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Company Vodafone Group Plc TIDM VOD Headline Half Yearly Report Released 07:00 10-Nov-2009 Number 2349C07



VODAFONE GROUP PLC HALF-YEAR FINANCIAL REPORT FOR  THE SIX MONTHS ENDED 30 SEPTEMBER 2009

Embargo: Not for publication before 07:00 hours 10 November 2009

Key highlights (note 1): 

*	Group revenue of £21.8 billion, an increase of 9.3%; organic down 3.0%
	-	Europe: revenue up 3.0% benefiting from foreign exchange
	-	Africa and Central Europe: revenue growth of 35.9% including Vodacom acquisition
	-	Asia Pacific and Middle East: revenue growth of 15.9% reflecting the performance in India
	-	Group data revenue up 35.2% to £1.9 billion
*	Group adjusted operating profit up 2.4% to £5.9 billion
	-	Group EBITDA increased by 2.9% to £7.5 billion
	-	Verizon Wireless operating profit up 34.3% driven by 48.1% revenue growth including Alltel
*	Free cash flow before licence and spectrum payments of £4.0 billion, up 29.1%
	-	Cash generated by operations of £7.6 billion, up 6.1%
*	Adjusted effective tax rate of 21.5%; underlying full year rate expected to be in the mid 20s
*	Adjusted earnings per share up 16.0% to 8.72 pence. Basic earnings per share of 9.17 pence
*	Interim dividend up by 3.5% to 2.66 pence per share

Outlook (note 2):

*	Guidance confirmed
	-	Adjusted operating profit in the range of £11.0 billion to £11.8 billion
	-	Free cash flow before licence and spectrum payments around upper end of £6.0 billion to £6.5 billion range

Vittorio Colao, Chief Executive, commented:

"The Group has performed in line with our expectations and we have made strong progress with our strategic priorities, in particular in mobile data and cash generation. We have confirmed our guidance for the full year, despite the uncertainties of current economic trends. The £1 billion cost reduction programme is expected to be delivered a year ahead of plan and we have extended this to a further £1 billion of cost savings by 2012. At the same time, we have maintained our capital investment at £2.6 billion in the first half, delivering further improvements in network quality and performance for our customers. We have continued to develop innovative services for businesses and consumers, such as Vodafone One Net and Vodafone 360, and to expand our fixed line services. We will continue our focus on the delivery of our growth strategy, particularly in data services."

Notes:

(1)  See page 4 for Group financial highlights, page 34 for use of non-GAAP financial information and page 41 for definition of terms.

(2) Includes assumptions of foreign exchange rates for the 2010 financial year of approximately £1: €1.12 and £1:US$1.50.

Chief Executive's Statement

Financial review 

Group revenue increased by 9.3% to £21.8 billion. Group adjusted operating profit increased by 2.4% to £5.9 billion with a positive contribution from Verizon Wireless and foreign currency benefits offsetting lower profit in Europe. 

Cash generation remained robust, with free cash flow of £4.0 billion, up 29.1%, reflecting foreign currency benefits, improved working capital and receipt of the deferred £0.2 billion dividend from Verizon Wireless. Capital expenditure was at a similar level to the same period last year after adjusting for foreign exchange.

In Europe organic service revenue declined by 4.5% reflecting the economic and competitive environment. Data growth of 17.8% and fixed line growth of 7.3% are still being offset by ongoing price pressures. In the second quarter the outgoing voice minute growth rate stabilised for the first time for eight quarters at 2.8%. Total costs in Europe declined by 3.3% resulting in an EBITDA margin decline of only 1.0 percentage point. Acquisition and retention expenditure intensity was maintained. Operating free cash flow before licences and spectrum payments was strong at £4.3 billion. 

In Africa and Central Europe service revenue increased by 34.6% reflecting the full consolidation of Vodacom following completion of the stake purchase in May 2009 and foreign exchange. On an organic basis service revenue declined by 3.2% with continued growth in Vodacom being offset by declines in Turkey and Romania. EBITDA margins declined by around four percentage points primarily reflecting lower profitability in Turkey, consistent with our turnaround plan.

In Asia Pacific and Middle East service revenue increased by 17.8% reflecting a strong contribution from India where service revenue grew by 20.5% on a constant currency basis. During the period we added 14.1 million customers in India. Overall EBITDA margin in the region declined by 3.1 percentage points reflecting lower margins in India caused by the pricing environment and investment in new circles, and start up costs in Qatar.

Verizon Wireless contributed about 34% of adjusted operating profit. Organic service revenue growth was 7.5%, EBITDA margins were maintained and data revenue continued to grow rapidly. We continue to deepen our commercial relationship with Verizon Wireless with joint initiatives around applications, LTE, enterprise customers and BlackBerry® devices.

The Group invested £2.6 billion in capital expenditure, a similar level to the same period last year after adjusting for foreign exchange, including £0.5 billion in India. Capital intensity for Europe and Common Functions was slightly higher at 8.8%.

Adjusted earnings per share increased by 16.0% to 8.72 pence driven by favourable foreign exchange.

Dividends per share have increased by 3.5% to 2.66 pence consistent with the Group's dividend policy.

Strategy progress

The first half results reflect the actions we have taken to implement the strategy announced in November 2008, in particular with respect to our focus on cash generation, cost reduction and data.

Drive operational performance

We continue to launch services which deliver more value in return for a wider commitment from customers across our footprint and have generated particularly good traction with products in Germany, Spain and Italy. 

We have accelerated our £1 billion cost reduction programme which will help us to offset the pressures of the competitive environment and cost inflation, and allow us to invest in revenue growth opportunities. We now intend to deliver 100% of the total programme in the current financial year, a year ahead of plan. In the current financial year we expect that around a quarter of the savings will be used for commercial reinvestment and margin enhancement, half will offset inflation and volume increases in Europe and around a quarter will be used for investment in our selected revenue growth opportunities including fixed broadband, the development of new services such as Vodafone 360 and unified communications and direct and on-line sales initiatives.

We have extended our cost reduction programme and now target a further £1 billion operating costs savings by the 2012 financial year by leveraging on network, sourcing and infrastructure scale across a wider geographic area, and through further overhead reduction. We expect that around half of these savings will offset inflationary and volume pressures, and the remainder will be used for commercial reinvestment and margin enhancement.

Pursue growth opportunities in total communications

Data revenue grew by 19.8% on an organic basis and is nearing £4.0 billion on an annualised basis. Despite the economic environment we continue to see good uptake of handheld business devices and mobile broadband and, in recent months, we have seen an increase in usage and revenue from the mobile internet across Europe where around 30% of our customer base are regular monthly users of mobile internet services. As only one third of these customers have a data contract the opportunity to grow data revenue remains significant. During the last 12 months we have launched a number of important steps to support our data strategy including: significant investment in HSPA capability; Vodafone open platform for billing; Joint Innovation Lab for standardisation of mobile applications; and Vodafone 360 branded services.

In fixed broadband we continued to grow our customer base in Italy and Spain, and returned to revenue growth in Germany. We now have 5.1 million customers, up around 1.1 million in 12 months, and strong net adds share in Spain, Italy and Germany. The addition of fixed broadband capability is increasing the range of products we can offer to customers, in particular in enterprise, and provides us with the opportunity to compete with integrated competitors.

Europe enterprise revenue declined by 5.4% during the period driven by the impact of higher unemployment, lower business travel and aggressive price competition across the region. We continue to invest in our enterprise capability in order that we are better positioned for enterprise customers. 

Execute in emerging markets

We have continued to drive penetration in India and invest in network coverage. Following the recent launches of a number of new entrants, competition in the Indian market is intense and will remain so for some time. During this phase of Indian market development we will focus on leveraging Vodafone's brand, scale and cost efficiency and disciplined capital expenditure. Economic prospects for India remain attractive and in the medium-term, in-market consolidation should improve returns. Vodafone is well positioned to benefit from the long-term opportunity in India.

