6-K 1 tm2036082-1_6k.htm FORM 6-K

 

 

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 16, 2020

 

Commission File Number: 001-10086

 

VODAFONE GROUP

PUBLIC LIMITED COMPANY

(Translation of registrant’s name into English)

 

 

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

(Address of principal executive offices)

 

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

 

  Form 20-F x Form 40-F ¨  

 

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): ¨

 

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): ¨

 

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 ¨ No x  

 

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

 

 

 

This Report on Form 6-K contains a Stock Exchange Announcement dated 16 November 2020 entitled ‘VODAFONE GROUP PLC ⫶ H1 FY21 RESULTS’.  

 

Vodafone Group Plc ⫶ H1 FY21 results

 

16 November 2020

 

Delivering our strategic priorities at pace to reshape Vodafone

 

·Resilient financial performance during the first half of FY21, in line with our expectations

 

·Deepening customer engagement, with mobile contract customer loyalty improved year-on-year for an 8th successive quarter

 

·Launched 5G in 127 cities across 9 of our European markets; 52 million marketable homes passed with Gigabit speeds

 

·Reaffirming FY21 free cash flow guidance of at least €5 billion (pre-spectrum and restructuring) and adjusted EBITDA expected to be between €14.4 – €14.6 billion

 

       H1 FY21   H1 FY20     
Financial results  Page   €m   €m   Change (%) 
Group revenue   33    21,427    21,939    (2.3)
Operating profit   33    3,472    577    n/m 
Profit/(loss) for the financial period   33    1,555    (1,891)   n/m 
Basic earnings/(loss) per share   33    4.45c   (7.24c)   n/m 
Interim dividend per share   44    4.50c   4.50c   n/m 
Alternative performance measures1                    
Group service revenue   13    18,418    18,544    (0.8)*
Adjusted EBITDA   13    7,023    7,105    (1.9)*
Adjusted earnings per share   24    4.11c   0.85c   +383.5  
Free cash flow (pre-spectrum and restructuring)   25    451    394    +14.5  
Free cash flow   25    (101)   34    n/m 
Net debt**   25    (43,983)   (48,107)   +8.6  
Net debt to adjusted EBITDA**   27    3.0x   n/m    n/m 
Pre-tax ROCE (controlled)   28    5.1%   n/a    n/a 
Post-tax ROCE   28    4.0%   n/a    n/a 

 

 

1.  See page 56 for the reconciliation to the closest equivalent GAAP measure.
 
·Group revenue declined by 2.3% to €21.4 billion, as good underlying momentum was offset by the effects of COVID-19 on roaming and visitor revenue, as well as lower handset sales

 

·Adjusted EBITDA declined by 1.9%* to €7.0 billion as the decline in revenue was partially offset by good cost control with net Europe opex savings of €0.3 billion realised during H1

 

·Interim dividend per share of 4.50 eurocents, record date 18 December 2020

 

 

Nick Read, Group Chief Executive, commented:

 

“Today’s results underline increased confidence in our full year outlook. We are reporting a resilient first half performance and we continue to see good commercial momentum across the Group. The results demonstrate the success of our strategic priorities to date, namely increasing customer loyalty, growing our fixed broadband base, driving digitisation to simplify the company and capture significant cost savings, and deliver 5G efficiently through network sharing.

 

COVID-19 and the reduction in roaming revenues, through the significant reduction in international travel, is currently obscuring our underlying commercial progress, with Q2 service revenue growing by 1.5% excluding roaming. We are now two years into our longer-term strategy to transform Vodafone into a business that enables a digital society, generating both sustainable growth and attractive returns. We are executing at pace, but there remains more to be done to achieve our goals.

 

Now, more than ever, the connectivity services we provide are critical for society and the demand is growing for our services. I am proud of how our dedicated employees have worked tirelessly around the clock to keep everyone connected.” 

 

For more information, please contact:

 

Investor Relations                                                      Media Relations

 

Investors.vodafone.com   Vodafone.com/media/contact

 

ir@vodafone.co.uk  GroupMedia@vodafone.com

 

Registered Office: Vodafone House, The Connection, Newbury, Berkshire RG14 2FN, England. Registered in England No. 1833679

 

A webcast Q&A session will be held at 9.30 am on 16 November 2020. The webcast and supporting information can be accessed at investors.vodafone.com 

 

Summary ⫶ Resilient performance

 

Basis of presentation

 

All amounts in this document marked with an “*” represent organic growth, which presents performance on a comparable basis, both in terms of merger and acquisition activity and movements in foreign exchange rates. Organic growth is an alternative performance measure. See “Alternative performance measures” on page 54 for further details and page 56 for the location of the reconciliation to the respective closest equivalent GAAP measure.

 

Net debt at 30 September 2020 marked with a “**” has been adjusted to exclude derivative gains in cash flow hedge reserves, the corresponding losses for which are not recognised on the bonds within net debt and which have significantly increased due to COVID-19 related market conditions. The ratio of net debt to adjusted EBITDA is calculated using adjusted EBITDA for a rolling 12 month period, normalised for acquisitions and disposals within the period.

 

Financial performance

 

Group revenue declined by 2.3% to €21.4 billion (FY20 H1: €21.9 billion), as good underlying momentum and the benefit from the acquisition of Liberty Global’s assets in Germany and CEE was offset by lower revenue from roaming, visitors and handset sales, foreign exchange headwinds and the disposal of Vodafone New Zealand.

 

The Group made a profit for the period of €1.6 billion reflecting our resilient financial performance during the first half of FY21. Basic earnings per share was 4.45 eurocents, compared to a loss per share of 7.24 eurocents in the six months ended 30 September 2019. Losses were recognised in the comparative period relating to Vodafone Idea Limited, which outweighed a €1.1 billion profit recorded on the disposal of Vodafone New Zealand. The current period includes a gain of €1.0 billion arising on the merger of Vodafone Hutchison Australia into TPG Telecom Limited.

 

Group service revenue decreased by 0.8%* (Q1: -1.3%*, Q2: -0.4%*) to €18.4 billion (FY20 H1: €18.5 billion) as good underlying momentum was offset by lower revenue from roaming and visitors. Adjusted EBITDA decreased by 1.9%* to €7.0 billion (FY20 H1: €7.1 billion) as a decline in revenue was partially offset by good cost control, with a net reduction in our Europe and Common Functions operating expenditure of €300 million during H1. The adjusted EBITDA margin was 0.1* percentage points lower year-on-year at 32.8%.

 

Cash flow, funding & capital allocation

 

Free cash flow (pre-spectrum and restructuring) increased by 14.5% to €0.5 billion (FY20 H1: €0.4 billion) supported by the resilient adjusted EBITDA performance and higher dividends received from associates and investments, partially offset by higher cash interest and tax. Licence and spectrum payments for the period totalled €0.3 billion (FY20 H1: €0.1 billion) and restructuring and other payments totalled €0.3 billion (FY20 H1: €0.3 billion). Free cash flow was -€101 million (FY20 H1: €34 million).

 

Net debt adjusted for mark-to-market gains deferred in hedging reserves at 30 September 2020 was €44.0** billion compared to €42.2** billion as at 31 March 2020. This increase in net debt reflects the FY20 final dividend payment of €1.2 billion, mark-to-market movements on derivatives, and foreign exchange losses, partially offset by proceeds of €0.4 billion following the subsequent sale of our 4.3% stake in INWIT in April 2020.

 

We aim to maintain our financial leverage within a range of 2.5-3.0x net debt to adjusted EBITDA. As at 30 September 2020, financial leverage was 3.0x**. The interim dividend per share is 4.5 eurocents (FY20 H1: 4.5 eurocents). The ex-dividend date for the interim dividend is 17 December 2020 for ordinary shareholders, the record date is 18 December 2020 and the dividend is payable on 5 February 2021. 

 

Strategic review ⫶ Delivering our strategic priorities

 

In November 2018, we set out a long-term ambition to reshape Vodafone and establish a foundation from which the Group can grow in the converged connectivity markets in Europe, and mobile data and payments in Africa. This ambition was to be delivered through three strategic priorities: to deepen engagement with our customers; to accelerate our transformation to a digital first organisation; and improve the utilisation of our assets. Given the ambition to reshape Vodafone, we added a fourth strategic priority to optimise the portfolio of our operations.

 

During the first half of FY21, we have executed at pace across all four priorities. Highlights of activity during the period include:

 

·Deepening customer engagement, with mobile contract customer loyalty improved year-on-year for an 8th successive quarter

 

·we have 52 million homes passed with a 1 Gigabit capable fixed-line network;

 

·we have launched 5G in 127 cities across 9 of our European markets;

 

·in response to the trading conditions related to the pandemic, we accelerated a series of cost saving activities, resulting in a €300 million net reduction in our Europe and Common Functions operating expenditure;

 

·we have secured mobile wholesale agreements with PostePay in Italy with more than four million connections, Asda Mobile in the UK, and Forthnet in Greece;

 

·we completed the merger of Vodafone Hutchison Australia with TPG Telecom to establish a fully integrated telecommunications operator in Australia. We now hold an economic interest of 25.05% in the Australian Stock Exchange listed entity; and

 

·we are on track for the IPO of Vantage Towers in early 2021.

 

The table below summarises the progress against our strategic priorities in H1 FY21.

 

Strategic progress summary  Units   H1 FY21   H1 FY20 
1. Deepening customer engagement               
Europe mobile contract customers1   million    65.0    63.8 
Europe broadband customers1   million    25.4    24.5 
Europe on-net Gigabit capable connections1   million    38.9    23.5 
Europe Consumer converged customers1   million    7.5    6.8 
Europe mobile contract customer churn   %    12.9    14.6 
Africa data users2   million    84.5    81.2 
M-Pesa transaction volume2   billion    6.8    6.0 
Business fixed-line service revenue growth   %    4.2    2.9 
IoT SIM connections   million    112    94 
                
2. Accelerating digital transformation               
Europe net opex savings3   billion     0.3    0.2 
Europe digital channel sales mix4   %    22    20 
Europe frequency of customer contacts p.a   #    1.4    1.6 
Europe MyVodafone app penetration   %    62    63 
                
3. Improving asset utilisation               
Average Europe monthly mobile data usage per customer   GB    6.2    4.2 
Europe on-net NGN broadband penetration1                            %    30    29 

 

 

 

Notes:

1. Including VodafoneZiggo | 2. Africa including Safaricom, Ghana and Egypt | 3. Europe and common function operating costs. | 4. Figure presented in H1 FY21 column reflects Europe digital channel sales mix in Q2 FY21 as the mix in Q1 FY21 was impacted by retail restrictions due to COVID-19. 

 

It is two years since we set out our strategic priorities to focus the Group on the converged connectivity market in Europe, and mobile data and payments in Africa. This first phase of our strategic transformation has progressed well and in this strategic review section we illustrate that:

 

A.We are delivering our strategic priorities at pace to reshape Vodafone; and

 

B.We are well-positioned for our next phase to create sustainable stakeholder value.

 

A ⫶ Delivering our strategic priorities at pace to reshape Vodafone

 

The actions we have taken in the last two years and their results are summarised in the sub-sections below. Our actions have delivered a more consistent revenue growth profile, with our service revenue trends remaining resilient despite the direct impacts of the COVID-19 pandemic on revenue from roaming and visitors.

 

We are firmly on track to deliver our original three-year target of at least €1.2 billion of net savings from operating expenses in Europe and Group common functions, having reached €1.1 billion of savings between FY19 and H1 FY21. We have extended our ambition to at least another €1 billion of savings over the next three years. This focus on efficiency, delivered through standardisation and integration of our technology support operations, has enabled our adjusted EBITDA margin to be resilient during the pandemic and remain broadly stable at 32.8%.

 

Through improved asset utilisation and a disciplined approach to balancing our capital allocation priorities, we have delivered €10.7 billion of free cash flow (before spectrum payment and restructuring costs) over the last two years. Despite the strong delivery of our strategic priorities at pace, our post-tax return on capital employed (‘ROCE’) of 4.0% remains below our cost of capital. On page 10, we have set out our growth model and capital allocation framework, and explained how we will drive shareholder returns through efficiency and growth.

 

Deepening customer engagement Delivering more consistent commercial performance

 

In 2018, we set out our plans to deliver consistent commercial performance in each of our markets, following a period of more mixed results. The major actions we have undertaken include:

 

·Launching speed-tiered, unlimited data mobile plans in 9 markets. This has enabled us to stabilise and grow our higher value customer base and increase average revenue per user (‘ARPU’). In Italy, the UK and Spain, the ARPU uplift was approximately by €2-5 per month. We now have over six million active unlimited data customers across our markets.

 

·Launching and embedding ‘second’ brands such as, ho. in Italy, VOXI in the UK, Lowi in Spain and Otelo in Germany to compete more effectively and efficiently in the value segment. Alongside our speed-tiered, unlimited data plans, we are now competing effectively across all segments of the markets in which we operate. We now have 4.5 million active users across these four brands.

 

·We have maintained strong commercial momentum in our fixed business and over the past 24 months we have added 3.1 million NGN fixed-line customers in Europe. We also have converged customer plans available in all major markets. These include a combination of mobile connectivity, fixed-line connectivity and a range of additional products and services, such as TV and IoT connections.

 

·We have invested centrally to develop a unified digital customer experience through shared online platforms and the MyVodafone mobile app. This investment has supported an approximate 10% reduction in the frequency of customer contacts per year to 1.4 and the app is used by 62% of our mobile customers in Europe.

