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1
Vodafone Analyst & Investor Day
Vodafone Japan
Brian Clark, CEO
Monday 27 September 2004
Presenter:
Q&A Panel:
Brian Clark, CEOShiro Tsuda, CEO (designate)John Durkin, CFODavid Jones, COO
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The following presentation is being made only to, and is only directed at, persons to whom such presentations may lawfully be communicated (“relevant persons”).Any person who is not a relevant person should not act or rely on this presentation or any of its contents. Information in the following presentation relating to the price at which relevant investments have been bought or sold in the past or the yield on such investments cannot be relied upon as a guide to the future performance of such investments. This presentation does not constitute an offering of securities or otherwise constitute an invitation or inducement to any person to underwrite, subscribe for or otherwise acquire securities in any company within the Vodafone Group (the “Group”).The release, publication or distribution of these presentations in certain jurisdictions may be restricted by law, and therefore persons in such jurisdictions into which these presentations are released, published or distributed should inform themselves about, and observe, such restrictions.The presentation contains forward-looking statements which are subject to risks and uncertainties because they relate to future events. Some of the facts which may cause actual results to differ from these forward looking statements are discussed in the last slide of the presentation and others can be found by referring to the information contained under the headings “Cautionary Statement Regarding Forward Looking Statements” and “Risk Factors” in our Annual Report & Accounts and Form 20-F for the year ended 31 March 2004. The presentation slides and our Annual Report & Accounts and Form 20-F can be found on our website (www.vodafone.com).The presentation also contains certain non-GAAP financial information. The Group’s management believes these measures provide valuable additional information in understanding the performance of the Group or the Group’s businesses because they provide measures used by the Group to assess performance. Although these measures are important in the management of the business, they should not be viewed as replacements for, but rather as complementary to, the comparable GAAP measures such as turnover and reported items on the consolidated profit and loss account or the consolidated statement of cash flows.
22
2
Agenda
Market Overview
Financial Review
Commercial Strategy
22
2,834
2,4012,212
1,454
0
1,000
2,000
3,000
Italy Germany Japan UK
2nd largest economy, high GDP per capita3 main playersMost advanced W-CDMA marketNo upfront 3G spectrum costSource of innovation
Japan is an attractive market
407 405
323 319 314267 256 248
0
100
200
300
400
500
Japan Ireland Nether-lands
Sweden UK Spain Greece Italy
High ARPU(£)
ARPU information for the 12 month period to 30 June 2004
0%
20%
40%
60%
80%
100%
Italy UK Spain Germany Japan
Relatively low penetration
As of July 04
Strong operating cash flow
EBITDA adjusted for exceptional items and working capital movements (excluding intercompany)
(£m)
Source: Public and Company data
101%
33
93.7% 92.4%
79.3%
64.7%
3
What is unique about Japan?Proprietary PDC 2G standard; requires near greenfield W-CDMA build out
Operator-specific terminals– Terminals developed for specific operators do not operate on other networks
– No generic, operator independent terminals as in Europe
High terminal subsidy market
Driven by technology and service innovation
Complex multi-layer distribution
44
Agenda
Market Overview
Financial Review
Commercial Strategy
55
4
Significant progress made in first three years
Structural efficiency:
Vodafone control achieved rapidly
Merger of 9 regions into single nationwide operator
Established focus on mobile business
– Sold Japan Telecomfixed business
Operational achievements:
Introduced innovative new products and services
– International roaming
– 5 first generation 3G terminals
– Megapixel cameras
– Television tuner
Launched Vodafone brand– Achieved awareness
equivalent to J-PHONE
66
Financial achievements:
Network capexrestructured and focused on acceleration of 3G
Lower cost per base station
Reduced debt from ¥1.2 trillion to ¥715 billion due to increased cash flow
220
445 427
(179)
146190
16.8%
31.3%28.9%
(200)
(100)
0
100
200
300
400
500
600
2001/02 2002/03 2003/04
EBITDA Operating free cash flow EBITDA margin
EBITDA(2) and operating free cash flow (3)Good revenue growth (1)
1,313
1,421
1,477
1,000
1,100
1,200
1,300
1,400
1,500
1,600
2001/02 2002/03 2003/04
(1) Net of intercompany revenue(2) Before exceptional items(3) EBITDA adjusted for exceptional items and working capital movements
