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November 22, 1995

NO RIGHTS ISSUE AS VODAFONE DECIDES TO FINANCE FUTURE GROWTH – EXPANDING STAKES IN FRANCHISES – WITH DEBT

By CBR Staff Writer

Vodafone Group Plc chief executive Sir Gerry Whent ruled out the prospect of a rights issue to finance the group’s development over the next few years, as he announced the mobile telecommunications group’s interim figures. It will instead look for between ú600m and ú800m of debt to finance expenditure on the UK digital network and minor acquisitions, as well as the increasingly important overseas networks. This will include raising its stakes in Societe Francaise du Radiotelephone SA and the German E-Plus cellular network to associate status. The French investment will cost Vodafone around ú300m and E-Plus ú150m, said Sir Gerry. However, he said the group would be highly cash-generative, and the debt would peak in 1997, adding that company would be debt-free by the end of the century. However, Vodafone shares reacted badly to the news. After falling slightly in the morning, they bounced back when the results were released in early afternoon before falling 15 pence to 239 pence in very heavy trading. The interim pre-tax profits were up 12% to 208.1m, and this figure was at the low end of most analysts’ expectations. Turnover was up 19% to ú666.4m. In its core UK market, the Newbury, Berkshire-based group’s Vodafone Ltd signed its two millionth subscriber in June, and an increasing proportion of subcribers are signing up to the lower-revenue LowCall tariff, as the business market reaches saturation. This has resulted in the company’s average revenue per subscriber falling to ú472 in the half, from ú597 a year ago. Business customers made up 50% of subscribers, and the company envisages this being down to around 40% by the year-end. It does not regard Mercury One-2-One as a serious competiter, but welcomes Hutchison Telecommunications Ltd’s Orange network, if for no other reason than that they do a damn good job of keeping the regulator off our back, and Sir Gerry wished them luck, provided they’re not naughty with their adverts, he added, referring to a pending lawsuit against Orange over claims in its advertising. He was confident of victory in case, predicting a fine of a couple of bob and a smack on the bottom for Orange. Vodafone plans to counter-attack next year with a loyalty scheme, offering customers cheaper calls the longer they stay with the company. The churn rate was cut by four percentage points to 24.9% in the last six months. Fraud has been reduced significantly, with scrambling of serial numbers to help prevent cloning and the elimination of contract fraud by unscrupulous dealers. In Greece, Panafon SA increased its subscribers by 104% to 129,000 in the last 12 months, and is profitable at the operating level. In France, SFR is adding around 30,000 net new subscribers monthly and is expected to break even in 1997. Vodacom Pty Ltd in South Africa has grown its base by 184% in the last 12 months to 285,000. The Australian subsidiary had 108,000 subscribers at September 30. Vodafone has 30% of a consortium in Austria bidding for the country’s second digital mobile licence, and is awaiting the government’s decision (CI No 2,661). It is also looking at the possibility of bidding for the chance to operate Taiwan’s second cellular network, which is expected to materialise next year. No further applications are on the horizon, according to Julian Horn-Smith, managing director of Vodafone Group International Ltd. Taking the overseas investments as a whole, average revenue per customer in the first half was ú691, compared to ú472 in the UK. Consolidated overseas losses were ú17.6m, down from the peak of ú22.7m in the second half of last year.

GlobalStar

The complete portfolio is still on course for consolidated profits in the next financial year, according to Horn-Smith. Globalstar Telecommunications Ltd, the low earth orbit satellite global mobile phone company headed by Loral Corp had some good news yesterday. At the World Radio Conference in Geneva, it was awarded 160MHz of bandwidth in the 5GHz band for its constellation of 48 satellites to beam signals to areas with no terrestrial cover

age (CI No 2,642). Globalstar is something that will really accelerate, said Sir Gerry. Vodafone integrates the satellites with the Groupe Speciale Mobile systems in countries where it has a terrestrial presence. Sir Gerry hinted at something we’re thinking of doing that needs frequency to do it – cellular television? – but would not go any further. The strategy he could discuss was one of concentrating on mobile communications in western Europe and the Pacific Rim, and expansion will come through increasing holdings in existing operators and organic growth, rather than chasing after a rapidly diminishing number of licences on offer; the interim is up 20% at 1.97 pence.

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