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Vodafone Group Plc (VOD)

  Print      Mail a friend       Annual reports

Tuesday 14 November, 2017

Vodafone Group Plc

Half-year Report

RNS Number : 3828W
Vodafone Group Plc
14 November 2017
 

Vodafone announces results for the six months ended 30 September 2017

14 November 2017

 

Highlights

·    Group total revenue down 4.1% to €23.1 billion, primarily due to the deconsolidation of Vodafone Netherlands and FX movements; operating profit up 32.5% to €2.0 billion; profit for the financial period of €1.2 billion

·    Organic service revenue up 1.7%*; Q2 up 1.3%* (Europe 0.8%*, AMAP 6.2%*)

·    Organic adjusted EBITDA up 13.0%* to €7.4 billion (9.3%* ex roaming, UK handset financing and regulatory settlements1)

·    Free cash flow (pre-spectrum) improved to €1.3 billion vs. a €0.1 billion outflow in the prior year. Free cash flow was €0.4 billion vs. a €0.4 billion outflow in the prior year

·    Raising full-year guidance for organic adjusted EBITDA growth to around 10% (previously 4-8%), implying a range of €14.75-€14.95 billion at guidance FX rates; FCF pre-spectrum to exceed €5 billion (previously 'around €5 billion')

·    Vodafone India service revenues down 15.8%*, adjusted EBITDA down 39.2%*; merger with Idea Cellular progressing well

·    Interim dividend per share of 4.84 eurocents, up 2.1%

 




Six months ended 30 September








Restated2


Growth




2017 

2016 


Reported 

Organic*



Page

€m 

€m 


Group revenue

24 

23,075 

24,051 


(4.1)


Operating profit

24 

2,008 

1,515 


+32.5 


Profit/(loss) for the financial period4 

24 

1,235 

(5,003)


NM


Basic earnings/(loss) per share4 

24 

4.03c

(18.38c)


NM


Interim dividend per share

34 

4.84c

4.74c


+2.1 


Net debt

20 

(32,055)

(37,884)


(15.4)










Alternative performance measures5







Group service revenue

20,592 

21,811 


(5.6)

+1.7 

Adjusted EBITDA

7,385 

7,090 


+4.2 

+13.0 

Adjusted EBIT

2,457 

2,050 


+19.9 

+51.9 

Adjusted earnings per share

18 

6.32c

4.08c


+54.9 


Free cash flow pre-spectrum (guidance basis)

19 

1,289 

(148)


NM


Free cash flow2 

19 

415 

(428)


NM


 

Vittorio Colao, Group Chief Executive, commented:

"In the first half of the year we have maintained good commercial momentum. Revenue grew organically in the majority of our markets driven by mobile data and our continued success as Europe's fastest growing broadband provider. Enterprise revenues continue to grow, led by our Internet of Things ('IoT'), Cloud and Fixed services, and for the second year running we achieved an absolute reduction in our operating costs. As a result, we are able to report a strong financial performance, with substantial EBITDA margin expansion and profit growth, and we are raising our financial outlook for the year.

In India competition remains intense. There are however signs of positive developments in the Indian market, with consolidation of smaller operators and recent price increases from the new entrant. We are making good progress in securing regulatory approvals for our merger with Idea Cellular and in monetising our tower assets.

In the second half of the year we will continue to implement our strategic initiatives, including fibre infrastructure expansion in Germany, Portugal and the UK; our entry into the consumer IoT market with the launch of "V by Vodafone"; and the 'Digital Vodafone' programme designed to enhance our customers' experience, increasing revenues and cost efficiency."

 

CHIEF EXECUTIVE'S STATEMENT

 

Financial review of the half year

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

Group revenue for the first half of the year declined 4.1% to €23.1 billion, primarily due to the deconsolidation of Vodafone Netherlands following the creation of our joint-venture 'VodafoneZiggo', and foreign exchange movements. Operating profit rose to €2.0 billion compared to €1.5 billion in the prior year, reflecting operational leverage and the benefit of cost efficiency initiatives. Profit for the period was €1.2 billion, a substantial improvement compared to a loss of €5.0 billion in the prior half-year, which was impacted by a €5.0 billion net impairment of the Group's operations in India.

Strategic review of the half year

data. Our Net Promoter Scores improved, and we now have a lead or co-leadership position in 19 out of 21 markets for consumer, while we are the leader or co-leader in 19 out of 20 markets for Enterprise.

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

This strategic and financial progress creates a strong platform for the next phase of the Group's strategic development as we pursue the multiple opportunities arising from the digitalisation of our industry. We have recently launched a new 'Digital Vodafone' programme, which aims to deliver the most engaging digital experience to our customers. Using advanced digital technologies, our ambition is to generate incremental revenues while reducing net operating costs.

At the same time, our 'Fit for Growth' programme delivered a net reduction in our operating costs on an organic basis  for the second year in a row, supporting strong EBITDA margin expansion.

Mobile data

Including India and our joint ventures, data traffic grew 88% during the first half of the year (Europe +63%, AMAP +116%). Quarterly growth trends accelerated (Q1: 76%, Q2: 98%) led by India, where data traffic more than tripled following a sharp decline in data prices, and also in Europe as customers embraced our 'more-for-more' propositions.

Roaming traffic also increased sharply following the introduction of 'Roam-like-at-home' in June, with the number of active EU roaming customers up 24% in Q2 and average usage per roamer up 138% to 0.6GB/month. Visitor traffic from third-party customers increased at an even faster pace of 365% in Q2, supporting a 28% rise in European visitor revenues in H1. Given that our customers had already widely adopted worry-free roaming propositions, the growth of our roaming costs (onto other third-party networks) was modest. This positive contribution from visitor revenues net of third party roaming costs provided a partial offset to the loss of out of bundle roaming revenues within the European Union.

Average smartphone usage continued to grow rapidly, with customers in both Europe and AMAP using 2.1GB on average each month. In our major European markets, customers are increasingly using mobile networks rather than WiFi given the improving quality of our 4G and 4G+ networks as well as more generous data allowances; mobile's share of data usage on smartphones increased by between three and eight percentage points compared to one year ago. We see further opportunity as 4G+ and over time 5G technologies will continue to improve mobile network performance, and mobile networks' share of data usage on smartphones is still low at 15-28% of total usage (including WiFi), depending on the market.

In Europe we are monetising this growth in data usage through 'more-for-more' propositions as well as personalised offers utilising advanced data analytics. Contract ARPU is stabilising in most of our markets despite regulatory pressures and the drag from the trend towards SIM-only contracts, which now represent around 25% of our contract customer base in Germany and the UK, up around five percentage points year-on-year. In AMAP data revenues are growing strongly, supported by the relative scarcity of fixed Internet access and low data penetration.

We see additional opportunities to monetise data through the 'Vodafone Pass', an innovative new proposition which allows customers to buy passes that give 'worry-free' access to social, media and video applications without using their data allowance. These easy to understand offers, which are tailored to local market circumstances, are intended to stimulate data usage and, on average, are expected to increase ARPU. Vodafone Passes are now available in 9 markets, and take-up has been encouraging with 7.8 million active passes by the end of H1.

In November, we launched our new 'V by Vodafone' consumer IoT business. Our new dedicated IoT 'V-Sim by Vodafone' will enable consumers to connect both Vodafone branded and third party electronics products to Vodafone's leading international IoT network. These products can be easily managed using the 'V by Vodafone' smartphone app, which provides customers with a single overview of all IoT-enabled products registered to their account. Customers will pay a low-cost fixed monthly subscription for each 'V-Sim'; initial products include the V-Auto, V-Camera, V-Pet and V-Bag connected devices.

Fixed & Convergence

During the next five years around 50 million additional households are expected to adopt NGN broadband within Vodafone's European footprint. We view this shift to NGN as a window of opportunity to capture substantial profitable market share. Gaining scale in fixed allows us to drive convergence across our combined fixed and mobile customer base, lowering churn. We have created Europe's largest NGN footprint covering 99 million households, with 36 million households 'on-net' (including VodafoneZiggo), using a flexible and capital efficient strategy which combines build/co-build, strategic partnering, wholesale and acquisition options. This approach allows us to continually improve our fixed access position, as highlighted by several strategically important new fixed line agreements:

·    

In September we announced our 'Gigabit Investment Plan' for Germany. We intend to invest approximately €2 billion of incremental capital expenditure on ultrafast broadband services by the end of calendar 2021. We expect this success-based plan to drive incremental growth and attractive returns, with limited impact on near-term cash generation thanks to our partnering approach. We aim to deploy fibre to around 2,000 business parks across Germany, working with partners and independently; partner with local municipalities to reach around 1 million rural consumer homes with FTTH; and upgrade our existing cable infrastructure to deliver 1Gbps speeds to 12.6 million households.

·    

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

·    

In November we announced a long-term strategic partnership with CityFibre in the UK. This framework agreement will provide us with the ability to market FTTH services to up to 5.0 million UK households by 2025 at attractive commercial terms. We have identified the first 1 million households to be built across 12 towns and cities, and have committed to an initial exclusivity period in exchange for a ten-year 20% minimum volume commitment on these households.

 

In H1 we maintained our good commercial momentum, and we were once again Europe's fastest growing broadband provider, adding 499,000 new broadband customers. Our NGN customer base grew by 826,000. This supported fixed service revenue growth of 4.5%* in H1.

In total, across the Group we now have 15.4 million broadband customers (18.6 million including VodafoneZiggo), of which 8.8 million take a high speed service over fibre and cable (12.0 million including VodafoneZiggo). We have 9.8 million TV customers (13.7 million including VodafoneZiggo). Our momentum in convergence also continued, with 310,000 customers added in H1, reaching a total base of 4.1 million (4.9 million including VodafoneZiggo). Overall, fixed now contributes 24.6% of Group service revenues (28.1% in Europe), up from 20.4% three years ago.

Services to business comprise 29.0% of our Group service revenue, and 30.6% in Europe. Our relationships with business customers are expanding from traditional mobile voice and data services to embrace total communications, IoT, Cloud & Hosting and IP-VPN provision. These new areas offer both market growth and market share opportunities for us.

Our Enterprise business continued to outperform peers with service revenue growth of 1.0%* (Q1: 1.5%*, Q2: 0.5%*), supported by our unique global network and product set, the contribution from emerging market growth and our low exposure to legacy fixed line. Excluding the impact of regulation, we grew 2.5%* (Q1: 2.5%*, Q2: 2.5%*). In Europe, service revenue declined 0.2%*, while AMAP grew 6.8%*. Growth in IoT continued (H1: 12.7%*), primarily driven by the increase in SIM connections (+36% year-on year).

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

The programme builds on the introduction of a Digital eXperience Layer (DXL) for quicker and cheaper IT development, on the experience of our Data Analytics Units - now rolled out across the Group - and on the high penetration of the 'My Vodafone' App (now at 58% in Europe). By year-end we will have established dedicated 'Digital Accelerator' teams in our largest European markets, and intend to expand the programme to all markets in calendar 2018.

The cross-functional 'Digital Accelerator' teams will utilise the so-called 'agile' approach to evolve services and innovate rapidly with quick release cycles. Their objective is to transform our operations in three main areas:

1. Digital customer management

We intend to increase the use of data analytics to provide predictive, proactive and personalised offers to our customers, optimising the efficiency of our marketing spend, enhancing ARPU and improving our direct channel mix. MyVodafone and our digital marketing channels will over time become our main customer acquisition and management platform. We will also be able to meet any customer request through automated, digital support - for example, by using chatbots and digital agents that utilise rapidly developing artificial intelligence technologies, developed and shared on a Group-wide basis.

2. Digital technology management 

We will rapidly install new 'middleware' on top of our legacy IT systems. This 'Digital eXperience Layer' will accelerate the deployment of new digital capabilities, de-coupling them from the longer and financially costly upgrade cycles for our legacy billing and other systems. In addition, real-time data analytics will enable even smarter network planning and deployment, as well as more precise ROI-based investment decisions. Together with the ongoing effort to migrate 65% of our IT applications to the cloud, we aim to achieve significant capex and opex efficiencies, allowing us to re-invest based on customers' actual and predicted profitability.

3. Digital operations

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

Fit for Growth is our comprehensive cost efficiency programme designed to drive operating leverage and margin expansion, enabling us to invest in enhancing customer experience. We have continued to make good progress in H1, delivering an absolute reduction in our operating cost base on an organic basis for the second year in succession. Areas of significant cost savings include procurement, shared service centres, improved sales channel efficiency, standardised network design as well as zero based budgeting initiatives. Fit4Growth has greatly contributed to improving our cost structure. Across the Group, 19 out of 26 markets grew adjusted EBITDA faster than service revenue in H1, driving a 2.5 percentage point improvement in the Group's adjusted EBITDA margin to 32.0%.

 

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

1. The year-over-year change in organic adjusted EBITDA excluding the impact of European roaming (defined as the increase in visitor revenues less the increase in roaming costs and the decline in out-of-bundle roaming revenues), the effect of introduction of handset financing in the UK and the benefit of regulatory settlements in the UK.

2. The results for the half year ended 30 September 2016 have been restated to exclude the results of Vodafone India which has been classified as discontinued operations for Group reporting purposes following the agreement to combine with Idea Cellular. In addition, free cash flow has been redefined to include restructuring and licence and spectrum payments to ensure greater comparability with similarly titled measures and disclosures by other companies.

3. Group revenue and service revenue include the regional results of Europe, AMAP, Other (which includes the results of partner market activities) and eliminations.

4. Half year ended 30 September 2016 includes a gross impairment charge €6,375 million recorded in respect of the Group's investment in India, which together with the recognition of an associated €1,375 million deferred tax asset, led to an overall €5.0 billion reduction in the carrying value of Vodafone India.

5. 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 42 for reconciliations to the closest respective equivalent GAAP measure and "Definition of terms" on page 52 for further details.

 

 

GUIDANCE

 

Please see page 42 for "Alternative performance measures", page 52 for "Definition of terms" and page 54 for "Forward-looking statements".

2018 financial year guidance1

 

 

 

Adjusted EBITDA

€bn

Free cash flow

(pre-spectrum)

€bn




Original guidance (excluding Vodafone

India)

'Organic growth of 4-8%', (implying

€14.0 - €14.5 billion at guidance

exchange rates)2

'Around €5 billion'




Updated guidance

'Organic growth of around 10%,

(implying €14.75-€14.95 billion at

guidance exchange rates)2

'To exceed €5 billion'




We now expect adjusted EBITDA to grow organically by around 10%; this implies a range of €14.75 billion to €14.95 billion at guidance exchange rates. We now expect free cash flow (pre-spectrum) to exceed €5 billion, before the impact of M&A, spectrum payments and restructuring costs.

The improvement to the outlook primarily reflects stronger than expected underlying European revenue growth and a later than anticipated commercial launch by the new entrant in Italy.

In addition, regulatory headwinds from roaming have been partially mitigated by the strong growth of visitor revenues; the benefit from the introduction of handset financing in the UK is likely to be larger than originally anticipated, reflecting an improved mix of high value contract customers; and in H1, the Group benefited from non-recurring regulatory settlements in the UK of €0.1 billion. In aggregate, these three factors are now expected to contribute approximately €0.3 billion to EBITDA in FY2018, compared to a net contribution of zero previously (as we originally expected the benefit from UK handset financing to be offset by the drag from roaming). We continue to expect the benefit from handset financing in the UK to largely reverse during the next financial year.

We expect our capital expenditure expressed as a percentage of our revenues to remain in the 'mid-teens', both in the current fiscal year and over the medium term, excluding capital expenditure associated with our recently announced 'Gigabit Investment Plan' for Germany. The Plan is expected to ramp up from FY2018/19 and anticipates incremental capital expenditure of around €2 billion over a four-year period.

Assumptions

, €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 payments, and any fundamental structural change to the Eurozone. It also assumes no material change to the current structure of the Group.

 

Notes:

1. Adjusted EBITDA and free cash flow (pre-spectrum) 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 (pre-spectrum) measures 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 42 for more information and reconciliations to the guidance basis.

2. 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). Organic adjusted EBITDA growth excludes shareholder recharges received from Vodafone Netherlands, VodafoneZiggo and Vodafone India.

