ===== Organic growth at constant exchange rates 13 26 * before exceptional items Increased earnings and dividend growth Per share information Six months to 30 September 2001 2000 (Note 2) Increase % Basic earnings/(loss) per share - before goodwill amortisation and exceptional items 2.51p 1.54p 63 - after goodwill amortisation and exceptional items (Note 1) (14.36)p (8.01)p Dividend per share 0.7224p 0.6880p 5 Operating cash flow per share 5.37p 3.18p 69 Notes 1. Goodwill amortisation charge of £6,697m, compared with £5,589m for the six months ended 30 September 2000. Exceptional items comprise exceptional operating costs of £4,515m, including an impairment charge of £4,450m in respect of Arcor and Iusacell, and exceptional non-operating items of £248m including an impairment charge of £300m in respect of the Group's investment in China Mobile (Hong Kong) Limited. For the six months ended 30 September 2000, exceptional operating and non-operating items totalled £137m and £5m, respectively. Further details are given in Notes 2, 3 and 4 on pages 23 and 24. 2. Certain prior period comparative information has been restated following the adoption of FRS 19 during the period. Further details are given in Note 1 on page 22. 3. Proportionate information is presented for the Group's mobile telecommunications businesses only, and is calculated on the basis described in Note 1 on page 22. 4. Proportionate comparative financial information is presented on a pro forma basis for the acquisition of Mannesmann as described in Note 1 on page 22. GROUP OPERATING HIGHLIGHTS Key performance indicators * ARPU stabilising across the Group, one year ahead of expectations, with ARPU in the Group's German, Italian and UK markets all increasing in the second quarter compared with the first. * Non-voice service revenues in the Group's controlled mobile businesses represented 9.1% of total service revenues for the twelve month period to 30 September 2001, compared with 8.1% for the year ended 31 March 2001. In the month of September 2001, non-voice service revenues represented 9.9% of total service revenues. * Worldwide customer base of 95.6 million proportionate registered customers at 30 September 2001, representing growth of 15% since 31 March 2001. Venture customer base over 210.1 million registered customers. * Improved customer mix between prepaid and contract customers through strategic focus on gaining and retaining high value customers. * Active customers represented 90% of the total registered customer base in the Group's controlled mobile businesses. * Acquisition incentives to new customers connecting to prepaid tariffs reduced in all the Group's major markets. Commercial initiatives Improved service offerings * Commercial GPRS services available in all the Group's major markets. * Competitively secured a broad base of multi-national accounts through the new global account strategy, providing a range of voice and data services to large numbers of high value corporate customers. * Launch of new services including: Eurocall with almost 4 million customers in eleven markets; Virtual Home Environment rolled out to eleven countries generating more than 6 million minutes of traffic; prepaid roaming, available to customers in five of the Group's networks, generating more than 11 million minutes of traffic and 5 million SMS messages; and assisted roaming, offered by sixteen Vodafone operators, is increasing the inbound roaming capture rate. Global branding * All non-Vodafone branded subsidiaries in Europe and Africa now dual-branded. Operations in Spain and Portugal migrated to single Vodafone brand in October 2001, ahead of schedule, with others planned throughout 2002. * Launch of the global Vodafone brand through 'How are you?' campaign. * Ferrari sponsorship from the 2002 Formula One motor racing season to enhance global awareness of the Vodafone brand. Transactions * Acquisition of additional stakes in Japan Telecom and the J- Phone Group during the period, followed in October 2001 by the successful completion of the Group's tender offer for a further 21.7% stake in Japan Telecom taking the Group's interests to a controlling 66.7% in Japan Telecom and an economic interest of almost 70% in the J-Phone Group. * Completion during the period of the acquisition of Eircell in Ireland, a 34.5% interest in Grupo Iusacell in Mexico, together with increased stakes in the Group's subsidiaries in Spain to 91.6% and Australia to 95.5%. * Disposal of 11.7% equity stake in Shinsegi Telecom, Inc. in Korea. BUSINESS REVIEW At the beginning of the calendar year the Group announced the outcome of a review which sought to realign the Group's strategic objectives to