Final Results - Part 2

Vodafone Group Plc 27 May 2003 Vodafone Group Plc Preliminary Results for the year ended 31 March 2003 PART 2 Germany Vodafone Germany delivered a good set of operating results with increased turnover and service revenue being driven by the improved mix in the customer base and higher usage of both voice and data services. In particular, the proportion of messaging and data revenue rose by 2 percentage points, benefiting from the launch of Vodafone live!, and now represents 16.4% of service revenue for the year ended 31 March 2003. The results for Germany also benefited from the effect of a stronger Euro. When measured in local currency, statutory turnover increased by 8%. At 31 March 2003, Vodafone Germany had a customer base of 22,940,000, representing an increase of 7% compared with 31 March 2002. The proportion of contract customers rose by 4 percentage points, compared with the prior year, to 10,694,000 and contract customers now represent 47% of the total customer base. Customer activity levels also increased to 92% at 31 March 2003, compared to 91% at 31 March 2002. Customer churn decreased following a significantly reduced contract churn rate, which decreased from 18.3% to 16.8%, and a reduction in prepaid churn rate from 27.1% to 24.8%. ARPU increased during the year, although contract ARPU decreased from Eur 559 to Eur 519 as a result of higher contract penetration, including customer migrations from prepaid to contract tariffs. Prepaid ARPU increased from Eur 110 to Eur 130, reflecting higher usage levels. Following further reductions in equipment subsidies in the contract segment and reduced commissions per gross addition in both segments, the cost to connect for contract customers decreased from Eur 156 to Eur 145 and the cost to connect for prepaid customers further declined from Eur 24 to Eur 19. The reduction in the proportionate EBITDA margin was predominantly due to higher retention costs. Operating profit was adversely affected by higher depreciation over the prior year as a result of the prior year expenditure on network infrastructure and IT system improvements. Vodafone Germany participated in the Group's launch of Vodafone live! in October 2002 and, by the end of March 2003, 405,000 Vodafone live! handsets had been activated, with 694,000 MMS capable handsets activated in total. The Mobile Connect Card has been launched for business customers and Wireless Local Area Network (W-LAN) will continue to be deployed by Vodafone Germany in the coming months. Lufthansa lounges, airports, exhibitions, congress centres and important hotel chains will also be equipped with W-LAN by Vodafone Germany. In the 2004 financial year, Vodafone Germany expects to launch other innovative services, including multimedia video clips, as it prepares for commercial launch of 3G services. Vodafone Germany's 3G network infrastructure rollout is proceeding according to plan and in accordance with the licence obligation to provide at least 25% population coverage by the end of the calendar year 2003. Other Central Europe The Group's other interests within Central Europe reported improved financial performance, reflecting both continued penetration of their respective mobile markets and improved operational efficiency. At 31 March 2003, the total registered customer base within Other Central Europe stood at 9,428,000, an increase of 24% in the year. At 31 March 2003, Vodafone Hungary's registered venture customers amounted to 954,000, representing growth of over 71% in the year, partly through market share gains which increased from 10.5% at the end of March 2002 to 13.4% at the end of March 2003. Vodafone Hungary not only grew in terms of customers but also in network coverage as it continued to invest in the expansion of its digital network and service offerings with the launch of GPRS, MMS and Vodafone live!. Revenue grew by 109% compared with the prior year, driven by the increase in customer numbers and higher usage, which led to a 6% increase in ARPU. Proportionate turnover also benefited from the acquisition of an additional 24.4% interest in the company. Polkomtel increased its customer base by 34% to 4,839,000 at 31 March 2003. It is anticipated that Polkomtel will return cash to its shareholders through a combination of shareholder loan repayments and, for the first time, dividends. The Swiss market continued to grow, ending the year with a penetration rate of 76%. Swisscom Mobile, already the market leader, acquired more new customers than its competitors, increasing its customer base by 206,000 in the year. ARPU remains strong at CHF1,081. On 7 January 2003, a Partner Network agreement was