Twelve months ago we set out a turnaround plan for Turkey to address our underperformance, focused on improving network quality, enhancing our direct and indirect distribution channels and increasing the competitiveness of our offerings. Our investment in these areas is now gaining traction with a significant improvement in customer trends and slowing revenue declines in the period.

Our primary focus remains on driving results from our existing emerging market assets.

Strengthen capital discipline

Net debt remained stable at £34.0 billion since year end, with underlying strong cash generation and foreign currency movements offsetting acquisitions and dividend payments, which have increased in accordance with the Group's progressive dividend policy. The Group has retained a low single A long-term credit rating in line with its target.

Outlook

The first half results support our expectations for full year adjusted operating profit in the range of £11.0 billion to £11.8 billion and free cash flow around the upper end of the £6.0 billion to £6.5 billion range. The assumptions for foreign exchange rates used within the outlook ranges for the 2010 financial year are unchanged.

Our expectations for capital expenditure for the 2010 financial year remain unchanged and capital expenditure is expected to be similar to last year after adjusting for foreign currency, with slightly slower investment in India and more in Europe to support our revenue growth opportunities.

Summary

These results including our strong free cash flow generation reflect the benefits of Vodafone's geographic and customer diversity, our success in our chosen revenue growth initiatives and the impact of our accelerated £1 billion cost reduction programme. 

 

GROUP FINANCIAL HIGHLIGHTS 

		2009	2008	Change %
	Page	£m	£m	Reported	Organic
Financial information (note 1)
Revenue	23	21,761	19,902	9.3	(3.0)
Operating profit	23	6,068	4,071	49.1
Profit before taxation	23	5,747	3,314	73.4
Profit for the period	23	4,795	2,169	100+
Basic earnings per share (pence)	23	9.17p	4.04p	100+
Capital expenditure (note 2)	35	2,602	2,380	9.3
Cash generated by operations	18	7,577	7,144	6.1

Performance reporting (note 1, 2)
Group EBITDA	6	7,455	7,243	2.9	(7.9)
Adjusted operating profit	6, 38	5,911	5,771	2.4	(11.5)
Adjusted profit before tax	8, 38	5,481	5,288	3.6
Adjusted effective tax rate	8	21.5%	26.5%
Adjusted profit for the period attributable to equity shareholders	8, 38	4,582	3,985	15.0
Adjusted earnings per share (pence)	8, 38	8.72p	7.52p	16.0
Free cash flow (note 3)	18	4,003	3,101	29.1
Net debt	18, 19	34,001	27,715	22.7

Notes:

(1)	Amounts presented at 30 September or for the six months then ended.
(2)	See page 34 for the use of non-GAAP financial information and page 41 for definition of terms.
(3)	All references to free cash flow and operating free cash flow are to amounts before licence and spectrum payments.

CONTENTS

	Page
Outlook	5
Financial results	6
Liquidity and capital resources	18
Acquisitions, disposals and subsequent events	21
Risk factors	21
Responsibility statement	22
Condensed consolidated financial statements	23
Use of non-GAAP financial information	34
Additional information	35
Other information (including forward-looking statements)	40

OUTLOOK FOR THE 2010 FINANCIAL YEAR

Please see page 34 for use of non-GAAP financial information, page 41 for definition of terms and page 42 for forward-looking statements.

	2010 financial year outlook
	(note 1, 2, 3)
Adjusted operating profit	11.0 - 11.8
Free cash flow (note 4)	6.0 - 6.5

Notes:

(1)	As stated on page 37 of the Group's 2009 annual report.
(2)	Includes assumptions of average foreign exchange rates for the 2010 financial year of approximately £1:€1.12 and £1:US$1.50. A substantial majority of the Group's adjusted operating profit and free cash flow is denominated in currencies other than sterling, the Group's reporting currency. A 1% change in the sterling/euro exchange rate would impact adjusted operating profit by approximately £70 million; a 1% change in the sterling/US dollar exchange rate would impact adjusted operating profit by approximately £40 million.
(3)	The outlook does not include the impact of the reorganisation costs arising from the Alltel acquisition by Verizon Wireless, expected to be around £0.2 billion, but includes the impact of the Group's acquisition of a further 15% stake in Vodacom and the consolidation of that entity from 18 May 2009.
(4)	Before spectrum and licence payments but after payments in respect of long-standing tax issues.

Operating conditions across the Group are broadly as envisaged when the outlook ranges were set out at the preliminary results announcement in May, albeit with a slight change in mix. Europe continues to experience economic pressure and similar competitive intensity, though performance in the first half was slightly better than anticipated, whereas economic conditions in Africa and Central Europe were slightly weaker than expected and competition in India has recently intensified.

Group EBITDA margin in the first half declined by 2.1 percentage points. Whilst the 1.0 percentage point decline in Europe was better than anticipated, reflecting a slightly better revenue performance and the benefit of the cost reduction programme, margin pressures in emerging markets were higher including the impact of the competitive environment in India and the turnaround plan in Turkey.

For the full year Group EBITDA margin is expected to decline by a similar rate to the first half. Total depreciation and amortisation charges are now expected to be around £8.2 billion.

In aggregate adjusted operating profit based on the stated foreign exchange assumptions is still expected to be in the £11.0 billion to £11.8 billion range.

Free cash flow based on the stated foreign exchange assumptions is expected to be around the upper end of the £6.0 billion to £6.5 billion range. Capitalised fixed asset additions are expected to be at a similar level to the 2009 financial year after adjusting for the impact of foreign exchange and the consolidation of Vodacom. Capital intensity in Europe and Common Functions is expected to be around 10% of revenue.

The assumptions for foreign exchange rates used within the outlook ranges for the 2010 financial year are unchanged.

The underlying adjusted tax rate percentage is expected to be in the mid 20s for the 2010 financial year with the Group targeting a similar level in the medium-term.

FINANCIAL RESULTS

Group results (note 1)

		Africa   and  Central  Europe	Asia  Pacific  and  Middle  East
							Six months ended
				Verizon  Wireless	Common  Functions  (note 2)		30 September
	Europe					Eliminations	2009  (note 3)	2008	% change
	£m	£m	£m	£m	£m	£m	£m	£m	£	Organic  (note 4)
Voice revenue	8,998	2,696	2,288	−	−	(2)	13,980	13,267
Messaging revenue	1,810	274	228	−	1	−	2,313	2,171
Data revenue	1,460	225	195	−	−	−	1,880	1,391
Fixed line revenue	1,419	126	38	−	−	−	1,583	1,237
Other service revenue	473	148	174	−	−	(78)	717	574
Service revenue	14,160	3,469	2,923	−	1	(80)	20,473	18,640	9.8	(2.6)
Other revenue	751	270	156	−	126	(15)	1,288	1,262
Revenue	14,911	3,739	3,079	−	127	(95)	21,761	19,902	9.3	(3.0)
Direct costs	(3,431)	(1,042)	(883)	−	(27)	80	(5,303)	(4,796)
Customer costs	(4,129)	(874)	(633)	−	(159)	−	(5,795)	(5,283)
Operating expenses	(1,747)	(712)	(731)	−	(33)	15	(3,208)	(2,580)
EBITDA	5,604	1,111	832	−	(92)	−	7,455	7,243	2.9	(7.9)
Depreciation and amortisation:
Acquired intangibles	(18)	(382)	(192)	−	−	−	(592)	(391)
Purchased licences	(484)	(15)	(48)	−	−	−	(547)	(490)
Other	(1,760)	(473)	(464)	−	(30)	−	(2,727)	(2,383)
Share of result in associates	309	21	4	1,988	−	−	2,322	1,792
Adjusted operating profit	3,651	262	132	1,988	(122)	−	5,911	5,771	2.4	(11.5)
Impairment losses							−	(1,700)
Other income and expense							157	−
Operating profit							6,068	4,071
Non-operating income and expense							(7)	(14)
Net financing costs							(314)	(743)
Income tax expense							(952)	(1,145)
Profit for the period							4,795	2,169

Notes:

(1)	The Group revised how it determines and discloses segmental EBITDA and adjusted operating profit during the period. Further details of this change are provided under the heading change in presentation on page 41.
(2)	Common Functions primarily represents the results of the partner markets and the net result of unallocated central Group costs and excludes income from intercompany royalty fees.
(3)	Reflects average exchange rates of £1:€1.14 and £1:US$1.60.
(4)	Organic growth includes India and Vodacom (except the results of Gateway) at the current level of ownership but excludes Australia following the merger with Hutchison 3G Australia on 9 June 2009. See acquisitions, disposals and subsequent events on page 21 for further details.