emphasise cost control and margin management as the market transitions to the full impact of new data services, technologies and 3G. This realignment is having a positive impact on the Group's results with proportionate turnover, EBITDA before exceptional items, statutory turnover and total Group operating profit, before goodwill amortisation and exceptional items, all growing strongly. In addition, earnings per share, before goodwill amortisation and exceptional items, increased by 63% to 2.51 pence per share and operating cash flow per share improved 69% to 5.37 pence per share. Statutory turnover increased by £1,887m from £7,019m in the comparable period to £8,906m in the six months ended 30 September 2001. The increase comprised £197m from Eircell which was acquired by the Group during the period, £876m from Airtel Vodafone which was acquired by the Group in the second half of the financial year ended 31 March 2001, and £814m from existing businesses, representing growth of 12% on the prior period. This growth resulted from the larger customer base in controlled businesses, offset by an overall decline in ARPU, compared to the prior period, and lower connection revenues, due to the lower net customer growth. The tragic events of 11 September have not had a material effect on the Group's results for the period. However, the Group has seen a small decline in roaming revenue associated with the reduction in international air traffic. The Group's overall mobile proportionate EBITDA margin increased from 32% in the comparable period to 35% for the six months ended 30 September 2001. EBITDA margins increased in all the Group's major markets, except in Japan, due to the Group's strategy of focusing on cost control, including reduced connection costs, and the retention of high value customers. In Germany in particular, EBITDA margins increased significantly, from 30% to 45%, due primarily to lower customer acquisition costs from the significantly lower gross customer growth and the focus on customer retention initiatives. In Japan, a combination of competitor activity and the increased demand for internet-access handsets pushed up acquisition and upgrade costs, resulting in an EBITDA margin of 20% compared to 22% in the prior period. The total statutory Group operating loss, after goodwill amortisation and exceptional items, increased in the period, primarily as a result of a £4.45 billion impairment charge taken in respect of certain of the Company's investments, further details of which are given on page 15. A review of the Group's principal business, the supply of mobile telecommunications services and products, is described below. A review of the Group's other operations, which primarily comprise fixed line telecommunications businesses and the Vizzavi Europe joint venture, can be found on page 12. The appendices to these Interim Results also contain a summary of certain key performance indicators for each of the Group's segments, providing details of the registered customer base, including further analysis between prepaid and contract, active and inactive customers, ARPU, and non-voice service revenue data. On 1 April 2001, in response to the rapid expansion of the Group, the Company implemented a planned reorganisation of its overall management structure into five main regions: Northern Europe, Middle East and Africa; Central Europe; Southern Europe; Americas and Asia; and Pacific. The geographical segments for the analysis of the Group's operating results for the six months ended 30 September 2001 have been amended and comparatives have been restated. Comparative results for the Group have also been restated following the adoption of FRS 19, 'Deferred tax', further details of which can be found on page 22. Mobile Telecommunications The Group's mobile businesses performed strongly in challenging and competitive conditions. Proportionate turnover increased by 33% to £13,492m, with all segments reporting double-digit growth, and proportionate EBITDA, before exceptional items, increased by 46% to £4,778m. In the six months to 30 September 2001, the Group added a further 12.6 million customers to its proportionate registered base. At the period end the Group had 95.6 million proportionate customers and the total venture base was 210.1 million registered customers. This compares with a proportionate registered base and total venture base of 65.5 million and 116.2 million, respectively, as at 30 September 2000. Northern Europe Financial highlights Six months to 30 September 2001 2000 Increase £m £m % Statutory turnover - United Kingdom 1,805 1,655 9 - Other Northern Europe 777 527 47 ----- ----- 2,582 2,182 ----- ----- Statutory total - United Kingdom 394 361 9 Group operating - Other Northern Europe 355 235 51 profit (Note 1) ----- ----- 749 596 ----- ----- Proportionate - United Kingdom 1,805 1,662 9 Turnover (Note 2) - Other Northern Europe 1,328 920 44 ----- ----- 3,133 2,582 ----- ----- Proportionate EBITDA - United Kingdom 565 495 14 (before - Other Northern Europe 463 290 60 exceptional items) (Note 2) ----- ----- 1,028 785 ----- ----- Proportionate EBITDA - United Kingdom 31% 30% margin (Note 2) - Other Northern Europe 35% 32% Note 1 - before goodwill amortisation and exceptional items Note 2 - comparatives are presented on a pro forma basis for the acquisition of Mannesmann United Kingdom Vodafone UK continued to make good progress against a backdrop of competitive and challenging market conditions with both statutory turnover and total Group operating profit, before goodwill amortisation and exceptional items, increasing by 9% to £1,805m and £394m, respectively. Proportionate EBITDA, before exceptional items, increased by 14% to £565m. At 30 September 2001, Vodafone UK had 12,799,000 registered customers, of whom 4,631,000 were contract customers. During the period, Vodafone UK reported contract net additions of 337,000, representing a 45% increase compared to the six month period ended 30 September 2000, which reflected the continued focus on gaining and retaining higher value customers. Vodafone UK's service provider companies accounted for 56% of the contract customer base. Both contract and prepaid ARPU has stabilised over recent months. ARPU for the contract customer base for the twelve months to 30 September 2001 reduced to £535 compared to £550 for the year to 31 March 2001, primarily as a result of price reductions in the second half of 2000, with further dilution arising from the migration of higher value prepaid customers onto contract tariffs. The average cost to connect for contract customers increased slightly to £119 for the six month period to 30 September 2001, compared to £115 for the previous period, reflecting the competitive nature of the market and the increased proportion of higher value customers connected in the period. The migration of higher value prepaid customers also impacted on prepaid ARPU, which declined from £156 for the year to 31 March 2001 to £139 for the year to 30 September 2001. Prepaid cost to connect for the period to 30 September 2001 was £32 compared to £56 in the six months to 30 September 2000 as a result of continued reductions in distribution incentives for prepaid products in order to improve the profitability of this market segment. Continued investment in network infrastructure improved network quality significantly and ensured Vodafone's position as the UK's leading network. This, together with improvements to customer service, helped to control network churn in the last twelve months to 25.9%, despite the increased number of replacement prepaid sales, compared to 25.0% in the year ended 31 March 2001. In the latest OFTEL survey Vodafone UK was recognised as the leading UK network for customer service with a level of customer satisfaction which, at 98%, exceeded its nearest competitor by 4%. During the period Vodafone UK continued to re-focus its resources for the future and look for ways to improve efficiency. The results of a detailed operational review were announced to employees on 16 October 2001, which will deliver a rebalancing of resources into new product development, product management and customer development activities in addition to an overall reduction in headcount. This is likely to result in up to 650 redundancies out of Vodafone UK's 10,000 permanent employees. During the period, Vodafone UK successfully launched its GPRS service. Vodafone UK's 3G plans remain on schedule for launch in the second half of 2002. Other Northern Europe The Group's other interests within Northern Europe reported financial performance in line with expectations. The results for the segment include a proportionate turnover and EBITDA contribution from Eircell, which was acquired by the Group in May 2001, of £197m and £76m, respectively. At 30 September 2001, Eircell, Ireland's largest mobile operator, had approximately 1,611,000 registered customers, 29% of whom are contract customers. On 1 October 2001, Eircell was rebranded Eircell Vodafone. Eircell Vodafone is expected to participate in the competitive tendering process for a 3G licence once the award process has been finalised. Libertel Vodafone significantly improved its EBITDA margin during the period from 24% to 31% as a result of its strategy of focusing on higher value customers, with over 1,096,000 contract customers out of a total base of 3,223,000 