Strategy Review: The 2006 Five-Point Strategy

Strategy review
The five-point strategy we created in May 2006 has worked well for us. However,
we have reviewed and updated the strategy to address evolving challenges and
reposition ourselves in the current environment.
 The 2006 five-point strategy

 Progress under the 2006 strategy
 Evolving challenges in 2009
 Strategic focus in 2009
The 2006 five-point strategy
 Revenue stimulation and cost reduction in Europe.

 Deliver strong growth in emerging markets.
 Innovate and deliver on our customers’ total communications needs.
 Actively manage our portfolio to maximise returns.
 Align capital structure and shareholder returns policy to strategy.
Progress under the 2006 strategy

 We made strong progress against our key objectives.
 Mobile phone usage has grown significantly, partly offsetting price declines.
 We met key operating costs and capital expenditure targets.
 We increased our exposure to emerging markets.
 Our revenue share from non-core mobile or total communication services
grew, due to significant data revenue growth and an increased fixed broadband
presence.
 We refined our portfolio of businesses and disposed of several non-core
assets.
 We maintained a disciplined approach to our capital structure. This proved
right for the business and returned a significant level of cash to shareholders.
Evolving challenges in 2009

 The macro economic environment has become more challenging.
 Competitive pressures continue to be strong, contributing to price declines
of around 15% per annum.
 Consumers have an increasing choice of converged communication offers
from established mobile and fixed line operators, as well as newer entrants. They
include handset manufacturers, internet-based companies and software providers.
 Mobile virtual network operators (which lease network capacity from mobile
companies) are becoming more common.
 Regulators continue to press for lower mobile termination rates and roaming
prices. These areas together account for around 17% of our revenue.
Strategic focus in 2009

Our strategy is now focused on four key objectives:
Drive operational performance
 Value enhancement
We will drive operational performance through customer value enhancement
(which replaces revenue stimulation) and cost efficiency. Value enhancement
involves maximising the value of our existing customer relationships, not just the
revenue.
We will move away from unit pricing and unit-based tariffs to propositions that
deliver much more value to our customers in return for greater commitment,
incremental penetration of the account or more balanced commercial costs.
This will require a more disciplined approach to commercial costs to ensure our
investment is focused on those customers with higher lifetime value.
We are confident that by targeting our offers, we can deliver more value to our
customers and have a better financial outcome for Vodafone.
 Cost reduction
Cost efficiency requires us to continue to deliver scale benefits by optimising
operating and capital expenditure.
Across the Group we have a significant number of cost programmes, which we
expect to reduce current operating costs by approximately £1 billion per annum by
the 2011 financial year.
This will offset the pressures from cost inflation and the competitive environment
and enable investment in revenue growth opportunities.
As a result, on a like-for-like basis, we are targeting broadly stable operating costs
in Europe and for operating costs to grow at a lower rate than revenue in ACE
(Africa and Central Europe) and APME (Asia Pacific and Middle East) between
the 2008 and 2011 financial years.
Capital intensity is expected to be around 10% over this period in Europe and to
trend to European levels in emerging markets over the longer term.
Pursue growth opportunities in total communications
 Mobile data
We’ve made significant progress on mobile data, with annualised
revenue of £3 billion. This is still a large opportunity, with the
penetration of data devices relatively low in Europe and almost nil in
emerging markets.
 Enterprise
We have a strong position in core mobile services and we’ve built a
solid presence in 18 months in multi-national accounts through
Vodafone Global Enterprise.
We will make the most of this strength to expand our offerings into the
broader enterprise communications market locally. This means serving
small and home offices (SOHOs) and small-to-medium enterprises
(SMEs) with shared platforms and services, supported by our local sales
forces.
 Broadband
We will adopt a market-by-market approach focused on the service,
rather than the technology. It will be targeted at enterprise and high
value consumers as a priority.
Execute in emerging markets
 Delivery in existing markets

We are represented in most of the key emerging markets where
significant growth is expected in the coming years.
Our main focus now is on execution in these markets, particularly in
India, Turkey and our African footprint, following our agreement to
acquire control of Vodacom

 Selective expansion and cautious approach
We will also try to maximise the mobile data opportunity. There are few
potential large new markets of interest to us and we will be cautious and
selective on future expansion.
strengthen capital discipline
 We remain committed to our low single A rating target, which we

consider to be appropriate in the current environment and comfortable
with our liquidity position.
Our focus is on generating £5 billion to £6 billion free cash flow
generation per annum and ensuring appropriate investment in our
existing businesses.
 Shareholder returns
We will aim to improve returns to shareholders, primarily by increasing
dividends. In November 2008, the Board adopted a progressive dividend
policy, where dividend growth reflects our underlying trading and cash
performance.
In May 2010 the Board announced that it was targeting dividend per
share growth of at least 7% per annum for the next three financial years
ending on 31 March 2013. We expect the total dividend per share will
therefore be no less than 10.18 pence for the 2013 financial year.
 Clear priorities for surplus capital
Our priorities are to:
• invest in existing businesses
• expand in the growth areas of mobile data, enterprise and broadband
• acquire, where appropriate, new spectrum to support voice and data
traffic growth.
After investing in existing business and returns to shareholders, we will
consider opportunities to reshape the portfolio. Our current capital
structure implies that any significant acquisition would likely need to be
funded through portfolio disposals.

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Strategy review

 The 2006 five-point strategy

The 2006 five-point strategy

 Revenue stimulation and cost reduction in Europe.

Progress under the 2006 strategy

Evolving challenges in 2009

Strategic focus in 2009

Drive operational performance

Execute in emerging markets

 Delivery in existing markets

strengthen capital discipline

 We remain committed to our low single A rating target, which we

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