(excluding intercompany) less cash capital expenditure
Financial performance
77
Tota
l rev
enue
(¥bi
llions
)
EB
ITD
A a
nd c
ash
flow
(¥bi
llions
)
5
Vodafone 3G launch
The competitive landscape has changed…
Rapid market shift to 3G
Competitor ability to offer better services
Discount data tariffs introduced
New product innovation enabled by 3G –near CD quality ring songs
Source: Public and Company data
15,135,500
5,271,700
218,900
Launch of 2nd
generation W-CDMA handsets
Network coverage 99%(Urban areas)
launch of ring songs
CDMA2000 – 1x (GPS, picture messaging,
movie-messaging)
Launch of EV-DO3G Subscribers (M)July 2004 Total: 20.6M
Tariff deregulation
0
4
8
12
16
Oct
-01
Feb-
02
Jun-
02
Oct
-02
Feb-
03
Jun-
03
Oct
-03
Feb-
04
Jun-
04
Launch of full scale 3G
88
73.0 69.5 66.7 63.0
16.1 17.7 18.117.7
0
20
40
60
80
100
H1 02/03 H2 02/03 H1 03/04 H2 03/04
Voice ARPU Data ARPU
Voice & data ARPU (1) Net customer additions
(1) 12 month rolling ARPU
-9.4%25.9%
26.9%
14.1%
21.4%
0
200
400
600
800
1,000
1,200
H1 02/03 H2 02/03 H1 03/04 H2 03/04
Net additions Share of market net additions
…impacting our revenue growth
AR
PU
(¥00
0)
Net
cus
tom
er a
dditi
ons
(000
s)
99
6
Cost analysis
0%
10%
20%
30%
40%
50%
60%
70%
80%
H1 02/03 H2 02/03 H1 03/04 H2 03/04
% o
f gro
ss s
ervi
ce re
venu
eDirect costs & operating expenses (1)
(1) Before depreciation, amortisation, exceptional items and intercompany eliminations
27.7%
20.0%
12.5%
23.9%
23.70%
13.5%
27.1%
18.1%
14.9%
28.1%
23.9%
15.2%
Customer Base Costs
Other DirectCosts
OperatingExpenses
Net retention costsNet acquisition costs
InterconnectionOther direct costs
Payroll costsOther operating costs
1010
Agenda
Market Overview
Financial Review
Commercial Strategy
1111
7
Path to commercial success-business turnaround
Distribution • Establish the optimum channel mix including best balance of own and partner shops
• Create win-win relationship for channel partners and Vodafone
• Enhance the management team by selective hiring, skill enhancement and organisational design
CostReduction
Employees
9 to 1 Integration
& Processes
• Reduce cash spend (opex and capex) by capturing full local and global scale
• Complete rationalisation and consolidation of IT systems and business processes
• Increase customer satisfaction through consolidation of billing and customer facing systems
• Follow through implementation of tools to enhance internal management controls
Integrated 3G Offering
MarketingSegmentation
• Realisation of robust 3G network (coverage, capacity, speed, quality of service)
• Introduction of a unique and differentiated 3G offer to the customer
• Development of 3G handsets with related services, content and commercial offerings
• Improved brand building —key source of sustainable differentiation
• Address under-penetrated market segment; corporate and pre-paid
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Path to commercial successFY 04/05 FY 06/07
Fix the Fundamentals
• Cost Reduction
• Distribution
3G Rollout
• Network build-out
• Differentiated, integrated offering
Marketing Segmentation
• Improved brand building
• Address under-penetrated segments
Transforming Operations
Achieving commercial success
• 9 to 1 Integration & Processes
• Employees
• Differentiated 3G offering: (network handsets, content/services, channel)
• Operational best practices
• Competitive cost position
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8
Strong drive to reduce costs
– Voluntary retirement programme reducing 600+ FTEs; ¥3.6 billion annual savings after one time cost of ¥5.5 billion
Leasedlines
Network
IT
Payroll
Focus on reducing operating expenses– Cost reduction programme targeting all operating expenses
– Restructuring of maintenance contracts and overseas outsourcing; expected savings ¥10 billion per year
– Partnership with vendors to eliminate duplication; expected savings ¥10 billion per year
– Conversion to dark fibre; ¥1.2 billion expected savings per year
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Good progress on 9 into 1 integration
Centralised procurement – Nov 01
Financial systems – July 03
East Japan call centres – May 03
Internal management (HR, planning, etc) – April 04
Network management – April 04
Customer registration – June 04
Physical Distribution and Warehousing – Aug 04
Supply Chain/ Demand Planning process and systems – Aug 04
Billing and CRM systems – 2005/6
Trade Commission systems - 2005
Trade receivables systems - 2005
West Japan call centres - 2006
Done Ongoing:
1515
9
Optimising distribution
More balanced acquisition and upgrade strategy across all channels
Deepen relationships with key channel partners
Provide a more compelling in-store experience in owned and dealer outlets
Selectively increase direct shops in key trade areas
Introduce retail best practices
Build corporate business through direct sales organisation in addition to dealer channel
Vodafone K.K.