as at 30 September 2001. Libertel Vodafone has launched electronic recharging for the prepaid market and also introduced prepaid roaming. Europolitan Vodafone reported a customer base of over 1,071,000 at 30 September 2001, 75% of whom are connected on the more profitable contract tariffs. The company was successful in winning one of four 3G licences in December 2000 and has signed a joint venture agreement with Hi3G Access AB to co-build most of the network in rural areas. The joint venture company will build and operate the infrastructure to provide coverage for up to 70% of the population. In July 2001, SFR was successful in obtaining one of two 3G licences for a total cost of Eur 4.95 billion. In September 2001, the first instalment of Eur 619m was paid. In October the French Government agreed to extend the licence term from 15 to 20 years and to revise the terms of the licence so that, whilst the initial payment stands, further amounts will be based on a percentage of 3G revenue. The level and precise terms of this percentage fee have yet to be finalised but it is likely that there will be a significant reduction in the total licence fee. GPRS has now been launched in all Northern European markets except in Ireland, where Eircell Vodafone plans to introduce GPRS services in January 2002. All expect to launch 3G services at the beginning of 2003, except for Europolitan Vodafone, which expects to launch during the second half of 2002. Central Europe Financial highlights Six months to 30 September 2001 2000 Increase £m £m % Statutory turnover - Germany 2,067 1,952 6 - Other Central Europe 23 12 ----- ----- 2,090 1,964 ----- ----- Statutory total Group - Germany 707 451 57 operating - Other Central profit/(loss) Europe 75 (17) (Note 1) ----- ----- 782 434 ----- ----- Proportionate - Germany 2,057 2,056 - turnover (Note 2) - Other Central Europe 286 59 ----- ----- 2,343 2,115 ----- ----- Proportionate EBITDA - Germany 931 620 50 (before exceptional - Other Central items) (Note 2) Europe 95 4 ----- ----- 1,026 624 ----- ----- Proportionate EBITDA - Germany 45% 30% Margin (Note 2) - Other Central Europe 33% 7% Note 1 - before goodwill amortisation and exceptional items Note 2 - comparatives are presented on a pro forma basis for the acquisition of Mannesmann Germany D2 Vodafone has made a strong start to the year. Statutory turnover increased by 6% to £2,067m due to the inclusion of a full period's statutory results whilst total Group operating profit, before goodwill amortisation and exceptional items, increased by 57% to £707m, primarily reflecting lower connection costs. Proportionate turnover remained constant on a pro forma basis as an 8% increase in service revenues, and in particular, growth in messaging data revenues which increased 39% to over £271m, was almost entirely offset by the reduction in connection revenues as a result of significantly lower gross customer growth. Proportionate EBITDA, before exceptional items, increased by 50% on a pro forma basis to £931m. The proportionate EBITDA margin increased from 30% to 45%. D2 Vodafone is the market leader in terms of both cost efficiency and profitability in comparison with the other German mobile network operators. The six month period ended 30 September 2000 was characterised by significant growth in customers as D2 Vodafone experienced record growth with over 5.4 million net connections in that period, mainly on prepaid tariffs. In the six month period ended 30 September 2001, as the focus switched to customer retention initiatives and improving revenue returns, D2 Vodafone recorded net customer connections of 896,000, resulting in a total proportionate registered customer base of 21,787,000. As at 30 September 2001, active customers represented approximately 91% of the total registered customer base, compared with 87% at 31 March 2001. Contract customers now account for 40% of total customers. Total ARPU continued to decline in the period when compared to the year ended 31 March 2001, falling from Eur 378 to Eur 317 as a result of the significant growth in prepaid customers experienced over the last eighteen months. Contract ARPU fell from Eur 611 to Eur 586 and prepaid ARPU decreased from Eur 151 to Eur 119. The total average cost to connect reduced from Eur 122 to Eur 110, with the costs to connect prepaid customers reducing from Eur 107 to Eur 61. Costs to connect contract customers decreased from Eur 194 to Eur 175. The exceptional growth in prepaid customers last year has resulted in D2 Vodafone experiencing an increase in the number of inactive prepaid customers during the current period and has led to an increase in churn to 15% for the twelve months ended 30 