 

CONTENTS

 


Page

Financial results

Liquidity and capital resources

19 

Risk factors

22 

Responsibility statement

23 

Unaudited condensed consolidated financial statements

24 

Alternative performance measurements

42 

Additional information

49 

Other information (including forward-looking statements)

52 



 

FINANCIAL RESULTS

 

Group1, 2







Six months ended

30 September










Restated

Growth



Europe

AMAP

Other3 

Eliminations

2017 

2016 

Reported

Organic*


€m 

€m 

€m 

€m 

€m 

€m 

Continuing operations  









Mobile customer revenue

9,635 

3,757 

19 

(3)

13,408 

14,390 



Mobile incoming revenue

697 

342 

(3)

1,036 

1,238 



Other service revenue

714 

209 

180 

(17)

1,086 

1,155 



Mobile service revenue

11,046 

4,308 

199 

(23)

15,530 

16,783 



Fixed service revenue

4,327 

495 

291 

(51)

5,062 

5,028 



Service revenue

15,373 

4,803 

490 

(74)

20,592 

21,811 

(5.6)

1.7 

Other revenue

1,402 

896 

185 

2,483 

2,240 



Revenue

16,775 

5,699 

675 

(74)

23,075 

24,051 

(4.1)

3.1 

Direct costs

(3,570)

(1,298)

(486)

73 

(5,281)

(5,796)



Customer costs

(3,559)

(1,230)

17 

(4,772)

(4,980)



Operating expenses

(4,063)

(1,318)

(257)

(5,637)

(6,185)



Adjusted EBITDA

5,583 

1,853 

(51)

7,385 

7,090 

4.2 

13.0 

Depreciation and amortisation:










Acquired intangibles

(63)

(59)

(122)

(123)




Purchased licences

(674)

(89)

(763)

(774)




Other

(3,291)

(703)

(49)

(4,043)

(4,143)



Adjusted EBIT

1,555 

1,002 

(100)

2,457 

2,050 

19.9 

51.9 

Share of adjusted results in associates and joint ventures

17 

155 

(1)

171 

73 



Adjusted operating profit/(loss)

1,572 

1,157 

(101)

2,628 

2,123 

23.8 

54.7 

Restructuring costs

(33)

(37)



Amortisation of acquired customer base and brand intangible assets

(543)

(515)



Other income and expense





(44)

(56)



Operating profit




2,008 

1,515 



Non-operating income and expense

(1)



Net investment income/(financing costs)

152 

(123)



Income tax expense4

(579)

(1,114)



Profit for the financial period from continuing operations

1,580 

278 



Loss for the financial period from discontinuing operations

(345)

(5,281)



Profit/(loss) for the financial period

1,235 

(5,003)



Attributable to:





 - Owners of the parent

1,131 

(5,129)



 - Non-controlling interests

104 

126 



 

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

1. The results for the half year ended 30 September 2016 have been restated to exclude the results of Vodafone India which has been classified as discontinued operations for Group reporting purposes following the agreement to combine with Idea Cellular. Group revenue and service revenue include the regional results of Europe, AMAP, Other (which includes the results of partner market activities) and eliminations. Current period reflects average foreign exchange rates of €1:£0.88, €1:INR 73.25, €1:ZAR 15.01, €1:TKL 4.03 and €1: EGP 20.38.

2. 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 42 for more information and reconciliations to the closest respective equivalent GAAP measure and "Definition of terms" on page 52 for further details.

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

4. Refer to page 17 for further details.

 

 

FINANCIAL RESULTS

Europe







Other



Growth



Germany 

Italy

UK 

Spain

Europe

Eliminations 

Europe

Reported

Organic*



€m 

€m

€m 

€m 

€m 

€m 

€m 

%

%

30 September 2017










Mobile customer revenue

2,683 

1,889 

2,070 

1,369 

1,624 

9,635 



Mobile incoming revenue

106 

172 

152 

83 

197 

(13)

697 



Other service revenue

257 

127 

155 

106 

138 

(69)

714 



Mobile service revenue

3,046 

2,188 

2,377 

1,558 

1,959 

(82)

11,046 



Fixed service revenue

2,016 

485 

697 

768 

365 

(4)

4,327 



Service revenue

5,062 

2,673 

3,074 

2,326 

2,324 

(86)

15,373 

(5.8)

0.8 

Other revenue

215 

434 

441 

186 

128 

(2)

1,402 



Revenue

5,277 

3,107 

3,515 

2,512 

2,452 

(88)

16,775 

(4.4)

2.5 

Direct costs

(969)

(607)

(736)

(683)

(663)

88 

(3,570)



Customer costs

(1,102)

(661)

(889)

(502)

(405)

(3,559)



Operating expenses

(1,277)

(639)

(960)

(576)

(611)

(4,063)



Adjusted EBITDA

1,929 

1,200 

930 

751 

773 

5,583 

5.4 

13.0 

Depreciation and amortisation:











Acquired intangibles

(61)

(2)

(63)




Purchased licences

(350)

(22)

(214)

(33)

(55)

(674)




Other

(1,081)

(553)

(595)

(586)

(476)

(3,291)



Adjusted EBIT

498 

564 

121 

132 

240 

1,555 

27.8 

66.5 

Share of adjusted results in associates and joint ventures

15 

17 



Adjusted operating profit

500 

564 

121 

132 

255 

1,572 

29.7 

66.9 

Adjusted EBITDA margin

36.6%

38.6%

26.5%

29.9%

31.5%


33.3%



30 September 2016 restated










Mobile customer revenue

2,652 

1,869 

2,299 

1,360 

2,284 

10,464 



Mobile incoming revenue

143 

181 

174 

80 

252 

(14)

816 



Other service revenue

260 

141 

161 

114 

177 

(81)

772 



Mobile service revenue

3,055 

2,191 

2,634 

1,554 

2,713 

(95)

12,052 



Fixed service revenue

1,954 

428 

767 

719 

404 

(5)

4,267 



Service revenue

5,009 

2,619 

3,401 

2,273 

3,117 

(100)

16,319 



Other revenue

256 

387 

174 

223 

187 

(3)

1,224 



Revenue

5,265 

3,006 

3,575 

2,496 

3,304 

(103)

17,543 



Direct costs

(1,050)

(627)

(888)

(636)

(799)

102 

(3,898)



Customer costs

(1,132)

(598)

(912)

(563)

(599)

(3,803)



Operating expenses

(1,295)

(677)

(1,101)

(605)

(866)

(4,544)



Adjusted EBITDA

1,788 

1,104 

674 

692 

1,040 

5,298 



Depreciation and amortisation:











Acquired intangibles

(61)

(2)

(63)




Purchased licences

(331)

(18)

(230)

(33)

(50)

(662)




Other

(1,161)

(550)

(614)

(551)

(480)

(3,356)



Adjusted EBIT

296 

475 

(170)

108 

508 

1,217 



Share of adjusted results in associates and joint ventures

(1)

(6)

(5)



Adjusted operating profit/(loss)

298 

474 

(170)

108 

502 

1,212 



Adjusted EBITDA margin

34.0%

36.7%

18.9%

27.7%

31.5%


30.2%



Change at constant exchange rates (%)





Mobile customer revenue

1.2 

1.0 

(3.3)

0.7 

(29.2)





Mobile incoming revenue

(25.5)

(4.6)

(6.3)

3.2 

(22.5)





Other service revenue

(2.0)

(10.1)

2.8 

(6.7)

(21.4)





Mobile service revenue

(0.3)

(0.1)

(3.1)

0.3 

(28.0)





Fixed service revenue

3.2 

13.4 

(2.3)

6.8 

(9.8)





Service revenue

1.0 

2.1 

(2.9)

2.3 

(25.7)





Other revenue

(15.7)

12.2 

171.0 

(16.6)

(32.5)





Revenue

0.2 

3.4 

5.6 

0.6 

(26.1)





Direct costs

(7.7)

(3.0)

(11.1)

7.3 

(17.5)





Customer costs

(2.7)

10.5 

4.6 

(10.7)

(32.6)





Operating expenses

(1.4)

(5.7)

(6.3)

(4.9)

(29.5)





Adjusted EBITDA

7.9 

8.7 

48.2 

8.6 

(26.1)





Depreciation and amortisation:











Acquired intangibles






Purchased licences

5.8 

26.2 

(0.7)

8.3 






Other

(6.9)

0.5 

4.0 

6.5 

(1.5)





Adjusted EBIT

68.5 

18.6 

NM

22.2 

(52.9)





Share of adjusted results in associates and joint ventures

(12.7)

(86.6)

(357.1)





Adjusted operating profit/(loss)

67.9 

18.9 

NM

22.2 

(49.4)





Adjusted EBITDA margin (pps)

2.6 

1.9 

7.6 

2.2 

0.0 





 

Revenue decreased by 4.4%. Foreign exchange movements contributed a 1.3 percentage point negative impact, and the deconsolidation of Vodafone Netherlands contributed a 5.6 percentage point negative impact. On an organic basis, service revenue increased by 0.8%*, driven by customer growth in mobile and fixed and stabilising contract ARPU across all of our major markets despite increased regulatory headwinds following the implementation of the EU's 'Roam Like At Home' policy in June. The drag from roaming was lower than originally anticipated given strong growth of visitor revenues in Q2. Excluding regulation (the impact of EU roaming and MTR cuts), service revenue growth was 1.9%* (Q1: 1.7%*, Q2: 2.1%*).

Adjusted EBITDA increased 5.4%, including a 6.8 percentage point negative impact from the deconsolidation of Vodafone Netherlands, and a 0.8 percentage point negative impact from foreign exchange movements. On an organic basis, adjusted EBITDA increased 13.0%*, supported by the introduction of handset financing in the UK and regulatory settlements in the UK. Excluding these items, as well as the net impact of roaming, EBITDA grew 8.2%* reflecting operating leverage and tight cost control through our 'Fit for Growth' programme.

Adjusted EBIT increased by 66.5%*, reflecting strong adjusted EBITDA growth and stable depreciation and amortisation expenses.



Other activity




Reported 

(including

Foreign 

Organic*


change 

M&A)

exchange 

change 


pps 

pps 

Europe revenue

(4.4)

5.6 

1.3 

2.5 

Service revenue





Germany

1.1 

0.1 

(0.1)

1.1 

Italy

2.1 

0.2 

2.3 

UK

(9.6)

0.1 

6.7 

(2.8)

Spain

2.3 

0.5 

2.8 

Other Europe

(25.4)

28.4 

(0.3)

2.7 

Europe service revenue

(5.8)

5.3 

1.3 

0.8 

Adjusted EBITDA





Germany

7.9 

(0.2)

7.7 

Italy

8.7 

0.1 

8.8 

UK

38.0 

(1.6)

10.2 

46.6 

Spain

8.5 

1.0 

0.1 

9.6 

Other Europe

(25.7)

32.6 

(0.4)

6.5 

Europe adjusted EBITDA

5.4 

6.8 

0.8 

13.0 

Europe adjusted EBIT

27.8 

40.0 

(1.3)

66.5 

Europe adjusted operating profit

29.7 

38.6 

(1.4)

66.9 

 

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

 

Germany

Mobile service revenue declined 0.2%* (Q1: -1.1%*, Q2: 0.7%*) as a higher customer base was offset by regulatory headwinds and lower wholesale revenue. Excluding regulation, mobile service revenue grew 1.9%* (Q1: 1.0%*, Q2: 2.8%*) driven by a higher contract customer base. Contract customer additions grew 301,000 in the first half of the year (+273,000 year-on-year) driven by the seasonal success of our new GigaCube fixed-wireless proposition, higher activity in direct channels and lower consumer churn. In Enterprise the market remained competitive, however ARPU declines continued to moderate. We now have 4G population coverage of 91% with the ability to offer 500Mbps in 20 cities, and we are currently piloting 1Gbps services in 2 cities.

Fixed service revenue grew 3.2%* (Q1: 3.4%*, Q2: 3.0%*) driven by good customer growth, with 194,000 broadband customers added during H1, of which 136,000 were on cable with the rest on DSL. Our TV base remained stable at 7.7 million. Supported by our GigaKombi propositions, we added 110,000 converged customers to reach a total converged consumer customer base of 0.5 million.

In September we announced our 'Gigabit Investment Plan' with approximately €2 billion of incremental capital expenditure on ultrafast broadband services by the end of calendar year 2021. We expect this success-based plan to drive incremental growth and attractive returns as we deploy fibre to Enterprises in up to 2,000 business parks across Germany, partner with local municipalities to reach around 1 million rural consumer homes with fibre, and upgrade our existing cable infrastructure to deliver 1Gbps speeds to 12.6 million households.

Adjusted EBITDA grew 7.7%*, driven by service revenue growth and strong cost control. As a result, our adjusted EBITDA margin improved by 2.6 percentage points to 36.6%.

 

Italy

Mobile service revenue grew 0.1%* (Q1: 0.9%*, Q2: -0.7%). The prepaid pricing environment remained highly competitive during the first half of the year, particularly in promotional below-the-line offers. As a result, total market mobile number portability ('MNP') volumes grew 26% year-on-year. Despite these pressures, the decline in our prepaid customer base was mitigated by our advanced data analytics capability, which delivers personalised offers to customers, and by our market leading mobile network quality with 4G population coverage now at 98%.

Fixed service revenue was up 13.4%* (Q1: 14.4%*, Q2: 12.3%*) driven by continued strong customer base growth and higher ARPU. We added 112,000 broadband households in H1, and in total our broadband customer base is now 2.3 million. At the end of the period we reached 5.2 million marketable households through our owned NGN footprint and our strategic partnership with Open Fiber. In October, we launched our new converged proposition 'Vodafone One', providing customers with a single fibre and 4.5G offer that can be enriched with market-leading entertainment via Vodafone TV as well as exclusive advantages for family members. We have 583,000 converged consumer households.

UK

Spain

Vodafone One, our fully integrated fixed, mobile and TV service, reached 2.5 million households at the end of the period, up 459,000 year-on-year. In May we launched a basic convergent proposition through our secondary brand Lowi, which is focused on the value segment. Consumer converged revenues grew by 17.0% in H1 and now represent 58% of total consumer revenue.

Adjusted EBITDA growth was strong at 9.6%*, with a 2.2 percentage point improvement in adjusted EBITDA margin to 29.9%. This was driven by service revenue growth and lower commercial and operating costs; these more than offset higher content and wholesale fixed access costs.

Other Europe

VodafoneZiggo Joint Venture

 

Africa, Middle East and Asia Pacific







Growth



Vodacom 

Other AMAP

Eliminations 

AMAP

Reported

Organic*



€m 

€m 

€m 

€m 

%

%

30 September 2017







Mobile customer revenue

1,996 

1,761 

3,757 



Mobile incoming revenue

80 

262 

342 



Other service revenue

121 

88 

209 



Mobile service revenue

2,197 

2,111 

4,308 



Fixed service revenue

113 

382 

495 



Service revenue

2,310 

2,493 

4,803 

(3.8)

7.0 

Other revenue

489 

407 

896 



Revenue

2,799 

2,900 

5,699 

(3.2)

7.1 

Direct costs

(361)

(937)

(1,298)



Customer costs

(737)

(493)

(1,230)



Operating expenses

(638)

(680)

(1,318)



Adjusted EBITDA

1,063 

790 

1,853 

(2.1)

8.5 

Depreciation and amortisation:








Acquired intangibles

(43)

(16)

(59)




Purchased licences

(2)

(87)

(89)




Other

(325)

(378)

(703)



Adjusted EBIT

693 

309 

1,002 

2.0 

11.1 

Share of adjusted results in associates and joint ventures

29 

126 

155 



Adjusted operating profit

722 

435 

1,157 

9.2 

18.5 

Adjusted EBITDA margin

38.0%

27.2%


32.5%



30 September 2016 restated







Mobile customer revenue

1,805 

2,117 

3,922 



Mobile incoming revenue

100 

322 

422 



Other service revenue

99 

79 

178 



Mobile service revenue

2,004 

2,518 

4,522 



Fixed service revenue

80 

389 

469 



Service revenue

2,084 

2,907 

4,991 



Other revenue

380 

515 

895 



Revenue

2,464 

3,422 

5,886 



Direct costs

(321)

(1,084)

(1,405)



Customer costs

(600)

(586)

(1,186)



Operating expenses

(591)

(812)

(1,403)



Adjusted EBITDA

952 

940 

1,892 



Depreciation and amortisation:








Acquired intangibles

(39)

(21)

(60)




Purchased licences

(3)

(109)

(112)




Other

(268)

(470)

(738)



Adjusted EBIT

642 

340 

982 



Share of adjusted results in associates and joint ventures

78 

78 



Adjusted operating profit

642 

418 

1,060 



Adjusted EBITDA margin

38.6%

27.5%


32.1%



Change at constant exchange rates (%)





Mobile customer revenue

4.2 

8.9 





Mobile incoming revenue

(23.1)

11.7 





Other service revenue

13.4 

41.4 





Mobile service revenue

3.3 

10.3 





Other service revenue

36.1 

5.1 





Service revenue

4.5 

9.4 





Other revenue

19.3 

(4.2)





Revenue

6.8 

7.3 





Direct costs

8.7 

8.1 





Customer costs

13.2 

1.1 





Operating expenses

3.1 

3.4 





Adjusted EBITDA

4.4 

14.4 





Depreciation and amortisation:








Acquired intangibles

0.4 






Purchased licences

(10.8)

(6.0)






Other

14.4 

2.6 





Adjusted EBIT

0.6 

44.9 





Share of adjusted results in associates and joint ventures

NM

69.5 





Adjusted operating profit

4.7 

51.2 





Adjusted EBITDA margin (pps)

(0.9)

1.7 





Revenue decreased 3.2%, with strong organic growth offset by a 10.3 percentage point adverse impact from foreign exchange movements, particularly with regards to the Turkish lira and Egyptian pound. On an organic basis service revenue was up 7.0%* driven by strong commercial momentum in South Africa, Turkey and Egypt.

