UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 6-K

 

Report of Foreign Private Issuer

 

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

the Securities Exchange Act of 1934

 

Dated May 16, 2017

 

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.

 

 

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 news release dated 16 May 2017 entitled ‘Vodafone announces results for the year ended 31 March 2017’

 

 

Vodafone announces results for the year ended 31 March 2017

 

16 May 2017

 

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

 

Highlights

 

·            Group total revenue down 4.4% to €47.6 billion; full year organic service revenue grew 1.9%*

 

·            Q4 organic service revenue grew 1.5%*; Europe stable at 0.1%* (1.4%* excluding regulation), AMAP robust at 6.8%*

 

·            Organic adjusted EBITDA up 5.8%* to €14.1 billion; H2 adjusted EBITDA up 6.3%*

 

·            Adjusted EBITDA including India on a guidance basis up 3.4% to €15.8 billion, within 3%-6% guidance range

 

·            Free cash flow (‘FCF’) €4.1 billion as capital additions declined 27.3% to a more normalised level post Project Spring of €7.7 billion; FCF €4.3 billion on a guidance basis

 

·            Loss for the financial year of €6.1 billion includes a net of tax impairment of India of €3.7 billion

 

·            Final dividend per share of 10.03 eurocents, up 2.0%, giving total dividends per share of 14.77 eurocents

 

·             2018 financial guidance: organic adjusted EBITDA growth of 4%-8% (€14.0-€14.5 billion); FCF around €5 billion

 

				Restated1		Growth
		2017		2016		Reported		Organic*
		€m		€m		%		%
Group revenue1		47,631		49,810		(4.4	)
Operating profit		3,725		1,320		+182.2
Loss for the financial year2		(6,079	)	(5,122	)	+18.7
Basic loss per share2		(22.51	)c	(20.25	)c	+11.2
Total dividend per share3		14.77	c	14.48	c	+2.0
Net debt		(31,169	)	(28,801	)	+8.2
Alternative performance measures4
Group service revenue		42,987		44,618		(3.7	)	+1.9
Adjusted EBITDA		14,149		14,155		0.0		+5.8
Adjusted EBIT		3,970		3,769		+5.3		+7.0
Adjusted earnings per share from continuing operations		8.04c		6.87	c	+17.0
Free cash flow		4,056		1,271		+219.1

 

Vittorio Colao, Group Chief Executive, commented:

 

‘Our focus on excellence in customer experience has enabled further improvements in our overall commercial and financial performance during the year. Sustained investment in network quality has provided the platform to offer more generous plans to our mobile customers in Europe, stabilising contract ARPU, and has allowed us to capture strong data growth in our emerging markets operations. We continue to be Europe’s fastest growing broadband provider, seizing the opportunities created by convergence and winning revenue market share, supported also by our Enterprise business which continues to outperform its peers.

 

This translates into organic revenue growth, which combined with a reduction in our cost base has expanded our adjusted EBITDA margin, accelerated our adjusted EBITDA growth to 6% and improved our cash generation. Additionally, the proposed merger of Vodafone India and Idea Cellular will create a new champion for Digital India, while capturing synergies with an estimated net present value of US$10 billion.

 

We expect to sustain our momentum in the coming financial year, generating free cash flow of around €5.0 billion. Our confidence in the outlook is demonstrated by another 2% increase in our dividend.’

 

 

1

 

 

REVIEW OF THE YEAR

 

Financial review

 

Group

 

Group revenue for the year decreased by 4.4% to €47.6 billion, primarily due to foreign exchange movements. Group organic service revenue grew 1.9%* (or 2.7%* excluding the impact of regulatory cuts to roaming charges and mobile termination rates (‘MTR’), “ex-regulation”). Q4 organic service revenue growth slowed to 1.5%* (Q3 2.1%*) due to the lapping of the leap-year effect and certain accounting reclassifications in the prior year, as well as increased regulatory headwinds. Organic service revenue in Europe grew 0.1%* in Q4 (1.4%* ex-regulation), while growth in Africa, Middle East and Asia Pacific (‘AMAP’) grew 6.8%*.

 

Group adjusted EBITDA was flat at €14.1 billion. Organic adjusted EBITDA grew 5.8%*, a faster pace than service revenue as our ‘Fit for Growth’ cost efficiency programme more than offset incremental drags from roaming cuts, increased content costs and a higher operating cost base post-Project Spring. The Group adjusted EBITDA margin improved by 1.3 percentage points to 29.7%, and grew 1.2* percentage points on an organic basis. Both Europe and AMAP delivered margin improvements, supported by better top-line trends and good cost control.

 

Adjusted EBIT grew by 5.3% to €4.0 billion, with organic adjusted EBIT increasing by 7.0%* as adjusted EBITDA growth outpaced the increase in depreciation and amortisation charges. Reported operating profit more than doubled to €3.7 billion, due to a €1.3 billion gain from the merger of Vodafone Netherlands and Ziggo and a €0.6 billion impairment charge recognised in the year ended 31 March 2016 in respect to Romania.

