Report of Foreign Issuer (6-k)

Date : 05/16/2018 @ 1:59PM
Source : Edgar (US Regulatory)
Stock : Vodafone Group (PC) (VODPF)
Quote : 2.4  0.11 (4.80%) @ 4:00PM
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Report of Foreign Issuer (6-k)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 6-K

 

Report of Foreign Private Issuer

 

Pursuant to Rules 13a-16 or 15d-16 under

the Securities Exchange Act of 1934

 

Dated May 16, 2018

 

Commission File Number: 001-10086

 

VODAFONE GROUP

PUBLIC LIMITED COMPANY

(Translation of registrant’s name into English)

 

VODAFONE HOUSE, THE CONNECTION, NEWBURY, BERKSHIRE, RG14 2FN, ENGLAND

(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

 

Form 20-F         x        Form 40-F          o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  o

 

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes     o     No     x

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-        

 

THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN EACH OF THE REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-219583), THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-81825) AND THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-149634) OF VODAFONE GROUP PUBLIC LIMITED COMPANY AND TO BE A PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.

 

 

 

 


 

This report on form 6-K contains the following items:

 

(a)                                  Chief Executive’s statement;

 

(b)                                 Business review; and

 

(c)                                  Consolidated Financial Information of Vodafone Group Plc.

 

Certain information listed above is taken from the previously published results announcement of Vodafone Group Plc for the year ended 31 March 2018 (the ‘year end financial report’). This report on Form 6-K does not update or restate any of the financial information set forth in the year end financial report.

 

This report on Form 6-K should be read in conjunction with the Group’s annual report on Form 20-F for the year ended 31 March 2017, in particular the following sections:

 

·                   the information contained under “Chief Financial Officer’s review” on pages 16 and 17;

 

·                   the information contained under “Key performance indicators” on pages 22 to 23;

 

·                   the information contained under “Operating results” on pages 35 to 41;

 

·                   the information contained under “Financial position and resources” on pages 42 and 43;

 

·                   the Consolidated Financial Information on pages 99 to 176; and

 

·                   the information contained under “Prior year operating results” on pages 177 to 181;

 

The terms “Vodafone”, the “Group”, “we”, “our” and “us” refer to Vodafone Group Plc (“the Company”), and as applicable, its subsidiaries and/or its interest in joint ventures and/or associates.

 

Exhibit 7

 

·                   Unaudited computation of ratio of earnings to fixed charges

 


 

CHIEF EXECUTIVE’S STATEMENT

 

Financial review of the year

 

On 20 March 2017 we announced an agreement to merge Vodafone India with Idea Cellular (‘Idea’) in India. As a result, Vodafone India is excluded from Group figures, unless stated otherwise.

 

Financial results: Statutory performance measures

 

Group revenue for the year declined 2.2% to €46.6 billion, primarily due to the deconsolidation of Vodafone Netherlands following the creation of our joint venture ‘VodafoneZiggo’, and foreign exchange movements. O perating profit rose to €4.3 billion compared to €3.7 billion in the prior year, reflecting operational leverage and the benefit of cost efficiency initiatives. Profit for the year was €2.8 billion, including a €2.2 billion net of tax reduction in the carrying value of the Group’s operations in India and a €1.9 billion increase in our deferred tax assets in Luxembourg.

 

Financial results: Non-GAAP financial information

 

Group organic service revenue grew 1.6%** (Q3: 1.1%*, Q4: 1.4%**). Growth was driven by broadband market share gains, strong data demand with good data monetisation in emerging markets, and the benefit of ‘more-for-more’ propositions across several European mobile markets. These factors offset a drag from EU ‘Roam Like At Home’ regulation and MTR changes, UK handset financing and lower wholesale revenues.

 

Group adjusted EBITDA was up 4.2% at €14.7 billion despite the deconsolidation of Vodafone Netherlands and adverse foreign exchange movements. Organic adjusted EBITDA grew 11.8%*, a significantly faster pace than service revenue. Excluding the negative impact of net roaming declines in Europe, the benefits of settlements in the UK and Germany and the introduction of handset financing in the UK, organic adjusted EBITDA grew by 7.9%*, with broad based EBITDA improvement in 20 out of our 25 markets. This growth reflected higher revenues and a second successive year of lower absolute operating costs on an organic basis as a result of the ‘Fit for Growth’ programme. Consequently, the Group’s adjusted EBITDA margin improved by 1.9 percentage points to 31.6%, or by 1.3 * percentage points on an organic basis excluding roaming, settlements and UK handset financing .

 

Adjusted EBIT increased by 21.6 % to €4.8 billion, with organic adjusted EBIT increasing by 47.2%*, driven by strong adjusted EBITDA growth and lower depreciation and amortisation expenses.

 

The Group’s adjusted effective tax rate for the year was 20.6 % compared to 25.4 % last year. This lower rate is primarily due to a change in the country mix of the Group’s profits and the closure of tax audits in Germany and Romania.

 

Adjusted earnings per share from continued operations increased 44.2% to 11.59 eurocents, reflecting higher adjusted operating profit and lower net financing costs that more than offset the increase in income tax expense.

 

Losses continued in India as service revenue declined 18.7%* (Q3: -23.1%*, Q4: -21.2%*) as a result of intense price competition from the new entrant, aggressive competitor responses and a significant reduction in MTRs. Adjusted EBITDA declined 34.5%*, with a 5.2 percentage point deterioration in adjusted EBITDA margin to 22.1%. The impact of lower revenues was partially offset by significant actions to lower our operating cost base, as well as the benefit of a provision release in the fourth quarter following positive legal judgements.

 

Liquidity and capital resources

 

Free cash flow pre-spectrum was €5.4 billion, compared to €4.1 billion in the prior year. The improvement was driven by higher organic adjusted EBITDA, lower capital additions (which decreased 4.6 % to € 7.3 billion, representing 15.7 % of revenues) and lower capital creditor outflows following the final payments for Project Spring in the prior year.

 

Free cash flow post spectrum and restructuring payments was €4.0 billion, compared to €3.3 billion in the prior year. Spectrum payments rose to €1.1 billion, mainly driven by 2G licence renewal fees in Italy and the initial deposits for the UK 3.4GHz spectrum auction. Cash restructuring costs of € 0.3 billion were similar to the prior year.

 

Net debt at 31 March 2018 was broadly similar at €31.5 billion compared to €31.2 billion as at 31 March 2017, primarily reflecting free cash flow generation in the period of €4.0 billion and the €1.0 billion net proceeds from the sale of 90 million shares in Vodacom, which were offset by dividend payments of €3.9 billion and the share buyback related to the mandatory convertible bonds of €1.6 billion.

 

Net debt in India was €7.7 billion at the end of the period, down from €8.7 billion at the end of the prior financial year due to the positive translation impact of closing foreign exchange rates on the debt balance of €1.2 billion and proceeds from the sale of Vodafone India’s standalone towers to American Tower Corporation of €0.4 billion, partially offset by negative cash flow of €0.2 billion and accrued interest expense of €0.3 billion. Following the completion of Idea’s equity raising in February 2018, under the terms of the merger agreement with Idea the Group intends to inject up to €1 billion of incremental equity into India, net of the proceeds of the sale of a stake in the joint venture to the Aditya Birla Group, prior to completion.

 

The Board is recommending a final dividend per share of 10.23 eurocents, up 2.0% year-on-year, consistent with the Board’s intention to grow the dividend per share annually.

 

3


 

CHIEF EXECUTIVE’S STATEMENT

 

Strategic review of the year

 

Vodafone’s progress as a converged communications leader in Europe, a data leader in emerging markets and an international leader in Enterprise accelerated during the past year. We announced significant organic fixed investments and strategic partnerships in Germany, Italy, the UK and Portugal, and in May 2018 we announced the acquisition of Liberty Global’s cable operations in Germany and Central & Eastern Europe. We also launched our new ‘V by Vodafone’ consumer Internet of Things (‘IoT’) solutions, and we repositioned the Vodafone brand with a new visual identity and strapline: ‘The future is exciting. Ready?’ This positioning underlines our belief that new technologies and digital services will play a positive role in transforming society and enhancing individual quality of life over the years ahead.

 

We continued to invest in network quality post Project Spring and in our Customer eXperience eXcellence (CXX) programme. Across all of our markets, over the past three years our NPS scores have improved on average by 8 points compared to our nearest competitor, and we now have a leadership or co-leadership position in 17 out of 20 markets for consumer, and in 19 out of 20 markets for Enterprise. During the year our consumer NPS in the UK improved by 12 points to a record level, reflecting our investments in customer service and network quality.

 

Our ‘growth engines’ of mobile data, fixed/convergence and Enterprise contributed to profitable total communications revenue market share gains in a majority of our European markets during the period. As a result, our organic service revenues continued to grow despite increased headwinds from regulation and handset financing in the UK.

 

This strategic and financial progress creates a strong platform for the next phase of the Group’s strategic development as we pursue the multiple opportunities arising from the digitalisation of our industry. During the year we launched the ‘Digital Vodafone’ programme, a transformation of our business model which aims to deliver the most engaging digital experience to our customers. Using advanced digital technologies, our ambition is to generate incremental revenues while reducing net operating costs, building on the success of our ‘Fit for Growth’ programme which has delivered a net reduction in our operating costs on an organic basis for the second year in a row.

 

Mobile data

 

Data traffic grew 61 % during the year (and in Q4) in Europe, supported by a rapid increase in bundle sizes, and 63 % in AMAP, where penetration of data services continues to grow rapidly. In India, data traffic quadrupled following a sharp decline in data prices. Smartphone usage continued to grow rapidly to 2.9 GB per month (Europe 2.6 GB, AMAP 2.2 GB, India 3.5 GB).

 

Despite this strong growth, our sustained investments in network quality ensured that during Q4, 92% of data sessions in Europe and 88% of data sessions in AMAP were delivered at speeds of at least 3mbps; and only 3% of 4G sites in Europe were congested during peak hours. This performance is reflected in our Network NPS scores, which demonstrate that we enjoy a leading or co-leading position in 14 out of 20 markets, including in India.

 

In the majority of our markets across Europe we monetised this growth in data usage through ‘more-for-more’ propositions as well as personalised offers utilising advanced data analytics. However, contract ARPU remained under pressure as a result of a mix-shift towards SIM-only and multi-SIM family contracts, which now represent over one-third of our contract customer gross additions in Germany and the UK, up around five percentage points year-on-year. The introduction of EU Roam Like At Home regulation in June also weighed on contract ARPU. In AMAP data revenues are growing strongly, supported by the relative scarcity of fixed Internet access and low data penetration.

