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 12, 2020

 

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 contains a Stock Exchange Announcement dated 12 May 2020 entitled ‘VODAFONE GROUP PLC ⫶ FY20 PRELIMINARY RESULTS’.

 

 

Vodafone Group Plc ⫶ FY20 Preliminary results

 

12 May 2020

 

Connecting society, businesses and government delivers Vodafone a good financial performance

 

·             Supporting society with rapid, comprehensive and coordinated COVID-19 response

·             Good financial performance with growth in revenue, adjusted EBITDA and free cash flow

·             Delivering against our strategic priorities and focusing activity to create value for stakeholders

·             Accelerating digital transformation with new 3-year ambition of over €1 billion net cost savings

·             European TowerCo now operational, on-track for early 2021 monetisation

 

				FY20		FY19
Financial results (unaudited)		Page		€m		€m		Change (%)
Group revenue		33		44,974		43,666		+3.0
Operating profit / (loss)		33		4,099		(951	)	n/m
Loss for the financial year		33		(455	)	(7,644	)	n/m
Basic loss per share		33		(3.13c	)	(29.05c	)	n/m
Total dividends per share		47		9.00c		9.00c		n/m
Alternative performance measures1
Group service revenue		13		37,871		36,458		+0.8	*
Adjusted EBITDA		13		14,881		13,918		+2.6	*
Adjusted earnings per share		24		5.60c		6.27c		(10.7	)
Free cash flow (pre-spectrum)		25		5,700		5,443		+4.7
Free cash flow		25		4,949		4,411		+12.2
Net debt**		25		(42,168	)	(27,033	)	(56.0	)
Net debt to adjusted EBITDA**		27		2.8x		1.9x		n/m
Pre-tax return on capital employed (controlled)		28		6.1	%	5.3	%	n/m

1.  See page 56 for the location of the reconciliation to the closest equivalent GAAP measure.

 

·             Group revenue grew by 3.0% to €45.0 billion, supported by improving commercial momentum in Europe

·             Adjusted EBITDA grew by 2.6%* to €14.9 billion, reflecting revenue progression and cost programme success

·             Free cash flow grew by 12.2% to €4.9 billion, supported by disciplined capital management

·             Dividends per share of 9.00 eurocents

·             Resilient business model with expected free cash flow (pre-spectrum) of at least €5 billion in FY21

 

Nick Read, Group Chief Executive, commented:

 

“Vodafone has delivered a good financial performance - growing revenue, adjusted EBITDA and free cash flow - whilst building strong commercial momentum through the year and executing at pace on our strategic priorities. We have also continued to invest in our fixed and mobile Gigabit network infrastructure and digital services, to provide faster speeds for our customers, as well as successfully managing the recent surges in demand. The services Vodafone provides are more important than ever and we are committed to playing a key role in society’s recovery to the ‘new normal’.

 

I am pleased with the rapid, comprehensive and coordinated way we responded to the COVID-19 crisis. I want to give my personal thanks to the entire Vodafone team, who through their dedication, expertise and professionalism, have kept families, friends and communities connected, enabled students to continue their education, helped businesses operate and proactively supported governments to deliver critical services.”

 

Summary ⫶ Good performance with improved commercial momentum

 

Basis of preparation

 

On 31 July 2019, we announced the completion of the acquisition of Liberty Global’s assets in Germany and Central and Eastern Europe (‘CEE’) and the disposal of Vodafone New Zealand. As a result, our FY20 results include Vodafone New Zealand for four months, and the acquired Liberty Global assets for eight months. For the purposes of comparison, all organic figures exclude Vodafone New Zealand and the acquired Liberty Global assets.

 

On 1 April 2019, a new accounting standard, IFRS 16 ‘Leases’, was adopted for our statutory reporting, without restating prior year figures. As a result, the Group’s statutory results for the year ended 31 March 2020 are on an IFRS 16 basis, whereas the comparative period results for the year ended 31 March 2019 are on the former basis of accounting. Note 1 of the condensed consolidated financial statements explains the impact of the adoption of IFRS 16 on the consolidated financial position as at 1 April 2019.

 

For FY20, the implementation of IFRS 16 means that a revised definition for adjusted EBITDA has been applied. This restricts period-on-period comparability of certain of the Group’s alternative performance measures.

 

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 (notably by excluding the disposal of Vodafone New Zealand and the acquired Liberty Global assets), movements in foreign exchange rates and the impact from the implementation of IFRS 16 ‘Leases’. Organic growth is an alternative performance measure. See “Alternative performance measures” on page 54 for further details and page 56 for the location of the reconciliation to the respective closest equivalent GAAP measure.

 

Net debt marked with a “**” represents net debt adjusted in FY20 to exclude derivative gains in cash flow hedge reserves, the corresponding losses for which are not recognised on the bonds within net debt and which are significantly increased due to COVID-19 related market conditions.

 

Financial performance

 

Group revenue increased by 3.0% to €45.0 billion (FY19: €43.7 billion), reflecting the underlying improvement in commercial performance and the contribution from the acquired Liberty Global assets, which were consolidated from August 2019, partially offset by the disposal of Vodafone New Zealand.

 

The Group made a loss for the year of €0.5 billion (FY19: €7.6 billion), of which €0.9 billion was attributable to owners of the parent. The loss included profit from operations together with a profit on the disposals of Vodafone New Zealand and Vodafone Malta (€1.2 billion) and a gain on the formation of the INWIT joint venture (€3.4 billion). Vodafone’s share of losses related to Vodafone Idea (€2.5 billion) is principally due to adverse legal judgements by the Supreme Court in India and the Group carrying value of Vodafone Idea has been reduced to €nil. Further, impairments totalling €1.7 billion in Spain, Ireland, Romania and Automotive and mark-to-market losses of €1.1 billion were recognised. As a result, the basic loss per share for the year was €3.13 eurocents.

 

Group organic service revenue increased by 0.8%* to €37.9 billion (FY19: €36.5 billion), with improved commercial performance across all major markets. Adjusted EBITDA increased by 2.6%* to €14.9 billion (FY19: €13.9 billion). This growth was the result of the success of our cost transformation agenda, alongside improving commercial momentum and organic service revenue growth. This enabled us to deliver a fifth consecutive year of adjusted EBITDA margin expansion, increasing to 33.1% in FY20, from 28.3% in FY15.

 

Cash flow, funding & capital allocation

 

Free cash flow (pre-spectrum) increased by 4.7% to €5.7 billion (FY19: €5.4 billion). Organic adjusted EBITDA growth and the adjusted EBITDA contribution from the acquired Liberty Global assets was partially offset by higher cash interest and higher capital additions for the acquired Liberty Global assets. Spectrum payments for the year totalled €0.2 billion (FY19: €0.8 billion) and restructuring and integration costs totalled €0.6 billion (FY19: €0.2 billion). Free cash flow (post-spectrum and restructuring/integration costs) was €4.9 billion (FY19: €4.4 billion).

 

Net debt as at 31 March 2020 was €42.2 billion** compared to €27.0 billion as at 31 March 2019. This increase in net debt reflects cash outflows and debt of €18.5 billion relating to the acquisition of the Liberty Global assets in Germany and Central and Eastern Europe, spectrum accruals and cash payments of €1.7 billion primarily relating to 5G spectrum purchases in Germany, dividend payments of €2.3 billion, and the completion of the buyback for the mandatory convertible bonds issued in 2016 of €1.1 billion. This was partially offset by proceeds of €4.4 billion primarily relating to the disposals of Vodafone New Zealand, Vodafone Malta and the INWIT combination in Italy.

 

We aim to maintain our financial leverage within a range of 2.5-3.0x net debt to adjusted EBITDA. At the end of the financial year financial leverage was 2.8x**. Total dividends per share for the year are 9.0 eurocents (FY19: 9.0 eurocents), implying a final dividend per share of 4.5 eurocents, which will be paid on 7 August 2020.

