REG - Vodafone Group Plc - Half-year Report <Origin Href="QuoteRef">VOD.L</Origin> - Part 2
14/11/2017 07:06
- Part 2: For the preceding part double click ID:nRSN3828Wa
our strategic decision to phase out our low-end mobile brand Talkmobile. Excluding this effect our contract
base grew by 59,000. In August, we launched a new sub-brand 'VOXI', targeting the youth segment with a proposition focused
on worry-free social media usage. Our network performance continued to improve and is at an all-time high with 4G
population coverage of 97%, supported by our decision to deploy our own active radio network equipment in London.
Fixed service revenue declined 2.3%* (Q1: -3.9%*, Q2: -0.6%*), reflecting competitive pricing pressure and a lower customer
base in Enterprise. The lower pace of decline in Q2 was supported by our best ever quarter of consumer broadband net adds
(35,000 households). In total we now serve 278,000 customers.
In November, we announced a long-term strategic partnership agreement with CityFibre. This wholesale agreement will provide
us with the ability to market FTTH services to up to 5.0 million UK households by 2025, at attractive commercial terms. We
have identified the first 1.0 million households to be built across 12 towns and cities, and have committed to an initial
exclusivity period in exchange for a ten-year 20% minimum volume commitment for these households.
Adjusted EBITDA grew by 46.6%*, and the adjusted EBITDA margin was 26.5%. Excluding the impact of handset financing and
regulatory settlements in the period, and the reallocation of central costs, adjusted EBITDA declined by 1.9%* as
out-of-bundle roaming declines offset the benefit of lower operating costs delivered through our Fit for Growth cost
programme.
Spain
Service revenue grew by 2.8%* (Q1: 1.6%*, Q2: 3.9%*). This growth was driven by our 'more-for-more' tariff refresh in April
and a higher customer base across both mobile and fixed. The acceleration in Q2 reflects the end of the drag from handset
financing (excluding handset financing, Q1 grew 3.0%*), together with the benefit of a full quarter following our tariff
changes, and strong visitor revenues over the summer.
We maintained our good commercial momentum, adding 94,000 mobile contract customers and 57,000 fixed broadband customers
despite changes to our tariff plans and increased price competition in the value segment of the market. Our TV customer
base grew at a slower pace, up 23,000, reflecting a delay during Q1 in our ability to offer TV to new households in our
wholesale footprint following a new agreement with the incumbent, as well as a greater focus on premium packages.
Vodafone One, our fully integrated fixed, mobile and TV service, reached 2.5 million households at the end of the period,
up 459,000 year-on-year. In May we launched a basic convergent proposition through our secondary brand Lowi, which is
focused on the value segment. Consumer converged revenues grew by 17.0% in H1 and now represent 58% of total consumer
revenue.
Our market leading 4G population coverage reached 94% at the end of the period. Following our commercial wholesale
agreement with Telefonica in March to access its fibre network in both regulated and deregulated areas, our NGN footprint
increased to 19.5 million households, of which 10.3 million are on-net.
Adjusted EBITDA growth was strong at 9.6%*, with a 2.2 percentage point improvement in adjusted EBITDA margin to 29.9%.
This was driven by service revenue growth and lower commercial and operating costs; these more than offset higher content
and wholesale fixed access costs.
Other Europe
Service revenue grew 2.7%* (Q1: 2.7%*, Q2: 2.8%*) with all of the larger markets growing in the first half of the year
(after excluding the MTR impact in Ireland), supported by strong visitor revenue growth in southern Europe. Adjusted
organic EBITDA grew 6.5%* and adjusted EBITDA margin remained stable at 31.5%, reflecting continued good cost control.