 

Vodafone Passes, which provide customers with ‘worry-free’ access to social, media and video applications without using their data allowance, are now available in 13 markets with 13.0 million unique users enjoying over 19 million passes by the end of Q4. Passes are sold on a standalone basis and are also integrated into the monthly bundle as part of our ‘more-for-more’ propositions.

 

In November, we launched our new ‘V by Vodafone’ consumer IoT business. Our new dedicated IoT ‘V-Sim by Vodafone’ enables consumers to connect both Vodafone branded and third party electronics products to Vodafone’s leading international IoT network, paying a fixed monthly subscription for each ‘V-Sim’. These products can be easily managed using the ‘V by Vodafone’ smartphone app, which provides customers with a single overview of all IoT-enabled products registered to their account.

 

Fixed & Convergence

 

During the next five years around 50 million additional households are expected to adopt NGN broadband within Vodafone’s European footprint. We view this shift to NGN as a window of opportunity to capture substantial profitable market share. Gaining scale in fixed allows us to drive convergence across our combined fixed and mobile customer base, lowering churn.

 

4


 

CHIEF EXECUTIVE’S STATEMENT

 

We have a flexible and capital efficient strategy which combines build/co-build, strategic partnering, wholesale and acquisition options. This approach allows us to continually improve our fixed access position, as highlighted by several strategically important fixed line agreements announced during the year:

 

1.         In September we announced our ‘Gigabit Investment Plan’ for Germany. We intend to invest approximately €2 billion of incremental capital expenditure on ultrafast broadband services by the end of calendar 2021. We expect this success-based plan to drive incremental growth and attractive returns, with limited impact on near-term cash generation thanks to our partnering approach. We aim to deploy fibre to around 2,000 business parks across Germany, working with partners and independently; partner with local municipalities to reach around 1 million rural consumer homes with FTTH; and upgrade our existing cable infrastructure to deliver 1Gbps speeds to 12.7 million households.

 

2.         In October we announced a reciprocal FTTH network sharing agreement in Portugal with NOS, providing us with access to an additional 1.3 million homes and businesses on attractive commercial terms. This takes our total coverage to 4.0 million, representing 80% of households in the country.

 

3.         In November we announced a long-term strategic partnership with CityFibre in the UK. This framework agreement will provide us with the ability to market FTTH services to up to 5.0 million UK households by 2025 at attractive commercial terms. We have identified the first 1 million households to be built, and have committed to an initial exclusivity period in exchange for a ten-year 20% minimum volume commitment on these households. The first cities to be built within this partnership are Milton Keynes, Aberdeen and Peterborough.

 

4.         In April 2018 we announced the extension of our strategic partnership with Open Fiber in Italy to cover a further 258 cities, bringing the total to 271 cities covering 9.5 million households (around 60% of the population) with FTTH services by 2022.

 

5.         In May 2018 we announced the acquisition of Liberty Global’s cable assets in Germany, Czech Republic, Hungary and Romania for a total enterprise value of €18.4 billion. The transaction creates a converged national challenger to the dominant incumbent in Germany and transforms our predominately mobile-only operations in Central & Eastern Europe. In total we will acquire gigabit-capable networks passing 17.4 million marketable homes, including 11.0 million in Germany, 1.5 million in the Czech Republic, 1.8 million in Hungary and 3.1 million in Romania. These assets have attractive standalone growth potential given significant scope to increase broadband penetration. In-market consolidation across the four countries is expected to create synergies with an NPV of over €7.5 billion, with run-rate cost and capex savings of €535 million by the fifth year post completion (excluding integration costs). We intend to finance the acquisition using debt and around €3 billion of mandatory convertible bonds, increasing the Group’s financial leverage on a pro forma basis to 3.0x at end FY2017/18, and approximately 2.8x on a pro forma basis on the assumption the rating agencies apply an equity credit to the hybrid debt securities we intend to issue. The transaction is subject to regulatory approval, with completion anticipated around the middle of calendar 2019.

 

On a pro-forma basis for the acquisition of Liberty Global’s cable assets, at year-end we had Europe’s largest NGN footprint covering 114 million households, with 54 million households ‘on-net’ (including VodafoneZiggo).

 

During the year we maintained our good commercial momentum, and we were once again Europe’s fastest growing broadband provider, adding 1.1 million new broadband customers. Our NGN customer base grew by 1.8 million, with a record 514,000 customers added in Q4. This supported European fixed service revenue growth of 4.7 %** in the year.

 

In total, across the Group we now have 16.1 million broadband customers, of which 9.9 million take a high speed service over fibre and cable, and 9.9 million TV customers. Our momentum in convergence also continued, with 754,000 customers added in the year and a record 267,000 added in Q4, reaching a total base of 4.5 million. Including VodafoneZiggo, we now have 19.4 million broadband customers, 13.8 million TV customers and 5.5 million converged customers. Fixed now contributes 25 % of Group service revenues ( 29 % in Europe), up from 22 % three years ago.

 

Enterprise

 

Services to business comprise 29 % of our Group service revenue, and 31 % in Europe. Our relationships with business customers are expanding from traditional mobile voice and data services to embrace total communications, IoT, Cloud & Hosting and IP-VPN provision. These new areas offer both market growth and market share opportunities for us.

 

Our Enterprise business continued to outperform peers with service revenue growth of 0.9%* (Q3: 0.4%*, Q4: 1.5%*), supported by our unique global network and product set, the contribution from emerging market growth and our low exposure to legacy fixed line. These factors allowed us to offset continued pricing pressure in European mobile and roaming declines during the year. Excluding the impact of regulation, we grew 2.1%* (Q3: 1.6%*, Q4: 2.1%*). In Europe, service revenue was up 0.1%*, while AMAP grew 5.3%*. Growth in IoT continued (14.1%*), primarily driven by the increase in SIM connections (+31.2% year-on year). In total we now have 68 million active SIMs on our world-leading IoT platform, including 14.4 million vehicles, reflecting our status as a Tier 1 supplier to eight out of the top ten car manufacturers globally.

 

5


 

CHIEF EXECUTIVE’S STATEMENT

 

‘Digital Vodafone’

 

The ‘Digital Vodafone’ programme has been developed in order to transform our business model, developing and strengthening our existing Customer eXperience eXcellence (CXX) initiative and enabling us to build upon our ‘Fit4Growth’ achievements. We aim to deliver the most engaging digital experience in the industry for our customers, blending the digital and physical assets of Vodafone to provide personal, instant and easy interactions. By using advanced data analytics to improve all commercial and technology investment decisions, while at the same time automating our operations, we also plan to generate incremental revenues and to continue to reduce net operating costs on an organic basis.

 

The programme builds on the introduction of a Digital eXperience Layer (DXL) for quicker and cheaper IT development, on the experience of our Data Analytics Units — now rolled out across the Group — and on the high penetration of the ‘My Vodafone’ App (now at 65% in Europe). We have already established dedicated ‘Digital Accelerator’ teams in ten of our largest markets, and will expand the programme to all markets with around 2,000 dedicated FTEs by the end of FY2019.

 

The cross-functional ‘Digital Accelerator’ teams are utilising the ‘agile’ approach to evolve services and innovate rapidly with quick release cycles. Their objective is to transform our operations in three main areas:

 

1. Digital customer management

 

We intend to increase the use of data analytics to provide predictive, proactive and personalised offers to our customers, optimising the efficiency of our marketing spend, enhancing ARPU, lowering churn and improving our direct channel mix. In Q4 around 35% of our campaigns utilised ‘big data’ insights, we aim to increase this to 100% by FY2021.

 

Our ambition is that the MyVodafone app and our digital marketing channels over time become our main customer acquisition and management platform, representing over 40% of our sales mix compared to an average of 11% in Q4.

 

We intend to be able to meet any customer request through automated, digital support — for example, by using chatbots and digital agents that utilise rapidly developing artificial intelligence technologies, developed and shared on a Group-wide basis. Currently, we are using chatbots in 5 markets, resolving around 1% of customer contacts; we aim to increase this to 60% of customer contacts by FY2021.

 

2. Digital technology management

 

We are rapidly installing new ‘middleware’ on top of our legacy IT systems. This ‘Digital eXperience Layer’ accelerates the deployment of new digital capabilities, de-coupling them from the longer and financially costly upgrade cycles for our legacy billing and other systems. We aim to deploy this DXL layer in all major markets by the end of this financial year.

 

In addition, real-time data analytics will enable even smarter network planning and deployment, as well as more precise ROI-based investment decisions, taking into account the profitability of each radio site based on customers’ actual and predicted profitability. Together with the ongoing effort to migrate 65% of our IT applications to the cloud, we aim to achieve significant capex and opex efficiencies, allowing us to re-invest in a differentiated network experience.

 

3. Digital operations

 

We see substantial scope for digitalisation to accelerate the simplification and automation of standard processes, in both operational and support areas. These include IT and network operations, customer management back office functions and all other administrative activities. We have already established an automation unit in our shared service centres, in which around 200 ‘bots’ were active in Q4.

 

‘Fit for Growth’

 

Fit for Growth is our comprehensive cost efficiency programme designed to drive operating leverage and margin expansion, enabling us to invest in enhancing customer experience. We have continued to make good progress in the year, delivering an absolute reduction in our operating cost base on an organic basis for the second year in succession. Areas of significant cost savings include procurement, shared service centres, improved sales channel efficiency, standardised network design as well as zero based budgeting initiatives. Fit4Growth has greatly contributed to improving our cost structure. Across the Group, 20 out of 25 markets grew adjusted EBITDA faster than service revenue in the year, driving a 1.9 percentage point improvement in the Group’s adjusted EBITDA margin to 31.6%.

 


Notes:

 

*               All amounts in this document marked with an “*” represent organic growth which presents performance on a comparable basis, both in terms of merger and acquisition activity and movements in foreign exchange rates. “Change at constant exchange rates” presents performance on a comparable basis in terms of foreign exchange rates only. Organic growth and change at constant exchange rates are non-GAAP performance measures. See “Non-GAAP financial information” on page 43 for further details and reconciliations to the respective closest equivalent GAAP measures.

 

**          Also excludes the impact of the legal settlement in Germany in Q4.

 

1.         Non-GAAP performance measures are presented to provide readers with additional financial information that is regularly reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measures. See “Non-GAAP financial information” on page 43 for reconciliations to the closest respective equivalent GAAP measures and “Definition of terms” on page 53 for further details.

 

2.         Free cash flow has been redefined and restated for all years to include restructuring and licence and spectrum payments to ensure greater comparability with similarly titled measures and disclosures by other companies.

 

6


 

GUIDANCE

 

Please see page 43 for “Non-GAAP financial information”, page 53 for “Definition of terms” and page 55 for “Forward-looking statements”.