 

The Group’s adjusted effective tax rate for the period was 25.4% compared to 26.6% last year. The lower rate is primarily due to a change in the mix of profits across the Group. The Group’s adjusted tax rate does not include a €3.9 billion reduction in the value of our deferred tax assets in Luxembourg.

 

Adjusted earnings per share from continuing operations increased 17.0% to 8.04 eurocents, as higher adjusted operating profits and lower net financing costs more than offset the increase in the number of shares following the issuance of mandatory convertible bonds in February 2016.

 

In the first half of the 2017 financial year, the Group recorded a non-cash impairment of €5.0 billion, net of tax, relating to our Indian business. This was driven by lower projected cash flows within our business plan as a result of increased competition in the market. Impairment testing at 31 March 2017, following the announcement of the merger of Vodafone India with Idea Cellular, gave rise to a partial reversal of that impairment. As a result, the impairment charge (net of tax) for the year reduced to €3.7 billion.

 

Free cash flow was €2.8 billion higher this year at €4.1 billion (2016: €1.3 billion) reflecting lower capital additions following the completion of Project Spring, higher dividends received from Indus Towers, Safaricom and VodafoneZiggo and lower net interest payments, partially offset by higher working capital outflows predominately relating to the final payments for Project Spring.

 

Net debt (excluding Vodafone India) at 31 March 2017 was €31.2 billion (2016: €28.8 billion). The increase in net debt resulted primarily from a capital injection into India of €3.6 billion to fund spectrum acquisitions, and the adverse translation impact of closing foreign exchange rates on the debt balance of €1.4 billion, mainly due to movements in the pound sterling, US Dollar and South African Rand against the euro. The impact of renewing or acquiring spectrum (excluding India) was a total cost in the year of €0.5 billion, primarily €0.3 billion in Egypt. These effects were partially offset by €2.4 billion of cash received from the repayment of the US$2.5 billion of loan notes issued by Verizon Communications Inc. and €0.6 billion of cash received following the formation of the VodafoneZiggo joint venture.

 

Vodafone India’s net debt as at 31 March 2017 was €8.7 billion (2016: €8.1 billion), including €7.1 billion of spectrum-related debt. During the year the Group spent €2.8 billion to acquire spectrum in India, funded by the €3.6 billion capital injection noted above. The increase in net debt also reflects negative cash flow and accrued interest costs of €0.8 billion and the adverse translation impact of closing foreign exchange rates on the debt balance of €0.5 billion.

 

Net debt excludes £2.8 billion of mandatory convertible bonds issued in February 2016, which are classified as equity after taking into account the cost of future coupon payments. The Group now holds US$2.5 billion of Verizon loan notes and €1.0 billion of shareholder loans to VodafoneZiggo (also not included within net debt), and has the potential to utilise the proceeds from the Verizon loan notes to repurchase shares issued to satisfy the mandatory convertible bonds.

 

The Board is recommending a final dividend per share of 10.03 eurocents, up 2.0% year-on-year (based on the 31 March 2016 year-end £:€ conversion rate of 1.2647), in line with our intention to increase the full year dividend per share annually. The total dividend per share for the year would therefore be 14.77 eurocents, also up 2.0% year-on-year.

 

 

2

 

REVIEW OF THE YEAR

 

Europe

 

Organic service revenue in Europe grew 0.6%* driven by improving trends in both consumer and enterprise segments, despite an incremental drag from EU roaming regulation. Ex-regulation, Europe grew 1.6%*. Growth slowed in the second half of the year, with Europe growing 0.1%* in Q4, reflecting a drag from a leap year effect and reclassifications of certain fixed line (“fixed”) sales in Germany boosting service revenue in the prior year. However, ex-regulation growth in Q4 was similar at 1.4%* to prior quarters (Q3: 1.6%*, Q2: 1.9%*).

 

Consumer service revenue grew 1.3%*, a 2.4 percentage point improvement year-on-year. In mobile, this was supported by stabilising ARPU with the introduction of ‘more-for-more’ mobile propositions and continued growth in our contract customer base. Consumer fixed revenue grew 5.2%* (Q3: 6.5%*, Q4: 5.8%*) driven by strong broadband customer growth, particularly in fibre and cable services.

 

Enterprise service revenue growth declined 0.1%* (Q3: 0.5%*, Q4: -0.5%*) reflecting healthy mobile customer base growth and a moderating pace of ARPU decline. Fixed service revenue continued to grow, led by ongoing demand for unified communications solutions and the benefit of our leading market position in the Internet of Things (‘IoT’) segment.

 

Organic adjusted EBITDA grew 3.1%* to €10.3 billion and the adjusted EBITDA margin improved to 29.8%, up 1.0 percentage point, reflecting revenue growth and strong cost control.

 

AMAP (excluding India)

 

Organic service revenue in AMAP was up 7.7%* year-on-year driven by growth in all our major markets. AMAP grew 6.8% in Q4, reflecting strong commercial momentum and data take up.

 

The region continued to see strong mobile customer growth, with 9.7 million customers added in the year. An increasing number of our customers are now using data, with 7.5 million active data users added in the year and voice and data volumes up 10% and 78% respectively. Fixed customer growth remains strong with 303,000 broadband net additions during the year, taking the regional base to 1.3 million, primarily in Turkey and New Zealand.