Customers
<10% of sales
Indirect Direct>90% of sales
Direct salesIndirect sales through third parties
Current structure
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Direct Sales
- Corporate
Mass appliance electronic
stores
Vodafone branded dealer Outlets(1,834)
Non-exclusive
mobile shop
Vodafoneowned outlets
(25)
Scale launch of integrated 3G offering
Terminals
Launch of comprehensive range of Japan centric 3G terminals on track
Introduction of Nokia and Motorola to Japan market
Sale of Japanese manufacturer terminals outside Japan
Dual mode 3G/GSM terminals
Services and Content
• Expanded local content to fully utilise the capabilities of 3G
• Chaku-uta (ring songs), other music services, games
• Improved user interface
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Network
• 99.6% outdoor population coverage attained
• Rapid expansion of indoor/tunnel/subway coverage
Commercial offer
• Deliver differentiated customer propositions to all customer segments
• Introduction of attractive consumer offers
10
Wide range of 3G terminals for Christmas quarter
SonyEricssonV802SE NEC
V802N
SharpV802SH
NokiaV702NK
MotorolaV702MO
MotorolaV702sMO
Sharp V902SH
1818
Exclusive to Vodafone…..
1919
11
50%
60%
70%
80%
90%
100%
Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun
Expanding 3G network coverageCompetitive outdoor coverage
Vodafone K.K.: 99.6%(as of Aug 04)
NTT DoCoMo : 99.7%(as of Jun 04)
Vodafone K.K. started commercial services in Dec 02
NTT DoCoMo launched national rollout of 3G services in Apr 02
2002 2003 2004
Rapid indoor and outdoor coverage improvement
3,500
16,500
13,000
01,800
0
5,000
10,000
15,000
20,000
25,000
Dec 02 Mar 04 Mar 05 (E)
OutdoorIn-building
Number of Base stations
DoCoMooutdoor17,300
(3G service started)
DoCoMoIn-building
1,670
DoCoMoIn-building
3,800
Source: Public and Company data
350
2020
348
278
230 225
0
50
100
150
200
250
300
350
400
2001/02 2002/03 2003/04 2004/05forecast
2G 3G & other
Capital expenditureCapital expenditure (1) Capital intensity(2)
26%
20%
15%16%
0%
5%
10%
15%
20%
25%
30%
2001/02 2002/03 2003/04 2004/05forecast
(1) Cash flow basis
(2) Cash capital expenditure as a percentage of total revenue
Cap
ital e
xpen
ditu
re (¥
billi
ons)
2121
12
Vodafone Holdings K.K. outlookNo Change to current year forecast
Slight year on year increase of 1.5%; highly dependent on handset sales in the second half of the fiscal year
Service revenue currently in line with plan
“Happy Time 1” removed from market July 04; “Happy Time 2”released and currently delivering expected results
In line with plan
Cost reduction programme on track
In line with plan
Includes cost from voluntary retirement programme
Update:
Revenue
Ordinary income
Net income
Forecast(1)
(¥ Bn)
(1) J-GAAP basis
2222
127
110
1,531
SummaryFinancial forecast of Vodafone Holdings unchanged
Successful implementation of transformation plan is key to future performance
Vodafone KK will improve competitiveness by:
– Offering Japan-centric, differentiated range of terminals
– 3G network with performance equal to competitors
– Building Vodafone brand preference in Japan through delivering differentiated customer propositions to all customer segments
– Capturing benefits of Vodafone Group’s best practice
2323
13
Forward-Looking StatementsThis presentation contains “forward-looking statements” within the meaning of the US Private Securities Litigation Reform Act of 1995 with respect to the financial condition of the Vodafone Group (the “Group”), the results of operations and certain businesses controlled by the Group and certain of the Group’s plans and objectives. In particular, such forward-looking statements include the statements with respect to Vodafone’s expectations for the year ending 31 March 2005 as to average proportionate organic customer growth, full year proportionate organic mobile revenue growth, proportionate mobile EBITDA margins, fixed asset additions, free cash flow, and the benefits of the One Vodafone initiative. In addition, these forward-looking statements also include statements from certain businesses controlled by the Group about the performance of such businesses, including statements by Vodafone KK related to its strategy, projected cost savings, launch of 3G and revenue and income projections, by Vodafone Italy related to its growth of market share and its revenues, EBITDA and customer growth, by Vodafone Germany related to its customer, service revenue and EBITDA growth, its brand awareness campaign and ARPU, and by Vodafone UK related to the regulatory environment, its strategy, distribution and launch of 3G. These forward-looking statements are made on the basis of certain assumptions which Vodafone and the controlled business, as the case may be, believes to be reasonable in light of operating experience in recent years. The principal assumptions on which these statements are based relate to exchange rates, customer numbers, usage and pricing, take-up of new services, termination rates, customer acquisition and retention costs, and the availability of handsets. The presentation also contains other forward-looking statements including statements with respect to Vodafone’s expectations as to launch and roll-out dates for products and services,
including, for example, 3G services, mobile data applications and Vodafone’s business offerings; intentions regarding the development of products and services; the ability to integrate operations throughout the Group in the same format and on the same technical platform and the ability to be operationally efficient; the expected accounting treatment arising from the adoption of IFRS by the Group; mobile penetration and coverage rates; expectations with respect to long-term shareholder value growth and returns to shareholders; the anticipated effect on profitability of our One Vodafone global integration programme; our ability to be the mobile market leader; overall market trends and other trend projections. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as “anticipates”, “aims”, “could”, “may”, “should”, “expects”, “believes”, “intends”, “plans” or “targets”. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will
occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements particularly the statements regarding our outlook, cost savings and the other business developments and plans referred to above. These factors include, but are not limited to, the following: changes in economic or political conditions in markets served by operations of the Group that would adversely affect the level of demand for mobile services; greater than anticipated competitive activity requiring changes in pricing models and/or new product offerings or resulting in higher costs of acquiring new customers or providing new services; the impact on capital spending from investment in network capacity and the deployment of new technologies, or the rapid obsolescence of existing technology; slower customer growth or reduced customer retention; the possibility that technologies, including mobile internet platforms, and services, including 3G services, will not perform according to expectations or that vendors’ performance will not meet the Group’s requirements; changes in the projected growth rates of the mobile telecommunications industry; the Group’s ability to realise expected synergies and benefits associated with 3G technologies, the integration of our operations and those of recently acquired companies; future revenue contributions of both voice and non-voice services offered by the Group; lower than expected impact of 3G and Vodafone live!™ and the Group’s business offerings on the Group’s future revenues, cost structure and capital expenditure outlays; the ability of the Group to harmonise mobile platforms and any delays, impediments or other problems associated with the roll-out and scope of 3G technology and services and Vodafone live!™ and the Group’s business or service offerings in new markets; the ability of the Group to offer new services and secure the timely delivery of high-quality, reliable 3G handsets, network equipment and other key products from suppliers; greater than anticipated prices of new mobile handsets; the ability to realise benefits from entering into partnerships for developing data and internet services and entering into service franchising and brand licensing; the possibility that the pursuit of new, unexpected strategic opportunities may have a negative impact on one or more of the measurements of our financial performance; any unfavourable conditions, regulatory or otherwise, imposed in connection with future acquisitions or dispositions; changes in the regulatory framework in which the Group operates, including possible action by regulators in markets which the Group operates or by the European Commission regulating rates the Group is permitted to charge; the Group’s ability to develop competitive data content and services which will attract new customers and increase average usage; the impact of legal or other proceedings against the Group or other companies in the mobile telecommunications industry; the possibility that new marketing campaigns or efforts are not an effective expenditure; the possibility that the Group’s integration efforts do not increase the speed-to-market of new products or improve the cost position; changes in exchange rates, including particularly the exchange rate of the pound to the euro, US dollar and the Japanese yen; the risk that, upon obtaining control of certain investments, the Group discovers additional information relating to the businesses of that investment leading to restructuring charges or write-offs or with other negative implications; changes in statutory tax rates and profit mix which would impact the weighted average tax rate; changes in tax legislation in the jurisdictions in which the Group operates; final resolution of open issues which might impact the effective tax rate; timing of tax payments relating to the resolution of open issues and loss of suppliers or disruption of supply chains.Furthermore, a review of the reasons why actual results and developments may differ materially from the expectations disclosed or implied within forward-looking statements can be found
under “Risk Factors” contained in our Annual Report & Accounts and Form 20-F with respect to the financial year ended 31 March 2004. All subsequent written or oral forward-looking statements attributable to Vodafone or any member of the Group or any persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. No assurance can be given that the forward-looking statements in this document will be realised. Neither Vodafone nor any of its affiliates intends to update these forward-looking statements.Non-GAAP Financial Information
The presentations also contain certain non-GAAP financial information. The Group’s management believes these measures provide valuable additional information in understanding the performance of the Group or the Group’s businesses because they provide performance measures used by the Group to assess performance. Although these measures are important in the management of the business, they should not be viewed as replacements for, but rather as complementary to, the comparable GAAP measures such as turnover and reported items on the consolidated profit and loss account or the consolidated statement of cash flows.
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