UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 6-K

 

Report of Foreign Private Issuer

 

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

the Securities Exchange Act of 1934

 

Dated November 13, 2015

 

Commission File Number: 001-10086

 

VODAFONE GROUP

PUBLIC LIMITED COMPANY

(Translation of registrant’s name into English)

 

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

(Address of principal executive offices)

 

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

 

 

Form 20-F  x

Form 40-F  o

 

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

 

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

 

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

 

 

       Yes  o

       No  x

 

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

 

THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN EACH OF THE REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-190307), THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-81825) AND THE REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-149634) OF VODAFONE GROUP PUBLIC LIMITED COMPANY AND TO BE A PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS FURNISHED, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED OR FURNISHED.

 

 


 

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

 

(a)                                 Chief Executive’s statement;

 

(b)                                Business review; and

 

(c)                                 Half-year condensed consolidated financial statements of Vodafone Group Plc.

 

Certain information listed above is taken from the previously published results announcement of Vodafone Group Plc for the six months ended 30 September 2015 (the ‘half-year financial report’). This report on Form 6-K does not update or restate any of the financial information set forth in the half-year financial report.

 

This report on Form 6-K should be read in conjunction with the Group’s annual report on Form 20-F for the year ended 31 March 2015, in particular the following sections:

 

·                  the information contained under “Key performance indicators” on pages 18 to 20;

 

·                  the information contained under “Chief Financial Officer’s review” on pages 38 and 39;

 

·                  the information contained under “Operating results” on pages 40 to 48;

 

·                  the consolidated financial statements on pages 105 to 174.

 

·                  the information contained under “Prior year operating results” on pages 175 to 179;

 

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

 

Exhibit 7

 

·                  Computation of ratio of earnings to fixed charges

 

2


 

CHIEF EXECUTIVE’S STATEMENT

 

Financial review of the half year

 

The Group returned to organic growth in both service revenue and adjusted EBITDA in the first half of the financial year. Our emerging markets businesses continue to demonstrate strong commercial momentum, while an increasing number of our European businesses are returning to growth. Customer demand for high speed fixed and mobile data services across our footprint is strong and growing. Our financial performance is beginning to reflect the positive impact of our Project Spring investment programme and better commercial execution, and in Europe we are also benefiting from some easing of regulatory pressures and a steady improvement in the macroeconomic environment.

 

Group

 

Revenue for the first half fell 2.3% to £20.3 billion. Group organic service revenue rose 1.0%* to £18.4 billion, comprising growth of 0.8%* in Q1 and 1.2%* in Q2. Excluding the impact of mobile termination rate (‘MTR’) cuts, H1 service revenue rose 1.6%*, with continued strong growth in AMAP and further evidence of stabilisation in Europe.

 

Adjusted EBITDA rose 1.9%* to £5.8 billion. The Group adjusted EBITDA margin improved by 0.2 percentage points to 28.6%, but declined 0.3* percentage points on an organic basis. Both Europe and AMAP showed organic margin improvement, supported by a better top line trend and good cost control.

 

Adjusted operating profit fell 5.9%* as the increase in depreciation and amortisation charges resulting from the Project Spring investment more than offset the organic growth in adjusted EBITDA.

 

The effective tax rate for the six months ended 30 September 2015 was 783% compared to -1,255% in the same period last year due to a reduction in the deferred tax asset in the current period and the recognition of deferred tax assets in the prior period.

 

Adjusted earnings per share of 2.51 pence fell 4.6% year-on-year, reflecting the lower adjusted operating profit.

 

Free cash outflow1 was £0.5 billion, a decline of £0.5 billion from the same period last year, as a result of increased payments for Project Spring investments.

 

Net debt as at 30 September 2015 was £28.9 billion, or £25.4 billion net of the $5.25 billion Verizon loan notes, compared to £22.3 billion at 31 March 2015. In addition to licence and spectrum payments of £2.1 billion, including £1.4 billion in Germany and £0.6 billion in India, net debt also reflects £2.0 billion of deferred payments relating to the acquisition or renewal of spectrum in India and Germany recognised during the period.

 

The Board is recommending an interim dividend per share of 3.68 pence, up 2.2% year-on-year, in line with our intention to grow the full year dividend per share annually.

 

The Group will change its reporting currency from sterling to euro from 1 April 2016.

 

Europe

 

Service revenue in Europe declined 1.3%* in H1, reflecting continued competitive pressures in a number of markets. However, revenue trends continue to improve, with Q2 service revenue down 1.0%* (Q1: -1.5%*), the fifth consecutive quarter of easing rates of decline. 7 out of 13 countries grew organic service revenue in H1, and Southern Europe in particular showed a strong rate of recovery.

 

Mobile service revenue declined 2.4%* (Q1: -2.5%*; Q2 -2.3%*). The main factors behind this performance include continued growth in our contract customer base and stabilising ARPU in a number of markets, supported by customer appetite for 4G services and strong data growth, offset by continued declines in the prepay base and ongoing regulatory factors.

 

Fixed service revenue grew 2.4%* (Q1: 1.7%*; Q2: 3.1%*), driven by strong consumer broadband customer growth, particularly in fibre and cable services. Fixed revenue now accounts for 25.8% of European service revenue, compared to 22.6% in the prior year.

 

Organic adjusted EBITDA grew 1.1%* and the adjusted EBITDA margin increased to 29.3%, an organic improvement of 0.2* percentage points. This reflects good cost control in a number of our markets, as well as the benefits of acquisition integrations.

 

AMAP

 

Service revenue in AMAP increased by 6.4%* (Q1: 6.1%*; Q2: 6.7%*), continuing its sustained track record of strong organic growth. The fundamental drivers of these businesses - customer growth and strong demand for mobile voice and data services - remain very healthy. Our leading network quality and distribution reach, supported by a strong brand, continue to be effective. In H1, the customer base increased by 8.9 million to 332.7 million, and voice and data usage increased 7% and 92% respectively. The number of data users increased by 17.9% to 124.6 million year-on-year.

 

Organic adjusted EBITDA grew 8.8%* and the adjusted EBITDA margin was 30.6%, a slight improvement year-on-year as operating leverage and good cost control offset the impact of increased operating costs from the Project Spring programme.

 

3


 

CHIEF EXECUTIVE’S STATEMENT

 

Strategic progress

 

Project Spring

 

Project Spring is our two-year, accelerated investment programme designed to place Vodafone at the forefront of the growth in customer demand for mobile data and the increasing trend towards the convergence of fixed and mobile services for individuals and businesses. The programme is primarily focused on:

 

·            Rapidly expanding our 4G coverage in Europe and 3G and 4G coverage in AMAP;

·            Modernising our mobile networks to increase capacity and deliver significant improvements to call quality and reliability;

·            Extending our own fibre networks in a number of markets;

·            Developing and introducing leading Enterprise products and services into more countries; and

·            Investing in our stores to improve the service we give to customers and do more of our business through Vodafone-branded channels.

 

We have continued to make very good progress on all of these elements in the first half. Highlights include:

 

·            80% 4G population coverage in Europe, up from 32% two years ago. 88% of customers’ data sessions in Europe are now at high-definition video speeds (3 Mbps or above);

·            94% 3G coverage in targeted urban areas in India; 47% 4G coverage and 98% 3G coverage in South Africa;

·            Dropped call rates at record lows in many countries, with the European average at 0.60% (a reduction in dropped calls in Europe of around 50 million per month);

·            66 million homes in Europe can now subscribe for Vodafone-branded high speed broadband services, of which 42% are on our own fibre or cable networks; and

·            M2M services now available in 27 countries; IP-VPN in 65 countries

 

Data

 

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

 

Data traffic in H1 grew 75% (Q1: 79%; Q2: 73%). We now have 29.9 million 4G customers across the 19 countries where we offer 4G, with a further 9.7 million customers added in H1. Although take-up continues to be rapid, still only 20% of our European customer base is taking a 4G service, providing us with a very substantial opportunity for future growth. Customers who move to 4G typically buy bigger data packages and see their data consumption double, and average usage per smartphone customer in Europe is up 39% year-on-year.

 

In our AMAP region, data adoption is also rapid, supported by our significant network investment and the relative scarcity of fixed line internet access. The total mobile data customer base is 124.6 million, up 18% year-on-year. In India alone, we now have 23.8 million 3G customers, up 75% year-on-year, and their usage is similar to European levels. We will launch 4G in India in the coming months.

 

Unified communications

 

We are well on our way to becoming a full service integrated operator, for both households and businesses, in our main markets. We market high speed broadband services to 66 million households across Europe, and through organic investment and acquisition, 42% of these households are ‘on-net’ — serviced by our own fibre or cable infrastructure. In the last 12 months we have extended our own network to reach an additional 3.6 million homes, and we continue to invest to reach more homes and businesses in Spain, Italy and Portugal.

 

We are achieving strong and consistent customer growth across our footprint. We now have 12.5 million broadband customers, with 0.5 million new broadband customers added in H1. In Europe, we have 11.7 million broadband customers and 9.2 million TV customers, with 47% of our European broadband customers taking a high speed service over fibre or cable.

 

During H1, we launched Vodafone One, our converged service in Spain combining mobile with the cable services of Ono, which we acquired in 2014. By September, nearly 800,000 customers had subscribed to the service. We also brought out our consumer broadband package in the UK, with TV to follow later in the 2016 financial year, and in November we launched Vodafone Red One in Germany, our fully integrated bundle combining mobile with high speed broadband on the Kabel Deutschland (‘KDG’) cable network.

 

In H1, 25.8% of our service revenue in Europe came from fixed line.

 

4


 

CHIEF EXECUTIVE’S STATEMENT

 

Enterprise

 

Services to business comprise 27.3% of our Group service revenue, and 32.3% in Europe. Our relationships with business customers are evolving, expanding from traditional mobile voice and data services to embrace total communications, M2M, Cloud & Hosting and IP-VPN provision. These new areas offer both market growth and market share opportunities for us, and we have been investing consistently to establish leadership positions.