 

COVID-19 ⫶ Supporting the digital society through critical connectivity

 

We are committed to doing our utmost to support society during this period of uncertainty and change. As a provider of critical connectivity and communications services enabling our digital society, we announced a five-point plan to help the communities in which we operate in Europe. Our plan is to:

 

·             maintain network service quality;

·             provide network capacity and services for critical government functions;

·             improve dissemination of information to the public;

·             facilitate working from home and help small and micro businesses within our supply chain; and

·             improve governments’ insights in affected areas.

 

Teams throughout our markets have worked tirelessly to deliver our five-point plan and to support all the communities in which we operate. So far, the actions we have taken have totalled donations of goods and services of approximately €100 million, reaching 78 million customers. Some of the actions and initiatives include the following:

 

·             In Italy, we have donated more than 1,200 smartphones and tablets to hospitals, foundations and non-profit organisations to enable patients to remain in touch with relatives.

·             In Spain, we have provided over 30,000 SIM cards with 60GB of data to hospitals and care centres.

·             Vodafone Germany and Corevas have provided EmergencyEye technology to allow doctors to assess COVID-19 symptoms remotely. We are ensuring that the video chat technology always operates swiftly in an emergency.

·             In the UK, we have provided vital connectivity for new hospital facilities in London, Cardiff, Manchester and Glasgow.

·             In Portugal, we have established remote monitoring cameras to allow doctors and nurses to monitor patients in over 100 hospital rooms.

·             In Greece, Vodafone is working to donate equipment and hands-free accessories to healthcare personnel in COVID-19 clinics across the country’s key hospitals.

·             In the Czech Republic and Hungary, we are working with health ministries to provide official COVID-19 information in real-time through additional features on their Life-Saving app.  The app has already reached 1.3 million Czech users and more than 500,000 users in Hungary.

·             Vodafone Romania has installed new mobile sites for temporary hospitals in Bucharest and Constanta.

·             Vodafone Turkey has purchased and donated 10 ventilators to a public hospital and provided public healthcare workers with 150 tablets with 30GB of free data.

·             In South Africa, Vodacom has partnered with Discovery Health to offer easy access to online COVID-19 screening and consultations for all South Africans.

 

Further information regarding our response to COVID-19 is detailed at vodafone.com/covid19.

 

Strategic review ⫶ Strong progress against our priorities

 

At the start of the financial year, we set out four strategic priorities that would guide our actions and ambitions:

 

1.             deepening customer engagement;

2.             accelerating digital transformation;

3.             improving asset utilisation; and

4.             optimising the portfolio.

 

We have executed at pace across all four priorities and delivered a significant step-change in progress against our transformation agenda over the course of the year. In light of the current conditions across our markets, we are accelerating in focused areas of our strategic priorities to support societies in their economic recovery and return to a state of economic resilience.

 

The table and discussion below summarise the progress against our strategic priorities.

 

Strategic progress summary		FY20		FY19
1. Deepening customer engagement
Europe mobile contract customers1		64.4m		63.2m
Europe broadband customers1		25.0m		18.8m
Europe on-net Gigabit capable connections1		31.9m		21.9m
Europe Consumer converged customers1		7.2m		6.6m
Europe mobile contract customer churn4		14.6	%	15.5	%
Africa data users2		82.6m		75.6m
M-Pesa transaction volume2		12.2bn		11.0bn
Business fixed-line service revenue growth		3.3	%	3.8	%
IoT SIM connections		102.9m		84.9m
2. Accelerating digital transformation
Europe net opex savings3		€0.4bn		€0.4bn
Europe digital channel sales mix		21	%	17	%
Frequency of customer contacts per year		1.4		1.5
MyVodafone app penetration		65	%	62	%
3. Improving asset utilisation
Average Europe monthly mobile data usage per customer		5.7GB		3.7GB
European Tower sites (proportionate)		60k		—
Europe on-net NGN broadband penetration1		30	%	28	%

Notes:

1.        Including VodafoneZiggo.

2.        Africa including Safaricom.

3.        Europe and common function operating costs.

4.        Excluding the impact of data only SIM losses in Italy during Q3 and Q4 FY20.

 

1 ⫶ Deepening customer engagement

 

Our ambition

 

Consumer

 

We aim to deepen the relationship we have with our customers by selling additional products and services, particularly fixed and converged products in Europe and mobile data and financial services in Africa. This will drive revenue growth and improve customer loyalty.

 

Business

 

Our strategy in the Business segment is to drive growth and deepen engagement with our existing mobile customers by cross-selling additional total communications products including next generation (“NGN”) fixed, IoT and cloud services.

 

Our progress

 

Consumer

 

We have made strong progress on our strategy and delivered a more consistent commercial performance across both Europe and Africa this year. This has driven six consecutive quarters of improved customer loyalty, with mobile contract churn in Europe down 1.0 percentage point year-on-year. Based on Consumer net promoter scores, at the end of the period the Group was a leader or co-leader in 12 out of 18 markets. We also maintained our good momentum in mobile and NGN net additions.

 

We are the largest mobile and fixed operator in Europe, supported by:

 

·             Our NGN fixed-line network which is the largest in Europe and covers 136 million households. This provides us with a significant opportunity to capture market share gains and increase average revenue as customers move from legacy Digital Subscriber Line (“DSL”) to Gigabit capable technologies. By FY23, we will be able to deliver Gigabit speeds to approximately 50 million homes across Europe on our own network.

·             Driving convergence across our customer base. We believe there is a strong opportunity to increase the number of customers who subscribe to converged or multi-product services. This also helps improve customer loyalty.

·             Our subscription-based television distribution business in Europe, which now has over 22 million active customer subscriptions.

 

During the year we launched a number of specific commercial initiatives, these included:

 

·             Launching new speed-tiered unlimited mobile data plans across 6 markets, meeting customers’ demand for ‘worry-free’ data usage and creating opportunities for revenue growth. Our unlimited data customer base totalled 4 million consumer SIMs by the end of FY20. We also launched 5G services in 97 cities across 8 European markets.

·             In Germany, following the acquisition of Unitymedia, we are the leading provider of Gigabit services with a significant speed advantage over the incumbent operator. The percentage of homes passed on our network that subscribe to our NGN broadband service was 33% in FY20, reflecting the significant opportunity we still have to increase our market share and upsell customers to higher speed packages. In Q4, we launched a new “GigaCable Max” campaign as part of the re-branding of Unitymedia to Vodafone which highlighted our network advantage. This campaign has been highly successful and helped drive record cable net additions of more than 250,000 in H2.

·             In the UK, we began a new campaign, the “Great British Broadband Switch”, to coincide with new regulation relating to out-of-contract broadband customer notifications. This campaign contributed to a record number of new Consumer fixed customers added in the fourth quarter. Fixed-line broadband connections now total 751,000.

 

In Africa, demand for mobile data remains significant given the lack of fixed line infrastructure. There is also a substantial opportunity to grow M-Pesa (our mobile payments platform) and expand it into new financial and digital services.

 

During the year, we saw continued growth in the demand for mobile data. Monthly average data usage increased to 2.0GB (FY19: 1.4GB) and the total number of data users grew by 7.0 million to 82.6 million.

 

Business

 

Vodafone Business has increased its pace of strategic execution following the appointment, in September 2019, of Vinod Kumar to lead our cross-geography activities. Business customers, ranging from entrepreneurial sole traders through to large global organisations, contribute 28% to our total service revenue.

 

·             We continue to see a significant opportunity to win market share in the evolving wide area networking (“WAN”) market. With businesses more reliant on remote working and multi-site operations than ever before, we are seeing larger enterprise customers investing in more reliable software defined networking (“SDN”) and moving away from legacy solutions which are both less reliable and more expensive to maintain.

·             Our leading global Internet of Things (“IoT”) platform continues to resonate with Business customers and we added 19.5 million new SIM connections during the year. Our IoT connections support a range of industries including car manufacturers, logistics, energy and healthcare.