 

Accelerating digital transformation Best-in-class operational efficiency through standardisation

 

Through standardisation, digitalisation and sharing of processes we recognised an opportunity to significantly improve our operational efficiency. We set an ambitious goal to generate at least €1.2 billion of net savings from our Europe operating expenses over 3 years. In just over two years, we have already delivered €1.1 billion of this original target and have clear line-of-sight to the €1 billion targeted over the FY21-FY23 period. Key activities that have contributed to this performance include:

 

·Whenever possible our back office activities are delivered though our three Shared Service Centres (‘_VOIS’) in Egypt, India and Eastern Europe. Over a third of the targeted €1.2 billion net opex savings in Europe and Common Functions are being generated by integrating activities into _VOIS and driving digitisation at speed.

 

·We have invested in customer support technology. Using a combination of artificial intelligence and machine-learning tools, we have developed ‘TOBi’, a fully automated customer support assistant available online and via the MyVodafone app. Our investments in this area have resulted in 64% of customer support interactions with TOBi being resolved with no human interaction.

 

·We are investing in shared cross-market digital sales platforms. These enable best-in-class customer journeys enabling full sales activities without manual intervention. This has led to over 22% of our contract mobile and fixed sales in Q2 being completed through a fully digital customer journey in Germany, Italy, the UK and Spain. This in turn has enabled us to reduce our retail footprint by 728 stores over the last two years.

 

Improving asset utilisation Facilitating efficient use of capital through network sharing

 

Over the last decade, the level of ROCE achieved by the telecommunications sector has significantly reduced to below its weighted average cost of capital. This has been driven by a number of factors, including market structures, capital expenditure requirements for advancements in network infrastructure, mobile spectrum licenses and a challenging regulatory environment. As a result, two years ago we began a series of activities to improve our asset utilisation to support a recovery in ROCE. These actions have included:

 

·Reaching network sharing agreements with leading mobile network operators in each of our European markets. This includes Deutsche Telekom in Germany, Telecom Italia in Italy, Telefonica in the UK and Orange in Spain. We estimate the combined effect of network sharing arrangements in Europe reduces our future investment requirement to deploy 5G by c. €2.5 billion over 10 years.

 

·Established Vantage Towers as a separate vehicle to consolidate the ownership and operations of our passive mobile network infrastructure, enabling a greater focus on delivering operational efficiencies through dedicated, commercially-oriented and specialised teams.

 

·We have signed significant wholesale agreements in both our fixed and mobile networks, on terms that maintain the differentiation of our retail offers. In 2019, we began a wholesale agreement with Telefonica Deutschland for access to our fixed-line infrastructure in Germany and during H1 FY21 we signed mobile wholesale agreements with PostePay in Italy (more than four million connections), with Asda Mobile in the UK and Forthnet in Greece.

 

Whilst significant progress has been made, much more work is required to both improve our own asset utilisation and to work collaboratively with policy makers and regulators to ensure that we can continue to invest in our Europe and Africa communications infrastructure, whilst also earning a fair return on the capital we deploy. 

 

Vantage Towers

 

The IPO of Vantage Towers is on track for early calendar 2021. Vantage Towers is one of Europe’s largest and most geographically diverse infrastructure operators, with significant growth opportunities alongside long-term, inflation-linked contracts. The three important aspects relating to Vodafone’s ongoing relationship with Vantage Towers are:

 

1.Vodafone is committed to ensuring that Vantage Towers is operationally independent. This is demonstrated through the long-term Master Services Agreement (‘MSA’), clear management incentive structures, and a two-tier governance structure led by an independent Chairman;

 

2.Vodafone will strive to ensure that the capital structure for Vantage Towers enables it to take full advantage of its organic and inorganic growth opportunities; and

 

3.Vodafone is committed to supporting Vantage Towers’ growth ambition and will ensure shareholder value is being optimised.

 

Optimising the portfolio Significant & fast execution to enable strategic priorities

 

In order to achieve our strategic objectives to focus on converged connectivity markets in Europe, and mobile data and payments in Africa, we began a large programme to rationalise our portfolio in 2019. Our portfolio optimisation programme had three overriding objectives as set out below.

 

Objective   Total value   Transactions
1. Focus on Europe & Africa   

€4.4 billion

  

Disposal in New Zealand, Malta and Egypt1

    €5.1 billion   Mergers in Australia, Africa and India (Vodafone Idea and Indus Towers1)
2. Achieved convergence with local scale   €18.6 billion   Acquisitions in Germany, Greece & Eastern Europe
3. Enable structural shift in asset utilisation   

€6.5 billion

  

Tower mergers in Italy & Greece1

    TBA   Ongoing IPO of Vantage Towers1

 

 

 

1 Transaction announced but not yet closed

 

Liberty acquisition ⫶ Transformation into Europe’s leading connectivity provider

 

The defining corporate transaction of our recent history was the acquisition of Liberty Global’s assets in Germany and Central Eastern Europe, which completed in July 2019. This transaction has enabled Vodafone to become the clear converged Gigabit challenger in Germany with 55.2 million SIM connections, 10.9 million fixed-line connections and 13.5 million TV subscribers. Following completion of the transaction, we have worked at pace to upgrade the cable network to Gigabit speeds and deliver the targeted cost and capex synergies. Over the past year, we have increased the number of homes in the Gigabit capable footprint from 9.7 million to 21.8 million, representing over half of the country and over 90% of our cable footprint. Our acquisition plans targeted €535 million of cost and capex synergies over five years. We have already executed actions that will deliver over €250 million of these synergies, which is around six months ahead of schedule. 

 

B ⫶ Focused on growth with unique capabilities to create sustainable value

 

Following our strategic activity to reshape the Group, we are focused on growing our converged connectivity markets in Europe, and mobile data and payments in Africa. We have five principle growth levers available to create shareholder value through building our ROCE to a sustainable level above our weighted-average cost of capital:

 

1.We will develop the best connectivity products and the best connectivity platforms;

 

2.We will invest in and operate the co-best Gigabit connectivity infrastructure to support our connectivity products and platforms;

 

3.We will integrate and operate leading digital technology architecture to support our digital connectivity infrastructure;

 

4.We will drive further simplification in our scaled Group operating model in order to support our investments; and

 

5.We will use our Social Contract to build partnerships with governments and regulators, shape a healthier industry structure, and improve returns for all stakeholders.

 

1 ⫶ Best connectivity products & platforms

 

In Europe, we are the leading converged connectivity provider with 7.5 million converged customers, 114 million mobile connections, 139 million marketable NGN broadband homes, cover 98% of the population in the markets we operate in with 4G, and have launched 5G in 127 cities in 9 markets in Europe. We have achieved this leading position by focusing on our core fixed and mobile connectivity. We are enhancing our core connectivity products through capacity and speed upgrades, unlimited mobile plans, distinct branding across customer segments and convergence bundles. Alongside optimising our core, we have also developed platforms that leverage our connectivity base further by providing ‘best on Vodafone’ experiences. For example, our TV proposition now has over 22 million subscribers in 11 markets. Our consumer IoT offering has now connected over 500,000 devices such as the Apple Watch OneNumber service and our ‘Curve’ mobile tracking device. In addition, our new smart kids watch, developed with The Walt Disney Company, will launch before Christmas.

 

In Africa, we are the leading provider of mobile data and mobile payment services. We have 171 million customers in 8 markets and these countries represent 40% of Africa’s total Gross Domestic Product. We are the leading mobile connectivity provider by revenue market share in 7 markets. Excluding Kenya, we cover 70% of the population in the markets in which we operate with 3G mobile services and 60% with 4G. Our M-Pesa financial services platform processed almost 13 billion transactions over the last 12 months. M-Pesa offers a unique opportunity to extend our reach further into financial services. Through a strategic technology partnership with Alipay, we are developing a new ‘super app’ that will offer customers a unified suite of financial services, entertainment, shopping, merchant services and direct marketing.

 

Vodafone Business accounts for 27% of Group service revenue, has customers in 200 markets, and provides services to SMEs, large national corporates, and 1,240 multinational customers. In each of our four largest European markets, we have a unique position and focus on digital segments that are growing. Our incumbent competitors have greater exposure to declining legacy fixed and managed services businesses, whilst we are able to accelerate our position in digital connectivity services such as SD-WAN, IoT and cloud. As the largest business-to-business connectivity provider in Europe and as a growth business, we are the strategic partner of choice for large global technology companies such as Microsoft, Accenture, Amazon, and IBM. Over the last two years, we have signed agreements with each of these firms in areas such as managed security services, mobile edge computing, managed cloud services and unified connectivity. These strategic alliances provide us with an unrivalled position to provide SME, large and multi-national business customers with a full suite of next-generation connectivity services. 

 

2 ⫶ Co-best Gigabit connectivity infrastructure

 

In order to provide our customers with the best connectivity products and ‘best on Vodafone’ connectivity platforms, we need to have co-best Gigabit network infrastructure in each of our markets. Importantly, we must also ensure that our customers recognise and value the quality of our Gigabit network infrastructure.

 

In mobile, we are currently deploying mobile network infrastructure to deliver 5G connectivity. So far, we have launched 5G services in 127 cities, in 9 markets in Europe. 5G services provide ‘real world’ speeds well in excess of 100 Mbps, compared with 4G that provides ‘real world’ speeds of 20-35 Mbps. In addition to the speed advantage, 5G networks that are ‘built right’ and with longer-term competitive advantage in mind, provide significant capacity and efficiency advantages, ultimately lowering the cost per gigabyte of mobile data provision. However, the European mobile sector is also utilising dynamic spectrum sharing (‘DSS’) technology to share existing 4G spectrum to provide a more limited 5G experience. DSS 5G does have a smaller role in a targeted rollout, but requires RAN upgrades and leads to reduced capacity efficiency. We have been targeted and disciplined with our acquisition of spectrum in each of our local market operations, with spectrum available in each of the low, mid and high bands in our major Europe markets. This ensures that we do not need to restrict long-term network infrastructure through DSS technology and can invest in building 5G network the right way, to provide the backbone for Gigabit networks for the decade ahead.

 

Complementing our 5G mobile network infrastructure is our NGN fixed-line network infrastructure. We can now reach 139 million homes across 12 markets in Europe (including VodafoneZiggo). This marketable base is connected through a mix of owned NGN network (55 million homes, of which 39 million are Gigabit-capable), strategic partnerships (22 million homes) and wholesale arrangements (62 million homes). This network provides us with the largest marketable footprint of any fixed-line provider in Europe. In Germany, our footprint of 24.1 million households is being progressively upgraded to the latest DOCSIS 3.1 standard, which provides us with a structural speed advantage over the incumbent. Over the medium-term we will continue to increase the proportion of our Europe customers that can receive Gigabit-capable connections through our owned network and continue to work with strategic partners to provide cable and fibre access.

 

3 ⫶ Leading digital architecture

 

Enhanced digital technology is critical for efficient and reliable converged connectivity networks. We are beginning a multi-year journey to redefine our technology architecture following a ‘Telco as a Service’ (‘TaaS’) model. Our TaaS model is based on two existing layers of inter-connected digital technology.

 

·We have created a standardised suite of customer and user-facing interfaces for an entire omni-channel journey – OnePlatform. The OnePlatform suite includes the MyVodafone mobile app, our browser-based portal, our TOBi AI assistant, and the Retail Point of Sale platform that powers our physical and digital stores.

 

·The OnePlatform suite is powered by our Digital eXperience Layer (‘DXL’). DXL refers to the abstraction layer in our IT architecture which separates customer-facing micro-services requiring frequent and rapid adjustment, such as prepaid top-ups or customer onboarding, from heavier back-end systems such as billing and CRM. The platform uses common software, with open-source components and standardised APIs to enable easy integration and interconnection.

 

We have also moved more than half our core network functions to the Cloud in Europe, supporting voice core, data core and service platforms on over 1,300 virtual network functions. In Europe, we now operate a single digital network architecture across all markets, enabling the design, build, test and deployment of next generation core network functions more securely, 40% faster and at 50% lower cost. Similarly, more than half of our IP apps are now virtualised and running in the cloud.

 

This standardised approach to development and deployment of digital architecture is enabling us to provide an industry-leading digital experience, delivered in line with our expectation to be the most efficient in our sector. 

 

4 ⫶ Simplified & scaled Group operating model

 

The connectivity value chain involves a high degree of repeatable processes across all of our markets, such as procurement, network deployment, network operations, sales activities, customer support operations, and billing and transaction processing. This has provided us with a significant opportunity to standardise processes across markets, relocate operations to lower cost centres of excellence and apply automation at scale.

 

We have consolidated our supplier management function into a single, centralised procurement company. The Vodafone Procurement Company manages global tenders and establishes standard catalogues which are made available to our local market operations through a unified end-to-end enterprise resource planning (‘ERP’) system. Leveraging the scale of our combined spend, this allows us to generate over €600m in annual savings compared to standalone operators. Once the equipment is acquired, we efficiently manage our inventory through our Network Stock System and ensure that we minimise time to deployment, including by moving stock across markets as needed.

 

We monitor Network Operations for all our markets through international centres of excellence that run these processes for the entire Group. Our regional Network Operations Centres monitor operations of our fixed and mobile networks across geographies following standard protocols that maximise productivity and automation. As an example, a third of new Network Operations tickets are fully automated. Similar integrations have been executed across our IT operations as well as Finance and HR processes.

 

Whenever possible our back office activities are delivered though our 3 Shared Service Centres (‘_VOIS’) in Egypt, India and Eastern Europe. Over a third of the targeted €1.2 billion net opex savings in Europe and Common Functions are being generated through integrating activities into _VOIS and driving digitisation at speed.