Adjusted EBITDA decreased 2.1%, including a 10.6 percentage point adverse impact from foreign exchange movements. On an organic basis, adjusted EBITDA grew 8.5%*, driven by service revenue growth and a continued focus on cost control and efficiencies to offset inflationary pressures. Adjusted EBIT increased 11.1%*.



Other activity




Reported 

(including

Foreign 

Organic*


change 

M&A)

exchange 

change 


pps 

pps 

AMAP revenue

(3.2)

10.3 

7.1 

Service revenue





Vodacom

10.8 

(6.3)

4.5 

Other AMAP

(14.2)

0.1 

23.6 

9.5 

AMAP service revenue

(3.8)

10.8 

7.0 

Adjusted EBITDA





Vodacom

11.7 

(7.3)

4.4 

Other AMAP

(16.0)

0.1 

30.4 

14.5 

AMAP adjusted EBITDA

(2.1)

10.6 

8.5 

AMAP adjusted EBIT

2.0 

0.1 

9.0 

11.1 

AMAP adjusted operating profit

9.2 

0.1 

9.2 

18.5 

 

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

 

Vodacom

Other AMAP

Associates and joint ventures

India1

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



Six months ended 30 September


Growth



2017


2016


Reported

Organic*



€m 


€m 


%

%

Mobile customer revenue

1,914 


2,433 




Mobile incoming revenue

435 


328 




Other service revenue

88 


105 




Mobile service revenue

2,437 


2,866 




Fixed service revenue

164 


139 




Service revenue

2,601 


3,005 


(13.4)

(15.8)

Other revenue


10 




Revenue

2,610 


3,015 


(13.4)

(15.8)

Direct costs

(758)


(836)




Customer costs

(142)


(148)




Operating expenses

(1,153)


(1,139)




Adjusted EBITDA

557 


892 


(37.6)

(39.2)

Depreciation and amortisation:








Acquired intangibles


(37)





Purchased licences


(210)





Other

(13)


(422)




Adjusted EBIT and operating profit

544 


223 


143.9 

136.5 

Impairment loss2 


(6,375)




Other

(54)


(65)




Operating profit/(loss)

490 


(6,217)




Adjusted EBITDA margin

21.3%


29.6%




Capital additions

394 


447 




Closing net debt3 

(8,022)


(4,736)




 

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

1. In accordance with IFRS, the results of Vodafone India were classified as discontinued operations with effect from 20 March 2017, after which depreciation and amortisation of assets ceased.

2. Half year ended 30 September 2016 includes a gross impairment charge €6,375 million recorded in respect of the Group's investment in India, which together with the recognition of an associated €1,375 million deferred tax asset, led to an overall €5.0 billion reduction in the carrying value of Vodafone India.

3. Closing net debt at 30 September 2016 comprised €2,784 million of external net debt and €1,952 million of internal financing.

 

Group results

Revenue

Operating profit

Net investment income/(net financing costs)




Six months ended 30 September






Restated




2017 


2016 




€m 


€m 



333 


552 

Financing costs


(181)


(675)

Net investment income/(net financing costs)


152 


(123)

Analysed as:






Net financing costs before interest on settlement of tax issues


(312)


(355)


Interest expense arising on settlement of outstanding tax issues


(33)


(31)




(345)


(386)

Mark to market gains


195 


24 

Foreign exchange1


302 


239 



152 


(123)

 

Note:

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

 

Net financing costs decreased by €275 million primarily driven by an increase in mark to market gains (including economic hedges of the mandatory convertible bond) and favourable foreign exchange rate movements. Net financing costs before interest on settlement of tax issues remained stable, reflecting consistent average net debt balances and weighted average borrowing costs for both periods.

 

Taxation




Six months ended 30 September






Restated1




2017 


2016 




€m 


€m 

Income tax expense:


(579)


(1,114)

Tax on adjustments to derive adjusted profit before tax


(29)


(104)

Deferred tax following revaluation of investments in Luxembourg



588 

Additional deferred tax asset recognised in the period


(159)


Deferred tax on use of Luxembourg losses in the period


168 


230 

Tax on the Safaricom transaction


110 


Adjusted income tax expense for calculating adjusted tax rate


(489)


(400)

Profit before tax


2,159 


1,392 

Adjustments to derive adjusted profit before tax2


214 


280 

Adjusted profit before tax3


2,373 


1,672 

Share of adjusted results in associates and joint ventures


(171)


(73)

Adjusted profit before tax for calculating adjusted effective tax rate


2,202 


1,599 

Adjusted effective tax rate3


22.2% 


25.0% 

 

Notes:

1. 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.

2. See "Earnings per share" on page 18.

3. Adjusted profit before tax and adjusted effective tax are alternative performance measures. Alternative performance measures are non-GAAP measures that are presented to provide readers with additional financial information that is regularly reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measure. See "Alternative performance measures" on page 42 for further details.

 

The Group's adjusted effective tax rate for its controlled businesses for the six months ended 30 September 2017 was 22.2% compared to 25.0% for the same period during the last financial year. The lower rate in the current year is primarily due to a change in the country mix of the Group's profits, and a reduction in the corporate tax rate in Italy. 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 periods does not include the following items: deferred tax on the use of Luxembourg losses of €168 million (2016: €230 million); additional deferred tax recognition in Luxembourg of €159 million (2016: €nil), reflecting additional losses expected to be utilised, and a tax charge in respect of capital gains on the transfer of shares in Vodafone Kenya Limited to the Vodacom Group of €110m (2016: €nil). The prior year also included a decrease in the deferred tax asset of €588 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.

Adjusted earnings per share

Adjusted earnings per share, which excludes the results of Vodafone India which are now included in discontinued operations, were 6.32 eurocents, an increase of 54.9% year-on-year, as higher adjusted operating profit and lower net financing costs more than offset the increase in income tax expense.

Basic earnings per share were 4.03 eurocents, compared to a loss per share of 18.38 eurocents for the period ended 30 September 2016, with the increase largely due to the prior period including a non-cash impairment charge of €5.0 billion, net of tax, recognised in discontinued operations in respect of the Group's investment in India.




Six months ended 30 September






Restated




2017 


2016 




€m 


€m 







Profit/(loss) attributable to owners of the parent


1,131 


(5,129)

Adjustments:






Amortisation of acquired customer base and brand intangible assets


543 


515 


Restructuring costs


33 


37 


Other income and expense


44 


56 


Non-operating income and expense




Investment income and financing costs


(407)


(328)




214 


280 

Taxation1 


90 


714 

India2 


345 


5,281 

Non-controlling interests


(7)


(8)

Adjusted profit attributable to owners of the parent3 


1,773 


1,138 




Million 


Million 

Weighted average number of shares outstanding - basic4 


28,067 


27,912 







Earnings per share








eurocents


eurocents

Basic earnings/(loss) per share


4.03c


(18.38c)

Adjusted earnings per share3 


6.32c


4.08c

 

Notes:

1. Half year ended 30 September 2017 includes a tax charge of €110m relating to a tax charge in respect of capital gains on the transfer of shares in Vodafone Kenya Limited to the Vodacom Group. Half year ended 30 September 2016 includes a reduction in the deferred tax asset of €588 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 reduction in the deferred tax asset as a result of lower interest rates.

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

3. Adjusted profit attributable to owners of the parent and adjusted earnings per share are alternative performance measures. Alternative performance measures are non-GAAP measures that are presented to provide readers with additional financial information that is regularly reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measure. See "Alternative performance measures" on page 42 for further details.

4. Weighted average number of shares outstanding includes a dilution of 1,292 million shares (2016: 1,325 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.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

Cash flows and funding



Six months ended 30 September




Restated1



2017 

2016 



€m 

€m 

Adjusted EBITDA


7,385 

7,090 

Capital additions2


(3,263)

(3,526)

Working capital


(2,294)

(2,925)

Disposal of property, plant and equipment


Other


65 

50 

Operating free cash flow3


1,902 

696 

Taxation


(400)

(468)

Dividends received from associates and investments


284 

129 

Dividends paid to non-controlling shareholders in subsidiaries


(154)

(274)

Interest received and paid


(343)

(231)

Free cash flow (pre-spectrum)3


1,289 

(148)

Licence and spectrum payments


(747)

(138)

Restructuring payments


(127)

(142)

Free cash flow3


415 

(428)

Acquisitions and disposals


1,079 

(61)

Equity dividends paid


(2,637)

(2,449)

Share buybacks


(549)

Foreign exchange


693 

(413)

Other4


113 

(5,732)

Net debt increase


(886)

(9,083)

Opening net debt


(31,169)

(28,801)

Closing net debt


(32,055)

(37,884)

 

Notes:

1. Cash flows and funding for the half year ended 30 September 2016 excludes the cash flows, funding and net debt of Vodafone India.

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

3. Operating free cash flow, free cash flow (pre-spectrum) and free cash flow are alternative performance measures which are non-GAAP measures that are presented to provide readers with additional financial information that is regularly reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measure. See "Alternative performance measures" on page 42 for more information and reconciliations to the closest respective equivalent GAAP measure and "Definition of terms" on page 52 for further details.

4. Other cash flows for the period ended 30 September 2017 includes €nil (2016: €5,416 million) capital injection into Vodafone India.

 

 

Operating free cash flow increased €1.2 billion mainly due to higher organic EBITDA and lower working capital cash outflows, predominately relating to the final payments for Project Spring in the prior year.

Free cash flow (pre-spectrum) was €1.3 billion, an increase of €1.4 billion, largely driven by the €1.2 billion increase in operating free cash flow (see above) and €0.2 billion higher dividends, primarily from VodafoneZiggo.

Licence and spectrum payments include amounts relating to the purchase of spectrum in Italy of €0.6 billion and Germany of €0.1 billion (2016: €0.1 billion).

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

A foreign exchange gain of €0.7 billion was recognised on net debt as a result of the translation impact of closing foreign exchange rates, mainly due to movements in the US Dollar and Sterling against the euro.

Closing net debt at 30 September 2017 was €32.1 billion (31 March 2017: €31.2 billion) and excludes €8.0 billion of net debt for Vodafone India, which is instead included in assets and liabilities held for sale on the consolidated statement of financial position; the remaining £1.4 billion mandatory convertible bond issued in February 2016 which will be settled in equity shares; £1.0 billion of accruals for the new irrevocable and non-discretionary share buyback programme; US$2.5 billion of loan notes receivable from Verizon Communications Inc.; and €1.0 billion of shareholder loans receivable from VodafoneZiggo.

Closing net debt also continues to include liabilities of €1.9 billion (31 March 2017: €1.8 billion) relating to minority holdings in KDG and certain bonds which are reported at an amount €1.8 billion (31 March 2017: €2.0 billion) higher than their euro-equivalent cash redemption value as a result of hedge accounting under IFRS. In addition, where bonds are issued in currencies other than euros, the Group has entered into foreign currency swaps to fix the euro cash outflows on redemption. The impact of these swaps are not reflected in gross debt and would increase the euro equivalent redemption value of the bonds by €0.2 billion (31 March 2017: reduction €0.9 billion).

Analysis of net debt:









30 September

31 March




2017 

2017 




€m 

€m 






Bonds


(33,056)

(34,381)

Commercial paper1


(3,859)

(3,648)

Put options over non-controlling interests2


(1,876)

(1,837)

Bank loans


(3,010)

(3,608)

Cash collateral liabilities 


(2,004)

(2,654)

Other borrowings3


(376)

(444)

Gross borrowings


(44,181)

(46,572)

Derivative financial instruments4


(2,312)

(2,077)

Gross debts


(46,493)

(48,649)

Cash and cash equivalents5


5,365 

8,835 

Other financial instruments: 





Mark to market derivative financial instruments6


3,730 

4,282 


Short term investments7


4,867 

3,979 

Cash collateral8


476 

384 

Total cash and cash equivalents and other financial instruments  


14,438 

17,480 

Net debt  


(32,055)

(31,169)

 

Notes:

1. At 30 September 2017 US$406 million (31 March 2017: US$1,484 million) was drawn under the US commercial paper programme and €3,515 million (31 March 2017: €2,262 million) was drawn under the euro commercial paper programme.

2. Includes a €1.9 billion (31 March 2017: €1.8 billion) liability for payments due to holders of the equity shares in Kabel Deutschland AG under the terms of a domination and profit and loss transfer agreement.

3. At 30 September 2017 the amount includes €46 million (31 March 2017: €80 million) in relation to the debt component of the mandatory convertible bonds.

4. Comprises mark-to-market adjustments on derivative financial instruments which are included as a component of trade and other payables (30 September 2017: €2,312 million, 31 March 2017: €2,077 million).

5. Includes cash and cash equivalents of €7 million (31 March 2017: €nil) in respect of assets held for sale.

6. Comprises mark-to-market adjustments on derivative financial instruments which are included as a component of trade and other receivables (30 September 2017: €3,730 million; 31 March 2017: €4,282 million).

7. At 30 September 2017 the amount primarily includes €2,495 million (31 March 2017: €2,039 million) in managed investment funds, €1,130 million (31 March 2017: €1,172 million) of gilts used as collateral primarily passed in relation to put options issued with regards to the mandatory convertible bonds with maturities 2017 and 2019, €452 million (31 March 2017: €466 million) in index-linked government bonds and €670 million (31 March 2017: €182 million) short-term investments in a fund where the underlying assets are supply chain receivables.

8. At 30 September 2017 the amount includes €476 million (31 March 2017: €384 million) in relation to cash paid under collateral support agreements.

The following table sets out the Group's undrawn committed bank facilities:



30 September



2017 


Maturity

€m 

US$4.1 billion committed revolving credit facility1

February 2022

3,465 

€4.0 billion committed revolving credit facility1

March 2021

4,010 

Other committed credit facilities

Various

193 

Undrawn committed facilities


7,668 

 

Note:

1. Both facilities support US and euro commercial paper programmes of up to US$15 billion and €8 billion respectively. US$155 million and €150 million of the US$ and € facilities mature in February 2020 and March 2020 respectively.

 

Share buyback programme

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

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


Number of shares purchased1

Average price paid per share inclusive of transaction costs

Total number of shares purchased under publicly announced share buyback programme2

Maximum number of shares that may yet be purchased under the programme3

Date of share purchase

000

Pence

000

000

August 2017

9,562 

221.77 

9,562 

719,515 

September 2017

252,851 

212.07 

262,413 

466,664 

October 2017

320,849 

215.15 

583,262 

145,815 

November 2017 (to date)

119,303 

219.75 

702,565 

26,512 

Total4

702,565 

214.91 

702,565 

26,512 

 

Notes:

1. The nominal value of shares purchased is 2020/21 US cents each.

2. No shares were purchased outside the publicly announced share buyback programme.

3. In accordance with shareholder authority granted at the 2017 Annual general meeting.

4. The total number of shares purchased represents 2.6% of our issued share capital, excluding treasury shares, at 13 November 2017.

 

Post employment benefits

During the six months ended 30 September 2017, the net deficit arising from the Group's obligations in respect of its defined benefit schemes increased to €0.8 billion compared to €0.6 billion at 31 March 2017 primarily due to a €0.1 billion reduction in the value of plan assets during the period and €0.1 billion of actuarial losses arising from changes in financial assumptions, principally due to a decrease in the discount rates in the UK and Eurozone.