 

We are a recognised global leader in the provision of M2M services, with a strong presence in key industries such as automotive and utilities. In H1, we increased our total M2M connections by 29.9% year-on-year to 24.0 million, with revenue growing 25.6%* to £224 million. Vodafone Global Enterprise (‘VGE’) which provides services to our biggest international customers, achieved revenue growth of 5.1%*, driven by our unmatched geographical presence and the increasing trend among multinational corporations to retain a single provider of services across borders.

 

Outlook and guidance2

 

The overall performance of the Group in the first half of the current financial year has been in line with our expectations, and we expect revenue and profitability trends to improve in the second half. We now expect adjusted EBITDA for the 2016 financial year to be in the range of £11.7 billion to £12.0 billion, and free cash flow to be positive, after all capex.

 


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. See page 41 for “Use of non-GAAP financial information”.

 

1            Free cash flow for the six months ended 30 September 2015 excludes £70 million (2014: £167 million) of restructuring costs, a £50 million (2014: £100 million) payment in respect of the Group’s historic UK tax settlement and £nil of other payments (2014: £450 million, see note 4 on page 19).

2            See “Guidance” on page 7.

 

5


 

GROUP FINANCIAL HIGHLIGHTS

 

 

 

 

 

Six months ended 30
September

 

Change

 

 

 

 

 

2015

 

2014

 

Reported

 

Organic*

 

 

 

Page

 

£m

 

£m

 

%

 

%

 

Statutory basis1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group revenue

 

27

 

20,266

 

20,752

 

(2.3

)

2.8

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating profit

 

27

 

933

 

917

 

1.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit before taxation

 

27

 

232

 

406

 

(42.9

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss)/profit for the financial period2

 

27

 

(1,584

)

5,501

 

(128.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share2

 

27

 

(6.40

)p

20.48

p

(131.2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash flow from operating activities

 

30, 35

 

4,130

 

3,691

 

11.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted statutory basis3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Group service revenue

 

8

 

18,430

 

19,139

 

(3.7

)

1.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

8

 

5,786

 

5,884

 

(1.7

)

1.9

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin

 

8

 

28.6

%

28.4

%

0.2

pp

(0.3

)pp

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted operating profit

 

8

 

1,641

 

1,756

 

(6.5

)

(5.9

)

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted profit attributable to owners of the parent

 

10, 47

 

667

 

697

 

(4.3

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted earnings per share

 

10, 47

 

2.51

p

2.63

p

(4.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditure

 

19

 

3,708

 

3,901

 

(4.9

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Free cash flow4

 

19

 

(541

)

1

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net debt

 

19, 20

 

(28,923

)

(21,832

)

32.5

 

 

 

 


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. See page 41 for “Use of non-GAAP financial information”.

1.       Statutory basis prepared in accordance with IFRS accounting principles, including the results of the Group’s joint ventures using the equity accounting basis.

2.       Six months ended 30 September 2015 includes £1,476 million in relation to a reduction in the tax losses in Luxembourg following the write back of previous impairments in the local statutory accounts. Six months ended 30 September 2014 included the recognition of £5,468 million of deferred tax assets in respect of tax losses in Luxembourg.

3.       See page 41 for “Use of non-GAAP financial information” and page 51 for “Definition of terms”.

4.       Free cash flow for the six months ended 30 September 2015 excludes £70 million (2014: £167 million) of restructuring costs, a £50 million (2014: £100 million) payment in respect of the Group’s historic UK tax settlement and £nil of other payments (2014: £450 million, see note 4 on page 19).

 

6


 

GUIDANCE

 

Please see page 41 for “Use of non-GAAP financial information”, page 51 for “Definition of terms” and page 52 for “Forward-looking statements”.

 

2016 financial year guidance

 

 

 

Adjusted EBITDA
£bn

 

Free cash flow
£bn

 

 

 

 

 

Original guidance

 

11.5 – 12.0

 

Positive

 

 

 

 

 

Updated guidance

 

11.7 – 12.0

 

Positive

 

We now expect adjusted EBITDA to be in the range of £11.7 billion to £12.0 billion. We expect free cash flow to be positive after all capex, before the impact of M&A, spectrum purchases and restructuring costs. Total capex is expected to be around £8.5 billion to £9.0 billion (including Ono).

 

Assumptions

 

We have based guidance for the 2016 financial year on our current assessment of the global macroeconomic outlook and assume foreign exchange rates of £1:€ 1.37, £1:INR 95.2 and £1:ZAR 18.1. It excludes the impact of licences and spectrum purchases, material one-off tax-related payments, restructuring costs and any fundamental structural change to the Eurozone. It also assumes no material change to the current structure of the Group.

 

Actual foreign exchange rates may vary from the foreign exchange rate assumptions used. A 1% change in the euro to sterling exchange rate would impact adjusted EBITDA by £60 million and free cash flow by £10 million. A 1% change in the Indian rupee to sterling exchange rate would impact adjusted EBITDA by £10 million and would have no impact on free cash flow. A 1% change in the South African rand to sterling exchange rate would impact adjusted EBITDA by £15 million and free cash flow by £5 million.

 

7


 

CONTENTS

 

 

Page

Financial results

8

Liquidity and capital resources

19

Regulation

21

Legal proceedings

26

Unaudited condensed consolidated financial statements

27

Use of non-GAAP financial information

41

Additional information

45

Other information (including forward-looking statements)

50

 

FINANCIAL RESULTS

 

Group1,2

 

 

 

 

 

 

 

 

 

 

 

Six months ended 30
September

 

Change

 

 

 

Europe

 

AMAP

 

Other3

 

Eliminations

 

2015

 

2014

 

Reported

 

Organic*

 

 

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

%

 

%

 

Mobile in-bundle revenue

 

5,767

 

1,914

 

73

 

 

7,754

 

7,900

 

 

 

 

 

Mobile out-of-bundle revenue

 

2,057

 

2,778

 

5

 

 

4,840

 

5,498

 

 

 

 

 

Mobile incoming revenue

 

626

 

565

 

 

 

1,191

 

1,351

 

 

 

 

 

Fixed line revenue

 

3,118

 

408

 

313

 

(31

)

3,808

 

3,575

 

 

 

 

 

Other service revenue

 

536

 

224

 

91

 

(14

)

837

 

815

 

 

 

 

 

Service revenue

 

12,104

 

5,889

 

482

 

(45

)

18,430

 

19,139

 

(3.7

)

1.0

 

Other revenue

 

1,027

 

722

 

87

 

 

1,836

 

1,613

 

 

 

 

 

Revenue

 

13,131

 

6,611

 

569

 

(45

)

20,266

 

20,752

 

(2.3

)

2.8

 

Direct costs

 

(2,967

)

(1,686

)

(425

)

40

 

(5,038

)

(5,196

)

 

 

 

 

Customer costs

 

(2,895

)

(1,069

)

18

 

 

(3,946

)

(4,176

)

 

 

 

 

Operating expenses

 

(3,422

)

(1,830

)

(249

)

5

 

(5,496

)

(5,496

)

 

 

 

 

Adjusted EBITDA

 

3,847

 

2,026

 

(87

)

 

5,786

 

5,884

 

(1.7

)

1.9

 

Depreciation and amortisation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquired intangibles

 

 

 

 

 

 

 

 

 

(168

)

(250

)

 

 

 

 

Purchased licences

 

 

 

 

 

 

 

 

 

(682

)

(625

)

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

(3,292

)

(3,216

)

 

 

 

 

Share of result in associates and joint ventures

 

 

 

 

 

 

 

 

 

(3

)

(37

)

 

 

 

 

Adjusted operating profit

 

 

 

 

 

 

 

 

 

1,641

 

1,756

 

(6.5

)

(5.9

)

Restructuring costs

 

 

 

 

 

 

 

 

 

(114

)

(84

)

 

 

 

 

Amortisation of acquired customer base and brand intangible assets

 

(521

)

(637

)

 

 

 

 

Other income and expense

 

(73

)

(118

)

 

 

 

 

Operating profit

 

933

 

917

 

 

 

 

 

Non-operating income and expense

 

(1

)

(26

)

 

 

 

 

Net financing costs

 

(700

)

(485

)

 

 

 

 

Income tax, excluding deferred tax on revaluation of investments in Luxembourg

 

(340

)

(373

)

 

 

 

 

Deferred tax following revaluation of investments in Luxembourg4

 

(1,476

)

5,468

 

 

 

 

 

(Loss)/profit for the financial period

 

(1,584

)

5,501

 

 

 

 

 

 


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. See page 41 for “Use of non-GAAP financial information”.

1.       Current period reflects average foreign exchange rates of £1:€1.39, £1:INR 98.95 and £1:ZAR 19.33.

2.       The Group has amended its reporting to reflect changes in the internal management of its Enterprise business. The primary change has been that on 1 April 2015, the Group redefined its segments to report international voice transit revenue and costs within common functions rather than within the results disclosed for each country and region. The results presented for the six months ended 30 September 2014 have been restated onto a comparable basis. There is no impact on total Group revenues or costs.

3.       The “Other” segment primarily represents the results of partner markets and the net result of unallocated central Group costs.

4.       Refer to page 10 for further details.

 

8


 

FINANCIAL RESULTS

 

Revenue

 

Group revenue decreased by 2.3% to £20.3 billion and service revenue decreased by 3.7% to £18.4 billion. Reported growth includes the impact of the acquisitions of Ono, Hellas Online (‘HOL’) and Cobra Automotive (‘Cobra’).

 

In Europe, organic service revenue declined by 1.3%* as growing demand for 4G and mobile data, as well as growth in fixed line service revenue, continue to be offset by the ongoing impact of competition. By Q2, however, 7 of the 13 countries in Europe had returned to organic service revenue growth.