September 2001. D2 Vodafone remains the Group's European leader in terms of messaging and data revenues, which, in the twelve months ended 30 September 2001, represented 14.2% of service revenues. Whilst SMS revenues continue to comprise the largest single element of data-related revenues, growth in other non-voice service revenues is also expected following the launch of GPRS services and the introduction of other innovative data product offerings launched during the period. D2 Vodafone's 3G plans remain on schedule for commercial launch by the end of 2002. In August 2001, D2 Vodafone became the first German network operator to successfully conduct a test transmission of videos, using its Munich based 3G pilot network. Other Central Europe The Group's other interests in Central Europe also reported satisfactory results, benefiting from the inclusion of results from Swisscom Mobile. Vodafone Hungary is one of three cellular network operators in Hungary and has network coverage of 73% of the population. During the period, it increased its customer base by 52% to almost 338,000 customers and strengthened distribution channels through co-operation with additional dealers. Polkomtel is the second largest operator in Poland. Due to the very low mobile penetration rate of approximately 23%, the Polish market still offers significant growth potential for the future. Swisscom Mobile successfully retained its market leadership in the Swiss mobile market, which is characterised by strong competition and an estimated penetration rate of 70%. The focus for Swisscom Mobile's business remains the retention of high value customers and, during the period, it completed its tariff portfolio for all customer segments with clear focus on contract customers. In September 2001, Vodafone satisfied in cash the second and final payment of CHF2.3 billion (£1.0 billion) in respect of the acquisition of its interest in Swisscom Mobile. Southern Europe Financial highlights Six months to 30 September 2001 2000 Increase £m £m % Statutory turnover - Italy 1,739 1,409 23 - Other Southern Europe 1,489 523 185 ------ ------ 3,228 1,932 ------ ------ Statutory total Group - Italy 676 511 32 operating profit - Other Southern (Note 1) Europe 390 182 114 ------ ------ 1,066 693 ------ ------ Proportionate - Italy 1,328 1,137 17 turnover (Note 2) - Other Southern Europe 1,080 475 127 ------ ------ 2,408 1,612 ------ ------ Proportionate EBITDA - Italy 655 515 27 (before exceptional - Other Southern items) (Note 2) Europe 394 158 149 ------ ------ 1,049 673 ------ ------ Proportionate EBITDA - Italy 49% 45% margin (Note 2) - Other Southern Europe 36% 33% Note 1 - before goodwill amortisation and exceptional items Note 2 - comparatives are presented on a pro forma basis for the acquisition of Mannesmann Italy In the six month period ended 30 September 2001, Omnitel Vodafone increased its statutory turnover by 23% to £1,739m, whilst statutory total Group operating profit, before goodwill amortisation and exceptional items, increased 32% to £676m. Proportionate turnover and proportionate EBITDA, before exceptional items, increased by 17% and 27%, on a pro forma basis, to £1,328m and £655m, respectively. Proportionate EBITDA margin also improved from 45% to 49%, largely as a result of revenue growth combined with continued focus on cost control measures. During the period, Omnitel Vodafone consolidated its position as the second largest of four operators in Italy in terms of its registered customer base, which grew by 22% to 16,652,000. The Italian mobile market is characterised by intense competition, with four operators, a high level of prepaid product and, at 86%, one of the highest penetration rates in any country in the world. As at 30 September 2001, 9% of Omnitel Vodafone's total proportionate registered customer base were contract customers, with active customers representing approximately 93% of the total customer base, in line with the position at 31 March 2001. Given these market dynamics, Omnitel Vodafone has continued to focus on high value customers in both the contract and prepaid markets. Total ARPU decreased slightly from Eur 338 in the year ended 31 March 2001 to Eur 332. Whilst prepaid ARPU fell from Eur 289 to Eur 287, contract ARPU increased from Eur 735 to Eur 757. The rate of decline has begun to level out as Omnitel Vodafone benefits from a stabilising trend in voice usage and an increase in revenues generated from the use of data services following the launch in the period of additional products and services. Average customer acquisition costs remain very low compared to all the Group's other major networks at Eur 38, compared to Eur 40 in the six