Revenue

Revenue increased by 9.3% with favourable exchange rate movements contributing 7.9 percentage points and the benefit of merger and acquisition activity contributing 4.4 percentage points to revenue growth. Service revenue fell by 2.6% on an organic basis.

In Europe service revenue decreased by 4.5% on an organic basis with continued growth in both data and fixed lined revenue offset by a decline in voice revenue resulting from continued market and regulatory pressure on prices. Service revenue decreased in the majority of markets but was partially offset by growth in Italy and the Netherlands.

In Africa and Central Europe service revenue declined by 3.2% on an organic basis as growth in Vodacom and the effect of a 6.8% increase in the average customer base for the region were more than offset by an adverse impact of around three percentage points from termination rate cuts as well declines in Romania and Turkey. 

In Asia Pacific and Middle East service revenue grew by 12.3% on an organic basis driven by a 3.6 percentage point contribution from the revenue stream generated by the network sharing joint venture, Indus Towers, as well as the 48.2% organic rise in the average customer base and continued strong data revenue growth. Substantially all of the organic growth was generated in India.

Operating profit 

EBITDA increased by 2.9% with favourable exchange rates contributing 8.2 percentage points and the impact of merger and acquisition activity contributing 2.6 percentage points to growth.

In Europe EBITDA decreased by 8.0% on an organic basis resulting from the decline in service revenue partially offset by cost savings, with declines in every market with the exception of Italy. The EBITDA margin declined by 1.0 percentage point, impacted by the dilutive effect of fixed line services as they continued to grow, with the fall partly mitigated by improvements in Italy and Portugal.

EBITDA in Africa and Central Europe decreased by 9.5% on an organic basis due to investment in the turnaround plan in Turkey and increased competition in Romania which more than offset the growth in Vodacom. The EBITDA margin fell in the majority of markets reflecting lower revenue with cost reductions partially mitigating this decline. 

On an organic basis EBITDA in Asia Pacific and Middle East fell by 2.3%, with a corresponding reduction in the EBITDA margin which was driven by a decline in the margin in India and the lower margin Indian business making up a larger proportion of the region. Start-up costs in Qatar, which launched commercial services on 7 July 2009, also had an impact. EBITDA remained broadly stable across the region with the exception of Qatar.

Adjusted operating profit increased by 2.4% with favourable exchange rates contributing 11.5 percentage points and merger and acquisition activity contributing 2.4 percentage points to growth. 

Operating profit increased by 49.1% as the prior year was impacted by an impairment loss in relation to Turkey.

The share of results in Verizon Wireless, the Group's associate in the US, increased by 7.5% on an organic basis driven by the expanding customer base and growth in mobile broadband data products and applications, and messaging services.

Net financing costs

	Six months ended 30 September
	2009  £m	2008  £m
Investment income	634	501
Financing costs	(948)	(1,244)
Net financing costs	(314)	(743)
Analysed as:
Net financing costs before income from investments	(559)	(436)
Potential interest charges arising on settlement of outstanding tax issues	(108)	(221)
Income from investments	237	174
	(430)	(483)
Foreign exchange (note 1)	(115)	86
Equity put rights and similar arrangements (note 2)	231	(346)
	(314)	(743)

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 on the disposal of Vodafone Japan to SoftBank in April 2006.
(2)	Primarily represents foreign exchange movements and accretion expense. Further details of these options are provided on page 20.

Net financing costs before income from investments increased by 28.2% to £559 million primarily due to the impact of the 31% increase in average net debt being partially offset by changes in the currency mix of debt and significantly lower interest rates for debt denominated in US dollars and euros. At 30 September 2009 the provision for potential interest charges arising on settlement of outstanding tax issues was £1,749 million (31 March 2009: £1,635 million).

Taxation 

	Six months ended 30 September
	2009  £m	2008  £m
Income tax expense	952	1,145
Tax on adjustments to derive adjusted profit before tax	(28)	129
Adjusted income tax expense	924	1,274
Share of associates' tax	335	185
Adjusted income tax expense for purposes of calculating adjusted tax rate	1,259	1,459
Profit before tax	5,747	3,314
Adjustments to derive adjusted profit before tax (note 1)	(266)	1,974
Adjusted profit before tax	5,481	5,288
Add: Share of associates' tax and non-controlling interest	375	216
Adjusted profit before tax for the purpose of calculating adjusted effective tax rate	5,856	5,504
Adjusted effective tax rate	21.5%	26.5%

Note:

(1)	See earnings per share below.

The underlying adjusted effective tax rate for the year ended 31 March 2010 is expected to be in the mid 20s. This is in line with the underlying adjusted effective tax rate for the year ended 31 March 2009 of 24.5%. The rate for the six months ended 30 September 2009 is lower than the full year rate as a result of the resolution of long-standing tax issues in the first half of the year.

Earnings per share

Adjusted earnings per share increased by 16.0% to 8.72 pence for the six months ended 30 September 2009 with substantially all of the increase arising from movements in exchange rates. Basic earnings per share increased by 127.0% to 9.17 pence primarily due to the impairment loss in relation to Turkey which occurred in the prior period.

	Six months ended 30 September
	2009  £m	2008  £m
Profit attributable to equity shareholders	4,820	2,140
Adjustments:
Impairment loss	−	1,700
Other income and expense	(157)	−
Non-operating income and expense	7	14
Investment income and financing costs  (note 1)	(116)	260
	(266)	1,974
Tax on above adjustments	28	(129)
Adjusted profit attributable to equity shareholders	4,582	3,985
	Million	Million
Weighted average number of shares outstanding - basic	52,556	53,006
Weighted average number of shares outstanding - diluted	52,760	53,205

Note:

(1)	See notes 1 and 2 in net financing costs on page 7.

Europe results (note 1) 

