Vodofone FD Andy Halford on his interim results

So what for you are the key financial highlights of the
results?
For me the key aspect of these was that our overall statutory revenues were up
by about 7%, or on an organic basis, up by about 4%. If you look at this on the
proportionate basis that we guide on, we were actually up 6%, which is well
within the range of 5.0­6.5% that we have guided to for the full year.

On our margins, we were only down 0.1 of a percentage point, compared with
our full-year guidance of down around one per cent. Our tax rate was actually
slightly lower than we had anticipated, at just below 30%, and we’re now guiding
to a slightly lower tax rate for the full year.

Our earnings per share were up 17.7%, partly assisted by the reduced number
of shares in issue, and our free cash flow was about £3bn. So, we’re very much
on track for our full year numbers.

So what’s driving your tax outlook, and does it assume you win the
CFC case?
On the tax front, we have come in with a tax rate for the first half
year that is a little bit lower than we expected, and we have now said that,
over the full year, we expect our tax rate to be around 30%, which is slightly
better.

There are a couple of reasons for this: first of all, we have done a bit of
restructuring in Italy and, secondly, the CFC position, with the recent
Cadbury’s ruling, has provided a little bit more clarity there, albeit it will
take some time to work through.

On the CFC case, we have decided that we will hold the provision that we had
at the end of March and not increase it further. So the only extra cost we have
actually had is for the interest cost. That is the primary reason why we see the
current year situation on tax improving.

Are you on track to hit the broadly stable opex and 10% capex/sales
number in the Europe region next year, 2007/08?
Yes, I think we are. On the capex side to start with, we have said by 2007/08 we
will be at 10% of our service revenue spent on capital expenditure. A year ago,
we were at 13.0-13.5% and we are gradually coming down to that. In fact, for the
first half of this year we were already at 10 %, albeit we will typically have a
higher spend in the second half.

So I think on capital expenditure, we are well on track to get there. On the
operating costs, in the first half of this year, we did slightly increase the
overall level of costs, but that was in order to make sure we focus on our
direct distribution channels.

Could you give us an update on the £5bn longstanding tax
payments?
The £5bn really had two parts to it. It had the £2bn on the CFC and £3bn on a
multiple of other smaller tax issues. Because of clarity on the Cadbury case, we
will now wait and see how that applies to our own circumstances. We think that
it will probably now take a little bit longer to resolve than previously
anticipated. So rather than maybe 2007/08, it may be 2008/09 before we get that
fully resolved.

On the other £3bn, we have actually agreed some of those cases now and have
booked those in the first half of this year, albeit a number of other ones are
actually taking somewhat longer to resolve. So, overall, our thinking is that
the 2008/09 year will be about £2bn of the £3bn, and the rest will be split
fairly evenly between this year and next year.

You’ve just announced an £8bn impairment charge. Are you anticipating
having to make any more impairment charges?
We’ve just announced the extra £8bn. That has been off the back of two
things: interest rates have moved against us and also the trading environment in
which we operate. Clearly, we have taken a view at this stage that we now think
the values are appropriate.

Unfortunately, one cannot rule out future changes in interest rates, which
clearly are outside of our control, and the trading environment, which is partly
in our control and partly outside of it.

So I think we have now moved in value terms a long way down the curve. I
can’t totally rule out future ones, but I really think we are now at the right
place for this point in time.