Half-Yearly Report - Part 1

13th Nov 2007 07:01

Vodafone Group Plc13 November 2007 Vodafone Group PlcHalf-Yearly Financial ReportPART 1 VODAFONE GROUP PLC Embargo: Not for publication HALF-YEARLY FINANCIAL REPORT FOR before 07:00 hours THE SIX MONTHS ENDED 30 SEPTEMBER 2007 13 November 2007 Key highlights(1): • Group revenue of £17.0 billion, an increase of 9.0%, with organic growth of 4.4% - Europe: 2.0% revenue growth with outgoing usage up 24.0%, messaging revenue up 8.6% and data revenue up 40.8%, all on an organic basis - EMAPA: revenue growth of 39.9%, reflecting acquisitions in India and Turkey. Organic growth of 16.0% - Group data revenue up 48.8% to £1.0 billion, with organic growth of 45.1% • Group adjusted operating profit increased 1.6% to £5.2 billion, with organic growth of 6.1% • Free cash flow from continuing operations of £2.7 billion, reflecting 8.1% mobile capital intensity for Europe(2) • Adjusted basic earnings per share increased by 7.4% to 6.42 pence. Basic earnings per share of 6.22 pence • Proportionate mobile customer base of 241 million at 30 September • Results reflect rigorous execution against the Group's five strategic objectives Increasing returns to shareholders: • Interim dividend per share increased by 6.0% to 2.49 pence, giving a payout of over £1.3 billion Improved outlook: • Increased outlook for revenue, adjusted operating profit and free cash flow for the 2008 financial year (1) See page 4 for Group financial and operational highlights, page 35 for definition of terms and page 37 for use of non-GAAP financial information. See page 5 for the Outlook for the 2008 financial year (2) Includes common functions Arun Sarin, Chief Executive, commented: "These results reflect our continuing focus on the execution of our strategy. InEurope, we have performed well in competitive markets by driving strong growthin voice usage and data revenue, whilst improving cost efficiency. In EMAPA, weare capturing the revenue growth opportunities within emerging markets and benefiting from continuing momentum at Verizon Wireless. The increased interim dividend reflects the Board's confidence in how the business is progressing." Chief Executive's Statement Rigorous execution against our strategic objectives has been key to ourperformance in the first half of the year. We have improved our outlookexpectations for the full year and the Board has increased the interim dividendby 6.0% to 2.49 pence per share, enhancing returns to our shareholders. Group revenue increased by 9.0% to £17.0 billion, or 4.4% on an organic basis.In Europe, where competitive and regulatory pressures remain significant,organic revenue growth was 2.0%. Good revenue growth in Spain and the UK wasoffset by declines in Germany and Italy, where specific competitive andregulatory events have detracted from an otherwise solid business performance.EMAPA delivered another period of continued growth. Revenue grew by 39.9%, or16.0% on an organic basis, with strong performances across the region. Groupadjusted operating profit increased by 1.6% to £5.2 billion, or 6.1% on anorganic basis, including an increased contribution from Verizon Wireless whichgrew by 26.0% on a constant currency basis. Adjusted earnings per share increased by 7.4% to 6.42 pence due to the year onyear benefit from the share consolidation in July last year. Our customer franchise increased by 35 million in the period to 241 millionproportionate mobile customers, including 20 million net additions. Capital expenditure in the first half was £2.0 billion, including £0.4 billionin India since its acquisition in May. Free cash flow generation remains strongat £2.7 billion, after £0.2 billion payments in respect of long standing taxissues. Revenue stimulation and cost reduction in Europe In Europe, our focus is to drive additional usage and revenue from core voiceand messaging services and to reduce our cost base. Central to stimulating revenue have been our initiatives to drive mobile usagethrough offering innovative tariffs, larger minute bundles and targetedpromotions. There has also been a specific focus on migrating prepaid customersto contract, thereby improving customer lifetime value. Overall growth inoutgoing voice usage remained strong at 24.0% for the first half, but continuedpricing pressure resulted in stable outgoing voice revenue. Notwithstanding ourefforts in revenue stimulation, elasticity remains below one. In the businesssegment, which represents approximately 28% of European service revenue anddelivered 5.9% growth in the first half, we are leveraging our market leadingposition. Earlier this year, we established Vodafone Global Enterprise which isresponsible for ensuring that we deliver enhanced service and, our totalcommunications offering to our largest multinational customers. 16 million customers now enjoy lower roaming pricing through Vodafone Passport.All of our European customers are now benefiting from our commitment to reduceroaming prices and the recently introduced roaming regulation. Messaging revenue remains robust with 8.6% organic growth, including strongperformances in Italy and the UK, driven primarily by targeted promotions andtariffs. Cost reduction remains central to our Group and a number of core cost reductionprogrammes are now well established. They are delivering savings across theGroup and have helped to mitigate pressure on EBITDA margins and reduce ourEuropean mobile and common functions capital expenditure to revenue ratio to8.1% in the first half, below our full year target which remains at 10%. Datacentre consolidation and network supply chain management centralisation are delivering savings earlier than originally expected. Innovate and deliver on our customers' total communications needs Our focus is on four key areas which together are expected to represent around20% of Group revenue by the 2010 financial year. In the first half, these areascontributed about 12% of revenue, up from around 10% in the prior year. Data revenue increased by 45.1% on an organic basis, principally enabled by therapid growth in 3G devices, which nearly doubled year on year to over 21 milliondevices. We have also refreshed our consumer mobile internet offering in eightmarkets, supported by partnerships with leading internet players, and arecontinuing to develop products and services to integrate the mobile and PCenvironments. Following completion of the acquisition of Tele2's fixed broadband businesses inItaly and Spain we will have established our preferred route for deliveringfixed broadband services in each of our major European markets through aselective approach of wholesale agreements and owned infrastructure. IncludingTele2, fixed broadband services will be provided to 3.1 million customers in 13markets. Revenue from fixed line services increased by 9.9% on an organic basis,primarily due to 9.6% constant currency growth in Arcor. We continue to drive substitution of fixed line usage for mobile through fixedlocation pricing plans offering customers fixed prices when they call fromwithin or around their home or office. We now have 3.7 million Vodafone At Homecustomers and 2.6 million Vodafone Office customers. We believe mobile advertising is a significant future opportunity for the mobileindustry. We have commercial agreements for mobile advertising in eight marketsand are trialling numerous forms of banner and content based advertising.Vodafone is in a leading position to benefit from future trends in this market. Deliver strong growth in emerging markets Our focus is to build on our track record of creating value in emerging markets.We have delivered further good performances in our existing operations withrevenue growth of 33.1% in Egypt, 24.0% in Romania and 19.6% in Vodacom on aconstant currency basis. Turkey continues to perform well with year on yearrevenue growth of around 28% on the same basis. Our Indian business is delivering very strong growth. Average net customeradditions are running at 1.6 million per month with a customer base of over 35million at the end of September. Year on year revenue growth was around 53% on aconstant currency basis. In September, we successfully rebranded the business toVodafone, an important integration milestone, ahead of plan. As well as driving customer growth, we are differentiating Vodafone in emergingmarkets through a number of initiatives. Our ultra low cost handset, whichretails for as little as $25, enables us to address a wider population indeveloping economies. In October, our first month of sales, we sold 400,000units in India. M-PESA, our innovative money transfer solution was launched in February 2007 and is already benefiting over one million people in Kenya.Efficiency is also vital to success in emerging markets, where low market pricesrequire the lowest possible costs. Actively manage our portfolio to maximise returns We completed the acquisition of Vodafone Essar in India in May 2007 for a cashconsideration of £5.5 billion. In July, we received £0.7 billion from the saleof a 4.99% stake in Bharti Airtel and have agreed the sale of a further 0.61% byNovember 2008. The acquisitions of Tele2 Italy and Tele2 Spain for £0.5 billionwill strengthen our total communications offerings in those markets. Align capital structure and shareholder returns policy to strategy We continue to target a low single A rating, consistent with our policy. The Board remains committed to its policy of distributing 60% of adjustedearnings per share by way of dividend. However, as a result of the earningsdilution arising from the India acquisition, the payout ratio is expected torise above 60% in the near term to better reflect the underlying trends of thebusiness. In growing dividends at 6.0%, ahead of its guidance for modest growth issued inMay, the Board has taken into account the Group's current financial performanceand its confidence in the prospects for the business. Prospects for the remainder of the year Notwithstanding 40.8% organic growth in data revenue and our success instimulating voice usage, we expect market conditions and the