	Germany	Italy	Spain	UK	Other	Eliminations	Europe	% change
	£m	£m	£m	£m	£m	£m	£m	£	Organic
Six months ended 30 September 2009
Voice revenue	1,964	1,876	1,994	1,398	1,767	(1)	8,998
Messaging revenue	384	445	203	479	299	-	1,810
Data revenue	470	243	239	282	226	-	1,460
Fixed line revenue	923	255	157	15	69	-	1,419
Other service revenue	69	69	134	182	174	(155)	473
Service revenue	3,810	2,888	2,727	2,356	2,535	(156)	14,160	3.7	(4.5)
Other revenue	132	100	221	157	142	(1)	751
Revenue	3,942	2,988	2,948	2,513	2,677	(157)	14,911	3.0	(5.1)
Direct costs	(863)	(684)	(591)	(786)	(663)	156	(3,431)
Customer costs	(1,058)	(520)	(992)	(859)	(701)	1	(4,129)
Operating expenses	(464)	(339)	(293)	(285)	(366)	-	(1,747)
EBITDA	1,557	1,445	1,072	583	947	-	5,604	0.3	(8.0)
Depreciation and amortisation:
Acquired intangibles	-	(10)	(2)	(6)	-	-	(18)
Purchased licences	(220)	(50)	(4)	(166)	(44)	-	(484)
Other	(457)	(300)	(321)	(336)	(346)	-	(1,760)
Share of result in associates	-	-	-	-	309	-	309
Adjusted operating profit	880	1,085	745	75	866	-	3,651	(1.5)	(10.5)
EBITDA margin	39.5%	48.4%	36.4%	23.2%	35.4%		37.6%
Six months ended 30 September 2008
Voice revenue	1,977	1,721	1,997	1,638	1,814	-	9,147
Messaging revenue	364	392	208	472	298	-	1,734
Data revenue	365	182	186	226	186	-	1,145
Fixed line revenue	828	190	121	15	45	-	1,199
Other service revenue	91	75	158	125	148	(168)	429
Service revenue	3,625	2,560	2,670	2,476	2,491	(168)	13,654
Other revenue	133	92	218	238	145	-	826
Revenue	3,758	2,652	2,888	2,714	2,636	(168)	14,480
Direct costs	(806)	(602)	(617)	(801)	(633)	168	(3,291)
Customer costs	(957)	(485)	(941)	(911)	(666)	-	(3,960)
Operating expense	(425)	(311)	(266)	(300)	(342)	-	(1,644)
EBITDA	1,570	1,254	1,064	702	995	-	5,585
Depreciation and amortisation:
Acquired intangibles	-	(27)	(4)	(9)	(5)	-	(45)
Purchased licences	(199)	(45)	(3)	(166)	(41)	-	(454)
Other	(450)	(274)	(287)	(345)	(320)	-	(1,676)
Share of result in associates	-	-	-	-	296	-	296
Adjusted operating profit	921	908	770	182	925	-	3,706
EBITDA margin	41.8%	47.3%	36.8%	25.9%	37.7%		38.6%
	%	%	%	%	%
Change at constant exchange rates
Voice revenue	(10.4)	(1.2)	(9.6)	(14.7)	(11.3)
Messaging revenue	(4.7)	2.7	(11.5)	1.5	(8.8)
Data revenue	16.9	21.1	16.7	24.8	10.3
Fixed line revenue	1.0	21.9	17.7	-	37.3
Other service revenue	(25.8)	(16.3)	(22.8)	45.6	6.9
Service revenue	(4.8)	2.3	(7.5)	(4.8)	(7.5)
Other revenue	(8.1)	(0.7)	(8.0)	(34.0)	(13.5)
Revenue	(4.9)	2.2	(7.5)	(7.4)	(7.8)
Direct costs	(1.0)	3.0	(13.2)	(1.9)	(5.3)
Customer costs	(1.0)	(2.9)	(4.5)	(5.7)	(4.3)
Operating expenses	(2.0)	(1.0)	(0.2)	(5.0)	(3.0)
EBITDA	(10.1)	4.5	(8.7)	(17.0)	(13.4)
Depreciation and amortisation:
Acquired intangibles	-	(66.7)	(66.0)	(33.3)	(100.0)
Purchased licences	-	-	-	-	-
Other	(8.2)	(0.7)	1.9	(2.6)	(2.8)
Share of result in associates	-	-	-	-	(5.8)
Adjusted operating profit	(13.2)	8.3	(12.2)	(58.8)	(14.8)
EBITDA margin movement (pps)	(2.3)	1.1	(0.4)	(2.7)	(2.3)

Note:

(1)	The Group revised how it determines and discloses segmental EBITDA and adjusted operating profit during the period. Further details of this change are provided under the heading change in presentation on page 41.

Revenue and EBITDA increased by 3.0% and 0.3% respectively. The reported results reflect the impact of merger and acquisition activity and foreign exchange movements together with an organic change. The table below summarises the effect of these factors on service revenue, revenue, EBITDA and adjusted operating profit.

	Organic  change  %	M&A  activity  pps	Foreign  exchange  pps	Reported  change  %
Service revenue
Germany	(4.8)	-	9.9	5.1
Italy	2.3	-	10.5	12.8
Spain	(7.5)	-	9.6	2.1
UK	(5.7)	0.9	-	(4.8)
Other Europe	(7.5)	-	9.3	1.8
Europe	(4.5)	0.1	8.1	3.7
Revenue - Europe	(5.1)	0.1	8.0	3.0
EBITDA
Germany	(10.0)	(0.1)	9.3	(0.8)
Italy	4.5	-	10.7	15.2
Spain	(8.7)	-	9.5	0.8
UK	(18.4)	1.4	-	(17.0)
Other Europe	(13.4)	-	8.7	(4.7)
Europe	(8.0)	0.1	8.2	0.3
Adjusted operating profit
Germany	(13.0)	(0.2)	8.7	(4.5)
Italy	8.3	-	11.2	19.5
Spain	(12.2)	-	9.0	(3.2)
UK	(64.7)	5.9	-	(58.8)
Other Europe	(15.3)	0.5	8.4	(6.4)
Europe	(10.5)	0.3	8.7	(1.5)

Service revenue decreased by 4.5% on an organic basis with continued growth in both data and fixed lined revenue offset by a decline in voice revenue resulting from continued market and regulatory pressure on prices. Service revenue decreased in the majority of markets but was partially offset by growth in Italy and the Netherlands.

EBITDA decreased by 8.0% on an organic basis resulting from the decline in service revenue partially offset by cost savings, with declines in every market with the exception of Italy. The EBITDA margin declined by 1.0 percentage point, impacted by the decline in revenue partly mitigated by improvements in Italy and Portugal.

Germany

Organic service revenue declined by 4.8% with the quarterly growth rate in line with the previous quarter. Revenue was negatively impacted by mobile termination rate cuts effective from April 2009, lower roaming partly due to the impact of EU regulation and continued competitive pressure. These factors were partly offset by fixed line and the Superflat tariff portfolio as well as continued data revenue growth supported by growing penetration of mobile internet devices. The fixed broadband customer base increased to 3.3 million with an additional 241,000 wholesale customers.

EBITDA declined by 10.0% on an organic basis, with the reported margin falling by 2.3 percentage points, driven by lower revenue, higher access costs from the growing fixed line customer base and the one time benefit of a €20 million (£16 million) VAT refund in the six month period to 30 September 2008. These were partly offset by the impact of termination rate cuts and a reduction of operating expenses arising from the fixed and mobile integration synergies.

Italy

Service revenue increased by 2.3% at constant exchange rates. Growth in the current quarter slowed slightly in comparison to the previous quarter with positive momentum being maintained despite tougher economic conditions. Optimisation of spending by customers was partially offset by continued penetration of high value contracts and successful usage initiatives. The higher penetration of PC connectivity devices and success of mobile internet services resulted in good growth in data revenue. Fixed line revenue growth accelerated with a closing fixed broadband customer base of 1.1 million on a 100% basis. 

EBITDA increased by 4.5% at constant exchange rates with the EBITDA margin also growing by 1.1 percentage points, primarily as a result of the increase in revenue, strict control on mobile acquisition and retention unit costs and stable operating expenses, despite continued investment in fixed line services.

Spain 

Service revenue decreased by 7.5% at constant exchange rates with the second quarter improving by 1.2 percentage points when compared to the previous quarter driven by higher usage trends. Service revenue continued to be impacted by weak economic conditions and high unemployment levels also resulting in increased involuntary churn. Data and fixed line revenue continued to grow due to increased penetration of PC connectivity and mobile internet bundles as well as products such as Vodafone Station.

EBITDA fell by 8.7% at constant exchange rates, with a 0.4 percentage point reduction in the EBITDA margin. The impact of the decline in revenue, which included the benefit from legal settlements, was partly offset by termination rate cuts effective from April 2009 whilst acquisition and retention costs were maintained in spite of a rise in overall commercial activity.

UK 

Service revenue fell by 5.7% on an organic basis, with the higher decline of 6.6% in the current quarter mainly due to mobile termination rate cuts effective from July 2009. Competitive pricing pressures and continued reduction in active prepaid customers were partially offset by increased data revenue driven by mobile internet bundles and higher wholesale revenue derived from MVNO agreements.