 

Organic adjusted EBITDA grew 13.2%* and adjusted EBITDA margins improved 1.5 percentage points to 32.7%, reflecting strong revenue growth and good cost discipline despite inflationary pressures. On a reported basis, adjusted EBITDA grew 4.0%, outpacing the impact of material local exchange rate depreciation in Egypt and Turkey.

 

Strategic review

 

Vodafone’s transformation into a leading converged operator in developed markets made further progress this year as we expanded our owned NGN footprint to 36 million homes, supported by the formation of the VodafoneZiggo JV in the Netherlands, and we are now able to market NGN services to 96 million homes across Europe. We also advanced our position as a mobile data leader in emerging markets, and an international leader in Enterprise.

 

This progress reflects our sustained investments in network quality, which in Q4 have delivered our best ever mobile network experience, as well as our focus on excellence in customer experience, with improved Net Promoter Scores in 16 markets over the year. We achieved all of this while also delivering a reduction in our absolute cost base, supported by our ‘Fit for Growth’ programme.

 

Customer eXperience eXcellence (‘CXX’)

 

The Group’s customer experience excellence programme is our core marketing strategy for brand and service differentiation. With CXX we aim to deliver an outstanding and differentiated experience for our customers, building on the significantly improved network quality delivered by Project Spring. Given the strategic importance of the programme, CXX performance indicators (including Net Promoter Scores and brand consideration) represent up to 40% of the annual bonus award for employees across the Group.

 

The programme focuses on four key aspects of our customers’ experience with Vodafone, summarised by the acronym ‘CARE’. As the initiatives described below illustrate, we made progress in each of these areas during the financial year:

 

1           ‘Connectivity that is reliable and secure’: We now have ‘Mobile Network guarantee’ pledges in 17 markets, promising customers their money back if the network fails to live up to their expectations. Our 4G roaming footprint now covers over 118 countries, twice as many as our best local competitor in the majority of our markets.

 

2           ‘Always excellent value and control’: More than half of our European mobile customers (and almost two-thirds of our contract customers) take advantage of our European ‘worry-free’ roaming offers, with roaming either included in their tariff or available at a modest daily rate. Penetration of the ‘My Vodafone’ app on smartphones reached 55% across the Group. The app is now available across 19 markets (21 including India and Netherlands), with customers able to monitor their usage in real time in 13 of these markets.

 

 

3

 

REVIEW OF THE YEAR

 

3           ‘Reward Loyalty’: 18 markets have now implemented tailored reward programmes for specific customer segments, aiming to delight and surprise loyal customers. This has contributed to a 0.9 percentage point year-on-year improvement in overall consumer contract churn to 16.2% by the final quarter of the financial year.

 

4           ‘Easy Access’: We now provide convenient support to our customers through a 24/7 Live chat platform in 16 markets. The ‘first contact resolution’ rate in several of these markets is now over 80%.

 

The success of our CXX initiatives is apparent with 19 out of 21 operating companies achieving a market leading or co-leading position in consumer NPS and an average gap to the third placed operator of 17 points, representing a 3 point improvement year-on-year. Our Enterprise position is even stronger, reflected in an average gap to our nearest competitor of 8 points as at the end of the period.

 

During the year consumer NPS improved in 16 countries, including the UK, where customer service levels recovered throughout the year following billing migration issues at the start of the period; however, we are not yet satisfied by our UK performance and a number of initiatives are in place to support further recovery in the coming financial year. Overall, the Group met its objectives for customer appreciation improvement during the year.

 

Mobile data

 

Customer demand for data continues to grow very quickly, stimulated by the use of social media, the increasing availability of great TV and video on smartphones and tablets, the improving reliability and speed of mobile networks, the increasing size and quality of smartphone screens and the continued deflation in unitary data pricing.

 

Our network investments have created a strong platform to capture this demand, and we delivered our best ever mobile network experience in Q4. We now have the leading or co-leading data network in 14 out of the 21 markets where independent tests are available, and we are a leader in all 21 markets for voice services.

 

Data traffic in Q4 grew 62% (Europe +55%, AMAP +75%). We now have 75.0 million 4G customers, including India and our joint ventures, across the 21 countries where we offer 4G, with a further 15.7 million customers added in H2. We still have substantial opportunity for future growth with 62% of our active European data users taking a 4G service, up from 49% a year ago. 4G users have driven average usage per smartphone customer in Europe up 50% year-on-year to 1.7 GB per month, with 65% of the data traffic in Europe now on 4G. This growth in data, combined with ‘more-for-more’ propositions, has helped drive contract ARPU stabilisation in most of our major European markets.

 

In our emerging markets, data adoption is rapid, supported by significant network investment and the relative scarcity of fixed internet access. In South Africa we are seeing encouraging signs that customers are consuming more data services, with ARPU increasing by 18% when moving from 2G to 3G, and by 26% when moving from 3G to 4G. 4G adoption has driven average usage per customer up to 1.3GB per month, and the number of active data users increased by 8.3% to 19.5 million. In India we added 10 million 3G/4G customers during the year and have launched 4G in all 18 circles where we acquired 4G spectrum.