pricing environmentto remain competitive in Europe. Growth prospects for the EMAPA region remainstrong as we actively pursue customer growth in markets where penetration isstill increasing. Our success in the first half and continued rigorous execution of our strategyhas allowed us to improve our outlook for the current financial year. Grouprevenue is now expected to be in the increased range of £34.5 billion to £35.1billion, primarily due to improved operational performance. Adjusted operatingprofit is also expected to be higher at £9.5 billion to £9.9 billion, reflectingbetter revenue generation. Capital expenditure on fixed assetsis still expected to be in the range of £4.7 billion to £5.1 billion, includingin excess of £1.0 billion in India. Free cash flow is now expected to be £4.4billion to £4.9 billion, better than previously expected due to better businessperformance and lower payments this year related to long standing tax issues. Summary We are delivering tangible results from our strategy which positions us well todeliver total communications to our customers and to generate attractive returnsfor our shareholders. Arun Sarin GROUP FINANCIAL AND OPERATING HIGHLIGHTS 2007 2006 Change % --------------------Continuing operations(1)(2)(3) Page £m £m Reported Organic-------------------------------------------------------------------------------------Financial information Revenue 21 16,994 15,594 9.0 4.4Operating profit/(loss) 21 5,208 (2,952) Profit/(loss) before taxation 21 4,560 (3,330) Profit/(loss) for the period 21 3,327 (4,548) Basic earnings/(loss) per share (pence) 21 6.22p (8.02)p Capitalised fixed asset additions 1,982 1,824 8.7 Net cash flow from operating activities 17 4,860 4,840 0.4 ------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------Performance reporting(1)(2)(3)(4) Group EBITDA 6 6,565 6,242 5.2 2.4Adjusted operating profit 6,40 5,223 5,141 1.6 6.1Adjusted profit before tax 8,40 4,701 4,724 (0.5) Adjusted effective tax rate 8 30.1% 29.2% Adjusted profit for the period attributable to equity shareholders 8,40 3,397 3,441 (1.3) Adjusted basic earnings per share (pence)40 6.42p 5.98p 7.4 Free cash flow 17 2,661 2,955 (9.9) Net debt 17 23,253 20,229 14.9 ------------------------------------------------------------------------------------- 2007 2006 Change % --------------------Continuing operations(1)(2)(3) Page Million Million Reported Organic-------------------------------------------------------------------------------------Operational Data revenue (£) 6 967 650 48.8 45.13G registered devices 43 21.4 11.1 Mobile voice usage (minutes) 44 198,252 115,143 Proportionate mobile customer net additions 42 20.5 11.5 Proportionate mobile customers 42 241.5 191.6 ------------------------------------------------------------------------------------- This half-yearly financial report contains certain information on the Group'sresults and cash flows that have been derived from amounts calculated inaccordance with IFRS but are not themselves IFRS measures. They should not beviewed in isolation as alternatives to the equivalent IFRS measure and should beread in conjunction with the equivalent IFRS measure. Further disclosures areprovided under "Use of non-GAAP financial information" on page 37. Notes: (1) See page 35 for definition of terms. (2) The results for the six months ended 30 September 2006 exclude the results of the discontinued operations in Japan and include the results of the Group's associated undertaking in Belgium and Switzerland until the announcement of their respective disposal in August 2006 and December 2006. (3) Amounts presented as at 30 September or for the six months then ended. (4) Where applicable, these measures are stated excluding non-operating income of associates, impairment losses and other income and expense, changes in the fair value of equity put rights and similar arrangements (see note 2 in investing income and financial costs on page 7)and certain foreign exchange differences. See page 37 for use of non-GAAP financial information. OUTLOOK FOR THE 2008 FINANCIAL YEAR Please see page 35 for definition of terms, page 36 for forward-looking statementsand page 37 for use of non-GAAP financial information. ----------------------------------------------------------------------------------------- Original Foreign Updated outlook(1) exchange(2) Acquisitions(3) Upgrade outlook £ billion £ billion £ billion £ billion £ billion-----------------------------------------------------------------------------------------Revenue 33.3 to 34.1 0.3 0.2 0.6 34.5 to 35.1 Adjusted operating profit 9.3 to 9.8 - (0.1) 0.2 9.5 to 9.9 Capitalised fixed asset additions 4.7 to 5.1 - - - 4.7 to 5.1 Free cash flow 4.0 to 4.5 0.1 - 0.3 4.4 to 4.9----------------------------------------------------------------------------------------- Notes: (1) As originally stated on 29 May 2007. (2) The Group's outlook update reflects current expectations for average foreign exchange rates for the 2008 financial year of approximately Euro 1.45:£1 (originally 1.47) and US$2.04:£1 (originally 1.98). A substantial majority of the Group's revenue, adjusted operating profit, capitalised fixed asset additions and free cash flow is denominated in currencies other than sterling, the Group's reporting currency. (3) Assumes the financial results of Tele2 Italy and Tele2 Spain will be included with effect from 1 December 2007. Operating conditions are expected to continue to be competitive in Europe withongoing pricing and regulatory pressures but continued positive trends in datarevenue and voice usage. Increasing market penetration continues to result inoverall strong growth for the EMAPA region. Group revenue is now expected to be in the range of £34.5 billion to £35.1billion, higher than previously anticipated primarily due to improvements inoperational performance but also due to net beneficial movements in foreignexchange rates and revenue for Tele2 Italy and Tele2 Spain from the expecteddate of acquisition. Adjusted operating profit is now expected to be in the range of £9.5 billion to£9.9 billion, which is greater than previous expectations, driven substantiallyby better revenue generation. Whilst Group EBITDA margin is still expected to belower year on year, the Group continues to expect mobile operating expenses tobe broadly stable for the total of the Europe region and common functions whencompared with the 2006 financial year on an organic basis, excluding thepotential impact from developing and delivering new services and from anybusiness restructuring costs. Total depreciation and amortisation charges are now anticipated to be slightlyhigher at around £5.9 billion to £6.0 billion, including the impact from theTele2 acquisitions. The outlook range for capitalised fixed asset additions remains unchanged at£4.7 billion to £5.1 billion and continues to include in excess of £1.0 billionin India. Capitalised mobile fixed asset additions for the total of the Europeregion and common functions are still expected to be 10% of mobile revenue forthe year. Free cash flow is expected to be in the range of £4.4 billion to £4.9 billion,higher than originally expected principally due to improvements in operationalperformance and lower anticipated tax payments and associated interest this yearin respect of the potential settlement of a number of long standing tax issues,which are now expected to be £0.3 billion. The outlook for free cash flow isstated including the impact of known spectrum or licence payments only. The Group still expects that further significant cash payments for tax andassociated interest may be made in respect of long standing tax issues. Whilstthe timing of such payments remains uncertain, the Group now expects resolutionof the most significant issues, principally the application of the UK ControlledForeign Company legislation to the Group, to be later than previouslyanticipated. The adjusted effective tax rate percentage is expected to be similar to the 2007financial year rate of 30.5%, which is slightly lower than previouslyanticipated. The Group's longer term expectation for the adjusted tax rateremains in the low 30s. CONTENTS------------------------------------------------------------------------------------ PageFinancial results 6Liquidity and capital resources 17Significant transactions 19Risk factors 19Subsequent events 20Responsibility statement 20Condensed consolidated financial statements 21Other information 35Use of non-GAAP financial information 37Additional investor information and key performance indicators 38------------------------------------------------------------------------------------ FINANCIAL RESULTS GROUP RESULTS The following results are presented for continuing operations. Europe includesthe results of the Group's operations in Western Europe, while EMAPA includesthe results of the Group's operations in Eastern Europe, the Middle East,Africa, Asia and the Pacific area and the Group's associate in the US, VerizonWireless. During the six months ended 30 September 2007, the Group changed itsorganisation structure and the Group's associated undertaking in France, SFR, isnow managed within the Europe region and reported within Other Europe. Theresults for all periods are presented in accordance with the new structure. ------------------------------------------------------------------------------------------------ Common Elim- Europe EMAPA Functions(2) inations 2007 2006 % change £m £m £m £m £m £m £ OrganicVoice revenue(1) 8,704 3,499 (43) 12,160 11,317 Messaging revenue 1,575 377 (4) 1,948 1,786 Data revenue 843 127 (3) 967 650 Fixed line revenue(1) 780 22 - 802 770 Other service revenue 11 - (1) 10 - -------------------------------------------------------Total service revenue 11,913 4,025 (51) 15,887 14,523 9.4 4.6Acquisition revenue 463 211 - 674 642 Retention revenue 165 14 - 179 182 Other revenue 128 51 80 (5) 254 247 -------------------------------------------------------Total revenue 12,669 4,301 80 (56) 16,994 15,594 9.0 4.4Interconnect costs (1,958) (650) 51 (2,557) (2,354) Other direct costs (975) (610) 