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 14, 2019

 

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.

 

 

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 14 May 2019 entitled ‘VODAFONE ANNOUNCES RESULTS FOR THE YEAR ENDED 31 MARCH 2019’

 

RNS: 9328Y

Vodafone Group Plc

 

Vodafone announces results for the year ended 31 March 2019

14 May 2019

 

Financial highlights

 

·                  Group revenues of €43.7 billion. The loss for the financial year of €7.6 billion was primarily due to a loss on disposal of Vodafone India (following the completion of the merger with Idea Cellular) and impairments, as announced in November

·                  Organic service revenue (excluding handset financing and settlements in Germany, IAS 18 basis) up 0.3%** (Q4 -0.6%**), as good performance in most markets offset increased competition in Spain and Italy and headwinds in South Africa

·                  Organic adjusted EBITDA up 3.1%** (excluding handset financing and prior year settlements, IAS 18 basis), meeting guidance for ‘around 3%’ growth. This was supported by an operating expense decline of €0.4 billion in Europe and common functions

·                  Free cash flow pre-spectrum of €5.5 billion (guidance basis), with sustained capital additions of €7.2 billion (16.0% of revenue)

·                  Dividend per share rebased to 9.00 eurocents (15.07 eurocents in FY18), implying a final dividend of 4.16 eurocents; progressive future dividend policy

·                  2020 financial guidance (IFRS15/16 basis): Adjusted EBITDA of €13.8 billion - €14.2 billion, implying low single digit organic growth. Free cash flow pre-spectrum of at least €5.4 billion

 

Operational highlights

 

·                  Deepening customer engagement: record low mobile contract churn in H2, over 1.0 million net additions in fixed broadband and 1.1 million in convergence during the year, and stabilising commercial trends in Italy and Spain during Q4

·                  Accelerating digital transformation: actions taken to deliver over half of the net operating expense reduction target for Europe & common functions of at least €1.2 billion by FY21, supporting a fourth consecutive year of EBITDA margin expansion

·                  Improving asset utilisation: 4G/5G active network sharing agreements announced in Italy and Spain, unlocking aggregate mid-term savings of c.€200 million per annum, and UK agreement extended to 5G; cost synergy targets accelerated in India and Netherlands

·                  Portfolio optimisation: completion of merger in India and successful €3.2 billion rights issue; sale of New Zealand for €2.1 billion; actively exploring options to monetise our towers in Italy, the Netherlands, Spain and the UK; on track to complete Liberty Global acquisitions in July.

 

				2019		2018		Reported
				IFRS 15		IAS 18		Growth
		Page		€m		€m		%
Group revenue		29		43,666		46,571		(6.2	)
Operating (loss)/profit		29		(951	)	4,299		n/m
(Loss)/profit for the financial year		29		(7,644	)	2,788		n/m
Basic (loss)/earnings per share		29		(29.05	)c	8.78	c	n/m
Total dividends per share		41		9.00	c	15.07	c	n/m
Net debt		21		(27,033	)	(29,631	)	(8.8	)

 

				2019		2018		Growth
				IAS 18		IAS 18		Reported		Organic **
Alternative performance measures1				€m		€m		%		%
Group service revenue		10		39,220		41,066		(4.5	)	+0.3
Adjusted EBITDA		10		14,139		14,737		(4.1	)	+3.1
Adjusted EBIT		10		4,474		4,827		(7.3	)	+9.4
Adjusted earnings per share		20		5.26	c	11.59	c	(54.6	)
Free cash flow pre-spectrum		21		5,443		5,417		+0.5
Free cash flow		21		4,411		4,044		+9.1

 

Nick Read, Group Chief Executive, commented:

 

“We are executing our strategy at pace and have achieved our guidance for the year, with good growth in most markets but also increased competition in Spain and Italy and headwinds in South Africa. These challenges weighed on our service revenue growth during the year, and together with high spectrum auction costs have reduced our financial headroom. The Group is at a key point of transformation — deepening customer engagement, accelerating digital transformation, radically simplifying our operations, generating better returns from our infrastructure assets and continuing to optimise our portfolio. To support these goals and to rebuild headroom, the Board has made the decision to rebase the dividend, helping us to reduce debt and delever to the low end of our target range in the next few years.

 

We are making strong progress on the priorities I described in November, supporting our outlook for EBITDA growth in FY20, with improving momentum in H2. Together with the strategic and financial benefits of the Liberty Global transaction, which we expect to close in July, this underpins our ambition to grow free cash flow and improve shareholder returns going forwards.”

 

CHIEF EXECUTIVE’S STATEMENT

 

Financial review of the year

 

Financial results: Statutory performance measures

 

Following the adoption of IFRS 15 “Revenue from Contracts with Customers” on 1 April 2018, the Group’s statutory results for the year ended 31 March 2019 are on an IFRS 15 basis, whereas the statutory results for the year ended 31 March 2018 are, as previously reported, on an IAS 18 basis. Any comparison between the two bases of reporting is not meaningful. As a result, the discussion of our operating results is primarily on an IAS 18 basis for all periods presented. See “Alternative performance measures” on page 44 for more information and reconciliations to the closest respective equivalent GAAP measures.