 

In AMAP, organic service revenue increased by 6.4%* driven by growth in all markets apart from Qatar.

 

Adjusted EBITDA and operating profit

 

Group adjusted EBITDA fell 1.7% to £5.8 billion, with organic growth in Europe and AMAP and the acquisitions of HOL and Cobra being more than offset by foreign exchange movements. The Group’s adjusted EBITDA margin improved by 0.2 percentage points to 28.6%. On an organic basis, adjusted EBITDA rose 1.9%* and the Group’s adjusted EBITDA margin fell 0.3* percentage points, as organic margin improvements in Europe and AMAP were offset by the phasing of operating expenses related to Project Spring within common costs.

 

Operating profit increased 1.7% to £0.9 billion as lower adjusted EBITDA was offset by lower depreciation and amortisation charges.

 

Net financing costs

 

 

 

Six months ended 30
September

 

 

 

2015

 

2014

 

 

 

£m

 

£m

 

Investment income

 

145

 

305

 

Financing costs

 

(845

)

(790

)

Net financing costs

 

(700

)

(485

)

 

 

 

 

 

 

Analysed as:

 

 

 

 

 

Net financing costs before interest on settlement of tax issues

 

(451

)

(578

)

Interest expense arising on settlement of outstanding tax issues

 

(15

)

(24

)

 

 

(466

)

(602

)

Mark to market losses

 

(86

)

(80

)

Foreign exchange1

 

(148

)

197

 

 

 

(700

)

(485

)

 


Note:

1            Comprises foreign exchange rate differences reflected in the income statement in relation to certain intercompany balances.

 

Net financing costs includes £148 million of intercompany related foreign exchange losses (2014: £197 million gain), £86 million of mark to market losses (2014: £80 million loss) and £15m of interest on settlement of tax issues (2014: £24 million). Excluding these items, net financing costs decreased by 22% primarily due to the impact of foreign exchange losses on financing costs.

 

9


 

FINANCIAL RESULTS

 

Taxation

 

The effective tax rate for the six months ended 30 September 2015 was 783% compared to -1,255% in the same period last year due a reduction in the deferred tax asset in the current period and the recognition of deferred tax assets in the prior period. The tax rate for the full year will include the cost of writing down the value of our UK deferred tax asset following the forthcoming reduction in the UK tax rate to 18%.

 

The effective tax rate for both periods includes the use of Luxembourg losses in the half year of £258 million (2014: £272 million) and a reduction in the deferred tax asset in the current period of £1,476 million (2014: recognition of an additional asset of £2,127 million) arising from the revaluation of investments based upon the local GAAP financial statements. The tax rate in the six months ended 30 September 2014 includes the impact of the recognition of an additional £3,341 million deferred tax asset in respect of the Group’s historic tax losses in Luxembourg. The losses have been recognised as a consequence of the financing arrangements for the acquisition of Ono.

 

Earnings per share

 

Adjusted earnings per share, which excludes the reduction in the tax losses in Luxembourg following the revaluation of investments in the local statutory accounts in the current period and the recognition of deferred tax assets in respect of tax losses in Luxembourg in the prior period, was 2.51 pence, a decrease of 4.6% year-on-year, reflecting the Group’s lower adjusted operating profit over the same period.

 

Basic earnings per share was a loss of 6.40 pence due to the reduction in deferred tax on losses, as described above, which has been excluded from adjusted earnings per share.

 

 

 

Six months ended 30
September

 

 

 

2015

 

2014

 

 

 

£m

 

£m

 

 

 

 

 

 

 

(Loss)/profit attributable to owners of the parent

 

(1,698

)

5,422

 

 

 

 

 

 

 

Adjustments:

 

 

 

 

 

Amortisation of acquired customer base and brand intangible assets

 

521

 

637

 

Restructuring costs

 

114

 

84

 

Other income and expense

 

73

 

118

 

Non-operating income and expense

 

1

 

26

 

Investment income and financing costs

 

148

 

(197

)

 

 

857

 

668

 

 

 

 

 

 

 

Taxation

 

1,517

 

(5,383

)

Non-controlling interests

 

(9

)

(10

)

Adjusted profit attributable to owners of the parent

 

667

 

697

 

 

 

 

Million

 

Million

 

Weighted average number of shares outstanding — basic

 

26,529

 

26,470

 

 

(Loss)/earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

Pence

 

Pence

 

Basic earnings per share

 

(6.40

)p

20.48

p

Adjusted earnings per share

 

2.51

p

2.63

p

 


Note:

1.             Six months ended 30 September 2015 includes £1,476 million in relation to a reduction in the tax losses in Luxembourg following the write back of previous impairments in the local statutory accounts. Six months ended 30 September 2014 included the recognition of £5,468 million of deferred tax assets in respect of tax losses in Luxembourg.

 

10


 

FINANCIAL RESULTS

 

Europe1

 

 

 

Germany

 

Italy

 

UK

 

Spain

 

Other
Europe

 

Eliminations

 

Europe

 

% change

 

 

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

Reported

 

Organic

 

30 September 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile in-bundle revenue

 

1,535

 

938

 

1,348

 

787

 

1,159

 

 

5,767

 

 

 

 

 

Mobile out-of-bundle revenue

 

383

 

391

 

560

 

204

 

519

 

 

2,057

 

 

 

 

 

Mobile incoming revenue

 

108

 

130

 

161

 

52

 

182

 

(7

)

626

 

 

 

 

 

Fixed line revenue

 

1,335

 

300

 

727

 

512

 

251

 

(7

)

3,118

 

 

 

 

 

Other service revenue

 

163

 

95

 

145

 

71

 

106

 

(44

)

536

 

 

 

 

 

Service revenue

 

3,524

 

1,854

 

2,941

 

1,626

 

2,217

 

(58

)

12,104

 

(6.2

)

(1.3

)

Other revenue

 

298

 

258

 

145

 

166

 

162

 

(2

)

1,027

 

 

 

 

 

Revenue

 

3,822

 

2,112

 

3,086

 

1,792

 

2,379

 

(60

)

13,131

 

(4.8

)

0.4

 

Direct costs

 

(925

)

(450

)

(709

)

(396

)

(545

)

58

 

(2,967

)

 

 

 

 

Customer costs

 

(750

)

(447

)

(773

)

(456

)

(471

)

2

 

(2,895

)

 

 

 

 

Operating expenses

 

(897

)

(495

)

(935

)

(466

)

(629

)

 

(3,422

)

 

 

 

 

Adjusted EBITDA

 

1,250

 

720

 

669

 

474

 

734

 

 

3,847

 

(2.5

)

1.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin

 

32.7

%

34.1

%

21.7

%

26.5

%

30.9

%

 

 

29.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 September 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile in-bundle revenue

 

1,728

 

994

 

1,264

 

884

 

1,234

 

 

6,104

 

 

 

 

 

Mobile out-of-bundle revenue

 

481

 

552

 

640

 

264

 

673

 

 

2,610

 

 

 

 

 

Mobile incoming revenue

 

129

 

148

 

178

 

57

 

198

 

 

710

 

 

 

 

 

Fixed line revenue

 

1,490

 

322

 

647

 

288

 

174

 

 

2,921

 

 

 

 

 

Other service revenue

 

169

 

97

 

148

 

77

 

101

 

(37

)

555

 

 

 

 

 

Service revenue

 

3,997

 

2,113

 

2,877

 

1,570

 

2,380

 

(37

)

12,900

 

 

 

 

 

Other revenue

 

293

 

219

 

129

 

104

 

149

 

(3

)

891

 

 

 

 

 

Revenue

 

4,290

 

2,332

 

3,006

 

1,674

 

2,529

 

(40

)

13,791

 

 

 

 

 

Direct costs

 

(999

)

(505

)

(719

)

(378

)

(541

)

38

 

(3,104

)

 

 

 

 

Customer costs

 

(914

)

(448

)

(785

)

(539

)

(489

)

2

 

(3,173

)

 

 

 

 

Operating expenses

 

(995

)

(593

)

(864

)

(450

)

(667

)

 

(3,569

)

 

 

 

 

Adjusted EBITDA

 

1,382

 

786

 

638

 

307

 

832

 

 

3,945

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin

 

32.2

%

33.7

%

21.2

%

18.3

%

32.9

%

 

 

28.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change at constant exchange rates

 

 

%

 

%

 

%

 

%

 

%

 

 

 

 

 

 

 

 

Mobile in-bundle revenue

 

(0.8

)

5.4

 

6.7

 

(0.6

)

4.8

 

 

 

 

 

 

 

 

 

Mobile out-of-bundle revenue

 

(11.3

)

(20.9

)

(12.5

)

(13.6

)

(13.7

)

 

 

 

 

 

 

 

 

Mobile incoming revenue

 

(6.8

)

(1.9

)

(9.7

)

3.3

 

2.8

 

 

 

 

 

 

 

 

 

Fixed line revenue

 

0.1

 

4.0

 

12.4

 

97.0

 

59.1

 

 

 

 

 

 

 

 

 

Other service revenue

 

8.9

 

9.8

 

(1.7

)

1.4

 

15.7

 

 

 

 

 

 

 

 

 

Service revenue

 

(1.5

)

(2.0

)

2.2

 

15.4

 

3.9

 

 

 

 

 

 

 

 

 

Other revenue

 

12.8

 

31.6

 

12.1

 

78.7

 

22.5

 

 

 

 

 

 

 

 

 

Revenue

 

(0.5

)

1.2

 

2.7

 

19.4

 

5.0

 

 

 

 

 

 

 

 

 

Direct costs

 

(3.5

)

0.6

 

1.3

 

(16.3

)

(13.0

)

 

 

 

 

 

 

 

 

Customer costs

 

8.4

 

(11.4

)

1.5

 

5.5

 

(7.3

)

 

 

 

 

 

 

 

 

Operating expenses

 

(0.6

)

6.6

 

(8.2

)

(15.6

)

(5.1

)

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

1.0

 

2.3

 

4.9

 

72.1

 

(1.6

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin movement (pps)

 

0.5

 

0.4

 

0.5

 

8.1

 

(2.1

)

 

 

 

 

 

 

 

 

 

11


 

FINANCIAL RESULTS

 

Revenue decreased by 4.8%. M&A activity, including Ono and HOL, contributed a 3.3 percentage point positive impact, while foreign exchange movements contributed an 8.5 percentage point negative impact. On an organic basis, service revenue declined 1.3%*, driven primarily by price competition.