On 19 October 2017, the triennial actuarial valuation for the Vodafone Section and Cable & Wireless Section of the Vodafone UK Group Pension Scheme ('Vodafone UK plan') was completed by independent actuaries appointed by the plan Trustees, with an effective date of 31 March 2016. These valuations showed a net deficit of £279 million (€317 million) on the schemes' funding basis, comprising of a £339 million (€385 million) deficit for the Vodafone Section offset by a £60 million (€68 million) surplus for the Cable & Wireless Section. The Group and Trustees of the schemes have agreed a funding plan to address the valuation deficit over the period to 31 March 2025. This funding plan will utilise existing Group assets and will not require material near term cash outflows from the Group.

Dividends

Dividends will continue to be declared in euros and paid in euros, pounds sterling and US dollars, aligning the Group's shareholder returns with the primary currency in which we generate free cash flow. 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.

The directors have announced an interim dividend per share of 4.84 eurocents, representing a 2.1% increase over the prior financial year's interim dividend. The ex-dividend date for the interim dividend is 23 November 2017 for ordinary shareholders, the record date is 24 November 2017 and the dividend is payable on 2 February 2018. Dividend payments on ordinary shares will be paid directly into a nominated bank or building society account.

 

 

RISK FACTORS

There are a number of key factors and uncertainties that could have a significant effect on the Group's financial performance, including the following:

1.

Cyber threat and information security


A successful cyber attack or internal event could result in us not being able to deliver services to our customers and/or failing to protect their data.

2.

Market disruption


We face increased competition from a variety of new technology providers, new market entrants, evolving customer needs and competitor consolidation. We must be able to keep pace with new technology and to compete in changing markets.

3.

Adverse political and regulatory measures


We operate under licence in most markets and encounter frequent changes in regulation, law and operating environments. Significant adverse changes, for example to tax laws, spectrum pricing or an unfavourable regulatory landscape for multi-national companies, could impact our ability to do business in our preferred manner.

4.

Failure to converge and integrate acquisitions


We face competition in key markets from providers who have the ability to sell converged services on their existing infrastructure, with regulation that often fails to deliver a level playing field across fixed and content markets.

5.

IT transformation failure


As we undertake major IT change programmes in a number of markets, there is a risk that these projects could disrupt services or do not provide the benefits that they should in a timely manner.

6.

Unstable economic conditions / inadequate liquidity


As a multinational business, we operate in many countries and currencies so changes to global economic conditions could impact us. A global crisis could result in reduced spending power for customers or the strengthening or weakening of the major currencies in which we transact could impact our profitability and cash flow.

7.

Technology failure


If our network or IT systems fail, voice, video or data transmissions may be significantly interrupted. We need to ensure that our critical assets are protected and our systems are resilient so that the impact on our customers is avoided or minimised.

8.

Failure to deliver on digital transformation and customer experience


Failure to deliver a digital, differentiated and superior experience to our customers in store, online and by phone, could diminish our brand and reputation. To do this we need to be agile with strong digital capabilities.

9.

Non-compliance with legal and regulatory requirements


Vodafone must comply with a multitude of local and international laws as well as more specific regulations. These include licence requirements, customer registration, data privacy, anti-money laundering, competition law, anti-bribery law and economic sanctions.

10.     

Failure to deliver major Enterprise contracts profitably


If we do not understand the needs of our Enterprise customers and contract on the correct basis to account for the complexity of requirements, we will not be able to deliver services profitably.

11.     

Electro-magnetic fields related health risks


Concerns have been expressed that electromagnetic signals emitted by mobile telephone handsets and base stations may pose health risks. Authorities, including the World Health Organization ('WHO') agree there is no evidence that convinces experts that exposure to radio frequency fields from mobile devices and base stations operated within guideline limits has any adverse health effects. A change to this view could result in a range of impacts from a change to national legislation, to a major reduction in mobile phone usage or to major litigation.

Further information in relation to these risk factors and uncertainties, which have not changed significantly since 31 March 2017, can be found on pages 28 to 34 of the Group's annual report for the financial year ended 31 March 2017, which is available at http://www.vodafone.com/investor.

Brexit implications

We continue to monitor the possible implication of Brexit on our operations. A cross-functional team is in place to identify potential impacts and corresponding mitigations to address these.

As each of our operating companies is a standalone business incorporated and licenced in local jurisdictions, our ability to provide services is unlikely to be significantly impacted by Brexit. There remains a possibility of operational impacts, such as the creation of a data frontier or restrictions on the movement of people. Economic instability in any of our major markets could also impact our financial performance.

At this time, the outcome of Brexit negotiations and post-Brexit arrangements remains unclear and as such, we continue to monitor the situation.

 

RESPONSIBILITY STATEMENT

 

We confirm that to the best of our knowledge:

·       

the unaudited condensed consolidated financial statements have been prepared in accordance with IAS 34, "Interim Financial Reporting", as issued by the International Accounting Standards Board and as adopted by the European Union; and

·       

the interim management report includes a fair review of the information required by Disclosure Guidance and Transparency Rules sourcebook 4.2.7 and Disclosure Guidance and Transparency Rules sourcebook 4.2.8.

 

Neither the Company nor the directors accept any liability to any person in relation to the half-year financial report except to the extent that such liability could arise under English law. Accordingly, any liability to a person who has demonstrated reliance on any untrue or misleading statement or omission shall be determined in accordance with section 90A and schedule 10A of the Financial Services and Markets Act 2000.

 

The names and functions of the Vodafone Group Plc board can be found at:

http://www.vodafone.com/board

 

 

 

By Order of the Board

Rosemary Martin

Group General Counsel and Company Secretary

14 November 2017

 

 

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Consolidated income statement









Six months ended 30 September






Restated1 




2017 


2016 


Note


€m 


€m 

Revenue


23,075 


24,051 

Cost of sales



(16,208)


(17,530)

Gross profit



6,867 


6,521 

Selling and distribution expenses



(1,987)


(2,193)

Administrative expenses



(2,770)


(2,830)

Share of results of equity accounted associates and joint ventures



(58)


73 

Other income and expense



(44)


(56)

Operating profit


2,008 


1,515 

Non-operating income and expense



(1)


Investment income



333 


552 

Financing costs



(181)


(675)

Profit before taxation



2,159 


1,392 

Income tax expense


(579)


(1,114)

Profit for the financial period from continuing operations  



1,580 


278 

Loss for the financial period from discontinued operations  


(345)


(5,281)

Profit/(loss) for the financial period



1,235 


(5,003)

Attributable to:






- Owners of the parent



1,131 


(5,129)

- Non-controlling interests



104 


126 

Profit/(loss) for the financial period



1,235 


(5,003)







Earnings/(loss) per share






From continuing operations: 






- Basic


5.26c


0.54c 

- Diluted


5.25c


0.54c 

Total Group: 






- Basic


4.03c


(18.38c)

- Diluted


4.02c


(18.32c)

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.







Consolidated statement of comprehensive income















Six months ended 30 September




2017 


2016 




€m 


€m 

Profit/(loss) for the financial period



1,235 


(5,003)

Other comprehensive income:






Items that may be reclassified to the income statement in subsequent periods






Foreign exchange translation differences, net of tax



(1,716)


(1,326)

Fair value losses transferred to the income statement




Other, net of tax



(7)


229 

Total items that may be reclassified to the income statement in subsequent periods



(1,723)


(1,093)

Items that will not be reclassified to the income statement in subsequent periods






Net actuarial losses on defined benefit pension schemes, net of tax



(182)


(869)

Total items that will not be reclassified to the income statement in subsequent periods



(182)


(869)

Other comprehensive expense



(1,905)


(1,962)

Total comprehensive expense for the financial period



(670)


(6,965)







Attributable to:






- Owners of the parent



(649)


(7,127)

- Non-controlling interests



(21)


162 

 



(670)


(6,965)

 

Note:

1. The amounts presented for the six months ended 30 September 2016 have been restated to exclude the results of Vodafone India which are now included in discontinued operations.

 

 

Consolidated statement of financial position





















30 September


31 March




2017 


2017 


Note


€m 


€m 

Non-current assets





 

Goodwill



26,534 


26,808 

Other intangible assets



18,355 


19,412 

Property, plant and equipment



28,813 


30,204 

Investments in associates and joint ventures


2,611 


3,138 

Other investments



3,231 


3,459 

Deferred tax assets



24,202 


24,300 

Post employment benefits




57 

Trade and other receivables



4,117 


4,569 




107,866 


111,947 

Current assets





 

Inventory



639 


576 

Taxation recoverable



92 


150 

Trade and other receivables



10,573 


9,861 

Other investments



6,868 


6,120 

Cash and cash equivalents



5,358 


8,835 




23,530 


25,542 

Assets held for sale


15,681 


17,195 

Total assets



147,077 


154,684 






 

Equity





 

Called up share capital



4,797 


4,796 

Additional paid-in capital



150,136 


151,808 

Treasury shares



(8,475)


(8,610)

Accumulated losses



(106,692)


(105,851)

Accumulated other comprehensive income



28,277 


30,057 

Total attributable to owners of the parent



68,043 


72,200 

Non-controlling interests



1,647 


1,525 

Put options over non-controlling interests



(4)


(6)

Total non-controlling interests



1,643 


1,519 







Total equity



69,686 


73,719 

Non-current liabilities





 

Long-term borrowings



32,221 


34,523 

Deferred tax liabilities



466 


535 

Post employment benefits



817 


651 

Provisions



1,062 


1,130 

Trade and other payables



2,054 


1,737 




36,620 


38,576 

Current liabilities





 

Short-term borrowings



11,961 


12,051 

Taxation liabilities



677 


661 

Provisions



957 


1,049 

Trade and other payables



16,179 


16,834 




29,774 


30,595 

Liabilities held for sale


10,997 


11,794 

Total equity and liabilities



147,077 


154,684 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.


 

 

Consolidated statement of changes in equity














Share 

capital 

Additional 

paid-in 

capital1

Treasury 

shares 

Accumulated 

comprehensive 

 losses2

Equity attributable to the owners

Non- 

controlling 

interests 

Total equity


€m 

€m 

€m 

€m 

€m 

€m 

€m 

1 April 2016

4,796 

151,694 

(8,777)

(64,388)

83,325 

1,811 

85,136 

Issue or reissue of shares

149 

(132)

19 

19 

Share-based payments

53 

53 

53 

Transactions with non-controlling interests in subsidiaries

(7)

(7)

18 

11 

Comprehensive expense

(7,127)

(7,127)

162 

(6,965)

Dividends

(2,447)

(2,447)

(272)

(2,719)

30 September 2016

4,796 

151,749 

(8,628)

(74,101)

73,816 

1,719 

75,535 









1 April 2017

4,796 

151,808 

(8,610)

(75,794)

72,200 

1,519 

73,719 

Issue or reissue of shares3 

(1,741)

1,870 

(116)

14 

14 

Share-based payments

69 

69 

69 

Transactions with non-controlling interests in subsidiaries4 

814 

814 

302 

1,116 

Comprehensive (expense)/income

(649)

(649)

(21)

(670)

Dividends

(2,670)

(2,670)

(157)

(2,827)

Repurchase of treasury shares

(1,735)

(1,735)

(1,735)

30 September 2017

4,797 

150,136 

(8,475)

(78,415)

68,043 

1,643 

69,686 

 

Note:

1. Includes share premium, capital redemption reserve, merger reserve and share-based payment reserve. The merger reserve was derived from acquisitions made prior to 31 March 2004 and subsequently allocated to additional paid-in capital on adoption of IFRS.

2. Includes accumulated losses and accumulated other comprehensive income.

3. Includes the reissue of 729.1 million of shares (€1,742 million) in August 2017 in order to satisfy the first tranche of the Mandatory Convertible Bond.

4. See note 14 "Other matters" for further details.

5. This represents the irrevocable and non-discretionary share buyback programme announced on 25 August 2017.

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 

Consolidated statement of cash flows















Six months ended 30 September






Restated1 




2017 


2016 


Note


€m 


€m 

Net cash flow from operating activities

10 


5,821 


5,820 







Cash flows from investing activities






Purchase of interests in subsidiaries, net of cash acquired


(6)


(18)

Purchase of interests in associates and joint ventures



(5)


(27)

Purchase of intangible assets



(1,681)


(1,080)

Purchase of property, plant and equipment



(2,795)


(3,976)

Purchase of investments



(1,155)


(1,344)

Disposal of property, plant and equipment




Disposal of investments



205 


1,116 

Dividends received from associates and joint ventures



284 


Interest received



241 


206 

Cash flow from discontinued operations



(366)


(425)

Net cash flow from investing activities



(5,269)


(5,539)

 






Cash flows from financing activities






Issue of ordinary share capital and reissue of treasury shares



18 


25 

Net movement in short term borrowings



558 


962 

Proceeds from issue of long term borrowings



974 


4,643 

Repayment of borrowings



(1,879)


(4,715)

Purchase of treasury shares



(549)


Equity dividends paid


(2,637)


(2,449)

Dividends paid to minority shareholders in subsidiaries



(154)


(274)

Other transactions with non-controlling shareholders in subsidiaries



1,091 


Other movements in loans with associates and joint ventures



(147)


32 

Interest paid



(539)


(437)

Cash flow from discontinued operations



(402)


(2,059)

Tax on financing activities



(110)


Net cash flow from financing activities



(3,776)


(4,268)







Net cash flow



(3,224)


(3,987)

Cash and cash equivalents at beginning of the financial period2 

12 


9,302 


12,911 

Exchange loss on cash and cash equivalents



(457)


(325)

Cash and cash equivalents at end of the financial period2 

12 


5,621 


8,599 

 

Note:

1. The amounts presented for the six months ended 30 September 2016 have been restated to include the cash flows of Vodafone India as discontinued operations, separately under investing and financing activities.

2. Includes cash and cash equivalents as presented in the statement of financial position of €5,358m (31 March 17: €8,835m) and cash and cash equivalents presented in assets held for sale of €287m (31 March 2017: €467m), together with overdrafts of €24m (31 March 2017: €nil).

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

Notes to the unaudited condensed consolidated financial statements

For the six months ended 30 September 2017

 

1      Basis of preparation

The unaudited condensed consolidated financial statements for the six months ended 30 September 2017:

·     

were prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" ('IAS 34') as issued by the International Accounting Standards Board and as adopted by the European Union;

·     

are presented on a condensed basis as permitted by IAS 34 and therefore do not include all disclosures that would otherwise be required in a full set of financial statements and should be read in conjunction with the Group's annual report for the year ended 31 March 2017;

·     

apply the same accounting policies, presentation and methods of calculation as those followed in the preparation of the Group's consolidated financial statements for the year ended 31 March 2017, which were prepared in accordance with International Financial Reporting Standards ('IFRS') as issued by the International Accounting Standards Board and were also prepared in accordance with IFRS adopted by the European Union ('EU'), the Companies Act 2006 and Article 4 of the EU IAS Regulations. Income taxes are accrued using the tax rate that is expected to be applicable for the full financial year, adjusted for certain discrete items which occurred in the interim period in accordance with IAS 34;

·     

include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the periods presented;

·     

do not constitute statutory accounts within the meaning of section 434(3) of the Companies Act 2006; and

·     

were approved by the Board of directors on 14 November 2017.

The preparation of the unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the end of the reporting period, and the reported amounts of revenue and expenses during the reporting period. Actual results could vary from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

On 1 April 2017, the Group adopted certain new accounting policies where necessary to comply with amendments to IFRS, none of which had a material impact on the consolidated results, financial position or cash flows of the Group; further details are provided in the Group's annual report for the year ended 31 March 2017.

 

New accounting pronouncements to be adopted on or after 1 April 2018

IFRS 9 "Financial Instruments" and IFRS 15 "Revenue from Contracts with Customers" will be adopted by the Group on 1 April 2018. IFRS 16 "Leases" will be adopted by the Group on 1 April 2019. Information on the Group's implementation process in respect of these new accounting pronouncements was provided in the Group's annual report for the year ended 31 March 2017; all of the standards will be applied with the cumulative effect of applying the standard recorded as an adjustment to retained earnings on the initial application date. An update on the implementation of these accounting standards, which should be used in conjunction with that disclosed in the Group's annual report for the year ended 31 March 2017, is provided below; further information will be provided in the Group's annual financial statements for the year ending 31 March 2018.

IFRS 9 "Financial Instruments"

IFRS 9 will impact the classification and measurement of the Group's financial instruments and will require certain additional disclosures. The primary changes relate to the assessment of hedging arrangements and the measurement of financial assets, including the potentially earlier recognition of provisions and costs relating to potential future credit losses. The Group is continuing to analyse the impact of these changes, which are not considered likely to have a significant impact on the Group's current accounting treatments or hedging activities.