 

Group revenue declined by 6.2% to €43.7 billion, reflecting foreign exchange headwinds, the impact of the adoption of IFRS 15, which nets certain components of dealer commissions from service revenues, and the sale of Vodafone Qatar. We recorded an operating loss of €951 million, down €5.3 billion, primarily driven by impairments totalling €3.5 billion in Spain, Romania and Vodafone Idea and €0.3 billion of losses in our equity associates and JVs, with losses in Vodafone Idea partially offset by gains at Vodafone Ziggo and Safaricom.

 

The loss for the financial year of €7.6 billion reflects these impairments, a loss on disposal of Vodafone India of €3.4 billion recognised following the completion of the merger with Idea Cellular on 31 August, higher net financing costs (following adverse foreign exchange movements, mark to market losses and higher gross borrowings associated with the Liberty Global transaction) and the de-recognition of a deferred tax asset in Spain. Basic loss per share was 29.05 eurocents, compared to earnings per share of 8.78 eurocents for the year ended 31 March 2018.

 

Financial results: Alternative performance measures

 

On an IAS 18 basis, Group organic service revenue (excluding UK handset financing and a settlement in Germany) grew 0.3%** (Q3: 0.1%**, Q4: -0.6%**). Growth was driven by fixed market share gains in both the European Consumer and Vodafone Business customer segments and by strong mobile data demand and customer base growth in the Emerging Consumer segment, which offset increased competitive pressures in Italy and Spain and the drag from lower wholesale revenue.

 

Group organic adjusted EBITDA grew 3.1%** (excluding UK handset financing and settlements in Germany and the UK). This reflected growth across the majority of our markets, partially offset by declines in Spain, Italy and South Africa. Growth was supported by operating expense reduction in Europe and common functions, which was only partially offset by inflationary cost pressures in Rest of the World.

 

The Group adjusted EBITDA margin (excluding UK handset financing and prior year settlements in Germany) increased by 0.5 percentage points to 31.1%**, and we delivered a fourth consecutive year of EBITDA margin expansion. On the same basis adjusted EBIT increased by 9.4%**, driven by adjusted EBITDA growth and lower depreciation and amortisation expenses.

 

On a reported basis, adjusted EBITDA and adjusted EBIT declined, reflecting a lower benefit from handset financing in the UK, settlements in the UK and Germany in the prior year and the sale of Qatar.

 

The Group’s adjusted effective tax rate for the year was 24.4% compared to 20.6% last year. This higher rate is primarily due to a change in the country mix of the Group’s profits and the closing of tax audits in Germany and Romania in the prior year.

 

Adjusted earnings per share, which exclude impairment losses and the results of Vodafone India for the first five months of the year, were 5.26 eurocents, a decrease of 55% year-on-year, reflecting lower adjusted EBIT and share of adjusted results in associates and joint ventures and higher net financing costs.

 

Liquidity and capital resources

 

Free cash flow pre-spectrum was stable year on year at €5.4 billion. Lower adjusted EBITDA and higher dividends to non-controlling interests were balanced by an improved working capital performance, partially due to the sale of customer receivables, and lower cash interest.

 

Free cash flow post-spectrum and cash restructuring costs was €4.4 billion, compared to €4.0 billion in the prior year. Spectrum payments were €0.8 billion, reflecting 3400MHz spectrum acquired in the UK, 700 Mhz/3700 Mhz spectrum acquired in Italy and 3700 Mhz spectrum acquired in Spain to support the rollout of 5G services. Cash restructuring costs of €0.2 billion were similar to the prior year.

 

Net debt as at 31 March 2019 was €27.0 billion compared to €29.6 billion as at 31 March 2018. This reflects free cash flow generation in the period of €5.4 billion pre-spectrum, a €3.8 billion benefit from the Mandatory Convertible Bond issuance and €2.1 billion in proceeds from the redemption of Verizon loan notes. Offsetting these inflows were dividend payments of €4.1 billion, accrued spectrum costs of €2.8 billion (with the majority of the €2.4 billion cost of the Italian auction payable only in 2022), a net cash outflow to India from Vodafone Group of €0.8 billion in connection with the Vodafone Idea transaction, and a €0.6 billion cash outflow for the partial repurchase of Mandatory Convertible Bonds.

 

 

The Board has recommended a total dividend per share for the year of 9 eurocents, implying a final dividend per share of 4.16 eurocents.

 

Strategic review of the year

 

The Group announced a revised strategy in November 2018, identifying five drivers of sustainable revenue and free cash flow growth, which are described below. During the second half of the year ended 31 March 2019, the Group made rapid progress in executing against these initiatives. The foundation of our strategy remains our significant investments in leading mobile and fixed Gigabit networks, which support a leading customer experience. Based on Consumer net promoter scores, at the end of the period the Group was a leader or co-leader in 16 out of 20 markets, including five out of our six largest markets.