 

Adjusted EBITDA decreased by 2.5%, including a 5.7 percentage point positive impact from M&A activity and a 9.3 percentage point negative impact from foreign exchange movements. On an organic basis adjusted EBITDA increased 1.1%*, as good cost control offset the continued fall in service revenue.

 

 

 

Organic*

 

M& A and
other

 

Foreign

 

Reported

 

 

 

change

 

activity

 

exchange

 

change

 

 

 

%

 

pps

 

pps

 

%

 

 

 

 

 

 

 

 

 

 

 

Europe revenue

 

0.4

 

3.3

 

(8.5

)

(4.8

)

 

 

 

 

 

 

 

 

 

 

Service revenue

 

 

 

 

 

 

 

 

 

Germany

 

(1.5

)

 

(10.3

)

(11.8

)

Italy

 

(2.0

)

 

(10.3

)

(12.3

)

UK

 

(0.1

)

2.3

 

 

2.2

 

Spain

 

(3.8

)

19.2

 

(11.8

)

3.6

 

Other Europe

 

1.0

 

2.9

 

(10.7

)

(6.8

)

Europe service revenue

 

(1.3

)

3.4

 

(8.3

)

(6.2

)

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

 

 

 

 

 

 

 

Germany

 

1.0

 

 

(10.6

)

(9.6

)

Italy

 

2.3

 

 

(10.7

)

(8.4

)

UK

 

(5.0

)

9.9

 

 

4.9

 

Spain

 

16.3

 

55.8

 

(17.7

)

54.4

 

Other Europe

 

(3.4

)

1.8

 

(10.2

)

(11.8

)

Europe adjusted EBITDA

 

1.1

 

5.7

 

(9.3

)

(2.5

)

 


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. See page 41 for “Use of non-GAAP financial information”.

1           The Group has amended its reporting to reflect changes in the internal management of its Enterprise business. The primary change has been that on 1 April 2015, the Group redefined its segments to report international voice transit revenue and costs within common functions rather than within the results disclosed for each country and region. The results presented for the six months ended 30 September 2014 have been restated onto a comparable basis. There is no impact on total Group revenue or cost.

 

Germany

 

Service revenue declined 1.5%* (Q1: -1.2%*; Q2: -1.8%*). Underlying year-on-year trends in each quarter were similar, excluding the impact of one-off items on reported results.

 

Mobile service revenue fell 2.4%*. Consumer contract revenue stabilised in Q2, supported by consistent growth in contract net adds and an increased focus on Vodafone branded channels, although the impact of price reductions in prior years continued to put pressure on ARPU. The enterprise market became increasingly competitive in H1, leading to a deteriorating revenue trend despite good contract wins as a strong churn performance could not offset falling ARPU. We have made further strong progress on network investment, with 81% 4G coverage and dropped call rates falling 28% year-on-year. In October, the ComputerBILD test ranked Vodafone the best voice network in Germany.

 

Fixed service revenue growth was 0.1%*, with continued strong growth in cable offsetting a decline in DSL-related revenue. Cable net adds growth continued to be strong throughout H1, supplemented by ongoing migrations from the DSL base. Broadband ARPU was down year-on-year in a promotional market, but stable through the course of H1. The integration of KDG continued as planned, including the rebranding of the business as Vodafone in September. In November, we launched Vodafone RedOne, our fully integrated fixed, mobile and TV service combining high speed mobile and cable.

 

Adjusted EBITDA grew 1.0%*, with the adjusted EBITDA margin improving by 0.5* percentage points. This reflects the achievement of KDG synergies, and savings in commercial costs and other operating expenses offsetting the increased network opex from Project Spring.

 

12


 

FINANCIAL RESULTS

 

Italy

 

Service revenue declined 2.0%* (Q1: -2.0%*; Q2: -2.0%*). The mobile business is on a steady recovery path, while fixed line performance continues to be positive despite increased competition in recent months.

 

Mobile service revenue fell 3.1%*, as a recovery in ARPU supported by strong data demand only partially offset the year-on-year decline in the customer base. Churn in the market has reduced in recent quarters and the customer base is stable quarter-on-quarter. Enterprise continued to perform well in a stable market, although roaming revenue fell in Q2 after a very strong comparable period last year. We now have 91% population coverage with our 4G network, and have recently launched a network service promise to underline our confidence in network performance.

 

Fixed service revenue was up 4.0%*, driven by sustained commercial momentum. We added a further 67,000 broadband customers in H1, and a third of our gross adds are now taking a fibre service. Of our base of 1.9 million broadband customers, 148,000 are fibre customers. We have now built out our own fibre network to nearly 12,000 cabinets, more than doubling our footprint in the last six months.

 

Adjusted EBITDA was up 2.3%*, as we successfully offset the decline in service revenue with savings in commercial costs and operating expenses. The adjusted EBITDA margin expanded by 0.4* percentage points.

 

UK

 

Service revenue declined 0.1%* (Q1: 0.2%*; Q2: -0.5%*), with improving trends in fixed line and enterprise offset by a slowdown in consumer mobile after a period of strong growth. The organic growth rate excludes one-off settlements with other network operators in Q2.

 

Mobile service revenue grew 0.1%*. We continued to achieve good contract customer growth, reflecting the increased number of Vodafone-branded stores. Revenue trends in Q2 were impacted by the pricing and usage of 08XX numbers following the introduction of Non Geographic Call Services regulation, and a focus on giving customers more control of their out-of-bundle data spend. As a result, in-bundle revenue and demand for data add-ons continued to grow. Enterprise mobile service revenue was broadly stable in H1 despite increased competition. National 4G coverage reached 82% (based on the OFCOM definition), and 99% in London. A recent independent test by P3 ranked our network number one in London for combined voice and data. We achieved significant growth in 4G customers, with 5.3 million at the period end (September 2014: 1.1 million).

 

Fixed service revenue declined 0.9%*. Excluding carrier services, fixed revenue was stable in Q2, including an improving performance in Enterprise. After regional trials during the summer, we launched our consumer broadband service to 22 million premises across the UK (95% of BT’s fibre footprint) in October, with our new TV service to follow in Q4.

 

Adjusted EBITDA declined 5.0%*, with a 1.1* percentage point decline in the adjusted EBITDA margin. The decline in margin was mainly the result of the phasing of central costs allocated to the UK business, which were heavily weighted to H2 last year but are more evenly spread this year. Reported adjusted EBITDA benefited from one-off settlements with other network operators.

 

Spain

 

Service revenue declined 3.8%* (Q1: -5.5%*; Q2: -2.0%*), with mobile revenue recovering steadily despite the negative effect of handset financing, and continued positive momentum in fixed.

 

Mobile service revenue fell 8.1%*. The contract customer base continued to grow in a more stable market, despite increased promotional activity around the start of the new football season, and aggressive cross-selling of mobile to TV customers by a competitor. Although unit prices continue to fall, we have been increasing data bundle sizes at slightly higher monthly fees. Our new commercial strategy on data, offering customers the opportunity to buy additional bundles for up to €10 per month, has been very successful. Our 4G population coverage reached 80% at September 2015 and we have 4.3 million 4G customers.

 

Fixed service revenue rose 7.4%*, supported by consistent growth in broadband net additions. The integration of Ono is proceeding strongly, with the MVNO migrated to the Vodafone network seven months ahead of schedule and the very successful launch in May of Vodafone One, our fully integrated cable, mobile and TV service. At September 2015 we already have nearly 800,000 customers on Vodafone One. Including our joint fibre network build with Orange, we now reach 8 million premises with fibre.

 

Adjusted EBITDA increased 16.3%* year-on-year, as strong cost control, the benefit to margin from handset financing and the cost synergies from the Ono acquisition more than offset rising TV costs. The organic improvement in the adjusted EBITDA margin was 3.7* percentage points year-on-year.

 

13


 

FINANCIAL RESULTS

 

Other Europe

 

Service revenue rose 1.0%* (Q1: 0.6%*; Q2: 1.5%*), with the Netherlands, Ireland, Greece, Romania, the Czech Republic and Hungary all growing in H1, and trends in Portugal clearly improving.

 

In the Netherlands, service revenue was up 1.1%*, with consumer fixed line and enterprise as the main drivers of growth. After reaching 100% 4G coverage last year we are now expanding 4G+ presence and have reached 130 municipalities. We had 73,000 consumer fixed line customers at September 2015.

 

In Portugal, despite ongoing pressure in convergence pricing, fixed revenue continues to grow strongly and mobile is recovering, driven by migration from prepay to contract and recovery in enterprise. Our fibre to the home network now reaches 2.1 million homes. Ireland returned to service revenue growth in Q2, with strong momentum in fixed line and an improving trend in mobile. The 4G roll-out is complete with 95% population coverage. In Greece we saw a slight slowdown in Q2 as a result of the macroeconomic environment, which increased pressure on consumer contract ARPU in particular. The HOL integration is on track, with the business rebranded in October.

 

Adjusted EBITDA declined 3.4%*, with a 1.8* percentage point decline in adjusted EBITDA margin, mainly driven by lower margins in Portugal, Ireland and Romania.