58 - (1,527) (1,247) Acquisition costs (1,314) (443) - (1,757) (1,556) Retention costs (824) (120) - (944) (854) Operating expenses (2,764) (1,050) 165 5 (3,644) (3,341) -------------------------------------------------------EBITDA 4,834 1,428 303 - 6,565 6,242 5.2 2.4Acquired intangibles amortisation (15) (312) - (327) (197) Purchased licence amortisation (413) (36) - (449) (467) Depreciation and other amortisation (1,398) (517) (94) - (2,009) (1,844) Share of result in associates 261 1,181 1 - 1,443 1,407 -------------------------------------------------------Adjusted operating profit 3,269 1,744 210 - 5,223 5,141 1.6 6.1Adjustments for: Impairment losses - - - - - (8,100) Other - (15) - - (15) 1 Non-operating income of associates - - - - - 6 -------------------------------------------------------Operating profit/(loss) 3,269 1,729 210 - 5,208 (2,952) =======================================================------------------------------------------------------------------------------------------------ Notes: (1) Revenue relating to fixed line activities provided by mobile operators, previously classified within voice revenue, is now presented as fixed line revenue, together with revenue from fixed line operators and DSL. All prior periods have been adjusted accordingly. (2) Common functions represents the results of Partner Markets and the net result of unallocated central Group costs and recharges to the Group's operations, including royalty fees for use of the Vodafone brand. Revenue Revenue increased by 9.0% to £16,994 million for the six months ended 30September 2007, comprising organic growth of 4.4% and the impact of acquisitionsand disposals of 5.4%, primarily from acquisitions of subsidiaries in India inMay 2007 and Turkey in May 2006, partially offset by the impact of unfavourablemovements in exchange rates of 0.8%. Both the Europe and EMAPA regions increased total revenue on an organic basis,achieving growth of 2.0% and 16.0%, respectively. On a reported basis, Europeachieved growth of 1.5%, while EMAPA achieved growth of 39.9%, of which 26.5%was contributed by the impact of acquisitions and disposals, including theacquisition of subsidiaries in India and Turkey. The organic growth in revenue was driven by a continued increase in the customerbase and successful usage stimulation initiatives, despite persisting pricepressures. The organic growth in data revenue of 45.1% was particularly strongand can be attributed in part to increasing penetration of Vodafone MobileConnect 3G/GPRS data cards and handheld business devices. Operating result Operating profit increased to £5,208 million from a loss of £2,952 million inthe prior year, mainly as a result of impairment charges not being incurred inthe current year. Adjusted operating profit increased by 1.6% to £5,223 million,or by 6.1% on an organic basis. Foreign exchange rate movements, particularly inrelation to Verizon Wireless and Vodacom, the Group's 50% owned joint venturewith principal operations in South Africa, and the net impact of acquisitionsand disposals reduced reported growth by 2.6% and 1.9% respectively, with thelatter primarily being due to the increase in amortisation of acquiredintangible assets. Adjusted operating profit is stated after £327 million ofacquired intangible asset amortisation, an increase of £130 million from thesame period last year. The EMAPA region's strong growth was partly offset by a slight decline inprofitability in the Europe region resulting from the continuing challenges ofhighly penetrated markets, termination rate cuts and a high level ofcompetition. The EBITDA margin in Europe was 38.2% compared to 39.5% in the same period lastyear, reflecting higher costs, in particular increased interconnect costs, otherdirect costs and acquisition costs resulting from the competitive environment inthe region. In the EMAPA region, the EBITDA margin declined to 33.2% from 35.8% for the sameperiod last year, in part due to higher growth in the region through investmentin customer base growth, and in part due to the inclusion for the whole of thecurrent period of Turkey, which has a lower EBITDA margin than the region'saverage. In addition, the EBITDA margin in Turkey decreased due to investment inthe rebranding of the business to Vodafone, improving network quality andgrowing the customer base. The Group's share of results from associates grew by 2.6%, or by 18.2% on anorganic basis, with the impact of the disposals of the Group's interests inBelgacom Mobile SA and Swisscom Mobile AG during the prior financial year, andunfavourable foreign exchange movements, reducing reported growth by 9.0% and6.6% respectively. The organic growth was driven by strong growth in VerizonWireless. Investment income and financing costs Six months to Six months to 30 September 30 September 2007 2006 £m £m Investment income 382 425Financing costs (1,280) (813) --------- --------- (898) (388) ========= =========Analysed as: Net financing costs before dividends from investments (394) (272) Potential interest charges arising on settlement of outstanding tax issues (200) (202) Dividends from investments 72 57 --------- --------- (522) (417)Foreign exchange(1) (90) 8Changes in fair value of equity put rights andsimilar arrangements(2) (286) 21 --------- --------- (898) (388) ========= ========= Notes: (1) Comprises foreign exchange differences reflected in the income statement in relation to certain intercompany balances, and the foreign exchange differences on financial instruments received as consideration in the disposal of Vodafone Japan to SoftBank, which completed in April 2006. (2) Includes a charge of £333 million representing the initial fair value of the put options granted over the Essar group's interest in Vodafone Essar, which has been recorded as an expense. Further details of these options are provided on page 19. Net financing costs before dividends from investments increased by 44.9% to £394million following an increase in average net debt of 28.7%, a change in thecurrency mix and higher interest rates. At 30 September 2007, the provision forpotential interest charges arising on settlement of outstanding tax issues was£1,409 million (30 September 2006: £1,047 million). Taxation Six months to Six months to 30 September 30 September 2007 2006 £m £m Income tax expense 1,233 1,218Recognition of pre-acquisition deferred tax asset 15 -Tax on adjustments to derive adjusted profit before tax 19 2 --------- ---------Adjusted income tax expense 1,267 1,220Share of associated undertakings' tax 222 240 --------- ---------Adjusted income tax expense for purposes of calculating adjusted tax rate 1,489 1,460 ========= ========= Profit /(loss) before tax 4,560 (3,330)Adjustments to derive adjusted profit before tax (1) 141 8,054 --------- ---------Adjusted profit before tax 4,701 4,724Add: Share of associated undertakings' tax andminority interest 250 271 --------- ---------Adjusted profit before tax for the purpose of calculating adjusted effective tax rate 4,951 4,995 ========= =========Adjusted effective tax rate 30.1% 29.2% ========= ========= Note: (1) See earnings/(loss) per share below. The adjusted effective tax rate for the six months ended 30 September 2007 was30.1% compared to 29.2% for the same period last year. The effective rate,excluding impairment losses and other adjustments, for the year ending 31 March2008 is expected to be similar to the effective rate for the year ended 31 March2007 of 30.5%. Earnings/(loss) per share Adjusted earnings per share increased by 7.4% from 5.98 pence to 6.42 pence forthe six months ended 30 September 2007, with the increase being primarily due tothe lower weighted average number of shares following the share consolidationwhich occurred in July 2006 and which therefore, will not benefit the secondhalf of the financial year. Basic earnings per share from continuing operationswas 6.22 pence compared to a basic loss per share from continuing operations of8.02 pence for the same period last year. Six months to Six months to 30 September 30 September 2007 2006 £m £m Profit/(loss) from continuing operations attributable to equity shareholders 3,290 (4,611) --------- ---------Adjustments: Impairment losses - 8,100 Other income and expense 15 (1) Share of associated undertakings' non-operating income - (6) Non-operating income and expense(1) (250) (10) Foreign exchange(2) 90 (8) Changes in fair value of equity put rights and similar arrangements(3) 286 (21) --------- --------- 141 8,054 Tax on the above items (19) (2) Recognition of pre-acquisition deferred tax asset (15) - --------- ---------Adjusted profit from continuing operations attributable to equity shareholders 3,397 3,441 ========= =========Weighted average number of shares outstanding - basic 52,935 57,515Weighted average number of shares outstanding - diluted (4) 53,116 57,515 Notes: (1) The £250 million adjustment for the six months ended 30 September 2007 represents the profit on disposal of the Group's 5.60% stake in Bharti Airtel. (2) See note 1 in investment income and financing costs on page 7. (3) See note 2 in investment income and financing costs on page 7. (4) In the six months ended 30 September 2006, 140 million shares have been excluded from the calculation of diluted loss per share as they are not dilutive. EUROPE RESULTS------------------------------------------------------------------------------------------------ Germany Italy Spain UK Arcor Other Eliminations Europe % change £m £m £m £m £m £m £m £m £ OrganicSix months to 30 Sept 2007 Voice revenue(1) 1,888 1,570 1,867 1,855 - 1,690 (166) 8,704 Messaging revenue 354 324 205 444 - 265 (17) 1,575 Data revenue 265 119 170 184 - 133 (28) 843 Fixed line revenue (1) 7 10 9 12 758 16 (32) 780 Other service revenue 1 2 - 8 - - - 11 -------------------------------------------------------------- Total service revenue 2,515 2,025 2,251 2,503 758 2,104 (243) 11,913 1.7 2.3Acquisition revenue 83 58 120 127 10 67 (2) 463 Retention revenue 21 12 64 21 - 47 - 165 Other revenue 31 2 4 66 - 25 - 128 -------------------------------------------------------------- Total