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  • Vodafone Group plc

    Interim Management Statement 25 July 2014

    Information in the following communication 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 or dispose of securities in any company within the Group.

    The communication contains forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995 which are subject to risks and uncertainties because they relate to future events. These forward-looking statements include, without limitation, statements in relation to the Groups financial outlook and future performance. Some of the factors which may cause actual results to differ from these forward-looking statements can be found by referring to the information contained under the headings Forward-looking statements and Principal risk factors and uncertainties in our annual report for the year ended 31 March 2014, both of which can be found on the Groups website (www.vodafone.com/investor).

    The communication also contains non-GAAP financial information which the Groups management believes is valuable in understanding the performance of the Group or the Groups businesses. However, non-GAAP information is not uniformly defined by all companies and therefore it may not be comparable with similarly titled measures disclosed by other companies, including those in the Groups industry. Although these measures are important in the assessment and management of the business, they should not be viewed in isolation or as replacements for, but rather as complementary to, the comparable GAAP measures.

    Although we try to accurately reflect speeches delivered, the actual speech as it was delivered may deviate from the script made available on our website.

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  • Vodafone Group Plc Q1 2014-15 Interim Management Statement

    25 July 2014 1

    Operational Review

    Vittorio Colao

    Chief Executive Officer, Vodafone Group plc

    Good morning, everybody. Welcome to our interim management statement for the first quarter of 2014/15. I will take you through the highlights and update you on our strategic and commercial developments and our views on the current regulatory environment, and Nick will update you on our financial performance and take you through the trends in our six key markets. He will also provide some country-by-country detail on the progress of Spring. I will then close and move to Q&A, for which Nick and I will be joined by Philipp and Steve, who are here with us.

    So I will start with slide 4, highlights for the quarter. Group organic service revenue was down 4.2% compared to 4% in the previous quarter; excluding mobile termination rates it was down 2.9% in Q1. We continue to see strong growth in our emerging markets, driven by continued customer growth and data usage. Growth in AMAP was 4.7%, or 6.2% excluding MTRs. This growth rate was, as expected, slightly down on the previous period, due to the lapping of prior year prices rise in India and the impact of MTRs in South Africa.

    In Europe, conditions remain challenging due to continued competitive and regulatory pressure. As a result, service revenue fell 7.9% year on year. However, we are beginning to see encouraging signs of stabilisation quarter on quarter, due to our commercial actions on Red and 4G and investment in the network. Our actions are attracting a higher quality of customers. We now have 6.7 million customers with 4G and 14 million with Red. Our 4G and Red plans continue to drive strong data usage. Data traffic growth accelerated to 73% year on year across the Group and 53% in Europe.

    Project Spring: our Project Spring programme is gaining speed. Our European 4G coverage increased to 52%. This is up 20 percentage points since September. Our network performance is also improving. In the last nine months, we have reduced dropped calls in Europe by 1.2 million per day. In this quarter, we have made further progress also in our Unified Communications strategy across Europe. Integration of Kabel Deutschland has begun, and is on track. We have announced fibre alliances in Ireland and in Portugal this week, and just this week we made also two further steps: the completion of the acquisition of Ono and the revised agreement with Orange to co-build fibre and give them access to 1 million homes from Ono. Finally, we have made some smaller moves on the M&A front, including the planned purchase of Cobra, a leading machine-to-machine provider, to enhance our capabilities in this space, and we sold our business in Fiji. Free-cash outflow was 0.6 billion in the quarter. This is 1.5 billion lower than last year, due to the phasing of capex spend associated with Spring. Net debt at the end of the quarter was 14.1 billion.

    So Nick will be talking later about the performance of each of the main countries in more detail. I would like now to give you an overview of the broader business. The chart on page 5 shows revenue service growth, excluding termination rates, with AMAP countries in blue and Europe countries in red. As you can see, AMAP is strong and growing, with service revenue up 6.2%. Our high-quality network and customer service continues to attract customers, with the base up 10% in the year driving usage. The number of data users increased by 31% to over 100 million, and data traffic more than doubled. Although not on this slide, I also want to talk about M-PESA. M-PESA remains a key success story for us. The base is now 18 million, up 1 million in the quarter. This slide also shows that revenue continues to decline, 6.6% in Europe. However, we are seeing some mobile ARPU stabilisation, and we are also delivering better churn rates in consumer contract, around one percentage point better year on year. What this slide does not show is that we are seeing quarter-on-quarter stabilisation in absolute revenue in a number of key markets in Europe, such as Italy and Germany.

    Id like now to turn to progress against several key initiatives: Spring, 4G and unified communications, in that order. So slide 6, we have made good progress on our Project Spring programme, and, in overall terms, we are around a quarter of the way through the programme. Within the 6,000 new 4G base stations, 4,700 were in Europe in the period. Therefore, our European 4G coverage increased to 52%, as I mentioned a while ago, compared to 46% last quarter and 32% when we started the programme, so we are well on our way to our 91% target by March 2016.

  • Vodafone Group Plc Q1 2014-15 Interim Management Statement

    25 July 2014 2

    In India, where we aim to have 95% 3G outdoor coverage in targeted urban areas over the next three years, we have taken the 3G coverage on this footprint to 89%, with around 2,300 sites added in the quarter. In South Africa, we added around 470 4G sites and 290 3G sites in the last three months only. 70% of our sites in South Africa are now connected to high-capacity backhaul, and we expect to complete our radio access networks renewal programme in the next quarter. We continue to build a more robust network, with more Single RAN and high capacity backhaul. Today, in Europe, 72% of our sites have high capacity backhaul, and 22% have fibre. Single RAN is in 68% of our sites, and, finally, in terms of fibre to the home, we have increased this by 1 million households passed since last September.

    So we are now on slide 7, 4G. We have put together a number of charts here, showing clear evidence of good progress. Starting from the top left, we have increased our 4G customer base, the red bars, to around 7 million, as I said earlier, these are active customers, with both a 4G device and a 4G plan. The opportunity to upsell is clear, as 7 million out of the 14 million who have a device do not have a 4G plan yet. You will see within the trend that the proportion of those who have a device that also have a plan is increasing as well, to 49%, compared to 36% in Q3 last year.

    Moving to the top right, we are delivering a better network experience. As I said, our 4G network now covers 52% of the population. We are supporting the 4G rollout with a targeted local communications strategy focusing on network benefits and differentiation rather than price. Bottom left, we see there the trend to use more data continues. Data usage in Europe is not just growing, it is also accelerating; with growth of 42% last quarter and 53% in this quarter. This growth is evident in all our main markets in Europe. This traffic is driven by more smartphones where penetration of the base increased seven percentage points, now at 47% in Europe. As half of the base still doesnt have a smartphone, there is clearly a lot of growth left.

    Now, there is also more usage per smartphone, as it is now 530MB in Europe. This is up 100MB on the level of just six months ago. Also, 4G usage is still around twice the level of 3G; in some countries where we have attractive content, such as UK, the ratio becomes three times. As a result of this strong demand, 4G now accounts to 19% of data traffic on our European network, up one percentage point on Q4. This is why we are pushing content combined with 4G. We have now launched conten