On an organic basis EBITDA fell by 18.4%, with the EBITDA margin decreasing by 2.7 percentage points, principally from the decline in revenue. Overall costs fell by 4.5% mainly due to mobile termination rate cuts and cost efficiency initiatives particularly in the technology area.

Other Europe 

Service revenue was 7.5% lower at constant exchange rates with declines in all markets except for the Netherlands where service revenue increased by 1.5% at constant exchange rates supported by strong summer roaming. Service revenue in Greece declined by 15.3% at constant exchange rates resulting from mobile termination rate reductions in January 2009, tariff changes and market conditions. 

EBITDA declined by 13.4% at constant exchange rates. EBITDA margin fell by 2.3 percentage points with declines in all markets except Portugal. Lower revenue was offset in part by lower acquisition and retention costs and mobile termination rate cuts. The positive EBITDA margin performance in Portugal was mainly driven by ongoing cost efficiency improvements.

Vivendi is expected to report its third quarter results, including those of SFR, on 12 November 2009.

Africa and Central Europe (note 1)

	Vodacom	Other Africa  and Central  Europe	Africa  and Central  Europe	% change
	£m	£m	£m	£	Organic  (note 2)
Six months ended 30 September 2009
Voice revenue	1,352	1,344	2,696
Messaging revenue	103	171	274
Data revenue	137	88	225
Fixed line revenue	83	43	126
Other service revenue	63	85	148
Service revenue	1,738	1,731	3,469	34.6	(3.2)
Other revenue	210	60	270
Revenue	1,948	1,791	3,739	35.9	(3.5)
Direct costs	(468)	(574)	(1,042)
Customer costs	(473)	(401)	(874)
Operating expenses	(356)	(356)	(712)
EBITDA	651	460	1,111	19.2	(9.5)
Depreciation and amortisation:
Acquired intangibles	(278)	(104)	(382)
Purchased licences	-	(15)	(15)
Other	(176)	(297)	(473)
Share of result in associates	(1)	22	21
Adjusted operating profit	196	66	262	(35.3)	(48.3)
EBITDA margin	33.4%	25.7%	29.7%
Six months ended 30 September 2008
Voice revenue	623	1,498	2,121
Messaging revenue	44	185	229
Data revenue	45	70	115
Fixed line revenue	-	15	15
Other service revenue	16	82	98
Service revenue	728	1,850	2,578
Other revenue	101	72	173
Revenue	829	1,922	2,751
Direct costs	(190)	(574)	(764)
Customer costs	(204)	(416)	(620)
Operating expenses	(146)	(289)	(435)
EBITDA	289	643	932
Depreciation and amortisation:
Acquired intangibles	(34)	(130)	(164)
Purchased licences	-	(12)	(12)
Other	(80)	(285)	(365)
Share of result in associates	-	14	14
Adjusted operating profit	175	230	405
EBITDA margin	34.9%	33.5%	33.9%
	%	%
Change at constant exchange rates
Voice revenue	87.0	(10.6)
Messaging revenue	100+	(8.0)
Data revenue	100+	24.3
Fixed line revenue	-	100+
Other service revenue	100+	5.2
Service revenue	100+	(6.8)
Other revenue	78.2	(19.0)
Revenue	100+	(7.2)
Direct costs	100+	1.1
Customer costs	99.0	(4.1)
Operating expenses	100+	22.8
EBITDA	94.1	(29.7)
Depreciation and amortisation:
Acquired intangibles	100+	(21.8)
Purchased licences	-	36.4
Other	91.3	3.1
Share of result in associates	-	74.1
Adjusted operating profit	(3.5)	(71.9)
EBITDA margin movement (pps)	(1.4)	(8.2)

Notes:

(1)	The Group revised how it determines and discloses segmental EBITDA and adjusted operating profit during the period. Further details of this change are provided under the heading change in presentation on page 41.
(2)	Organic growth includes Vodacom (except the results of Gateway) at the current level of ownership. See acquisitions, disposals and subsequent events on page 21 for further details.

Revenue and EBITDA grew by 35.9% and 19.2% respectively. The reported results reflect the impact of merger and acquisition activity, primarily Vodacom, and foreign exchange movements together with an organic change. The table below summarises the effect of these factors on service revenue, revenue, EBITDA and adjusted operating profit.

	Organic  change  %	M&A  activity  pps	Foreign  exchange  pps	Reported  change  %
Service revenue
Vodacom	4.2	100+	32.7	100+
Other Africa and Central Europe	(10.0)	3.2	0.4	(6.4)
Africa and Central Europe	(3.2)	31.7	6.1	34.6
Revenue - Africa and Central Europe	(3.5)	32.8	6.6	35.9
EBITDA
Vodacom	5.5	88.6	31.2	100+
Other Africa and Central Europe	(24.9)	(4.8)	1.2	(28.5)
Africa and Central Europe	(9.5)	21.7	7.0	19.2
Adjusted operating profit
Vodacom	(46.6)	43.1	15.5	12.0
Other Africa and Central Europe	(51.4)	(20.5)	0.6	(71.3)
Africa and Central Europe	(48.3)	8.2	4.8	(35.3)

Service revenue declined by 3.2% on an organic basis as growth in Vodacom and the effect of a 6.8% increase in the average customer base of the region were more than offset by an adverse impact of around three percentage points from termination rate cuts as well as declines in Romania and Turkey. 

On an organic basis EBITDA decreased by 9.5% due to investment in the turnaround plan in Turkey and increased competition in Romania which more than offset growth in Vodacom. The EBITDA margin fell in the majority of markets reflecting lower revenue with cost reductions partially mitigating this decline. 

Vodacom

On 18 May 2009 Vodacom became a subsidiary. See acquisitions, disposals and subsequent events on page 21 for further details.

Service revenue grew by 4.2% on an organic basis although the rate of growth slowed in the current quarter as good growth in South Africa was offset by weakening trends in Vodacom's non-South African operations. Revenue growth was driven by a 17.2% increase in the average customer base, although the rate of gross additions slowed following the introduction of customer registration in South Africa on 1 August 2009. Data revenue continued to increase strongly following increased penetration of mobile PC connectivity devices. Service revenue in the Democratic Republic of Congo and Tanzania continued to be affected by intense competition and a weaker economic climate. Gateway, the carrier services and business network solutions business, suffered from pricing pressures.

EBITDA grew by 5.5% on an organic basis, with the reported margin falling by 1.5 percentage points, impacted by lower revenue particularly in the Democratic Republic of Congo and in Tanzania, although both countries significantly reduced both capital and operating costs in response to the sharp reduction in revenue. These impacts were partially offset by the benefit from a lower regulatory fee in South Africa compared to the first half of the prior financial year and a focus on cost reductions, including the implementation of programmes that are expected to yield longer term benefits, for example transmission self-provisioning and sharing.

Other Africa and Central Europe

Service revenue declined by 10.0% on an organic basis, as the strong growth in data revenue was more than offset by the decline in voice revenue driven by weak economic conditions throughout Central Europe, the impact of termination rate cuts and a significant fall in revenue in Romania. 

In Turkey service revenue declined by 7.9% at constant exchange rates, driven by an 11.8% reduction in the average customer base combined with a significant fall in prices as a result of competition and termination rate cuts. However the rate of decline improved in the current quarter driven by an increase in active customers, continued strong leadership in mobile number portability and growth in incoming revenue which continued to benefit from the introduction of cross-network tariffs in the previous quarter. 3G services were successfully launched in 81 cities in August 2009. In Romania service revenue declined by 19.5% at constant exchange rates impacted by weak economic conditions and a 15% year on year decline in local currency against the euro as tariffs are quoted in euros but household incomes are earned in local currency. Competitive price declines and the impact of a termination rate cut effective from January 2009 also had an impact.