revenue 2,650 2,097 2,439 2,717 768 2,243 (245) 12,669 1.5 2.0Interconnect costs (319) (343) (350) (579) (182) (428) 243 (1,958) Other direct costs (145) (99) (186) (243) (164) (138) - (975) Acquisition costs (290) (134) (278) (368) (78) (168) 2 (1,314) Retention costs (202) (52) (238) (177) - (155) - (824) Operating expenses (544) (433) (438) (616) (206) (527) - (2,764) -------------------------------------------------------------- EBITDA 1,150 1,036 949 734 138 827 - 4,834 (2.0) (1.5)Acquired intangibles amortisation - - - (11) - (4) - (15) Purchased licence amortisation (170) (39) (3) (166) - (35) - (413) Depreciation and other amortisation (336) (221) (231) (314) (46) (250) - (1,398) Share of result in associates - - - - - 261 - 261 -------------------------------------------------------------- Adjusted operating profit 644 776 715 243 92 799 - 3,269 (2.7) (2.3) ============================================================== EBITDA margin 43.4% 49.4% 38.9% 27.0% 18.0% 36.9% 38.2% Six months to 30 Sept 2006 Voice revenue(1) 2,106 1,721 1,729 1,838 - 1,731 (205) 8,920 Messaging revenue 386 275 190 365 - 256 (14) 1,458 Data revenue 190 89 122 134 - 91 (23) 603 Fixed line revenue (1) 8 11 9 8 697 12 (14) 731 -------------------------------------------------------------- Total service revenue 2,690 2,096 2,050 2,345 697 2,090 (256) 11,712 Acquisition revenue 71 57 153 120 9 56 - 466 Retention revenue 17 20 62 29 - 46 - 174 Other revenue 49 1 3 55 - 24 - 132 -------------------------------------------------------------- Total revenue 2,827 2,174 2,268 2,549 706 2,216 (256) 12,484 Interconnect costs (363) (326) (349) (489) (172) (437) 256 (1,880) Other direct costs (167) (111) (174) (209) (119) (119) - (899) Acquisition costs (274) (114) (323) (292) (85) (155) - (1,243) Retention costs (182) (62) (183) (186) - (150) - (763) Operating expenses (578) (433) (426) (588) (204) (536) - (2,765) -------------------------------------------------------------- EBITDA 1,263 1,128 813 785 126 819 - 4,934 Acquired intangibles amortisation - - - (4) - (4) - (8) Purchased licence amortisation (172) (37) (34) (166) - (34) - (443) Depreciation and other amortisation (367) (252) (194) (297) (43) (255) - (1,408) Share of result in associates - - - - - 286 - 286 -------------------------------------------------------------- Adjusted operating profit 724 839 585 318 83 812 - 3,361 ============================================================== EBITDA margin 44.7% 51.9% 35.8% 30.8% 17.8% 37.0% 39.5% % % % % % % Change at constant exchange rates Voice revenue(1) (9.8) (8.1) 8.7 0.9 - (1.8) Messaging revenue (7.7) 18.4 9.0 21.6 - 4.4 Data revenue 40.1 35.7 41.2 37.3 - 49.2 Fixed line revenue (1) (2.6) (5.5) (2.2) 50.0 9.6 34.5 ---------------------------------------- Total service revenue (5.9) (2.7) 10.6 6.7 9.6 1.4 Acquisition revenue 18.3 3.3 (21.4) 5.8 10.0 24.4 Retention revenue 23.5 (42.8) 4.6 (27.6) - 1.8 Other revenue (36.6) 171.4 25.8 20.0 - 4.9 ---------------------------------------- Total revenue (5.7) (2.9) 8.3 6.6 9.6 2.0 Interconnect costs (11.5) 5.7 1.0 18.4 5.8 (1.0) Other direct costs (12.8) (10.1) 8.3 16.3 37.0 16.6 Acquisition costs 6.5 18.5 (13.1) 26.0 (5.6) 9.5 Retention costs 11.6 (15.4) 30.6 (4.8) - 4.0 Operating expenses (5.3) 0.9 3.6 4.8 1.8 (1.3) ---------------------------------------- EBITDA (8.4) (7.5) 17.5 (6.5) 11.0 1.8 Acquired intangibles amortisation - - - 175.0 - 100.0 Purchased licence amortisation - 5.4 (91.2) - - 6.1 Depreciation and other amortisation (8.2) (11.6) 19.7 5.7 9.5 (1.6) Share of result in associates - - - - - (8.4) ---------------------------------------- Adjusted operating profit (10.5) (6.9) 23.0 (23.6) 12.1 (1.2) ========================================EBITDA margin movement (1.3) (2.5) 3.0 (3.8) 0.3 (0.1) ------------------------------------------------------------------------------------------------ Note: (1) Revenue relating to fixed line activities provided by mobile operators, previously classified within voice revenue, is now presented as fixed line revenue, together with revenue from fixed line operators and DSL. All prior periods have been adjusted accordingly. ------------------------------------------------------------------------------------ 30 September Germany Italy Spain UK Other Europe------------------------------------------------------------------------------------Mobile telecommunications KPIs Closing customers ('000) - 2007 32,541 22,407 15,473 17,959 17,684 106,064 - 2006 29,622 19,337 14,024 16,287 16,267 95,537 Closing 3G devices ('000) - 2007 4,745 4,700 4,328 3,095 2,873 19,741 - 2006 2,724 2,830 1,739 1,348 1,726 10,367 Voice usage (millions of - 2007 20,160 17,983 17,416 18,075 15,385 89,019 minutes) - 2006 15,593 15,737 14,511 14,786 14,120 74,747------------------------------------------------------------------------------------ See page 35 for definition of terms Revenue Revenue growth of 1.5% in the six months ended 30 September 2007 was achieveddespite a 0.5% impact from adverse exchange rate movements. Service revenue growth was 1.7% in the six months ended 30 September 2007, withorganic growth more than offsetting the adverse exchange rate movements. Thisgrowth was achieved predominantly by strong performance in data revenue,following improved service offerings and a significant increase in the number of3G devices, and also from growth in the total registered mobile customer basewhich increased by 11.0% and reached 106.1 million at 30 September 2007. Thepositive impact of these factors on service revenue growth more than offset thenegative effects of termination rate cuts, the cancellation of top up fees inItaly resulting from new regulation and the Group's ongoing reduction ofEuropean roaming rates. Voice revenue declined by 2.4%, or by 1.9% on an organic basis, driven by theeffect of the termination rate cuts, roaming regulation and pricing reductions,which were mostly offset by total voice usage growth of 19.1%. • Outgoing voice revenue remained broadly stable, with 0.3% organic growth during the period. Strong growth of 24.0% in outgoing call minutes, driven by the increased customer base and a 12.9% increase in outgoing usage per customer, was broadly matched by a reduction in the effective rate per minute, resulting from the cancellation of top up fees in Italy and price competition. • Incoming voice revenue continued to decline, with a 4.4% fall on an organic basis, principally due to the impact of termination rate reductions in Germany, despite a 9.2% increase in incoming mobile voice minutes in the region. • Roaming and international visitor revenue declined 7.4% on an organic basis, as expected, principally from the impact of the Group's initiatives on retail and wholesale roaming. The overall reduction in revenue was mitigated by an increase of 12.4% in the respective volume of voice minutes used during the period. The region recorded 8.0% growth in messaging revenue, or 8.6% on an organicbasis compared with the same period last year, principally as a result of stronggrowth in messaging usage, particularly in Italy and the UK. Data revenue growth remained strong, increasing by 39.8%, or by 40.8% on anorganic basis. Data revenue continues to benefit from growth in connectivityservices, demonstrated by the increasing penetration of 3G devices, which havenearly doubled since September 2006 to 19.7 million. Handheld business devicesincreased by 112.6% since September last year and Vodafone Mobile Connect 3G/GPRS data cards grew by 78.9%. Fixed line revenue increased by 6.7%, or by 7.6% on an organic basis, mainly dueto a 9.6% increase in Arcor's service revenue at constant exchange rates. Germany At constant exchange rates, service revenue declined by 5.9%, mainly resultingfrom a 9.8% fall in voice revenue. This decline was driven by the impact oftermination rate reductions, prior year tariff cuts and wholesale roaming rates.Although the prior year tariff changes resulted in a 30.9% fall in the effectiveoutbound rate per minute, the impact of these changes was partially offset by astrong 38.1% increase in outgoing voice minutes. Messaging revenue also fell7.7% at constant exchange rates, primarily as a result of higher take up ofbundled offers on contract and reductions in messaging per user in the prepaidcustomer base. Partly offsetting these impacts was strong data revenue growth of40.1% at constant exchange rates which has been achieved through continuedgrowth in business services and the associated increasing penetration of 3Gdevices. Italy At constant exchange rates, service revenue declined by 2.7%, including an 8.1%decline in voice revenue primarily resulting from the negative impact of thecancellation of top up fees in March 2007 and termination rate cuts. Thedecrease in voice revenue was partially mitigated by a 14.3% increase in totalvoice usage, including a 17.8% increase in outgoing voice usage. Growth wasdriven by successful commercial initiatives which also resulted in a 23.3%increase in closing contract customers, predominantly within the businesscustomer base. Despite the retail price decline, voice roaming revenue grew by7.7% at constant exchange rates driven by a 15.7% increase in roaming minutes.Continued momentum from successful messaging propositions launched earlier inthe calendar year helped achieve messaging growth of 18.4% at constant exchangerates. Strong growth in Vodafone Connect USB Modems, Vodafone Mobile ConnectCards with 3G broadband and an increase in handheld business devices drove datarevenue growth of 35.7% at constant exchange rates. Spain Service revenue growth in Spain was 10.6% at constant exchange rates. The rateof service revenue growth slowed during the quarter ended 30 September 2007,compared with the previous quarter, due to a strong summer promotion in theprior year, a more intensified competitive market and a lower growth in theaverage customer base. An 8.7% increase in voice revenue at constant exchangerates was achieved, predominantly due to a 10.3% increase in the customer base,although this was partially impacted by a termination rate cut in the period. 