·             In December, we were the first telecommunications operator in Europe to announce an agreement with Amazon Web Services (“AWS”) to support ultra-low latency mobile edge computing services by deploying AWS Wavelength solutions at the edge of Vodafone’s 5G networks, as part of our multi-cloud strategy. With low latency, the new services will help support artificial intelligence, augmented and virtual reality, video analytics, autonomous vehicles, robotics and drone control, and will generate incremental revenues for the Group.

·             Our Business customer activities continue to gain traction in South Africa, with revenue from Business customers now contributing 20% of total service revenue.

 

2 ⫶ Accelerating digital transformation

 

Our ambition

 

We have a clear ambition to strengthen our differentiation and lead the industry in capturing the benefits of digital. As a result, we are systematically transforming our operating model by being ‘Digital First’ — delivering a fundamentally improved customer experience whilst also structurally lowering our cost base. We shared our ambitions at an investor event in September 2019, where we discussed three primary areas of focus: digital customer management, digital technology management and digital operations.

 

Our progress

 

In FY19, we began our multi-year programme to generate at least €1.2 billion of net savings from operating expenses in Europe and Group common functions. At the end of the financial year we had successfully achieved €0.8 billion of our original target and we remain on track to achieve the remaining €0.4 billion in the financial year ahead. Highlights of activity in the financial year include the following:

 

·             We have also increased the use of technology to communicate with existing customers. We are migrating from less efficient manual models and call centres, to ‘always-on’ digital marketing. At the end of the financial year, 11 of our 13 European markets were using these new systems.

·             Assisting our customers with routine queries is a central part of our operations. In FY19, we conducted over 42 million assisted conversations through our contact centres every month. This incurred an annual cost of over €1.2 billion. Through a targeted programme of technology deployment, including our Artificial Intelligence (“AI”) assistant ‘TOBi’, we reduced the number of customer calls by 20% over the last two years.

·             In FY19, we had almost 7,700 retail stores across the Group, which drove €800 million of annual operating expenses. We still see a central role for retail stores in our future channel mix, but we are evolving to a more integrated and holistic approach to channel management. By the end of the financial year we had reduced our store footprint by 7%.

·             Across the Group, we have over 20,000 team members within our shared services, under the banner ‘_VOIS’. This is a digital operations centre of excellence. Over the last two years, we have created 3,500 FTE role efficiencies through robotics, artificial intelligence and process optimisation.

 

Our teams have continued to identify further cost saving and efficiency opportunities in addition to this initial target in a number of areas. As a result, we are extending our cost transformation programme. We are now targeting to deliver at least €1 billion of net operating expense savings during FY21-23, in addition to the €0.8 billion delivered in FY19-20.

 

Moreover, we expect to deliver a net reduction in commissions paid to distribution channels. Every year, we spend approximately €2.5 billion in commissions to third parties. As we move our sales towards digital direct channels we expect these costs to reduce over time and contribute to our margin expansion.

 

3 ⫶ Improving asset utilisation

 

Our ambition

 

We aim to improve the utilisation of all of the Group’s assets as part of our focus on improving the Group’s return on capital.

 

Our progress

 

We employ significant capital resources across both our fixed line and mobile communications infrastructure. The quality of our network is of paramount importance in delivering an overall compelling experience for our customers. Over the past year we have explored a number of routes to improve both the capacity and coverage of our networks, whilst also improving the utilisation of these valuable assets. These initiatives include:

 

·             ‘Passive’ sharing: reciprocal access with other communications providers to the physical mobile sites (i.e. towers and rooftops) to install radio equipment;

·             ‘Deep passive’ infrastructure sharing: as above, but also including reciprocal access with other communications providers to the high-speed fixed infrastructure connecting mobile sites;

·             ‘Active’ infrastructure sharing: reciprocal access with other communications providers to both the physical mobile sites and radio equipment, outside of major urban areas; and

·             Asset ‘monetisation’: monetising our infrastructure assets, highlighting the valuation gaps between infrastructure assets and listed telecommunications providers.

 

During the year, we made strong progress in each of these areas, with the following highlights:

 

·             We have now secured a range of network sharing partnerships across Europe including: Deutsche Telekom in Germany, Telecom Italia in Italy, Orange in Spain and Romania, Telefonica in the UK and Wind in Greece. These network sharing agreements support improved mobile coverage in rural areas, reduce our environmental impact, increase the pace of 5G network deployment and generate significant cost savings.

·             In March 2020, we completed the merger of our passive tower infrastructure in Italy with INWIT. This merger has created Italy’s leading tower company with over 22,000 towers. Vodafone received €2.1 billion in cash and a 37.5% shareholding in the combined entity. In April 2020, we received special dividends of €0.2 billion following the INWIT recapitalisation and subsequently sold down 4.3% of our shareholding realising a further €0.4 billion of proceeds. Our current shareholding in INWIT is 33.2% and we intend to retain joint control alongside Telecom Italia.

·             In July 2019, we announced our intention to separate our European tower infrastructure and to explore a variety of monetisation alternatives. We have now completed the operational separation, with the full management team in place. We are preparing for a potential IPO in early calendar 2021, and we are targeting to provide financial information at our interim results in November 2020.

·             We have made a fast start on integrating the recently acquired Liberty Global assets in Germany and CEE and remain confident that we will deliver the €535 million of targeted annual cost and capex savings by the fifth full year post-completion. We have launched convergent offers in all four markets, and are encouraged by the uptake.

 

4 ⫶ Optimising the portfolio

 

Our ambition

 

Our aim has been to actively manage our portfolio in order to strengthen our market positions, simplify the Group and reduce our financial leverage.

 

Our progress

 

Over the last two years, we have executed a significant amount of portfolio activity, in order to reposition the Group as a converged communications technology provider across our two scaled geographic platforms in Europe and Africa. The optimisation of our portfolio is now substantially complete. The table below summarises our activity.

 

Country		Actions taken
Acquisitions
Germany & CEE		Acquisition and integration of Liberty Global’s assets for €18.5 billion in July 2019
Greece		Acquisition of CYTA Telecommunications Hellas for €118 million in July 2018
Albania		Acquisition of AbCom for an undisclosed amount in March 2020
Disposals
New Zealand		Sale of 100% holding to Infratil and Brookfield for €2.0 billion in July 2019
Malta		Sale of 100% holding to Monaco Telecom for €242 million in March 2020
Qatar		Sale of 51% holding to Qatar Foundation for €301 million in March 2018
Egypt		MoU signed with Saudi Telecom in January 2020 to pursue sale of 55% holding for €2.2 billion
Mergers
Italy		Merger of Vodafone Italy’s towers into INWIT for €2.35 billion and 37.5% holding in INWIT in March 2020
India		Merger of Vodafone India and Idea Cellular in July 2018
India		Agreement on proposed merger of Indus Towers with Bharti Infratel in April 2018
Australia		Merger of our existing Vodafone Hutchison joint-venture with TPG Telecom approved in March 2020
Africa		Consolidated our holdings in Safaricom and M-Pesa to be primarily held through Vodacom in April 2020

 

The year ahead ⫶ Heightened focus on key priorities to support recovery

 

In light of the evolving economic environment, we have reviewed our strategic plans to identify areas of opportunity to accelerate further. We have delivered at pace in the year, but there are areas in which we can heighten the prioritisation of our plans to support the broader economic recovery in our markets and exit in an even stronger position.

 

We will continue to ensure the quality, speed and reliability of our networks, whilst simplifying our offers and enhancing our CRM systems to support a faster migration to digital channels. Meanwhile, given the economic backdrop, our transformation programme to radically reduce our cost base through targeted deployment of technology remains an essential lever to support our relative financial resilience.