announced with Mobilkom Austria Group, Telekom Austria's mobile subsidiary. Vodafone's global services in Austria, Croatia and Slovenia have since been launched and the Vodafone brand has been introduced using dual brand logos, creating a source of revenue for both Vodafone and Mobilkom Austria Group. Southern Europe Financial highlights Year ended 31 March 2003 2002 Increase £m £m % Statutory turnover - Italy 4,371 3,711 18 - Other Southern Europe 3,680 3,032 21 -------- -------- 8,051 6,743 19 -------- -------- Statutory total Group - Italy 1,588 1,267 25 operating profit * - Other Southern Europe 907 805 13 -------- -------- 2,495 2,072 20 -------- -------- Proportionate turnover - Italy 3,353 2,838 18 - Other Southern Europe 2,981 2,271 31 -------- -------- 6,334 5,109 24 -------- -------- Proportionate EBITDA - Italy 1,654 1,295 28 (before exceptional items) - Other Southern Europe 1,062 836 27 -------- -------- 2,716 2,131 27 -------- -------- Proportionate EBITDA - Italy 49.3% 45.6% margin - Other Southern Europe 35.6% 36.8% Key performance indicators (Italy only) ARPU Eur 347 Eur 345 Churn 17.3% 18.9% Cost to connect Eur 25 Eur 35 * Before goodwill amortisation and exceptional items Italy Vodafone Omnitel has had another excellent year, increasing its customer base and revenues in a market where the penetration rate has reached 97%. On a statutory basis, turnover increased 18% (13% when measured in local currency), driven almost entirely by a 16% growth in service revenues (11% when measured in local currency). Equipment sales also increased 36% (30% when measured in local currency) as the benefits from increased handset prices more than offset the lower gross customer additions. At 31 March 2003, Vodafone Omnitel's customer base stood at 19,412,000, representing an increase of almost 10%, principally attributable to the continued focus on commercial offers and incentives aimed at driving usage and sustaining customer loyalty, which contributed to reduced churn rates. This level of customer growth was also achieved despite the introduction of mobile number portability and the continued efforts by competitors to develop and market their own offers and loyalty incentives. Of the total customer base, 92% are connected to prepaid tariffs. The 16% growth in service revenues has been generated by the continued growth in the customer base, improved customer retention and increased ARPU. In particular, voice revenues increased principally as a result of higher traffic volumes and the associated prepaid top up cards, which more than offset the voluntary reduction in termination rates. Data revenues increased 50%, due largely to the continued growth in the popularity of SMS messaging, up 48%, and significant growth in other data services, the revenues from which grew more than 140%. Data revenues now represent 11.3% of service revenues. The increase in blended ARPU can be largely attributed to contract ARPU, which grew from Eur 769 in the year ended 31 March 2002 to Eur 818, demonstrating the success of Vodafone Omnitel's targeted customer acquisition and retention initiatives. Prepaid ARPU increased slightly to Eur 298, compared with Eur 297 for the year ended 31 March 2002. Voice ARPU decreased slightly while data ARPU increased 30% compared with the year ended 31 March 2002. Cost to connect continued to reduce as a result of Vodafone Omnitel's strict management of commercial policies. The increase in proportionate EBITDA, before exceptional items, was driven by a combination of growth in turnover and an improved EBITDA margin as a result of the continued focus on controlling acquisition and retention costs, operating expenses and the positive effect of the appreciation of the Euro relative to Sterling. When measured in local currency, proportionate EBITDA, before exceptional items, increased by 22%. Vodafone Omnitel was part of the Group's European-wide launch of Vodafone live! and is also increasing its focus on providing value-added services, adding new voice services and MMS services during the period. By the end of March 2003, 227,000 Vodafone live! handsets had been activated, with 367,000 MMS capable handsets activated in total. Vodafone Omnitel has completed the first stage of its 3G network rollout and commenced user testing. In addition, Vodafone Omnitel plans to commence offering experimental W-LAN services to the public. During the year ended 31 March 2003, the Italian Government agreed to extend the duration of Vodafone Omnitel's 2G and 3G licences from fifteen to twenty years and, following the break up of Blu, the National Regulatory Authority has approved a framework for the assignment of additional 2G