 

Europe Consumer: Selling ‘one more product’ per customer, lowering churn through convergence

 

The European Consumer customer segment accounted for 49% of Group service revenues during the year.

 

Strategy update

 

We aim to drive growth in the Europe Consumer segment by developing deeper customer engagement, with a strong focus on our existing base. We intend to both cross-sell additional products (e.g., broadband, family SIMs, TV) and up-sell new experiences (including higher speeds with 4G Evo / 5G, low latency mobile gaming services and a wide range of Consumer IoT devices, enabled by our leading ‘V by Vodafone’ global platform). Our objective is to increase revenue per customer and to significantly reduce churn as an increasing proportion of our customer base becomes converged over time.

 

Our determination to compete effectively in all market segments is highlighted by the strong performance of our second brands ‘ho.’ in Italy and ‘Lowi’ in Spain during the year, and by increased commercial traction for our sub-brand ‘Voxi’ in the UK. In April 2019 we introduced new, simplified mobile plans in Germany and simple, speed-differentiated unlimited data plans for both convergent and mobile-only customers in Spain. These new commercial approaches, tailored for each market, primarily aim to drive value growth from our existing customers.

 

We also intend to build Europe’s largest 5G network, reaching over 50 cities by the end of FY20 following commercial launches during the summer. In addition to potential new revenue streams, 5G’s improved spectral and energy efficiency supports up to a 10x reduction in the cost per Gigabyte, which will allow the Group to limit future growth in network operating costs despite strong expected traffic growth.

 

Performance update

 

Europe Consumer service revenues excluding UK handset financing and settlements declined by 1.1%**, with fixed growth of 2.6%** offset by a mobile decline of 2.4%**. Excluding Italy and Spain, service revenues grew by 2.7%**, with fixed growth of 5.2%** and mobile growing by 1.7%**.

 

In Consumer Fixed, we continued to expand our NGN footprint, which is the largest in Europe. On a pro-forma basis for the acquisition of Liberty Global’s cable assets (announced in May 2018), we covered 122 million households at the end of the period, with 54 million ‘on-net’ (including VodafoneZiggo). We are already able to offer superior gigabit-speeds via DOCSIS3.1 on Cable and via FTTH to 23 million of these homes, and will enable most of the remaining homes in the next few years. This creates significant scope to increase on-net broadband customer penetration, which is currently 28%, at attractive incremental margins.

 

Including VodafoneZiggo, we had 18.8 million fixed broadband customers, 6.6 million converged customers and 13.6 million TV customers in Europe at the end of the period. We maintained good commercial momentum in all markets other than Spain, which was impacted by increased competitive intensity and by our decision not to renew unprofitable football rights. Excluding VodafoneZiggo, we added 0.7 million broadband customers, 1.5 million NGN customers and 1.1 million converged customers (partially supported by the first-time recognition of prepaid customers in Germany). Our TV customer base was stable, as football customer losses in Spain and basic TV customer losses in Germany were offset by growth in our other markets. Fixed represented 28% of segment revenues.

 

In Consumer mobile we saw an encouraging 1.0 percentage point year-on-year reduction in contract churn during H2, reaching record low levels. Data growth remained strong at 52% in the year, with average smartphone usage increasing to 3.7 GB per month by the final quarter. Our ability to monetise this growth varied by market. In the UK Consumer ARPU increased thanks to RPI-linked price increases, while in Germany the benefit of more-for-more actions was offset by a mix shift towards SIM-only / family SIMs and convergence discounts. In Italy and Spain, increased competition led to ARPU declines.

 

Vodafone Business: A leading international challenger in fixed, ‘industrialising’ IoT

 

Vodafone Business accounted for 30% of Group service revenues during the year.

 

Strategy update

 

Our strategy is to drive growth and deepen our existing mobile customer relationships by cross-selling additional services including next generation fixed, IoT and Cloud services. We aim to increase revenue per account and reduce churn, while also improving productivity through our salesforce transformation initiative and the rapid digitalisation of our operations.

 

We believe our unique global footprint and extensive partner market relationships provide us with deeper economics in more markets, and therefore a competitive advantage in selling to multinational customers, which represent c.20% of Vodafone Business service revenues and are managed centrally by our ‘Vodafone Global Enterprise’ team.

 

 

We aim to build on our strength in connectivity to become the partner of choice for local corporate / government customers (which represent c.30% of Vodafone Business revenues) and for multinationals, leveraging our leading global IoT platform. We are investing in IoT solutions for specific industry verticals, expanding from our current focus on automotive and insurance to digital buildings, healthcare and logistics.

 

We also see a significant window of opportunity to gain share as the Wide Area Networking (WAN) market transitions to Software Defined Networking (SDN), which offers large enterprise customers both greater flexibility and significant cost savings compared to legacy products.

 

Our opportunity in Cloud services was significantly enhanced in January 2019 by the strategic commercial partnership we reached with IBM. Under the terms of the eight-year managed services agreement, Vodafone Business customers will immediately have access to IBM’s leading multi-cloud offering. We also intend to co-develop new digital solutions, combining the strengths of Vodafone’s leadership in IoT and 5G with IBM’s multi-cloud, industry and professional services capabilities. The partnership enables the Group to move to a variable cost model for cloud services, and to reduce our dependence on capital intensive legacy datacenters.