EBITDA decreased by 24.9% on an organic basis as a result of the reduction in revenue and higher running costs resulting from the expansion of the network infrastructure in Turkey as well as publicity to support the launch of 3G services. EBITDA margins fell slightly across the majority of the region although cost reduction activities partially offset the revenue declines. 

Asia Pacific and Middle East (note 1)

	India	Other Asia  Pacific and  Middle East	Eliminations	Asia Pacific  and  Middle East	% change
	£m	£m	£m	£m	£	Organic  (note 2)
Six months ended 30 September 2009
Voice revenue	1,225	1,063	-	2,288
Messaging revenue	45	183	-	228
Data revenue	83	112	-	195
Fixed line revenue	1	37	-	38
Other service revenue	105	70	(1)	174
Service revenue	1,459	1,465	(1)	2,923	17.8	12.3
Other revenue	26	130	-	156
Revenue	1,485	1,595	(1)	3,079	15.9	11.3
Direct costs	(427)	(457)	1	(883)
Customer costs	(210)	(423)	-	(633)
Operating expenses	(491)	(240)	-	(731)
EBITDA	357	475	-	832	3.9	(2.3)
Depreciation and amortisation:
Acquired intangibles	(168)	(24)	-	(192)
Purchased licences	-	(48)	-	(48)
Other	(232)	(232)	-	(464)
Share of result in associates	-	4	-	4
Adjusted operating profit	(43)	175	-	132	(48.4)	(42.0)
EBITDA margin	24.0%	29.8%		27.0%
Six months ended 30 September 2008
Voice revenue	997	1,003	-	2,000
Messaging revenue	38	170	-	208
Data revenue	67	64	-	131
Fixed line revenue	-	23	-	23
Other service revenue	37	83	(1)	119
Service revenue	1,139	1,343	(1)	2,481
Other revenue	39	137	-	176
Revenue	1,178	1,480	(1)	2,657
Direct costs	(396)	(415)	1	(810)
Customer costs	(184)	(403)	-	(587)
Operating expenses	(263)	(196)	-	(459)
EBITDA	335	466	-	801
Depreciation and amortisation:
Acquired intangibles	(178)	(4)	-	(182)
Purchased licences	-	(24)	-	(24)
Other	(150)	(191)	-	(341)
Share of result in associates	-	2	-	2
Adjusted operating profit	7	249	-	256
EBITDA margin	28.4%	31.5%		30.1%
	%	%
Change at constant exchange rates
Voice revenue	15.5	(3.5)
Messaging revenue	13.7	1.0
Data revenue	17.7	59.5
Fixed line revenue	-	49.2
Other service revenue	100+	(23.6)
Service revenue	20.5	(0.3)
Other revenue	(38.0)	(10.5)
Revenue	18.5	(1.2)
Direct costs	1.4	1.0
Customer costs	6.7	(1.5)
Operating expenses	76.1	11.9
EBITDA	0.2	(8.4)
Depreciation and amortisation:
Acquired intangibles	(11.1)	100+
Purchased licences	-	84.6
Other	45.9	12.1
Share of result in associates	-	55.0
Adjusted operating profit	(100+)	(38.2)
EBITDA margin movement (pps)	(4.4)	(2.3)

Notes:

(1)	The Group revised how it determines and discloses segmental EBITDA and adjusted operating profit during the period. Further details of this change are provided under the heading change in presentation on page 41.
(2)	Organic growth includes India but excludes Australia following the merger with Hutchison 3G Australia on 9 June 2009. See acquisitions, disposals and subsequent events on page 21 for further details.

Revenue and EBITDA grew by 15.9% and 3.9%, respectively. The reported results reflect the impact of merger and acquisition activity and foreign exchange movements together with an organic change. The table below summarises the effect of these factors on service revenue, revenue, EBITDA and adjusted operating profit.

	Organic  change  %	M&A  activity  pps	Foreign  exchange  pps	Reported  change  %
Service revenue
India	20.5	-	7.6	28.1
Other Asia Pacific and Middle East	1.6	(1.9)	9.4	9.1
Asia Pacific and Middle East	12.3	(3.2)	8.7	17.8
Revenue - Asia Pacific and Middle East	11.3	(3.9)	8.5	15.9
EBITDA
India	0.2	-	6.4	6.6
Other Asia Pacific and Middle East	(4.3)	(4.1)	10.3	1.9
Asia Pacific and Middle East	(2.3)	(2.6)	8.8	3.9
Adjusted operating profit
India	(100+)	-	(78.0)	(100+)
Other Asia Pacific and Middle East	(25.4)	(12.8)	8.5	(29.7)
Asia Pacific and Middle East	(42.0)	(12.8)	6.4	(48.4)

Service revenue grew by 12.3% on an organic basis driven by a 3.6 percentage point contribution from the revenue stream generated by the network sharing joint venture, Indus Towers, as well as the 48.2% organic rise in the average customer base and continued strong data revenue growth. Substantially all of the organic growth was generated in India.

On an organic basis EBITDA fell by 2.3%, with a corresponding reduction in the EBITDA margin which was driven by a decline in the margin in India and the lower margin Indian business making up a larger proportion of the region. Start-up costs in Qatar, which launched commercial services on 7 July 2009, also had an impact. EBITDA remained broadly stable across the region with the exception of Qatar.

India

Service revenue grew by 20.5% at constant exchange rates including a 6.4 percentage point benefit from Indus Towers. Growth was driven by a 54.8% increase in the average mobile customer base which was partially offset by a fall in the effective rate per minute and a decline in usage per customer as competition intensified and penetration gains shifted towards more rural circles. Growth was also impacted by a termination rate cut effective from April 2009. 

EBITDA was stable at constant exchange rates, with a 4.4 percentage point decline in the EBITDA margin, primarily as a result of the expansion into rural areas and market price reductions offset by scale efficiencies. 

Other Asia Pacific and Middle East

Service revenue grew by 1.6% on an organic basis as data revenue growth, driven by the higher penetration of mobile internet services, offset slowing voice revenue. In Egypt service revenue increased by 1.3% at constant exchange rates primarily due to the higher average customer base partially offset by the impact of termination rate reductions and pricing pressure. Qatar, after launching commercial services in July 2009, reached a customer base of 151,000 at 30 September 2009, 51% above its publicly stated target. A number of distribution channels in Qatar have been established including online, Vodafone retail stores and indirect partners.

EBITDA fell by 4.3% on an organic basis, with the reported margin falling by 1.7 percentage points, as a result of the cost of launching services in Qatar. In Egypt the EBITDA margin remained stable as a termination rate cut and higher usage on the Vodafone network led to lower interconnect costs, which were offset by a lower effective price per minute. 

On 9 June 2009 Vodafone Australia completed its merger with Hutchison 3G Australia to form a 50:50 joint venture, Vodafone Hutchison Australia Pty Limited. Integration continues according to plan with significant progress being made in reorganising head office, customer services and property locations. Implementation plans on retail stores, networks and IT are advancing well and in line with expectations.

Verizon Wireless

	Six months ended 30 September
	2009	2008	% change
	£m	£m	£	Organic
Service revenue	7,872	5,273	49.3	7.5
Revenue	8,583	5,795	48.1	6.2
EBITDA	3,349	2,247	49.0	7.5
Interest	(182)	(28)	100+
Tax (note 1)	(149)	(93)	60.2
Non-controlling interest	(43)	(31)	38.7
Discontinued operations	48	-	-
Group's share of result in Verizon Wireless	1,988	1,480	34.3	7.5
KPIs (100% basis)
Closing customers ('000)	89,013	70,808
Average monthly ARPU (US$)	54.6	54.6
Churn	17.2%	14.7%
Messaging and data as a percentage of service revenue	27.9%	23.7%

Note:

(1)

The Group's share of the tax attributable to Verizon Wireless relates only to the corporate entities held by the Verizon Wireless partnership and certain state taxes which are levied on the partnership. The tax attributable to the Group's share of the partnership's pre-tax profit is included within the Group tax charge.