 

Convergence

 

We are an integrated operator for both households and businesses in our main markets. We market high speed broadband services to 96 million households across Europe, and through organic investment and acquisition, 36 million of these households (including VodafoneZiggo) are ‘on-net’- serviced by our own fibre or cable infrastructure. In the last 12 months we have extended our network to reach an additional 24 million homes, of which 8 million were on our own NGN networks. The formation of the VodafoneZiggo joint venture at the end of December 2016 accounted for 7.2 million of this increase.

 

We continue to achieve strong customer growth across our footprint. We now have 14.7 million broadband customers (17.9 million including VodafoneZiggo), with 1.5 million new broadband customers added in the year. 7.7 million of these customers take a high speed service over fibre and cable. We have 9.8 million TV customers (13.8 million including VodafoneZiggo).

 

Within our broadband base, we have 3.8 million converged accounts, up 0.7 million in the year. On average, each converged account has 1.9 fixed revenue generating units (‘RGUs’) and approximately 2.0 mobile SIMs. Churn rates for converged customers are typically around half of the level of customers who purchase a single product. In H2, 28.3% of our service revenue in Europe came from fixed, up 1.0 percentage points year-on-year.

 

 

4

 

REVIEW OF THE YEAR

 

Enterprise

 

Services to business comprise 29.6% of our Group service revenue, and 31.8% in Europe. Our relationships with business customers are expanding from traditional mobile voice and data services to embrace total communications, IoT, Cloud & Hosting and IP-VPN provision. These new areas offer both market growth and market share opportunities for us.

 

Overall, Enterprise maintained its strong momentum during the year with service revenue growth of 2.3%* (Q3: 2.8%*, Q4: 2.0%*). This was driven by growth in both mobile (1.5%*) and fixed (4.4%*). Vodafone Global Enterprise (‘VGE’), which provides services to our biggest international customers, capitalising on our unmatched geographic breadth, achieved service revenue growth of 3.0%*. This was slower than the prior year mainly as a result of contract losses in the UK, due to the balancing of growth and profitability objectives. We are a world leader in IoT services, with a strong presence in key industries such as automotive and utilities. During the year, we increased our total IoT connections by 42% to 54 million.

 

‘Fit for Growth’

 

Fit for Growth is a comprehensive cost efficiency programme designed to drive operating leverage and margin expansion without impacting the customer experience, with several Group-wide initiatives and a broad list of local market initiatives. The initiatives are monitored centrally in order to share best practice between operating companies.

 

During the year we have continued to make good progress, delivering an absolute reduction in our cost base on an organic basis. Areas of significant cost saving included procurement, shared service centres, improved sales channel efficiency and standardised network design. This cost focus is reflected in our improved margin performance across both Europe and AMAP, with 15 markets out of 22 growing adjusted EBITDA faster than service revenue, driving a 1.2* percentage point improvement in organic Group adjusted EBITDA margin (Europe: +1.0* percentage point, AMAP +1.6* percentage points). The adjusted EBITDA margin in India declined by 2.2* percentage points as revenues contracted and network costs increased as we deployed 4G services; however, these effects were partially mitigated by significant underlying cost savings.

 

During the year the Group conducted an external benchmarking analysis of its cost structure by country and for each operational process. This validated the progress that has been made, while still indicating material scope for future long-term savings. In addition, the Group has developed a new customer profitability analytics solution, which provides highly granular insights into the profitability of individual customers, supporting actions on margin assurance, price plan design, geographical channel deployment, enterprise bid management, segmented propositions and network roll out. This solution is being deployed across the Group over the coming year.

 

Phase 2 of the Fit for Growth programme has now been developed and new internal three-year margin targets have been set across the Group. These imply another reduction in absolute operating costs on an organic basis during the coming financial year.

 

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. Organic growth is an alternative performance measure. See “Alternative performance measures” on page 29 for further details and reconciliations to the respective closest equivalent GAAP measure.

1     With effect from 1 April 2016, the Group’s presentation currency was changed from pounds sterling to the euro to better align with the geographic split of the Group’s operations. The results for the year ended 31 March 2016 have been restated into euros and include the results of Vodafone India as discontinued operations following the agreement to combine with Idea Cellular.

2     Year ended 31 March 2017 includes a gross impairment charge of €4.5 billion (2016: €nil) recorded in respect of the Group’s investment in India, which together with the recognition of an associated €0.8 billion deferred tax asset, led to an overall €3.7 billion reduction in the carrying value of Vodafone India.

3     The total dividend for the year ended 31 March 2016 has been restated to eurocents using the 31 March 2016 rate of £1:€1.2647. See page 20 “Dividends” for further details.

4     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 29 for more information and reconciliations to the closest respective equivalent GAAP measure and “Definition of terms” on page 39 for further details.

 

 

5

 

 

GUIDANCE

 

Please see page 29 for “Alternative performance measures”, page 39 for “Definitions of terms” and page 41 for “Forward-looking statements”.