 

Finally, Vodafone Roaming Services manages our global roaming relationships with other operators and our Partner Market’s team works with 30 local operators in building strategic alliances and extending our reach into different markets. These functions generate over €250m revenue and cost savings annually.

 

Approximately 30% of the Group’s headcount works in _VOIS and shared operations, and in the last two and a half years we have automated over 4,600 roles. We are continuing to transform the business and evolve the Group digital toolset – including TOBi and Robotic Process Automation – in order to further our productivity leadership.

 

5 ⫶ Social Contract shaping industry structure to improve returns

 

Over the last decade, the performance of the European telecommunications industry has been weaker than other regions, which market commentators attribute to its regulatory environment. European regulation differs in both its fragmented approach to spectrum licensing and market structure, compared with North America or Asia. A firm stance on pursuing four-player market structures in certain Member States has artificially driven further price deflation and has eroded sustainable investment incentives. When combined with the capital-intensive nature of network infrastructure and higher ongoing spectrum costs, this has led to return on capital for the industry being below its weighted-average cost of capital. This limits the ability of operators to invest capital in improving digital connectivity network infrastructure.

 

In 2019 we introduced our ‘Social Contract’, which represents the partnerships we want to develop with governments, policy makers and civil society. We believe the industry needs a pro-investment, pro-innovation partnership approach to ensure Europe can compete in the global digital economy and be at the forefront of technology ecosystems. This requires an end to extractive spectrum auctions, support for equipment vendor diversity, a defined framework for network sharing, and regulation that enables the physical deployment of network infrastructure, as well as rewards quality – such as security, resilience and coverage – with fair prices.

 

Following our efforts and society’s increasing reliance on our connectivity infrastructure and services, notably during the COVID-19 pandemic, we are beginning to see positive signs of a more healthy industry structure emerge. 

 

Recent spectrum auctions in 2020 in the Netherlands and Hungary were conducted in a positive manner and completed with spectrum being assigned at sustainable prices, in line with European benchmark levels. Authorities are recognising that operators need to be able to focus available private funds for fast deployment of new infrastructure & services. We have also seen national governments increase support such as state-subsidies for rural networks in the UK and Germany, and planning permission exemptions for tower infrastructure in Germany. A key area of focus for 2021 will be shaping Member State recovery funds and how the 20% of the €750 billion EU Recovery Fund targeted for digital initiatives is distributed. Positive progress has already been achieved through national initiatives with 90% subsidies for infrastructure spend in ‘whitespot’ areas in Germany; vouchers to support new NGN connections in Italy; funding to support the cessation of 3G networks in Hungary; and €3 billion of funding for health initiatives, including eHealth, in Germany.

 

Our growth model ⫶ Disciplined capital allocation to drive shareholder returns

 

The objectives of our portfolio activities over the last two years have been to focus on our two scaled geographic platforms in Europe and Africa; achieve converged scale in our chosen markets; and deliver a structural shift in asset utilisation. With these objectives substantially achieved, we are now a matrix of country operations and product & platforms, and will remain disciplined in managing our portfolio. Our ongoing and rigorous assessment of our portfolio is following three principles. Firstly, we aim to continue to focus on the converged connectivity markets in Europe, and mobile data and payments in Africa. Secondly, we aim to achieve returns above the local cost of capital in all of our markets. Thirdly, we consider whether we are the best owner (i.e. whether the asset adds value to the Group and the Group adds value to the asset) and whether there are any pragmatic and value-creating alternatives.

 

Our growth strategy is grounded in our purpose, to ‘Connect for a better future’ and create value for society and shareholders. Our goal is to deliver a sustainable improvement in ROCE through a combination of consistent revenue growth, ongoing margin expansion, strong cash flow conversion, and disciplined allocation of capital. We have five principle growth levers available to create shareholder value:

 

1.Develop the best connectivity products and platforms;

 

2.Invest in the co-best Gigabit connectivity infrastructure;

 

3.Operate leading digital technology architecture;

 

4.Operate a simplified and scaled Group operating model; and

 

5.Use our Social Contract to shape a healthier industry structure.

 

Our capital allocation priorities are to support investment in connectivity infrastructure; reduce leverage towards the lower end of our target range of 2.5-3.0x net debt to adjusted EBITDA; and deliver attractive returns to shareholders.

 

Looking ahead ⫶ Further investor interaction to discuss key growth drivers

 

We plan to share further insight into our growth plans during 2021 and will be hosting a series of virtual investor briefings comprising pre-recorded video presentations from functional and technical specialists, together with live webcast Q&A sessions. These events include:

 

·Vinod Kumar (CEO Vodafone Business) provides a deep-dive into Vodafone Business operations & strategy on 18 March 2021;

 

·Nick Read (Group CEO) & Margherita Della Valle (Group CFO) present full year results and further detail on the next phase of our transformation on 18 May 2021;

 

·Ahmed Essam (Chief Commercial Officer) presents our strategy for the best connectivity products and platforms on 9 June 2021;

 

·Dr Hannes Ametsreiter (CEO Germany) presents a deep-dive into our largest market, Germany, on 7 September 2021; and

 

·Johan Wibergh (Group Technology Officer) presents our 2025 technology vision on 14 December 2021.

 

Our purpose ⫶ We connect for a better future

 

We believe that Vodafone has a significant role to play in contributing to the societies in which we operate and our sustainable business strategy helps the delivery of our 2025 targets across three pillars: Digital Society; Inclusion for All; and Planet. We have continued to make progress against our purpose strategy and will provide a full update on our progress at the end of our financial year.

 

In July 2020, we announced that our Europe network will be powered by 100% renewable electricity no later than July 2021. Our Europe-wide ‘Green Gigabit Net’ commitment brings forward by three years an earlier pledge to source 100% renewable electricity for the company’s fixed and mobile networks by 2025. We have made significant progress as the share of total renewable electricity purchased in Europe more than doubled to over 75% by September 2020. We remain on target to reach 100% renewable electricity in our Europe network by July 2021.

 

Whilst we are committed to eliminating our own environmental footprint, we are increasingly seeking to use our connectivity and technology to support a more sustainable society, enabling others to reduce their environmental impact. We have also introduced a new target to enable our Business customers reduce their own carbon emissions by a cumulative total of 350 million tonnes globally over 10 years between 2020 and 2030. This target will largely be delivered via Vodafone’s IoT services, including logistics and fleet management, smart metering and manufacturing activities. Other savings are expected to be made through healthcare services, cloud hosting and home working.

 

In addition, we are currently finalising a Science Based Target, which we plan to announce before the end of 2020. Our target will be aligned to limiting global temperature rise to below 1.5°C and reaching net-zero emissions no later than 2050. This will require a significant reduction in our direct carbon emissions as well as setting targets for indirect emissions (including suppliers and joint ventures).

 

We have also embedded our purpose commitments in our supplier selection criteria. From October 2020, ‘purpose’ accounts for 20% of our evaluation criteria for ‘Requests For Quotation’ (‘RFQ’) to provide Vodafone with products or services. Suppliers will be assessed on their commitment to diversity & inclusion, the environment, and health & safety in categories where it is a risk. Our approach to supplier selection supports our aim of building a digital society that enhances socio-economic progress, embraces everyone and does not come at the cost of our planet.

 

COVID-19 ⫶ Our five-point plan to support economic recovery

 

During the COVID-19 crisis, the connectivity we provided was a lifeline, enabling people to work, allowing businesses to remain operational, supporting the delivery of emergency services and giving access to education. We enabled people to stay in touch with their families and their friends. We recognise that our role in society is more vital than ever, underpinned by our commitment to building a resilient, inclusive and sustainable digital society .

 

As we look at the challenging economic period ahead, just as we were there for the emergency response phase, we are committed to playing a key role in supporting Europe’s economic and social recovery. As a result, we have identified five key areas where Vodafone can clearly prioritise activity and support governments’ digital agenda. We will:

 

·expand and future-proof our network infrastructure with next-generation fixed line and mobile technologies;

 

·further support governments as they seek to integrate eHealth and eEducation solutions into their “new normal” public service frameworks;

 

·enhance digital access for the most vulnerable and support digital literacy;

 

·promote the widespread adoption of digital technologies for all businesses, with a particular emphasis on SMEs; and

 

·support governments’ pandemic exit strategies through targeted deployment of digital technology.

 

Vodafone is ready to do everything in its power to support the recovery, whilst emerging a stronger business, playing an ever more critical role in society. In our African markets, we have deployed the same five-point plan approach, but are also prioritising furthering financial inclusion. 

 

Outlook ⫶ Operating model delivering relative resilience

 

Outlook for FY21

 

Our financial performance during the first six months of the year has been in line with our expectations and demonstrates the relative resilience of our operating model. We remain focused on the delivery of our strategic priorities and have further improved loyalty, as our customers place greater value on the quality, speed and reliability of our networks.

 

FY21 Guidance

 

As a result of our resilient performance in H1, and based on the current prevailing assessments of the global macroeconomic outlook:

 

·Adjusted EBITDA is expected to be between €14.4 – 14.6 billion in FY21; and

 

·We continue to expect free cash flow (pre-spectrum and restructuring) in FY21 to be at least €5 billion.

 

Financial modelling considerations & assumptions

 

The guidance above reflects the following:

 

·The de-consolidation of Vodafone Italy Towers following its merger with INWIT (completed in March 2020);

 

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

 

·Vodafone Egypt remains within guidance;

 

·No significant change in the Group’s effective cash interest rate or cash tax rate is assumed;
   
 ·Foreign exchange rates used when setting guidance were as follows:

 

-EUR 1 : GBP 0.87;

 

-EUR 1 : ZAR 20.59;

 

-EUR 1 : TRY 7.50; and

 

-EUR 1 : EGP 17.02.

 

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

 

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

 

Financial performance ⫶ Resilient performance in line with expectations

 

·Resilient financial performance during the first half of FY21, in line with our expectations

 

·Group revenue declined by 2.3% to €21.4 billion, as good underlying momentum and the benefit from the acquisition of Liberty Global’s assets in Germany and CEE was offset by lower revenue from roaming, visitors and handset sales, foreign exchange headwinds and the disposal of Vodafone New Zealand

 

·Adjusted EBITDA declined by 1.9%* to €7.0 billion as a decline in revenue was partially offset by good cost control, with a net reduction in our Europe and Common Functions operating expenditure of €300 million during H1

 

·Free cash flow (pre-spectrum and restructuring) grew by 14.5% to €0.5 billion, supported by the resilient EBITDA performance and higher dividends from associates and investments, partially offset by higher cash interest and tax

 

·Interim dividend per share of 4.50 eurocents, record date 18 December 2020

 

Group financial performance

 

   H1 FY211   H1 FY20     
   €m   €m   Change (%) 
Revenue   21,427    21,939    (2.3)
 - Service revenue2   18,418    18,544    (0.7)
 - Other revenue   3,009    3,395    (11.4)
Adjusted EBITDA2,5   7,023    7,105    (1.2)
Depreciation and amortisation   (4,729)   (4,874)   3.0 
Adjusted EBIT2   2,294    2,231    2.8 
Share of adjusted results in associates and joint ventures3   255    (550)   146.4 
Adjusted operating profit2   2,549    1,681    51.6 
Adjustments for:               
 - Restructuring costs3   (86)   (163)     
 - Amortisation of acquired customer base and brand intangible assets3   (364)   (232)     
 - Adjusted other income and expense3   1,184    (872)     
 - Interest on lease liabilities4   189    163      
Operating profit   3,472    577      
Net financing costs   (1,427)   (1,088)     
Income tax expense   (490)   (1,380)     
Profit/(loss) for the financial period6   1,555    (1,891)     
                
Attributable to:               
 - Owners of the parent   1,314    (2,128)     
 - Non-controlled interests   241    237      
Profit/(loss) for the financial period   1,555    (1,891)     

 

Further detailed income statement information is available in a downloadable spreadsheet format at https://investors.vodafone.com/reports-information/results-reports-presentations

 

Notes:
1.The FY21 results reflect average foreign exchange rates of €1:£0.90, €1:INR 85.27, €1:ZAR 19.77, €1:TRY 8.02 and €1: EGP 18.06.
2.Service revenue, adjusted EBITDA, adjusted EBIT and adjusted operating profit are alternative performance measures which are non-GAAP measures that are presented to provide readers with additional financial information that is regularly reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measure. See “Alternative performance measures” on page 54 for more information.
3.Share of results of equity accounted associates and joint ventures presented within the Consolidated income statement includes €255 million (2019: -€550 million) included within Adjusted operating profit, €nil (2019: -€33 million) included within Restructuring costs, -€124 million (2019: -€122 million) included within Amortisation of acquired customer base and brand intangible assets and €129 million (2019: -€1,896 million) included within Adjusted other income and expense.
4.Reversal of interest on lease liabilities included within adjusted EBITDA under the Group’s definition of that metric, for re-presentation in net financing costs.
5.Includes depreciation on Right-of-use assets of €1,914 million (2019: €1,821 million).
6.For the six months ended 30 September 2020, the Group recorded a gain of €1,043 million in relation to the merger of Vodafone Hutchison Australia Pty Limited and TPG Telecom Limited. See Note 9 “Investment in associates and joint ventures”.