Verizon Wireless achieved 2.4 million net customer additions bringing the closing customer base to 89.0 million. Customer growth was achieved by continued concentration on the high value contract segment alongside market leading customer churn.

Service revenue growth of 7.5% on an organic basis was driven by the expanding customer base and robust non-voice ARPU, predominantly driven by growth in mobile broadband data products and applications, and messaging services.

The EBITDA margin of 39.0% remained strong despite the tougher competitive and economic environment. Efficiencies in operating expenses have been partly offset by a higher level of customer acquisition and retention costs, particularly for high end data devices including BlackBerry devices.

The integration of the Alltel business is going according to plan. Store rebranding is complete and network conversions are well underway and on track. Verizon Wireless has entered into agreements to sell the 105 overlapping properties arising from the acquisition of Alltel. AT&T will acquire the network assets and mobile licences of 79 markets, corresponding to 1.5 million customers for US$2.35 billion. Atlantic Tele-Network will acquire the network assets and mobile licences of the remaining 26 markets and 0.7 million customers for US$0.2 billion. Both transactions are expected to complete in early 2010.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows and funding

	Six months ended 30 September
	2009  £m	2008  £m	%
Cash generated by operations	7,577	7,144	6.1
Cash capital expenditure (note 1)	(2,789)	(2,902)
Disposal of intangible assets and property, plant and equipment	18	61
Operating free cash flow	4,806	4,303	11.7
Taxation	(848)	(1,079)
Dividends received from associates and investments (note 2)	725	340
Dividends paid to non-controlling shareholders in subsidiaries	(3)	(78)
Net interest received and paid	(677)	(385)
Free cash flow	4,003	3,101	29.1
Acquisitions and disposals (note 3)	(2,628)	(782)
Licence and spectrum payments(note 4)	(975)	(672)
Amounts received from non-controlling shareholders(note 5)	613	624
Put options over non-controlling interests	(77)	77
Equity dividends paid	(2,742)	(2,671)
Purchase of treasury shares	-	(963)
Foreign exchange and other	2,028	(1,282)
Net debt decrease/(increase)	222	(2,568)
Opening net debt	(34,223)	(25,147)
Closing net debt	(34,001)	(27,715)	22.7

Notes:

(1)	Cash paid for purchase of intangible assets other than licence and spectrum payments, and property, plant and equipment.
(2)	Six months ended 30 September 2009 includes £584 million (2008: £226 million) from the Group's interest in Verizon Wireless.
(3)	Six months ended 30 September 2009 includes net cash and cash equivalents paid of £1,781 million (2008: £779 million) and assumed debt of £847 million (2008: £3 million).
(4)	Six months ended 30 September 2009 includes £549 million (2008: £647 million) in relation to Qatar.
(5)	Six months ended 30 September 2009 includes £613 million (2008: £591 million) in relation to Qatar.

Free cash flow increased by 29.1% to £4,003 million due to increased cash generated by operations, dividends received and lower taxation payments partially offset by increased interest payments. The Group invested £975 million in licences and spectrum including £549 million in respect of the licence in Qatar and £223 million in respect of Turkey.

Cash generated by operations increased by £433 million to £7,577 million, with approximately 70% generated in the Europe region. Cash capital expenditure decreased by £113 million primarily due to lower expenditure in India partially offset by higher reported spend in South Africa following the change from proportionate to full consolidation during the period. Capital intensity in Europe and Common Functions was 8.8%.

Payments for taxation decreased by £231 million primarily due to the one-off benefit of additional tax deductions in Italy.

Dividends received from associates and investments increased by over 100% to £725 million in line with expectations following the revised agreement on distributions discussed on page 42 of the Group's annual report for the year ended 31 March 2009, and the receipt of the delayed US$250 million gross tax distribution from Verizon Wireless in relation to the 2009 financial year in April 2009. 

Net interest payments increased 75.8% to £677 million primarily due to higher average net debt and unfavourable exchange rate movements impacting the translation of interest payments into sterling.

An analysis of net debt is as follows:

	30 September  2009  £m	31 March  2009  £m
Cash and cash equivalents (as presented in the consolidated  statement of financial position)	3,738	4,878
Short-term borrowings
Bonds	(3,236)	(5,025)
Commercial paper (note 1)	(1,931)	(2,659)
Bank loans	(1,090)	(893)
Other short-term borrowings (note 2)	(911)	(1,047)
	(7,168)	(9,624)
Long-term borrowings
Put options over non-controlling interests	(3,296)	(3,606)
Bonds, loans and other long-term borrowings (note 3)	(28,989)	(28,143)
	(32,285)	(31,749)
Trade and other receivables (note 4)	2,220	2,707
Trade and other payables (note 4)	(506)	(435)
Net debt	(34,001)	(34,223)

Notes:

(1)	At 30 September 2009 US$416 million was drawn under the US commercial paper programme and amounts of €1,725 million, £72 million and US$33 million were drawn under the euro commercial paper programme.
(2)	At 30 September 2009 amount includes £642 million in relation to collateral support agreements.
(3)	At 30 September 2009 £6,573 million related to drawn facilities including £1,800 million for a JPY term loan and £2,280 million for loans within the Indian corporate structure.
(4)	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.

The impact of foreign exchange decreased net debt by £1,964 million principally due to approximately 42% of net debt being denominated in US dollars and as the sterling/US dollar exchange rate moved from £1:US$1.43 on 31 March 2009 to £1:US$1.60 on 30 September 2009.

The following table sets out the Group's committed bank facilities:

	Maturity	30 September 2009 £m
Undrawn facilities
$5.0 billion committed revolving credit facility provided by 28 banks(1)	June 2012	3,137
$4.1 billion committed revolving credit facility provided by 22 banks(1)	July 2011	2,569
Other committed credit facilities	Various	2,035
Total undrawn committed facilities		7,741

Note:

(1)	Both facilities support US and euro commercial paper programmes of up to $15 billion and £5 billion respectively.

The Group's £1,931 million of commercial paper maturing within one year is covered 4.0 times by the £7.7 billion of undrawn revolving credit facilities. In addition the Group has historically generated significant amounts of free cash flow which can be allocated to pay dividends, repay maturing borrowings and pay for discretionary spending. The Group currently expects to continue generating significant amounts of free cash flow.

The Group has a €30 billion euro medium term note ('EMTN') programme and a US shelf programme which are used to meet medium to long-term funding requirements. At 30 September 2009 the total amounts in issue under these programmes split by currency were US$15.1 billion, £2.6 billion, €11.1 billion and other currencies £0.2 billion sterling equivalent.

At 30 September 2009 the Group had bonds outstanding with a nominal value of £22,425 million (31 March 2009: £23,754 million). In the six months ended 30 September 2009 the following bonds were issued:

Date bond issued	Maturity of bond	Currency	Amount Million	Sterling equivalent Million	US shelf programme or EMTN programme
01 April 2009	29 November 2012	EUR	250	229	EMTN programme
05 June 2009	5 December 2017	GBP	600	600	EMTN programme
10 June 2009	10 June 2014	USD	1,250	780	US shelf programme
10 June 2009	10 June 2019	USD	1,250	780	US shelf programme

Information on the maturities of the Group's outstanding bonds is included in the table above and on pages 104 to 106 of the Group's annual report for the year ended 31 March 2009.

Consistent with the development of its strategy the Group targets, on average, a low single A long-term credit rating. At 9 November 2009 the credit ratings were as follows:

	Rating Date	Type of debt	Rating	Outlook
Standard & Poor's	30 May 2006	Short-term	A-2
	30 May 2006	Long-term	A-	Negative
Moody's	30 May 2006	Short-term	P-2
	16 May 2007	Long-term	Baa1	Stable
Fitch Ratings	30 May 2006	Short-term	F2
	30 May 2006	Long-term	A-	Negative

The Group's credit ratings enable it to have access to a wide range of debt finance including commercial paper, bonds and committed bank facilities. Credit ratings are not a recommendation to purchase, hold or sell securities, in as much as ratings do not comment on market price or suitability for a particular investor and are subject to revision or withdrawal at any time by the assigning rating organisation. Each rating should be evaluated independently.