 

For SoHo and SME customers, which represent c.50% of Vodafone Business service revenues, we aim to cross-sell fixed and unified communications propositions and also to position Vodafone as an integrator of value added digital and IoT services, offsetting the pressure on mobile prices.

 

Performance update

 

Overall, Vodafone Business service revenues grew by 0.3%*, led by good growth in Rest of the World (3.7%*) and a stable performance in Europe.

 

Fixed revenues, which represent 32% of Vodafone Business, grew at 3.8%*, supported by ongoing market share gains in fixed, security and cloud services.

 

Mobile declined by 1.3%* as customer growth and IoT gains were offset by significant ARPU declines. These declines were broad-based, and reflect both pricing pressure in large corporate accounts and the headwind to SoHo ARPU created by lower Consumer price levels, particularly in Italy and Spain.

 

IoT connections rose 24% in the year to 85 million, supporting IoT connectivity revenue growth of 14.5%*. Overall IoT revenues increased by 9.7%*,  dragged by a decline in Automotive.

 

The Vodafone Business contribution margin expanded by 180 basis points in the year, reflecting the benefits of our focus on customer profitability as well as our salesforce transformation and digitalisation initiatives.

 

Emerging Consumer: Driving data penetration, growing digital and financial services

 

The Emerging Consumer segment accounted for 16% of Group service revenues during the year.

 

Strategy update

 

We continue to see significant growth potential in our African and Middle Eastern markets as we benefit from rising data and smartphone penetration. Data penetration is currently still low, with only 28% of our mobile customer base using 4G services, and with smartphone penetration still well below developed market levels. As 4G smartphone costs continue to fall, driving ongoing adoption, we aim to grow ARPU.

 

We also see significant opportunity to grow in digital and financial services. M-Pesa, our African payments platform, has moved beyond its origins as a money transfer service, and now provides enterprise payments, financial services and merchant payment services for mobile commerce.

 

Performance update

 

The Emerging Consumer segment grew at 7.4%* during the year. In euro terms service revenue declined by 8.2% due to a sharp foreign exchange devaluation in Turkey.

 

Data growth remained strong at 39% in Q4, and at 50% for the year, supported by rising data penetration. We now have 37 million M-Pesa customers, with over €10 billion of payments processed over the platform every month across the seven African markets where M-Pesa services are active. M-Pesa grew revenues by 20.7%* to €0.75 billion, and represented 12% of Emerging Consumer service revenues in FY19. Additionally, in South Africa we are gaining traction in financial services through products such as ‘Airtime advance’, which now has 10 million users.

 

 

Digital Transformation: A new radically simpler, ‘digital first’ operating model, leveraging Group scale

 

We see the emergence of new digital technologies, including big data analytics, artificial intelligence agents and robotic process automation (RPA) as a compelling opportunity to transform the Group’s operating model, improve the customer experience and fundamentally reshape our cost base. During the year we accelerated the implementation of our ‘Digital First’ programme, as speed will be a key factor in retaining the benefit of these new technologies.

 

We have increased the proportion of mobile customers acquired through digital channels to 17%, compared to 9% two years ago, helping to reduce commissions paid to third party distributors. In fixed, 28% of customer acquisitions are now online. In customer operations, we have deployed our TOBi chatbots in 11 markets, with a further 5 markets due to launch in FY20. This contributed to a 12% year-on-year reduction in the frequency of customer contacts to our call centres in Q4. In addition, by deploying Robotic Process Automation (‘RPA’) ‘bots’ in our shared service centres, we reduced over 1,600 FTE roles in the year.

 

In order to gain the full benefit of this ‘digital first’ approach, we intend to shift towards a radically simpler and more flexible operating model. We have begun to adopt new simplified pricing plans, and will proactively phase out complex legacy pricing structures. Lower complexity will benefit customers, front-line employees and back-office operations, allowing significant savings in IT costs and greater commercial agility. We are also introducing a number of products which are primarily ‘digital only’, such as ‘Vodafone Bit’ in Spain, Ho. in Italy and Voxi in the UK, which have lower commissions and operating costs.

 

We also see additional opportunities to leverage Group scale. We already have 21,000 employees in our shared service centres in India, Egypt and Eastern Europe, and have centralised over 80% of procurement. Looking ahead, we see further opportunities from centralising European network design and engineering functions, as well as IT operations.

 

Together with the benefits of our ongoing ‘Fit for Growth’ programme and zero based budgeting efforts, we expect that the rapid adoption of digital technologies will enable us to reduce operating expenses in our European operations (including common functions) by at least €1.2 billion on an absolute organic basis by FY21, compared to FY18 levels. In Rest of World, operating expenses are expected to continue to grow below local inflation levels, supporting margins.