3Gdevices grew by 148.9% to 4.3 million devices, helping to drive data revenuegrowth of 41.2% at constant exchange rates compared with the same period lastyear. UK Service revenue in the UK increased by 6.7%, benefiting from a 10.3% increase inthe customer base, reflecting an increase in contract customer market share, andfrom a £30 million VAT refund. Voice revenue increased by 0.9% with increases invoice usage, partly prompted by the increase in the customer base following thesuccess of the refreshed voice tariffs launched in the previous year, more thanoffsetting falls in price per minute and reductions in roaming rates. Messagingand data revenue growth have remained strong at 21.6% and 37.3%, respectively.Messaging revenue growth reflects the continued success of propositions launchedlast year. Similarly, increasing penetration of Vodafone Mobile Connect 3G/GPRSdata cards and handheld business devices combined with enhanced connectivityservice offerings helped drive strong data revenue growth. Arcor Arcor generated a 9.6% increase in service revenue at constant exchange rates.In a very competitive market, growth was principally driven by a 39.6% increasein DSL customers to 2.3 million. Other Europe Service revenue in Other Europe remained broadly stable compared with the sameperiod last year, after a 0.7% adverse impact from foreign exchange movements.At constant exchange rates, service revenue increased by 6.4% and 5.8% inPortugal and the Netherlands respectively, although these increases were mostlyoffset by a 6.1% decline in Greece. The decline in Greece arose from the impactof termination rate cuts in January and June of this year and the cessation inApril of a national roaming agreement. Adjusted operating profit Adjusted operating profit fell by 2.7%, or by 2.3% on an organic basis, whilethe EBITDA margin decreased by 1.3%. Growth in interconnect costs, other directcosts and acquisition costs was the largest driver behind this decline. Interconnect costs increased by 4.1% compared with the same period in the prioryear, with the increased call volumes in the region partly offset by the benefitobtained from termination rate cuts. The main increases in interconnect costswere recorded in the UK and Italy, partially offset by reductions in Germany. Other direct costs rose by 8.5%, mostly resulting from Arcor and the UK. WithinArcor, an increase in direct access charges resulted from achieving a highercustomer base. The increase in other direct costs in the UK was mainly due toinvestment in content based data services and, in part, to a portion ofcommissions being recorded in other direct costs to reflect their ongoing naturefollowing changes to the commercial model. Acquisition costs increased by 5.7% compared with the same period last year,primarily reflecting increases in the UK, as well as smaller increases inGermany and Italy, partly offset by lower costs in Spain. Acquisition costs inthe UK reflected higher contract customer additions and higher costs peraddition in a competitive market. Retention costs increased by 8.0%, predominantly an effect of the increasedvolume of upgrades in Spain resulting from the recent large customer growth andmore proactive churn management. Across the region, costs per upgrade remainedsimilar year on year, except in Italy following increased focus on the retentionof high value prepaid customers that began in the summer of the last financialyear. Operating expenses were broadly stable as a result of various initiativesimplemented to achieve the broadly stable operating expenses target. Specificactions undertaken included restructuring in Germany, Ireland and in commonfunctions, continued migration from leased lines to owned transmission andfurther renegotiation of contracts relating to various network operatingexpenses. This has been achieved despite increasing call volumes carried on theGroup's networks and customer care from a growing customer base and anincreasingly competitive market place. Germany Adjusted operating profit fell by 10.5% at constant exchange rates as a resultof the reduction in voice revenue. Costs within Germany also fell overall, withthe largest reductions experienced in interconnect costs, which fell by 11.5% atconstant exchange rates, as a result of the termination rate cut. Operatingexpenses fell by 5.3% at constant exchange rates resulting from targeted costreduction programmes. Increases in acquisition and retention costs of 6.5% and11.6% at constant exchange rates arose as a result of higher gross additions andupgrades. Acquisition costs per customer fell, while retention costs increased3.2% on a per customer basis. Depreciation and other amortisation charges fellby 8.2% on a constant currency basis due to the centralisation of the serviceplatform operations that was completed in the last financial year and theongoing progress on centralisation of data centres. Italy Adjusted operating profit fell by 6.9% at constant exchange rates, drivenprimarily by the reduction in service revenue. The main movements in the costbase in Italy were in relation to interconnect costs, which increased by 5.7% atconstant exchange rates due to the increased number of outgoing minutes,particularly to other mobile networks, and acquisition costs which increased by18.5% at constant exchange rates reflecting an increase in volumes, mainlyhigher value contract customers. Operating expenses remained flat compared tothe prior year due to cost saving initiatives. Reduced depreciation and otheramortisation of 11.6% at constant exchange rates resulted from lower capitalexpenditure, including the centralisation of data centre operations. Spain Adjusted operating profit increased by 23.0% at constant exchange rates asinterconnect costs remained stable, due to the reduction in termination ratesand an increase in volume of calls made to other Vodafone customers which do notincur interconnect costs, as well as overall cost control producing a reductionin expenses as a percentage of overall revenue. Retention costs increased by30.6% at constant exchange rates resulting from an increased volume of upgradescompared to the prior year, which was largely offset by a decrease inacquisition costs of 13.1% at constant exchange rates reflecting lower additionsin the current period. UK Although service revenue grew by 6.7%, adjusted operating profit decreased by23.6% mainly due to investment in new customers driving a 26.0% increase inacquisition costs. The higher customer base and new tariffs generated a 27.6%increase in outgoing mobile minutes which in turn increased interconnect costsby 18.4%. Additionally, other direct costs rose by 16.3% due in part toinvestment in content based data services and an incentive based commissionstructure for indirect partners, which has led to improved customer retention. Arcor Adjusted operating profit increased by 12.1% at constant exchange rates, as the9.6% increase in service revenue outpaced the 9.3% growth in the cost base atconstant exchange rates. The increase in the cost base was primarily driven byother direct costs, which increased by 37.0% at constant exchange rates, as aresult of higher direct access charges incurred due to the larger customer base,while other components of the cost base remained relatively stable. Other Europe Adjusted operating profit decreased by 1.6%. Portugal and the Netherlandscontributed adjusted operating profit growth at constant exchange rates of 15.4%and 39.1% respectively, resulting from strong cost control and a fall in costsas a percentage of service revenue. Growth in these countries was offset by afall in the share of results in associates, which fell 8.5% at constant exchangerates, and by a decrease in adjusted operating profit at constant exchange ratesof 22.3% in Greece, where results were affected by a decline in service revenue,increased retention and marketing costs and a regulatory fine. EMAPA RESULTS------------------------------------------------------------------------------------------ Middle East Eastern Africa Associates Associates Europe & Asia Pacific US Other EMAPA % change £m £m £m £m £m £m £ OrganicSix months to 30 Sept 2007 Voice revenue(1) 1,260 1,735 504 3,499 Messaging revenue 156 92 129 377 Data revenue 49 50 28 127 Fixed line revenue(1) 8 4 10 22 ------------------------------------------------------- Total service revenue 1,473 1,881 671 4,025 40.9 15.6Acquisition revenue 26 124 61 211 Retention revenue 11 - 3 14 Other revenue 14 14 23 51 ------------------------------------------------------- Total revenue 1,524 2,019 758 4,301 39.9 16.0Interconnect costs (252) (280) (118) (650) Other direct costs (222) (255) (133) (610) Acquisition costs (152) (186) (105) (443) Retention costs (41) (52) (27) (120) Operating expenses (379) (470) (201) (1,050) ------------------------------------------------------- EBITDA 478 776 174 1,428 29.8 13.1Acquired intangibles amortisation (104) (208) - (312) Purchased licence amortisation (12) (16) (8) (36) Depreciation and other amortisation (191) (223) (103) (517) Share of result in associates - 1 - 1,180 - 1,181 ------------------------------------------------------- Adjusted operating profit 171 330 63 1,180 - 1,744 6.1 20.8 ======================================================= EBITDA margin 31.4% 38.4% 23.0% 33.2% Six months to 30 Sept 2006 Voice revenue(1) 946 1,027 458 2,431 Messaging revenue 147 66 118 331 Data revenue 25 11 20 56 Fixed line revenue(1) 5 34 - 39 ------------------------------------------------------- Total service revenue 1,123 1,138 596 2,857 Acquisition revenue 23 105 48 176 Retention revenue 8 - - 8 Other revenue 8 4 22 34 ------------------------------------------------------- Total revenue 1,162 1,247 666 3,075 Interconnect costs (217) (178) (125) (520) Other direct costs (141) (112) (100) (353) Acquisition costs (91) (144) (78) (313) Retention costs (31) (36) (24) (91) Operating expenses (278) (246) (174) (698) ------------------------------------------------------- EBITDA 404 531 165 1,100 Acquired intangibles