 

Geographic performance summary

 

                   Other   Total       Other     
H1 FY21  Germany   Italy   UK   Spain   Europe   Europe1   Vodacom   Markets   Group1 
Total revenue (€m)   6,371    2,506    2,983    2,050    2,720    16,583    2,423    1,898    21,427 
Service revenue (€m)   5,723    2,249    2,401    1,880    2,411    14,617    1,949    1,679    18,418 
Adjusted EBITDA (€m)   2,844    800    636    488    870    5,638    891    613    7,023 
Adjusted EBITDA margin %   44.6%   31.9%   21.3%   23.8%   32.0%   34.0%   36.8%   32.3%   32.8%
Adjusted EBIT (€m)   1,128    196    (126)   (43)   269    1,424    552    482    2,294 
Adjusted operating profit/(loss) (€m)   1,128    212    (126)   (43)   276    1,447    662    606    2,549 

 

Further geographic performance information is available in a downloadable spreadsheet format at https://investors.vodafone.com/reports-information/results-reports-presentations

 

Note:

1.  See pages 57 to 62 for a full disaggregation of our financial results by geography, including intersegment eliminations.

 

   FY20   FY21 
Organic service revenue growth %  Q1   Q2   H1   Q3   Q4   H2   Total   Q1   Q2   H1 
Europe   (1.7)   (1.4)   (1.6)   (1.4)   (0.4)   (0.9)   (1.2)   (2.6)   (1.8)   (2.2)
 - of which Germany   0.4    (0.2)   0.1        (0.1)               (0.1)   (0.1)
Vodacom   1.1    3.6    2.4    5.2    3.2    4.2    3.3    1.5    3.2    2.3 
Other Markets   10.0    16.4    15.4    14.5    14.2    14.4    14.9    9.1    9.0    9.0 
Total Group   (0.2)   0.7    0.3    0.8    1.6    1.2    0.8    (1.3)   (0.4)   (0.8)

 

 

Total Europe ⫶ 80% of Group Adjusted EBITDA

 

   H1 FY21   H1 FY20   Organic 
   €m   €m   Change (%)* 
Total revenue   16,583    16,225      
 - Service revenue   14,617    14,120    (2.2)
 - Other revenue   1,966    2,105      
Adjusted EBITDA   5,638    5,348    (1.2)
Adjusted EBITDA margin   34.0%   33.0%     
Depreciation and amortisation   (4,214)   (4,221)     
Adjusted EBIT   1,424    1,127      
Share of adjusted results in associates and joint ventures   23    39      
Adjusted operating profit   1,447    1,166      

 

Europe total revenue and adjusted EBITDA increased by 2.2% and 5.4% respectively, primarily due to the consolidation of the acquired Liberty Global assets in Germany and CEE.

 

Service revenue in H1 decreased by 2.2%* including lower roaming and visitor revenue and other COVID-19 impacts. Excluding roaming and visitor impacts, organic service revenue growth in Q2 was broadly stable.

 

Adjusted EBITDA decreased by 1.2%* including a year-on-year drag of 3.7 percentage points from roaming and visitors, as well as higher bad debt provisions, partially offset by good cost control during H1.

 

Europe adjusted EBIT grew by 26.4%, reflecting the contribution of the acquired Liberty Global assets.

 

Germany ⫶ 41% of Group Adjusted EBITDA

 

   H1 FY21   H1 FY20   Organic 
   €m   €m   Change (%)* 
Total revenue   6,371    5,590      
 - Service revenue   5,723    4,961    (0.1)
 - Other revenue   648    629      
Adjusted EBITDA   2,844    2,352    1.3 
Adjusted EBITDA margin   44.6%   42.1%     
Depreciation and amortisation   (1,716)   (1,588)     
Adjusted EBIT   1,128    764      
Share of adjusted results in associates and joint ventures             
Adjusted operating profit   1,128    764      

 

Service revenue was broadly stable at -0.1%* (Q1: 0.0%*, Q2: -0.1%*), as higher variable usage revenue during the COVID-19 lockdown and the lapping of international call rate regulation was offset by lower roaming, visitor and wholesale revenue. Retail service revenue grew by 0.5%* (Q1: 0.4%*, Q2: 0.6%*), despite a 1.3 percentage point drag from lower roaming and visitor revenue.

 

Fixed service revenue grew by 1.5%* (Q1: 2.4%*, Q2: 0.6%*) supported by customer base growth and ARPU accretive customer migrations to high-speed plans. Growth slowed in Q2 reflecting lower variable usage revenue, and greater wholesale revenue declines as we lapped prior year LLU price increases. We added 157,000 cable customers in H1, including 77,000 migrations from DSL. We had 1.8 million customers on speeds of at least 400Mbps at the end of H1 and 21.8 million customers households are now able to access Gigabit speeds on our cable network. Our broadband customer base reached 10.9 million.

 

Our TV customer base declined by 85,000 reflecting lower retail activity during the COVID-19 pandemic and a lower Premium TV customer base. In August, we launched a harmonised portfolio across all homes in Germany, bringing Vodafone TV to the Unitymedia footprint, with a significant improvement in the content portfolio. We maintained our good momentum in convergence supported by our ‘GigaKombi’ proposition, adding 73,000 Consumer converged customers in H1 which took our customer base to 1.6 million.

 

Mobile service revenue declined by 2.0%* (Q1: -3.0%*, Q2: -1.0%*) mainly due to the reduction in roaming, visitor and wholesale revenue. Growth improved in Q2 reflecting a lower drag from roaming and visitor revenue, and the lapping of regulatory impacts. We added 238,000 contract customers in H1, supported by the migration of 187,000 Unitymedia mobile customers onto our network. Contract churn improved by 0.4 percentage points year-on-year to 12.1%. We added 225,000 prepaid customers, supported by our online-only proposition, ‘CallYa Digital’.

 

Adjusted EBITDA increased by 1.3%* supported by synergy delivery and our continued focus on cost discipline, partially offset by a 1.9 percentage point year-on-year drag from lower roaming and visitors. The organic adjusted EBITDA margin was 0.7* percentage points higher year-on-year and was 44.6%.

 

We continued to make good progress on integrating Unitymedia, with the rebranding and TV portfolio harmonisation now complete, and the organisational integration completed during H1. We are approximately six months ahead of plan with respect to our cost and capital expenditure synergy targets and remain on track to deliver the remaining synergies.

 

Italy ⫶ 11% of Group Adjusted EBITDA

 

   H1 FY21   H1 FY20   Organic 
   €m   €m   change (%)* 
Total revenue   2,506    2,709      
 - Service revenue   2,249    2,424    (7.2)
 - Other revenue   257    285      
Adjusted EBITDA   800    1,006    (11.1)
Adjusted EBITDA margin   31.9%   37.1%     
Depreciation and amortisation   (604)   (623)     
Adjusted EBIT   196    383      
Share of adjusted results in associates and joint ventures   16          
Adjusted operating profit   212    383      

 

Service revenue declined by 7.2%* (Q1: -6.5%*, Q2: -8.0%*), driven by continued price competition in the low-value segment of the mobile market, and lower roaming and visitor revenue. The Q2 slowdown primarily reflected a 2.7 percentage point sequential impact from the lapping of prior year price increases. The year-on-year drag from roaming and visitors in Q2 was 2.4 percentage points.

 

Mobile service revenue declined 11.0%* (Q1: -10.0%*, Q2: -11.9 %*) reflecting lower roaming and visitor revenue, a reduction in the active customer base year-on-year, which subsequently stabilised in H1, and price competition in the low-value segment. The sequential slowdown in Q2 reflected the lapping of prior year price increases, partially offset by a lower drag from roaming and visitor revenue. Our net mobile number portability (‘MNP’) volumes remained relatively stable despite market MNP volumes returning towards pre-COVID levels in Q2. Our second brand ‘ho.’ continued to grow strongly, with 404,000 net additions in H1, supported by our best-in-class net promoter score, and now has 2.2 million customers.

 

Fixed service revenue grew by 4.4%* (Q1: 4.1%*, Q2: 4.8%*) supported by 52,000 broadband customer additions in H1. We now have 3.0 million broadband customers. Our total Consumer converged customer base is now 1.1 million (representing 37% of our broadband base), an increase of 41,000 during H1. Through our owned NGN footprint and strategic partnership with Open Fiber we now pass 7.9 million households.

 

Adjusted EBITDA declined by 11.1%* reflecting lower service revenue, a 4.7 percentage point year-on-year drag from lower roaming and visitors, as well as an increase in bad debt provisions, partially offset by strong control with operating expenses declining by 5.5% year-on-year. The organic adjusted EBITDA margin was 1.4* percentage points lower year-on-year and was 31.9%.

 

In a first of its kind, Vodafone Italy has recently signed a new flexible working agreement with the local trade unions. The plan represents a new model of agile and inclusive work, and provides for 80% of the monthly working hours in agile work for employees working in customer service areas and 60% for employees in the remaining company areas. On agile working days, colleagues will be asked to choose the place from which to work remotely. All colleagues will be equipped with the necessary technology and benefit from a dedicated offer for fixed connectivity from Vodafone.

 

INWIT Joint Venture

 

The results of INWIT (in which Vodafone owns a 33.2% stake) reported here reflect INWIT’s accounting policies, definitions and disclosures.

 

Total revenue in H1 was €371 million and grew 88% year-on-year reflecting the first-time inclusion of Vodafone Towers from 1 April 2020. Pro forma for the Vodafone Towers merger, organic revenue grew by 1.9% in Q2, driven by increased mobile operator demand for new mobile sites and distributed antenna systems. Total earnings after lease costs but before other depreciation, amortisation, interest and tax were €240 million in H1; the margin on these earnings was 65%.

 

In April 2020, we received a special dividend of €0.2 billion as a result of the transaction in March 2020 and subsequently sold 41.7 million INWIT shares, resulting in gross proceeds of approximately €400 million. As a result of the transaction, Vodafone's ownership stake in INWIT decreased from 37.5% to 33.2%.

 

Vodafone received a further €42 million in dividends from INWIT during the half year.

 

UK ⫶ 9% of Group Adjusted EBITDA

 

   H1 FY21   H1 FY20   Organic 
   €m   €m   change* 
Total revenue   2,983    3,151      
 - Service revenue   2,401    2,451    (1.2)
 - Other revenue   582    700      
Adjusted EBITDA   636    658    (2.3)
Adjusted EBITDA margin   21.3%   20.9%     
Depreciation and amortisation   (762)   (820)     
Adjusted EBIT   (126)   (162)     
Share of adjusted results in associates and joint ventures             
Adjusted operating profit   (126)   (162)     

 

Service revenue decreased by 1.2%* (Q1: -1.9%*, Q2: -0.5%*) as good customer base growth and the lapping of international call rate regulation was offset by lower roaming, visitor and incoming revenue. The sequential Q2 improvement was driven by Business fixed acceleration and the lapping of international call rate regulation. The year-on-year drag from roaming and visitors in Q2 was 2.8 percentage points.

 

Mobile service revenue declined 4.0%* (Q1: -4.3%*, Q2: -3.6 %*), as lower roaming, visitor and incoming revenue offset good customer base growth. The sequential improvement in Q2 reflected the lapping of international call rate regulation. We maintained our good commercial momentum and our mobile contract customer base increased by 142,000, driven by increased Business demand and the reopening of our retail stores. Our digital sub-brand ‘VOXI’ continued to grow, with 65,000 customer additions during H1, supported by the launch of new propositions. Contract churn improved 1.3 percentage point year-on-year to 12.4%.

 

Fixed service revenue grew by 6.3%* (Q1: 4.8%*, Q2: 7.8%*) and our commercial momentum remained strong with 119,000 net customer additions, supported by our ‘need for speed’ campaign. We now have 838,000 broadband customers - of which 437,000 are converged, with 52,000 converged customers added during H1. The sequential Q2 service revenue improvement was driven by Business, with increased corporate demand for virtual call centres and core connectivity, and increased SME demand for productivity and security solutions. 

 

Adjusted EBITDA decreased by 2.3% reflecting a year-on-year drag from lower roaming and visitors of 5.7* percentage points, as well as higher bad debt expense, partially offset by continued good cost control, with operating expenses 10.3% lower year-on-year. The organic adjusted EBITDA margin was 0.4* percentage points higher year-on-year at 21.3%.

 

Spain ⫶ 7% of Group Adjusted EBITDA

 

   H1 FY21   H1 FY20   Organic 
   €m   €m   change (%)* 
Total revenue   2,050    2,161      
 - Service revenue   1,880    1,966    (4.4)
 - Other revenue   170    195      
Adjusted EBITDA   488    460    6.0 
Adjusted EBITDA margin   23.8%   21.3%     
Depreciation and amortisation   (531)   (621)     
Adjusted EBIT   (43)   (161)     
Share of adjusted results in associates and joint ventures             
Adjusted operating profit   (43)   (161)     

 

Service revenue declined by 4.4%* (Q1: -6.9%*, Q2: -1.8%*) reflecting the impact of COVID-19 on roaming and visitor revenue and service suspensions during lockdown, in the context of a competitive market. The sequential improvement in Q2 was supported by customer base growth and the unwinding of temporary suspensions and offers. The year-on-year drag from roaming and visitors in Q2 was 3.0 percentage points.

 

We continue to compete effectively across all segments of the market and grew our contract mobile, NGN broadband and TV customer base for a fifth consecutive quarter in Q2.

 

After restrictions were lifted, the market remained highly promotional and mobile number portability increased. Our mobile contract customer base increased by 95,000 in H1, with Q2 impacted by the disconnection of non-paying customers, who could not be disconnected in Q1 due to the government’s state of emergency restrictions. Mobile contract churn decreased 4.9 percentage points year-on-year to 16.7%. Our second brand ‘Lowi’ continued to grow and now has 1.1 million customers.