 

During the year we reduced net operating expenses on an organic basis by €0.4 billion in Europe and common functions. For FY20, we aim to reduce operating expenses on an organic basis by a further €0.4 billion in Europe and common functions, and to maintain operating expense growth below local inflation rates in emerging markets. This will be the fourth year in a row in which we have reduced our net operating expenses, supporting organic EBITDA margin expansion.

 

Improving asset utilisation: Driving industrial benefits from network sharing partnerships, capturing merger synergies

 

We aim to improve the utilisation of all of the Group’s assets as part of our focus on improving returns on capital. In particular, we see a unique window of opportunity to initiate or extend our existing mobile network sharing agreements as the industry begins to deploy 5G. By sharing infrastructure, we will support the ‘digital society’ by improving network coverage and speeding up the deployment of 4G and 5G services; protect the planet by substantially reducing energy emissions; and materially improve the utilisation of our assets, realising significant cash savings in both operating costs and capital expenditure. Importantly, by ensuring that we only share networks with partners who share our determination to operate leading Gigabit networks, we will not compromise our differentiation compared to value players.

 

Specifically, across our European markets we aim to pursue:

 

·             ‘Passive’ infrastructure sharing, including towers and rooftop sites, on a national basis

 

·             ‘Deep passive’ infrastructure sharing, including high speed backhaul solutions, on a regional or national basis

 

·             ‘Active’ infrastructure sharing, including radio equipment, outside major cities

 

Reflecting this priority, we have announced agreements in recent months in Italy and Spain, which in aggregate are expected to reduce our annual medium term operating expenses and capital expenditure by around €200 million; we also extended our 4G agreement in the UK:

 

·             In April 2019 we signed a new agreement with Orange in Spain to significantly extend the scope of our existing mobile network sharing agreement, and to include 5G services, with an estimated cumulative cash benefit for Vodafone of at least €600 million over the next ten years.

 

·             In February 2019 we signed an MOU with Telecom Italia for a new network sharing agreement across both 4G and 5G services.

 

·             In January 2019 we signed an MOU with Telefonica in the UK to extend our existing 4G agreement to cover 5G services

 

Once these sharing arrangements are sufficiently progressed, we will be in a position to consider potential monetisation options for our towers. We are currently actively exploring a tower merger in Italy with Inwit, Telecom Italia’s listed tower subsidiary, as well as monetisation options in the Netherlands, Spain and the UK.

 

 

For markets where tower monetisation is either strategically or financially unattractive, we are creating an internal ‘Virtual’ TowerCo, in which a centralised management team will bring a dedicated focus to drive greater operating efficiency and incremental revenues from additional tenancies.

 

We have also announced a number of in-market consolidation transactions, which we expect to unlock significant synergies. We have a strong track record of delivering or exceeding targeted cost and capex synergies on prior deals, including Kabel Deutschland in Germany and ONO in Spain.

 

·             In the Netherlands, VodafoneZiggo has already delivered half of the targeted cost and capex synergies, and now expects to achieve its goal of €210 million of annual run-rate savings by calendar 2020, one year ahead of its original plan.

 

·             In India, we have made a very fast start on capturing targeted cost and capex savings following the merger of Vodafone India with Idea Cellular, and now expect to achieve the INR 84 billion annual savings run-rate by FY21, two years ahead of the original plan.

 

·             Our announced acquisition of Liberty Global’s cable assets in Germany and Central and Eastern Europe (“CEE”) targets expected cost and capex savings of €535 million by the fifth full year post completion, with an NPV of €6 billion including integration costs. We will remain highly focused on capturing these significant opportunities for value creation.

 

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 alternative performance measures.

**    Organic growth excluding the impact of UK handset financing and settlements in Germany and the UK. See page 52 for further details.

1. 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 44 for reconciliations to the closest respective equivalent GAAP measure and “Definition of terms” on page 57 for further details.

 

 

GUIDANCE

 

Performance against 2019 financial year guidance1

 

Based on guidance exchange rates, organic adjusted EBITDA excluding handset financing and settlements grew by 3.1%, in line with the Group’s revised guidance range for ‘around 3%’ organic growth set in November 2018, and consistent with our original guidance range of 1-5% organic growth set in May 2018. On the same basis our free cash flow  pre-spectrum was €5.5 billion, higher than our revised November guidance for ‘around €5.4 billion’ and our original guidance for ‘at least €5.2 billion’.

 

Prospects for the 2020 financial year1

 

The Group will adopt the IFRS16 accounting standard in FY2020 for statutory reporting. Consequently, we have changed some of our alternative performance measures; specifically, we intend to report organic adjusted EBITDA and free cash flow pre-spectrum including the depreciation and interest effects of leases capitalised under IFRS16. We will no longer include financial information on an IAS 18 basis. Please see page 44 for updated definitions of our alternative performance measures.

 

Our key priorities for the year ahead are:

 

·             To support service revenue growth by improving the consistency of our commercial performance. We aim to deepen customer engagement by selling additional products, particularly in fixed, contributing to revenue growth and a reduction in churn.