amortisation (127) (61) (1) (189) Purchased licence amortisation (8) (9) (7) (24) Depreciation and other amortisation (151) (122) (91) (364) Share of result in associates - - - 1,015 106 1,121 ------------------------------------------------------- Adjusted operating profit 118 339 66 1,015 106 1,644 ======================================================= EBITDA margin 34.8% 42.6% 24.8% 35.8% % % % % % Change at constant exchange rates Voice revenue(1) 31.5 84.4 4.8 Messaging revenue 2.0 51.0 5.3 Data revenue 99.2 395.0 32.5 Fixed line revenue(1) 79.1 (89.5) - ------------------------- Total service revenue 29.2 79.7 7.4 Acquisition revenue 13.7 32.6 21.0 Retention revenue 39.5 - - Other revenue 76.5 353.3 4.4 ------------------------- Total revenue 29.3 76.6 8.8 Interconnect costs 13.2 70.9 (9.7) Other direct costs 48.9 147.1 26.7 Acquisition costs 62.1 45.8 29.8 Retention costs 38.0 57.5 7.5 Operating expenses 33.6 107.9 10.3 ------------------------- EBITDA 19.6 58.4 0.5 Acquired intangibles amortisation (18.8) 271.4 - Purchased licence amortisation 50.0 100.0 - Depreciation and other amortisation 25.7 97.3 7.3 Share of result in associates - - - 26.0 (100.0) ----------------------------------------------- Adjusted operating profit 53.5 5.2 (8.5) 26.0 (100.0) ===============================================EBITDA margin movement (2.6) (4.4) (1.8) ------------------------------------------------------------------------------------------ Note: (1) Revenue relating to fixed line activities provided by mobile operators, previously classified within voice revenue, is now presented as fixed line revenue, together with revenue from fixed line operators and DSL. All prior periods have been adjusted accordingly. -------------------------------------------------------------------------------------- 30 September 2007 30 September 2006 ------------------------------ ---------------------------------- Middle Middle East East Eastern Africa Eastern Africa Europe & Asia Pacific EMAPA Europe & Asia Pacific EMAPA ------------------------------ ----------------------------------Mobile telecommunications KPIs Closing customers ('000) 31,699 66,810 5,840 104,349 25,879 25,374 5,423 56,676Closing 3G devices ('000) 517 133 1,022 1,672 224 - 534 758Voice usage (millions of minutes) 24,230 78,865 6,138 109,233 17,790 17,204 5,402 40,396-------------------------------------------------------------------------------------- See page 35 for definition of terms Revenue Service revenue increased by 40.9%, or by 15.6% on an organic basis, with theimpact of the acquisition of subsidiaries in Turkey and India and the adverseeffect of exchange rate movements, particularly in South Africa, accounting formost of the difference. The impact of acquisitions, disposal and exchange rateson EMAPA's service revenue growth are shown below. ----------------------------------------------------------------------------------- Organic Impact of Impact of Reported growth exchange rates acquisitions growth % Percentage and % points disposal(1) Percentage points -----------------------------------------------------------------------------------Service revenue Eastern Europe 11.0 2.0 18.2 31.2Middle East, Africa and Asia 25.1 (14.4) 54.6 65.3Pacific 7.4 5.2 - 12.6EMAPA 15.6 (2.3) 27.6 40.9----------------------------------------------------------------------------------- Note: (1) Impact of acquisitions and disposal includes the impact of the change in consolidation status of Bharti Airtel from a joint venture to an investment in February 2007. The organic service revenue growth was driven predominantly by an organicincrease in total voice minutes of 31.8%, a result of a 28.8% organic increasein the average customer base and usage stimulation strategies, which more thanoffset the impact of pricing pressures in a number of locations. Eastern Europe In Eastern Europe the growth in service revenue benefited from an 18.2percentage point increase from the prior year acquisition in Turkey, andfavourable exchange rate movements of 2.0 percentage points. Organic growth inservice revenue was 11.0%, principally driven by an 18.2% organic increase in theaverage customer base. Romania continued to be the principal driver of organic growth in EasternEurope, with service revenue growth of 23.2% at constant exchange rates, mainlyas a result of a 19.9% increase in the closing customer base, particularlydriven by initiatives focused on business and contract customers whichcontributed to a 33.9% increase in total voice minutes. Turkey continued to perform well with strong customer growth of 29.0% since 30September 2006, bringing the closing customer base to 15.7 million. This led tototal revenue growth of around 28%, assuming the Group owned the business forthe whole of the same period last year. Middle East, Africa and Asia Service revenue in Middle East, Africa and Asia grew strongly with a 25.1%increase on an organic basis, mainly due to strong growth in Egypt and fromVodacom. Service revenue growth at constant exchange rates in Egypt was 33.9%,predominantly a result of a 64.0% increase in voice usage which was stimulatedby the increased customer base of 12.2 million. Vodacom reported service revenue growth at constant exchange rates of 19.1%,reflecting the Group's share of the 22.6% increase in the closing customer base during the twelve month period to 30 September 2007. The growth in the customer base in the six months ended 30 September 2007 was impacted by a change in the prepaid customer disconnection policy, which resulted in the disconnection of anadditional 1.45 million prepaid customers in September 2007. Vodacom's datarevenue growth remained very strong, with rapid growth in mobile broadbandconnectivity devices. The Group's new business in India reported year on year total revenue growth ofaround 53%, assuming the Group owned the business for the whole of both periods.Customer net additions between the completion of the acquisition and the end ofthe period were 8.0 million, bringing the closing customer base to 35.7 million. Pacific The Group's operations in the Pacific segment delivered 12.6% service revenuegrowth, or 7.4% on an organic basis, with the impact of favourable foreignexchange movements being the difference. The organic growth was achieved througha 13.6% increase in total voice minute volumes, a result of the 7.7% growth inthe closing customer base in the region, with improved contract mix and a focuson higher value prepaid customers in Australia, though this was partially offsetby the impact of termination rate reductions in both Australia and New Zealandin the period. Adjusted operating profit The impact of acquisitions, disposals and exchange rates on EMAPA's EBITDA andadjusted operating profit is shown below: Organic Impact of Impact of Reported growth exchange rates acquisitions growth % Percentage and disposals(1) % points Percentage points EBITDA Eastern Europe 14.0 (1.3) 5.6 18.3Middle East, Africa and Asia 17.2 (12.3) 41.2 46.1Pacific 0.5 5.0 - 5.5EMAPA 13.1 (4.6) 21.3 29.8 Adjusted operating profit Eastern Europe 16.2 (8.6) 37.3 44.9Middle East, Africa and Asia 13.3 (7.9) (8.1) (2.7)Pacific (8.5) 4.0 - (4.5)EMAPA 20.8 (7.7) (7.0) 6.1 Note: (1) Impact of acquisitions and disposals includes the impact of the change in consolidation status of Bharti Airtel from a joint venture to an investment in February 2007. Adjusted operating profit increased by 6.1%, or by 20.8% on an organic basis,with the increases in revenue achieved by the region being the main driver. Theacquisitions in Turkey and India led to a rise in acquired intangibleamortisation which reduced the growth in adjusted operating profit,whilst the continued investment in network infrastructure in the region alsoresulted in higher depreciation charges. The organic growth in adjustedoperating profit was driven by strong performances in Romania, Egypt, Vodacomand the Group's associated undertaking in the US. Eastern Europe Adjusted operating profit increased by 16.2% on an organic basis, principally asa result of the growth in revenue in the region, whilst the main movements inthe cost base in the Eastern Europe region included a 7.4% organic increase ininterconnect costs, resulting from the 26.9% organic increase in outgoing voiceminutes, principally from the increased customer base, and a 7.3% organicincrease in operating expenses due to growth in the region's businesses, butfell slightly as a percentage of service revenue on an organic basis. Romania remained the principal contributor to the organic growth in costs with a36.7% increase in interconnect costs at constant exchange rates, a result of thelarger customer base and higher average usage per customer, and an increasedlevel of operating expenses due to an increased number of direct sales anddistribution employees in a growing business. However, operating expensesdecreased as a percentage of service revenue. Romania also accounted forpredominantly all of the increase in the region's rise in organic acquisitionand retention costs due to higher volumes of gross additions and upgrades. The main cost drivers in Turkey were acquisition costs and operating expenses.Acquisition costs increased in response to a higher level of gross additions,which resulted from better positioning of both contract and prepaidpropositions, with a focus on the contract segment. The increase in operatingexpenses was mainly due to the expansion of the network and higher marketingexpenses, which increased primarily as a result of the increased spending sincethe rebranding of the business to Vodafone in March 2007. Middle East, Africa and Asia Adjusted operating profit increased by 13.3% on an organic basis, as revenuegrowth more than offset the increase in costs. The organic growth was mainlydriven by Egypt and Vodacom. At constant exchange rates, the key increases in Egypt's cost base wereinterconnect costs which increased by 47.9%, a result of the 77.4% increase in outgoing voice minutes, a 59.8% increase in other direct costs, principally dueto prepaid airtime commissions and a 45.7% increase in