 

14


 

FINANCIAL RESULTS

 

Africa, Middle East and Asia Pacific1

 

 

 

India

 

Vodacom

 

Other
AMAP

 

Eliminations

 

AMAP

 

% change

 

 

 

£m

 

£m

 

£m

 

£m

 

£m

 

Reported

 

Organic

 

30 September 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile in-bundle revenue

 

509

 

562

 

843

 

 

1,914

 

 

 

 

 

Mobile out-of-bundle revenue

 

1,286

 

873

 

619

 

 

2,778

 

 

 

 

 

Incoming revenue

 

238

 

87

 

240

 

 

565

 

 

 

 

 

Fixed line revenue

 

97

 

67

 

251

 

(7

)

408

 

 

 

 

 

Other service revenue

 

83

 

81

 

60

 

 

224

 

 

 

 

 

Service revenue

 

2,213

 

1,670

 

2,013

 

(7

)

5,889

 

1.8

 

6.4

 

Other revenue

 

8

 

401

 

313

 

 

722

 

 

 

 

 

Revenue

 

2,221

 

2,071

 

2,326

 

(7

)

6,611

 

3.0

 

8.2

 

Direct costs

 

(661

)

(281

)

(751

)

7

 

(1,686

)

 

 

 

 

Customer costs

 

(100

)

(580

)

(389

)

 

(1,069

)

 

 

 

 

Operating expenses

 

(800

)

(441

)

(589

)

 

(1,830

)

 

 

 

 

Adjusted EBITDA

 

660

 

769

 

597

 

 

2,026

 

4.2

 

8.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin

 

29.7

%

37.1

%

25.7

%

 

 

30.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 September 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile in-bundle revenue

 

377

 

528

 

792

 

 

1,697

 

 

 

 

 

Mobile out-of-bundle revenue

 

1,249

 

958

 

669

 

 

2,876

 

 

 

 

 

Incoming revenue

 

293

 

102

 

246

 

 

641

 

 

 

 

 

Fixed line revenue

 

77

 

1

 

253

 

 

331

 

 

 

 

 

Other service revenue

 

47

 

131

 

61

 

 

239

 

 

 

 

 

Service revenue

 

2,043

 

1,720

 

2,021

 

 

5,784

 

 

 

 

 

Other revenue

 

10

 

382

 

243

 

 

635

 

 

 

 

 

Revenue

 

2,053

 

2,102

 

2,264

 

 

6,419

 

 

 

 

 

Direct costs

 

(643

)

(304

)

(751

)

 

(1,698

)

 

 

 

 

Customer costs

 

(88

)

(598

)

(333

)

 

(1,019

)

 

 

 

 

Operating expenses

 

(715

)

(465

)

(577

)

 

(1,757

)

 

 

 

 

Adjusted EBITDA

 

607

 

735

 

603

 

 

1,945

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin

 

29.6

%

35.0

%

26.6

%

 

 

30.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change at constant exchange rates

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobile in-bundle revenue

 

32.3

 

15.3

 

18.4

 

 

 

 

 

 

 

 

 

Mobile out-of-bundle revenue

 

0.9

 

(2.1

)

(2.2

)

 

 

 

 

 

 

 

 

Incoming revenue

 

(20.6

)

(8.2

)

6.2

 

 

 

 

 

 

 

 

 

Fixed line revenue

 

25.1

 

 

11.9

 

 

 

 

 

 

 

 

 

Other service revenue

 

78.7

 

(36.6

)

8.3

 

 

 

 

 

 

 

 

 

Service revenue

 

6.3

 

4.2

 

8.8

 

 

 

 

 

 

 

 

 

Other revenue

 

(21.9

)

12.4

 

47.7

 

 

 

 

 

 

 

 

 

Revenue

 

6.1

 

5.7

 

12.8

 

 

 

 

 

 

 

 

 

Direct costs

 

(1.0

)

1.5

 

(9.7

)

 

 

 

 

 

 

 

 

Customer costs

 

(11.1

)

(4.3

)

(35.3

)

 

 

 

 

 

 

 

 

Operating expenses

 

(9.6

)

(0.6

)

(11.7

)

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

6.7

 

13.2

 

5.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA margin movement (pps)

 

0.1

 

2.4

 

(1.6

)

 

 

 

 

 

 

 

 

 

15


 

FINANCIAL RESULTS

 

Revenue increased by 3.0%, with strong organic growth offset by a 5.1 percentage point adverse impact from foreign exchange movements, particularly with regards to the South African rand, Egyptian pound and Turkish lira. On an organic basis service revenue was up 6.4%* driven by growth in the customer base, increased voice and data usage, and continued good commercial execution. Overall growth was offset by MTR cuts and other regulatory charges, mainly in India.

 

Adjusted EBITDA increased by 4.2%, including a 4.6 percentage point adverse impact from foreign exchange movements. On an organic basis, adjusted EBITDA grew 8.8%* driven by growth in all major markets.

 

 

 

Organic*

 

M&A and
other

 

Foreign

 

Reported

 

 

 

change

 

activity

 

exchange

 

change

 

 

 

%

 

pps

 

pps

 

%

 

 

 

 

 

 

 

 

 

 

 

AMAP revenue

 

8.2

 

(0.1

)

(5.1

)

3.0

 

 

 

 

 

 

 

 

 

 

 

Service revenue

 

 

 

 

 

 

 

 

 

India

 

6.3

 

 

2.0

 

8.3

 

Vodacom

 

4.2

 

 

(7.1

)

(2.9

)

Other AMAP

 

8.8

 

 

(9.2

)

(0.4

)

AMAP service revenue

 

6.4

 

 

(4.6

)

1.8

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

 

 

 

 

 

 

 

 

 

India

 

6.7

 

 

2.0

 

8.7

 

Vodacom

 

13.2

 

 

(8.6

)

4.6

 

Other AMAP

 

5.9

 

 

(6.9

)

(1.0

)

AMAP adjusted EBITDA

 

8.8

 

 

(4.6

)

4.2

 

 


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. See page 41 for “Use of non-GAAP financial information”.

1           The Group has amended its reporting to reflect changes in the internal management of its Enterprise business. The primary change has been that on 1 April 2015, the Group redefined its segments to report international voice transit revenue and costs within common functions rather than within the results disclosed for each country and region. The results presented for the six months ended 30 September 2014 have been restated onto a comparable basis. There is no impact on total Group revenue or cost.

 

India

 

Service revenue increased 6.3%* (Q1: 6.9%*; Q2: 5.6%*) as customer base growth and strong demand for 3G data was partially offset by a number of regulatory changes, including MTR cuts, roaming price caps and an increase in service tax. Excluding these impacts, service revenue growth in H1 was 11.2%*.

 

We added 4.4 million customers in the period, taking the total to 188.2 million. Growth in total minutes of use accelerated in H1 but this was offset by a decline in revenue per minute as a result of ongoing competition on voice business.

 

Data growth continues to be very strong, with data usage over the network up 74% year-on-year in H1, and the active data customer base increasing 16% to 66.5 million. The 3G customer base grew to 23.8 million, up 75% year-on-year, and smartphone penetration in our four biggest urban areas is now 49%. Data pricing has recently become more competitive after price rises earlier in the year. In Q2, browsing revenue represented 18.9% of local service revenue, up from 13.5% in the equivalent quarter last year.

 

Since the launch of Project Spring we have added over 22,000 new 3G sites, taking the total to nearly 40,000 and our population coverage to 94% of target urban areas. We plan to launch 4G in five key circles in the coming months.

 

Our M-Pesa business continues to expand, with 665,000 active customers at September 2015, and 97,000 agents. In August, the Reserve Bank of India granted us in principle approval to set up a payments bank.

 

Adjusted EBITDA grew 6.7%*, with a 0.1* percentage point improvement in adjusted EBITDA margin as the benefits of service revenue growth offset the ongoing increase in operating costs related to Project Spring, higher acquisition costs and the translation effects of non-rupee operating costs.

 

We have recently begun preparations for a potential IPO of Vodafone India, subject to market conditions.

 

16


 

FINANCIAL RESULTS

 

Vodacom

 

Vodacom Group service revenue increased 4.2%* (Q1: 4.5%*; Q2: 3.9%*), supported by strong momentum in both South Africa and the International operations.

 

In South Africa, organic service revenue grew 2.9%* (Q1: 2.8%*; Q2: 3.0%*), with the consumer and enterprise businesses both performing well. We continued to focus on building brand and network differentiation, with our performance driven by strong demand for data, the success of voice and data bundles, and very low contract churn. Data revenue growth accelerated to 33.3*% in H1 and is now 35% of local service revenue compared to 27% a year ago. The 3G customer base grew 25.2% year-on-year, supported by the increasing affordability of smartphones: we sold 1.3 million Vodafone branded devices in H1, representing 24% of total volume. We accelerated our network build in H1, taking coverage to 47% on 4G and 98% on 3G.

 

Service revenue growth in Vodacom’s operations outside South Africa was 9.5%*, driven by customer base growth, data take-up and M-Pesa. Active data customers reached 10.5 million, up 14.2% year-on-year, and M-Pesa customers totalled 6.8 million, all benefiting from sustained network investment.

 

Vodacom Group adjusted EBITDA increased 13.2%*, with a 2.4* percentage point improvement in adjusted EBITDA margin. This strong performance was driven by operating leverage and a significant cost reduction programme put in place in H2 last year.

 

Other AMAP

 

Service revenue increased 8.8%* (Q1: 6.8%*; Q2: 10.8%*), with strong growth in Turkey, Egypt and Ghana partially offset by a decline in Qatar.