 

Performance against 2018 financial year guidance 1

 

Based on guidance exchange rates, organic EBITDA grew by 11.8% to €15.0 billion, above the Group’s revised guidance range for ‘around 10%’ organic growth (implying €14.75 - €14.95 billion) set in November 2017. On the same basis our FCF pre-spectrum was €5.6 billion, delivering our guidance ‘to exceed €5 billion’.

 

Prospects for the 2019 financial year 1

 

Our key strategic priority for the year ahead is to accelerate the transformation of our business model through the ‘Digital Vodafone’ programme, enabling us to provide an excellent digital experience for our customers and unlock significant long-term efficiencies for the Group.

 

We will continue to focus on our strategic ‘growth engines’: winning profitable NGN market share and driving convergence in Europe, monetising strong data growth in emerging markets and outperforming our peers as an international leader in Enterprise. Our sustained momentum in these areas will help to mitigate the expected impact of a new entrant in Italy and increased competitive intensity in Spain.

 

In addition, we expect for the third year in a row to reduce absolute operating costs on an organic basis, supported by our ongoing Fit for Growth initiatives.

 

Overall, we expect to grow our adjusted organic EBITDA by 1 - 5%, excluding the impact of UK handset financing in both years, and the significant benefit in the prior year from regulatory settlements in the UK and a legal settlement in Germany. Based on guidance FX rates, and under IAS18 accounting standards, this implies an adjusted EBITDA range of €14.15-14.65 billion for the year.

 

During the 2019 financial year the Group will adopt the IFRS15 accounting standard, which will be jointly reported alongside our results in FY2019 on an IAS18 basis. Under IFRS15, we expect our organic service revenue growth will be slightly higher and our absolute adjusted EBITDA will be slightly lower, primarily due to the elimination of the impact of UK handset financing under IAS18, with no impact on free cash flow.

 

We continue to expect our capital additions, expressed as a percentage of our revenues, to remain in the ‘mid-teens’, excluding capital additions related to the Gigabit Investment Plan in Germany. The Plan is expected to ramp up during the year, with total incremental capital additions estimated to be c.€2 billion over a four year period, and an annual drag on FCF in the initial years of the Plan of around €100-200 million.

 

We aim to generate FCF pre-spectrum of at least €5.2 billion, after all capex, before M&A and restructuring costs, and based on guidance FX rates. This includes drags of approximately €0.2 billion from the Gigabit Investment Plan in Germany and c.€0.2 billion from the combination of lower shareholder recharges in India and the sale of Qatar.

 

 

 

Adjusted EBITDA
€bn

 

Free cash flow
(pre-spectrum)
€bn

 

 

 

 

 

2019 financial year guidance
(excluding Vodafone India)

 

‘Organic growth of 1 - 5% excluding settlements and UK handset financing’

 

‘At least €5.2 billion’

 

Dividend policy

 

The Board intends to grow dividends per share annually. Dividends will be declared in euros and paid in euros, pounds sterling and US dollars. The foreign exchange rate at which future dividends declared in euros will be converted into pounds sterling and US dollars will be calculated based on the average exchange rate over the five business days during the week prior to the payment of the dividend.

 

Assumptions

 

We have based guidance for the financial year ending 31 March 2019 on our current assessment of the global macroeconomic outlook and assume foreign exchange rates of €1:£0.87, €1:ZAR 15.1, €1:TRY 5.1 and €1:EGP 22.1. Guidance excludes the impact of licence and spectrum payments, material one-off tax-related payments, restructuring payments, changes in shareholder recharges from India and any fundamental structural change to the Eurozone. It also assumes no material change to the current structure of the Group. Actual foreign exchange rates may vary from the foreign exchange rate assumptions used.

 


Note:

 

1.         Adjusted EBITDA and free cash flow (pre-spectrum) are non-GAAP performance measures. Non-GAAP performance measures are presented to provide readers with additional financial information that is regularly reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measures. The adjusted EBITDA and free cash flow (pre-spectrum) measures included above for the 2019 financial year are forward-looking non-GAAP performance measures which at this time cannot be quantitatively reconciled to comparative GAAP financial information. See “Non-GAAP financial information” on page 43 for more information and reconciliations to the guidance basis.

 

7


 

CONTENTS

 

 

Page

Financial results

8

Financial position

19

Liquidity and capital resources

20

Regulation

23

Other significant developments including legal proceedings

31

Consolidated financial information

36

Use of non-GAAP financial information

43

Additional information

50

Other information (including forward-looking statements)

53

 

FINANCIAL RESULTS

 

Group 1, 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Growth

 

 

 

Europe

 

AMAP

 

Other 3

 

Eliminations

 

2018

 

2017

 

Reported

 

Organic*

 

 

 

€m

 

€m

 

€m

 

€m

 

€m

 

€m

 

%

 

%

 

Continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile customer revenue

 

19,020

 

7,436

 

26

 

(6

)

26,476

 

28,158

 

 

 

 

 

Mobile incoming revenue

 

1,383

 

664

 

 

(17

)

2,030

 

2,350

 

 

 

 

 

Other service revenue

 

1,375

 

426

 

385

 

(32

)

2,154

 

2,255

 

 

 

 

 

Mobile service revenue

 

21,778

 

8,526

 

411

 

(55

)

30,660

 

32,763

 

 

 

 

 

Fixed service revenue

 

8,935

 

975

 

626

 

(130

)

10,406

 

10,224

 

 

 

 

 

Service revenue

 

30,713

 

9,501

 

1,037

 

(185

)

41,066

 

42,987

 

(4.5

)

1.8

 

Other revenue

 

3,175

 

1,961

 

371

 

(2

)

5,505

 

4,644

 

 

 

 

 

Revenue

 

33,888

 

11,462

 

1,408

 

(187

)

46,571

 

47,631

 

(2.2

)

3.8

 

Direct costs

 

(7,316

)

(2,574

)

(871

)

179

 

(10,582

)

(11,254

)

 

 

 

 

Customer costs

 

(7,448

)

(2,526

)

33

 

2

 

(9,939

)

(10,163

)

 

 

 

 

Operating expenses

 

(8,088

)

(2,605

)

(626

)

6

 

(11,313

)

(12,065

)

 

 

 

 

Adjusted EBITDA

 

11,036

 

3,757

 

(56

)

 

14,737

 

14,149

 

4.2

 

11.8

 

Depreciation and amortisation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired intangibles

 

 

 

 

 

 

 

 

 

(242

)

(248

)

 

 

 

 

Purchased licences

 

 

 

 

 

 

 

 

 

(1,516

)

(1,533

)

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

(8,152

)

(8,398

)

 

 

 

 

Adjusted EBIT

 

 

 

 

 

 

 

 

 

4,827

 

3,970

 

21.6

 

47.2

 

Share of adjusted results in associates and joint ventures 4

 

 

 

 

 

 

 

 

 

389

 

164

 

 

 

 

 

Adjusted operating profit

 

 

 

 

 

 

 

 

 

5,216

 

4,134

 

26.2

 

49.0

 

Restructuring costs

 

 

 

 

 

 

 

 

 

(156

)

(415

)

 

 

 

 

Amortisation of acquired customer base and brand intangible assets

 

(974

)

(1,046

)

 

 

 

 

Other income and expense

 

 

 

 

 

 

 

 

 

213

 

1,052

 

 

 

 

 

Operating profit

 

 

 

 

 

 

 

 

 

4,299

 

3,725

 

 

 

 

 

Non-operating expense

 

 

 

 

 

 

 

 

 

(32

)

(1

)

 

 

 

 

Net financing costs

 

 

 

 

 

 

 

 

 

(389

)

(932

)

 

 

 

 

Income tax credit/(expense) 5

 

 

 

 

 

 

 

 

 

879

 

(4,764

)

 

 

 

 

Profit/(loss) for the financial year from continuing operations

 

4,757

 

(1,972

)

 

 

 

 

Loss for the financial year from discontinuing operations

 

(1,969

)

(4,107

)

 

 

 

 

Profit/(loss) for the financial year

 

 

 

 

 

2,788

 

(6,079

)

 

 

 

 

Attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 - Owners of the parent

 

 

 

 

 

 

 

 

 

2,439

 

(6,297

)

 

 

 

 

 - Non-controlling interests

 

 

 

 

 

 

 

 

 

349

 

218

 

 

 

 

 

 


Notes:

 

*               All amounts in this document marked with an “*” represent organic growth which presents performance on a comparable basis, both in terms of merger and acquisition activity and movements in foreign exchange rates. “Change at constant exchange rates” presents performance on a comparable basis in terms of foreign exchange rates only. Organic growth and change at constant exchange rates are non-GAAP performance measures. See “Non-GAAP financial information” on page 43 for further details and reconciliations to the respective closest equivalent GAAP measure.

 

1.         Group revenue and service revenue include the regional results of Europe, AMAP, Other (which includes the results of partner market activities) and eliminations. 2018 results reflect average foreign exchange rates of €1:£0.88, €1:INR 75.48, €1:ZAR 15.19, €1:TKL 4.31 and €1: EGP 20.84.

 

2.         Service revenue, adjusted EBIT, adjusted EBITDA and adjusted operating profit are non-GAAP performance measures. Non-GAAP performance measures are presented to provide readers with additional financial information that is regularly reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measures. See “Non-GAAP financial information” on page 43 for more information and reconciliations to the closest respective equivalent GAAP measures and “Definition of terms” on page 53 for further details.

 

3.         The “Other” segment primarily represents the results of shareholder recharges received from VodafoneZiggo and Vodafone India, partner markets and the net result of unallocated central Group costs.

 

4.         Excludes amortisation of acquired customer bases and brand intangible assets of €0.4 billion (2017: €0.1 billion).