IFRS 15 "Revenue from Contracts with Customers"

IFRS 15 will have a material impact on the consolidated income statement and consolidated statement of financial position when adopted by the Group retrospectively with the cumulative impact of initially applying the standard recognised on 1 April 2018.

The Group's approach to the assessment of the impact and ongoing implementation of IFRS 15, which is ongoing, has not changed during the period and the Group expects to be in a position to estimate and communicate the impact of IFRS 15 before the publication in July 2018 of the Group's Trading Update for the quarter ending 30 June 2018. In addition, all of the Group's financial reports for the year ending 31 March 2019 are expected to include reporting on both an existing IAS 18 and IFRS 15 basis, to ensure an effective transition for users to the new standard whilst meeting all necessary compliance requirements.

IFRS 16 "Leases"

IFRS 16 will have a material impact on the consolidated income statement, consolidated statement of financial position and consolidated statement of cash flows when adopted by the Group retrospectively with the cumulative effect on initially applying the standard recognised on 1 April 2019.

The Group's approach to the assessment of the impact and ongoing implementation of IFRS 16, which is ongoing, has not changed during the period and the Group expects to be in a position to estimate and communicate the impact of IFRS 16 in the first quarter of the year commencing 1 April 2019, including the provision of proforma financial information for the year ending 31 March 2019, to ensure an effective transition for users to the new standard whilst meeting all necessary compliance requirements.

 

2      Segmental analysis


Segment revenue

Intra-region revenue

Regional revenue

Inter-region revenue

Group revenue

Adjusted EBITDA


€m

€m

€m

€m

€m

€m

Six months ended 30 September 2017






Germany

5,277 

(13)

5,264 

(10)

5,254 

1,929 

Italy

3,107 

(17)

3,090 

(1)

3,089 

1,200 

UK

3,515 

(10)

3,505 

(1)

3,504 

930 

Spain

2,512 

(21)

2,491 

(1)

2,490 

751 

Other Europe

2,452 

(27)

2,425 

(5)

2,420 

773 

Europe

16,863 

(88)

16,775 

(18)

16,757 

5,583 

Vodacom

2,799 

2,799 

2,799 

1,063 

Other AMAP

2,900 

2,900 

(14)

2,886 

790 

AMAP

5,699 

5,699 

(14)

5,685 

1,853 

Other1 

675 

675 

(42)

633 

(51)

Group

23,237 

(88)

23,149 

(74)

23,075 

7,385 








Six months ended 30 September 2016 restated





Germany

5,265 

(18)

5,247 

(10)

5,237 

1,788 

Italy 

3,006 

(17)

2,989 

(1)

2,988 

1,104 

UK

3,575 

(11)

3,564 

(2)

3,562 

674 

Spain

2,496 

(23)

2,473 

2,473 

692 

Other Europe

3,304 

(34)

3,270 

(2)

3,268 

1,040 

Europe

17,646 

(103)

17,543 

(15)

17,528 

5,298 

Vodacom

2,464 

2,464 

2,464 

952 

Other AMAP

3,422 

3,422 

(8)

3,414 

940 

AMAP

5,886 

5,886 

(8)

5,878 

1,892 

Other1 

664 

664 

(19)

645 

(100)

Group

24,196 

(103)

24,093 

(42)

24,051 

7,090 

 

Note:

1.   The "Other" segment primarily represents the results of partner markets and the net result of unallocated central Group costs.

The Group's measure of segment profit and adjusted EBITDA, excludes depreciation and amortisation, gains/losses on disposal of fixed assets, impairment losses, restructuring costs arising from discrete restructuring plans, the Group's share of adjusted results in associates and joint ventures and other income and expense. A reconciliation of adjusted EBITDA to operating profit is shown below. For a reconciliation of operating profit to profit/(loss) for the financial period, see the consolidated income statement on page 24.



Six months ended 30 September





Restated



2017 


2016 



€m


€m

Adjusted EBITDA

7,385 


7,090 

Depreciation, amortisation and loss on disposal of fixed assets

(4,928)


(5,040)

Share of adjusted results in equity accounted associates and joint ventures

171 


73 

Adjusted operating profit

2,628 


2,123 

Impairment loss


Restructuring costs

(33)


(37)

Amortisation of acquired customer bases and brand intangible assets

(543)


(515)

Other income and expense

(44)


(56)

Operating profit

2,008 


1,515 

 

3      Impairment review

Impairment testing was performed as at 30 September 2017 and 30 September 2016. The methodology adopted for impairment testing for the six months ended 30 September 2017 was consistent with that disclosed on page 105 and pages 113 to 116 of the Group's annual report for the year ended 31 March 2017.

For the six months ended 30 September 2017, the Group recorded a non-cash charge of €555 million (€395 million net of tax) to reduce the carrying value of Vodafone India to fair value less costs to sell, primarily as a result of its assets no longer being depreciated following its reclassification as an asset held for resale under IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations". For the six months ended 30 September 2016, the Group recorded a non-cash impairment charge of €6,375 million in respect of the Group's investment in India which, together with the recognition of an associated €1,375 million deferred tax asset, led to an overall €5.0 billion reduction in the carrying value of Vodafone India, the results of which are included in discontinued operations (see note 5 'Discontinued operations and assets held for sale').

For the six months ended 30 September 2017, as a discontinued operation, Vodafone India has been valued at fair value less costs to sell. Vodafone India's fair value less costs to sell is not observable in a quoted market and accordingly it has been determined with reference to the outcomes from the application of a number of potential valuation techniques, which are considered to result in a "level 2" valuation as per IFRS 13. As such significant judgement is required and involves the use of estimates. The two bases of valuation which were given the strongest weighting in the overall assessment of fair value are set out below. Fair value less costs to sell excluding net debt has been assessed to be INR 971 billion at both 30 September 2017 and 31 March 2017, equivalent to €12.6 billion and €14.0 billion respectively at the foreign exchange rates prevailing at those dates.

·     

The contracted cash price for the sale of a portion of the entity to the Aditya Birla Group as part of the planned merger of Vodafone India with Idea Cellular, adjusted for the expected level of debt being transferred to the merged entity, which is an observable price relating to Vodafone India and

·     

The share price of Idea Cellular prior to the announcement of the planned merger of Vodafone India with Idea Cellular, adjusted for transaction specific factors. Idea Cellular equity shares are the primary component of the consideration for Vodafone India to be received by the Group, and the value of the Idea Cellular shares has been adjusted to reflect 50% of the estimated cost synergies that management expects to be realised by the jointly controlled entity. A 10% increase or reduction in the expected cost synergies included in this determination of fair value would result in a €220 million increase or reduction, respectively, in the fair value less costs to sell of Vodafone India calculated using this approach.

 

The table below shows key assumptions used in the value in use calculations at 30 September 2017:

 

 


Assumptions used in value in use calculation


Germany


Spain


Italy


Romania


%


%


%


%

Pre-tax risk adjusted discount rate


8.5 


9.7 


10.5 


9.2 

Long-term growth rate


0.5 


1.5 


1.0 


1.0 

Projected adjusted EBITDA1


3.0 


7.9 


(0.8)


0.1 

Projected capital expenditure2


15.4-16.5


14.3-16.0


11.4-14.2


12.6-15.9

Sensitivity analysis




Change required for carrying value to equal the recoverable amount




Germany


Spain


Romania




pps


pps


pps

Pre-tax risk adjusted discount rate




1.1 


0.8 


1.4 

Long-term growth rate




(1.1)


(0.9)


(1.6)

Projected adjusted EBITDA1




(1.7)


(1.5)


(1.8)

Projected capital expenditure2




9.1 


6.6 


7.1 

 

The carrying values for Vodafone UK, Ireland, Portugal and Czech Republic include goodwill arising from their acquisition by the Group and/or the purchase of operating licences or spectrum rights. While the recoverable amounts for these operating companies are not materially greater than their carrying value, each has a lower risk of giving rise to impairment that would be material to the Group given their relative size or the composition of their carrying value. The changes in the following table to assumptions used in the impairment review would have, in isolation, led to an impairment loss being recognised in the six months ended 30 September 2017.


Change required for carrying value to equal the recoverable amount


UK


Ireland


Portugal


Czech Republic


pps


pps


pps


pps

Pre-tax risk adjusted discount rate


0.5 


0.5 


1.2 


2.2 

Long-term growth rate


(0.5)


(0.6)


(1.2)


(2.4)

Projected adjusted EBITDA1


(0.7)


(0.8)


(1.7)


(2.9)

Projected capital expenditure2


3.0 


3.3 


7.5 


13.2 

 

Notes:

1.   Projected adjusted EBITDA is expressed as the compound annual growth rates in the initial five years of the plans used for impairment testing.

2.   Projected capital expenditure, which excludes licences and spectrum, is expressed as the range of capital expenditure as a percentage of revenue in the initial five years for all cash generating units of the plans used for impairment testing.

 

 

4      Taxation



Six months ended 30 September





Restated



2017 


2016 



€m


€m

United Kingdom corporation tax (expense)/income1:





Current year

(71)




Adjustments in respect of prior years







Overseas current tax (expense)/income:





Current year

(628)


(398)


Adjustments in respect of prior years

87 


38 

Total current tax expense

(609)


(356)






Deferred tax on origination and reversal of temporary differences:





United Kingdom deferred tax

(86)


(57)


Overseas deferred tax

116 


(701)

Total deferred tax expense

30 


(758)

Total income tax expense

(579)


(1,114)

 

Note:

1.     UK operating profits are largely offset by statutory allowances for capital investment in the UK network and systems plus ongoing interest costs including those arising from the €10.3 billion of spectrum payments to the UK government in 2000 and 2013.

 

Overseas deferred tax expense for the six months ended 30 September 2017 included the recognition of €159 million (2016: write off of €907million) in relation to losses in Luxembourg expected to be used within 60 years. The write off in the six months ended 30 September 2016 was due to lower interest rates increasing the length of time over which these losses would be utilised.

The six months ended 30 September 2016 also included an increase in the deferred tax assets in Luxembourg of €319 million resulting from the tax treatment of the revaluation of investments following completion and approval of the Luxembourg statutory accounts and tax returns. The Group expects to use its losses in Luxembourg over a period of 60 years and the losses in Germany over a period of between 9 and 11 years; the actual use of these losses, and the period over which they may be used, is dependent on many factors which may change. These factors include the level of profitability in both Luxembourg and Germany, changes in tax law and changes to the structure of the Group. Further details about the Group's tax losses can be found in note 6 of the Group's consolidated financial statements for the year ended 31 March 2017.

5      Discontinued operations and assets held for sale

On 20 March 2017, Vodafone announced the agreement to combine its subsidiary, Vodafone India (excluding its 42% stake in Indus Towers), with Idea Cellular, which is listed on the Indian Stock Exchanges, with the combined company to be jointly controlled by Vodafone and the Aditya Birla Group. Consequently, Vodafone India is now accounted for as a discontinued operation, the results of which are detailed below.

Income statement and segment analysis of discontinued operations

Six months ended 30 September



2017 


2016 



€m 


€m 

Revenue

2,604 


3,003 

Cost of sales

(1,721)


(2,395)

Gross profit

883 


608 

Selling and distribution expenses

(121)


(124)

Administrative expenses

(272)


(326)

Impairment losses


(6,375)

Operating profit/( loss)

490 


(6,217)

Financing costs

(386)


(562)

Profit/(loss) before taxation

104 


(6,779)

Income tax (charge)/credit

(54)


1,498 

Profit/(loss) after tax of discontinued operations

50 


(5,281)

Pre-tax loss on the re-measurement of disposal group1

(555)


Income tax credit

160 


After tax loss on the re-measurement of disposal group

(395)


Loss for the period from discontinued operations 

(345)


(5,281)






Loss per share from discontinued operations






Six months ended 30 September



2017


2016



eurocents


eurocents

 - Basic

(1.23c)


(18.92c)

 - Diluted

(1.23c)


(18.86c)






Total comprehensive expense for the period from discontinued operations



Six months ended 30 September



2017


2016



€m 


€m 

Attributable to owners of the parent

(345)


(5,281)

 

Note:

1. Comprises a non-cash charge of €555 million (€395 million net of tax) to reduce the carrying value of Vodafone India to fair value less costs to sell. See note 3 "Impairment review" for further details.

Assets and liabilities held for sale

Assets and liabilities relating to our operations in India have been classed as held for sale on the Consolidated statement of financial position at 30 September 2017 and 31 March 2017. In addition, assets and liabilities held for sale at 30 September 2017 also include the assets and liabilities of our operations in Malta. The relevant assets and liabilities are detailed in the table below.

Assets held for sale






30 September 

2017 


31 March 2017



€m 


€m 

Non-current assets

13,148 


14,572 

Current assets

2,533 


2,623 

Total assets held for sale

15,681 


17,195 






Non-current liabilities

(7,585)


(8,862)

Current liabilities

(3,412)


(2,932)

Total liabilities held for sale

(10,997)


(11,794)

 

6      Earnings per share



Six months ended 30 September



2017 


2016 



Millions


Millions

Weighted average number of shares for basic earnings per share

28,067 


27,912 

Effect of dilutive potential shares: restricted shares and share options

74 


82 

Weighted average number of shares for diluted earnings per share

28,141 


27,994 








Six months ended 30 September





Restated

Earnings per share attributable to owners of the parent during the period 

2017


2016



€m


€m

Profit for earnings per share from continuing operations

1,476 


152 

Loss for earnings per share from discontinued operations

(345)


(5,281)

Profit/(loss) for basic and diluted earnings per share

1,131 


(5,129)








eurocents


eurocents

Basic earnings per share from continuing operations

5.26c


0.54c

Basic loss per share from discontinued operations

(1.23c)


(18.92c)

Basic earnings/(loss) per share 

4.03c


(18.38c)

Diluted earnings per share from continuing operations

5.25c


0.54c

Diluted loss per share from discontinued operations

(1.23c)


(18.86c)

Diluted earnings/(loss) per share

4.02c


(18.32c)

 

7      Equity dividends


Six months ended 30 September


2017 


2016 


€m 


€m 





Declared during the financial period:




Final dividend for the year ended 31 March 2017: 10.03 eurocents per share (2016: 7.77 pence per share)

2,670 


2,447 





Proposed after the end of the reporting period and not recognised as a liability:




Interim dividend for the year ending 31 March 2018: 4.84 eurocents per share (2017: 4.74 eurocents per share)

1,291 


1,262 

 

8      Acquisitions

The aggregate cash consideration in respect of purchases in subsidiaries, net of cash acquired, is as follows:



Six months ended 30 September



2017 


2016 



€m


€m 

Cash consideration paid:




Acquisitions during the year


Acquisitions completed in previous years




18 

Net cash acquired




18 

During the six month period ended 30 September 2017 the Group completed certain acquisitions for an aggregate net cash consideration of €6 million. The aggregate fair values of goodwill, identifiable assets, and liabilities of the acquired operations were €4 million, €5 million and €3 million respectively.

 

9      Investment in associates and joint arrangements



30 September


31 March



2017


2017 



€m 


€m 

Investment in joint ventures

2,239 


2,689 

Investment in associates

372 


449 


2,611 


3,138 

 

10   Reconciliation of net cash flow from operating activities




Six months ended 30 September






Restated




2017 


2016 



Note

€m


€m 

Profit/(loss) for the financial period


1,235 


(5,003)

Loss from discontinued operations


345 


5,281 

Profit for the financial period from continuing operations


1,580 


278 


Non-operating income and expense




Investment income


(333)


(552)


Financing costs


181 


675 


Income tax expense

4

579 


1,114 

Operating profit


2,008 


1,515 

Adjustments for:






Share based payments


65 


50 


Depreciation and amortisation


5,230 


5,550 


Loss on disposal of property, plant and equipment and intangible assets


14 



Share of results of equity accounted associates and joint ventures


58 


(73)


Other income and expense


44 


56 


(Increase)/decrease in inventory


(85)



Increase in trade and other receivables


(858)


(415)


Decrease in trade and other payables


(871)


(1,232)

Cash generated by operations


5,605 


5,465 

Net tax paid


(400)


(468)

Cash flow from discontinued operations


616 


823 

Net cash flow from operating activities


5,821 


5,820 

 

11   Related party transactions

The Group has a number of related parties including joint arrangements and associates, pension schemes, directors and Executive Committee members. Related party transactions with the Group's joint arrangements and associates primarily comprise fees for the use of products and services including network airtime and access charges, and cash pooling arrangements. No related party transactions have been entered into during the period which might reasonably affect any decisions made by the users of these unaudited condensed consolidated financial statements except as disclosed below.