 

Service revenue in Turkey was up 17.6%*, reflecting continued strong growth in consumer contract and enterprise revenue, driven by growth in both the customer base and ARPU. Fixed line momentum was also good, with 183,000 fixed broadband customers at the end of the period. In Egypt, service revenue was up 8.4%* driven by continued strong growth in data and voice usage. New Zealand sustained its improving trend of recent quarters, returning to service revenue growth in Q2 supported by good year-on-year growth in the mobile contract customer base and improving fixed line ARPU.

 

Adjusted EBITDA grew 5.9%*, driven by the strong revenue performance.

 

Associates

 

Safaricom, Vodafone’s 40% associate which is the number one mobile operator in Kenya, achieved local currency service revenue growth of 12.3% driven by data and M-Pesa.14 out of 16 targeted regions now have 4G coverage.

 

Vodafone Hutchison Australia (‘VHA’), in which Vodafone owns a 50% stake, is performing well, with service revenue growth supported by ongoing growth in the contract customer base and a slight increase in ARPU. Strong adjusted EBITDA growth was driven by the improving top line and reduced commercial costs.

 

Indus Towers, the Indian towers company in which Vodafone has a 42% interest, achieved local currency revenue growth of 5.6%. Indus owns 117,579 towers, with a tenancy ratio of 2.22.

 

17


 

FINANCIAL RESULTS

 

Statement of financial position

 

Assets

 

Goodwill and other intangible assets

 

Goodwill and other intangible assets increased by £2.9 billion to £46.4 billion at 30 September 2015. The increase primarily arose as a result of £5.2 billion of additions, including £4.5 billion for spectrum purchased in India, Germany and Spain, partly offset by £2.1 billion of amortisation and £0.2 billion as a result of unfavourable movements in foreign exchange rates.

 

Property, plant and equipment

 

Property, plant and equipment increased by £0.1 billion to £26.7 billion at 30 September 2015, principally as a result of £3.0 billion of additions, largely offset by £2.5 billion of depreciation charges and £0.4 billion of adverse foreign exchange movements.

 

Other non-current assets

 

Other non-current assets decreased by £0.9 billion to £31.7 billion at 30 September 2015 mainly due to decrease in deferred tax assets primarily due to the reduction of tax losses in Luxembourg (see note 4 for further details).

 

Current assets

 

Current assets decreased by £4.2 billion to £15.7 billion at 30 September 2015 mainly due to a decrease in cash and cash equivalents of £2.6 billion, and £2.2 billion lower short-term investments.

 

Total equity and liabilities

 

Total equity

 

Total equity decreased by £3.2 billion to £64.5 billion mainly due to the total comprehensive expense for the period of £1.1 billion and dividends paid to equity shareholders and non-controlling interests of £2.2 billion.

 

Non-current liabilities

 

Non-current liabilities increased by £1.6 billion to £27.5 billion at 30 September 2015 primarily due to a £1.3 billion increase in long-term borrowings and a £0.6 billion increase in trade and other payables.

 

Current liabilities

 

Current liabilities decreased by £0.5 billion to £28.4 billion at 30 September 2015 mainly due to a £1.1 billion decrease in trade and other payables being offset by £0.5 billion of additional short-term borrowings.

 

Inflation

 

Inflation has not had a significant effect on the Group’s consolidated results of operations and financial condition during the six months ended 30 September 2015.

 

18


 

LIQUIDITY AND CAPITAL RESOURCES

 

Cash flows and funding

 

 

 

Six months ended 30
September

 

 

 

2015

 

2014

 

 

 

£m

 

£m

 

 

 

 

 

 

 

Adjusted EBITDA

 

5,786

 

5,884

 

Working capital

 

(1,203

)

(1,072

)

Other

 

56

 

45

 

Cash generated by operations (excluding restructuring and other costs)1

 

4,639

 

4,857

 

Cash capital expenditure2

 

(4,287

)

(3,907

)

Capital expenditure

 

(3,708

)

(3,901

)

Working capital movement in respect of capital expenditure

 

(579

)

(6

)

Disposal of property, plant and equipment

 

32

 

62

 

Operating free cash flow1

 

384

 

1,012

 

Taxation

 

(430

)

(418

)

Dividends received from associates and investments

 

 

127

 

Dividends paid to non-controlling shareholders in subsidiaries

 

(131

)

(140

)

Interest received and paid

 

(364

)

(580

)

Free cash flow1

 

(541

)

1

 

Licence and spectrum payments

 

(2,104

)

(127

)

Acquisitions and disposals3

 

(62

)

(6,679

)

Equity dividends paid

 

(2,020

)

(1,979

)

Foreign exchange

 

297

 

843

 

Other4

 

(2,222

)

(191

)

Net debt increase

 

(6,652

)

(8,132

)

Opening net debt

 

(22,271

)

(13,700

)

Closing net debt

 

(28,923

)

(21,832

)

 


Notes:

1            Cash generated by operations for the six months ended 30 September 2015 excludes £70 million (2014: £167 million) of restructuring costs, £nil (2014: £365 million) UK pensions contribution payment, £nil (2014; £116 million) of KDG incentive scheme payments that vested upon acquisition and £41 million (2014: £nil) of other amounts received. See also note 4 below.

2            Cash capital expenditure comprises cash payments in relation to the purchase of property, plant and equipment and intangible assets, other than licence and spectrum payments, during the period.

3            Acquisitions and disposals for the six months ended 30 September 2014 primarily includes a £2,945 million payment in relation to the acquisition of the entire share capital of Ono plus £2,858 million of associated net debt acquired, a £563 million payment in relation to the acquisition of the remaining 10.97% equity interest in Vodafone India and £131 million payment in relation to acquisition of the entire share capital of Cobra plus £40 million of associated debt acquired.

4            Other cash flows for the six months ended 30 September 2015 include £2,034 million (2014:£nil) of debt recognised in respect of spectrum in India, £70 million (2014: £167 million) of restructuring costs, £nil (2014: £365 million) UK pensions contribution payment, £nil (2014: £359 million) of Verizon Wireless tax dividends received after the completion of the disposal, £nil (2014: £328 million) of interest paid on the settlement of the Piramal option, £nil (2014: £116 million) of KDG incentive scheme payments that vested upon acquisition and a £50 million (2014: £100 million) payment in respect of the Group’s historic UK tax settlement.

 

Cash generated by operations excluding restructuring and other costs decreased 4.5% to £4.6 billion, primarily driven by lower adjusted EBITDA and working capital movements.

 

Capital expenditure decreased £0.2 billion to £3.7 billion reflecting continued investment in the Group’s networks as a result of Project Spring.

 

Free cash outflow was £0.5 billion, a decline in £0.5 billion from the prior year, reflecting the phasing of payments for the Group’s Project Spring investment.

 

Licence and spectrum payments include amounts relating to the purchase of spectrum in Germany of £1.4 billion and £0.6 billion in India. In addition, net debt at 30 September 2015 includes liabilities of £3.9 billion (31 March 2015: £1.8 billion) relating to acquisitions or renewals of spectrum in India and Germany.

 

A foreign exchange gain of £0.3 billion was recognised on net debt as losses on the euro were more than offset by favourable exchange rate movements on the South African rand and India rupee.

 

19


 

LIQUIDITY AND CAPITAL RESOURCES

 

Analysis of net debt:

 

 

 

30 September 

 

31 March 

 

 

 

2015 

 

2015 

 

 

 

£m 

 

£m 

 

Cash and cash equivalents

 

4,240

 

6,882

 

 

 

 

 

 

 

Short-term borrowings

 

 

 

 

 

Bonds

 

(1,709

)

(1,786

)

Commercial paper1

 

(4,975

)

(5,077

)

Put options over non-controlling interests

 

(1,360

)

(1,307

)

Bank loans

 

(2,345

)

(1,876

)

Other short-term borrowings2

 

(2,766

)

(2,577

)

 

 

(13,155

)

(12,623

)

 

 

 

 

 

 

Long-term borrowings

 

 

 

 

 

Put options over non-controlling interests

 

(6

)

(7

)

Bonds, loans and other long-term borrowings

 

(23,715

)

(22,428

)

 

 

(23,721

)

(22,435

)

 

 

 

 

 

 

Other financial instruments3

 

3,713

 

5,905

 

Net debt

 

(28,923

)

(22,271

)

 


Notes:

1            At 30 September 2015 US$532 million (31 March 2015: US$3,321 million) was drawn under the US commercial paper programme and €6,257 million (31 March 2015: €3,928 million) was drawn under the euro commercial paper programme.

2            At 30 September 2015 the amount includes £2,733 million (31 March 2015: £2,542 million) in relation to cash received under collateral support agreements.

3   Comprises mark-to-market adjustments on derivative financial instruments which are included as a component of trade and other receivables (30 September 2015: £4,655 million; 31 March 2015: £4,005 million) and trade and other payables (30 September 2015: £1,634 million; 31 March 2015: £984 million) and short-term investments primarily in index linked government bonds and a managed investment fund included as a component of other investments (30 September 2015: £692 million; 31 March 2015: £2,884 million).

 

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

 

 

 

 

 

30 September 

 

 

 

 

 

2015 

 

 

 

Maturity

 

£m 

 

 

 

 

 

 

 

US$3.9 billion committed revolving credit facility1, 2

 

February 2020

 

2,600

 

€3.9 billion committed revolving credit facility1

 

March 2020

 

2,852

 

Other committed credit facilities

 

Various

 

1,337

 

Undrawn committed facilities

 

 

 

6,789

 

 


Notes:

1            Both facilities support US and euro commercial paper programmes of up to US$15 billion and £8.0 billion, respectively.

2            US$155 million of this facility matures March 2016.

 

Dividends

 

The directors have announced an interim dividend per share of 3.68 pence, representing a 2.2% increase over the prior financial year’s interim dividend. The ex-dividend date for the interim dividend is 19 November 2015 for ordinary shareholders, the record date is 20 November 2015 and the dividend is payable on 3 February 2016. Dividend payments on ordinary shares will be paid directly into a nominated bank or building society account.