 

·             To transform our operating model by capitalising on the benefits of new digital technologies and radically simplifying both our commercial and operational processes. We continue to target a reduction in operating expenses in Europe and common functions of at least €1.2 billion by FY21 compared to FY18 on an absolute organic basis. This includes €400 million of savings in FY20, matching our achievement in FY19.

 

·             To improve asset utilisation, in particular by pursuing passive and active network sharing partnerships across our markets. The significant potential industrial efficiencies unlocked by these agreements support our unchanged outlook for capital expenditure, despite the additional costs required to roll out 5G services over the coming years.

 

·             To reduce our financial leverage (on a pro-forma basis for the acquisition of Liberty Global’s assets) towards the lower end of our targeted 2.5x-3.0x range in the next few years through a combination of organic growth, non-core asset sales and working capital initiatives.

 

Based on guidance FX rates and under IFRS 15 and IFRS 16 accounting standards we expect an adjusted EBITDA range of €13.8-€14.2 billion for the year, which includes approximately €400 million of negative non-cash impacts from the adoption of IFRS 15 and IFRS 16 accounting standards. This implies low single digit organic growth in adjusted EBITDA for the year.

 

We continue to expect our capital additions expressed as a percentage of our revenues to be in the ‘mid-teens’, excluding capital additions  related to the Gigabit Investment Plan in Germany.

 

We aim to generate FCF pre-spectrum of at least €5.4 billion, after all capex, before M&A and restructuring costs, and based on guidance FX rates.

 

Our financial guidance includes New Zealand and excludes the announced acquisition of Liberty Global’s assets.

 

		Adjusted EBITDA €bn		Free cash flow pre-spectrum €bn
2020 financial year guidance		€13.8-€14.2		At least €5.4 billion

 

Dividend policy

 

The Board intends to maintain a progressive dividend policy in the future. 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 2020 on our current assessment of the global macroeconomic outlook and assume foreign exchange rates of €1:£0.87, €1:ZAR 16.4, €1:TRY 6.4 and €1:EGP 19.7. 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.             Organic adjusted EBITDA and free cash flow (pre-spectrum) are alternative performance measures. See “Alternative performance measures” on page 44 for more information and reconciliations to the guidance basis.

 

 

CONTENTS

 

	Page
Financial results	10
Liquidity and capital resources	21
Other significant developments including legal proceedings	24
Consolidated financial statements	39
Alternative performance measurements	44
Additional information	54
Other information (including forward-looking statements)	57

 

 

FINANCIAL RESULTS

 

Group1, 2

 

Following the adoption of IFRS 15 “Revenue from Contracts with Customers” on 1 April 2018, the Group’s statutory results for the year ended 31 March 2019 are on an IFRS 15 basis, whereas the statutory results for the year ended 31 March 2018 are on an IAS 18 basis as previously reported, with any comparison between the two bases of reporting not being meaningful. As a result, the discussion of our operating results is primarily on an IAS 18 basis for all periods presented.

 

		Year ended 31 March
		2019		2019		2018		IAS 18 Growth
		IFRS 15 4		IAS 18		IAS 18		Reported		Organic*
		€m		€m		€m		%		%
Continuing operations
Mobile customer revenue		23,151		25,137		26,476
Mobile incoming revenue		1,802		1,802		2,030
Other service revenue		1,909		2,023		2,154
Mobile service revenue		26,862		28,962		30,660
Fixed service revenue		9,596		10,258		10,406
Service revenue 1,2		36,458		39,220		41,066		(4.5	)	(0.9	)
Other revenue		7,208		5,846		5,505
Revenue 1		43,666		45,066		46,571		(3.2	)	(0.1	)
Direct costs		(10,260	)	(10,199	)	(10,582	)
Customer costs		(8,534	)	(9,781	)	(9,939	)
Operating expenses		(10,954	)	(10,947	)	(11,313	)
Adjusted EBITDA 2		13,918		14,139		14,737		(4.1	)	(0.5	)
Depreciation and amortisation:
Acquired intangibles		(228	)	(228	)	(242	)
Purchased licences		(1,465	)	(1,465	)	(1,516	)
Other		(7,972	)	(7,972	)	(8,152	)
Adjusted EBIT 2		4,253		4,474		4,827		(7.3	)	(2.5	)
Share of adjusted results in associates and joint ventures5		(348	)	(291	)	389
Adjusted operating profit 2		3,905		4,183		5,216		(19.8	)	(0.2	)
Impairment loss3		(3,525	)			—
Restructuring costs		(486	)			(156	)
Amortisation of acquired customer base and brand intangible assets		(583	)			(974	)
Other income and expense		(262	)			213
Operating (loss)/profit		(951	)			4,299
Non-operating income and expense		(7	)			(32	)
Net financing costs		(1,655	)			(389	)
Income tax (expense)/credit		(1,496	)			879
(Loss)/profit for the financial year from continuing operations		(4,109	)			4,757
Loss for the financial year from discontinued operations		(3,535	)			(1,969	)
(Loss)/profit for the financial year		(7,644	)			2,788
Attributable to:
- Owners of the parent		(8,020	)			2,439
- Non-controlling interests		376				349

 

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 alternative performance measures. See “Alternative performance measures” on page 44 for further details and reconciliations to the respective closest equivalent GAAP measure.