 

Performance against 2017 financial year guidance1

 

Based on guidance foreign exchange rates, adjusted EBITDA for the 2017 financial year grew organically by 3.4%* to €15.8* billion, consistent with the 3-6% organic growth (implying €15.7 – €16.1 billion) guidance range set in November 2016. On the same basis our free cash flow was €4.3 billion, consistent with our free cash flow guidance of at least €4.0 billion.

 

Prospects for the 2018 financial year1

 

We will continue to focus in the year ahead on improving our customers’ experience, particularly in the markets where we do not yet enjoy the leading or co-leading NPS. In Europe, we aim to maintain our strong momentum in NGN broadband and win profitable revenue market share in total communications, as well as monetising our mobile network leadership through continued ‘more-for-more’ initiatives. In emerging markets we will capitalise on ongoing data growth opportunities, while in Enterprise we aim to continue outperforming our peers as an international leader.

 

Within our unchanged ‘mid-teens’ envelope for capital expenditure as a percentage of revenues, we will begin to expand and evolve our 4G network to 4G+, while deploying fibre backhaul in urban areas as part of our preparation for 5G. We also intend to invest in enhancing our digital capabilities: in data analytics, so we can provide personalised, segmented offers to our customers, and in IT, so we can modernise our billing and support systems.

 

Supported by the second phase of our Fit for Growth programme, for the second year in succession we intend to reduce our absolute organic operating costs2, ensuring that we continue to grow our adjusted EBITDA faster than our service revenues, expanding our margins and increasing our cash flows.

 

Overall, excluding Vodafone India we expect to grow our adjusted EBITDA on an organic basis by 4%-8%, implying a range of €14.0-€14.5 billion at guidance FX rates. This includes the benefit of shareholder recharges received by the Group from VodafoneZiggo and from Vodafone India, which are expected to be broadly stable in the year, as well as an anticipated benefit from the introduction of handset financing in the UK. Note that shareholder recharges are excluded from our calculation of organic growth.

 

We aim to generate free cash flow of around €5.0 billion, after all capex, before M&A, spectrum payments and restructuring costs, and based on guidance FX rates. This level of cash generation, combined with our continued growth and robust balance sheet position, provides us with the ability to confirm a progressive dividend policy.

 

		Adjusted EBITDA		Free cash flow
2018 financial year guidance (excluding Vodafone India)		‘Organic growth of 4-8%’, (implying €14.0 – €14.5 billion at guidance exchange rates)3		‘Around €5.0 billion’

 

Dividend policy

 

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

 

Assumptions

 

We have based guidance for the financial year ended 31 March 2018 on our current assessment of the global macroeconomic outlook and assume foreign exchange rates of €1:ZAR 14.6, €1:£0.85, €1:TRY 4.0 and €1:EGP 19.1. Guidance excludes the impact of licence and spectrum payments, material one-off tax-related payments, restructuring costs 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.

 

Notes:

1     Adjusted EBITDA and free cash flow 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. The adjusted EBITDA and free cash flow measures included above for the 2018 financial year are forward-looking alternative performance measures which at this time cannot be quantitatively reconciled to comparative GAAP financial information. See “Alternative performance measures” on page 29 for more information and reconciliations to the guidance basis.

2     Operating costs include customer costs and operating expenses, but exclude direct costs

3     The baseline for 2017/18 adjusted EBITDA has been adjusted to exclude Vodafone Netherlands (€463 million in the first nine months of 2016/17) and approximately €200 million of FX headwinds (based on guidance FX rates).

 

 

6

 

CONTENTS

 

		Page
Financial results		7
Liquidity and capital resources		19
Other significant developments		21
Consolidated financial statements		23
Alternative performance measures		29
Additional information		38
Other information (including forward-looking statements)		39

 

FINANCIAL RESULTS

 

Group1,2

 

												Restated		Growth
		Europe		AMAP		Other3		Eliminations		2017		2016		Reported		Organic*
		€m		€m		€m		€m		€m		€m		%		%
Continuing operations
Mobile in-bundle revenue		15,923		4,169		1		(7	)	20,086		20,350
Mobile out-of-bundle revenue		4,412		3,639		21		—		8,072		9,226
Mobile incoming revenue		1,557		795		—		(2	)	2,350		2,601
Fixed line revenue		8,624		982		672		(54	)	10,224		10,347
Other service revenue		1,459		371		444		(19	)	2,255		2,094
Service revenue		31,975		9,956		1,138		(82	)	42,987		44,618		(3.7	)	1.9
Other revenue		2,575		1,817		252		—		4,644		5,192
Revenue		34,550		11,773		1,390		(82	)	47,631		49,810		(4.4	)	1.2
Direct costs		(7,697	)	(2,736	)	(896	)	75		(11,254	)	(11,814	)
Customer costs		(7,777	)	(2,409	)	23		—		(10,163	)	(10,841	)
Operating expenses		(8,793	)	(2,774	)	(505	)	7		(12,065	)	(13,000	)
Adjusted EBITDA		10,283		3,854		12		—		14,149		14,155		—		5.8
Depreciation and amortisation:
Acquired intangibles		(127	)	(121	)	—		—		(248	)	(249	)
Purchased licences		(1,323	)	(210	)	—		—		(1,533	)	(1,627	)
Other		(6,894	)	(1,498	)	(6	)	—		(8,398	)	(8,510	)
Adjusted EBIT		1,939		2,025		6		—		3,970		3,769		5.3		7.0
Share of result in associates and joint ventures		(49	)	213		—		—		164		60
Adjusted operating profit		1,890		2,238		6		—		4,134		3,829		8.0		11.8
Impairment losses										—		(569	)
Restructuring costs										(415	)	(316	)
Amortisation of acquired customer base and brand intangible assets										(1,046	)	(1,338	)
Other income/(expense)4										1,052		(286	)
Operating profit										3,725		1,320
Non-operating expense										(1	)	(3	)
Net financing costs										(932	)	(1,507	)
Income tax5										(4,764	)	(4,937	)
Loss for the financial year from continuing operations										(1,972	)	(5,127	)
(Loss)/profit for the financial year from discontinued operations										(4,107	)	5
Loss for the financial year										(6,079	)	(5,122	)