operating expenses caused by expansion in network infrastructure, and higher marketing and customer careexpenses to serve the larger customer base. Growth in adjusted operating profit in Vodacom was impacted by 12.9 percentagepoints from adverse exchange rate movements. At constant exchange rates, interconnect costs increased by 17.2% in response to the 34.0% increasein outgoing voice minutes and operating expenses increased by 24.4% as a resultof higher publicity spending. The Indian mobile market has continued to grow with penetration reaching 18.2%by the end of September 2007. Vodafone Essar, which adopted the Vodafone brandin September 2007, has continued to perform well with EBITDA slightly ahead ofthe expectations held at the time of the completion of the acquisition. This hasbeen partially due to the Group's rapid network roll out in this market. Pacific Adjusted operating profit decreased 4.5%, after including the impact offavourable exchange movements of 4.0 percentage points, as the increased revenuegenerated in the region was offset by an increase in costs. The principal costdrivers behind the decline were an increase in other direct costs of 26.7% atconstant exchange rates, primarily due to Australia reporting higher contractcommissions and, in New Zealand, due to the inclusion of DSL costs from ihugfollowing its acquisition in October 2006 combined with an increased provisionfor its share of the Total Telecom Service Obligation costs, a regulator imposedcost. There was a 34.4% increase in acquisition costs at constant exchange ratesin Australia, a result of increased investment in higher value customers in boththe contract and prepaid segments. Operating expenses in Australia increased dueto investment in marketing, sales and customer care, whilst the reportedincrease in New Zealand was due to adverse foreign exchange movements impactingthe translation into sterling, an increase in the share of billing system costsand higher payroll costs resulting from improvements in customer care. Associates --------------------------------------------------------------------------------------------- Verizon Wireless 2007 2006 change ---------------------------- ---------------------------- ----------------- Verizon Verizon Constant Wireless Other(1) Total Wireless Other(1) Total £ Currency £m £m £m £m £m £m % % Share of result of associates Operating profit 1,366 - 1,366 1,214 136 1,350 12.5 21.8 Interest (65) - (65) (94) 2 (92) (30.9) (26.5)Tax (92) - (92) (73) (32) (105) 26.0 37.2 Minority interest (29) - (29) (32) - (32) (9.4) (2.7) ----------------------------- ------------------------------ 1,180 - 1,180 1,015 106 1,121 16.3 26.0 ----------------------------- ------------------------------ Verizon Wireless (100% basis) Total revenue (£m) 11,042 10,327 EBITDA margin 39.1% 38.7% Closing customers ('000) 63,699 56,747 Average monthly ARPU ($) 54.1 52.6 Blended churn 15.1% 14.2% Messaging and data as a percentage of service revenue 18.4% 12.9% --------------------------------------------------------------------------------------------- Note: (1) Other associates in 2006 include the results of the Group's associated undertakings in Belgium and Switzerland until the announcement of their respective disposal in August 2006 and December 2006. Verizon Wireless, the Group's associated undertaking in the US, produced anotherperiod of strong organic customer growth, adding 3.4 million net retail customeradditions in a market with penetration reaching an estimated 83.1% at 30September 2007. Total net customer additions of 3.0 million, after 0.4 million net reseller disconnections, equate to 1.3 million in proportionate terms andbrought the Group's share of the closing customer base to 28.7 million. Thecustomer growth was achieved through an increase in new customer additions,particularly in the higher value contract segment, and low customer churn drivenby market leading customer loyalty. Service revenue growth was 16.6% at constant exchange rates, driven by theexpanding customer base and a 2.9% increase in ARPU. Data revenue continued toincrease strongly, predominantly as a result of growth in data card, wirelessemail and messaging services. Verizon Wireless continued to lay the foundationsfor future data revenue growth through the expansion of CDMA EV-DO Rev A, anenhanced wireless broadband service, which now covers a population of 210million. Verizon Wireless improved its EBITDA margin mainly due to operating expenditureefficiencies offsetting a higher level of customer acquisition and retentionactivity during the period. The Group's share of the tax attributable to VerizonWireless relates only to the corporate entities held by the Verizon Wirelesspartnership. The tax attributable to the Group's share of the partnership'spre-tax profit is included within the Group tax charge. Verizon Wireless has entered into an agreement to acquire Rural CellularCorporation for approximately $2.67 billion in cash and assumed debt. Thetransaction is expected to be completed by the first half of 2008, subject tothe receipt of the required regulatory approvals, and will result in an increasein the customer base of Verizon Wireless of more than 0.7 million customers. LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS AND FUNDING During the six months ended 30 September 2007, net cash inflow from operatingactivities fell by 2.3% to £4,860 million and the Group generated £2,661 millionof free cash flow, as analysed in the following table: Six months to Six months to 30 September 30 September 2007 2006 £m £m % Net cash inflow from operating activities 4,860 4,975 (2.3).........................................................................................- Continuing operations 4,860 4,840 0.4 - Discontinued operations - 135 .........................................................................................Add: Taxation 1,487 1,217 Purchase of intangible fixed assets (320) (298) Purchase of property, plant and equipment (1,902) (1,892) Disposal of property, plant and equipment 13 11 -------- -------- Operating free cash flow 4,138 4,013 3.1 .........................................................................................- Continuing operations 4,138 4,021 2.9 - Discontinued operations - (8) .........................................................................................Taxation (1,487) (1,217) Dividends received from associated undertakings (1) 476 371 Dividends paid to minority shareholders in subsidiary undertakings (66) (34) Dividends received from investments 72 57 Interest received 240 256 Interest paid (712) (499) -------- -------- Free cash flow 2,661 2,947 (9.7) ======== ========.........................................................................................- Continuing operations 2,661 2,955 (9.9)- Discontinued operations - (8) ......................................................................................... Note: (1) Six months ended 30 September 2007 includes £272 million (2006: £240 million) from the Group's interest in SFR and £199 million (2006: £119 million) from the Group's interest in Verizon Wireless. Free cash flow decreased primarily as a result of lower cash inflow fromoperating activities and higher payments for interest and taxation, partiallyoffset by higher dividends received from associates. An analysis of net debt is as follows: 30 September 31 March 2007 2007 £m £mCash and cash equivalents (as presented in the consolidated cash flow statement) 2,873 7,458Bank overdrafts 28 23 --------- ---------Cash and cash equivalents (as presented in the consolidated balance sheet) 2,901 7,481 --------- ---------Trade and other receivables(1) 291 304Trade and other payables(1) (465) (219)Short term borrowings (5,673) (4,817)Long term borrowings(2) (20,307) (17,798) --------- --------- (26,154) (22,530) --------- ---------Net debt as extracted from the consolidated balance sheet (23,253) (15,049) --------- --------- Notes: (1) Represents mark to market adjustments on derivative financial instruments which are included as a component of trade and other receivables and trade and other payables. (2) Includes £2,464 million related to put options over minority interests, including those in Vodafone Essar and Arcor, which are required to be reported as a financial liability. The Group targets low single A long term credit ratings, with its current creditratings being P-2/F2/A-2 short term and Baa1 stable/A- stable/A- stable longterm from Moody's, Fitch Ratings and Standard & Poor's respectively. Creditratings are not a recommendation to purchase, hold or sell securities, inasmuchas ratings do not comment on market price or suitability for a particularinvestor, and are subject to revision or withdrawal at any time by the assigningrating organisation. Each rating should be evaluated independently. The Group's credit ratings enable it to have access to a wide range of debtfinance, including commercial paper, bonds and committed bank facilities. In aggregate, the Group has committed facilities of approximately £8,821million, of which £5,726 million was undrawn and £3,095 million drawn at 30September 2007. The undrawn facilities include a $5.2 billion Revolving CreditFacility that matures in June 2012 and a $6.1 billion Revolving Credit Facilitythat matures in June 2009. Both facilities support US and euro commercial paperprogrammes of up to $15 billion and £5 billion respectively. At 30 September2007, no amounts were drawn under the US commercial paper programme and €785million (£548 million) was drawn under the euro commercial paper programme.Other undrawn facilities of £175 million are specific to the Group's subsidiaryin Egypt. The Group has a €25 billion Euro Medium Term Note ("EMTN") programme and a USshelf programme which are used to meet medium to long term funding requirements.At 31 March 2007, the nominal value of bonds outstanding was £17,101 million. Inthe six months to 30 September 2007, bonds with a nominal value of £1,221million were issued under the EMTN programme. The bonds issued during the sixmonths to 30 