 

In order to deliver the increasing speed, coverage and capacity our customers need, whilst improving the economic return for our shareholders, we will leverage the network sharing arrangements we have put in place across our markets. Whilst we have executed a significant number of important strategic transactions over the last 18 months, we are working at pace to complete the full legal separation of our European Towers, to facilitate execution of monetisation options in the early part of calendar year 2021. Further information regarding our financial outlook is contained on page 12.

 

Our purpose ⫶ We connect for a better future

 

We work hard to build a digital future that works for everyone. It is our ambition to improve one billion lives and halve our environmental impact by 2025. We are driving progress towards the delivery of our 2025 targets across three pillars: Digital Society; Inclusion for All; and Planet. We also remain dedicated to ensuring that Vodafone operates responsibly and ethically. This year marks the beginning of a ‘decade of delivery’ to achieve the UN Sustainable Development Goals (SDGs). The SDGs provide a clear roadmap to contribute towards creating a better future. We are committed to playing our role through leveraging the power of our technology, networks and services.

 

Digital Society

 

We believe in a connected digital society, connecting people, communities and things to the internet like never before with super-fast data speeds. With our high-speed networks people will access an ever-growing range of services in real-time and businesses can develop new products and services to meet the needs of future generations. IoT will create more efficient, safer and smarter products and services; and mobile financial services will reduce poverty and enable access to essential services like healthcare and education. Our targets and FY20 progress for Digital Society include:

 

		2025 Target
Gigabit network		Connecting over 250 million people to our next generation networks
IoT solutions		Connecting over 150 million vehicles to IoT
Mobile money		Connecting over 50 million people to mobile money services

 

Inclusion for All

 

We believe that the opportunities and promise of a better digital future should be accessible to all with no one left behind. Our technology can help people contribute equally and fully in a digital society. Our targets and FY20 progress for Inclusion for All include:

 

		2025 Target
Connecting women		Connecting an additional 20 million women in Africa1 and Turkey to mobile
Supporting young people		Supporting 10 million young people to access digital skills, learning and employment opportunities by 2022
Vodafone Foundation		Improving the lives of 400 million people through our foundation

Note:

1.         Excludes Egypt.

 

Planet

 

We believe that urgent and sustained action is required to address climate change, and business success should not come at a cost to the environment. Our focus on energy efficiency, renewable energy supply and network waste will help us to mitigate the impact of our business growth and our customers’ increasing demand for data. One of our most important contributions is through using our technologies and services to enable our customers to reduce greenhouse gas emissions. In July 2019, we committed to setting a Science Based Target to limit global temperature rise to below 1.5°C and reaching net-zero emissions no later than 2050. Our targets and FY20 progress for Planet include:

 

		2025 Target
Greenhouse gas reduction		Reducing our greenhouse gas emissions by 50% against our 2017 baseline
Renewable energy		Purchasing 100% of our electricity from renewable sources
Recycling		Reusing, reselling, or recycling 100% of our redundant network equipment

 

 

Outlook ⫶ Operating model delivering relative resilience

 

Performance against FY20 guidance

 

In May 2019, we set out our guidance for FY20. Our guidance was subsequently updated in November 2019, reflecting the acquisition of Liberty Global’s assets in Germany and CEE and the sale of Vodafone New Zealand. The table below compares the guidance given and our actual performance.

 

		Original guidance		Updated guidance		FY20 outcome
Adjusted EBITDA		€13.8-14.2 billion		€14.8-15.0 billion		€14.9 billion
Capital expenditure to total revenue ratio		‘mid-teens’		~17%		16.5%
Financial leverage		~3.0x		~3.0x		2.8x**
Free cash flow (pre-spectrum)		>€5.4 billion		~€5.4 billion		€5.7 billion

 

Outlook for FY21

 

The economic impact of the COVID-19 pandemic in our markets, whilst uncertain, is likely to be significant. Whilst our business model is more resilient than many others, we are not immune to the challenges. We are experiencing a direct impact on our roaming revenues from lower international travel and we also expect economic pressures to impact our customer revenues over time. However, we are also seeing significant increases in data volumes and further improvements in loyalty, as our customers place greater value on the quality, speed and reliability of our networks. Given the uncertainties and impacts we are not able to provide Adjusted EBITDA guidance for FY21 and guidance will be limited to free cash flow (pre-spectrum). However, based on the current prevailing assessments of the global macroeconomic outlook, Adjusted EBITDA for FY21 may be flat to slightly down, compared to a rebased FY20 baseline of €14.5 billion.

 

FY21 Guidance

 

We are confident on the relative resilience of our free cash flow generation, supported by our strong focus on cost and capex discipline. As a result, we expect free cash flow (pre-spectrum) in FY21 to be at least €5 billion.

 

Financial modelling considerations & assumptions

 

The guidance above reflects the following:

 

·             The deconsolidation of Vodafone Italy Towers following its merger with INWIT (completed in March 2020)

 

·             The sale of Vodafone Malta (completed in March 2020)

 

·             Vodafone Egypt will remain in guidance until its sale to Saudi Telecom Company (“stc”) is complete (currently planned to occur in FY21)

 

·             No significant change in the Group’s effective cash interest rate or cash tax rate is assumed

 

·             Foreign exchange rates used when setting guidance were as follows:

 

-                        EUR 1 : GBP 0.87;

 

-                         EUR 1 : ZAR 20.59;

 

-                        EUR 1 : TRY 7.50; and

 

-                         EUR 1 :  EGP 17.02.

 

·             Free cash flow guidance excludes the impact of license and spectrum payments, restructuring costs, any material one-off tax related payments.

 

·             Guidance assumes no material change to the structure of the Group or any fundamental structural change to the Eurozone.

 

Financial performance ⫶ Good results with improved commercial momentum

 

·             Group revenue grew by 3.0% to €45.0 billion, driven by improving commercial momentum in Europe

 

·             Total net operating cost savings of €0.4 billion in the year, facilitated by continued digital transformation

 

·             Adjusted EBITDA grew by 2.6%* to €14.9 billion, reflecting commercial momentum and cost savings progress

 

·             Free cash flow (pre-spectrum) grew by 4.7% to €5.7 billion, driven by revenue and adjusted EBITDA growth and capital discipline

 

·             Dividends per share of 9.0 eurocents

 

Group ⫶ Good financial performance, in line with our plans1,2

 

		FY201,2		FY19
		€m		€m		Change (%)
Revenue		44,974		43,666		3.0
- Service revenue3		37,871		36,458		3.9
- Other revenue		7,103		7,208		(1.5	)
Adjusted EBITDA3		14,881		13,918		6.9
Depreciation and amortisation		(10,085	)	(9,665	)	(4.3	)
Adjusted EBIT3		4,796		4,253		12.8
Share of adjusted results in associates and joint ventures4		(241	)	(348	)	30.7
Adjusted operating profit3		4,555		3,905		16.6
Adjustments for:
- Impairment losses5		(1,685	)	(3,525	)
- Restructuring costs		(720	)	(486	)
- Amortisation of acquired customer base and brand intangible assets		(638	)	(583	)
- Adjusted other income and expense4		2,257		(262	)
- Interest on lease liabilities6		330		—
Operating profit / (loss)		4,099		(951	)
Non-operating income and expense		(3	)	(7	)
Net financing costs		(3,301	)	(1,655	)
Income tax expense		(1,250	)	(1,496	)
Loss for the financial year from continuing operations		(455	)	(4,109	)
Loss for the financial year from discontinued operations		—		(3,535	)
Loss for the financial year		(455	)	(7,644	)
Attributable to:
- Owners of the parent		(920	)	(8,020	)
- Non-controlled interests		465		376
Loss for the financial year		(455	)	(7,644	)

 

Further detailed income statement information is available in a downloadable spreadsheet format at investors.vodafone.com

Notes:

1.             IFRS 16 ‘Leases’ was adopted on 1 April 2019 for our statutory reporting, without restating prior period figures. As a result, the Group’s statutory results for the year ended 31 March 2020 are on an IFRS 16 basis, whereas the comparative period for the year ended 31 March 2019 are on an IAS 17 basis. Note 1 of the unaudited condensed consolidated financial statements explains the impact of the adoption of IFRS 16 on the consolidated financial position at 1 April 2019.