 

5.         Refer to page 18 for further details.

 

8


 

FINANCIAL RESULTS

 

Europe

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

Growth

 

 

 

Germany

 

Italy

 

UK

 

Spain

 

Europe

 

Eliminations

 

Europe

 

Reported

 

Organic*

 

 

 

€m 

 

€m

 

€m 

 

€m 

 

€m 

 

€m 

 

€m 

 

%

 

%

 

31 March 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile customer revenue

 

5,356

 

3,721

 

4,027

 

2,686

 

3,230

 

 

19,020

 

 

 

 

 

Mobile incoming revenue

 

208

 

346

 

302

 

159

 

390

 

(22

)

1,383

 

 

 

 

 

Other service revenue

 

523

 

243

 

300

 

185

 

253

 

(129

)

1,375

 

 

 

 

 

Mobile service revenue

 

6,087

 

4,310

 

4,629

 

3,030

 

3,873

 

(151

)

21,778

 

 

 

 

 

Fixed service revenue

 

4,175

 

992

 

1,465

 

1,557

 

752

 

(6

)

8,935

 

 

 

 

 

Service revenue

 

10,262

 

5,302

 

6,094

 

4,587

 

4,625

 

(157

)

30,713

 

(3.9

)

0.9

 

Other revenue

 

585

 

902

 

984

 

391

 

316

 

(3

)

3,175

 

 

 

 

 

Revenue

 

10,847

 

6,204

 

7,078

 

4,978

 

4,941

 

(160

)

33,888

 

(1.9

)

3.0

 

Direct costs

 

(1,969

)

(1,211

)

(1,569

)

(1,393

)

(1,334

)

160

 

(7,316

)

 

 

 

 

Customer costs

 

(2,331

)

(1,399

)

(1,836

)

(1,044

)

(838

)

 

(7,448

)

 

 

 

 

Operating expenses

 

(2,537

)

(1,265

)

(1,911

)

(1,121

)

(1,254

)

 

(8,088

)

 

 

 

 

Adjusted EBITDA

 

4,010

 

2,329

 

1,762

 

1,420

 

1,515

 

 

11,036

 

7.3

 

13.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin

 

37.0

%

37.5

%

24.9

%

28.5

%

30.7

%

 

 

32.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 March 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile customer revenue

 

5,299

 

3,733

 

4,429

 

2,689

 

4,185

 

 

20,335

 

 

 

 

 

Mobile incoming revenue

 

261

 

360

 

330

 

161

 

471

 

(26

)

1,557

 

 

 

 

 

Other service revenue

 

511

 

272

 

320

 

196

 

300

 

(140

)

1,459

 

 

 

 

 

Mobile service revenue

 

6,071

 

4,365

 

5,079

 

3,046

 

4,956

 

(166

)

23,351

 

 

 

 

 

Fixed service revenue

 

3,935

 

882

 

1,553

 

1,461

 

800

 

(7

)

8,624

 

 

 

 

 

Service revenue

 

10,006

 

5,247

 

6,632

 

4,507

 

5,756

 

(173

)

31,975

 

 

 

 

 

Other revenue

 

594

 

854

 

293

 

466

 

372

 

(4

)

2,575

 

 

 

 

 

Revenue

 

10,600

 

6,101

 

6,925

 

4,973

 

6,128

 

(177

)

34,550

 

 

 

 

 

Direct costs

 

(2,038

)

(1,227

)

(1,765

)

(1,313

)

(1,530

)

176

 

(7,697

)

 

 

 

 

Customer costs

 

(2,348

)

(1,299

)

(1,837

)

(1,151

)

(1,143

)

1

 

(7,777

)

 

 

 

 

Operating expenses

 

(2,597

)

(1,346

)

(2,111

)

(1,149

)

(1,590

)

 

(8,793

)

 

 

 

 

Adjusted EBITDA

 

3,617

 

2,229

 

1,212

 

1,360

 

1,865

 

 

10,283

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin

 

34.1

%

36.5

%

17.5

%

27.3

%

30.4

%

 

 

29.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change at constant exchange rates (%)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile customer revenue

 

1.1

 

(0.3

)

(4.6

)

(0.1

)

(23.2

)

 

 

 

 

 

 

 

 

Mobile incoming revenue

 

(20.6

)

(3.9

)

(3.9

)

(1.6

)

(17.5

)

 

 

 

 

 

 

 

 

Other service revenue

 

2.7

 

(10.9

)

(1.4

)

(5.7

)

(17.0

)

 

 

 

 

 

 

 

 

Mobile service revenue

 

0.3

 

(1.3

)

(4.3

)

(0.5

)

(22.3

)

 

 

 

 

 

 

 

 

Fixed service revenue

 

6.1

 

12.4

 

(1.1

)

6.6

 

(5.9

)

 

 

 

 

 

 

 

 

Service revenue

 

2.6

 

1.0

 

(3.6

)

1.8

 

(20.0

)

 

 

 

 

 

 

 

 

Other revenue

 

(1.5

)

5.7

 

253.6

 

(16.2

)

(15.1

)

 

 

 

 

 

 

 

 

Revenue

 

2.3

 

1.7

 

7.3

 

0.1

 

(19.7

)

 

 

 

 

 

 

 

 

Direct costs

 

(3.3

)

(1.4

)

(6.8

)

6.1

 

(13.2

)

 

 

 

 

 

 

 

 

Customer costs

 

(0.7

)

7.7

 

4.7

 

(9.3

)

(26.9

)

 

 

 

 

 

 

 

 

Operating expenses

 

(2.3

)

(6.0

)

(4.9

)

(2.5

)

(21.5

)

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

10.8

 

4.5

 

53.0

 

4.4

 

(19.1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin (pps)

 

2.8

 

1.0

 

7.4

 

1.2

 

0.2

 

 

 

 

 

 

 

 

 

 

9


 

FINANCIAL RESULTS

 

European revenue decreased by 1.9%. Foreign exchange movements contributed a 0.8 percentage point negative impact and the deconsolidation of Vodafone Netherlands contributed a 4.1 percentage point negative impact, offset by 3.0% organic growth. Service revenue increased by 0.9%* or 0.6%* excluding a legal settlement in Germany in Q4, driven by strong fixed customer growth and the benefit of the Group’s ‘more-for-more’ mobile propositions in several markets, which offset increased regulatory headwinds following the implementation of the EU’s ‘Roam Like At Home’ policy in June and the impact of the introduction of handset financing in the UK. Excluding regulation and UK handset financing, as well as a legal settlement in Germany in Q4, service revenue growth was 2.0%* (Q3: 1.9%*, Q4: 1.7%*).

 

Adjusted EBITDA increased 7.3%, including a 5.1 percentage point negative impact from the deconsolidation of Vodafone Netherlands and a 0.6 percentage point negative impact from foreign exchange movements. On an organic basis, adjusted EBITDA increased 13.0%*, supported by the benefit of the introduction of handset financing in the UK, regulatory settlements in the UK and a legal settlement in Germany. Excluding these items, as well as the net impact of roaming, adjusted EBITDA grew by 7.9*, reflecting operating leverage and tight cost control through our ‘Fit for Growth’ programme.

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

activity

 

 

 

 

 

 

 

Reported 

 

(including

 

Foreign 

 

Organic*

 

 

 

change 

 

M&A)

 

exchange 

 

change 

 

 

 

 

pps 

 

pps 

 

 

 

 

 

 

 

 

 

 

 

 

Europe revenue

 

(1.9

)

4.1

 

0.8

 

3.0

 

 

 

 

 

 

 

 

 

 

 

Service revenue

 

 

 

 

 

 

 

 

 

Germany

 

2.6

 

 

 

2.6

 

Italy

 

1.0

 

0.2

 

 

1.2

 

UK

 

(8.1

)

0.1

 

4.5

 

(3.5

)

Spain

 

1.8

 

0.3

 

 

2.1

 

Other Europe

 

(19.6

)

22.9

 

(0.4

)

2.9

 

Europe service revenue

 

(3.9

)

4.0

 

0.8

 

0.9

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

 

 

 

 

 

 

 

Germany

 

10.9

 

(0.1

)

(0.1

)

10.7

 

Italy

 

4.5

 

0.1

 

 

4.6

 

UK

 

45.4

 

(1.2

)

7.6

 

51.8

 

Spain

 

4.4

 

0.6

 

 

5.0

 

Other Europe

 

(18.8

)

26.8

 

(0.3

)

7.7

 

Europe adjusted EBITDA

 

7.3

 

5.1

 

0.6

 

13.0

 

 


Note:

*        All amounts in this document marked with an “*” represent organic growth which presents performance on a comparable basis, both in terms of merger and acquisition activity and movements in foreign exchange rates. “Change at constant exchange rates” presents performance on a comparable basis in terms of foreign exchange rates only. Organic growth and change at constant exchange rates are non-GAAP performance measures. See “Non-GAAP financial information” on page 43 for further details and reconciliations to the respective closest equivalent GAAP measure.

 

Germany

 

Service revenue grew 2.6%* or 1.6%* excluding the benefit in Q4 of a one-off fixed line legal settlement. This performance was driven by strong contract customer base growth in both mobile and fixed, partially offset by regulatory drags. Excluding regulation and the legal settlement, service revenue grew by 2.5%*. Q4 service revenue grew 5.9%*, or 1.8%* excluding the legal settlement, a slower rate of growth than in Q3 (2.5%*). This reflected a tough prior year comparator, particularly in wholesale, which more than offset the benefit from fully lapping the MTR cut implemented on 1 December 2016.

 

Mobile service revenue grew 0.4%* or 1.8%* excluding regulation. This was driven by a higher contract customer base, which more than offset lower contract ARPU (driven by a mix shift towards SIM-only / multi-SIM family contracts and regulation) and lower wholesale revenues. Q4 mobile service revenue grew 0.3%* (Q3: 1.8%*), with minimal impact from regulation. This slowdown in quarterly trends primarily reflects the lapping of strong wholesale MVNO revenues in the prior year. Our commercial performance in the year was strong as we added 657,000 contract customers (2016/17: 212,000). This was driven by higher activity in direct channels, lower contract churn and the continued success of our Gigacube fixed-wireless proposition. Our 4G population coverage is now 92% with the ability to offer 500Mbps in 40 cities, and we are currently piloting 1Gbps services in 4 cities. Our customer service was recently ranked 1st by ‘Connect’ for overall service quality, consistent with our market-leading NPS ranking.

 

Fixed service revenue grew by 6.1%* or 3.5%* excluding the legal settlement. This was supported by good customer base growth. Quarterly service revenue trends (excluding the legal settlement) improved to Q4: 4.2%* (Q3: 3.5%*). During the year we added 362,000 broadband customers, of which 258,000 were on cable with the rest on DSL. Customer demand for our high speed propositions increased, with over 70% of cable gross adds in Q4 now taking our 200Mbps to 500Mbps offers. Our TV base remained stable at 7.7 million. Our convergence momentum continued to improve, supported by our GigaKombi proposition, and we added 278,000 converged customers in the year, taking our total consumer converged customer base to 700,000.

 

10


 

FINANCIAL RESULTS

 

Adjusted EBITDA grew 10.7%* or 8.3%* excluding the legal settlement. This was driven by service revenue growth, our focus on more profitable direct channels, and a reduction in operating costs of 2.3%* despite the strong growth in customer numbers. Our adjusted EBITDA margin was 37.0% and the adjusted EBITDA margin improved by 2.9 percentage points, or 2.4 percentage points excluding the legal settlement.

 

Italy

 

Service revenue grew 1.2%* supported by strong customer base growth in fixed line, partly offset by lower mobile revenues. Q4 service revenue grew 0.7%* (Q3: -0.4%*), with the quarterly improvement led by mobile. In April 2018 we implemented a shift from 28-day billing to ‘solar’ monthly billing across all products, however the antitrust authority (AGCOM) blocked the related change in monthly pricing; subsequently, we announced new price plans, which will be implemented at the end of May 2018.