1.             Revenue and service revenue include the regional results of Europe, Rest of the World, Other (which includes the results of partner market activities) and eliminations. The 2019 results reflect average foreign exchange rates of €1:£0.88, €1:INR 80.93, €1:ZAR 15.92, €1:TKL 6.05 and €1: EGP 20.61.

2.             Service revenue, adjusted EBITDA, adjusted EBIT and adjusted operating profit 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 44 for more information and reconciliations to the closest respective equivalent GAAP measures and “Definition of terms” on page 57 for further details.

3.             As previously reported, the impairment loss relates to Spain (€2.9 billion), Romania (€0.3 billion) and Vodafone Idea (€0.3 billion).

4.             Revenue on an IFRS 15 basis for Germany, Italy, Turkey, UK, Other Europe and Other Markets and the Group has been revised for the quarters ended 30 June 2018 and September 2018. See page 38 for the impact on the opening Balance Sheet at 1 April 2018 and the web spreadsheet on vodafone.com for the revised quarterly analysis of revenue.

5.             Share of adjusted results in equity accounted associates and joint ventures excludes amortisation of acquired customer bases and brand intangible assets, restructuring costs and other costs of €0.6 billion which are included in amortisation of acquired customer base and brand intangible assets, restructuring costs and other income and expense respectively.

 

 

Europe

 

										Other						IAS 18 Growth
		Germany		Italy		UK		Spain		Europe		Eliminations		Europe		Reported		Organic*
IAS 18 Basis		€m		€m		€m		€m		€m		€m		€m		%		%
31 March 2019
Mobile customer revenue		5,429		3,332		3,688		2,507		3,292		—		18,248
Mobile incoming revenue		200		328		275		125		373		(17	)	1,284
Other service revenue		497		233		267		161		241		(91	)	1,308
Mobile service revenue		6,126		3,893		4,230		2,793		3,906		(108	)	20,840
Fixed service revenue		4,180		1,086		1,545		1,482		837		(2	)	9,128
Service revenue		10,306		4,979		5,775		4,275		4,743		(110	)	29,968		(2.4	)	(2.5	)
Other revenue		646		903		1,024		413		378		(6	)	3,358
Revenue		10,952		5,882		6,799		4,688		5,121		(116	)	33,326		(1.7	)	(1.8	)
Direct costs		(1,917	)	(1,182	)	(1,573	)	(1,411	)	(1,324	)	116		(7,291	)
Customer costs		(2,364	)	(1,371	)	(1,879	)	(1,072	)	(882	)	—		(7,568	)
Operating expenses		(2,573	)	(1,140	)	(1,820	)	(1,126	)	(1,287	)	—		(7,946	)
Adjusted EBITDA		4,098		2,189		1,527		1,079		1,628		—		10,521		(4.7	)	(4.7	)
Depreciation and amortisation:
Acquired intangibles		—		(121	)	—		—		(3	)	—		(124	)
Purchased licences		(707	)	(72	)	(436	)	(65	)	(108	)	—		(1,388	)
Other		(2,303	)	(1,075	)	(1,201	)	(1,193	)	(955	)	—		(6,727	)
Adjusted EBIT		1,088		921		(110	)	(179	)	562		—		2,282		(20.1	)	(20.1	)
Share of adjusted results in associates and joint ventures		—		—		—		—		149		—		149
Adjusted operating profit/(loss)		1,088		921		(110	)	(179	)	711		—		2,431		(16.0	)	(16.1	)
Adjusted EBITDA margin		37.4%		37.2%		22.5%		23.0%		31.8%		—		31.6%
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
Other revenue		585		902		984		391		316		(3	)	3,175
Revenue		10,847		6,204		7,078		4,978		4,941		(160	)	33,888
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
Depreciation and amortisation:
Acquired intangibles		—		(121	)	—		—		(6	)	—		(127	)
Purchased licences		(697	)	(54	)	(425	)	(65	)	(115	)	—		(1,356	)
Other		(2,263	)	(1,105	)	(1,169	)	(1,192	)	(969	)	—		(6,698	)
Adjusted EBIT		1,050		1,049		168		163		425		—		2,855
Share of adjusted results in associates and joint ventures		—		—		—		—		40		—		40
Adjusted operating profit		1,050		1,049		168		163		465		—		2,895
Adjusted EBITDA margin		37.0%		37.5%		24.9%		28.5%		30.7%		—		32.6%
Change at constant exchange rates (%)
Mobile customer revenue		1.4		(10.5	)	(8.3	)	(6.7	)	2.1
Mobile incoming revenue		(3.8	)	(5.2	)	(8.7	)	(21.4	)	(5.3	)
Other service revenue		(5.0	)	(4.1	)	(11.1	)	(13.0	)	(3.7	)
Mobile service revenue		0.6		(9.7	)	(8.5	)	(7.8	)	1.0
Fixed service revenue		0.1		9.5		5.3		(4.8	)	11.1
Service revenue		0.4		(6.1	)	(5.2	)	(6.8	)	2.7
Other revenue		10.4		0.1		4.1		5.6		20.1
Revenue		1.0		(5.2	)	(3.9	)	(5.8	)	3.8
Direct costs		(2.6	)	(2.4	)	0.2		1.3		(0.7	)
Customer costs		1.4		(2.0	)	2.4		2.7		5.8
Operating expenses		1.4		(9.9	)	(4.6	)	0.4		2.7
Adjusted EBITDA		2.2		(6.0	)	(13.3	)	(24.0	)	7.5
Depreciation and amortisation:
Acquired intangibles		—		—		—		—		(44.2	)
Purchased licences		1.4		33.3		2.7		—		(6.2	)
Other		1.8		(2.7	)	2.9		0.1		(1.4	)
Adjusted EBIT		3.6		(12.2	)	(164.7	)	(209.8	)	32.4
Share of adjusted results in associates and joint ventures		—		—		—		—		274.6
Adjusted operating profit/(loss)		3.6		(12.2	)	(164.7	)	(209.8	)	53.2
Adjusted EBITDA margin (pps)		0.4		(0.3	)	(2.4	)	(5.5	)	1.1

