NEWBURY, U.K. -- Vodafone today sets out five key strategic objectives, which have beendeveloped in the context of the changing landscape in the mobile industryand which draw on the Group's strengths. Notable changes in the environmentinclude customers increasingly seeking products and services which meettheir total communications needs, a greater desire for simplicity and value,the emergence of new technologies, intensifying price competition andregulatory pressure. The objectives also reflect the differing growth ratesthat Vodafone is experiencing in different regions of the world. The fivestrategic objectives are:

To recognise the different areas of focus throughout the business, aspreviously announced, Vodafone has organised its operations around threeprincipal business units:

Today Vodafone is outlining its approach to deliver on these five keystrategic objectives in a series of presentations.

Cost reduction and revenue stimulation in Europe The key areas of focus forthe Europe region will be cost reduction and revenue stimulation, reflectinga more mature mobile marketplace.

In driving cost reduction, Vodafone will build on its existing One Vodafoneprogramme, in addition to implementing further methods of reducing its costsincluding outsourcing, advancing its shared services efforts and reducingoverheads. In line with this approach, Vodafone has taken the decision tooutsource its IT Application Development and Maintenance activities withlikely savings of approximately 25-30% within 3 to 5 years against currentannual costs of £560 million.

Further initiatives include the centralisation of Network Supply ChainManagement activities, with expected savings of 8% within 2 years, against a£3.3 billion annual external spend today. Also, Vodafone's regionalconsolidation of its data centres is expected to provide savings of 25-30%within 3-5 years, against a £320 million annual cost today.

Group overheads will also be reduced, resulting in operating expendituresavings and an expected reduction of more than 400 positions in thecorporate centre and ensuring an appropriate balance between Group and localmanagement of activities.

Regarding revenue stimulation, Vodafone aims to drive additional usage ofvoice and data services within its existing, sizable European base ofcustomers. A variety of services are currently being rolled out as part ofthis effort, with high value customers being migrated from prepaid tocontract plans, the introduction of "family plans" designed to stimulategreater usage, greater promotion of its Vodafone Passport roaming plans andthe introduction of tariffs which encourage customers to utilise theirmobile devices more extensively within their home and/or office.

Deliver strong growth in emerging markets Emerging markets are expected togenerate an increasing proportion of Vodafone's growth in the next fewyears. Mobile penetration remains low in many fast growing emergingeconomies.

Vodafone has targeted significant growth in these markets and outperformanceagainst the original business cases for recent acquisitions. In itsrestructuring announcement, Vodafone highlighted the benefits ofestablishing a dedicated business unit focused on capturing growth in thesemarkets. Vodafone will today highlight the robust performance of itsemerging market portfolio with its continued strong growth profile.

Innovate and deliver on our customers' total communications needs In thecontext of changing customer requirements and the growing convergence ofmobile, broadband and the internet, Vodafone's third strategy objective willbe to innovate and deliver on customers' total communications needs. A thirdbusiness unit, "New Businesses" has been established to lead this effort.

Vodafone's New Businesses unit will focus initially on three streams ofactivity, which together will be known as "Mobile Plus" and will allowVodafone to target new sources of revenue. The first stream is focused onextending Vodafone's service offerings in the home and at the office to meetcustomers' growing voice and broadband data service needs, including theprovision of DSL. Vodafone Germany has today announced that it will launchbundled homezone products with DSL access provided by Arcor, in the thirdquarter of the current financial year. The second stream is focused on theintegration of the mobile, PC and the internet at the application level,offering seamless interoperability of services. The third area of focusseeks to introduce advertising based services and business models thatcustomers will view as the most appealing and acceptable.

Vodafone believes that its mobile centric approach in satisfying customers'total communications needs will deliver competitive advantage in themarketplace as it focuses on customers' two basic preferences - for mobilityand personalisation. Vodafone has already launched initial offerings in thisarea including Vodafone Zuhause in Germany and Vodafone Casa in Italy, whichfeature attractive homezone calling and data services. Further services willbe introduced over time. Vodafone Mobile Plus offerings will benefit fromthe upgrade of Vodafone's 3G networks to HSDPA, which features greatercapacity and higher data rates, the availability of complementary newbroadband technologies including DSL and the opportunities for servicecreation based on IP technology.

Actively manage Vodafone's portfolio to maximise returns Vodafone will seekto optimise its portfolio of assets, either disposing of assets where itbelieves it cannot earn a superior return or investing in businesses whereit believes it can create substantial additional value for shareholders.

Vodafone envisages a lower level of merger and acquisition activity in thefuture. Where value adding opportunities arise to acquire mobile assets,strict criteria will be applied. Firstly, targeted businesses shouldconsolidate Vodafone's presence in a local or regional market. Second, a clear path to control will need to be identified.

In addition, any acquisition must deliver an Investment Rate of Returnexceeding the local, risk adjusted, cost of capital by at least 200 basispoints and the return on invested capital should exceed the local, riskadjusted, cost of capital within 3 to 5 years.

Align capital structure and shareholder returns policy to strategy Some ofVodafone's businesses have entered a more mature phase, while several othersare still exhibiting high growth. The Group will focus its operationalexecution based on the different profiles of its businesses. Consequently,financial policies have been set to reflect the balance of mature and growthbusinesses within the Group.

As a result, Vodafone today announced an increased, 60% dividend payout ofadjusted earnings per share for FY05/06. Vodafone will continue to target a60% payout in the future, with increases in dividends linked to the increasein its underlying earnings per share. Vodafone has also announced that it istargeting a low Single A credit rating as it aligns its capital structure toits evolved strategy. The result is that Vodafone is announcing a furtherone time, £3 billion return to shareholders, which will be combined with theexisting £6 billion return announced as a result of the sale of its Japanesebusiness. This combined £9 billion will be returned to shareholders via a BShare scheme and associated share consolidation in August 2006. As a resultof this one time return and the new target credit rating, Vodafone has nocurrent plans for further share purchases or other one-off returns toshareholders.

Financial impact

As a result of focusing on its five key strategic objectives, Vodafoneanticipates the financial impact will be as follows:

Vodafone is now targeting outperformance on its original One Vodafoneplans:

Commenting on today's announcement, Arun Sarin said:

"Vodafone has a strong market position, outperforming its principalcompetitors. However we have been reviewing our strategy, given ourcontinuing desire to meet our customers' changing requirements. I amencouraged by the opportunity to broaden our range of services for ourcustomers and our more focused efforts to drive cost reduction and revenuestimulation in Europe, while we capitalise on growth opportunities in ouremerging market businesses. I believe we are well positioned to continue oursuccess in a changing environment."

Vodafone Group plc (NYSE: VOD)