spectrum amongst the remaining network operators, including Vodafone Omnitel. After Vodafone Omnitel voluntarily reduced its termination prices in August 2002, the National Regulatory Authority approved a decision to reduce the maximum average termination price to Eur 0.1495 (minus 12%) for Vodafone Omnitel and a competitor, applicable from June 2003. Vodafone Omnitel migrated to the single Vodafone brand on 13 May 2003. Other Southern Europe The Group's other interests within the Southern Europe Region also performed well in the period. The proportionate registered customer base increased by a further 39%, or 4,248,000 customers, to 15,163,000, including 2,471,000 customers added as a result of the effect of stake increases in Vodafone Spain (additional 8.4%), Vodafone Greece (additional 12.1%), Vodafone Portugal (additional 43.5%) and Vodafone Albania (additional 5.5%). Statutory turnover increased 21%, (16% when measured at constant exchange rates), principally driven by excellent growth in Vodafone Spain and Vodafone Greece, which saw turnover increase by 21% and 35%, respectively, (16% and 29%, respectively, when measured in local currency) as a result of the increased customer base and improved ARPU. In both Greece and Spain, turnover growth was achieved against a backdrop of increased competition, which saw competitors developing a range of incentives and commercial offers, including tariff reductions, aimed at sustaining market share. Turnover was, however, adversely affected by increased regulatory pressure, which triggered reductions in interconnect rates for mobile terminated calls in Spain, Greece and Portugal. In Portugal, Onyway (a new market entrant) had its UMTS licence withdrawn with the spectrum reassigned to the other three operators, including Vodafone, which maintained its position as the second largest operator and market leader in the corporate segment. The region also experienced higher roaming revenues and significant growth in data revenues from increased SMS activity. During the period, MMS services were introduced into all markets except Albania, with Greece, Spain and Portugal part of the Group-wide launch of Vodafone live!. Vodafone Albania continued to make market share gains, as penetration in the Albanian market nearly doubled to 30.8%, with a 42.3% share. Levels of brand awareness also continue to improve across the Region as a result of local and Group-wide advertising and sponsorship. AMERICAS Financial highlights Year ended 31 March Increase/ 2003 2002 (decrease) £m £m % Statutory turnover - Verizon Wireless - - - - Other Americas 5 12 (58) -------- -------- 5 12 (58) -------- -------- Statutory total Group - Verizon operating profit * Wireless 1,270 1,332 (5) - Other Americas (51) (15) - -------- -------- 1,219 1,317 (7) -------- -------- Proportionate turnover - Verizon Wireless ** 5,686 5,475 4 - Other Americas 116 163 (29) -------- -------- 5,802 5,638 3 -------- -------- Proportionate EBITDA - Verizon (before exceptional Wireless ** 2,001 1,889 6 items) - Other Americas (24) 18 - -------- -------- 1,977 1,907 4 -------- -------- Proportionate EBITDA - Verizon margin Wireless 35.2% 34.5% - Other Americas (20.7%) 11.0% Key performance indicators (Verizon Wireless only) ARPU $584 $576 Churn 26.5% 29.4% Cost to connect *** $139 $125 * Before goodwill amortisation and exceptional items ** When measured in local currency, proportionate turnover and proportionate EBITDA, before exceptional items, increased by 12% and 14%, respectively *** Comparative restated by Verizon Wireless to be on a basis consistent with the current period Verizon Wireless Verizon Wireless operates in the US, which is a highly competitive market place and which currently consists of six nationwide competitors and a number of regional carriers. Within the US, Verizon Wireless is the leading wireless telecommunications provider in terms of customers and revenues and also operates the most extensive wireless network. The US continues to experience difficult economic conditions and the competitive environment has intensified, with carriers offering progressively larger bundle tariffs. Nonetheless, Verizon Wireless has ranked first in the US market in terms of gross connections and first or second in terms of customer net additions for each of the last four quarters and has further increased its lead over the number two provider in the year. At 31 March 2003, Verizon Wireless' total customer base stood at 33,324,000, a 12.6% increase on the prior year. Annual ARPU increased slightly due to a focus on selling plans with higher access price points, which resulted in slightly higher average cost to connect. Churn