 

Mobile service revenue declined 1.0%*, driven by intense price competition in the prepaid market and the lapping of pricing actions from the prior year. Promotional activity in the prepaid segment remained high, driven by aggressive ‘below-the-line’ offers. During the year we launched new segment led propositions and personalised offers, which helped to improve our sales mix and customer retention, supporting prepaid ARPU despite a competitive environment. We also retained our market leading network and NPS position in consumer and enterprise. Q4 mobile service revenue declined 1.5%* (Q3: -2.9%*).

 

Fixed line service revenue grew 12.4%* driven by continued strong customer base growth and higher ARPU. This strong momentum was maintained in Q4 with service revenue growth of 11.1%* (Q3: 12.0%*). We added a record 307,000 broadband households in the year to reach a total broadband customer base of 2.5 million. Through our owned NGN footprint and strategic partnership with Open Fiber, we now cover 5.3 million marketable households. In April 2018, we announced an extension to our wholesale partnership with Open Fiber, enabling us to provide FTTH services to 9.5m households (271 cities) by 2022, at attractive commercial terms. During the year, we launched our new converged proposition ‘Vodafone One’, providing customers with a single fibre and 4.5G offer that can be enriched via Vodafone TV as well as exclusive advantages for family members. We added 268,000 converged consumer customers in the year, taking our total base to 743,000.

 

Adjusted EBITDA grew 4.6%*, with a 1.0 percentage point improvement in adjusted EBITDA margin to 37.5%. This was driven by revenue growth and tight cost control, having delivered a 6.0%* reduction in operating costs in the year.

 

UK

 

Service revenue declined 3.5%*, impacted by the drag from handset financing which weighed on organic service revenue by 2.5 percentage points. Excluding the impact of handset financing and regulatory drags, service revenue grew 0.3%*, with trends improving throughout the year, driven by improvements in consumer mobile and fixed line, largely offset by continued declines in Enterprise fixed. Q4 service revenue declined 3.4%* (Q3: -4.8%*), including an increased drag from handset financing of 4.4 percentage points (Q3: 3.6 percentage points). Excluding the impact from handset financing and regulation, Q4 service revenue grew 1.4%* (Q3: 0.4%*).

 

Mobile service revenue declined 4.2%*, but grew 0.7%* excluding the impact of handset financing and regulation. This underlying growth was supported by more-for-more actions, a better inflow mix of higher-value customers, and RPI-linked consumer price increases. Enterprise continued to decline in a competitive market, however ARPU trends improved with an increasing proportion of customers adopting our bespoke SoHo tariffs. Q4 mobile service revenue declined 5.7%* (Q3: 5.2%*), but grew 0.7%* (Q3: 1.6%*) excluding handset financing and regulation. Our operational performance during the year improved, resulting in our best ever network performance and customer net promoter scores. Our 4G network coverage is now 99%, and we are well positioned for the evolution to 5G having acquired the largest share of 3.4GHz spectrum (50MHz) in the recent UK auction. We added 106,000 contract customers in the year excluding Talkmobile, our low-end mobile brand which is being phased out.

 

Fixed line service revenue declined 1.1%*, with strong customer momentum in consumer broadband being more than offset by competitive pricing pressure and a lower customer base in enterprise. In Q4 service revenue returned to growth (Q4: 3.6%*, Q3: -3.6%*), supported by the timing of project work in Enterprise and record consumer broadband net additions of 65,000 (Q3: 39,000), making us the fastest growing operator in the UK broadband market. In total we now serve 382,000 broadband customers.

 

Adjusted EBITDA grew 51.8%* and the adjusted EBITDA margin was 24.9%. Excluding the impact of handset financing and regulatory settlements in the year, adjusted EBITDA grew by 1.4%* and the adjusted EBITDA margin improved 0.3* percentage points as out-of-bundle roaming declines were more than offset by lower operating costs delivered through our Fit for Growth programme. In total we delivered a 4.9% reduction in operating costs year-on-year.

 

11


 

FINANCIAL RESULTS

 

Spain

 

Service revenue grew by 2.1%*. This was driven by a higher customer base in both mobile and fixed and our more-for-more tariff refresh at the start of the year, partly offset by increased promotional activity, particularly in the value segment. In Q4 promotional activity moderated but the market remained highly competitive driven by value players offering aggressive prices and handset subsidies. Interconnect revenues also fell following an MTR cut on 1 February. As a result, Q4 service revenue grew 1.0%* (Q3: 2.0%*).

 

We continued to grow our customer base adding 164,000 mobile contract customers, 109,000 fixed broadband households and 51,000 TV households in the year, however high competitive intensity in Q4 led to an increase in churn and a decline in our broadband and TV base. Vodafone One, our fully integrated fixed, mobile and TV service, reached 2.5 million households by the end of the year, up 154,000 year-on-year. Consumer converged revenues grew by 13.7%* and now represent 59% of total consumer revenue.

 

We maintained our market leading NPS position in consumer, and further improved our market leading network position during the year. This was reflected in the latest independent network tests by P3 which showed we had extended our overall lead across both voice and data. Our 4G coverage is now 96%. In fixed, including our commercial wholesale agreement with Telefonica, our NGN footprint now covers 20.5 million households (of which 10.3 million are on-net). We continued to deploy DOCSIS 3.1 in our cable footprint, enabling us to deliver broadband speeds of up to 1Gbps to 7.9 million households by the end of the year. We expect to complete the DOCSIS 3.1 rollout in the first half of fiscal 2018/19.

 

Adjusted EBITDA grew 5.0%*, and the adjusted EBITDA margin improved by 1.2 percentage points to 28.5%. This improvement was driven by service revenue growth and lower commercial and operating costs; these more than offset higher content, roaming and wholesale access costs. Operating costs were 2.5%* lower year-on-year, reflecting the impact of our Fit for Growth programme.

 

Other Europe

 

Service revenue grew 2.9%* with all of the larger markets growing during the year (excluding the impact of an MTR cut in Ireland). Quarterly service revenue trends were broadly stable at 3.3%* in Q4 (Q3: 2.9%*). Adjusted organic EBITDA grew 7.7%* in the year, and adjusted EBITDA margin grew 0.3 percentage points to 30.7% reflecting continued strong cost control.

 

In Ireland service revenue declined 0.2%*, but grew 1.3%* excluding the impact of regulation, supported by fixed customer growth. Portugal service revenue grew 4.6%* driven by a return to growth in mobile, and continued strong customer growth in fixed. In Greece, service revenue grew by 3.7%*, driven by ARPU growth in consumer mobile and strong fixed customer base growth. In January, we announced the acquisition of fixed and mobile telecommunications provider CYTA Hellas for a total enterprise value of €118 million. This acquisition provides further scale and momentum to our fixed line and convergence strategy in Greece. The transaction is subject to regulatory approval and is expected to close in the first half of FY2018/19.

 

VodafoneZiggo (Joint Venture)

 

The results of VodafoneZiggo (in which Vodafone owns a 50% stake), are reported here on a US GAAP basis, broadly consistent with Vodafone’s accounting policies.

 

Total revenue declined by 3.8%, or by 2.2 % excluding the impact of regulation. This reflected intense price competition in mobile, particularly in the SoHo segment, partially offset by growth in fixed line driven by higher RGUs and ARPU. In Q4 revenues declined 2.9% (Q3: 3.7%) or 1.5% (Q3: -1.9%) excluding regulation. Within this mobile declined 12.5% (Q3: -12.4%) and fixed grew 1.3% (Q3: 0.6%). Excluding the drags from regulation, a mix-shift towards SIM-only sales and convergence discounts, mobile revenue was stable.

 

We gained good commercial momentum during the year, supported by our new converged offers. We added 924,000 converged customers, equivalent to 28% of our fixed customer base, with these households using a total of 1.3 million mobile SIMs, including 62% of Vodafone-branded consumer contract customers. This strong take up of our converged products is contributing to a higher customer NPS and a significant reduction in churn across both mobile and fixed. In Q4 we recorded mobile contract net additions of 35,000 (Q3: 14,000), excluding the impact of discontinued non-revenue generating secondary SIMs as part of the migration of former Ziggo mobile subscribers to Vodafone. In fixed broadband we maintained our good momentum, adding 12,000 customers (Q3: 26,000).

 

Adjusted EBITDA declined 3.8%, as lower revenues were partly offset by lower equipment expenses as a result of new consumer credit regulations which increased the proportion of SIM-only sales during the year. In Q4, adjusted EBITDA was down 0.6% year-on-year despite lower revenues, reflecting lower interconnect and roaming costs, lower equipment expenses, and operating cost savings from integration activities. We have continued to make good progress on integrating the business, and remain on track to deliver total annualised cost synergies of at least €210 million by 2021. Net third party debt and capital lease obligations was €10.1 billion at year-end, equivalent to 5.4x annualised EBITDA (last two quarters annualised).

 

During FY2018, Vodafone received € 220 million in dividends from the joint venture, € 55 million in interest payments on the shareholder loan and €100 million of principal repayments on the shareholder loan, which reduced to €900 million. For calendar 2018, VodafoneZiggo expects stabilising adjusted EBITDA, supporting total cash returns of €600-800 million to its parents. As a result, we expect to receive total cash returns (including dividends, interest payments and shareholder loan repayments) of €300-400 million during the 2018 calendar year from the joint venture.