Six months ended 30 September





Restated



2017


2016



€m


€m

Sales of goods and services to associates

14 


17 

Purchase of goods and services from associates


54 

Sales of goods and services to joint arrangements

10 


Purchase of goods and services from joint arrangements

102 


48 

Net interest income receivable from joint arrangements 

60 


39 













30 September


31 March



2017


2017



€m


€m

Trade balances owed:





by associates



to associates



by joint arrangements

129 


158 


to joint arrangements

34 


15 

Other balances owed by joint arrangements

1,369 


1,209 

Other balances owed to joint arrangements

138 


127 

In the six months ended 30 September 2017 the Group made contributions to defined benefit pension schemes of €32 million (six months ended 30 September 2016: €27 million).

In addition, €2.2 million of dividends were paid to Board members and executive committee members (six months ended 30 September 2016: €2.2 million). Dividends received from associates are disclosed in the consolidated statement of cash flows.

12   Fair value of financial instruments

The table below sets out the valuation basis1 of the financial instruments held at fair value by the Group.

 

 


Level 12


Level 23


Total



30



30



30




September

31 March


September

31 March


September

31 March



2017

2017


2017

2017


2017

2017



€m

€m


€m

€m


€m

€m

Financial assets:









Fair value through the income statement


4,536 

4,323 


4,536 

4,323 

Derivative financial instruments:










Interest rate swaps


2,380 

2,460 


2,380 

2,460 


Cross currency interest rate swaps


1,183 

1,707 


1,183 

1,707 


Options


134 

12 


134 

12 


Foreign exchange contracts


33 

103 


33 

103 


Interest rate futures






8,266 

8,608 


8,266 

8,608 

Financial investments available for sale:










Listed equity securities4 




Unlisted equity securities4 


74 

82 


74 

82 




74 

82 


77 

85 




8,340 

8,690 


8,343 

8,693 

Financial liabilities:









Derivative financial instruments:










Interest rate swaps


644 

614 


644 

614 


Cross currency interest rate swaps


1,576 

1,324 


1,576 

1,324 


Options


25 

63 


25 

63 


Foreign exchange contracts


67 

76 


67 

76 




2,312 

2,077 


2,312 

2,077 

 

Notes:

1. There were no changes made during the year to valuation methods or the processes to determine classification and no transfers were made between the levels in the fair value hierarchy.

2. Level 1 classification comprises financial instruments where fair value is determined by unadjusted quoted prices in active markets for identical assets or liabilities.

3. Level 2 classification comprises items where fair value is determined from inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. Derivative financial instrument fair values are present values determined from future cash flows discounted at rates derived from market sourced data.

4. Listed and unlisted securities are classified as held for sale financial assets and fair values are derived from observable quoted market prices or observable quoted market prices for similar items respectively.

The fair value and carrying value1 of the Group's financial assets and financial liabilities held at amortised cost are set out in the table below:



Fair value


Carrying value



30 September

31 March


30 September

31 March



2017

2017


2017

2017



€m

€m


€m

€m

Cash and cash equivalents2

5,358 

8,835 


5,358 

8,835 

Cash and other investment held in restricted deposits

1,071 

1,109 


1,071 

1,109 

Other debt and bonds

4,415 

4,062 


4,415 

4,062 



10,844 

14,006 


10,844 

14,006 

Short-term borrowings:







Bonds

(3,026)

(2,908)


(3,043)

(2,904)


Commercial paper

(3,859)

(3,648)


(3,859)

(3,648)


Bank loans and other short-term borrowings3

(5,062)

(5,532)


(5,059)

(5,499)



(11,947)

(12,088)


(11,961)

(12,051)

Long-term borrowings:







Bonds

(29,720)

(30,635)


(30,015)

(31,477)


Bank loans and other long-term borrowings

(2,232)

(3,074)


(2,206)

(3,046)



(31,952)

(33,709)


(32,221)

(34,523)



(33,055)

(31,791)


(33,338)

(32,568)

Notes:

1. The Group's trade and other receivables and trade and other payables are not shown in the table above. The carrying amounts of both categories approximate their fair values.

2. Cash and cash equivalents are held by the Group on a short term basis with all having a maturity of three months or less. The carrying value approximates their fair value.

3. Includes a liability for payment to holders of equity shares in Kabel Deutschland AG under the terms of a domination and profit and loss transfer agreement of €1.9 billion (March 2017: €1.8 billion). The carrying value approximates the fair value.

 

13   Commitments, contingent liabilities and legal proceedings

There have been no material changes to the Group's commitments, contingent liabilities or legal proceedings during the period, except as disclosed below.

Indian tax cases

In August 2007 and September 2007, Vodafone India Limited ('VIL') and Vodafone International Holdings BV ('VIHBV') respectively received notices from the Indian tax authority alleging potential liability in connection with an alleged failure by VIHBV to deduct withholding tax from consideration paid to the Hutchison Telecommunications International Limited group ('HTIL') in respect of HTIL's gain on its disposal to VIHBV of its interests in a wholly-owned Cayman Island incorporated subsidiary that indirectly holds interests in VIL. Following approximately five years of litigation in the Indian courts in which VIHBV sought to set aside the tax demand issued by the Indian tax authority, in January 2012 the Supreme Court of India handed down its judgement, holding that VIHBV's interpretation of the Income Tax Act 1961 was correct, that the HTIL transaction in 2007 was not taxable in India, and that consequently, VIHBV had no obligation to withhold tax from consideration paid to HTIL in respect of the transaction. The Supreme Court of India quashed the relevant notices and demands issued to VIHBV in respect of withholding tax and interest.

On 28 May 2012 the Finance Act 2012 became law. The Finance Act 2012, which amended various provisions of the Income Tax Act 1961 with retrospective effect, contained provisions intended to tax any gain on transfer of shares in a non-Indian company, which derives substantial value from underlying Indian assets, such as VIHBV's transaction with HTIL in 2007. Further, it seeks to subject a purchaser, such as VIHBV, to a retrospective obligation to withhold tax. VIHBV received a letter on 3 January 2013 from the Indian tax authority reminding it of the tax demand raised prior to the Supreme Court of India's judgement and purporting to update the interest element of that demand to a total amount of INR142 billion, which amount includes principal and interest as calculated by the Indian tax authority but does not include penalties.

On 10 January 2014, VIHBV served an amended trigger notice on the Indian Government under the Netherlands-India Bilateral Investment Treaty ('Dutch BIT'), supplementing a trigger notice filed on 17 April 2012, immediately prior to the Finance Act 2012 becoming effective, to add claims relating to an attempt by the Indian Government to tax aspects of the transaction with HTIL under transfer pricing rules. A trigger notice announces a party's intention to submit a claim to arbitration and triggers a cooling off period during which both parties may seek to resolve the dispute amicably. Notwithstanding their attempts, the parties were unable to amicably resolve the dispute within the cooling off period stipulated in the Dutch BIT. On 17 April 2014, VIHBV served its notice of arbitration under the Dutch BIT, formally commencing the Dutch BIT arbitration proceedings.

In June 2016, the tribunal was fully constituted with Sir Franklin Berman KCMG QC appointed as presiding arbitrator. The Indian Government has raised objections to the application of the treaty to VIHBV's claims and to the jurisdiction of the tribunal under the Dutch BIT. On 19 June 2017, the tribunal decided to try both these jurisdictional objections along with the merits of VIHBV's claim in a trial now scheduled for February 2019.

Separately, on 15 June 2015, Vodafone Group Plc and Vodafone Consolidated Holdings Limited served a trigger notice on the Indian Government under the United Kingdom-India Bilateral Investment Treaty ('UK BIT') in respect of retrospective tax claims under the Income Tax Act 1961 (as amended by the Finance Act 2012). Although relating to the same underlying facts as the claim under the Dutch BIT, the claim brought by Vodafone Group Plc and Vodafone Consolidated Holdings Limited is a separate and distinct claim under a different treaty. On 24 January 2017, Vodafone Group Plc and Vodafone Consolidated Holdings Limited served a Notice of Arbitration on the Indian Government formally commencing the arbitration. The Indian Government has appointed a second arbitrator as required under the UK BIT under protest.

The Indian Government has indicated that it considers the arbitration under the UK BIT to be an abuse of process but this is strongly denied by Vodafone. On 22 August 2017, the Indian Government obtained an injunction from the Delhi High Court preventing Vodafone from progressing the UK BIT arbitration. Vodafone was not present when India obtained this injunction. On 26 October 2017, the Delhi High Court varied its order to permit Vodafone to participate in the formation of the UK BIT tribunal. A hearing is scheduled for 17 November 2017 in the Delhi High Court.

On 12 February 2016, VIHBV received a notice dated 4 February 2016 of an outstanding tax demand of INR221 billion (which included interest accruing since the date of the original demand) along with a statement that enforcement action, including against VIHBV's indirectly held assets in India would be taken if the demand was not satisfied. On 29 September 2017, VIHBV received an electronically generated demand in respect of alleged principal, interest and penalties in the amount of INR190.7 billion. This demand does not appear to have included any element for alleged accrued interest liability.

Separate proceedings in the Bombay High Court taken against VIHBV to seek to treat it as an agent of HTIL in respect of its alleged tax on the same transaction, as well as penalties of up to 100% of the assessed withholding tax for the alleged failure to have withheld such taxes, were listed for hearing at the request of the Indian Government on 21 April 2016 despite the issue having been ruled upon by the Supreme Court of India. The hearing has since been periodically listed and then adjourned or not reached hearing. VIHBV and Vodafone Group Plc will continue to defend vigorously any allegation that VIHBV or VIL is liable to pay tax in connection with the transaction with HTIL and will continue to exercise all rights to seek redress including pursuant to the Dutch BIT and the UK BIT (subject to the Delhi High Court injunction). We have not recorded a provision in respect of the retrospective provisions of the Income Tax Act 1961 (as amended by the Finance Act 2012) and any tax demands based upon such provisions.

Other Indian tax cases

VIL and Vodafone India Services Private Limited ('VISPL') (formerly 3GSPL) are involved in a number of tax cases with total claims exceeding €2.4 billion plus interest, and penalties of up to 300% of the principal.

VISPL tax claims

VISPL has been assessed as owing tax of approximately €276 million (plus interest of €412 million) in respect of (i) a transfer pricing margin charged for the international call centre of HTIL prior to the 2007 transaction with Vodafone for HTIL assets in India; (ii) the sale of the international call centre by VISPL to HTIL; and (iii) the acquisition of and/or the alleged transfer of options held by VISPL for VIL. The first two of the three heads of tax are subject to an indemnity by HTIL. The larger part of the potential claim is not subject to any indemnity. VISPL unsuccessfully challenged the merits of the tax demand in the statutory tax tribunal and the jurisdiction of the tax office to make the demand in the High Court. The Tax Appeal Tribunal heard the appeal and ruled in the Tax Office's favour. VISPL lodged an appeal (and stay application) in the Bombay High Court which was concluded in early May 2015. On 13 July 2015 the tax authorities issued a revised tax assessment reducing the tax VISPL had previously been assessed as owing in respect of (i) and (ii) above. In the meantime, (i) a stay of the tax demand on a deposit of £20 million and (ii) a corporate guarantee by VIHBV for the balance of tax assessed remain in place. On 8 October 2015, the Bombay High Court ruled in favour of Vodafone in relation to the options and the call centre sale. The Tax Office has appealed to the Supreme Court of India. A hearing has been adjourned with no specified date.

Indian regulatory cases

Adjusted Gross Revenue ('AGR') dispute before the Supreme Court of India: VIL and others v Union of India

VIL has challenged the tribunal's judgement dated 23 April 2015 to the extent that it dealt with the calculation of AGR, upon which licence fees and spectrum usage charges are based. The cumulative impact of the inclusion of these components is approximately €1.2 billion. The DoT also moved cross appeals challenging the tribunal's judgement. In the hearing before the Supreme Court of India, the Court orally directed the DoT (Department of Telecommunications) not to take any coercive steps in the matter, which was adjourned. On 29 February 2016, the Supreme Court of India ordered that the DoT may continue to raise demands for fees and charges, but may not enforce them until a final decision on the matter.

Other cases in the Group

Germany: Mannesmann and Kabel Deutschland takeover - class actions

The German courts are determining the adequacy of the mandatory cash offer made to minority shareholders in Vodafone's takeover of Mannesmann. This matter has been ongoing since 2001. The German courts are also determining whether "squeeze out" compensation is payable to affected Mannesmann shareholders in a similar proceeding. In September 2014, the German courts awarded compensation to minority shareholders of Mannesmann in the amount of €229.58 per share, which would result in a pay-out of €19 million (plus €13 million of accrued interest). The German courts also ruled that the "squeeze out" compensation should amount to €251.31 per share, which would result in a pay-out of €43.8 million (plus interest of €23 million of accrued interest). Vodafone has appealed these decisions. Similar proceedings were initiated by 80 Kabel Deutschland shareholders. These proceeding are in their early stages, and, accordingly, Vodafone believes that it is too early to assess the likely quantum of any claim.

In a hearing on 6 October 2016, the Court examined the Kabel Deutschland business plan which formed the main basis for the calculation of the offer per share. The next hearings are scheduled for 15 and 16 November 2017.

Spain: Patent litigation

Vodafone Group Plc has been sued in Spain by TOT Power Control ('TOT'), an affiliate of Top Optimized Technologies. The claim makes a number of allegations including patent infringement, with TOT seeking over €500 million from Vodafone Group Plc as well as an injunction against using the technology in question. Vodafone's initial challenge of the appropriateness of Spain as a venue for this dispute was denied. Vodafone Group Plc appealed the denial and was partially successful. In a decision dated 30 October 2017, the court ruled that while it did have jurisdiction to hear the infringement case relating to the Spanish patent, it was not competent to hear TOT's contractual and competition law claims. This decision is subject to appeal. TOT's application for an injunction was unsuccessful and TOT is appealing. A trial date has now been set to commence on 10 September 2018.

Italy: British Telecom (Italy) v Vodafone Italy

The Italian Competition Authority concluded an investigation in 2007 when Vodafone Italy gave certain undertakings in relation to allegations that it had abused its dominant position in the wholesale market for mobile termination. In 2010, British Telecom (Italy) brought a civil damages claim against Vodafone Italy on the basis of the Competition Authority's investigation and Vodafone Italy's undertakings. British Telecom (Italy) seeks damages in the amount of €280 million for abuse of dominant position by Vodafone Italy in the wholesale fixed to mobile termination market for the period from 1999 to 2007. A court appointed expert delivered an opinion to the Court that the range of damages in the case should be in the region of €10 million to €25 million which was reduced in a further supplementary report published in September 2014 to a range of €8 million to €11 million. Judgement was handed down by the court in August 2015, awarding €12 million (including interest) to British Telecom (Italy).

British Telecom (Italy) has appealed the amount of the damages to the Court of Appeal of Milan. In addition, British Telecom (Italy) has asked again for a reference to the European Court of Justice for an interpretation of the European community law on antitrust damages. Vodafone Italy also filed an appeal which was heard on 13 September 2017 and a decision is awaited.

South Africa: GH Investments ('GHI') v Vodacom Congo

Vodacom Congo contracted with GHI to install ultra-low cost base stations on a revenue share basis. After rolling out three sites, GHI stopped and sought to renegotiate the terms. Vodacom Congo refused. GHI accused it of bad faith and infringement of intellectual property rights. In April 2015, GHI issued a formal notice for a claim of US$1.16 billion, although there does not seem to be a proper basis nor any substantiation for the compensation claimed. The dispute was submitted to mediation under the International Chamber of Commerce. A mediator was appointed in September 2015 who convened a first meeting which took place in early November 2015. A follow-up mediation meeting was scheduled for December 2015 but was postponed without a new date having been fixed. In July 2016, Vodacom filed a request for arbitration with the International Chamber of Commerce's International Court of Arbitration. In their response GHI revised their claim down to €237 million. Each party has appointed an arbitrator and the arbitrators have appointed a third arbitrator to act as chairman of the tribunal. A trial is scheduled for March 2018. GHI has failed to pay its share of the arbitration fees and has written to the ICC demanding that Vodacom Congo carry all the costs of the arbitration proceedings.

14   Other matters

Vodacom and Safaricom

On 15 May 2017, the Group announced that its wholly-owned subsidiary, Vodafone International Holdings B.V. ('VIHBV'), had agreed to transfer part of its indirect shareholding in Safaricom Limited ('Safaricom') to Vodacom Group Limited ('Vodacom'), its sub-Saharan African subsidiary. On 18 July 2017, Vodacom shareholders voted in favour of the transaction. The transaction completed on 7 August 2017, with the Group being issued with 233.5 million new shares in Vodacom, increasing Vodafone Group's shareholding in Vodacom from 65.0% to 69.7%. Vodafone retains an indirect stake of 5% in Safaricom.