In Ireland service revenue declined 2.7%*, but grew 2.0%* excluding the impact of regulation, supported by fixed customer
growth. Portugal service revenue grew 5.7%* driven by a return to growth in mobile, and continued strong customer growth in
fixed. In October, we announced a reciprocal network sharing agreement with NOS, providing us with access to an additional
1.3 million homes and businesses on attractive commercial terms. This will take our total coverage to 4.0 million,
representing 80% of households in the country. In Greece, service revenue grew by 3.9%*, driven by ARPU growth in consumer
mobile following 'more-for-more' tariff changes made in the first half.
VodafoneZiggo Joint Venture
The joint venture between Vodafone Netherlands and Ziggo (VodafoneZiggo, in which Vodafone owns a 50% stake) was formed on
31 December 2016.
VodafoneZiggo, which reports quarterly for credit investors on a US GAAP basis, reported a decline in revenue of 4.3% (Q1:
-3.4%, Q2: -5.2%), or a 2.7% decline (Q1: -2.8%, Q2: -2.7%) excluding the impact of regulation. This reflected continued
intense price competition in mobile, particularly in the SoHo segment, partially offset by a return to growth in fixed in
Q2 driven by improved RGU additions and ARPU. Mobile service revenue declined 11.7% (Q1: -9.3%, Q2: -14.0%), equivalent to
a 7.6% decline (Q1: -7.7%, Q2: -7.6%) excluding the impact of regulation, and fixed grew 0.2% (Q1: -0.1%, Q2: 0.5%).
Our new converged offers are helping to drive higher consumer mobile sales, with net contract additions in H1 of 25,000
excluding the impact of discontinued non-revenue generating secondary SIMs as part of the migration of former Ziggo mobile
subscribers to Vodafone. In fixed, we added 29,000 net broadband RGUs in H1 driven by our converged offers and the Ziggo
Power Promise campaign. Our momentum in convergence continues. 780,000 households are now converged, with these households
using a total of 1.2 million mobile SIMs. 24% of the VodafoneZiggo broadband base and 58% of Vodafone branded consumer
customers are now enjoying the benefits of converged offers.
VodafoneZiggo reported an adjusted EBITDA decline of 2.4% in H1, as lower revenues were partly offset by lower equipment
expenses, as a result of new consumer credit regulations which increased the proportion of SIM-only sales during the
period.
Since the start of the calendar year, Vodafone has received E221 million in dividends from the joint venture and E42
million in interest payments on the E1 billion shareholder loan. During the current financial year, Vodafone has received
E145 million in dividends and E28 million in interest payments. Following an upgrade to VodafoneZiggo's 2017 financial
outlook, we now expect to receive total cash returns (including dividends, interest payments and shareholder loan
repayments) of at least E375 million (previously 'at least E250 million') during the 2017 calendar year.
Africa, Middle East and Asia Pacific
Growth
Vodacom Other AMAP Eliminations AMAP Reported Organic*
Em Em Em Em % %
30 September 2017
Mobile customer revenue 1,996 1,761 - 3,757
Mobile incoming revenue 80 262 - 342
Other service revenue 121 88 - 209
Mobile service revenue 2,197 2,111 - 4,308
Fixed service revenue 113 382 - 495
Service revenue 2,310 2,493 - 4,803 (3.8) 7.0
Other revenue 489 407 - 896
Revenue 2,799 2,900 - 5,699 (3.2) 7.1
Direct costs (361) (937) - (1,298)
Customer costs (737) (493) - (1,230)
Operating expenses (638) (680) - (1,318)
Adjusted EBITDA 1,063 790 - 1,853 (2.1) 8.5
Depreciation and amortisation:
Acquired intangibles (43) (16) - (59)
Purchased licences (2) (87) - (89)
Other (325) (378) - (703)
Adjusted EBIT 693 309 - 1,002 2.0 11.1