 

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 29 for further details and reconciliations to the respective closest equivalent GAAP measure.

·      With effect from 1 April 2016, the Group’s presentation currency was changed from pounds sterling to the euro to better align with the geographic split of the Group’s operations. The results for the year ended 31 March 2016 have been restated into euros and include the results of Vodafone India as discontinued operations following the agreement to combine with Idea Cellular. Current year reflects average foreign exchange rates of €1:£0.84, €1:INR 73.58, €1:ZAR 15.43, €1:TRY 3.51 and €1:EGP 13.60.

·      Service revenue, adjusted EBIT, adjusted EBITDA 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 measure. See “Alternative performance measures” on page 29 for more information and reconciliations to the closest respective equivalent GAAP measure and “Definition of terms” on page 39 for further details.

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

·      Includes a €1.3 billion gain (2016: €nil) on the formation of the VodafoneZiggo joint venture in the Netherlands.

·      Refer to page 9 for further details.

 

 

7

 

 

FINANCIAL RESULTS

 

Revenue

 

Group revenue decreased 4.4% to €47.6 billion and service revenue decreased by 3.7% to €43.0 billion.

 

In Europe, organic service revenue increased 0.6%* and in AMAP, organic service revenue increased by 7.7%*. Further details on the performance of these regions is set out below.

 

Adjusted EBITDA, adjusted EBIT and operating profit

 

Group adjusted EBITDA remained stable at €14.1 billion, with organic growth in Europe and AMAP more than offset by foreign exchange movements and M&A and other activity. The Group’s adjusted EBITDA margin improved by 1.3 percentage points to 29.7%. On an organic basis, adjusted EBITDA rose 5.8%* and the Group’s adjusted EBITDA margin increased by 1.2* percentage points driven by organic margin improvements in both Europe and AMAP.

 

Adjusted EBIT increased by 5.3% to €4.0 billion as adjusted EBITDA growth outpaced the increase in depreciation and amortisation. On an organic basis adjusted EBIT increased by 7.0%* for the year.

 

Restructuring costs of €0.4 billion primarily reflect cost efficiency actions taken during the year in Germany and the UK.

 

The Group’s operating profit was €3.7 billion, compared to an operating profit of €1.3 billion in the prior year, due to a €1.3 billion gain on the formation of the VodafoneZiggo joint venture in the Netherlands which for accounting purposes was characterised as a part disposal of the Group’s interest in Vodafone Netherlands, €0.5 billion lower depreciation and amortisation charges, partially as a result of the treatment of our Netherlands operation as an asset held for sale during the year and the €0.6 billion impairment charge recognised in the year ended 31 March 2016.

 

Net financing costs

 

				Restated
		2017		2016
		€m		€m
Investment income		474		539
Financing costs		(1,406	)	(2,046	)
Net financing costs		(932	)	(1,507	)
Analysed as:
Net financing costs before settlement of outstanding tax issues		(979	)	(630	)
Interest expense relating to settlement of outstanding tax issues		(47	)	(19	)
		(1,026	)	(649	)
Mark to market gains/(losses)		66		(285	)
Foreign exchange1		28		(573	)
Net financing costs		(932	)	(1,507	)

 

Note:

·      Comprises foreign exchange rate differences reflected in the income statement in relation to certain sterling balances in 2017 and primarily in relation to certain euro intercompany balances in 2016.

 

Net financing costs decreased by 38% primarily driven by a reduction in mark to market losses and lower foreign exchange rate differences due to the Group’s reduced exposed to foreign exchange movements on certain euro intercompany balances subsequent to its functional currency change in the year ended 31 March 2017.

 

Net financing costs before settlement of outstanding tax issues increased as the Group’s average gross debt was higher during the year resulting in higher financing costs.