On 5 September 2017, the Group announced that VIHBV intended to sell approximately 90 million ordinary shares in Vodacom (the 'Placing Shares') to institutional investors by way of an accelerated bookbuild process (the 'Placing'). The Placing Shares represented 5.2% of Vodacom's ordinary share capital. The objective of the Placing was to ensure that Vodacom meets the free float requirement and to restore Vodafone's shareholding in Vodacom to a percentage that is broadly similar to that which it held prior to implementation of the Safaricom Transaction.

It was further announced on 6 September 2017 that VIHBV had sold an aggregate of 90 million ordinary shares in Vodacom raising gross proceeds of approximately €955 million. Following the completion of the Placing, Vodafone Group indirectly owns 64.5% of Vodacom's ordinary share capital. Vodafone remains committed to Vodacom and intends to retain a controlling majority shareholding in Vodacom for the long-term.

Vodafone Malta

On 24 May 2017 Vodafone announced an agreement to combine Melita Ltd ('Melita') and Vodafone Malta Ltd ('Vodafone Malta') to create a new fully integrated communications company in Malta (together, the 'Combined Company').

At completion, the current shareholders of Melita will own 51% of the Combined Company and Vodafone Europe B.V. ("VEBV"), the current shareholder of Vodafone Malta, will own the remaining 49% (excluding the dilutive effect of management incentivisation plans for the Combined Company). In addition, on completion, Vodafone will receive an estimated cash payment of €120 million which will be used for general corporate purposes. Melita's shareholders will receive an estimated cash payment of €33 million.

The transaction is conditional on approval from the Malta Competition and Consumer Affairs Authority and a decision is expected before the end of the 2017 calendar year.

Mandatory Convertible Bonds ('MCB')

In order to satisfy the first tranche of the MCB, 729.1 million shares were reissued from treasury shares on 25 August 2017 at a conversion price of £1.9751. This reflected the conversion price at issue (£2.1730) adjusted for the pound sterling equivalent of aggregate dividends paid in August 2016, February 2017, and August 2017.

On 25 August 2017, Vodafone announced the commencement of a new irrevocable and non-discretionary share buy-back programme (the 'Programme'). The sole purpose of the Programme is to reduce the issued share capital of Vodafone and thereby avoid any change in Vodafone's issued share capital as a result of the maturing of the first tranche of the MCB.

As announced on 19 February 2016, when the MCB was issued, the Group also entered into an accompanying option structure. This option structure ensured that the total cash outflow to execute the Programme will be broadly equivalent to the £1.44 billion raised on issuing the MCB, regardless of any differential between the conversion price and the ordinary share price during the execution of the Programme. Therefore, the maximum pecuniary amount allocated to the Programme is £1.5 billion (taking into account money received or paid under this accompanying option structure).

The Programme is financed out of the proceeds from Vodafone's Verizon loan notes, which Vodafone received in two tranches as partial consideration for the sale of its 45% stake in Verizon Wireless in 2014. Vodafone received US$2.5 billion in cash in December 2016 following the redemption of the first tranche of these loan notes.

Vodacom Tanzania

On 8 August 2017, Vodacom Tanzania Public Limited Company ("Vodacom Tanzania"), a subsidiary of Vodacom Group, completed an initial public offering to list 560 million shares (equating to 25% of the post offering issued share capital) at a fixed price of 850 Tanzanian Shillings (TZS) to raise TZS 476 billion (US$213 million) (€178 million).

15   Subsequent events

Vodafone India

On 13 November 2017, the Group announced that Vodafone India and Idea Cellular Limited ("Idea") have separately agreed to sell their respective standalone tower businesses in India to ATC Telecom Infrastructure Private Limited for an aggregate enterprise value of INR78.5 billion (US$1.2 billion, €1.0 billion).

In the event that the completion of the sale of the standalone tower businesses precedes the completion of the proposed merger of Vodafone India and Idea, Vodafone India will receive IRN38.5 billion (US$592 million, €505 million) and Idea will receive INR40.0 billion (US$615 million, €525 million).  The receipt of these proceeds prior to completion was anticipated and provided for in the merger agreement and hence would not affect the agreed terms of the Vodafone India and Idea merger, including the amount of debt which Vodafone will contribute to the combined company at completion.

Completion of the transaction is subject to customary closing conditions and receipt of necessary regulatory approvals, and is expected to take place during the first half of calendar year 2018.

INDEPENDENT REVIEW REPORT TO VODAFONE GROUP PLC

 

Report on the unaudited condensed consolidated financial statements

Our conclusion

What we have reviewed

·      the Consolidated statement of financial position as at 30 September 2017;

·      the Consolidated income statement and consolidated statement of comprehensive income for the period then ended;

·      the Consolidated statement of cash flows for the period then ended;

·      the Consolidated statement of changes in equity for the period then ended; and

·      the explanatory notes to the interim financial statements.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

What a review of interim financial statements involves

PricewaterhouseCoopers LLP

 

Notes:

1.   The maintenance and integrity of the Vodafone Group Plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim financial statements since they were initially presented on the website.

2.   Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

ALTERNATIVE PERFORMANCE MEASURES

Service revenue

·      it is used for internal performance reporting;

·      it is used in setting director and management remuneration; and

·      it is useful in connection with discussion with the investment analyst community.

Adjusted EBITDA

Group adjusted EBIT, adjusted operating profit and adjusted earnings per share

·      These measures are used for internal performance reporting;

·      These measures are used in setting director and management remuneration; and

·      They are useful in connection with discussion with the investment analyst community and debt rating agencies.

 

Cash flow measures and capital additions

·      Free cash flow (pre-spectrum) and free cash flow allows us and external parties to evaluate our liquidity and the cash generated by our operations. Free cash flow (pre-spectrum) and capital additions do not include payments for licences and spectrum included within intangible assets, items determined independently of the ongoing business, such as the level of dividends, and items which are deemed discretionary, such as cash flows relating to acquisitions and disposals or financing activities. In addition, it does not necessarily reflect the amounts which we have an obligation to incur. However, it does reflect the cash available for such discretionary activities, to strengthen the consolidated statement of financial position or to provide returns to shareholders in the form of dividends or share purchases;

·      Free cash flow facilitates comparability of results with other companies, although our measure of free cash flow may not be directly comparable to similarly titled measures used by other companies;

·      These measures are used by management for planning, reporting and incentive purposes; and

·      These measures are useful in connection with discussion with the investment analyst community and debt rating agencies.




Restated



2017 

2016 



€m

€m

Net cash flow from operating activities


5,821 

5,820 

Net tax paid


400 

468 

Cash flow from discontinued operations


(616)

(823)

Cash generated by operations (refer to note 10)


5,605 

5,465 

Capital additions


(3,263)

(3,526)

Working capital movement in respect of capital additions


(576)

(1,392)

Disposal of property, plant and equipment


Restructuring payments


127 

142 

Operating free cash flow


1,902 

696 

Taxation


(400)

(468)

Dividends received from associates and investments


284 

129 

Dividends paid to non-controlling shareholders in subsidiaries


(154)

(274)

Interest received and paid


(343)

(231)

Free cash flow (pre-spectrum)


1,289 

(148)

Licence and spectrum payments


(747)

(138)

Restructuring payments


(127)

(142)

Free cash flow


415 

(428)

Other

Alternative performance measure

Closest equivalent GAAP measure

Location in this results announcement of reconciliation and further information

Adjusted profit before tax

Profit before taxation

Taxation on page 17

Adjusted effective tax rate

Income tax expense as a percentage of profit before taxation

Taxation on page 17

Adjusted income tax expense

Income tax expense

Taxation on page 17

Adjusted profit attributable to owners of the parent

Profit attributable to owners of the parent

Earnings per share on page 18

Certain of the statements within the section titled "Chief Executive's Statement" on pages 2 to 5 contain forward-looking alternative performance measures for which at this time there is no comparable GAAP measure and which at this time cannot be quantitatively reconciled to comparable GAAP financial information. Certain of the statements within the section titled "Guidance" on page 6 contain forward-looking alternative performance measures which at this time cannot be quantitatively reconciled to comparable GAAP financial information.

 

Organic growth and change at constant exchange rates

All amounts in this document marked with an "*" represent "organic growth", which presents performance on a comparable basis in terms of merger and acquisition activity and foreign exchange rates. Whilst organic growth is neither intended to be a substitute for reported growth, nor is it superior to reported growth, we believe that these measures provide useful and necessary information to investors and other interested parties for the following reasons:

·      it provides additional information on underlying growth of the business without the effect of certain factors unrelated to its operating performance;

·      it is used for internal performance analysis; and

·      it facilitates comparability of underlying growth with other companies (although the term "organic" is not a defined term under IFRS and may not, therefore, be comparable with similarly titled measures reported by other companies).

The Group's organic growth rates for all periods exclude the results of Vodafone India (excluding its 42% stake in Indus Towers), which are now reported in discontinued operations, and exclude the results of Vodafone Netherlands following the disposal of its consumer fixed business and subsequent merger into VodafoneZiggo, as well as the results of VodafoneZiggo after the merger. In addition, operating segment organic service revenue growth rates for the quarter ended 30 June 2017 and the quarter and half year ended 30 September 2017 have been amended to exclude the adverse impact of changes to intercompany interconnect rates.

We have not provided a comparative in respect of organic growth rates as the current rates describe the change between the beginning and end of the current period, with such changes being explained by the commentary in this news release. If comparatives were provided, significant sections of the commentary from the news release for prior periods would also need to be included, reducing the usefulness and transparency of this document.




Restated


Other activity (including

Foreign




2017 

2016 

Reported

M&A)

exchange

Organic*



€m

€m

%

pps

pps

%

Six months ended 30 September 2017







Revenue







Germany 

5,277 

5,265 

0.2 

0.1 

0.3 

Italy

3,107 

3,006 

3.4 

0.2 

3.6 

UK

3,515 

3,575 

(1.7)

1.5 

7.3 

7.1 

Spain

2,512 

2,496 

0.6 

0.4 

1.0 

Other Europe

2,452 

3,304 

(25.8)

28.2 

(0.3)

2.1 

Eliminations

(88)

(103)





Europe

16,775 

17,543 

(4.4)

5.6 

1.3 

2.5 

Vodacom

2,799 

2,464 

13.6 

(6.8)

6.8 

Other AMAP

2,900 

3,422 

(15.3)

22.6 

7.3 

AMAP

5,699 

5,886 

(3.2)

10.3 

7.1 

Other

675 

664 





Eliminations

(74)

(42)





Total

23,075 

24,051 

(4.1)

3.8 

3.4 

3.1 

India

2,610 

3,015 

(13.4)

(2.4)

(15.8)




Restated


Other activity (including

Foreign




2017 

2016 

Reported

M&A)

exchange

Organic*



€m

€m

%

pps

pps

%

Six months ended 30 September 2017







Adjusted EBITDA







Germany

1,929 

1,788 

7.9 

(0.2)

7.7 

Italy

1,200 

1,104 

8.7 

0.1 

8.8 

UK

930 

674 

38.0 

(1.6)

10.2 

46.6 

Spain

751 

692 

8.5 

1.0 

0.1 

9.6 

Other Europe

773 

1,040 

(25.7)

32.6 

(0.4)

6.5 

Europe

5,583 

5,298 

5.4 

6.8 

0.8 

13.0 

Vodacom

1,063 

952 

11.7 

(7.3)

4.4 

Other AMAP

790 

940 

(16.0)

0.1 

30.4 

14.5 


Turkey

327 

335 

(2.4)

0.3 

22.5 

20.4 


Egypt

214 

356 

(39.9)

62.9 

23.0 

AMAP

1,853 

1,892 

(2.1)

10.6 

8.5 

Other

(51)

(100)





Total

7,385 

7,090 

4.2 

5.1 

3.7 

13.0 

India

557 

892 

(37.6)

(1.6)

(39.2)









Group - Adjusted EBITDA excluding the impact of roaming, UK handset financing and regulatory settlements

7,385 

7,090 

4.2 

1.4 

3.7 

9.3 

Europe - Adjusted EBITDA excluding the impact of roaming, UK handset financing and regulatory settlements

5,583 

5,298 

5.4 

2.0 

0.8 

8.2 

UK- Adjusted EBITDA excluding the impact of handset financing,  regulatory settlements and the reallocation of central costs

930 

674 

38.0 

(50.1)

10.2 

(1.9)









Percentage point change in adjusted EBITDA margin






Europe

33.3%

30.2%

3.1 

0.2 

(0.2)

3.1 

AMAP

32.5%

32.1%

0.4 

0.4 


Turkey

22.8%

20.8%

2.0 

0.0 

0.1 

2.1 


Egypt

45.1%

44.7%

0.4 

0.0 

(0.1)

0.3 

Group

32.0%

29.5%

2.5 

0.2 

0.1 

2.8 









Group adjusted EBITDA margin excluding the impact of roaming, UK handset financing and regulatory settlements

32.0%

29.5%

2.5 

(0.7)

0.1 

1.9 









Adjusted EBIT







Europe

1,555 

1,217 

27.8 

40.0 

(1.3)

66.5 

AMAP

1,002 

982 

2.0 

0.1 

9.0 

11.1 

Other

(100)

(149)





Total

2,457 

2,050 

19.9 

27.0 

5.0 

51.9 

India

544 

223 

143.9 

0.1 

(7.5)

136.5 









Adjusted operating profit







Europe

1,572 

1,212 

29.7 

38.6 

(1.4)

66.9 

AMAP

1,157 

1,060 

9.2 

0.1 

9.2 

18.5 

Other

(101)

(149)





Total

2,628 

2,123 

23.8 

25.7 

5.2 

54.7 

India

544 

223 

143.9 

0.1 

(7.5)

136.5 




Restated


Other activity (including

Foreign




2017 

2016 

Reported

M&A)

exchange

Organic*



€m

€m

%

pps

pps

%

Six months ended 30 September 2017







Service revenue







Germany 

5,062 

5,009 

1.1 

0.1 

(0.1)

1.1 


Mobile service revenue

3,046 

3,055 

(0.3)

0.1 

(0.2)


Fixed service revenue

2,016 

1,954 

3.2 

3.2 

Italy

2,673 

2,619 

2.1 

0.2 

2.3 


Mobile service revenue

2,188 

2,191 

(0.1)

0.2 

0.1 


Fixed service revenue

485 

428 

13.3 

0.1 

13.4 

UK

3,074 

3,401 

(9.6)

0.1 

6.7 

(2.8)


Mobile service revenue

2,377 

2,634 

(9.8)

0.1 

6.7 

(3.0)


Fixed service revenue

697 

767 

(9.1)

6.8 

(2.3)

Spain

2,326 

2,273 

2.3 

0.5 

2.8 

Other Europe

2,324 

3,117 

(25.4)

28.4 

(0.3)

2.7 


Of which: Ireland

469 

484 

(3.1)

0.3 

0.1 

(2.7)


Of which: Portugal

482 

458 

5.2 

0.5 

5.7 


Of which: Greece

419 

405 

3.5 

0.6 

(0.2)

3.9 

Eliminations

(86)

(100)





Europe

15,373 

16,319 

(5.8)

5.3 

1.3 

0.8 


Mobile service revenue

11,046 

12,052 

(8.3)

6.4 

1.3 

(0.6)


Fixed service revenue

4,327 

4,267 

1.4 

1.8 

1.3 

4.5 

Vodacom

2,310 

2,084 

10.8 

(6.3)

4.5 


Of which: South Africa

1,778 

1,563 

13.8 

(9.0)

4.8 


Of which: International operations

516 

493 

4.7 

1.3 

6.0 

Other AMAP

2,493 

2,907 

(14.2)

0.1 

23.6 

9.5 


Of which: Turkey  

1,121 

1,203 

(6.8)

21.1 

14.3 


Of which: Egypt

460 

766 

(39.9)

62.7 

22.8 


Of which: New Zealand

570 

567 

0.5 

(0.2)

0.3 

Eliminations





AMAP

4,803 

4,991 

(3.8)

10.8 

7.0 

Other

490 

542 





Eliminations

(74)

(41)





Total service revenue

20,592 

21,811 

(5.6)

4.0 

3.3 

1.7 

Other revenue

2,483 

2,240 





Revenue

23,075 

24,051 

(4.1)

3.8 

3.4 

3.1 









Other growth metrics







Group - Enterprise service revenue

5,965 

6,426 

(7.2)