 

12

 


 

FINANCIAL RESULTS

 

Africa, Middle East and Asia Pacific

 

 

 

 

 

 

 

 

 

 

 

Growth

 

 

 

Vodacom

 

Other AMAP

 

Eliminations

 

AMAP

 

Reported

 

Organic*

 

 

 

€m

 

€m

 

€m

 

€m

 

%

 

%

 

31 March 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile customer revenue

 

4,000

 

3,436

 

 

7,436

 

 

 

 

 

Mobile incoming revenue

 

167

 

497

 

 

664

 

 

 

 

 

Other service revenue

 

257

 

169

 

 

426

 

 

 

 

 

Mobile service revenue

 

4,424

 

4,102

 

 

8,526

 

 

 

 

 

Fixed service revenue

 

232

 

743

 

 

975

 

 

 

 

 

Service revenue

 

4,656

 

4,845

 

 

9,501

 

(4.6

)

7.7

 

Other revenue

 

1,036

 

925

 

 

1,961

 

 

 

 

 

Revenue

 

5,692

 

5,770

 

 

11,462

 

(2.6

)

9.4

 

Direct costs

 

(744

)

(1,830

)

 

(2,574

)

 

 

 

 

Customer costs

 

(1,476

)

(1,050

)

 

(2,526

)

 

 

 

 

Operating expenses

 

(1,269

)

(1,336

)

 

(2,605

)

 

 

 

 

Adjusted EBITDA

 

2,203

 

1,554

 

 

3,757

 

(2.5

)

8.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin

 

38.7

%

26.9

%

 

 

32.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31 March 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile customer revenue

 

3,845

 

3,963

 

 

7,808

 

 

 

 

 

Mobile incoming revenue

 

192

 

603

 

 

795

 

 

 

 

 

Other service revenue

 

217

 

154

 

 

371

 

 

 

 

 

Mobile service revenue

 

4,254

 

4,720

 

 

8,974

 

 

 

 

 

Fixed service revenue

 

193

 

789

 

 

982

 

 

 

 

 

Service revenue

 

4,447

 

5,509

 

 

9,956

 

 

 

 

 

Other revenue

 

847

 

970

 

 

1,817

 

 

 

 

 

Revenue

 

5,294

 

6,479

 

 

11,773

 

 

 

 

 

Direct costs

 

(676

)

(2,060

)

 

(2,736

)

 

 

 

 

Customer costs

 

(1,307

)

(1,102

)

 

(2,409

)

 

 

 

 

Operating expenses

 

(1,248

)

(1,526

)

 

(2,774

)

 

 

 

 

Adjusted EBITDA

 

2,063

 

1,791

 

 

3,854

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin

 

39.0

%

27.6

%

 

 

32.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change at constant exchange rates (%)

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile customer revenue

 

4.3

 

9.4

 

 

 

 

 

 

 

 

 

Mobile incoming revenue

 

(12.2

)

7.2

 

 

 

 

 

 

 

 

 

Other service revenue

 

17.7

 

36.3

 

 

 

 

 

 

 

 

 

Mobile service revenue

 

4.2

 

10.0

 

 

 

 

 

 

 

 

 

Other service revenue

 

23.9

 

4.2

 

 

 

 

 

 

 

 

 

Service revenue

 

5.0

 

9.1

 

 

 

 

 

 

 

 

 

Other revenue

 

21.9

 

15.3

 

 

 

 

 

 

 

 

 

Revenue

 

7.7

 

10.1

 

 

 

 

 

 

 

 

 

Direct costs

 

12.1

 

9.2

 

 

 

 

 

 

 

 

 

Customer costs

 

11.9

 

14.6

 

 

 

 

 

 

 

 

 

Operating expenses

 

3.0

 

6.9

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

6.5

 

10.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin (pps)

 

(0.4

)

0.2

 

 

 

 

 

 

 

 

 

 

13


 

FINANCIAL RESULTS

 

Revenue in AMAP decreased 2.6%, with strong organic growth offset by an 11.5 percentage point adverse impact from foreign exchange movements, particularly with regards to the Turkish lira and Egyptian pound. On an organic basis service revenue was up 7.7%* driven by strong commercial momentum in South Africa, Turkey and Egypt.

 

Adjusted EBITDA decreased 2.5%, including a 10.8 percentage point adverse impact from foreign exchange movements. On an organic basis, adjusted EBITDA grew 8.6%*, driven by service revenue growth and a continued focus on cost control and efficiencies to offset inflationary pressures.

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

activity

 

 

 

 

 

 

 

Reported

 

(including

 

Foreign

 

Organic*

 

 

 

change

 

M&A)

 

exchange

 

change

 

 

 

%

 

pps

 

pps

 

%

 

AMAP revenue

 

(2.6

)

0.5

 

11.5

 

9.4

 

Service revenue

 

 

 

 

 

 

 

 

 

Vodacom

 

4.7

 

 

0.3

 

5.0

 

Other AMAP

 

(12.1

)

1.6

 

21.2

 

10.7

 

AMAP service revenue

 

(4.6

)

0.6

 

11.7

 

7.7

 

Adjusted EBITDA

 

 

 

 

 

 

 

 

 

Vodacom

 

6.8

 

 

(0.3

)

6.5

 

Other AMAP

 

(13.2

)

1.0

 

24.1

 

11.9

 

AMAP adjusted EBITDA

 

(2.5

)

0.3

 

10.8

 

8.6

 

 


Note:

*               All amounts in this document marked with an “*” represent organic growth which presents performance on a comparable basis, both in terms of merger and acquisition activity and movements in foreign exchange rates. “Change at constant exchange rates” presents performance on a comparable basis in terms of foreign exchange rates only. Organic growth and change at constant exchange rates are non-GAAP performance measures. See “Non-GAAP financial information” on page 43 for further details and reconciliations to the respective closest equivalent GAAP measure.

 

Vodacom

 

Vodacom Group service revenue grew 5.0%*, supported by strong customer additions and data growth in South Africa, as well as growing data demand and M-Pesa in Vodacom’s International operations. Q4 service revenue grew by 5.8%* (Q3: 5.3%*), supported by improved data growth despite out-of-bundle rates being reduced in South Africa during Q3 and the continued strong performance of our International operations.

 

In South Africa, service revenue grew 4.9%*, improving to 5.2%* in Q4 (Q3: 4.9%*). This was supported by continued strong customer base growth resulting from our effective segmentation and bundle strategy. We added 3.2 million prepaid customers in the year (excluding the impact of a change in disconnection policy in Q3), taking our total prepaid customer base to 44.8 million, an increase of 7.6% year-on-year. Our bundle strategy continued to deliver strong results, supported by big data applications to deliver personalised bundle offers. In total we now have 18.7 million bundle users, up 13.9% year-on year, and sold a total of 2.3 billion bundles, an increase of 51% year-on-year.

 

Data revenue grew 12.8%* in the year and now represents 43% of total service revenue. In October, we took the decision to reduce out-of-bundle data rates by up to 50% and increase bundles sizes in to order to improve customer experience and stimulate data take-up. We are successfully managing this pricing migration, as demonstrated by the acceleration in data revenue growth in Q4 to 13.1%* (Q3: 8.7%*). Voice revenues declined 4.6%*, an improvement on the prior year, reflecting the success of our personalised bundle strategy through our ‘Just 4 You’ platform. Our mobile network has now reached 80% 4G population coverage, and we also maintained our market leading NPS position.

 

Vodacom’s International operations outside of South Africa, which represent 22.2% of Vodacom Group service revenue, grew 8.3%* in the year and 11.1%* in Q4 (Q3: 10.4%*). Service revenue growth accelerated in the second half of the year supported by strong growth in Mozambique and Lesotho, an improved performance in the DRC and sustained growth in Tanzania. This improvement was driven by strong data growth and by M-Pesa, which now contributes 23.8% of International revenues and grew 24% in the year. In total we added 2.5 million customers in the year, reaching 32.2 million, up 8.6% year-on-year. In each of these markets we are No.1 for customer NPS.

 

Vodacom’s adjusted EBITDA grew by 6.5%*, reflecting revenue growth and good cost control. EBITDA margins declined by 0.3 percentage points to 38.7%, primarily due to strong growth in handset sales.

 

14


 

FINANCIAL RESULTS

 

Other AMAP

 

Service revenue grew 10.7%*, with strong local currency growth in both Turkey and Egypt. Q4 service revenue grew 10.2%* (Q3: 8.3%*). This growth excludes the contribution of Vodafone Qatar in all periods, following the sale of our 51% stake in March 2018 for a total cash consideration of €301 million. Organic adjusted EBITDA grew 11.9%* and the organic adjusted EBITDA margin improved by 0.2* percentage points to 26.9% driven by good cost control.

 

In Turkey, service revenue grew 14.1%* supported by good growth in consumer contract and data revenue, outstripping local price inflation of 11% in the year. Organic adjusted EBITDA grew 22.6%* and adjusted EBITDA margin improved by 1.4 percentage points to 22.6%, driven by revenue growth and improved cost control.

 

Egypt service revenue grew by 20.7%* with successful segmented campaigns, rising data penetration and price increases supporting higher ARPU, combined with strong customer base growth. This significantly exceeded local price inflation of 13%. Organic adjusted EBITDA grew 14.9%* and adjusted EBITDA margin declined by 1.4 percentage points to 43.0% as revenue growth and strong cost discipline were more than offset by inflationary pressures.

 

In New Zealand, service revenue declined 0.5%*, with growth in mobile offset by pressure in fixed. We continue to explore a potential IPO of Vodafone New Zealand.

 

Associates and joint ventures

 

Vodafone Hutchison Australia (‘VHA’) continued to perform well in a competitive environment, with local currency service revenue growth of 0.8% during year. This was driven by growth in our mobile contract customer base. Local currency adjusted EBITDA excluding changes in pricing structure for new mobile phone plans grew 1.9%, supported by revenue growth and strong commercial cost discipline.

 

Our stake in Indus Towers Limited (“Indus Towers”), the Indian towers company in which Vodafone owned a 42% interest during the year, achieved local currency revenue growth of 6.8% and adjusted EBITDA growth of 4.7%. In total, Indus Towers paid dividends of €138 million to the Group during the year.

 

On 25 April 2018, Vodafone, Bharti Airtel Limited (“Bharti Airtel”) and Idea announced the merger of Indus Towers into Bharti Infratel Limited (“Bharti Infratel”), creating a combined company that will own the respective businesses of Bharti Infratel and Indus Towers. Bharti Airtel and Vodafone will jointly control the combined company, in accordance with the terms of a new shareholders’ agreement. Vodafone will be issued with 783.1m new shares in the combined company, in exchange for its shareholding in Indus Towers. On the basis that (a) Providence decides to sell 3.35% of its 4.85% shareholding in Indus Towers for cash and (b) Idea Group decides to sell its full 11.15% shareholding in Indus Towers for cash, these shares would be equivalent to a 29.4% shareholding in the combined company. The final number of shares issued to Vodafone will be subject to closing adjustments, including but not limited to movements in net debt and working capital for Bharti Infratel and Indus Towers. The transaction is conditional on regulatory and other approvals and is expected to close before the end of the financial year ending 31 March 2019.

 

15


 

FINANCIAL RESULTS

 

India

 

On 20 March 2017, Vodafone announced an agreement to combine its subsidiary, Vodafone India (excluding its 42% stake in Indus Towers), with Idea Cellular. The combined company will be jointly controlled by Vodafone and the Aditya Birla Group. Vodafone India has been classified as discontinued operations for Group reporting purposes. From an operational perspective, the Group remains highly focused on the management of the business and committed to its success, both prior to the completion of the merger and thereafter. The results of Vodafone India are detailed below.