decreased due to a reduction in contract churn, which is thought to be attributable to a combination of the quality of Verizon Wireless' network and the success of retention programmes, although this was partially offset by disconnections through the wholesale channel, including nearly 1 million reseller customers following MCI's withdrawal from the market. The increase in proportionate turnover was primarily due to increased service revenue from the larger customer base, as well as additional handset sales for both upgrades and gross additions. The results for the year were also affected by the relative strength of Sterling against the US dollar. When measured in local currency, proportionate turnover and proportionate EBITDA, before exceptional items, increased by 12% and 14%, respectively. Data revenues increased to £136m for the twelve months to 31 March 2003, an increase of 106% compared with the prior year. The proportionate EBITDA margin increased from 34.5% to 35.2% as a result of increased cost efficiencies. Operating profit, before goodwill amortisation and exceptional items, decreased to £1,270m for the twelve months to 31 March 2003 as a result of currency effects and a 38% increase in the charge for depreciation. The increased charge for depreciation arose as a consequence of capital expenditure required to increase network capacity to the levels necessary to satisfy the demands placed on it through increased usage and a larger customer base. Verizon Wireless continues to upgrade its network to the next generation technology (1xRTT) and has extended coverage to more than 85% of the company's national network, with coverage expected to reach nearly 100% by the middle of 2003. On 17 March 2003, Verizon Wireless announced plans to launch a high-speed wireless data service (1xEV-DO) in Washington, D.C., and San Diego, California before the end of the calendar year. This is expected to provide more secure and faster mobile access to corporate intranets. The technology will potentially allow operators to triple data user capacity, and to provide enhanced, next generation wireless services such as video and audio streaming, interactive gaming and other multimedia services. Verizon Wireless also announced its plans to offer access between its own branded W-LAN service and its wireless area networks in the third calendar quarter of 2003 and that it would offer W-LAN services in locations such as hotels and airports. In December 2002, the Federal Communications Commission ('FCC') refunded the remaining $261m on deposit, which represented 15% of the payment made in relation to the re-auction of licences for 1.9GHz spectrum, and relieved Verizon Wireless of its remaining obligations with respect to the auction. In addition, on 19 December 2002, Verizon Wireless signed an agreement with Northcoast Communications, L.L.C., to purchase 50 Personal Communications ('PCS') licences and related network assets for approximately $750m in cash. The PCS licences cover large portions of the East Coast and Midwest serving approximately 47.2 million people. On 15 August 2002, Verizon Wireless combined the business operations of Price Communications Wireless, Inc. with certain Verizon Wireless assets in a transaction valued at $1.7 billion, including $550m in net debt that was assumed and redeemed. Price Communications Wireless provided 800 MHz wireless services to approximately 411,000 customers in areas where Verizon Wireless did not previously provide service. Other Americas In Mexico, Grupo Iusacell's ('Iusacell's') financial performance continued to deteriorate in the year despite a modest increase in its customer base and management's efforts to restructure the business through substantial headcount reductions and tight cost and cash management. In order to alleviate certain of the resulting financial pressures, Iusacell began a debt restructuring effort in December 2002 and in May 2003, secured a temporary waiver related to its $266 million secured bank credit facility. Iusacell will continue to work with its financial advisor to restructure the terms and payment schedules of its various debt agreements and instruments. It is likely that Iusacell will require additional funding in order to grow its operations. However, there is no assurance that such funding could be obtained at all or, if obtainable, on terms which would be acceptable to Iusacell. As a result of Iusacell's deteriorating financial performance, the Group has written off its investment and is currently considering its options with respect to its investment, including disposal. In August 2002, the sale of two Globalstar service provider companies, Globalstar US and