5.8 

2.4 

1.0 

Group - Enterprise service revenue excluding the impact of regulation

5,965 

6,426 

(7.2)

7.3 

2.4 

2.5 

Europe - Enterprise service revenue

4,701 

5,171 

(9.1)

7.1 

1.8 

(0.2)

AMAP - Enterprise service revenue

1,031 

1,024 

0.7 

6.1 

6.8 

Group - IoT revenue

367 

352 

4.3 

7.2 

1.2 

12.7 

Europe - Service revenue excluding the impact of regulation and MTR cuts

15,373 

16,319 

(5.8)

6.4 

1.3 

1.9 

Germany - Service revenue excluding the impact of regulation

5,062 

5,009 

1.1 

1.5 

(0.1)

2.5 

Germany - Mobile service revenue excluding the impact of regulation

3,046 

3,055 

(0.3)

2.2 

1.9 

UK - Mobile service revenue the impact of regulation and handset financing

2,377 

2,634 

(9.8)

3.4 

6.7 

0.3 

Ireland - Service revenue excluding the impact of regulation

469 

484 

(3.1)

5.0 

0.1 

2.0 

South Africa - Data revenue

757 

605 

25.1 

(10.1)

15.0 

South Africa - Voice revenue

737 

712 

3.5 

(8.3)

(4.8)

India - Revenue

2,610 

3,015 

(13.4)

(2.4)

(15.8)

India - Service revenue

2,601 

3,005 

(13.4)

(2.4)

(15.8)




Restated


Other activity (including

Foreign




2017 

2016 

Reported

M&A)

exchange

Organic*



€m

€m

%

pps

pps

%

Quarter ended 30 September







Service revenue







Germany 

2,569 

2,530 

1.5 

0.1 

1.6 


Mobile service revenue

1,554 

1,545 

0.6 

0.1 

0.7 


Fixed service revenue

1,015 

985 

3.0 

3.0 

Italy

1,354 

1,338 

1.2 

0.3 

1.5 


Mobile service revenue

1,109 

1,120 

(1.0)

0.3 

(0.7)


Fixed service revenue

245 

218 

12.4 

(0.1)

12.3 

UK

1,510 

1,643 

(8.1)

0.1 

5.0 

(3.0)


Mobile service revenue

1,170 

1,281 

(8.7)

0.1 

4.9 

(3.7)


Fixed service revenue

340 

362 

(6.1)

5.5 

(0.6)

Spain

1,183 

1,145 

3.3 

0.6 

3.9 

Other Europe

1,189 

1,589 

(25.2)

28.2 

(0.2)

2.8 


Of which: Ireland

234 

242 

(3.3)

0.4 

0.1 

(2.8)


Of which: Portugal

250 

237 

5.5 

0.7 

(0.1)

6.1 


Of which: Greece

219 

211 

3.8 

0.9 

(0.1)

4.6 

Eliminations

(56)

(55)





Europe

7,749 

8,190 

(5.4)

5.3 

0.9 

0.8 

Vodacom

1,133 

1,092 

3.8 

(0.4)

3.4 


Of which: South Africa

875 

829 

5.5 

(1.6)

3.9 


Of which: International operations

253 

250 

1.2 

2.9 

4.1 

Other AMAP

1,240 

1,501 

(17.4)

26.3 

8.9 


Of which: Turkey  

567 

618 

(8.3)

23.0 

14.7 


Of which: Egypt

232 

404 

(42.6)

63.6 

21.0 


Of which: New Zealand

284 

293 

(3.1)

4.0 

0.9 

Eliminations





AMAP

2,373 

2,593 

(8.5)

14.7 

6.2 

Other

243 

280 





Eliminations

(55)

(26)





Total service revenue

10,310 

11,037 

(6.6)

4.0 

3.9 

1.3 

Other revenue

1,291 

1,149 





Revenue

11,601 

12,186 

(4.8)

3.5 

4.0 

2.7 









Other growth metrics







Group - Enterprise service revenue

2,961 

3,214 

(7.9)

5.8 

2.6 

0.5 

Group - Enterprise service revenue excluding the impact of regulation

2,961 

3,214 

(7.9)

7.8 

2.6 

2.5 

Europe - Service revenue excluding the impact of regulation

7,749 

8,190 

(5.4)

6.6 

0.9 

2.1 

Germany - Service revenue excluding the impact of regulation

2,569 

2,530 

1.5 

1.5 

3.0 

Germany - Mobile service revenue excluding the impact of regulation

1,554 

1,545 

0.6 

2.2 

2.8 

UK - Service revenue excluding the impact of regulation and handset financing

1,510 

1,643 

(8.1)

3.7 

5.0 

0.6 

UK - Mobile service revenue excluding the impact of regulation and handset financing

1,170 

1,281 

(8.7)

4.8 

4.9 

1.0 

India - Revenue

1,223 

1,496 

(18.2)

0.8 

(17.4)

India - Service revenue

1,216 

1,495 

(18.7)

0.9 

(17.8)




Restated


Other activity (including

Foreign




2017 

2016 

Reported

M&A)

exchange

Organic*



€m

€m

%

pps

pps

%

Quarter ended 30 June 2017







Service revenue







Germany 

2,493 

2,479 

0.6 

0.6 


Mobile service revenue

1,492 

1,510 

(1.2)

0.1 

(1.1)


Fixed service revenue

1,001 

969 

3.3 

0.1 

3.4 

Italy

1,319 

1,281 

3.0 

0.2 

3.2 


Mobile service revenue

1,079 

1,071 

0.7 

0.1 

0.1 

0.9 


Fixed service revenue

240 

210 

14.3 

0.1 

14.4 

UK

1,564 

1,758 

(11.0)

0.1 

8.2 

(2.7)


Mobile service revenue

1,207 

1,353 

(10.8)

0.1 

8.4 

(2.3)


Fixed service revenue

357 

405 

(11.9)

8.0 

(3.9)

Spain

1,143 

1,128 

1.3 

0.3 

1.6 

Other Europe

1,135 

1,528 

(25.7)

28.7 

(0.3)

2.7 


Of which: Ireland

235 

242 

(2.9)

0.2 

0.2 

(2.5)


Of which: Portugal

232 

221 

5.0 

0.3 

0.1 

5.4 


Of which: Greece

200 

194 

3.1 

0.3 

(0.1)

3.3 

Eliminations

(30)

(45)





Europe

7,624 

8,129 

(6.2)

5.3 

1.7 

0.8 

Vodacom

1,177 

992 

18.6 

(13.0)

5.6 


Of which: South Africa

903 

734 

23.0 

(17.4)

5.6 


Of which: International operations

263 

243 

8.2 

(0.3)

7.9 

Other AMAP

1,253 

1,406 

(10.9)

20.9 

10.0 


Of which: Turkey  

554 

585 

(5.3)

19.2 

13.9 


Of which: Egypt

228 

362 

(37.0)

61.6 

24.6 


Of which: New Zealand

286 

274 

4.4 

(4.7)

(0.3)

Eliminations





AMAP

2,430 

2,398 

1.3 

0.1 

6.5 

7.9 

Other

247 

262 





Eliminations

(19)

(15)





Total service revenue

10,282 

10,774 

(4.6)

4.1 

2.7 

2.2 

Other revenue

1,192 

1,091 





Revenue

11,474 

11,865 

(3.3)

4.2 

2.6 

3.5 









Other growth metrics







Group - Enterprise service revenue

3,004 

3,212 

(6.5)

5.9 

2.1 

1.5 

Group - Enterprise service revenue excluding the impact of regulation

3,004 

3,212 

(6.5)

6.9 

2.1 

2.5 

Europe - Service revenue excluding the impact of regulation

7,624 

8,129 

(6.2)

6.2 

1.7 

1.7 

Germany - Service revenue excluding the impact of regulation

2,493 

2,479 

0.6 

1.4 

2.0 

Germany - Mobile service revenue excluding the impact of regulation

1,492 

1,510 

(1.2)

2.2 

1.0 

UK - Service revenue excluding the impact of regulation and handset financing

1,564 

1,758 

(11.0)

1.6 

8.2 

(1.2)

UK - Mobile service revenue excluding the impact of regulation and handset financing

1,207 

1,353 

(10.8)

2.0 

8.4 

(0.4)

Spain - Service revenue excluding the impact of handset financing

1,143 

1,128 

1.3 

1.7 

3.0 

India - Revenue

1,387 

1,519 

(8.7)

(5.6)

(14.3)

India - Service revenue

1,385 

1,510 

(8.3)

0.1 

(5.7)

(13.9)

 

ADDITIONAL INFORMATION

 

Regional results for the six months ended 30 September1

















Revenue


Adjusted EBITDA


Adjusted operating

profit


Capital additions


Operating free

cash flow


2017 

2016 


2017 

2016 


2017 

2016 


2017 

2016 


2017 

2016 


€m 

€m 


€m 

€m 


€m 

€m 


€m 

€m 


€m 

€m 

Europe















Germany

5,277 

5,265 


1,929 

1,788 


500 

298 


768 

880 


799 

445 

Italy

3,107 

3,006 


1,200 

1,104 


564 

474 


315 

307 


833 

385 

UK

3,515 

3,575 


930 

674 


121 

(170)


366 

438 


134 

(73)

Spain

2,512 

2,496 


751 

692 


132 

108 


427 

322 


310 

14 

Other Europe















  Netherlands2

909 


316 


21 

295 


121 


47 

  Portugal

513 

494 


188 

172 


39 

28 


81 

113 


100 

  Greece

440 

432 


145 

130 


56 

48 


62 

59 


24 

  Other

1,506 

1,477 


440 

422 


139 

131 


150 

227 


161 

53 

  Eliminations

(7)

(8)





Other Europe

2,452 

3,304 


773 

1,040 


255 

502 


293 

520 


268 

130 

Eliminations

(88)

(103)





Europe

16,775 

17,543 


5,583 

5,298 


1,572 

1,212 


2,169 

2,467 


2,344 

901 
















AMAP















Vodacom

2,799 

2,464 


1,063 

952 


722 

642 


356 

350 


439 

478 

Other AMAP















  Turkey

1,437 

1,611 


327 

335 


131 

113 


154 

184 


(362)

(438)

  Egypt

475 

796 


214 

356 


145 

205 


98 

104 


146 

223 

  Other

989 

1,016 


249 

249 


159 

100 


115 

114 


121 

99 

  Eliminations

(1)

(1)





Other AMAP

2,900 

3,422 


790 

940 


435 

418 


367 

402 


(95)

(116)

Eliminations





AMAP

5,699 

5,886 


1,853 

1,892 


1,157 

1,060 


723 

752 


344 

362 
















Other

675 

664 


(51)

(100)


(101)

(149)


371 

307 


(786)

(567)

Eliminations

(74)

(42)





Group

23,075 

24,051 


7,385 

7,090 


2,628 

2,123 


3,263 

3,526 


1,902 

696 
















India

2,610 

3,015 


557 

892 


544 

223 


394 

447 


214 

438 

 

Notes:

1. The results for the half year ended 30 September 2016 have been restated to exclude the results of Vodafone India which has been classified as discontinued operations for Group reporting purposes following the agreement to combine with Idea Cellular.

2. Vodafone Netherlands results up to 31 December 2016, after which it was merged with Ziggo to form VodafoneZiggo, a 50:50 joint venture, the results of which are included in Other Europe.

 

 

Service revenue - quarter ended 30 September1




Group and Regions

Group


Europe


AMAP



Restated



Restated



Restated


2017 

2016 


2017 

2016 


2017 

2016 


€m 

€m 


€m 

€m 


€m 

€m 

Mobile customer revenue

6,709 

7,307 


4,847 

5,264 


1,851 

2,043 

Mobile incoming revenue

511 

611 


344 

395 


169 

215 

Other service revenue

582 

603 


392 

406 


112 

95 

Mobile service revenue

7,802 

8,521 


5,583 

6,065 


2,132 

2,353 

Fixed service revenue

2,508 

2,516 


2,166 

2,125 


241 

240 

Service revenue

10,310 

11,037 


7,749 

8,190 


2,373 

2,593 

Other revenue

1,291 

1,149 


727 

638 


445 

445 

Revenue

11,601 

12,186 


8,476 

8,828 


2,818 

3,038 


Growth


Reported 

Organic*


Reported 

Organic*


Reported 

Organic*


%

%


%

%


%

%

Revenue

(4.8)

2.7 


(4.0)

2.4 


(7.2)

7.0 

Service revenue

(6.6)

1.3 


(5.4)

0.8 


(8.5)

6.2 










Operating Companies

Germany 


Italy


UK



Restated



Restated



Restated


2017 

2016 


2017 

2016 


2017 

2016 


€m 

€m 


€m 

€m 


€m 

€m 

Mobile customer revenue

1,361 

1,338 


952 

955 


1,016 

1,117 

Mobile incoming revenue

53 

71 


84 

89 


75 

83 

Other service revenue

140 

136 


73 

76 


79 

81 

Mobile service revenue

1,554 

1,545 


1,109 

1,120 


1,170 

1,281 

Fixed service revenue

1,015 

985 


245 

218 


340 

362 

Service revenue

2,569 

2,530 


1,354 

1,338 


1,510 

1,643 

Other revenue

114 

150 


207 

195 


246 

90 

Revenue

2,683 

2,680 


1,561 

1,533 


1,756 

1,733 


Growth


Reported 

Organic*


Reported 

Organic*


Reported 

Organic*


%

%


%

%


%

%

Revenue

0.1 

0.2 


1.8 

2.1 


1.3 

8.4 

Service revenue

1.5 

1.6 


1.2 

1.5 


(8.1)

(3.0)















Discontinued operations:


Spain 


Vodacom


India



Restated



Restated



Restated


2017 

2016 


2017 

2016 


2017 

2016 


€m 

€m 


€m 

€m 


€m 

€m 

Mobile customer revenue

694 

691 


978 

948 


879 

1,208 

Mobile incoming revenue

41 

37 


40 

53 


216 

164 

Other service revenue

63 

63 


62 

52 


39 

53 

Mobile service revenue

798 

791 


1,080 

1,053 


1,134 

1,425 

Fixed service revenue

385 

354 


53 

39 


82 

70 

Service revenue

1,183 

1,145 


1,133 

1,092 


1,216 

1,495 

Other revenue

93 

106 


242 

197 


Revenue

1,276 

1,251 


1,375 

1,289 


1,223 

1,496 


Growth


Reported 

Organic*


Reported 

Organic*


Reported 

Organic*


%

%


%

%


%

%

Revenue

2.0 

2.5 


6.7 

6.2 


(18.2)

(17.4)

Service revenue

3.3 

3.9 


3.8 

3.4 


(18.7)

(17.8)

 

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 measures. See "Alternative performance measures" on page 42 for further details and reconciliations to the respective closest equivalent GAAP measure.

1. The results for the half year ended 30 September 2016 have been restated to exclude the results of Vodafone India which has been classified as discontinued operations for Group reporting purposes following the agreement to combine with Idea Cellular.

 

 

Reconciliation of adjusted earnings











Reported 

Discontinued

operations

Adjustments1

Adjusted

Six months ended 30 September 2017

€m 

€m 

€m 

€m 






Operating profit

2,008 

77 

2,085 

Amortisation of acquired customer base and brand intangible assets

543 

543 

Non-operating income and expense

(1)

Net financing costs

152 

(407)

(255)

Profit before taxation

2,159 

214 

2,373 

Income tax expense

(579)

90 

(489)

Profit for the financial period continuing operations

1,580 

304 

1,884 

Loss for the financial period from discontinued operations

(345)

345 

Profit for the financial period

1,235 

345 

304 

1,884 






Attributable to:





- Owners of the parent

1,131 

345 

297 

1,773 

- Non-controlling interests

104 

111 






Basic earnings per share

4.03c 



6.32c 

 

Note:

1. See page 18 for further details.

 

 


Reported 

Discontinued operations

Adjustments2

Adjusted

Six months ended 30 September 2016 restated1

€m 

€m 

€m 

€m 






Operating profit

1,515 

93 

1,608 

Amortisation of acquired customer base and brand intangible assets

515 

515 

Non-operating income and expense

Net financing costs

(123)

(328)

(451)

Profit before taxation

1,392 

280 

1,672 

Income tax expense

(1,114)

714 

(400)

Profit for the financial period continuing operations

278 

994 

1,272 

Loss for the financial period from discontinued operations

(5,281)

5,281 

Loss/(profit) for the financial period

(5,003)

5,281 

994 

1,272 






Attributable to:





- Owners of the parent

(5,129)

5,281 

986 

1,138 

- Non-controlling interests

126