September 2007 were as follows: Date bond issued Maturity of Currency Amount US shelf programme or bond million EMTN Programme 6 June 2007 6 June 2014 EUR 1,250 EMTN Programme 6 June 2007 6 June 2022 EUR 500 EMTN Programme At 30 September 2007, the Group had bonds outstanding with a nominal value of£17,206 million. On 24 October 2007, $500 million aggregate principal amount ofbonds maturing on 27 February 2037 were issued under the US shelf programme. On 8 May 2007, the Group acquired a controlling interest in Vodafone Essar.Operating companies acquired in this transaction are funded by externalfacilities which are non-recourse to other Group companies. At 30 September2007, a total of INR62.1 billion (£765 million) had been fully drawn fromcommitted bank facilities that mature at various dates up to July 2012. Othercompanies are funded by fully drawn external bank facilities of INR16.4 billion(£202 million) that mature at various dates up to February 2010. TOTAL SHAREHOLDER RETURNS Dividends The Company provides returns to shareholders through dividends. The Company hashistorically paid dividends semi-annually, with a regular interim dividend inrespect of the first six months of the financial year payable in February and afinal dividend payable in August. The directors expect that the Company willcontinue to pay dividends semi-annually. The Board remains committed to its policy of distributing 60% of adjustedearnings per share by way of dividend. However, as a result of the earningsdilution arising from the Vodafone Essar acquisition, the payout ratio isexpected to rise above 60% in the near term to better reflect the underlyingtrends of the business. The directors have announced an interim dividend of 2.49 pence per share,representing a 6.0% increase over last year's interim dividend. In growingdividends at 6.0%, ahead of its guidance for modest growth issued in May, theBoard has taken into account the Group's current financial performance and itsconfidence in the prospects for the business. The ex-dividend date is 21 November 2007 for ordinary shareholders, the recorddate for the interim dividend is 23 November 2007 and the dividend is payable on1 February 2008. Other returns The Group has no current plans for further share purchases or other one-offshareholder returns. The Board will periodically review the free cash flow,anticipated cash requirements, dividends, credit profile and gearing of theGroup and consider additional shareholder returns. Option agreements and similar arrangements On 8 August 2007 the Group announced that it had decided not to exercise itsrights under its agreement with Verizon Communications ("Verizon") to sell toVerizon up to $10 billion of the Group's interest in Verizon Wireless. This wasthe final such option available to Vodafone. As part of the Vodafone Essar acquisition, the Group acquired less than 50%equity interests in Telecom Investments India Private Limited ("TII") and inOmega Telecom Holdings Private Limited ("Omega"). The Group was granted calloptions to acquire 100% of the shares in two companies which together indirectlyown the remaining shares of TII for, if the market equity of Vodafone Essar atthe time of exercise is less than US$25 billion, an aggregate price of US$431million plus interest or, if the market equity value of Vodafone Essar at thetime of exercise is greater than US$25 billion, the fair market value of theshares as agreed between the parties. The Group also has an option to acquire100% of the shares in a third company which owns the remaining shares in Omega.In conjunction with the receipt of these options, the Group also granted a putoption to each of the shareholders of these companies with identical pricingwhich, if exercised, would require Vodafone to purchase 100% of the equity inthe respective company. These options can only be exercised in accordance withIndian law prevailing at the time of exercise. The Group granted put options exercisable between 8 May 2010 and 8 May 2011 tomembers of the Essar group of companies that, if exercised, would allow theEssar group to sell its 33% shareholding in Vodafone Essar to the Group for US$5billion or to sell between US$1 billion and US$5 billion worth of Vodafone Essarshares to the Group at an independently appraised fair market value. SIGNIFICANT TRANSACTIONS The Group invested a net £4,724 million(1) in acquisition and disposalactivities, including the purchase and disposal of investments, in the sixmonths ended 30 September 2007. An analysis of the significant transactions andthe changes to the Group's effective interest in the entities is shown below. £mAcquisitions(1): Acquisition of 100% of CGP Investments (Holdings) Limited ("CGP"), a company with interests in Hutchison Essar Limited (subsequently renamed Vodafone Essar Limited) (5,428)Disposals(1): Partial disposal of Bharti Airtel Limited (from 9.99% to 5.00%) 654Other net acquisitions and disposals, including investments(1) 50 -------- (4,724) ========Note: (1) Amounts are shown net of cash and cash equivalents acquired or disposed. On 8 May 2007, the Group completed the acquisition of 100% of CGP, a companywith interests in Vodafone Essar, from Hutchison TelecommunicationsInternational Limited for cash consideration of £5,479 million, gross of £51million cash and cash equivalents acquired. Following this transaction, theGroup has a controlling financial interest in Vodafone Essar. As part of thistransaction, the Group also assumed gross debt of £1,466 million, including £217million related to written put options over minority interests, and issued awritten put to the Essar Group for which the present value of the redemptionprice was £2,154 million. In conjunction with the acquisition of Vodafone Essar, the Group entered into ashare sale and purchase agreement with a Bharti group company regarding theGroup's 5.60% direct shareholding in Bharti Airtel. On 9 May 2007, a Bhartigroup company irrevocably agreed to purchase this shareholding. The Groupreceived £654 million in cash consideration for 4.99% of such shareholding, withthe Group's remaining 0.61% direct shareholding to be transferred by November2008. RISK FACTORS There are a number of risk factors and uncertainties that could have asignificant effect on the Group's financial performance including: • the level of competition in the markets in which it and its interests operate which may affect the Group's revenue and market share; • decisions and changes in the Group's regulatory environment; • the non achievement of expected benefits from cost reduction initiatives and from business acquisitions; • expected benefits from investment in networks, licences and new technology may not be realised; • delays in the development of handsets and network compatibility and components may hinder the deployment of new technologies; • geographic expansion may increase the Group's exposure to unpredictable economic, political and legal risks; • the Group's strategic objectives may be impeded by the fact that it does not have a controlling interest in some of its ventures; • the Group's business may be adversely affected by the non-supply of equipment and support services by a major supplier; • the Group may experience a decline in revenue or profitability notwithstanding its efforts to increase revenue from the introduction of new services; and • the Group's business and its ability to retain customers and attract new customers may be impaired by actual or perceived health risks associated with the transmission of radio waves from mobile telephones, transmitters and associated equipment. In addition to the above, the Group is exposed to financial risks arising fromexternal factors including the movements in foreign exchange rates, interestrates and other factors such as long term economic growth rates, all of whichmay impact the Group's financial performance. Non financial risks that couldhave a significant effect on the Group's financial performance for the sixmonths ending 31 March 2008 and which are outside the Group's control includethe willingness and ability of third parties, including regulators, tax raisingauthorities and commercial partners, to engage and reach agreement on openmatters. Any of the above and/or changes in assumptions underlying the carrying value ofcertain Group assets could result in asset impairments. Further information in relation to these risk factors and uncertainties can befound on pages 58 to 59 of the Group's Annual Report for the year ended 31 March2007 which can be found on www.vodafone.com. SUBSEQUENT EVENTS On 6 October 2007, the Group announced that it had agreed to acquire Tele2Italia SpA ("Tele2 Italy") and Tele2 Telecommunication Services SLU ("Tele2Spain") from Tele2 AB Group for a cash consideration of €775 million (£537million) on a debt free basis. Tele2 Italy and Tele2 Spain each provide nationwide fixed linetelecommunications and broadband services. Tele2 Italy had over 2.6 millioncustomers as at 30 June 2007, including over 400,000 broadband customers. Tele2Spain had 550,000 customers as at 30 June 2007, including over 240,000 broadbandcustomers. The transaction is expected to be completed by the end of the calendar year,following receipt of regulatory approval. RESPONSIBILITY STATEMENT We confirm that to the best of our knowledge: • the unaudited Condensed Consolidated Financial Statements have been prepared in accordance with IAS 34; and • the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R. Neither the Company nor the directors accept any liability to any person inrelation to the half-yearly financial report except to the extent that such liabilitycould arise under English law. Accordingly, any liability to a person who hasdemonstrated reliance on any untrue or misleading statement or omission shall bedetermined in accordance with section 90A of the Financial Services and MarketsAct 2000. By order of the Board Stephen ScottSecretary13 November 2007 This information is provided by RNS The company news service from the London Stock Exchange

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