 

We added 58,000 broadband customers, of which 101,000 were NGN connections, as customers continued to transition to higher-speed plans. Our leadership in movies and series, as well as our new ‘boxless’ TV proposition, supported 114,000 customer additions in TV. We now have over 2.3 million converged consumer customers.

 

Adjusted EBITDA grew by 6.0%* and the adjusted EBITDA margin was 2.5* percentage points higher year-on-year. The growth in EBITDA was primarily due to lower football content costs and a 9.9%* reduction in operating expenses, partially offset by an 8.1 percentage point year-on-year drag from lower roaming and visitors, and higher bad debt and TV content costs. The adjusted EBITDA margin was 23.8%.

 

Other Europe ⫶ 12% of Group Adjusted EBITDA      

 

   H1 FY21   H1 FY20   Organic 
   €m   €m   Change (%)* 
Total revenue   2,720    2,690      
 - Service revenue   2,411    2,392    (2.4)
 - Other revenue   309    298      
Adjusted EBITDA   870    872    (2.2)
Adjusted EBITDA margin   32.0%   32.4%     
Depreciation and amortisation   (601)   (569)     
Adjusted EBIT   269    303      
Share of adjusted results in associates and joint ventures   7    39      
Adjusted operating profit   276    342      

 

Service revenue declined by 2.4%* (Q1: -3.1%*, Q2: -1.8%*), driven by lower roaming and visitor revenue, lower prepaid top-ups, notably in Portugal and Greece, and increased competition in Ireland and Greece. The sequential improvement in Q2 reflected a recovery in prepaid revenue as lockdown restrictions started to ease, and a sequential 0.7 percentage point benefit from the first-time inclusion of ABCom in our financial results. The year-on-year impact from roaming and visitor revenue was stable at 2.5 percentage points in Q2, as pressure in Ireland and Greece was offset by an improvement in visitor numbers in other markets.

 

In Portugal, service revenue grew by 0.5%* (Q1: 0.7%*, Q2: 0.3%*) as lower roaming, visitor and prepaid revenue was more than offset by mobile contract and fixed growth. In Ireland, service revenue declined by 6.4%* (Q1: -6.8%*, Q2: -6.1%*) reflecting lower roaming and visitor revenue and higher competitive intensity, partially offset by an increase in the mobile contract customer base following the successful launch of unlimited data tariffs. Service revenue in Greece declined by 7.4%* (Q1: -8.8%*, Q2: -6.1%*) reflecting lower roaming and visitor revenue and higher promotional activity, partially offset by higher prepaid top-ups during Q2 followed the easing of retail restrictions.

 

Adjusted EBITDA declined by 2.2%* including a 4.8 percentage point drag from lower roaming and visitors, and an increase in bad debt provisions. The organic adjusted EBITDA margin increased by 0.1* percentage points and was 32.0%.

 

VodafoneZiggo Joint Venture (Netherlands)

 

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

 

Total revenue grew 2.1% in H1 (Q1: 1.9%, Q2: 2.3%). This reflected growth in fixed revenue, partly offset by lower roaming and visitor mobile revenue.

 

We added 134,000 mobile contract customers, supported by the successful ‘Runners’ campaign. Over 42% of broadband customers and 71% of all B2C mobile customers are now converged, delivering significant NPS and churn benefits. VodafoneZiggo was the first operator to launch a nationwide 5G network in the Netherlands. We now offer 1 Gigabit speeds to more than 2 million homes and expect to connect 3 million households by the end of the 2020 calendar year.

 

Adjusted EBITDA grew by 8.7% during H1, supported by top line growth, and lower operating and direct costs, more than offsetting a year-on-year drag from lower roaming and visitor mobile revenue. We continued to make good progress on integration and remain on track to deliver our €210 million cost and capital expenditure synergy targets by the end of the 2020 calendar year, one year ahead of the original plan.

 

During the half year, Vodafone received €88 million in dividends from the joint venture, as well as €11 million in interest payments. The joint venture also drew down an additional €104 million shareholder loan from Vodafone.

 

Vodacom ⫶ 13% of Group Adjusted EBITDA      

 

   H1 FY21   H1 FY20   Organic 
   €m   €m   change (%)* 
Total revenue   2,423    2,734      
 - Service revenue   1,949    2,217    2.3 
 - Other revenue   474    517      
Adjusted EBITDA   891    1,019    3.6 
Adjusted EBITDA margin   36.8%   37.3%     
Depreciation and amortisation   (339)   (386)     
Adjusted EBIT   552    633      
Share of adjusted results in associates and joint ventures   110    123      
Adjusted operating profit   662    756      

 

Vodacom service revenue grew 2.3%* (Q1: 1.5%*, Q2: 3.2%*) as good growth in South Africa was partially offset by revenue declines in Vodacom’s international operations. The sequential improvement in Q2 reflected stronger growth in South Africa.

 

In South Africa, service revenue increased 7.1%* (Q1: 6.4%*, Q2: 7.7%*) driven by increased demand for voice, data and financial services and price elasticity, supported by an increase in consumer discretionary spend as a result of the ban on alcohol and tobacco sales and special government social grants during the COVID-19 pandemic. We added 66,000 contract customers, supported by strong growth in Business connectivity as remote working and mobile broadband demand increased. Overall data traffic increased by 90% and 49% of our customer base is using data services.

 

In Vodacom’s international operations, service revenue declined by 5.1%* (Q1: -5.2%*, Q2: -4.9%*), reflecting economic pressure and the disruption to our commercial activities during the COVID-19 pandemic, the zero-rating of person-to-person M-Pesa transfers in DRC, Mozambique, and Lesotho and the impact of service barring in Tanzania due to biometric registration compliance. Digital adoption across Vodacom’s international operations accelerated with M-Pesa revenue as a share of total service revenue increasing by 0.9 percentage points to 19.9%, and 53% of our customer base is using data services.

 

Vodacom’s adjusted EBITDA increased by 3.6%* as positive operational leverage in South Africa was partially offset by revenue pressure in Vodacom’s international operations. The adjusted EBITDA margin was 0.1* percentage points lower year-on-year and the adjusted EBITDA margin was 36.8%. Reported adjusted EBITDA decreased by 12.6% due to the depreciation of the local currencies versus euro.

 

Safaricom Associate (Kenya)

 

Safaricom service revenue declined by 4.8%* (Q1: -8.4%*, Q2: -1.2%*) due to depressed economic activity and the zero-rating of some M-Pesa services. The sequential improvement in Q2 was driven by an increase in M-Pesa transaction volumes and higher fixed demand. Adjusted EBITDA decreased by 7.8% primarily driven by a decline in revenue. 

 

Other Markets ⫶ 9% of Group Adjusted EBITDA

 

Turkey

 

Service revenue in Turkey grew by 13.8%* (Q1: 13.8%*, Q2: 13.9%*) supported by strong customer contract ARPU growth, increased mobile data revenue and fixed customer base growth.

 

Adjusted EBITDA grew 14.7%* and the adjusted EBITDA margin increased by 0.6* percentage points driven by strong revenue growth ahead of inflation and operating expenditure efficiencies. The adjusted EBITDA margin was 27.1%.

 

Egypt

 

Service revenue in Egypt grew by 5.4%* (Q1: 6.0%*, Q2: 4.9%*), supported by customer base growth and increased data usage, partially offset by lower roaming and visitor revenue, and the impact of a government-mandated waiver of transaction fees on our e-money platform.

 

Adjusted EBITDA declined by 10.4%* and the organic adjusted EBITDA margin decreased by 7.1* percentage points. This reflected an intra-year re-phasing of marketing spend into H1, the lapping of a prior year settlement, and the zero-rating of e-money transaction fees during the COVID-19 pandemic, which will end during H2. The adjusted EBITDA margin was 41.6%.

 

On 29 January 2020, we announced a Memorandum of Understanding (‘MoU’) with Saudi Telecom Company (‘stc’) in relation to the sale of Vodafone’s 55% shareholding in Vodafone Egypt to stc for a cash consideration of US$2,392 million (€2,180 million). On 13 April 2020, the MoU with stc was extended to allow additional time for the completion of due diligence on Vodafone Egypt by stc, which has now been substantively completed. On 14 September 2020 the extended MoU expired, however we remain in discussion with stc to finalise the transaction.

 

Other associates and joint ventures

 

Vodafone Idea Limited (India)

 

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

 

Vodafone Idea Limited (‘Vodafone Idea’) recorded losses for each of the six month periods ended 30 September 2019, 31 March 2020 and 30 September 2020, respectively. For the six months ended 30 September 2019, the Group recognised its share of estimated Vodafone Idea losses arising from both its operating activities and those in relation to the AGR judgement. The Group has no obligation to fund Vodafone Idea, consequently the Group’s recognised share of losses in the six months ended 30 September 2019 was limited to the remaining carrying value of Vodafone Idea which was therefore reduced to €nil at 30 September 2019; no further losses have been recognised by the Group.

 

The Group has a potential exposure to certain contingent liabilities and potential refunds relating to Vodafone India and Idea Cellular at the time of the merger, including those relating to the AGR judgement, whereby Vodafone Group and Vodafone Idea would reimburse each other on set dates following any crystallisation of these pre-merger liabilities and assets.

 

See ‘Other significant developments and legal proceedings’ on page 29 and Note 13 in the unaudited condensed consolidated financial statements for further information.

 

Indus Towers (India)

 

On 1 September 2020, we announced that Bharti Airtel Limited (‘Bharti Airtel’) and Vodafone Idea Ltd (‘Vodafone Idea’) had agreed to proceed with completion of the merger of Indus Towers Limited (‘Indus Towers’) and Bharti Infratel Limited (‘Bharti Infratel’ and, following the completion, the ‘Combined Company’). On 5 October 2020, we announced that lender consent had been received. On 22 October 2020, the National Company Law Tribunal (‘NCLT’) approved the extension of time for filing of the certified copy of the NCLT order approving the merger scheme with the Registrar of Companies (‘RoC’). The merger scheme will become effective when the order is filed with the RoC. Following any agreed closing adjustments, the filing with the RoC is expected to be completed imminently.

 

Vodafone Hutchison Australia / TPG Telecom

 

On 13 July 2020, we announced that Vodafone Hutchison Australia Pty Limited (‘VHA’) and TPG Telecom Limited (‘TPG’) had completed their merger to establish a fully integrated telecommunications operator in Australia. The merged entity was admitted to the Australian Securities Exchange (‘ASX’) on 30 June 2020 and is known as TPG Telecom Limited. Vodafone and Hutchison Telecommunications (Australia) Limited each own an economic interest of 25.05% in the merged unit, with the remaining 49.9% listed as free float on the ASX. 

 

Net financing costs

 

   H1 FY21   H1 FY20     
   €m   €m   Change (%) 
Adjusted net financing costs1   (639)   (799)   20.0 
Adjustments for:               
Mark-to-market (losses)/gains   (368)   21      
Foreign exchange losses   (231)   (147)     
Interest on lease liabilities   (189)   (163)     
Net financing costs   (1,427)   (1,088)   (31.2)

 

Notes:
1.Adjusted net financing costs is an alternative performance measure which is a non-GAAP measure that is presented to provide readers with additional financial information that is regularly reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measure. See “Alternative performance measures” on page 54 for more information.

 

Net financing costs increased by €339 million, primarily due to mark-to-market losses in the period. These were driven by the lower share price, causing a mark-to-market loss on the options relating to the mandatory convertible bonds and by lower long-term yields, which led to mark-to-market losses on certain economic hedging instruments. Adjusted net financing costs decreased reflecting net favourable interest movements on borrowings in relation to foreign operations. Excluding these factors and the impact of interest on lease liabilities, financing costs remained stable, reflecting consistent average net debt balances and weighted average borrowing costs for both periods.

 

Taxation      

 

   H1 FY21   H1 FY20     
   €m   €m   Change (%) 
Income tax expense:   (490)   (1,380)   64.5 
Tax on adjustments to derive adjusted profit before tax   (153)   (82)     
Adjustments1:               
 - Reduction in deferred tax following rate change in Luxembourg       868      
 - Deferred tax on use of Luxembourg losses in the period   188    200      
Adjusted income tax expense for calculating adjusted tax rate   (455)   (394)   (15.5)
                
Profit/(loss) before tax   2,045    (511)   500.2 
Adjustments to derive adjusted profit before tax1   (135)   1,393      
Adjusted profit before tax2   1,910    882    116.6 
Share of adjusted results in associates and joint ventures   (255)   550      
Adjusted profit before tax for calculating adjusted effective tax rate   1,655    1,432    15.6 
Adjusted effective tax rate2   27.5%   27.5%    

 

Notes:
1.See “Earnings per share” on page 24.
2.Adjusted profit before tax and adjusted effective tax 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 54 for more information.

 

The Group’s adjusted effective tax rate for the six months ended 30 September 2020 was 27.5%, in line with the prior period.

 

The Group’s adjusted effective tax rate for both years does not include €188 million (2019: €200 million) relating to the use of losses in Luxembourg.

 

The Group’s adjusted effective tax rate for the six months ended 30 September 2019 does not include a reduction in our deferred tax assets in Luxembourg of €868 million following a reduction in the Luxembourg corporate tax rate.

 

This use of our losses changes the total losses we have available for future use against our profits in Luxembourg and neither item affects the amount of tax we pay in other countries. 

