Vodafone half year results (Ended 30 September 2007)

The Group’s operations in the Pacific segment delivered 12.6% service revenue growth, or 7.4% on an organic basis, with the impact of favourable foreign exchange movements being the difference. The organic growth was achieved through a 13.6% increase in total voice minute volumes, a result of the 7.7% growth in the closing customer base in the region, with improved contract mix and a focus on higher value prepaid customers in Australia, though this was partially offset by the impact of termination rate reductions in both Australia and New Zealand in the period.

Adjusted operating profit decreased 4.5%, after including the impact of favourable exchange movements of 4.0 percentage points, as the increased revenue generated in the region was offset by an increase in costs. The principal cost drivers behind the decline were an increase in other direct costs of 26.7% at constant exchange rates, primarily due to Australia reporting higher contract commissions and, in New Zealand, due to the inclusion of DSL costs from ihug following its acquisition in October 2006 combined with an increased provision for its share of the Total Telecom Service Obligation costs, a regulator imposed cost. There was a 34.4% increase in acquisition costs at constant exchange rates in Australia, a result of increased investment in higher value customers in both the contract and prepaid segments.

Operating expenses in Australia increased due to investment in marketing, sales and customer care, whilst the reported increase in New Zealand was due to adverse foreign exchange movements impacting the translation into sterling, an increase in the share of billing system costs and higher payroll costs resulting from improvements in customer care.