Dividends

In November 2008 the Board adopted a progressive dividend policy where dividend growth reflects the underlying trading and cash performance of the Group.

Accordingly the directors have announced an interim dividend of 2.66 pence per share representing a 3.5% increase over last year's interim dividend.

The ex-dividend date is 18 November 2009 for ordinary shareholders, the record date for the interim dividend is 20 November 2009 and the dividend is payable on 5 February 2010. Dividend payments on ordinary shares will be paid by direct credit into a nominated bank or building society account or, alternatively, into the Company's dividend reinvestment plan. The Company will no longer pay dividends by cheque. Shareholders who have not already done so should provide appropriate bank account details to the Company. For further information please refer to www.vodafone.com/investor.

Option agreements and similar arrangements

The Group is party to a number of option agreements which could result in it being required to pay cash to maintain or increase its equity interests in its operations in India and the US. In relation to India, the Group granted put options exercisable between 8 May 2010 and 8 May 2011 to members of the Essar group of companies that, if exercised, would allow the Essar group to sell its 33% shareholding in Vodafone Essar to the Group for US$5 billion or to sell between US$1 billion and US$5 billion worth of Vodafone Essar shares to the Group at an independently appraised fair market value. Details of other agreements, including that in relation to the US, are available on page 44 of the Group's annual report for the year ended 31 March 2009.

ACQUISITIONS, DISPOSALS AND SUBSEQUENT EVENTS

The Group invested a net £1,781 million (note 1) in acquisition and disposal activities, including the purchase and disposal of investments, in the six months ended 30 September 2009. An analysis of the significant transactions is shown below.

	£m
Cash paid for the acquisition of additional 15.0% stake in Vodacom	1,572
Cash paid for other acquisitions	112
Net overdraft acquired	97
	1,781

Note:

(1)	Amounts are shown net of cash and cash equivalents acquired or disposed.

On 20 April 2009 the Group acquired an additional 15.0% stake in Vodacom for cash consideration of ZAR20.6 billion (£1.6 billion). On 18 May 2009 Vodacom became a subsidiary following the listing of its shares on the Johannesburg Stock Exchange and concurrent termination of the shareholder agreement with Telkom SA Limited, the seller and previous joint venture partner. During the period from 20 April 2009 to 18 May 2009 the Group continued to account for Vodacom as a joint venture, proportionately consolidating 65% of the results of Vodacom. The average percentage of results consolidated during the six months ended 30 September 2009 was approximately 90%.

On 10 May 2009 Qatar completed a public offering of 40.0% of its authorised share capital, raising QAR 3.4 billion (£0.6 billion). The shares were listed on the Qatar exchange on 22 July 2009. Qatar launched full services on its network on 7 July 2009.

On 9 June 2009 Vodafone Australia completed its merger with Hutchison 3G Australia to form a 50:50 joint venture, Vodafone Hutchison Australia Pty Limited, which, in due course, will market its products and services solely under the Vodafone brand. To equalise the value difference between the respective businesses, Vodafone will receive a deferred payment of AUS$500 million. The results of the combined business have been proportionally consolidated in the Group's results as a joint venture from the date of the merger.

RISK FACTORS

There are a number of risk factors and uncertainties that could have a significant effect on the Group's financial performance including:

adverse macro economic conditions in the markets in which the Group operates;

the continued volatility of worldwide financial markets may make it more difficult for the Group to raise capital externally;

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 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 from external factors including the movements in foreign exchange rates, interest rates and other factors such as long-term economic growth rates, all of which may impact the Group's financial performance. Non-financial risks that could have a significant effect on the Group's financial performance for the six months ending 31 March 2010 and which are outside the Group's control include the willingness and ability of third parties, including regulators, tax authorities and commercial partners, to engage and reach agreement on open matters.

Any of the above and/or changes in assumptions underlying the carrying value of certain Group assets could result in asset impairments.

Further information in relation to these risk factors and uncertainties can be found on pages 38 to 39 of the Group's annual report for the year ended 31 March 2009 which can be found on www.vodafone.com/investor.

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, "Interim Financial Reporting"; 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 in relation to the half-year financial report except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A of the Financial Services and Markets Act 2000.

By Order of the Board

Stephen Scott

Secretary

10 November 2009

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Consolidated income statement

		Six months ended  30 September
	Note	2009  £m	2008  £m
Revenue	2	21,761	19,902
Cost of sales		(14,115)	(12,414)
Gross profit		7,646	7,488
Selling and distribution expenses		(1,479)	(1,349)
Administrative expenses		(2,578)	(2,160)
Share of result in associates		2,322	1,792
Impairment loss		-	(1,700)
Other income and expense		157	-
Operating profit	2	6,068	4,071
Non-operating income and expense		(7)	(14)
Investment income		634	501
Financing costs		(948)	(1,244)
Profit before taxation		5,747	3,314
Income tax expense	3	(952)	(1,145)
Profit for the period		4,795	2,169
Attributable to:
- Equity shareholders		4,820	2,140
- Non-controlling interests		(25)	29
		4,795	2,169
Earnings per share
- Basic	4	9.17p	4.04p
- Diluted	4	9.14p	4.02p

Consolidated statement of comprehensive income

	Six months ended  30 September
	2009  £m	2008  £m
Gains/(losses) on revaluation of available-for-sale investments, net of tax	501	(1,743)
Foreign exchange translation differences, net of tax	(2,193)	1,605
Net actuarial gains/(losses) on defined benefit pension schemes, net of tax	47	(49)
Revaluation gain	963	97
Foreign exchange gains transferred to the income statement	(84)	(3)
Fair value losses transferred to the income statement	3	-
Other, net of tax	25	-
Net loss recognised directly in equity	(738)	(93)
Profit for the period	4,795	2,169
Total comprehensive income for the period	4,057	2,076
Attributable to:
- Equity shareholders	4,113	1,989
- Non-controlling interests	(56)	87
	4,057	2,076

The accompanying notes are an integral part of these condensed consolidated financial statements.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Consolidated statement of financial position

	30 September  2009  £m	31 March  2009  £m
Non-current assets
Goodwill	54,479	53,958
Other intangible assets	23,185	20,980
Property, plant and equipment	19,709	19,250
Investments in associates	33,215	34,715
Other investments	7,450	7,060
Deferred tax assets	934	630
Post employment benefits	25	8
Trade and other receivables	3,185	3,069
	142,182	139,670
Current assets
Inventory	534	412
Taxation recoverable	124	77
Trade and other receivables	8,246	7,662
Cash and cash equivalents	3,738	4,878
	12,642	13,029
Total assets	154,824	152,699
Equity
Called up share capital	4,153	4,153
Additional paid-in capital	153,424	153,348
Treasury shares	(7,867)	(8,036)
Accumulated other comprehensive income	19,810	20,517
Retained losses	(81,924)	(83,820)
Total equity shareholders' funds	87,596	86,162
Non-controlling interests	3,288	1,787
Put options over non-controlling interests	(3,122)	(3,172)
Total non-controlling interests	166	(1,385)
Total equity	87,762	84,777
Non-current liabilities
Long-term borrowings	32,285	31,749
Deferred tax liabilities	7,647	6,642
Post employment benefits	171	240
Provisions	514	533
Trade and other payables	721	811
	41,338	39,975
Current liabilities
Short-term borrowings	7,168	9,624
Current taxation liabilities	4,592	4,552
Provisions	381	373
Trade and other payables	13,583	13,398
	25,724