Globalstar Caribbean, was finalised. In November 2002, the sale of another Globalstar service provider company, Globalstar de Mexico, was finalised. As a result, the Group no longer has an interest in any Globalstar operations. ASIA PACIFIC Financial highlights Year ended 31 March 2003 2002 Increase £m £m % Statutory turnover - Japan 7,539 3,323 127 - Other Asia Pacific 825 749 10 -------- -------- 8,364 4,072 105 -------- -------- Statutory total Group - Japan 1,310 523 150 operating profit * - Other Asia Pacific 111 66 68 -------- -------- 1,421 589 141 -------- -------- Proportionate turnover - Japan 5,258 4,397 20 - Other Asia Pacific 1,178 976 21 -------- -------- 6,436 5,373 20 -------- -------- Proportionate EBITDA - Japan 1,645 991 66 (before exceptional items) - Other Asia Pacific 474 330 44 -------- -------- 2,119 1,321 60 -------- -------- Proportionate EBITDA - Japan 31.3% 22.5% margin - Other Asia Pacific 40.2% 33.8% Key performance indicators (Japan only) ARPU Yen 87,159 Yen 91,903 Churn 23.3% 25.6% Cost to connect Yen 32,519 Yen 34,145 * Before goodwill amortisation and exceptional items Japan In a market that continues to expand, J-Phone Vodafone has produced good results due to a combination of increased service revenues, reduced acquisition and retention expenses and higher operational efficiencies, including centralisation of handset purchasing and improved control over capital expenditure. The financial results have also benefited from the inclusion of a full year's results for the first time and corporate efficiency initiatives. At 31 March 2003, J-Phone Vodafone had 13,912,000 customers and a market share of over 18%. J-Phone Vodafone continued to capture monthly market share above its cumulative market share, with 1,727,000 net customer additions recorded in the year ended 31 March 2003, capturing over 26% of the market. Market penetration in Japan increased by 5 percentage points to 59% at 31 March 2003, compared to 54% at 31 March 2002. One of the key drivers of this recent growth has been the increase in J-Sky web usage and content revenue, together with the continued success of J-Phone Vodafone's other data offerings, 'Sha-mail', the popular photo-messaging service for customers, and the video clip message service 'Movie Sha-mail'. A combination of these innovative services and attractive handsets continues to contribute to reducing customer churn, with 65% of customers now owning camera-enabled handsets. J-Phone Vodafone continues to produce the highest ARPU in the Group and although voice ARPU declined as expected, data and content revenues continue to improve and, in March 2003, represented 21.7% of total service revenues. Average cost to connect decreased following a reduction in customer acquisition subsidies and more cost efficient purchasing, which has been achieved in part by benefits on handset purchases as a result of membership of the Group. J-Phone Vodafone has substantially improved its EBITDA margin to 31.3% for the year ended 31 March 2003, representing an increase of 8.8 percentage points over the previous year. This was due to a combination of the synergies referred to above and also the implementation of improved internal cost control measures. Further cost savings are targeted as areas such as customer care and billing system management are improved. J-Phone Vodafone has also leveraged its brand position since becoming dual branded in December 2001 and plans to migrate to the single Vodafone brand by October 2003. J-Phone Vodafone was the first Group operating company to commence 3G services, which began on 20 December 2002. Its 3G network is compatible with the global W-CDMA standard, thus introducing international W-CDMA and GSM SIM enabled roaming to Japan for the first time. J-Phone Vodafone has at present concluded roaming agreements with 69 operators in 62 countries and regions. Use of micro cell technology has allowed rapid and cost effective deployment of J-Phone Vodafone's 3G network and the company currently has 3,644 operational 3G base stations covering an estimated 71% of the population. By the second half of the 2004 financial year, J-Phone Vodafone aims to expand the network and have 13,275 operational 3G base stations covering over 95% of the population. J-Phone Vodafone has invested in the development of its sales and distribution channels. Convenience stores became a new distribution channel for prepaid phones in February 2003 and J-Phone Vodafone's internet shop has been opened to provide 24-hour direct access for customers. Pilot Vodafone-branded shops were also launched in March 2003, exclusively selling J-Phone Vodafone products and services. In November 