 

20


 

REGULATION

 

Introduction

 

Our operating companies are generally subject to regulation governing the operation of their business activities. Such regulation typically takes the form of industry specific law and regulation covering telecommunications services and general competition (antitrust) law applicable to all activities.

 

The following section describes the regulatory frameworks and the key regulatory developments at the global and supranational level and in selected countries in which we have significant interests during the six months ended 30 September 2015 and should be read in conjunction with the information contained under “Regulation” on pages 195 to 201 of the Group’s annual report on Form 20-F for the year ended 31 March 2015. Many of the regulatory developments reported in the following section involve ongoing proceedings or consideration of potential proceedings that have not reached a conclusion. Accordingly, we are unable to attach a specific level of financial risk to our performance from such matters.

 

European Union (‘EU’)

 

The regulation proposed by the European Commission in September 2013, that has become known as the Telecoms Single Market Package, has been adopted by the European Parliament and the European Council and is expected to enter into force on 13 November 2015. The regulation requires the abolition of retail roaming surcharges by June 2017 and introduces net neutrality rules.

 

In May 2015, the European Commission published the Digital Single Market strategy, aimed at producing a true digital single market. The strategy has three pillars: (i) better access for consumers and businesses to online e-goods and services across Europe; (ii) creating the right conditions for digital networks and services to flourish; and (iii) maximising the growth potential of the European digital economy The Commission is currently conducting various consultations which in many cases will lead to the revision of existing legislation or the adoption of new legislation.

 

These consultations include a consultation dealing with the revision of the EU telecoms regulatory framework that covers five areas: access regulation, spectrum, rules for communications services, universal service and the institutional set-up and governance. There is a clear focus on incentivising (fibre) investment (including access for mobile backhaul), the further harmonisation of spectrum regulation and the creation of a fair and level playing field for competing services. The consultation on broadband needs aims to develop a view on how to support investors to deploy future-proof connectivity networks and ensure that all users are able to participate in a digital economy and society.

 

Other consultations address the adoption of a Priority ICT standards plan, platforms, data, cloud and the sharing economy and how and whether to regulate platforms as well as consultations on geo-blocking and on modernising VAT for cross-border e-commerce.

 

Europe region

 

Germany

 

In June 2015, Vodafone Germany acquired 110 MHz out of the 270 MHz made available in the spectrum auction conducted by BNetzA, Germany’s national telecommunications regulator. This consisted off 2x10MHz of 700MHz band, 2x10MHz of 900MHz band, 1x20MHz of 1500MHz band and 2x25MHz of 1800MHz band for a total consideration of €2,091 million. Total auction bids amounted to €5,081 million. Other successful bidders were Deutsche Telekom and Telefónica. Spectrum rights are valid until the end of 2033.

 

In April 2015, BNetzA finally approved new Mobile Termination Rates (‘MTRs ‘) with retrospective effect. From 1 December 2014 to 30 November 2015 the MTR is set at 1.72 eurocents per minute which then reduces to 1.66 eurocents per minute from 1 December 2015 until 30 November 2016.

 

Further to the opening of the vectoring register in July 2014, and Deutsche Telekom’s subsequent request to BNetzA in February 2015 for permission to deploy VDSL vectoring equipment in its “near range street cabinets” and for BNetzA to prevent other operators from deploying their own VDSL equipment at the exchange, BNetzA is expected to make a decision on the matters in November 2015.

 

In October 2015, the European Commission released a statement on BNetzA’s draft remedy decision for market 3b (wholesale central access provided at a fixed location for mass-market products). The statement required that BNetzA provide additional support for its proposed price regulation and the possible substitution of Layer-2-Ethernet bitstream for unbundled local loop. BNetzA’s response is expected by the end of November 2015.

 

21


 

REGULATION

 

Italy

 

In May 2014, the Regional Administrative Tribunal confirmed the anti-trust decision finding that Telecom Italia had abused its dominant position in the fixed broadband market. Telecom Italia subsequently paid a €104 million fine and filed an appeal before the Council of State. The Council of State has since upheld the Regional Administrative Tribunal’s decision.

 

In September 2015, Vodafone obtained 1 of the 2 L band TDD blocks equal to 20 MHz at just under €232 million.

 

In September 2015, AGCOM, the national telecommunications regulator, published the final decision on setting the fully symmetric MTRs for both Mobile and Mobile Virtual Network Operators until 2017 by confirming the 0.98 eurocent/min already in force with regard to the calls originated in UE/EEA, leaving the MTRs related to the calls originated outside UE/EEA to the commercial agreements.

 

In September 2015, AGCOM notified the European Commission of its draft decision for the wholesale access market. The draft decision proposes applying the same remedies and prices to the entire national market, foresees cost orientation for all wholesale copper and fibre access services and price reductions from 2015 to 2017: VULA FTTC (-36%) and copper bit-stream (-18%). In publishing its findings, the European Commission did not raise any specific concerns, opening the way for AGCOM to adopt the final decision.

 

United Kingdom

 

In September 2015, the national regulator “Ofcom” published its final decision revising the annual licence fees payable on licences for the use of spectrum in the 900MHz and 1800MHz bands to reflect full market value following the completion of the 4G auction. From 31 October 2016, after the end of a 12-month period beginning on 31 October 2015 during which transitional fees will apply, Vodafone UK will pay annual fees of approximately £50m for the spectrum.

 

In October 2015, British Telecom’s proposed acquisition of mobile network operator Everything Everywhere received provisional approval from the UK’s Competition and Markets Authority (‘CMA’). Vodafone UK will submit its detailed comments on the proposed acquisition, including wider market concerns relating to the impact on the fixed wholesale market. The CMA has extended the deadline for the final report to the 18 January 2016. The acquisition of Telefonica’s UK business by Hutchison 3G is still subject to review by the CMA.

 

In September 2015, the proposed Hutchison acquisition of Telefonica UK (O2) was formally notified to the European Commission competition authority with the request from the CMA for it to be referred back to them for investigation. In October 2015 the European Commission opened its own investigation and is due to make a decision by 18 April 2016.

 

Spain

 

In June 2015, in response to the National Markets and Competition Commission’s (‘CNMC’) conditional approval of Telefonica’s acquisition of DTS, Vodafone Spain appealed to the high court and requested the adoption of precautionary measures requiring an increase in the amount of premium content made available to other operators from 50% to 75% and including football within the same pricing mechanism as other premium content. Vodafone Spain has also made a submission to the CNMC requesting the modification of the regulatory ex ante price squeeze test run on Telefonica’s retail offers to ensure it is capable of being replicated by other operators. The CNMC started a review of this request in October 2015.

 

In October 2015, the European Commission approved Orange’s proposed acquisition of Jazztel, based on an agreement to sell a certain amount of JazzTel’s fibre-optic assets to Masmovil.

 

Portugal

 

In August 2015, the National Communications Regulator (‘Anacom’) published its final decision on MTRs, which set a glide path with a maximum of 0.83 eurocents from August 2015 onwards, falling to 0.80 eurocents by July 2016 and 0.73 eurocents by July 2017, subject to corrections for inflation and the consumer price index.

 

22


 

REGULATION

 

Greece

 

In June 2015, the national regulatory authority, the National Telecommunications and Post Commission (‘EETT’), approved OTE’s Reference Offer for services provided via optical fibre network in two out of three areas identified for the project. INTRAKAT has undertaken construction in the remaining area. The wholesale services included in OTE’s Reference Offer are access to passive optical infrastructure, capacity (ethernet) and bitstream. According to the proposed schedule, the network providers are due to provide services from the end of 2016.

 

In October 2015, responses to the public consultations for the 2.6GHz spectrum due to expire in December 2015 and for 1800MHz spectrum expiring in August 2016 were due to the EETT. The award process for 2.6GHz is expected to be held before December, however as EETT is currently without a president, an extension may be granted. The award process for 1800MHz is expected to be held during the first quarter of 2016. A second consultation will then be launched to define the terms and price of the award process. In the initial consultation, EETT proposed three options for the 1800MHz award process, the first and second option include an auction process and the third includes a renewal for 4 years and 4 months to align all three operators’ spectrum terms.

 

Czech Republic

 

In June 2015, the former fixed and mobile incumbent (O2 Czech Republic a.s.) announced the voluntary separation of their network and service enterprises however the new Reference Access Offer from the newly created wholesale entity has not provided more favourable terms.

 

Albania

 

In June 2015, Vodafone Albania secured an additional 2 x 0.6 MHz of 900 MHz spectrum for €0.3 million, the licence expires in June 2030.

 

Africa, Middle East and Asia Pacific region

 

India

 

In May 2015, the Supreme Court dismissed Vodafone India’s appeal against the Department of Telecommunications’ (‘DoT’) refusal to extend its existing spectrum licences in Delhi, Mumbai and Kolkata.

 

In September 2015, both Spectrum Sharing and Spectrum Trading were approved by the Union Cabinet however the current policy and guidelines provide only limited opportunity for Vodafone India.

 

In September 2015, the Telecommunications Regulatory authority of India (‘TRAI’) commenced its consultation on compensating consumers for dropped calls. On 16 October 2015, the TRAI announced its decision. The decision requires that consumers are compensated 1 Rupee per dropped call, limited to 3 dropped calls a day, and that operators must notify customers of the applied credit by text or on their next post-paid bill. Vodafone India has expressed concerns regarding the decision and continues to discuss the issue with TRAI.

 

Vodacom: South Africa

 

In May 2014, Vodacom entered into a sale and purchase agreement under which it would acquire 100% of the issued share capital of Neotel as well as Neotel’s shareholders loan and liabilities. The transaction remains subject to the fulfilment of a number of conditions precedent, foremost of which are regulatory approvals from both the Independent Communications Authority of South Africa’s (‘ICASA’) and the Competition Commission of South Africa (“CompCom”). Decisions regarding these approvals are expected by the end of March 2016.