 

 

 

 

 

 

 

Growth

 

 

 

2018

 

2017

 

Reported

 

Organic*

 

 

 

€m

 

€m

 

%

 

%

 

Mobile customer revenue

 

3,480

 

4,615

 

 

 

 

 

Mobile incoming revenue

 

677

 

706

 

 

 

 

 

Other service revenue

 

154

 

211

 

 

 

 

 

Mobile service revenue

 

4,311

 

5,532

 

 

 

 

 

Fixed service revenue

 

332

 

302

 

 

 

 

 

Service revenue

 

4,643

 

5,834

 

(20.4

)

(18.7

)

Other revenue

 

27

 

19

 

 

 

 

 

Revenue

 

4,670

 

5,853

 

(20.2

)

(18.5

)

Direct costs

 

(1,165

)

(1,583

)

 

 

 

 

Customer costs

 

(282

)

(313

)

 

 

 

 

Operating expenses

 

(2,193

)

(2,361

)

 

 

 

 

Adjusted EBITDA

 

1,030

 

1,596

 

(35.5

)

(34.5

)

Adjusted EBITDA margin

 

22.1

%

27.3

%

 

 

 

 

Capital additions

 

952

 

1,139

 

 

 

 

 

Closing net debt

 

(7,714

)

(8,674

)

 

 

 

 

 


Notes:

*               All amounts in this document marked with an “*” represent organic growth which presents performance on a comparable basis, both in terms of merger and acquisition activity and movements in foreign exchange rates. “Change at constant exchange rates” presents performance on a comparable basis in terms of foreign exchange rates only. Organic growth and change at constant exchange rates are non-GAAP performance measures. See “Non-GAAP financial information” on page 43 for further details and reconciliations to the respective closest equivalent GAAP measure.

 

1.         Includes the profit on disposal of Vodafone India’s standalone towers business to ATC Telecom during the year.

 

2.         2017 includes a gross impairment charge of €4.5 billion (€3.7 billion net of tax) recorded in respect of the Group’s investment in India. In addition, in 2018 we recorded a non-cash re-measurement charge of €3.2 billion (€2.2 billion net of tax) in respect of Vodafone India’s fair value less costs of disposal, as set out in note 3 on page 41.

 

Service revenue declined 18.7%* as a result of intense price competition following the arrival of the new entrant. During the second half of the year the market leader increased the competitiveness of its tariffs, triggering further price reductions by the new entrant in the fourth quarter. This was further exacerbated by cuts to both domestic and international MTR rates in the second half of the year. Excluding the impact of regulation, service revenue declined 14.0%*. In Q4 service revenue declined by 21.2%* (Q3: -23.1%*), or by 9.4%* ex-regulation (Q3: -14.2%*). On a sequential basis, local currency service revenues excluding regulation declined 3.8% quarter-on-quarter.

 

Adjusted EBITDA declined 34.5%*, with a 5.2 percentage point deterioration in adjusted EBITDA margin to 22.1%. This reflected lower revenues, partially offset by significant cost actions and a provision release in the fourth quarter following positive legal judgements. These cost initiatives included active network site sharing, the renegotiation of tower maintenance contracts and the closure of sites with low utilisation.

 

During the year we continued to invest in network quality in our leadership circles, with a capital expenditure/sales ratio of 20.4%. We added 48,500 sites in the year, supporting our leading network-NPS scores. As a result of this investment we were able to carry 4.5x more data traffic than last year.

 

Net debt in India was €7.7 billion at the end of the period, down from €8.7 billion at the end of the prior financial year due to the positive translation impact of closing foreign exchange rates on the debt balance of €1.2 billion and proceeds from the sale of Vodafone India’s standalone towers to American Tower Corporation of €0.5 billion, partially offset by negative free cash flow of €0.2 billion and accrued interest expense of €0.3 billion.

 

Following the completion of Idea’s equity raising in February 2018, under the terms of the merger agreement the Group intends to inject up to €1 billion of incremental equity into India, net of the proceeds of the sale of a stake in the joint venture to the Aditya Birla Group, prior to completion. In the event that the joint venture partners decide to put in additional funding in the future, the Group would draw upon the value of its stake in Indus Towers.

 

We are making good progress in securing the necessary regulatory approvals for the merger of Vodafone India and Idea Cellular. The merger is expected to complete in June 2018.

 

16


 

FINANCIAL RESULTS

 

Group results

 

Revenue

 

Group revenue decreased 2.2% to €46.6 billion and service revenue decreased 4.5% to €41.1 billion.

 

Adjusted EBITDA

 

Group adjusted EBITDA increased 4.2% to €14.7 billion, with organic growth in Europe and AMAP partly offset by foreign exchange movements and the deconsolidation of Vodafone Netherlands following the creation of our joint-venture ‘VodafoneZiggo’. The Group’s adjusted EBITDA margin improved by 1.9 percentage points to 31.6%. On an organic basis, adjusted EBITDA rose 11.8%* and the Group’s adjusted EBITDA margin increased by 2.2* percentage points driven by organic margin improvement in Europe.

 

Adjusted EBIT

 

Adjusted EBIT increased by 21.6% to €4.8 billion as a result of both strong adjusted EBITDA growth and lower depreciation and amortisation expenses. On an organic basis, adjusted EBIT increased by 47.2%* for the year.

 

Operating profit

 

Adjusted EBIT excludes certain income and expenses that we have identified separately to allow their effect on the results of the Group to be assessed. The items that are included in operating profit but are excluded from adjusted EBIT are discussed below.

 

The Group’s share of adjusted results in associates and joint ventures was €0.4 billion, up from €0.2 billion in the prior year due to higher contributions from VodafoneZiggo and Vodafone Hutchison Australia. Restructuring costs decreased by €0.2 billion due to the prior year including the impact of cost efficiency actions taken in Germany and the UK. Amortisation of intangible assets in relation to customer bases and brands is recognised under accounting rules after we acquire businesses and was €1.0 billion, largely unchanged compared to the prior year. Other income and expense were a €0.2 billion gain during the year compared to €1.1 billion in the prior year which included a €1.3 billion gain on the formation of VodafoneZiggo.

 

Including the above items, operating profit increased by €0.6 billion to €4.3 billion. Higher adjusted EBIT and share of adjusted results in associates and joint ventures and lower restructuring costs more than offset the inclusion of the gain on the formation of the VodafoneZiggo joint venture in the prior year.

 

Net investment income/(net financing costs)

 

 

 

2018

 

2017

 

 

 

€m

 

€m

 

Investment income

 

685

 

474

 

Financing costs

 

(1,074

)

(1,406

)

Net financing costs

 

(389

)

(932

)

Analysed as:

 

 

 

 

 

Net financing costs before interest on settlement of tax issues

 

(749

)

(979

)

Interest income/(expense) arising on settlement of outstanding tax issues

 

11

 

(47

)

 

 

(738

)

(1,026

)

Mark to market gains

 

27

 

66

 

Foreign exchange 1

 

322

 

28

 

 

 

(389

)

(932

)

 


Note:

1.    Primarily comprises foreign exchange rate differences reflected in the income statement in relation to certain sterling and US dollar balances.

 

Net financing costs decreased by €543 million primarily driven by favourable foreign exchange rate movements.

 

Net financing costs before interest on settlement of tax issues includes favourable foreign exchange movements related to both subsidiary borrowings and central hedging strategies. Excluding these, underlying financing costs remained stable, reflecting consistent average net debt balances and weighted average borrowing costs for both periods.

 

17


 

FINANCIAL RESULTS

 

Taxation

 

 

 

2018

 

2017

 

 

 

€m

 

€m

 

Income tax credit/(expense)

 

879

 

(4,764

)

Profit before tax

 

3,878

 

2,792

 

Effective tax rate

 

(23

)%

171

%

 

The Group’s statutory effective tax rate for the year ended 31 March 2018 was -23% compared to 171% for the last financial year.

 

The effective tax rate for both years includes the following items; deferred tax on the use of Luxembourg losses of €304 million (2017: €369 million); an increase in the deferred tax asset of €330 million (2017: increase of €328 million) arising from a revaluation of investments based upon the local GAAP financial statements and tax returns; the recognition of a deferred tax asset of €1,603 million due to higher interest rates; and a tax charge in respect of capital gains on the transfer of shares in Vodafone Kenya Limited to the Vodacom Group of €110 million (2017: €nil). The year ended 31 March 2017 also includes a reduction in our Luxembourg deferred tax assets of €2,651 million following a reduction in the Luxembourg corporate tax rate to 26.0%. These items change the total losses we have available for future use against our profits in Luxembourg and do not affect the amount of tax we pay in other countries.

 

Adjusted earnings per share

 

Adjusted earnings per share, which excludes the results of Vodafone India which are included in discontinued operations, were 11.59 eurocents, an increase of 44.2% year-on-year, as higher adjusted operating profit and lower net financing costs more than offset the increase in income tax expense.

 

Basic earnings per share were 8.78 eurocents, compared to a loss per share of 22.51 eurocents for the year ended 31 March 2017, with the increase largely due to the prior year including a non-cash impairment charge of €3.7 billion, net of tax, recognised in discontinued operations in respect of the Group’s investment in India and the changes in deferred tax on losses, as described above, both of which have been excluded from adjusted earnings per share.

 

 

 

2018

 

2017

 

 

 

€m

 

€m

 

 

 

 

 

 

 

Profit/(loss) attributable to owners of the parent

 

2,439

 

(6,297

)

 

 

 

 

 

 

Adjustments:

 

 

 

 

 

Amortisation of acquired customer base and brand intangible assets

 

974

 

1,046

 

Restructuring costs

 

156

 

415

 

Other income and expense

 

(213

)

(1,052

)

Non-operating income and expense

 

32

 

1

 

Investment income and financing costs

 

(419

)

70

 

 

 

530

 

480

 

 

 

 

 

 

 

Taxation

 

(1,707

)

3,975

 

India

 

1,969

 

4,107

 

Non-controlling interests

 

(13

)

(16

)

Adjusted profit attributable to owners of the parent

 

3,218

 

2,249

 

 

 

 

Million

 

Million

 

Weighted average number of shares outstanding — basic

 

27,770

 

27,971

 

 

Earnings per share

 

 

 

eurocents

 

eurocents

 

Basic earnings/(loss) per share

 

8.78

c

(22.51

)c

Adjusted earnings per share

 

11.59

c

8.04

c

 


Notes:

1.         See above.

 

2.         India is classified as discontinued operations and includes the operating results, financing, tax and other gains and losses of Vodafone India recognised during the year.

 

3.         Adjusted profit attributable to owners of the parent and adjusted earnings per share are non-GAAP performance measures. Non-GAAP performance measures are presented to provide readers with additional financial information that is regularly reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measures. See “Non-GAAP financial information” on page 43 for further details.

 

4.         Weighted average number of shares outstanding includes a dilution of 1,013 million shares (2017: 1,369 million shares) following the issue of £2.9 billion of mandatory convertible bonds in February 2016 which are classified as equity after taking into account the cost of future coupon payments.