2.             The 2020 results reflect average foreign exchange rates of €1:£0.87, €1:INR 78.78, €1:ZAR 16.42, €1:TRY 6.52 and €1: EGP 18.18.

3.             Service revenue, adjusted EBITDA, adjusted EBIT and adjusted operating profit are alternative performance measures which are non-GAAP measures that 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 measure. For the year ended 31 March 2020, a revised definition of adjusted EBITDA has been applied. This restricts the period-on-period comparability of certain of the Group’s alternative performance measures. See “Alternative performance measures” on page 54 for more information.

4.             Share of results of equity accounted associates and joint ventures presented within the Consolidated income statement includes -€241 million (2019: -€348 million, 2018: €389 million) included within Adjusted operating profit, -€25 million (2019: -€26 million, 2018: -€9 million) included within Restructuring costs, -€215 million (2019: -€420 million, 2018: -€439 million) included within Amortisation of acquired customer based and brand intangible assets and -€2,024 million which is principally related to Vodafone Idea Limited (2019: -€114 million, 2018: €nil) included within Other adjusted income/(expense).

5.             Impairment losses relate to Spain (€840 million), Ireland (€630 million), Romania (€110 million) and Vodafone Automotive (€105 million). The prior year impairment loss relates to Spain (€2.9 billion), Romania (€0.3 billion) and Vodafone Idea (€0.3 billion).

6.             Reversal of interest on lease liabilities included within adjusted EBITDA under the Group’s definition of that metric, for re-presentation in net financing costs.

 

Geographic performance summary ⫶ Improving commercial momentum

 

										Other		Total				Other
FY20		Germany		Italy		UK		Spain		Europe		Europe1		Vodacom		markets		Group1
Total revenue (€m)		12,076		5,529		6,484		4,296		5,541		33,793		5,531		4,386		44,974
Service revenue (€m)		10,696		4,833		5,020		3,904		4,890		29,213		4,470		3,796		37,871
Adjusted EBITDA (€m)		5,077		2,068		1,500		1,009		1,738		11,392		2,088		1,400		14,881
Adjusted EBITDA margin %		42.0		37.4		23.1		23.5		31.4		33.7		37.8		31.9		33.1
Adjusted EBIT (€m)		1,701		813		(132	)	(294	)	501		2,589		1,321		902		4,796
Adjusted operating profit/(loss) (€m)		1,701		813		(132	)	(294	)	619		2,707		1,569		297		4,555

1.  For a full disaggregation of our financial results by geography, including intersegment eliminations, see pages 57 and 58.

 

Further geographic performance information is available in a downloadable spreadsheet format at investors.vodafone.com

 

Total Europe ⫶ 77% of Group Adjusted EBITDA

 

		FY20		FY19		Organic
		€m		€m		Change (%)*
Total revenue		33,793		32,144
- Service revenue		29,213		27,680		(1.2	)
- Other revenue		4,580		4,464
Adjusted EBITDA		11,392		10,289		1.6
Adjusted EBITDA margin		33.7	%	32.0	%
Depreciation and amortisation		(8,803	)	(8,239	)
Adjusted EBIT		2,589		2,050
Share of adjusted results in associates and joint ventures		118		150
Adjusted operating profit		2,707		2,200

 

Europe revenue increased by 5.1% and organic service revenue decreased by 1.2%*, reflecting competitive pressure in Italy and Spain offset by good growth in the UK and Other Europe, and retail growth in Germany.

 

Europe adjusted EBITDA increased by 10.7%. On an organic basis adjusted EBITDA increased by 1.6%* as service revenue declines were offset by a €0.4 billion reduction in operating expenses.

 

Europe adjusted EBIT grew by 26.3%, reflecting the contribution of the acquired Liberty Global assets.

 

The following table sets out the progression of organic service revenue growth during the year.

 

FY20 (organic service revenue growth %)		Q1		Q2		H1		Q3		Q4		H2		FY20
Europe		(1.7	)	(1.4	)	(1.6	)	(1.4	)	(0.4	)	(0.9	)	(1.2	)
Rest of World		5.3		8.9		7.7		9.1		7.9		8.5		8.1
Total Group		(0.2	)	0.7		0.3		0.8		1.6		1.2		0.8

 

Rest of World revenue decreased by 3.8% and organic service revenue increased by 8.1%*, reflecting good growth in Turkey and Egypt and continued growth at Vodacom. Adjusted EBITDA decreased by 2.0%. On an organic basis adjusted EBITDA increased by 6.8%*, driven by service revenue growth ahead of inflation and good cost control. Adjusted EBIT grew by 3.2%, reflecting operational performance and cost control.

 

The COVID-19 pandemic had a relatively minor impact on FY20 performance. However, following the end of the financial year, we have seen greater resilience of our business in Germany and a more significant impact on performance in Spain in particular. The immediate impacts of COVID-19 have been on international roaming, usage levels and the rates of customer churn and additions. In April, we have seen roaming in Europe fall by 65% to 75%. Mobile data has increased by 15% and fixed line usage has increased by as much as 70% in some of our markets. We have seen the rates of customer churn reduce by 4-5 percentage points and the rates of new gross consumer additions reduce by around 40%. With our business customers, we have seen SMEs requesting deferrals for payments and have been contacted by some Enterprise customers seeking to delay projects.

 

Germany ⫶ 34% of Group Adjusted EBITDA

 

		FY20		FY19		Organic
		€m		€m		Change (%)*
Total revenue		12,076		10,390
- Service revenue		10,696		9,145		—
- Other revenue		1,380		1,245
Adjusted EBITDA		5,077		4,079		2.5
Adjusted EBITDA margin		42.0	%	39.3	%
Depreciation and amortisation		(3,376	)	(3,009	)
Adjusted EBIT		1,701		1,070
Share of adjusted results in associates and joint ventures		—		—
Adjusted operating profit		1,701		1,070

 

Service revenue excluding Unitymedia was flat* (Q3: flat*, Q4: -0.1%*) as solid retail growth was offset by declining wholesale revenue and the impact of international call rate regulation. Retail revenue grew 1.1%* (Q3: 1.0%*, Q4: 0.9%*).

 

Fixed service revenue increased by 2.4%* (Q3: 2.8%*, Q4: 2.2%*) as good retail growth was partially offset by wholesale declines. DSL migrations to the Unitymedia footprint are excluded from our Q4 organic growth rate. Our commercial momentum accelerated with 381,000 net cable customer additions in the year (including Unitymedia from August 2019), supported by 110,000 migrations from DSL and the success of our ‘GigaCable Max’ campaign following the rebranding of Unitymedia in February 2020; we added 216,000 broadband customers. We maintained our good momentum in convergence supported by our ‘GigaKombi’ proposition, adding 259,000 Consumer converged customers in the year, which took our total Consumer converged customer base to 1.5 million. Our TV customer base declined by 245,000 (including Unitymedia from August 2019) reflecting the loss of primarily lower ARPU basic TV subscribers in the Kabel Deutschland AG (“KDG”) footprint and customer losses in the Unitymedia footprint.

 

Mobile service revenue declined by 1.8%* (Q3: -2.2%*, Q4: -1.9%*) driven by declines in wholesale and a drag from regulation. Retail revenue excluding regulatory impacts grew 0.7%* (Q3: 0.4%*, Q4: 0.4%*). We added 542,000 contract customers, supported in part by the success of our ‘GigaCube’ proposition as well as by our continued good commercial momentum in branded channels. Contract churn improved by 0.8 percentage points year-on-year in Q4 to 12.3%, driven by improved loyalty in our branded consumer base and Business.

