Analyst and Investor Day Vodafone Italy Margherita Della Valle, Chief Financial Officer 3 October 2006 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 this presentation in some jurisdictions may be restricted by law, and therefore persons in such jurisdictions into which this presentation is 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 and developments to differ from these forward looking statements are discussed in the last slide of this presentation and others can be found by referring to the information contained under the headings Risk Factors, Trends and Outlook and Cautionary Statement Regarding Forward-Looking Statements in our Annual Report for the year ended 31 March 2006. The presentation slides and our Annual Report can be found on our website (www.vodafone.com). Vodafone, Vodafone At Home, Vodafone Office, Vodafone Zuhause, Vodafone Casa, Oficina Vodafone, Vodafone Mobile Connect, Vodafone Interactive DJ, Vodafone Stop the Clock, Vodafone Infinity, Vodafone One, Pulsa Y Habla and Vodafone Passport are trade marks of the Vodafone Group. Other product and company names mentioned in these presentations may be the trademarks of their respective owners. 2 Analyst and Investor Day Vodafone Italy 1
Contents 1. Revenue trends and demand stimulation results 2. Profitability and cost management 3 Analyst and Investor Day Vodafone Italy Revenue growth Service revenue growth Quarterly trend 7,812 7,956 +5.2% underlying* +1.8% Impact of termination rate cut 260 8% 6% 4% 2% 0% -2% -4% 6.5% Q1 Service revenue 7.4% 5.4% Q2 4.0% -1.7% Q3 2.7% -2.9% -2.9% Q4 2.3% -3.4% Q1 FY06/07 Underlying service revenue* Trends stabilising after competitive and regulatory step changes in Q3 *Excluding impact of termination rate cut 4 Analyst and Investor Day Vodafone Italy 2
Customer key performance indicators Market net additions Customers and ARPU +41% 9.5 22.5m +1.6m 24.1m 6.7 29.9 28.5 m Market penetration 112% 126% Closing customer base monthly ARPU ( ) Traditional customer KPIs are losing significance due to multiple SIM ownership Source: Company and external data 5 Analyst and Investor Day Vodafone Italy Voice trends Outgoing voice revenue * Outgoing usage and revenue per minute * 4,25 4,00 3,75 3,50 +4.1% -1.4% +2.7% 4,156 4,047 minutes rev/min 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% +7% -3% Q1 +4% +1% Q2 +3% +7% -2% Q3-5% Q4 +9% -9% +19% -13% Q1 Jul-Aug FY06/07 2006 Volumes YOY Outgoing revenue/min YoY Accelerated minutes growth more than offsetting price erosion due to both promotions and standard tariffs *Excluding roaming and visitors 6 Analyst and Investor Day Vodafone Italy 3
Demand stimulation - Vodafone Casa Active customers Early results Outgoing minutes to fixed line numbers only 362 + 350% 146 224 264 mins 59 266 000's 41 pre Casa with Casa May Jun Jul Aug Sep 2006 Total outgoing voice ARPU + 18% Generating incremental revenues from fixed line substitution 38 45 pre Casa with Casa 7 Analyst and Investor Day Vodafone Italy Demand stimulation - data Non-voice revenue MMS revenue 1,143 +16% 1,332 +60% +128% +9% 68 30 SMS* Other data Browsing revenue Non-voice revenue boosted by MMS and browsing Demand stimulation still driving SMS growth 129 +45% 187 *Includes all SMS related revenues. Excludes MMS revenue 8 Analyst and Investor Day Vodafone Italy 4
Demand stimulation - business Business service revenue 10.2%* 1,226 1,351 High growth segment Positive net additions from MNP FY 04/05 FY 05/06 Business non-voice revenue Number 1 in customer satisfaction 39% customer market share +34% Up to 63% of Italian MNC customers 128 172 Strong take up of new data services *Excluding impact of termination rate cut FY 04/05 FY 05/06 9 Analyst and Investor Day Vodafone Italy Contents 1. Revenue trends and demand stimulation results 2. Profitability and cost management 10 Analyst and Investor Day Vodafone Italy 5
EBITDA market share Established operators* EBITDA EBITDA growth market share 200m EBITDA growth for the market 10,659 4,270 +1.9% 10,859 4,465 97.5% 2.5% 2004 2005 Vodafone Italy Other established operators* Vodafone Italy Other established operators* Market leader in value creation in 2005 *EBITDA positive operators. Source: Company and external data 11 Analyst and Investor Day Vodafone Italy EBITDA performance EBITDA growth analysis Impact on YoY growth +4.6% -3.2% -1.9% -0.5% 201 (140) (84) 4,357 4,334 EBITDA FY 04/05 Underlying growth Termination rate cut Additional brand royalty charges EBITDA FY 05/06 Positive underlying growth in EBITDA 12 Analyst and Investor Day Vodafone Italy 6
EBITDA margin 100% 20.9% 3.9% (1) 18.8% 52.1% Usage stimulation focused on on net Still amongst industry lowest Top quartile efficiency in Europe (2) Turnover FY 05/06 Direct costs Customer costs Operating expenses EBITDA FY 05/06 Net costs Equipment turnover Cost control despite competitive pressure 1 Based on net acquisition and retention costs 2 AT Kearney (2006, February): European cost benchmarking for mobile operators 2005 (29 European operators) 13 Analyst and Investor Day Vodafone Italy Acquisition and retention costs Acquisition cost pay-back per SIM Retention cost as % of ARPU months 3.0 2.5 2.0 1.5 1.0 0.5 2.4 1.3 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.7% 1.5% 2.3% 4.6% 5.6% - Contract Prepaid - Value tier 5 Value tier 4 Value tier 3 Value tier 2 Value tier 1 Net acquisition cost per customer 135 22 Low value customers High value customers Efficient and effective commercial cost management Focus on commitment in acquisition and value tiering in retention 14 Analyst and Investor Day Vodafone Italy 7