2002, the Japanese Telecommunications Ministry ('the Ministry') initiated study groups and discussions regarding tariff setting rights for calls from fixed lines to mobiles. Currently, mobile operators have the right to set these tariffs and this has been challenged by certain fixed line operators. In April 2003, the Ministry published a proposal based on selective transit whereby the caller can select a mobile operators' rates or a fixed line operator's rates. J-Phone Vodafone is considering the proposal and will submit its views in due course. Should the proposal be implemented in its current form, J-Phone Vodafone's future incoming call revenue may be reduced. Other Asia Pacific Considerable progress has been made to reshape the Australian business. Despite an extremely competitive and maturing market, Vodafone Australia's registered customer numbers have risen over 19% since 31 March 2002, following the launch of an enhanced 'no plans'TM offering and the introduction of new national distribution channels. The prepaid sector, in particular, drove the increase in customer numbers. The market share for the Australian business grew by an estimated 1 percentage point to over 18% at 31 March 2003. Total blended ARPU has declined over the period from $688 to $633 as a result of the change in base from access-based plans with subsidies to non-subsidised plans with no access fees. EBITDA increased 23% through continued focus on operational efficiency and enhanced product marketing and distribution. New Zealand performed strongly, with revenues and EBITDA increasing by 32% and 51%, respectively, (20% and 34%, respectively, when measured in local currency), blended ARPU increasing by over 4% and EBITDA margin increasing by approximately 5 percentage points. By 31 March 2003, customer numbers reached 1,289,000, resulting in a 51% market share. In Fiji, despite continuing poor economic conditions, a 12% growth in customer numbers was achieved. In Australia and New Zealand, MMS, GPRS roaming, Prepaid roaming and Mobile Connect were launched during the year. In addition, Vodafone live! was launched in both countries during April 2003. China Mobile (Hong Kong) Limited ('China Mobile') increased its customer base by 49,376,000 in the year to 123,778,000 customers at 31 March 2003, including 25,143,000 customers acquired with the purchase of eight provincial cellular operations from its parent on 1 July 2002. Monthly ARPU continued to fall after showing signs of stabilising earlier in the year as a result of lower tariffs aimed at retaining customers as competition increased, although SMS volume growth accelerated, with almost 17.5 billion messages sent in the final quarter of the current financial year, up from 13.3 billion in the prior quarter. During the year the Group increased its stake in China Mobile to approximately 3.27% and, on 22 May 2003, received its first cash dividend from China Mobile. MIDDLE EAST AND AFRICA Financial highlights Year ended 31 March Increase/ 2003 2002 (decrease) £m £m % Statutory turnover 290 306 (5) Statutory total Group operating profit * 197 161 22 Proportionate turnover 526 488 8 Proportionate EBITDA (before exceptional items) 243 211 15 Proportionate EBITDA margin 46.2% 43.2% * Before goodwill amortisation and exceptional items Results for the Middle East and Africa region have been adversely affected by the weakening of the Egyptian Pound and Kenyan Shilling over the period, although this was partially offset by a strengthening of the South African Rand. Vodafone Egypt continued to grow strongly throughout the financial year, with customer numbers increasing by over 31% to 2,263,000. This resulted in a 17% growth in turnover measured in local currency. A focus on cost effectiveness in the operation lead to significant improvements in EBITDA margin, which increased from 40% to 49%. In South Africa, Vodacom reported significant improvements in its operating results as its operations in Tanzania, Lesotho and the Democratic Republic of Congo continued to grow. Turnover from the South African network increased by over 22%, principally as a result of a 20% growth in customers to 7,874,000, and Vodacom's EBITDA improved by 17% overall. Safaricom, in Kenya, consolidated its position as the market leader with a 55% market share as customer numbers increased 97% to 865,000 over the year. The Group entered into a Partner Agreement with MTC in Kuwait in September 2002. MTC recently obtained a licence to provide mobile telecommunications services in Bahrain. This information is provided by RNS The company news service from the London Stock Exchange

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