 

18

 


 

FINANCIAL POSITION

Statement of financial position

 

Assets

 

Goodwill and other intangible assets

 

Goodwill and other intangible assets decreased by €2.9 billion to €43.3 billion. The decrease primarily arose as a result of €0.7 billion of spectrum additions, principally in Italy, plus €2.3 billion of software additions, offset by €4.4 billion of amortisation, €0.9 billion of disposals arising from the sale of the Group’s interest in Vodafone Qatar and €0.6 billion of unfavourable foreign exchange movements.

 

Property, plant and equipment

 

Property, plant and equipment decreased by €1.9 billion to €28.3 billion, principally due to €5.1 billion of additions driven by continued investment in the Group’s networks, offset by €6.0 billion of depreciation charges, €0.6 billion of unfavourable foreign exchange movements and €0.4 billion of disposals arising from the sale of the Group’s interest in Vodafone Qatar.

 

Other non-current assets

 

Other non-current assets increased by €0.6 billion to €36.1 billion, mainly due to a €1.9 billion increase in deferred tax assets in Luxembourg from higher interest rates and a revaluation of investments based upon the local GAAP financial statements and tax returns. This was offset by a €0.5 billion decrease in trade and other receivables as well as €0.6 billion and €0.3 billion reductions in investments in associates and other investments respectively.

 

Current assets

 

Current assets decreased by €1.4 billion to €24.1 billion, which includes a €4.2 billion decrease in cash and cash equivalents offset by a €2.7 billion increase in other investments.

 

Assets and liabilities held for sale

 

Assets and liabilities held for sale of €13.8 billion (2017: €17.2 billion) and €11.0 billion (2017: €11.8 billion) respectively, relate to our operations in India following the agreement to combined with Idea Cellular.

 

Total equity and liabilities

 

Total equity

 

Total equity decreased by €5.1 billion to €68.6 billion largely due to €4.3 billion of dividends paid to equity shareholders and non-controlling interests and the purchase of treasury shares for €1.7 billion partially offset by the total comprehensive income for the year of €0.4 billion.

 

Non-current liabilities

 

Non-current liabilities decreased by €0.6 billion to €38.0 billion primarily due to a €1.6 billion decrease in long-term borrowings which is partially offset by a €1.1 billion increase in trade and other payables.

 

Current liabilities

 

Current liabilities decreased by €2.6 billion to €28.0 billion mainly due to a €1.7 billion decrease in short-term borrowings.

 

19


 

LIQUIDITY AND CAPITAL RESOURCES

 

Cash flows and funding

 

 

 

2018

 

2017

 

 

 

€m

 

€m

 

 

 

 

 

 

 

Adjusted EBITDA

 

14,737

 

14,149

 

Capital additions 1

 

(7,321

)

(7,675

)

Working capital

 

(584

)

(984

)

Disposal of property, plant and equipment

 

41

 

43

 

Other

 

128

 

94

 

Operating free cash flow 2

 

7,001

 

5,627

 

Taxation

 

(1,010

)

(761

)

Dividends received from associates and investments

 

489

 

433

 

Dividends paid to non-controlling shareholders in subsidiaries

 

(310

)

(413

)

Interest received and paid

 

(753

)

(830

)

Free cash flow (pre-spectrum) 2

 

5,417

 

4,056

 

Licence and spectrum payments

 

(1,123

)

(474

)

Restructuring payments

 

(250

)

(266

)

Free cash flow 2

 

4,044

 

3,316

 

Acquisitions and disposals

 

1,405

 

460

 

Equity dividends paid

 

(3,920

)

(3,714

)

Share buybacks 3

 

(1,626

)

 

Foreign exchange

 

622

 

(1,372

)

Other 4

 

(825

)

(1,058

)

Net debt increase

 

(300

)

(2,368

)

Opening net debt

 

(31,169

)

(28,801

)

Closing net debt

 

(31,469

)

(31,169

)

 


Notes:

1.              Capital additions include the purchase of property, plant and equipment and intangible assets, other than licence and spectrum, during the year.

2.              Operating free cash flow, free cash flow (pre-spectrum) and free cash flow are non-GAAP performance measures are presented to provide readers with additional financial information that is regularly reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measures. See “Non-GAAP financial information” on page 43 for more information and reconciliations to the closest respective equivalent GAAP measures and “Definition of terms” on page 53 for further details.

3.              Share buybacks are shown net of €140 million of receipts from the option structure entered into in February 2016, when the mandatory convertible bond was issued. The option structure was intended to ensure that the total cash outflow to execute the programme was broadly equivalent to the £1.44 billion raised on issuing the first tranche.

4.              Other cash flows for the year ended 31 March 2018 include €nil (2017: €2,366 million) received from the repayment of US$2.5 billion of loan notes issued by Verizon Communications Inc. and €nil (2017: €3,571 million) from a capital injection into Vodafone India.

 

Operating free cash flow increased by €1.4 billion mainly due to higher adjusted EBITDA, lower capital additions and lower working capital cash outflows, which were predominately related to the final payments for Project Spring in the prior year.

 

Free cash flow (pre-spectrum) was €5.4 billion, an increase of €1.4 billion, largely driven by the increase in operating free cash flow.

 

Licence and spectrum payments include amounts relating to the purchase of spectrum in Italy of €0.6 billion, UK of €0.3 billion and Germany of €0.1 billion (2017: €0.1 billion in Germany and €0.3 billion in Egypt). Licence and spectrum additions, which exclude working capital cash movements and represent licences acquired during the year, were €0.7 billion including €0.6 billion in Italy and €0.1 billion in Greece.

 

Acquisitions and disposals include €1.0 billion of proceeds from the placing of Vodacom shares following the transfer of the Group’s interests in Safaricom to Vodacom and €0.2 billion from the Tanzanian initial public offering.

 

A foreign exchange gain of €0.6 billion was recognised on net debt as a result of the translation impact of closing foreign exchange rates, mainly due to movements in the US Dollar and Sterling against the euro.

 

Closing net debt at 31 March 2018 was €31.5 billion (2017: €31.2 billion) and excludes €7.7 billion (2017: €8.7 billion) of net debt for Vodafone India, which is instead included in assets and liabilities held for sale on the consolidated statement of financial position; the remaining £1.4 billion mandatory convertible bond issued in February 2016, which will be settled in equity shares; US$2.5 billion of loan notes receivable from Verizon Communications Inc.; and €0.9 billion of shareholder loans receivable from VodafoneZiggo.

 

Closing net debt also continues to include liabilities of €1.8 billion (2017: €1.8 billion) relating to minority holdings in KDG and certain bonds which are reported at an amount €1.65 billion (2017: €2.0 billion) higher than their euro-equivalent cash redemption value as a result of hedge accounting under IFRS. In addition, where bonds are issued in currencies other than euros, the Group has entered into foreign currency swaps to fix the euro cash outflows on redemption. The impact of these swaps are not reflected in gross debt and would increase the euro equivalent redemption value of the bonds by €0.6 billion (2017: reduction €0.9 billion).

 

20


 

LIQUIDITY AND CAPITAL RESOURCES

 

Analysis of net debt:

 

 

 

2018

 

2017

 

 

 

€m

 

€m

 

 

 

 

 

 

 

Bonds

 

(33,950

)

(34,381

)

Commercial paper 1

 

(2,712

)

(3,648

)

Put options over non-controlling interests 2

 

(1,838

)

(1,837

)

Bank loans

 

(3,316

)

(3,608

)

Cash collateral liabilities

 

(1,070

)

(2,654

)

Other borrowings

 

(373

)

(444

)

Gross borrowings

 

(43,259

)

(46,572

)

Derivative financial instruments 3

 

(2,383

)

(2,077

)

Gross debts

 

(45,642

)

(48,649

)

Cash and cash equivalents

 

4,674

 

8,835

 

Other financial instruments:

 

 

 

Mark to market derivative financial instruments 4

 

2,629

 

4,282

 

Short term investments 5

 

6,152

 

3,979

 

Cash collateral 6

 

718

 

384

 

Total cash and cash equivalents and other financial instruments

 

14,173

 

17,480

 

Net debt

 

(31,469

)

(31,169

)

 


Notes:

1.              At 31 March 2018, US$570 million (31 March 2017: US$1,484 million) was drawn under the US commercial paper programme and €2,249 million (31 March 2017: €2,262 million) was drawn under the euro commercial paper programme.

2.              Includes a €1.8 billion (31 March 2017: €1.8 billion) liability for payments due to holders of the equity shares in Kabel Deutschland AG under the terms of a domination and profit and loss transfer agreement.

3.              Comprises mark-to-market adjustments on derivative financial instruments which are included as a component of trade and other payables (31 March 2018: €2,383 million, 31 March 2017: €2,077 million).

4.              Comprises mark-to-market adjustments on derivative financial instruments which are included as a component of trade and other receivables (31 March 2018: €2,629 million; 31 March 2017: €4,282 million).

5.              At 31 March 2018 the amount primarily includes €3,087 million (31 March 2017: €2,039 million) in managed investment funds, €1,974 million (2017: €1,638 million) in government bonds of which UK gilts of €1,112 million (2017: €1,172 million) are used primarily as collateral in relation derivative financial instruments, and €976 million (31 March 2017: €182 million) short-term investments where the underlying assets are supply chain and handset receivables.

6.              At 31 March 2018 the amount includes €718 million (31 March 2017: €384 million) in relation to cash paid under collateral support agreements.

 

Share buyback programme

 

On 25 August 2017, Vodafone announced the commencement of a new irrevocable and non-discretionary share buyback programme (the ‘Programme’). The sole purpose of the Programme was to reduce the issued share capital of Vodafone and thereby avoid any change in Vodafone’s issued share capital as a result of the maturing of the first tranche of the mandatory convertible bond (‘MCB’) in August 2017. In order to satisfy the first tranche of the MCB, 729.1 million shares were reissued from treasury shares on 25 August 2017 at a conversion price of £1.9751. This reflected the conversion price at issue (£2.1730) adjusted for the pound sterling equivalent of aggregate dividends paid in August 2016, February 2017 and August 2017.

 

Details of the shares purchased under the Programme, including those purchased under irrevocable instructions, are shown below:

 

 

 

Number of shares
purchased
1

 

Average price paid
per share inclusive
of transaction costs

 

Total number of
shares purchased
under publicly
announced share
buyback
programme
2

 

Maximum number
of shares that may
yet be purchased
under the
programme
3

 

Date of share purchase

 

000

 

Pence

 

000

 

000

 

 

 

 

 

 

 

 

 

 

 

August 2017

 

9,562

 

221.77

 

9,562

 

719,515

 

September 2017

 

252,851

 

212.07

 

262,413

 

466,664

 

October 2017

 

320,849

 

215.15

 

583,262

 

145,815

 

November 2017