Operating cost efficiency Operating expenses 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 1,386 1,422 1,566 FY 03/04 FY 04/05 FY 05/06 Additional brand recharge Intercompany Other Marketing & distribution Customer operations Technology As % of turnover 18.1% 17.4% 18.8%* Operating expenses low due to operational efficiency *Includes 1% from additional brand recharge 15 Analyst and Investor Day Vodafone Italy Key cost initiatives Technology Key CRm Levers costkey Levers Initiatives 600 36.0 37.8 32.1 590 580 570 7.8% 7.3% 560 7.1% 550 FY 03/04 FY 04/05 FY 05/06 as % of turnover Total voice minutes (bn) Data centre centralisation Maintenance insourcing SCM leveraging Leased lines and microwaves roll-out Site rental containment Core consolidation completed in 2005 2 waves 2005-2007 ongoing to complete in 2009 first results in 2007 2007-2009 250 200 150 Customer operations 19.4 3.0% 3.0% 21.1 22.5 2.8% 2.8% 2.7% FY 03/04 FY 04/05 FY 05/06 as % of turnover Closing customers (m) IVR push 2005-2007 plan Outsourcing leverage 2004 onwards Recall reduction ongoing Back-office re-engineering 2007 Targeting 100m savings in FY 06/07 16 Analyst and Investor Day Vodafone Italy 8
From revenue to cash flow 100% 8,324 52.1% -12.4% (1,033) 2.9% 42.6% 4,334 Strong governance on new services roll out 243 3,544 Turnover FY 05/06 EBITDA Capital additions Working capital adjustments Operating cash flow FY 05/06 Leading cash flow return 17 Analyst and Investor Day Vodafone Italy Summary Pricing strategy driven by demand stimulation Customer base management based on value Continuous efficiency in operations Strict financial control on new investments Focus on profitable growth 18 Analyst and Investor Day Vodafone Italy 9
FORWARD LOOKING STATEMENTS This presentation contains forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995 with respect to the Group s financial condition, results of operations and businesses and certain of the Group s plans and objectives. In particular, such forward-looking statements include statements with respect to: Vodafone s expectations as to launch and roll-out dates for products, services or technologies offered by Vodafone; Vodafone s strategies regarding revenue growth; intentions regarding the development of products and services introduced by Vodafone or by Vodafone in conjunction with third parties; mobile penetration and coverage rates as well as fixed to mobile substitution and Vodafone s Oficina Vodafone customer proposition in Spain; the development and impact of new mobile technology; the growth of the Italian and Spanish telecommunications markets; changes in the regulatory environment in those jurisdictions; growth in customers and usage, including improvements in customer mix; future performance - including turnover, average revenue per user ( ARPU ), cash flows, costs, capital expenditures and margins, non-voice services and their revenue contribution; the ability to realize synergies through cost savings, revenue generating services, benchmarking and operational experience; and Vodafone s ability to be one of the market leaders and improve its market share. 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 forwardlooking statements. These factors include, but are not limited to, 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, from both existing competitors and new market entrants, which could require changes to the Group s pricing models, lead to customer churn and make it more difficult to acquire new customers, and reduce profitability; the impact of investment in network capacity and the deployment of new technologies, or the rapid obsolescence of existing technology; slower than expected customer growth and reduced customer retention; slower than expected revenue and usage stimulation for consumers and enterprises (including 3G data usage relating to enterprise connectivity); the ability of the Group to make efficient use of resources based on local and regional scale; changes in the spending patterns of new and existing customers; the possibility that new products and services, will not be commercially accepted or perform according to expectations or that vendors performance in marketing these technologies will not meet Vodafone s requirements; Vodafone s ability to develop competitive data content and services that will attract new customers and increase average usage; future revenue contributions of both voice and non-voice services; the possibility that the pursuit of new, unexpected strategic opportunities may have a negative impact on Vodafone s financial performance; changes in the regulatory framework in which Vodafone operates, including possible action by regulators in those markets or by the EU regulating rates Vodafone is permitted to charge; the impact of legal or other proceedings against Vodafone or other companies in the mobile telecommunications industry; the possibility that new marketing or usage stimulation campaigns or efforts and customer retention schemes are not an effective expenditure; changes in exchange rates, including particularly the exchange rate of pounds sterling to the euro; and changes in tax legislation in the jurisdictions in which the Group operates. 19 Analyst and Investor Day Vodafone Italy 10