Share of adjusted results in associates and joint ventures 29 126 - 155
Adjusted operating profit 722 435 - 1,157 9.2 18.5
Adjusted EBITDA margin 38.0% 27.2% 32.5%
30 September 2016 restated
Mobile customer revenue 1,805 2,117 - 3,922
Mobile incoming revenue 100 322 - 422
Other service revenue 99 79 - 178
Mobile service revenue 2,004 2,518 - 4,522
Fixed service revenue 80 389 - 469
Service revenue 2,084 2,907 - 4,991
Other revenue 380 515 - 895
Revenue 2,464 3,422 - 5,886
Direct costs (321) (1,084) - (1,405)
Customer costs (600) (586) - (1,186)
Operating expenses (591) (812) - (1,403)
Adjusted EBITDA 952 940 - 1,892
Depreciation and amortisation:
Acquired intangibles (39) (21) - (60)
Purchased licences (3) (109) - (112)
Other (268) (470) - (738)
Adjusted EBIT 642 340 - 982
Share of adjusted results in associates and joint ventures - 78 - 78
Adjusted operating profit 642 418 - 1,060
Adjusted EBITDA margin 38.6% 27.5% 32.1%
Change at constant exchange rates (%)
Mobile customer revenue 4.2 8.9
Mobile incoming revenue (23.1) 11.7
Other service revenue 13.4 41.4
Mobile service revenue 3.3 10.3
Other service revenue 36.1 5.1
Service revenue 4.5 9.4
Other revenue 19.3 (4.2)
Revenue 6.8 7.3
Direct costs 8.7 8.1
Customer costs 13.2 1.1
Operating expenses 3.1 3.4
Adjusted EBITDA 4.4 14.4
Depreciation and amortisation:
Acquired intangibles 0.4 -
Purchased licences (10.8) (6.0)
Other 14.4 2.6
Adjusted EBIT 0.6 44.9
Share of adjusted results in associates and joint ventures NM 69.5
Adjusted operating profit 4.7 51.2
Adjusted EBITDA margin (pps) (0.9) 1.7
Revenue decreased 3.2%, with strong organic growth offset by a 10.3 percentage point adverse impact from foreign exchange
movements, particularly with regards to the Turkish lira and Egyptian pound. On an organic basis service revenue was up
7.0%* driven by strong commercial momentum in South Africa, Turkey and Egypt.
Adjusted EBITDA decreased 2.1%, including a 10.6 percentage point adverse impact from foreign exchange movements. On an
organic basis, adjusted EBITDA grew 8.5%*, driven by service revenue growth and a continued focus on cost control and
efficiencies to offset inflationary pressures. Adjusted EBIT increased 11.1%*.
Other activity
Reported (including Foreign Organic*
change M&A) exchange change
% pps pps %
AMAP revenue (3.2) - 10.3 7.1
Service revenue
Vodacom 10.8 - (6.3) 4.5
Other AMAP (14.2) 0.1 23.6 9.5
AMAP service revenue (3.8) - 10.8 7.0
Adjusted EBITDA
Vodacom 11.7 - (7.3) 4.4
Other AMAP (16.0) 0.1 30.4 14.5
AMAP adjusted EBITDA (2.1) - 10.6 8.5
AMAP adjusted EBIT 2.0 0.1 9.0 11.1
AMAP adjusted operating profit 9.2 0.1 9.2 18.5
Note:
* All amounts in this document marked with an "*" represent organic growth which presents performance on a comparable
basis, both in terms of merger and acquisition activity and movements in foreign exchange rates. "Change at constant
exchange rates" presents performance on a comparable basis in terms of foreign exchange rates only. Organic growth and
change at constant exchange rates are alternative performance measures. See "Alternative performance measures" on page 42
for further details and reconciliations to the respective closest equivalent GAAP measure.
Vodacom
Vodacom Group service revenue grew 4.5%* (Q1: 5.6%*, Q2: 3.4%*), supported by strong customer additions and growth in data
and enterprise services in South Africa, and improved growth in Vodacom's International operations as we lapped the impact
from the change in customer registration requirements in the prior year. The slowdown in Q2 reflects a stronger comparator
from the prior year in South Africa and the impact of larger data bundles, combined with a decline in DRC revenues.