 

Adjusted EBITDA increased by 2.5%* and the organic adjusted EBITDA margin was 0.8* percentage points higher, driven by our focus on more profitable direct channels and effective cost management. The adjusted EBITDA margin was 42%.

 

Italy ⫶ 14% of Group Adjusted EBITDA        

 

		FY20		FY19		Organic
		€m		€m		change (%)*
Total revenue		5,529		5,857
- Service revenue		4,833		5,030		(3.9	)
- Other revenue		696		827
Adjusted EBITDA		2,068		2,202		(6.6	)
Adjusted EBITDA margin		37.4	%	37.6	%
Depreciation and amortisation		(1,255	)	(1,268	)
Adjusted EBIT		813		934
Share of adjusted results in associates and joint ventures		—		—
Adjusted operating profit		813		934

 

Service revenue declined by 3.9%* (Q3: -5.0%*, Q4: -3.7%*) with good growth in fixed offset by declines in mobile. Mobile service revenue declined by 7.4%* (Q3: -7.7%*, Q4: -8.0%*).

 

Market mobile number portability (“MNP”) volumes were down 23% year-on-year in FY20 and were down 17% quarter-on-quarter in Q4. MNP further improved in March, reducing by 37% month-on-month, as COVID-19 impacted commercial activity market wide. Our customer outflows also moderated during the year. However, competition in the low-value segment of the pre-paid market remained intense, and our second brand ‘ho’. continued to grow strongly, reaching 1.8 million active customers at the end of the year.

 

Fixed service revenue increased by 8.2%* (Q3: 4.2%*, Q4: 10.4%*) and we added 121,000 broadband customers in the year. Our total Consumer converged customer base is now 1.0 million (representing 36% of our broadband base), an increase of 92,000 in the year. Through our owned NGN footprint and strategic partnership with Open Fiber we now pass 7.5 million households. The sequential Q4 improvement in service revenue primarily reflected higher project revenues in Business.

 

Adjusted EBITDA declined by 6.6%* including a 2.7 percentage point negative impact from a one-off regulatory provision, and the adjusted EBITDA margin declined by 0.4* percentage points. Service revenue declines were partially offset by tight control of operating expenses, which fell by 7.6%* year-on-year, together with significantly lower commercial costs. The adjusted EBITDA margin was 37.4%.

 

UK ⫶ 10% of Group Adjusted EBITDA

 

		FY20		FY19		Organic
		€m		€m		change*
Total revenue		6,484		6,272
- Service revenue		5,020		4,952		0.5
- Other revenue		1,464		1,320
Adjusted EBITDA		1,500		1,364		10.5
Adjusted EBITDA margin		23.1	%	21.7	%
Depreciation and amortisation		(1,632	)	(1,638	)
Adjusted EBIT		(132	)	(274	)
Share of adjusted results in associates and joint ventures		—		—
Adjusted operating profit		(132	)	(274	)

 

Service revenue increased 0.5%* (Q3: 0.6%*, Q4: 1.2%*). Good fixed and mobile customer base growth was partially offset by lower wholesale revenue and a 0.4 percentage point drag from international call rate regulation.

 

Mobile service revenue was flat* (Q3: 0.6%*, Q4: 0.3%*), but grew when excluding the impact of international call rate regulation, with a higher customer base and RPI-linked price increases being offset by lower out-of-bundle revenue as a result of spend capping. We added 348,000 contract customers in the year, compared to 264,000 last year, supported by our new range of commercial plans, including speed-tiered ‘Vodafone Unlimited’ mobile data propositions and our 5G launch in July. Contract churn was stable year-on-year at 14.2% in Q4, despite the impact of text-to-switch regulation. We also added 475,000 prepaid customers, supported by our digital sub-brand ‘VOXI’.

 

Fixed service revenue increased by 1.7%* (Q3: 0.5%*, Q4: 3.7%*). Continued good customer growth in Consumer broadband, supported by the launch of our ‘Vodafone Together’ convergent plans, and growth in Business was partially offset by lower wholesale revenues. We added 176,000 broadband customers in the year including 64,000 in Q4. The sequential Q4 improvement primarily reflected a stabilisation in wholesale revenue.

 

Adjusted EBITDA increased by 10.5%* and the adjusted EBITDA margin was 1.6* percentage points higher. This improvement was driven by service revenue growth, a 9.9%* reduction in operating expenses and a 2.0 percentage point net benefit to growth from one-off license fee settlements and a reallocation of costs from capex to cost of sales following our new cloud partnership with IBM. The adjusted EBITDA margin was 23.1%.

 

Spain ⫶ 7% of Group Adjusted EBITDA

 

		FY20		FY19		Organic
		€m		€m		change (%)*
Total revenue		4,296		4,669
- Service revenue		3,904		4,203		(6.7	)
- Other revenue		392		466
Adjusted EBITDA		1,009		1,038		(1.7	)
Adjusted EBITDA margin		23.5	%	22.2	%
Depreciation and amortisation		(1,303	)	(1,258	)
Adjusted EBIT		(294	)	(220	)
Share of adjusted results in associates and joint ventures		—		—
Adjusted operating profit		(294	)	(220	)

 

Service revenue declined by 6.7%* (Q3: -6.5%*, Q4: -2.7%*), reflecting a shift in overall market demand towards the value segment and our decision not to renew unprofitable football distribution rights. The improvement in quarterly trends reflected the benefit of a December price increase for legacy customers, the stabilisation of our customer base in recent quarters and customer migrations to speed-tiered unlimited plans.

 

Our commercial performance stabilised during the year, supported in part by the good performance of our ‘Lowi’ second brand. We returned to positive customer growth in mobile contract, broadband and TV in Q3 for the first time since Q3 FY18 and maintained our commercial momentum in Q4, adding 51,000 mobile contract customers and keeping our broadband customer base stable. We added 41,000 TV customers in Q4, supported by our new movies and series offers and despite our decision last year not to renew football content rights.

 

The overall pricing environment remains highly competitive, but we continue to see good uptake of our new speed-tiered unlimited plans with 2.4 million customers at the end of Q4. On average, the ARPU of unlimited customers is higher post migrating to the new plans.

 

Adjusted EBITDA declined by 1.7%* and the organic adjusted EBITDA margin was 1.5* percentage points higher. This was principally driven by the reduction in ARPU and a lower customer base, partially offset by lower football content costs and a 3.8%* reduction in operating expenses. The adjusted EBITDA margin was 23.5%. Adjusted EBITDA returned to growth in H2, up 8.2%* year-on-year, supported by lower content and commercial costs.

 

Given the challenging current trading and economic conditions, management has reassessed the expected future business performance in Spain. Following this reassessment, projected cash flows are lower and this has led to an impairment charge of €0.8 billion for the year ended 31 March 2020.

 

Other Europe ⫶ 12% of Group Adjusted EBITDA

 

		FY20		FY19		Organic
		€m		€m		Change (%)*
Total revenue		5,541		5,072
- Service revenue		4,890		4,460		3.0
- Other revenue		651		612
Adjusted EBITDA		1,738		1,606		4.7
Adjusted EBITDA margin		31.4	%	31.7	%
Depreciation and amortisation		(1,237	)	(1,066	)
Adjusted EBIT		501		540
Share of adjusted results in associates and joint ventures		118		150
Adjusted operating profit		619		690

 

Service revenue increased by 3.0%* (Q3: 3.0%*, Q4: 3.4%*). Revenue grew in Portugal, Greece, the Czech Republic, Romania and Hungary, but declined in Ireland and Albania. Adjusted EBITDA grew by 4.7%* and the organic adjusted EBITDA margin increased by 0.6* percentage points, driven by good revenue growth and strong cost control. The adjusted EBITDA margin was 31.4%.