 

Earnings per share

 

   H1 FY21   H1 FY20     
   €m   €m   Change (%) 
Adjusted operating profit1   2,549    1,681    51.6 
Adjusted net financing costs   (639)   (799)     
Adjusted income tax expense for calculating adjusted tax rate   (455)   (394)     
Adjusted non-controlling interests   (241)   (238)     
Adjusted profit attributable to owners of the parent1   1,214    250    385.6 
Adjustments:               
Amortisation of acquired customer base and brand intangible assets   (364)   (232)     
Restructuring costs   (86)   (163)     
Adjusted other income and expense   1,184    (872)     
Mark-to-market (losses)/gains   (368)   21      
Foreign exchange losses   (231)   (147)     
    135    (1,393)   109.7 
Taxation2   (35)   (986)     
Non-controlling interests       1      
Profit/(loss) attributable to owners of the parent   1,314    (2,128)   161.7 

 

    Million     Million       
Weighted average number of shares outstanding - basic   29,535    29,410    0.4 

 

    eurocents    eurocents      
Basic earnings/(loss) per share   4.45c   (7.24)c   161.5 
Adjusted earnings per share1   4.11c   0.85c   383.5 

 

Notes:
1.Adjusted operating profit, adjusted profit attributable to owners of the parent and adjusted earnings per share 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 measures. See “Alternative performance measures” on page 54 for more information.
2.See page 23.

 

Adjusted earnings per share was 4.11 eurocents, compared to 0.85 eurocents in the six months ended 30 September 2019.

 

Basic earnings per share was 4.45 eurocents, compared to a loss per share of 7.24 eurocents in the six months ended 30 September 2019. The increase is primarily due to losses recognised in the comparative period relating to Vodafone Idea Limited, partially offset by a €1.1 billion profit recorded on the disposal of Vodafone New Zealand. 

 

Cash flow, capital allocation and funding

 

Cash flow 

 

   H1 FY21   H1 FY20     
   €m   €m   Change (%) 
Adjusted EBITDA1   7,023    7,105    (1.2)
Capital additions2   (3,363)   (3,000)     
Working capital   (2,503)   (2,952)     
Disposal of property, plant and equipment   6    21      
Other   119    221      
Operating free cash flow1   1,282    1,395    (8.1)
Taxation   (533)   (483)     
Dividends received from associates and investments   355    63      
Dividends paid to non-controlling shareholders in subsidiaries   (166)   (169)     
Interest received and paid3   (487)   (412)     
Free cash flow (pre-spectrum and restructuring)1   451    394    14.5 
Licence and spectrum payments   (286)   (58)     
Restructuring and other payments4   (266)   (302)     
Free cash flow1   (101)   34    (397.1)
Acquisitions and disposals   434    (16,715)     
Equity dividends paid   (1,209)   (1,092)     
Share buybacks3       (1,094)     
Foreign exchange (loss)/gain   (258)   67      
Other5   (681)   (2,274)     
Net debt increase1,6   (1,815)   (21,074)   91.4 
Opening net debt1,6   (42,168)   (27,033)     
Closing net debt1,6   (43,983)   (48,107)   8.6 

 

Notes:

1.Adjusted EBITDA, operating free cash flow, free cash flow (pre-spectrum and restructuring), free cash flow and net debt 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 measures. See “Alternative performance measures” on page 54 for more information.
2.Capital additions includes the purchase of property, plant and equipment and intangible assets, other than licence and spectrum payments and transformation capital expenditure.
3.Interest received and paid excludes €134 million (2019: €87 million) of interest on lease liabilities, included within operating free cash flow; €nil (2019: €175 million) of interest costs related to Liberty acquisition financing, included within Other; and €nil (2019: €273 million) of cash outflow from the option structure relating to the issue of the mandatory convertible bond in February 2016, included within Share buybacks. The option structure was intended to ensure that the total cash outflow to execute the programme was broadly equivalent to the £1,440 million raised on issuing the second tranche.
4.Includes transformation capital expenditure of €116 million.
5.“Other” for the six months ended 30 September 2019 included €1,559 million of debt incurred in relation to licences and spectrum acquired in Germany.
6.Net debt balances at 30 September 2020 and 31 March 2020 have been adjusted to exclude derivative gains in cash flow hedge reserves, the corresponding losses for which are not recognised on the bonds within net debt and which are significant due to COVID-19 related market conditions. See page 27.

 

Operating free cash flow was €0.1 billion lower at €1.3 billion due to a reduction in roaming and visitor revenue, offset by lower net operating expenses in Europe. A favourable working capital movement of €0.4 billion was offset by an increase in capital additions of €0.4 billion, including the impact from the first-time inclusion of Unitymedia.

 

Free cash flow (pre-spectrum and restructuring) was €0.5 billion, an increase of €0.1 billion. The decrease in operating free cash flow was outweighed by an increase of €0.3 billion in dividends from associates and investments, partially offset by higher net interest paid and taxation outflows. 

 

Closing net debt adjusted for mark-to-market gains deferred in hedging reserves at 30 September 2020 was €44.0 billion (31 March 2020: €42.2 billion) and excludes borrowings of €11.6 billion (31 March 2020: €12.1 billion) of lease liabilities recognised under IFRS 16 and a loan of €1.3 billion (31 March 2020: €1.3 billion) specifically secured against Indian assets. Additionally it excludes £3.44 billion (31 March 2020: £3.44 billion) mandatory convertible bond issued in February 2019 which will be settled in equity shares, and €0.8 billion (31 March 2020: €0.7 billion) of shareholder loans receivable from VodafoneZiggo.

 

The Group’s borrowings and net debt includes bonds, some of which are or were previously designated in hedge relationships, which are carried at €1.5 billion higher (31 March 2020: €1.5 billion higher) than their euro equivalent redemption value. 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 is not reflected in borrowings and would increase the euro equivalent redemption value of the bonds by €0.2 billion (31 March 2020: €1.3 billion lower).

 

Analysis of free cash flow

 

   H1 FY21   H1 FY20     
   €m   €m   Change (%) 
Inflow from operating activities   6,009    6,139    (2.1)
Net tax paid   533    483      
Cash generated by operations   6,542    6,622    (1.2)
Capital additions   (3,363)   (3,000)     
Working capital movement in respect of capital additions   (222)   (713)     
Disposal of property, plant and equipment   6    21      
Restructuring payments   150    302      
Other1   (1,831)   (1,837)     
Operating free cash flow2   1,282    1,395    (8.1)
Taxation   (533)   (483)     
Dividends received from associates and investments   355    63      
Dividends paid to non-controlling shareholders in subsidiaries   (166)   (169)     
Interest received and paid   (487)   (412)     
Free cash flow (pre-spectrum and restructuring)2   451    394    14.5 
Licence and spectrum payments   (286)   (58)     
Restructuring and other payments3   (266)   (302)     
Free cash flow2   (101)   34    (397.1)

 

Notes:
1.Predominantly relates to lease payments.
2.Operating free cash flow, free cash flow (pre-spectrum and restructuring) 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 54 for more information.
3.Includes transformation capital expenditure of €116 million.

 

Funding position

 

   H1 FY21   Year-end FY20     
   €m   €m   Change (%) 
Bonds   (48,901)   (49,412)     
Bank loans   (1,277)   (2,728)     
Cash collateral liabilities1   (1,982)   (5,292)     
Other borrowings   (3,748)   (3,877)     
Borrowings included in net debt   (55,908)   (61,309)   8.8 
Cash and cash equivalents   6,612    13,284      
Other financial instruments:               
Mark-to-market derivative financial instruments2   (630)   4,409      
Short term investments3   7,172    5,247      
Total cash and cash equivalents and other financial instruments   13,154    22,940    (42.7)
Net debt4   (42,754)   (38,369)   (11.4)
Less mark-to-market gains deferred in hedging reserves5   (1,229)   (3,799)     
Net debt adjusted for mark-to-market gains in hedging reserves   (43,983)   (42,168)   (4.3)
                
Net debt to adjusted EBITDA**4,5,6   3.0x   2.8x     
                
Lease liabilities   (11,593)   (12,063)     
Bank borrowings secured against Indian assets   (1,321)   (1,346)     
Borrowings excluded from net debt   (12,914)   (13,409)     

 

The €5.0 billion reduction in mark-to-market derivative financial instruments primarily relates to lower gains deferred in hedging reserves and foreign exchange that is offset by bond retranslation. Lower borrowings and cash and cash equivalents are driven by €4.6 billion lower cash collateral assets and liabilities (which taken all together do not impact net debt) and bank loan repayments of €1.3 billion.  The movements in net debt adjusted for mark-to-market gains in hedging reserves are shown in the table below.

 

Movement in funding position

 

   Net debt**4,5   Net debt to adjusted 
   €m   EBITDA**4,5,6 
31 March 2020   42,168    2.8x
Acquisitions and disposals   (434)     
Equity dividends paid   1,209      
Other movements   939      
Free cash flow (pre-spectrum and restructuring)   (451)     
Licence and spectrum payments   286      
Restructuring and other payments   266      
30 September 2020   43,983    3.0x

 

Notes:
1.Cash collateral liabilities relate to a liability to return the cash collateral that has been paid to Vodafone under collateral arrangements on derivative financial instruments. The corresponding cash received from banking counterparties is reflected within Cash and cash equivalents and Short term investments.
2.Comprises mark-to-market adjustments on derivative financial instruments, which are included as a component of trade and other (payables)/receivables.
3.Short term investments includes €2,202 million (31 March 2020: €1,681 million) of highly liquid government and government-backed securities; €2,443 million (31 March 2020: €1,115 million) of assets paid to our bank counterparties as collateral on derivative financial instruments; and managed investment funds of €2,527 million (31 March 2020: €2,451 million) that are in highly rated and liquid money market investments with liquidity of up to 90 days.
4.Net debt and the ratio of net debt to adjusted EBITDA 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 54 for more information.
5.Net debt balances at 30 September 2020 and 31 March 2020 marked with a “**” have been adjusted to exclude derivative gains in cash flow hedge reserves, the corresponding losses for which are not recognised on the bonds within net debt and which are significant due to COVID-19 related market conditions.
6.The ratio of net debt to adjusted EBITDA is calculated using adjusted EBITDA for a rolling 12 month period, normalised for acquisitions and disposals within the period.

 

 

Ratio of net debt to adjusted EBITDA

 

On a rolling 12 month basis, H1 FY21 net debt to adjusted EBITDA increased by 0.2x to 3.0x (compared to 2.8x as at 31 March 2020), reflecting the intra-year phasing of cash flows.

 

Funding facilities

 

The Group has undrawn committed facilities of €7,739 million, principally euro and US dollar revolving credit facilities of €3.9 billion and US$4.2 billion (€3.6 billion). All of the euro revolving credit facilities mature in 2025 except for €80 million which mature in 2023 and all of the US dollar revolving credit facilities mature in 2022 except for US$75 million (€64 million) which mature in 2021. Both committed revolving credit facilities support US and euro commercial paper programmes of up to US$15 billion and €8 billion respectively.

 

Return on Capital Employed

 

Return on capital employed (“ROCE”) measures how efficiently we generate returns from our asset base and is a key driver of long-term value creation. We calculate two ROCE measures: i) Pre-tax ROCE for controlled operations only and ii) Post-tax ROCE (including associates & joint ventures). For the purpose of our interim results, we have provided a brief update below. We will present both measures and the detailed calculations for the financial year in our full year results.

 

The methodology adopted for the post-tax ROCE discussed below is consistent with that disclosed on page 39 of the Group’s annual report for the year ended 31 March 2020. For the purpose of the mid-year ROCE calculation, the returns are based on the 12 months ended 30 September 2020 and the denominator is based on the average of the capital employed as at 30 September 2019 and 30 September 2020.

 

Our ROCE decreased by 1.0 percentage points to 5.1% on a pre-tax basis (FY20: 6.1%) and remained flat at 4.0% on a post-tax basis. The decrease in the pre-tax controlled ROCE was primarily attributable to the first-time inclusion of the Liberty Global assets for the full 12 month period. Pre-tax returns from controlled operations were broadly stable due to lower EBITDA being offset by a reduction in depreciation and amortisation. The post-tax ROCE remained flat due to the first-time exclusion of the Group’s interest in Vodafone Idea in both the numerator and denominator.

 

Post-employment benefits

 

The €152 million net surplus at 31 March 2020 decreased by €381 million to a €229 million net deficit at 30 September 2020 arising from the Group’s obligations in respect of its defined benefit schemes. The next triennial actuarial valuation of the Vodafone Section and CWW Section of the Vodafone UK Group Pension Scheme will be as at 31 March 2022.

 

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 Board has announced an interim dividend per share of 4.50 eurocents (2019: 4.50 eurocents). The ex-dividend date for the interim dividend is 17 December 2020 for ordinary shareholders, the record date is 18 December 2020 and the dividend is payable on 5 February 2021. Dividend payments on ordinary shares will be paid directly into a nominated bank or building society account.

 

Vodafone is in the process of transferring its registrar services to Equiniti Limited. Consequently, Vodafone has set an ex-dividend date and record date for the interim dividend later in Vodafone’s financial calendar than in prior years.

 

Board changes

 

Jean-Francois van Boxmeer was appointed as a Non-Executive Director at the annual general meeting held on 28 July 2020.

 

As announced on 22 May 2020, Gerard Kleisterlee stepped down and retired from the Board on 3 November 2020 and Jean-Francois van Boxmeer succeeded him as Chairman on that date.

 

David Thodey resigned as a Non-Executive Director on 27 July 2020.