 

 

8

 

FINANCIAL RESULTS

 

Taxation

 

				Restated
		2017		2016
		€m		€m
Income tax expense		(4,764	)	(4,937	)
Tax on adjustments to derive adjusted profit before tax		(320	)	(586	)
Deferred tax following revaluation of investments in Luxembourg		1,275		4,228
Deferred tax on use of Luxembourg losses in the year		369		541
Reduction in deferred tax following rate change in Luxembourg		2,651		—
Adjusted income tax expense for calculating adjusted tax rate		(789	)	(754	)
Profit/(loss) before tax:		2,792		(190	)
Adjustments to derive adjusted profit before tax1		480		3,086
Adjusted profit before tax2		3,272		2,896
Share of associates’ and joint ventures’ tax and non-controlling interest		(164	)	(60	)
Adjusted profit before tax for calculating adjusted effective tax rate		3,108		2,836
Adjusted effective tax rate2		25.4	%	26.6	%

 

Notes:

1     See “Earnings per share” on page 10.

2     Adjusted profit before tax and adjusted effective tax are alternative performance measures. The Group has changed the basis of calculation of the adjusted effective tax rate to focus on the Group’s controlled businesses, more closely aligning the adjusted effective rate to the cash taxes reported by the Group. 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 29 for further details.

 

The Group’s adjusted effective tax rate for its controlled businesses for the year ended 31 March 2017 was 25.4% compared to 26.6% for the last financial year. The lower rate in the current year is primarily due to a change in the mix of the Group’s profits. We expect the adjusted effective tax rate to remain in the mid-twenties over the medium term.

 

The Group’s adjusted effective tax rate for both years does not include the following items: a reduction in our Luxembourg deferred tax assets of €2,651 million following a reduction in the Luxembourg corporate tax rate to 26.0%; deferred tax on the use of Luxembourg losses of €369 million (2016: €541 million); and a decrease in the deferred tax asset of €1,275 million (2016: €4,228 million) arising from a revaluation of investments based upon the local GAAP financial statements and tax returns, partially offset by a reduction in the deferred tax asset as a result of lower interest rates. These items change the total losses we have available for future use against our profits in Luxembourg and do not affect the amount of tax we pay in other countries.

 

 

9

 

FINANCIAL RESULTS

 

Adjusted earnings per share

 

Adjusted earnings per share, which excludes the results of Vodafone India which are now included in discontinued operations, was 8.04 eurocents, an increase of 17.0% year-on-year, as higher adjusted operating profit and lower net financing costs more than offset the increase in the number of shares following the issuance of mandatory convertible bonds in February 2016 which are classified as equity after taking into account the cost of future coupon payments.

 

Basic loss per share was 22.51 eurocents (2016: loss per share of 20.25 eurocents) as the €1.3 billion gain on the formation of the VodafoneZiggo joint venture in the Netherlands was offset by impairment charges of €3.7 billion, net of tax, recognised during the year in discontinued operations and the changes in deferred tax on losses, as described above, both of which have been excluded from adjusted earnings per share.

 

				Restated
		2017		2016
		€m		€m
Loss attributable to owners of the parent		(6,297	)	(5,405	)
Adjustments:
Impairment loss		—		569
Amortisation of acquired customer base and brand intangible assets		1,046		1,338
Restructuring costs		415		316
Other income and expense		(1,052	)	286
Non-operating income and expense		1		3
Investment income and financing costs		70		574
		480		3,086
Taxation1		3,975		4,183
India2		4,107		(5	)
Non-controlling interests		(16	)	(25	)
Adjusted profit attributable to owners of the parent3		2,249		1,834
		Million		Million
Weighted average number of shares outstanding — basic4		27,971		26,692
Earnings per share
		Eurocents		Eurocents
Basic loss per share		(22.51	)c	(20.25	)c
Adjusted earnings per share from continuing operations		8.04	c	6.87	c

 

Notes:

·      Year ended 31 March 2017 includes a decrease in the deferred tax asset of €1,275 million (2016: €4,228 million) arising from the tax treatment of the revaluation of investments based upon the local GAAP financial statements and tax returns, partially offset by a decrease in the deferred tax asset as a result of lower interest rates, and a reduction of €2,651 million (2016: €nil) following a reduction in the Luxembourg headline tax rate.

·      India is classified as discontinued operations and includes the operating results, financing and tax charges of Vodafone India, as well as impairment charges of €3.7 billion, net of tax, recognised during the year.

·      Adjusted profit attributable to owners of the parent and adjusted earnings per share from continuing operations 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 29 for further details.

·      Weighted average number of shares outstanding includes a dilution of 1,369 million shares (2016: 150 million shares) following the issue of £2.9 billion of mandatory convertible bonds in February 2016 which are classified as equity after taking into account the cost of future coupon payments.