month period ended 30 September 2000. Total churn increased from 14% in the twelve months ended 31 March 2001 to 17% in the twelve months to 30 September 2001, with contract churn reducing from 18% to 16% and prepaid churn increasing from 13% to 17%. These rates reflect the high level of market penetration and the competitive environment combined with the successful implementation of retention initiatives, mainly through structured loyalty schemes targeted at high value customers. The successful launch of new SMS-based services and products has resulted in 49% of customers using the service. These new product offerings contributed to an increase in data and SMS revenues, which represented 7.3% of total service revenues in the twelve months to 30 September 2001, compared to 6.2% in the year ended 31 March 2001. For the month of September 2001, data and SMS revenues represented 8.8% of service revenues. Omnitel Vodafone launched its GPRS service in both the corporate and consumer markets during the period and its 3G plans remain on schedule for commercial launch in the second half of 2002. Other Southern Europe The Group's other interests within Southern Europe produced encouraging results. The results for the segment include the effect of stake increases in Airtel Vodafone. Airtel Vodafone made good progress in the period increasing both turnover and EBITDA. The increased profitability is related to the continuous focus on the acquisition and retention of the more profitable customers as reflected by an increased market share of net new customer additions in contract services. Non- voice service revenues represented 7.5% of total service revenues in the twelve months to 30 September 2001 and are expected to increase in future with the launch of GPRS services announced in October 2001. At the end of October 2001, Airtel Vodafone migrated its brand to Vodafone. Panafon Vodafone performed satisfactorily in a highly competitive market, despite a tariff reduction for contract customers that took effect from July 2001. In May 2001, Panafon Vodafone acquired Unifon, a service provider, as a result of which Panafon now owns an extensive nationwide distribution network of retail outlets servicing over 77% of its customer base. At the end of March 2001, Panafon Vodafone launched its commercial GPRS services to both its retail and corporate customers. In July 2001, Panafon Vodafone was awarded one of three 3G licences for a fee of approximately Eur 176m. In addition it acquired extra 2G spectrum, which will allow Panafon Vodafone to continue to improve the quality of services for its customers. Telecel Vodafone is the second largest operator in Portugal. All Telecel Vodafone customers have access to a GPRS service on its network, following the extension of the service to prepaid customers in May 2001. In October 2001, Telecel Vodafone was renamed Vodafone. Following the award of its licence to operate a GSM network in Albania, Vodafone Albania launched its GSM mobile telephone service in August 2001 and had a registered customer base of over 53,000 at 30 September 2001, mostly in the prepaid segment. AMERICAS Financial highlights Six months to 30 September 2001 2000 Increase £m £m % Statutory turnover 6 3 100 Statutory total Group 740 584 27 operating profit (Note 1) Proportionate turnover 2,839 2,414 18 Proportionate EBITDA 1,000 815 23 (before exceptional items) Proportionate EBITDA margin 35% 34% Note 1 - before goodwill amortisation and exceptional items Verizon Wireless Verizon Wireless is the leading mobile telecommunications provider in the United States in terms of number of customers, network coverage, revenues and cash flow. Verizon Wireless ended the six month period to 30 September 2001 with a total customer base of 28,682,000 registered customers of whom more than 94% were on contract plans. Verizon Wireless has continued to focus on high value customers with 86% of gross customer additions for the period being contract customers. Of the total customer base approximately 20,000,000 are digital customers, more than any other US wireless carrier, generating 90% of peak-hour usage. The popularity of higher value price plans with new and existing digital customers together with the migration of existing analogue customers to digital service have helped to sustain ARPU at high levels. ARPU increased to $577 for the twelve months to 30 September 2001 compared to $551 in the year ended 31 March 2001. The average cost to connect increased from $169 to $187 driven by the company's focus on attracting high value digital contract customers. The events of 11 September did have a brief localised impact on service, however there has been no