 

Vodafone Idea Limited (‘Vodafone Idea’)

 

In October 2019, the Supreme Court of India ruled against the industry in a dispute over the calculation of licence and other regulatory fees, and Vodafone Idea was liable for very substantial demands made by the Department of Telecommunications (‘DoT’) in relation to these fees. Based on submissions of the DoT in the Supreme Court proceedings (which the Group is unable to confirm as to their accuracy), Vodafone Idea reported a total estimated liability of INR 654 billion (€7.6 billion) excluding repayments and including interest, penalty and interest on penalty up to 30 June 2020.

 

On 17 February, 20 February, 16 March and 16 July 2020, Vodafone Idea made payments totaling INR 78.5 billion (€0.9 billion) to the DoT.

 

In September 2020, the Supreme Court of India directed that telecom operators make payment of 10% of the total dues by 31 March 2021 and thereafter repay the balance, along with 8% interest, in 10 annual instalments.

 

An update in relation to Indian regulatory cases and the contingent liability mechanism, dating back to the creation of Vodafone Idea is set out in Note 13 to the unaudited condensed consolidated financial statements.

 

Acquisition and disposal commitments

 

Indus Towers

 

Vodafone announced on 1 September 2020 that it had agreed to proceed with the merger of Indus Towers Limited (‘Indus Towers’) and Bharti Infratel Limited (‘Bharti Infratel’, together the ‘Combined Company’).

 

The agreement to proceed was conditional on consent for a security package for the benefit of the Combined Company (the ‘Security Package’) from Vodafone’s existing lenders for the €1.3 billion loan utilised to fund Vodafone’s contribution to the Vodafone Idea Ltd rights issue in 2019. On 5 October 2020 it was announced that this consent has been received. On 22 October 2020, the NCLT approved the extension of time for filing of the certified copy of the NCLT order approving the merger scheme with the Registrar of Companies (‘RoC’). The merger scheme will become effective when the order is filed with the RoC. Following any agreed closing adjustments, the filing with the RoC is expected to be completed imminently.

 

Vodafone Egypt

 

The Group signed a Memorandum of Understanding (‘MoU’) with Saudi Telecom Company (‘stc’) in January 2020 to pursue the sale of the Group’s 55% equity holding in Vodafone Egypt Telecommunications S.A.E. (‘Vodafone Egypt’) for cash consideration of US$ 2.4 billion (€2.2 billion).

 

On 14 September 2020, the Group announced that due diligence has been substantively completed with respect to the potential sale. Despite the expiry of the MoU, Vodafone remains in discussion with stc to finalise the transaction in the near future and now looks to stc and Telecom Egypt to find a suitable agreement to enable the transaction to close.

 

Risk factors

 

The key factors and uncertainties that could have a significant effect on the Group’s financial performance, include the following:

 

Global economic disruption

 

A major economic disruption could result in lower spending power for our customers and therefore reduced demand for our services affecting our profitability and cash flow generation. Economic disruption can also impact financial markets including currencies, interest rates, borrowing and availability of debt financing.

 

Cyber threat and information security

 

An external cyber-attack, insider threat or supplier breach could cause service interruption or the loss of confidential data. Cyber threats could lead to major customer, financial, reputational and regulatory impact across all of our local markets.

 

Geo-political risk in supply chain

 

We operate and develop sophisticated infrastructure in the countries in which we are present. Our network and systems are dependent on a wide range of suppliers internationally. If there was a disruption in the supply chain, we might be unable to execute our plans and we, and the industry, would face potential delays to network improvements and increased costs.

 

Adverse political and regulatory measures

 

Operating across many markets and jurisdictions means we deal with a variety of complex political and regulatory landscapes. In all of these environments, we can face changes in taxation, political intervention and potential competitive disadvantage. This also includes our participation in spectrum auctions.

 

Technology failure

 

Major incidents caused by natural disasters, deliberate attacks or an extreme technology failure, although rare, could result in the complete loss of key sites in either our data centres or our mobile/fixed networks causing a major disruption to our service.

 

Strategic transformation

 

We are undertaking a large-scale integration of recently acquired  assets across multiple markets and failing to complete it in a timely and efficient manner, would result in not realising  the full benefits or planned synergies and lead to additional costs.

 

The recent launch of Vantage Towers will also translate in changes to the way we operate.

 

We also have a number of joint ventures in operation and must ensure that these operate effectively.

 

Market disruption

 

New entrants with lean models could create pricing pressure. As more competitors launch unlimited bundles there could be price erosion. Our market position and revenues could be damaged by failing to provide the services that our customers want.

 

Digital transformation

 

Failure in digital or IT transformation projects could result in business loss, poor customer experience and reputational damage.

 

Disintermediation

 

We face increased competition from a variety of new technology platforms, which aim to build alternative communication services or different touch points, which could potentially affect our customer relationships. We must be able to keep pace with these new developments and competitors while maintaining high levels of customer engagement and an excellent customer experience.

 

Legal and regulatory compliance

 

Vodafone must comply with a multitude of local and international laws and applicable industry regulations. These include laws relating to privacy, anti-money laundering, competition, anti-bribery and economic sanctions. Failure to comply with these laws and regulations could lead to reputational damage, financial penalties and/or suspension of our licence to operate.

 

Brexit

 

The Board continues to monitor the implications for Vodafone’s operations in light of the new trading relationship between the UK and the EU, which has yet to be negotiated.

 

A cross-functional steering committee has identified the impact of the UK and EU failing to reach a free trade agreement on the Group’s operations and has produced a comprehensive mitigation plan.

 

Although our headquarters are in the UK, a large majority of our customers are in other countries, accounting for most of our revenue and cash flow. Each of our operating companies operates as a standalone business, incorporated and licensed in the jurisdiction in which it operates, and are able to adapt to a wide range of local developments. As such, our ability to provide services to our customers in the countries in which we operate, inside or outside the EU, is unlikely to be affected by the lack of a free trade deal. We are not a major international trading company, and do not use passporting for any of our major services or processes.

 

The lack of an agreed free trade deal between the UK and EU could lead to a fall in consumer and business confidence. Such a fall in confidence could, in turn, reduce consumer and business spend on our products and services.

 

COVID-19

 

We continue to conduct thorough assessments of the potential impacts of COVID-19 across our business, including but not limited to our principal risks. During the initial stage of the crisis, we reported in the Group’s annual report for the year ended 31 March 2020 (page 70) on the following topics: health, safety and wellbeing of our employees, disruption in our supply chain as well as an increase in cyber-attacks. These topics remain relevant, however other significant risks have been identified as detailed below:

 

Consumption of our products and services has changed due to societal shifts (e.g. working environment, connectivity needs and travel patterns) and these are likely to continue to evolve in the foreseeable future. By understanding the needs of our different customer groups, we are in a better position to provide support and adjust our product offering to retain loyalty while generating new revenue streams.

 

Requirement for ongoing access to capital markets in order to refinance debt. In addition, our emerging markets are exposed to currency movements. Turmoil in the financial markets can restrict access to capital markets and cause significant fluctuations in exchange rates. We maintain a conservative approach to liquidity by holding large volumes of cash and committed credit facilities, as well as limiting our refinancing exposure by maintaining a long average life of debt.

 

Governments will look to rebalance their finances over the coming years and our industry could be targeted as a funding opportunity with additional taxes and new adverse regulations. We continue to work closely with our stakeholders and government through our ‘Social Contract’ initiatives to ensure the sustainability and wellbeing of our society.

 

Pressures brought on by the effects of lockdown, social distancing and COVID-19 related restrictions impacts on our ability to physically service our customers. Therefore, we have accelerated and increased our digital transformation projects to provide a better customer experience.

 

Our response to the COVID-19 pandemic has prioritised the safety and wellbeing of our people first from the outset, through a variety of initiatives deployed across markets and tightly coordinated by the Business Continuity Plan programme management. The move to working from home for almost 100,000 of our people across all markets (approximately 95%) has been a tremendous organisational effort, enabled by our technology and network infrastructure, collaboration tools deployed at scale, HR policies and digital training.

 

We have also run a number of short-term ‘pulse’ surveys to gauge employee sentiment during the COVID-19 crisis. Our pulse survey responses have directly contributed to shaping our direction on our 'Future Ready' strategy around new digital ways of working and the future of work at Vodafone. They influenced our decisions on remote working, our digital tools and our response to wellbeing of our employees.

 

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 of directors can be found at:

 

http://www.vodafone.com/about/board-of-directors

 

By Order of the Board

Rosemary Martin

Group General Counsel and Company Secretary

16 November 2020

 

Unaudited condensed consolidated financial statements

 

Consolidated income statement

 

       Six months ended 30 September 
       2020   2019 
   Note   €m   €m 
Revenue   2    21,427    21,939 
Cost of sales        (14,657)   (15,010)
Gross profit        6,770    6,929 
Selling and distribution expenses        (1,675)   (1,883)
Administrative expenses        (2,560)   (2,590)
Net credit losses on financial assets        (378)   (302)
Share of results of equity accounted associates and joint ventures        260    (2,601)
Other income   8,9    1,055    1,024 
Operating profit   2    3,472    577 
Investment income        183    281 
Financing costs        (1,610)   (1,369)
Profit/(loss) before taxation        2,045    (511)
Income tax expense   4    (490)   (1,380)
Profit/(loss) for the financial period        1,555    (1,891)
                
Attributable to:               
– Owners of the parent        1,314    (2,128)
– Non-controlling interests        241    237 
Profit/(loss) for the financial period        1,555    (1,891)
                
Profit/(loss) per share               
Total Group:               
– Basic   6    4.45c   (7.24)c
– Diluted   6    4.44c   (7.24)c

 

Consolidated statement of comprehensive income/expense

 

   Six months ended 30 September 
   2020   2019 
   €m   €m 
Profit/(loss) for the financial period   1,555    (1,891)
Other comprehensive income/(expense):          
Items that may be reclassified to the income statement in subsequent periods:          
Foreign exchange translation differences, net of tax   (770)   (222)
Foreign exchange translation differences transferred to the income statement   (77)   (59)
Other, net of tax1   (2,058)   (302)
Total items that may be reclassified to the income statement in subsequent periods   (2,905)   (583)
Items that will not be reclassified to the income statement in subsequent periods:          
Net actuarial losses on defined benefit pension schemes, net of tax   (383)   (65)
Total items that will not be reclassified to the income statement in subsequent periods   (383)   (65)
Other comprehensive expense   (3,288)   (648)
Total comprehensive expense for the financial period   (1,733)   (2,539)
           
Attributable to:          
– Owners of the parent   (1,905)   (2,809)
– Non-controlling interests   172    270 
    (1,733)   (2,539)

 

 

Note:

1. Principally includes the impact of the Group’s cash flow hedges deferred to other comprehensive income during the period.

 

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

 

Consolidated statement of financial position

 

       30 September   31 March 
       2020   2020 
   Note   €m   €m 
Non-current assets               
Goodwill        31,251    31,271 
Other intangible assets        20,996    22,252 
Property, plant and equipment        38,059    39,197 
Investments in associates and joint ventures   9    5,428    5,831 
Other investments        899    792 
Deferred tax assets        23,990    23,606 
Post employment benefits        198    590 
Trade and other receivables        6,574    10,378 
         127,395    133,917 
Current assets               
Inventory        606    585 
Taxation recoverable        300    275 
Trade and other receivables        10,457    11,411 
Other investments        9,180    7,089 
Cash and cash equivalents        6,612    13,284 
         27,155    32,644 
Assets held for sale   5    2,312    1,607 
Total assets        156,862    168,168 
                
Equity               
Called up share capital        4,797    4,797 
Additional paid-in capital        152,694    152,629 
Treasury shares        (7,720)   (7,802)
Accumulated losses        (120,331)   (120,349)
Accumulated other comprehensive income        28,916    32,135 
Total attributable to owners of the parent        58,356    61,410 
Non-controlling interests        1,224    1,215 
Total equity        59,580    62,625 
                
Non-current liabilities               
Long-term borrowings        61,292    62,892 
Deferred tax liabilities        1,986    2,043 
Post employment benefits        427    438 
Provisions        1,550    1,474 
Trade and other payables        5,734    5,189 
         70,989    72,036 
Current liabilities               
Short-term borrowings        7,530    11,826 
Financial liabilities under put option arrangements        1,886    1,850 
Taxation liabilities        578    671 
Provisions        951    1,024 
Trade and other payables        14,380    17,085 
         25,325    32,456 
Liabilities held for sale   5    968    1,051 
Total equity and liabilities        156,862    168,168 

 

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 2019 brought forward   4,796    152,503    (7,875)   (87,467)   61,957    1,231    63,188 
Issue or reissue of shares   1    1    66    (63)   5        5 
Share-based payments       72            72        72 
Transactions with non-controlling interests in subsidiaries               (48)   (48)   (94)   (142)
Comprehensive (expense)/income               (2,809)   (2,809)   270    (2,539)
Dividends               (1,112)   (1,112)   (187)   (1,299)
30 September 2019   4,797    152,576    (7,809)   (91,499)   58,065    1,220    59,285 
                                    
1 April 2020 brought forward   4,797    152,629    (7,802)   (88,214)   61,410    1,215    62,625 
Issue or reissue of shares       1    82    (80)   3        3 
Share-based payments       64            64    4    68 
Transactions with non-controlling interests in subsidiaries               (11)   (11)   (5)   (16)
Comprehensive (expense)/income               (1,905)   (1,905)   172    (1,733)
Dividends               (1,205)   (1,205)   (162)   (1,367)
30 September 2020   4,797    152,694    (7,720)   (91,415)   58,356    1,224    59,580 

 

 

Notes:

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.