 

 

10

 

 

FINANCIAL RESULTS

 

Europe

 

										Other						Growth
		Germany		Italy		UK		Spain		Europe		Eliminations		Europe		Reported		Organic*
		€m		€m		€m		€m		€m		€m		€m		%		%
31 March 2017
Mobile in-bundle revenue		4,418		2,872		3,294		2,254		3,085		—		15,923
Mobile out-of-bundle revenue		881		861		1,135		435		1,100		—		4,412
Mobile incoming revenue		261		360		330		161		471		(26	)	1,557
Fixed line revenue		3,935		882		1,553		1,461		800		(7	)	8,624
Other service revenue		511		272		320		196		300		(140	)	1,459
Service revenue		10,006		5,247		6,632		4,507		5,756		(173	)	31,975		(4.2	)	0.6
Other revenue		594		854		293		466		372		(4	)	2,575
Revenue		10,600		6,101		6,925		4,973		6,128		(177	)	34,550		(5.2	)	(0.4	)
Direct costs		(2,038	)	(1,227	)	(1,765	)	(1,313	)	(1,530	)	176		(7,697	)
Customer costs		(2,348	)	(1,299	)	(1,837	)	(1,151	)	(1,143	)	1		(7,777	)
Operating expenses		(2,597	)	(1,346	)	(2,111	)	(1,149	)	(1,590	)	—		(8,793	)
Adjusted EBITDA		3,617		2,229		1,212		1,360		1,865		—		10,283		(1.9	)	3.1
Depreciation and amortisation:
Acquired intangibles		—		(121	)	—		—		(6	)	—		(127	)
Purchased licences		(670	)	(35	)	(446	)	(66	)	(106	)	—		(1,323	)
Other		(2,383	)	(1,124	)	(1,308	)	(1,114	)	(965	)	—		(6,894	)
Share of result in associates and joint ventures		4		(1	)	—		—		(52	)	—		(49	)
Adjusted operating profit/(loss)		568		948		(542	)	180		736		—		1,890		(1.9	)	(5.0	)
Adjusted EBITDA margin		34.1	%	36.5	%	17.5	%	27.3	%	30.4	%			29.8	%
31 March 2016
Mobile in-bundle revenue		4,310		2,694		3,744		2,172		3,229		—		16,149
Mobile out-of-bundle revenue		984		991		1,455		529		1,375		—		5,334
Mobile incoming revenue		293		364		436		143		518		(29	)	1,725
Fixed line revenue		3,755		826		1,962		1,434		732		(18	)	8,691
Other service revenue		475		254		390		190		278		(105	)	1,482
Service revenue		9,817		5,129		7,987		4,468		6,132		(152	)	33,381
Other revenue		809		879		441		491		467		(6	)	3,081
Revenue		10,626		6,008		8,428		4,959		6,599		(158	)	36,462
Direct costs		(2,330	)	(1,254	)	(1,959	)	(1,151	)	(1,543	)	153		(8,084	)
Customer costs		(2,237	)	(1,339	)	(2,173	)	(1,274	)	(1,327	)	3		(8,347	)
Operating expenses		(2,597	)	(1,400	)	(2,540	)	(1,284	)	(1,727	)	2		(9,546	)
Adjusted EBITDA		3,462		2,015		1,756		1,250		2,002		—		10,485
Depreciation and amortisation:
Acquired intangibles		—		(116	)	—		—		(5	)	—		(121	)
Purchased licences		(616	)	(35	)	(511	)	(67	)	(227	)	—		(1,456	)
Other		(2,326	)	(1,059	)	(1,343	)	(1,108	)	(1,138	)	—		(6,974	)
Share of result in associates and joint ventures		3		—		1		—		(11	)	—		(7	)
Adjusted operating profit/(loss)		523		805		(97	)	75		621		—		1,927
Adjusted EBITDA margin		32.6	%	33.5	%	20.8	%	25.2	%	30.3	%			28.8	%
Change at constant exchange rates			%		%		%		%		%
Mobile in-bundle revenue		2.5		6.6		0.9		3.8		(4.5	)
Mobile out-of-bundle revenue		(10.5	)	(13.2	)	(10.5	)	(17.7	)	(20.0	)
Mobile incoming revenue		(10.8	)	(1.0	)	(13.3	)	13.0		(9.5	)
Fixed line revenue		4.8		6.8		(9.1	)	1.9		9.0
Other service revenue		7.3		7.4		(5.9	)	2.8		9.2
Service revenue		1.9		2.3		(4.7	)	0.9		(6.2	)
Other revenue		(26.6	)	(2.9	)	(23.6	)	(4.9	)	(20.5	)
Revenue		(0.3	)	1.5		(5.7	)	0.3		(7.2	)
Direct costs		(12.6	)	(2.1	)	3.4		14.0		(0.8	)
Customer costs		5.0		(3.0	)	(2.9	)	(9.6	)	(13.9	)
Operating expenses		—		(3.9	)	(4.6	)	(10.5	)	(8.1	)
Adjusted EBITDA		4.5		10.6		(20.9	)	8.8		(6.9	)
Depreciation and amortisation:
Acquired intangibles		—		4.9		—		—		(2.4	)
Purchased licences		8.8		—		—		(1.2	)	(53.3	)
Other		2.4		5.9		11.7		0.5		(15.2	)
Share of result in associates and joint ventures		30.0		—		(100.0	)	—		(385.7	)
Adjusted operating profit/(loss)		8.7		17.8		(541.6	)	140.4		18.6
Adjusted EBITDA margin movement (pps)		1.5		3.0		(3.4	)	2.1		0.1

 

 

11