material impact to the ongoing operations of Verizon Wireless. In response to the tragedy, the Vodafone-US Foundation and UK Charitable Trust contributed a total of $1 million to the America Red Cross disaster relief fund. At 30 September 2001 Verizon Wireless had nearly 1,200,000 data customers, with the number of data customers having increased 135% since the same time last year. Annualised churn on the Verizon Wireless network decreased from 30% for the same six month period last year to 27%. This was due in part to the company's churn management programmes, 'New Every Two' and 'Worry Free Guarantee', designed to increase customer loyalty and the percentage of contract sales. Innovative new products have been developed and launched by Verizon Wireless, such as Express Network, which has been launched in the Philadelphia area, offering access to corporate intranets and the internet at high-speed data rates. This will be rolled out to key areas around the country before the end of 2001. Verizon Wireless was the winning bidder for 113 licences in the Federal Communications Commission's ('FCC') auction of 1.9 GHz spectrum. While 33 of the licences were awarded to Verizon Wireless and transferred to the company for approximately $82m, the remaining licences are subject to litigation following the successful appeal to the federal courts by NextWave Personal Communications Inc., the entity that originally held most of the reauctioned 1.9 GHz spectrum. The FCC cancelled these licences and reclaimed the spectrum after NextWave failed to make payments to the FCC. Negotiations between NextWave, the FCC and winning auction bidders are ongoing to find a resolution that could result in Verizon Wireless receiving the licences won in the auction. Verizon Wireless has indicated its intention to undertake an Initial Public Offering of a minority stake in the company which it hopes to complete by mid-2002. Mexico Grupo Iusacell currently provides wireless services in four of Mexico's nine regions and expects to launch services, in December 2001, in a further two regions for which it holds licences to provide wireless PCS services. In September 2001, Grupo Iusacell announced that it had entered into agreements to acquire a controlling interest in another cellular provider in a further region. Once these new regions are fully operational, Iusacell will have operations in seven of the nine regions, covering a potential market population of 80 million people, representing approximately 81% of the country's total population. At 30 September 2001, Iusacell had 1,707,000 registered customers. ASIA PACIFIC Financial highlights Six months to 30 September Increase/ 2001 2000 (decrease) £m £m % Statutory turnover - Japan - - - Other Asia Pacific 366 341 7 366 341 Statutory total Group - Japan 167 90 86 operating profit - Other Asia (Note 1) Pacific 18 32 (44) 185 122 Proportionate - Japan 2,018 854 136 turnover - Other Asia Pacific 499 380 31 2,517 1,234 Proportionate EBITDA - Japan 413 186 122 (before exceptional - Other Asia items) Pacific 154 99 56 567 285 Proportionate EBITDA - Japan 20% 22% margin - Other Asia Pacific 31% 26% Note 1 - before goodwill amortisation and exceptional items Japan The substantial increase in proportionate turnover and EBITDA, before exceptional items, from the prior year is primarily due to the increases in Vodafone's effective ownership interest in the J-Phone Group during the eighteen months ended 30 September 2001. Further details of the transactions completed during the six months to 30 September 2001 are provided on page 17. The Group's interest in the J-Phone Group has been accounted for as an associated undertaking throughout the period. On 24 August 2001, the Group jointly announced with the J-Phone Group and Japan Telecom that agreement had been reached to merge the four companies of the J-Phone Group to create a unified structure for J-Phone's operations in Japan. The merger, which became effective on 1 November 2001, will further strengthen J-Phone's competitive position in the Japanese market and is expected to generate significant synergy benefits and efficiency gains. Japan's cellular market has continued to expand with the number of mobile users increasing by 4,412,000 to 65,356,000 during the six months to 30 September 2001, resulting in a market penetration of 51.6%. There are now nearly 45 million internet access-enabled handsets in the Japanese market, or approximately 69% of the total customer base. J-Phone added 1,136,000 new customers in the six month period, increasing its customer base to 11,102,000 at 30 September 2001, representing a market share of approximately 17%. Approximately 77% of J- Phone's