 

In September 2015, further to its IMT Radio Frequency Spectrum Assignment Plans (‘RFSAP’) published in March 2015, the ICASA published an Information Memorandum (‘IM’) on the prospective licensing of the 700MHz, 800MHz and 2600MHz High Demand Spectrum bands. The IM is a precursor to an Invitation to Apply (‘ITA’). Vodacom has raised its concerns that the IM does not provide sufficient detail on some of the critical aspects of the auction design and process.

 

Vodacom: Democratic Republic of Congo

 

In September 2015, the Regulating Authority for Post and Telecommunications (‘ARPTC’) issued regulations which retained the existing MTR (US$3.40 cents per minute) rather than reduce MTR with the glide path regulation issued in September 2014.

 

In September 2015, ARPTC retained the current on-net voice price floor at US$5.10 cents per minute and off net US$8.50 cents per minute set in March 2015, and extended the price floor to cover international outgoing calls and promotions.

 

The Ministry of Communications is consulting on a new communications bill, which includes significant changes to the licence regime. Vodacom is working with industry participants to provide joint comments and engaging with key stakeholders.

 

23


 

REGULATION

 

Vodacom: Tanzania

 

In June 2015, Millicom announced that it had agreed to acquire an 85% shareholding in Zantel from Etisalat, subject to regulatory approvals. Should it receive these approvals, Millicom would have majority control of 3 licensees Tigo, Telesis, and Zantel. Millicom has publicly stated its intention to operate Zantel brand separate to the other licensees, while leveraging technical and operational efficiencies. To date, the Tanzanian Communications Regulatory Authority and the Fair Competition Commission have not published decisions on this transaction.

 

In August 2015, the Minister of Communications gazetted final regulations which set out voluntary requirements for all telecommunications licencees to list a minimum of 20% of their ordinary share capital held by Tanzanian investors on the Dar Stock Exchange, or pay 0.6% of gross annual revenue to an Information and Communications Technology development fund within 12 months of the effective date of the regulation.

 

Vodacom: Mozambique

 

In September 2015, a new customer registration regulation was issued, permitting an electronic registration process and requiring all customers to be registered by 28 November 2015.

 

Vodacom: Lesotho

 

In September 2015, the Lesotho Communications Authority confirmed in writing to Vodacom Lesotho that its service licence will be renewed when it expires in June 2016. Vodacom Lesotho is working with the Lesotho Communications Authority to convert its current mobile communications licence into a new unified communication licence in accordance with the communications law.

 

In September 2015, the Lesotho Communications Authority issued a new MTR three year regulatory glide path effective from 15 October 2015, reducing from Maluti 0.38 to Maluti 0.20 by October 2017.

 

International roaming in Africa

 

In September 2015, further to Southern African Development Community (‘SADC’) Ministers of Communications requirements that the National Regulatory Authorities (‘NRAs’) implement international roaming wholesale and retail five-year glide paths, the Communications Regulators’ Association of Southern Africa (‘CRASA’) issued Regulatory Guidance and accompanying Policy. The CRASA requested that NRAs implement the glide paths from 1 October 2015 and transparency measures in accordance with their applicable national law. The Policy recognised that the glide paths should not take prices below underlying cost and that member countries should take steps to reduce issues which increase costs, notably taxes on international incoming calls. Vodacom is participating in the processes conducted by NRAs in SADC member states.

 

Turkey

 

Further to Vodafone’s letter of objection and appeal in the administrative court to the announcement by the Communications Technologies Authority (‘ICTA’) in August 2014 that the scope of the 3G coverage must be broadened to include new metropolitan areas, on 12 March 2015 the Council of State adopted a motion for the stay of execution of the ICTA’s action. The lawsuit is pending and this issue is being discussed as part of the Concession Agreements Amendment Process determined in 4.5G Tender Specifications.

 

In May 2015, after the Electronic Trade Law came into force, secondary legislations were finalised by both the Ministry of Customs and Trade (‘MoCT’) and the ICTA. Under the new regulations, operators will only be permitted to use the marketing database for operator related marketing reasons. Mobile operators will no longer be able to sell targeted SMSs for third parties. Third parties are able to send one time SMSs to mobile operators’ databases asking their customers to opt-into their database up to and including 15 September 2015.

 

In August 2015, the 4.5G (IMT Advanced) auction was completed grossing total revenue of EUR 3.36 billion excluding taxes, compared to reserve prices of EUR 2.3 billion. Only three mobile operators bid for the spectrum bands and there were no bids for the 2.6 MHz block reserved for a fourth operator. Vodafone Turkey will pay a total of €778 million for 82.8 MHz (2x10MHz in the 800MHz band, 2x1.4MHz in 900 MHz band, 2x10 MHz in 1800 MHz band, 2x15 MHz FDD in the 2.6GHz band and 1x10MHz TDD in the 2.6GHz band). The operators will be required to launch 4.5G services by April 2016.

 

Australia

 

In May 2015, new MTRs were set at AUD 1.7 cents per minute commencing 1 January 2016 to 30 June 2019, down from 3.6 cents per minute in 2015. SMS termination rates will be regulated for the first time at 0.03 cents per SMS.

 

Egypt

 

The Administrative Court ruling in favour of Vodafone Egypt in the case filed against Telecom Egypt and the national regulator (‘NTRA’) regarding the NTRA’s authority to set MTRs between operators has been partially implemented with Mobinil and Telecom Egypt, however, an arbitration case is pending with Etisalat Misr.

 

24


 

REGULATION

 

Ghana

 

On 5 October 2015, the National Communications Authority (‘NCA’) issued requests for application of interest in the forthcoming auction of spectrum in the 800MHz band.

 

The request follows months of engagement with stakeholders to auction two lots of spectrum blocks in the 800MHz band. The NCA made revisions to the minimum reserve price, blocks to be auctioned and the local minimum ownership eligibility criteria in response to the comments raised by operators during the public consultation exercise in July 2015.

 

The spectrum blocks to be auctioned comprise two lots of 2x10MHz (technology and service neutral) at a reserve price of USD$67.5m per lot instead of the previous reserve price of USD$92m. Entities that apply to participate in the auction are required to have a minimum of 35% private indigenous Ghanaian shareholders or meet that requirement within 13 months of being issued the spectrum.

 

The auction for the two blocks is expected to take place on 2 November 2015 under a Simple Multiple Round Simultaneous Auction process. The third lot of spectrum in the 800MHz band will be auctioned at a later date when the spectrum is freed from the existing TV operator and Code-Division Multiple Access operator. Ghana has 6 mobile network operators and 4 mobile broadband wireless access operators; however, the dynamics in the market are expected to change since new entrants are not excluded from this auction.

 

New Zealand

 

In March 2015, the New Zealand government announced the expansion of the existing Ultra-fast Broadband FTTP initiative from 75% to 80% of premises passed at a projected cost of between NZ$152m and NZ$210m. In addition, the government announced a further NZ$150m of funding to improve broadband coverage in rural areas and address mobile blackspots. Competitive tenders for these initiatives are expected to be completed in 2016.

 

Safaricom: Kenya

 

Safaricom continues to operate on a periodically renewed trial licence for the 2x15MHz 800MHz band spectrum granted in February 2015 until the Communications Authority of Kenya (‘CA’) is ready to issue the full Commercial Licence.

 

The CA has announced its intention to commission a study on competition within the telecommunications sector. The timeline for when the review will commence has not been published.

 

Qatar

 

From 1 October 2015 new rates have been set for MTRs, FTRs and wholesale leased lines. MTRs are QAR 0.09 from 1 October 2015, QAR 0.0831 from 1 January 2016 and QAR 0.0762 from 1 January 2017. FTRs are QAR 0.019, QAR 0.0182 and 0.0175 for the same periods.

 

25


 

LEGAL PROCEEDINGS

 

The following section describes developments in legal proceedings which may have, or have had, during the six months ended 30 September 2015, a significant effect on the financial position or profitability of the Company and its subsidiaries. This section should be read in conjunction with the information contained under “Legal proceedings” on pages 168 to 170 of the Group’s Annual Report on Form 20-F for the year ended 31 March 2015.

 

Telecom Egypt arbitration

 

Refer to “Commitments and contingent liabilities” on page 38.

 

Indian tax cases

 

Refer to “Commitments and contingent liabilities” on page 38.

 

Indian regulatory cases

 

Refer to “Commitments and contingent liabilities” on page 38 and 39.

 

British Telecom (Italy) v Vodafone Italy

 

Refer to “Commitments and contingent liabilities” on page 39.

 

Papistas Holdings SA, Mobile Trade Stores (formerly Papistas SA) and Athanasios and Loukia Papistas v Vodafone Greece, Vodafone Group Plc and certain Directors and Officers of Vodafone

 

Refer to “Commitments and contingent liabilities” on page 39.

 

GH Investments (GHI) v Vodacom Congo

 

Refer to “Commitments and contingent liabilities” on page 39.

 

CWN v Vodacom

 

Refer to “Commitments and contingent liabilities” on page 39.

 

26


 

CONSOLIDATED FINANCIAL STATEMENTS

 

Consolidated income statement

 

 

 

 

 

Six months ended 30 September

 

 

 

 

 

2015

 

2014

 

 

 

Note

 

£m 

 

£m 

 

 

 

 

 

 

 

 

 

Revenue

 

2

 

20,266

 

20,752

 

Cost of sales

 

 

 

(14,893

)

(15,476

)

Gross profit

 

 

 

5,373

 

5,276

 

Selling and distribution expenses

 

 

 

(1,725

)

(1,707

)

Administrative expenses

 

 

 

(2,639

)

(2,499

)

Share of result of equity accounted associates and joint ventures

 

 

 

(3

)

(35

)

Other income and expense