 

In Portugal, service revenue grew by 5.5%* (Q3: 5.9%*, Q4: 7.5%*), driven by customer growth in fixed and mobile, and ARPU growth in fixed. In Ireland, service revenue declined by 0.9%* (Q3: 0.1%*, Q4: -3.6%*), with the slowdown in quarterly trends reflecting increased competition in both mobile and fixed. In Greece, service revenue grew by 3.0%* (Q3: 1.9%*, Q4: 1.9%*), with good prepaid ARPU growth partially offset by ARPU pressure in fixed.

 

Given the challenging economic conditions and increased competition in Ireland and Romania, management has reassessed expected future business performance. Following this reassessment, projected cash flows are lower and this has led to impairment charges of €0.6 billion and €0.1 billion in relation to the Group’s investment in Ireland and Romania respectively for the year ended 31 March 2020.

 

VodafoneZiggo Joint Venture (Netherlands)

 

The results of VodafoneZiggo (in which Vodafone owns a 50% stake) are reported here under US GAAP, which is broadly consistent with Vodafone’s IFRS basis of reporting.

 

Total revenue grew 2.1% (Q3: 2.9%, Q4: 3.3%). This reflected growth in fixed line, partially offset by continued price competition in mobile, particularly in the B2B segment. Revenue grew 3.3% in Q4 primarily due to customer base growth, increased fixed ARPU and increased handset sales. Over 40% of broadband customers and 70% of all B2C mobile customers are now converged, delivering significant NPS and churn benefits.

 

Adjusted EBITDA grew by 4.7% during the year supported by strong growth in the second half of the year (Q3: 9.6%, Q4: 4.9%), driven by top line growth and lower operating and direct costs. In February, we finalised the 3G shutdown program, with all customers transitioned to 4G. We continued to make good progress on integrating the businesses and expect to reach our €210 million cost and capital expenditure synergy targets by the end of the 2020 calendar year, one year ahead of the original plan.

 

During the year, Vodafone received €148 million in dividends from the joint venture, as well as €44 million in interest payments and €100 million in principal repayments on the shareholder loan.

 

Vodacom ⫶ 14% of Group Adjusted EBITDA

 

		FY20		FY19		Organic
		€m		€m		change (%)*
Total revenue		5,531		5,443
- Service revenue		4,470		4,391		3.3
- Other revenue		1,061		1,052
Adjusted EBITDA		2,088		2,157		1.1
Adjusted EBITDA margin		37.8	%	39.6	%
Depreciation and amortisation		(767	)	(735	)
Adjusted EBIT		1,321		1,422
Share of adjusted results in associates and joint ventures		248		214
Adjusted operating profit		1,569		1,636

 

Vodacom Group service revenue grew 3.3%* (Q3: 5.2%*, Q4: 3.2%*) with trends in South Africa stabilising, despite regulatory and macro pressures, and continued strong growth in Vodacom’s International operations.

 

In South Africa, service revenue increased 2.2%* (Q3: 4.6%*, Q4: 3.7%*) or 2.8%* excluding a one-off benefit in the prior year. This growth was achieved amid a weak macroeconomic environment, in which customers are optimising their spend, and despite new regulation introduced in March 2019 affecting out-of-bundle charges, rollover and the transfer of data. Despite these headwinds, data traffic grew 66% year-on-year as customers benefited from improved pricing, which, combined with the full transition of a new wholesale roaming agreement onto our network, supported an acceleration in service revenue growth during the year. We added 246,000 contract customers in the year, but lost 1.9 million prepaid customers as we focused on customer lifetime value, taking our total mobile customer base to 45.1 million.

 

In March 2020, we reached an agreement with the Competition Commission in relation to the Data Services Market Inquiry and on 1 April reduced monthly data bundle prices by up to 40%. This further accelerated our pro-active efforts to transform data pricing which already delivered a 50% reduction in out-of-bundle rates in March 2019 as well as reductions in a number of data bundle prices throughout the year.

 

Vodacom’s international operations outside of South Africa grew by 7.5%* (Q3: 7.4%*, Q4: 4.4%*). Growth was strong across all of our markets, supported by the growing demand for mobile data and M-Pesa services. The sequential slowdown in Q4 primarily reflected new customer registration requirements in Tanzania. We have been required to bar services to 2.9 million customers since January 2020, out of a total customer base of 15.5 million, in line with a government biometric registration deadline. As of 31 March 2020, an additional 2.5 million customer SIMs remain unregistered as the Tanzanian authorities delayed any further service barring in response to the COVID-19 pandemic. We expect to recover a substantial proportion of these customers over the coming quarters.

 

Vodacom’s adjusted EBITDA increased by 1.1%* and the organic adjusted EBITDA margin was 0.8* percentage points lower reflecting subdued revenue growth in South Africa and the impact of higher roaming costs. Operating costs also increased, but grew more slowly than revenue.

 

Other ⫶ 9% of Group Adjusted EBITDA

 

Turkey

 

Service revenues increased by 17.6%* (Q3: 17.3%*, Q4: 16.0%*) supported by strong customer contract ARPU growth, increased mobile data revenue, and fixed line customer base growth. Adjusted EBITDA grew 27%* and the organic adjusted EBITDA margin increased by 4.1* percentage points driven by strong revenue growth ahead of inflation and lower commercial costs. The adjusted EBITDA margin was 26.5%.

 

Egypt

 

Egypt service revenue grew 14.5%* (Q3: 13.9%*, Q4: 14.8%*), supported by strong customer base growth and increased data usage. Adjusted EBITDA grew 14.2%* and the organic adjusted EBITDA margin decreased by 0.3* percentage points driven by revenue growth ahead of inflation. The adjusted EBITDA margin was 45.9%.

 

On 29 January 2020, we announced a Memorandum of Understanding (‘MoU’) with Saudi Telecom Company (“stc”) in relation to the sale of Vodafone’s 55% shareholding in Vodafone Egypt to stc for a cash consideration of US$2,392 million (€2,180 million), implying a September FY20 LTM multiple of 7.0x Adjusted EBITDA and 11.2x Adjusted OpFCF. On 13 April 2020, the MoU with stc was extended by 90 days to allow additional time for the completion of due diligence on Vodafone Egypt by stc. We intend to enter into a definitive agreement following the completion of the due diligence process.

 

Other associates and joint ventures

 

Vodafone Idea Limited (India)

 

In October 2019, the Indian Supreme Court gave its judgement in the “Union of India v Association of Unified Telecom Service Providers of India” case regarding the interpretation of adjusted gross revenue (“AGR”), a concept used in the calculation of certain regulatory fees.

 

As the Group has no obligation to fund Vodafone Idea Limited (“Vodafone Idea”) losses, the Group has recognised its share of estimated Vodafone Idea losses arising from both its operating activities and those in relation to the AGR judgement to an amount that is limited to the remaining carrying value of Vodafone Idea, which is therefore reduced to €nil. If the carrying value had been high enough not to restrict the Group’s share of losses, then the recognised share of losses would have been substantially higher.

 

The Group has a potential exposure to certain contingent liabilities and potential refunds relating to Vodafone India and Idea Cellular at the time of the merger, including those relating to the AGR judgement, whereby Vodafone Group and Vodafone Idea would reimburse each other on set dates following any crystallisation of these pre-merger liabilities and assets. Under the terms of this arrangement, Vodafone Group is obliged to make payments to Vodafone Idea where amounts paid pursuant to the contingent liabilities of Vodafone India exceed those of Idea Cellular. The Group’s potential exposure under this mechanism is capped at INR 84 billion (€1.0 billion) and any cash payments or cash receipts relating to these contingent liabilities and potential refunds must have been made or received by Vodafone Idea before any amount becomes due from or owed to the Group. Having considered the payments made and refunds received by Vodafone Idea in relation to these matters, including those relating to the AGR case, and the significant uncertainties in relation to VIL’s ability to settle all liabilities relating to the AGR judgement, the Group has assessed a cash outflow of €235 million under the agreement to be probable at this time and provided for this amount at 31 March 2020. On 22 April 2020, the Group announced that it had made an advance payment of US$200 million to Vodafone Idea for amounts that are likely to be due in September 2020 under the terms of this mechanism.