 

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

 

Consolidated statement of cash flows 

 

       Six months ended 30 September 
       2020   2019 
   Note   €m   €m 
Inflow from operating activities   10    6,009    6,139 
Cash flows from investing activities               
Purchase of interests in subsidiaries, net of cash acquired   8    (136)   (10,202)
Purchase of interests in associates and joint ventures            (1,413)
Purchase of intangible assets        (1,092)   (1,002)
Purchase of property, plant and equipment        (2,771)   (2,769)
Purchase of investments        (3,153)   (239)
Disposal of interests in subsidiaries, net of cash disposed   8    174    2,049 
Disposal of interests in associates and joint ventures   9    420     
Disposal of property, plant and equipment and intangible assets        6    21 
Disposal of investments        1,031    6,043 
Dividends received from associates and joint ventures        355    63 
Interest received        153    183 
Outflow from investing activities        (5,013)   (7,266)
                
Cash flows from financing activities               
Issue of ordinary share capital and reissue of treasury shares        3     
Net movement in short term borrowings        (2,717)   815 
Proceeds from issue of long term borrowings        2,125    9,107 
Repayment of borrowings        (4,330)   (13,277)
Purchase of treasury shares            (821)
Equity dividends paid        (1,209)   (1,092)
Dividends paid to non-controlling shareholders in subsidiaries        (166)   (169)
Other transactions with non-controlling shareholders in subsidiaries        (20)   (233)
Other movements in loans with associates and joint ventures        38     
Interest paid1        (774)   (1,130)
Outflow from financing activities        (7,050)   (6,800)
                
Net cash outflow        (6,054)   (7,927)
                
Cash and cash equivalents at beginning of the financial period2        13,288    13,605 
Exchange (loss)/gain on cash and cash equivalents        (365)   49 
Cash and cash equivalents at end of the financial period2        6,869    5,727 

 

 

Notes:

1. Interest paid includes €nil million (30 September 2019: €273 million) of cash outflow on derivative financial instruments for the share buyback related to the second tranche of the mandatory convertible bond that matured during the year ended 31 March 2020.
2.Includes cash and cash equivalents as presented in the Consolidated statement of financial position of €6,612 million (31 March 2020: €13,284 million) and cash and cash equivalents presented in assets held for sale of €274 million (31 March 2020: €273 million), together with overdrafts of €17 million (31 March 2020: €269 million).

 

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

 

Notes to the unaudited condensed consolidated financial statements

 

1Basis of preparation

 

The unaudited condensed consolidated financial statements for the six months ended 30 September 2020:

 

·are 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 2020;

 

·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 2020, 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 16 November 2020.

 

The information relating to the year ended 31 March 2020 is an extract from the Group’s published annual report for that year, which has been delivered to the Registrar of Companies, and on which the auditors’ report was unqualified and did not contain any emphasis of matter or statements under section 498(2) or 498(3) of the UK Companies Act 2006.

 

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 period. Actual results could vary from these estimates. These 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.

 

Considerations in respect of COVID-19

 

Going concern

 

As outlined on pages 1 and 2, trading in the first half of the year demonstrates the relative resilience of the Group’s operating model and the Group has a strong liquidity position with €6.6 billion of cash and cash equivalents available at 30 September 2020 and the Group has access to committed facilities that cover all of the Group’s reasonably expected cash requirements over the going concern period. The Directors have reviewed trading and liquidity forecasts for the Group which have been updated for the expected impact of COVID-19. The forecasts considered a variety of scenarios including not being able to access the capital markets during the assessment period.  In addition to the liquidity forecasts prepared, the Directors considered the availability of the Group’s revolving credit facilities which were undrawn as at 30 September 2020. As a result of the assessment performed, the Directors have concluded that the Group is able to continue in operation for the period up to and including March 2022 and that it is appropriate to continue to adopt a going concern basis in preparing the unaudited condensed consolidated financial statements.  

 

Critical accounting judgements and estimates

 

The Group’s critical accounting judgements and estimates were disclosed in the Group’s annual report for the year ended 31 March 2020. The forecast impact of COVID-19 was factored into certain of our judgements, primarily impairment testing. These judgements and estimates were reassessed during the six months ended 30 September 2020 and the Group’s latest outlook and best estimate of the COVID-19 impact are considered in our impairment review.

 

New accounting pronouncements adopted

 

On 1 April 2020, 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 2020.

 

2Segmental analysis

 

The Group has a single group of related services and products being the supply of communications services and products. Revenue is attributed to a country or region based on the location of the Group company reporting the revenue.

 

In the prior financial period, the Group reported the financial results of Vodacom and Other Markets under the Rest of the World (‘RoW’) region. To reflect changes in internal responsibilities, the RoW reporting segment no longer applies and Vodacom and Other Markets are separate reporting segments.

 

The Group’s revenue and profit is disaggregated as follows:

 

    Service revenue   Equipment revenue   Revenue from contracts with customers   Interest revenue   Other1   Total segment revenue     Adjusted EBITDA  
    €m   €m   €m   €m   €m   €m     €m  
Six months ended 30 September 2020                                       
Germany    5,723    466    6,189    6    176    6,371     2,844  
Italy    2,249    216    2,465    5    36    2,506     800  
UK    2,401    509    2,910    24    49    2,983     636  
Spain    1,880    132    2,012    8    30    2,050     488  
Other Europe    2,411    252    2,663    9    48    2,720     870  
Eliminations    (47)   -    (47)   -    -    (47)    -  
Europe    14,617    1,575    16,192    52    339    16,583     5,638  
Vodacom    1,949    335    2,284    7    132    2,423     891  
Other Markets    1,679    212    1,891    -    7    1,898     613  
Common Functions    219    13    232    -    424    656     (119 )
Eliminations    (46)   -    (46)   -    (87)   (133)    -  
Group    18,418    2,135    20,553    59    815    21,427     7,023  

 

    Service revenue   Equipment revenue   Revenue from contracts with customers   Interest revenue   Other1   Total segment revenue     Adjusted EBITDA  
    €m   €m   €m   €m   €m   €m     €m  
Six months ended 30 September 2019                                       
Germany    4,961    495    5,456    14    120    5,590     2,352  
Italy    2,424    256    2,680    4    25    2,709     1,006  
UK    2,451    598    3,049    34    68    3,151     658  
Spain    1,966    157    2,123    13    25    2,161     460  
Other Europe    2,392    253    2,645    9    36    2,690     872  
Eliminations    (74)   -    (74)   -    (2)   (76)    -  
Europe    14,120    1,759    15,879    74    272    16,225     5,348  
Vodacom    2,217    416    2,633    2    99    2,734     1,019  
Other Markets    2,024    299    2,323    2    26    2,351     755  
Common Functions    240    24    264    -    523    787     (17 )
Eliminations    (57)   -    (57)   -    (101)   (158)    -  
Group    18,544    2,498    21,042    78    819    21,939     7,105  

 

 

Note:

1. Other includes lease revenue.

 

2Segmental analysis

 

The Group’s measure of segment profit is adjusted EBITDA which is reported after depreciation on lease-related right of use assets and interest on leases but excluding depreciation and amortisation, gains/losses on disposal for owned 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 for the financial period, see the consolidated income statement on page 33.

 

    Six months ended 30 September
   2020     2019  
    €m     €m  
Adjusted EBITDA    7,023     7,105  
Depreciation and amortisation    (4,729)    (4,874 )
Share of adjusted results in equity accounted associates and joint ventures1    255     (550 )
Adjusted operating profit    2,549     1,681  
Restructuring costs    (86)    (163 )
Amortisation of acquired customer bases and brand intangible assets    (364)    (232 )
Other income and expense2    1,184     (872 )
Interest on lease liabilities    189     163  
Operating profit    3,472     577  

 

 

Notes:

1. Share of results of equity accounted associates and joint ventures presented within the Consolidated income statement includes €255 million (2019: -€550 million) included within Adjusted operating profit, €nil (2019: -€33 million) included within Restructuring costs, -€124 million (2019: -€122 million) included within Amortisation of acquired customer base and brand intangible assets and €129 million (2019: -€1,896 million; principally related to Vodafone Idea Limited) included within other income and expense.
2.For the six months ended 30 September 2020, the Group recorded a gain of €1,043 million in relation to the merger of Vodafone Hutchison Australia Pty Limited and TPG Telecom Limited which is reported in Other income and expense. See Note 9 ‘Investment in associates and joint ventures’. For the six months ended 30 September 2019, the Group recorded a gain of €1,078 million in relation to the disposal of Vodafone New Zealand, offset by losses incurred in Vodafone Idea Limited

 

The Group’s non-current assets are disaggregated as follows:

   30 September     31 March  
    2020     2020  
    €m     €m  
Non-current assets1              
Germany    47,504     48,266  
Italy    10,787     11,119  
UK    7,215     7,790  
Spain    7,051     7,229  
Other Europe    9,060     9,138  
Europe    81,617     83,542  
Vodacom    5,270     5,400  
Other Markets    1,309     1,561  
Common Functions    2,110     2,217  
Group    90,306     92,720  

 

 

Note:

1.Includes goodwill, other intangible assets and property, plant and equipment (including right-of-use assets).

 

3Impairment review

 

A review for indicators of potential impairment was performed at 30 September 2020 and 30 September 2019. The methodology adopted for impairment reviews was consistent with that disclosed on page 149 and pages 159 to 165 of the Group’s annual report for the year ended 31 March 2020.

 

Management continues to review the impact of COVID-19. Following analysis of recent business performance and certain changes in expectations on future impacts, management has made additional adjustments to the five-year business plans used in the Group’s impairment testing. The impairment review is based on expected cash flows after applying these adjustments.

 

Impairment testing requires the assessment of the recoverable amount being the higher of an asset's or cash-generating unit's fair value less costs of disposal and its value in use. A lack of observable market data on fair values for equivalent assets means that the Group’s valuation approach for impairment testing focuses primarily on value in use. For a number of reasons, transaction values agreed as part of any business acquisition or disposal may be higher than the assessed value in use.

 

Consistent with prior periods, assets are grouped at the lowest levels for which there are separately identifiable cash flows, known as cash-generating units. Following the merger of Vodafone’s passive tower infrastructure in Italy with INWIT, management considers Vodafone Italy and Vodafone’s stake in INWIT to represent two cash-generating units for the purpose of the impairment review as at 30 September 2020. The key assumptions and sensitivity analysis for Vodafone Italy presented below are prepared on a post-merger basis.

 

Value in use assumptions

 

The table below shows key assumptions used in the value in use calculations at 30 September 2020:

 

   Assumptions used in value in use calculation 
   Germany   Italy   Spain   Ireland   Romania 
   %   %   %   %   % 
Pre-tax risk adjusted discount rate   7.3    10.8    9.3    7.7    10.1 
Long-term growth rate   0.5    0.5    0.5    0.5    1.0 
Projected adjusted EBITDA1   3.8    2.5    8.2    0.9    8.0 
Projected capital expenditure2   20.0 - 20.7    12.2 - 14.9    16.2 - 18.7    13.2 - 15.7    13.7 - 16.6 

 

Sensitivity analysis

 

The estimated recoverable amounts of the Group’s operations in Germany, Italy, Spain, Ireland and Romania exceed their carrying values by €7.1 billion, €1.0 billion, €0.2 billion, €0.1 billion and €0.1 billion, respectively. If the assumptions used in the impairment review were changed to a greater extent than as presented in the following table, the changes would, in isolation, lead to an impairment loss being recognised for the six months ended 30 September 2020.

 

   Change required for carrying value to equal recoverable amount 
   Germany   Italy   Spain   Ireland   Romania 
   pps   pps   pps   pps   pps 
Pre-tax risk adjusted discount rate   1.1    1.2    0.3    0.3    0.4 
Long-term growth rate   (1.1)   (1.2)   (0.3)   (0.3)   (0.6)
Projected adjusted EBITDA1   (3.3)   (1.9)   (0.7)   (0.6)   (1.1)
Projected capital expenditure2   13.5    4.9    1.4    1.7    1.5 

 

 

Notes:

1. Projected adjusted EBITDA is expressed as the compound annual growth rates in the initial five years for all cash-generating units of the plans used for impairment review.
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 review.

 

Management considered the following reasonably possible changes in the key adjusted EBITDA1 and long-term growth rate assumptions, leaving all other assumptions unchanged. Due to increased uncertainty following the COVID-19 outbreak, management’s range of reasonably possible changes in the key adjusted EBITDA growth rate assumption is plus or minus 5 percentage points. The sensitivity analysis presented is prepared on the basis that the reasonably possible change in each key assumption would not have a consequential impact on other assumptions used in the impairment review. The associated impact on the impairment assessment is presented in the table below.

 

Management believes that no reasonably possible or foreseeable change in the pre-tax adjusted discount rate or projected capital expenditure2 would cause the difference between the carrying value and recoverable amount for any cash-generating unit to be materially different to the base case disclosed below.

 

   Recoverable amount less carrying value 
   Germany   Italy   Spain   Ireland   Romania 
   €bn   €bn   €bn   €bn   €bn 
Base case as at 30 September 2020   7.1    1.0    0.2    0.1    0.1 
Change in projected adjusted EBITDA1                         
Decrease by 5pps   (3.3)   (1.5)   (1.3)   (0.4)   (0.2)
Increase by 5pps   19.4    4.0    2.0    0.7    0.3 
Change in long-term growth rate                         
Decrease by 1pps   0.4    0.2    (0.4)   (0.1)    
Increase by 1pps   16.8    2.1    1.1    0.3    0.2