 

 

Europe

 

On an IAS 18 basis, revenue decreased by 1.7% and organic service revenue decreased by 2.5%. Excluding the drag from UK handset financing and a one-off settlement in Germany, service revenue decreased by 1.1%** (Q3: -1.1%**, Q4: -1.8%**), reflecting competitive pressure in Italy and Spain offset by good growth in Germany, the UK and Other Europe.

 

Adjusted EBITDA decreased by 4.7%. On an organic basis and excluding both UK handset financing impacts and favourable settlements in Germany and the UK during the prior year, adjusted EBITDA declined by 0.5%** as service revenue declines were offset by a €0.3 billion reduction in operating expenses.

 

Adjusted EBIT decreased by 20.1%, reflecting lower adjusted EBITDA.

 

				Other activity
		Reported		(including		Foreign		Organic*
		change		M&A)		exchange		change
		%		pps		pps		%
Europe revenue		(1.7	)	(0.2	)	0.1		(1.8	)
Service revenue
Germany		0.4		0.1		—		0.5
Italy		(6.1	)	0.2		—		(5.9	)
UK		(5.2	)	0.1		—		(5.1	)
Spain		(6.8	)	0.4		—		(6.4	)
Other Europe		2.6		(0.6	)	0.1		2.1
Europe service revenue		(2.4	)	(0.1	)	—		(2.5	)
Adjusted EBITDA
Germany		2.2		(0.2	)	—		2.0
Italy		(6.0	)	0.2		—		(5.8	)
UK		(13.3	)	(0.8	)	—		(14.1	)
Spain		(24.0	)	0.5		—		(23.5	)
Other Europe		7.5		0.1		—		7.6
Europe adjusted EBITDA		(4.7	)	—		—		(4.7	)
Europe adjusted EBIT		(20.1	)	—		—		(20.1	)
Europe adjusted operating loss		(16.0	)	—		(0.1	)	(16.1	)

 

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 alternative performance measures. See “Alternative performance measures” on page 44 for further details and reconciliations to the respective closest equivalent GAAP measure.

 

Germany

 

Service revenue grew 1.5%* (Q3: 1.1%*, Q4: 1.0%*) excluding the impact of a one-off legal settlement in the prior year, as the benefit of good commercial momentum was partially offset by a decline in wholesale revenues. On the same basis, retail revenues grew by 2.2% in the year (Q3: 1.9%*, Q4: 1.9%*).

 

Mobile service revenue grew 0.8%* (Q3: 0.2%*, Q4: 0.6%*) driven by a higher consumer contract customer base, which offset revenue declines in wholesale and Business. Excluding wholesale, mobile service revenues grew 1.6%* (Q3: 1.1%*, Q4: 1.6%*). During the year we added 715,000 contract customers, thanks in part to the success of our GigaCube proposition. In Q4 we added 84,000 contract customers, with the slowdown in quarterly momentum mainly reflecting lower reseller activity. Contract ARPU declined by 2.7%, reflecting an ongoing mix-shift to SIM-only, convergence and family plans in the Consumer segment and competitive pressure on contract renewals in the Business segment.

 

Fixed service revenue grew 2.6%* (Q3: 2.5%*, Q4: 1.6%*) excluding the impact of a favourable legal settlement in Q4 2017/18. Excluding wholesale, fixed service revenues grew 3.2% (Q3: 3.2%*, Q4: 2.4%*). We added 264,000 broadband customers and 751,000 consumer converged customers in the year, bringing our consumer converged customer base to 1.5 million, representing 20% of our broadband base. Our TV customer base declined by 92,000, primarily reflecting the loss of low ARPU basic access customers. During the year we completed the analogue switch off for TV services on the cable network, and we are now marketing Gigabit broadband services to 8.8m homes.