 

See “Acquisition and disposal commitments” on page 30 and notes 7 and 8 in the unaudited condensed consolidated financial statements for further details.

 

Indus Towers (India)

 

We have extended the long stop date on our agreement to merge Indus Towers and Bharti Infratel to 24 June 2020, subject to an agreement on closing adjustments and other conditions precedent for closing, with each party retaining the right to terminate and withdraw the merger scheme on or prior to 24 June 2020.

 

Indus Towers did not declare, or pay, a dividend during the FY20 financial year.

 

Vodafone Hutchison Australia

 

In February 2020, the Federal Court of Australia approved the proposed merger of Vodafone Hutchison Australia (‘VHA’) and TPG Telecom Limited (‘TPG’), ruling that it would not substantially lessen competition. The Australian Competition and Consumer Commission (‘ACCC’) subsequently announced it would not appeal the Court decision. The combination is subject to the approval of TPG shareholders, and completion is expected in the first half of FY21.

 

Safaricom

 

Safaricom service revenue grew by 4.8% (Q3: 5.3%, Q4: 3.2%) supported by growth in M-Pesa and in mobile and fixed data. Adjusted EBITDA grew 7.4% supported by strong revenue growth and cost discipline. During the financial year we received dividends of €269 million from Safaricom.

 

Net financing costs

 

		FY20		FY19
		€m		€m		Change (%)
Adjusted net financing costs1		(1,638	)	(1,042	)	(57.2	)
Adjustments for:
Mark to market losses		(1,128	)	(423	)
Foreign exchange losses2		(205	)	(190	)
Interest on lease liabilities		(330	)	—
Net financing costs		(3,301	)	(1,655	)	(99.5	)

Notes:

1.   Adjusted net financing costs is an alternative performance measure. Alternative performance measures are non-GAAP measures that 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 measure. See “Alternative performance measures” on page 54 for further details.

2.   Primarily comprises foreign exchange differences reflected in the Income Statement in relation to sterling and US dollar balances.

 

Net financing costs increased by €1.6 billion, primarily due to the recognition of mark to market losses. These were driven by the lower share price, causing a mark to market loss on the options relating to the mandatory convertible bonds and lower long-term yields, which led to mark to market losses on certain economic hedging instruments. Adjusted net financing costs include increased interest costs as part of the financing for the Liberty Global transaction as well as adverse interest rate movements on borrowings in foreign operations. Excluding these, underlying financing costs remained stable, reflecting consistent average net debt balances and weighted average borrowing costs for both periods.

 

Taxation

 

		FY20		FY191
		€m		€m		Change (%)
Income tax expense:		(1,250	)	(1,496	)	16.4
Tax on adjustments to derive adjusted profit before tax		(432	)	(253	)
Adjustments2:
- Deferred tax following revaluation of investments in Luxembourg		(346	)	(488	)
- Reduction in deferred tax following rate change in Luxembourg		881		—
- Deferred tax on use of Luxembourg losses in the year		348		320
- Derecognition of a deferred tax asset in Spain		—		1,166
		451		745
Adjusted income tax expense for calculating adjusted tax rate		(799	)	(751	)	(6.4	)
Profit/(loss) before tax		795		(2,613	)	130.4
Adjustments to derive adjusted profit before tax2		2,122		5,476
Adjusted profit before tax3		2,917		2,863		1.9
Share of adjusted results in associates and joint ventures		241		348
Adjusted profit before tax for calculating adjusted effective tax rate		3,158		3,211		(1.7	)
Adjusted effective tax rate3		25.3	%	23.4	%	(190.0bps	)

Notes:

1.   The 2019 adjusted earnings per share has been aligned to the FY20 presentation which excludes mark to market and foreign exchange (gains)/losses. The net impact of this change reduces the effective tax rate by 1.0% to 23.4%.

2.   See “Earnings per share” on page 24.

3.   Adjusted profit before tax and adjusted effective tax are alternative performance measures. Alternative performance measures are non-GAAP measures that 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 measure. See “Alternative performance measures” on page 54 for further details.

 

The Group’s adjusted effective tax rate for the year ended 31 March 2020 was 25.3%. The rate increased as a result of the completion of the acquisition of Liberty Global assets, as well as the effects of writing off our deferred tax asset in Spain in the prior period. The Group’s adjusted effective tax rate for both years does not include the following items: a reduction in our deferred tax assets in Luxembourg of €881 million following a reduction in the Luxembourg corporate tax rate, €348 million relating to Luxembourg losses (2019: €320 million) and €346 million (2019: €488 million) arising from a revaluation of investments based upon the local GAAP financial statements and tax returns. These items change the total losses we have available for future use against our profits in Luxembourg and neither item affects the amount of tax we pay in other countries. The Group’s adjusted effective tax rate for the year ended 31 March 2019 does not include the derecognition of a deferred tax asset in Spain of €1,166 million.

 

Earnings per share

 

		FY20		FY19
		€m		€m		Change (%)
Adjusted operating profit1		4,555		3,905		16.6
Adjusted net financing costs		(1,638	)	(1,042	)
Adjusted income tax expense for calculating adjusted tax rate		(799	)	(751	)
Adjusted non-controlling interests		(471	)	(381	)
Adjusted profit attributable to owners of the parent1		1,647		1,731		(4.9	)
Adjustments:
Impairment loss		(1,685	)	(3,525	)
Amortisation of acquired customer base and brand intangible assets		(638	)	(583	)
Restructuring costs		(720	)	(486	)
Adjusted other income and expense		2,257		(262	)
Non-operating income and expense		(3	)	(7	)
Mark to market losses2		(1,128	)	(423	)
Foreign exchange losses2		(205	)	(190	)
		(2,122	)	(5,476	)	61.2
Taxation3		(451	)	(745	)
India4		—		(3,535	)
Non-controlling interests		6		5
Loss attributable to owners of the parent		(920	)	(8,020	)	88.5
		Million		Million
Weighted average number of shares outstanding - basic5		29,422		27,607		6.6
		eurocents		eurocents
Basic loss per share		(3.13	)c	(29.05c	)	89.2
Adjusted earnings per share1,2		5.60c		6.27c		(10.7	)

Notes:

1.   Adjusted operating profit, adjusted profit attributable to owners of the parent and adjusted earnings per share are alternative performance measures. Alternative performance measures are non-GAAP measures that 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 “Alternative performance measures” on page 54 for further details.

2.   The 2019 adjusted earnings per share has been aligned to the 2020 presentation which excludes mark to market and foreign exchange losses. The net impact of this decreased the adjusted loss attributable to the owners of the parent by €315 million and increased adjusted earnings per share by 1.01 eurocents.

3.   See page 23.

4.   Primarily relates to the loss on disposal of Vodafone India and also includes the operating results, financing, tax and other gains and losses of Vodafone India, prior to becoming a joint venture, recognised in the prior year.

5.   Weighted average number of shares outstanding includes a weighted impact of 2,629 million shares (2019: 836 million shares) following the issue in March 2019 of £1.72 billion mandatory convertible bonds with a 2 year maturity date in 2021 and £1.72 billion with a 3 year maturity date in 2022 and £1.4 billion of mandatory convertible bonds issued in February 2016, which matured in February 2019.

 

Adjusted earnings per share, which excludes impairment losses, was 5.60 eurocents compared to 6.27 eurocents for the year ended 31 March 2019, a decrease of 10.7%.

 

Basic loss per share was 3.13 eurocents, compared to a loss per share of 29.05 eurocents for the year ended 31 March 2019. The decrease in the loss per share is primarily due to lower impairment charges in the year of €1.7 billion (2019: €3.5 billion), gains associated with the disposals of Vodafone New Zealand (€1.1 billion) and Italian tower assets (€3.4 billion), together with a €3.4 billion loss on the disposal of Vodafone India recognised in FY19.