customer base now have internet access phones, which is a higher proportion of its customer base than any other operator. ARPU has stabilised at Yen 101,760 for the twelve months ended 30 September 2001, compared to Yen 105,971 for the year ended 31 March 2001. Data and SMS revenue as a percentage of total service revenue has continued to increase from 12.1% in April 2001 to 14.6% in September 2001. A combination of competitor activity and the Japanese consumers' appetite for internet access phones continues to push acquisition and upgrade costs higher, adding increased pressure to EBITDA margins. Over the six month period, J-Phone has been able to consistently manage churn and capture a growing share of new customers. Market share of monthly net additions has grown from approximately 17% in April 2001 to over 27% in September 2001. A significant reason for this performance is the new range of handsets J-Phone has been offering. Beginning in April 2001, J- Phone launched the first of a series of mobile handsets with an integrated camera feature. The popularity of the camera- enabled phone has attracted new customers as well as existing J- Phone customers to upgrade their handsets and increase usage. In addition to the camera feature, J-Phone launched Java- compatible handsets earlier this summer. The new handset enables customers to customise software in their phones and to run a variety of other applications. It also enables three- dimensional animated graphics, games and advertisements. J-Phone has postponed the planned launch of its 3G service due to major revisions in the international standards for W-CDMA technical specifications, 3GPP, which were announced in December 2000. This 3G standard will be compatible with the European standard and therefore will provide roaming capabilities. The initial launch of 3G service in the Tokyo area is now currently scheduled for June 2002, with planned launches in other regions in October 2002. Other Asia Pacific Statutory turnover in the Asia Pacific region relates to the Group's operations in Australia and New Zealand, and increased by 7% to £366m in the six months to 30 September 2001. Proportionate EBITDA, before exceptional items, from the Group's other interests in the Asia Pacific region increased by 56% to £154m during the six month period, on turnover of £499m, up 31% on the corresponding period. The increases in proportionate turnover and EBITDA primarily relate to the inclusion of the Group's 2.18% interest in China Mobile (Hong Kong) Limited which was acquired in the second half of the year ended 31 March 2001. Vodafone Pacific, which comprises the Group's interests in Australia, New Zealand and Fiji, increased proportionate turnover, EBITDA, before exceptional items, and registered customers, despite highly competitive market conditions, particularly in Australia. Vodafone Pacific's focus continues to be on delivering profitable growth and on the retention of high value customers, rather than customer acquisition. Subsidies for low value customers have been reduced and ARPU levels are beginning to stabilise. The mix in contract customers has improved in both Australia and New Zealand, with more high value customers in both markets. Non-voice service revenues continued to rise in the six months to 30 September 2001, increasing by 75% on the comparable period, driven by the introduction of new non-voice services. The Australian business was restructured in May 2001 and included a 12% reduction in the workforce. The restructuring will ensure the business is in a better position to capitalise on future opportunities in an increasingly competitive market. Vodafone in Australia and New Zealand expect to start offering customers access to 3G services in 2004, to coincide with the expected mass-market availability of handsets in these countries. China Mobile (Hong Kong) Limited continued to report strong EBITDA margins in the period. This was achieved through expense savings in leased line costs due primarily to a one-time reduction in tariffs and the realisation of synergies in its thirteen-province network. These savings offset a fall in monthly ARPU to Rmb152, caused by an increase in the relative number of lower usage customers and the elimination of surcharges in various provinces. SMS usage volumes experienced continued rapid growth in the first nine months of the calendar year with a total volume of 2.76 billion messages, of which 1.46 billion messages were sent in the last three months alone. In July 2001, China Mobile (Hong Kong) Limited began a GPRS commercial trial in 22 cities in its licensed territories. MORE TO FOLLOW

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