In South Africa, service revenue grew 4.8%* (Q1: 5.6%*, Q2: 3.9%*). This was supported by continued strong customer growth
resulting from our effective segmentation and bundle strategy. We added 4.1 million prepaid customers in the first half to
45.7 million, up 13.7% year-on-year. Data revenue growth remained strong at 15.0%*. This growth was supported by an
increased number of data users (up 9.6% to 19.9 million), greater average usage per customer (smart device usage up 19.5%
to 776Mb per month), and higher data bundle sales (up 56% year-on-year to 347 million). In Q2 data revenue growth slowed,
reflecting a strong comparative quarter and the impact of promotional initiatives to drive data take-up, including larger
data bundles. Effective from 1 October, out-of-bundle data rates were reduced in order to further improve customer
experience. We expect this to stimulate higher data take-up and usage over time. Voice revenue declined 4.8%*, broadly in
line with prior quarters, reflecting the success of our personalised voice bundle strategy through our 'Just 4 You'
platform. Our market leading network has now reached 77% 4G population coverage.
Vodacom's International operations outside of South Africa, which represent 22.3% of Vodacom Group service revenue, grew
6.0%* (Q1: 7.9%*, Q2: 4.1%*). This growth was supported by a better performance in Tanzania, and sustained growth in
Mozambique and Lesotho. In the DRC, economic weakness and the devaluation of the Congolese Franc has impacted consumer
spending, resulting in a weaker performance.
Vodacom Group adjusted EBITDA grew by 4.4%*, and adjusted EBITDA margin declined by 0.6 points to 38.0%. This reflected a
greater contribution from low margin equipment sales, a new roaming agreement with WBS in South Africa, and earlier phasing
of publicity costs for our global brand refresh. This was partially offset by continued cost discipline.
In May 2017, we announced that Vodafone Group would exchange a 35% indirect interest in Safaricom for 233.5 million new
ordinary Vodacom shares, enabling us to streamline and simplify the management of our sub-Saharan African holdings. The
transaction completed in August. Following a placing of Vodacom ordinary shares by Vodafone Group in September, in which
5.2% of Vodacom's share capital was sold for E955 million, Vodafone Group now indirectly owns a 64.5% stake in Vodacom.
Safaricom achieved local currency service revenue growth of 12.0% during H1, driven by the expansion of their customer base
and strong growth in data and M-Pesa revenue. Local currency adjusted EBITDA at Safaricom grew by 6.9%, impacted by a
one-off adjustment in the prior year.
Other AMAP
Service revenue grew by 9.5%* (Q1: 10.0%*, Q2: 8.9%*), with strong local currency growth in Turkey and Egypt. The slowdown
in quarterly trends reflects tougher prior year comparisons and the impact of a network outage in Qatar during Q2. Organic
adjusted EBITDA grew 14.5%* and adjusted EBITDA margin improved by 0.3 percentage points to 27.2%, driven by good cost
control.
In Turkey, service revenue grew 14.3%* (Q1: 13.9%*, Q2: 14.7%*) supported by good growth in consumer contract and strong
visitor revenue in Q2. Organic adjusted EBITDA grew 20.4%* and adjusted EBITDA margin improved by 2.0 percentage points to
22.8%, driven by revenue growth and improved cost control.
Egypt service revenue grew by 22.8%* (Q1: 24.6%*, Q2: 21.0%*), as rising data penetration drove higher ARPU and we
maintained good customer base growth. Organic adjusted EBITDA grew 23.0%* and adjusted EBITDA margin improved by 0.4
percentage points to 45.1% as revenue growth and cost discipline more than offset high inflationary pressures.
In New Zealand, service revenue grew 0.3%* (Q1: -0.3%*, Q2: 0.9%*), with growth in mobile partially offset by pressure in
fixed. We intend to explore a potential IPO of Vodafone New Zealand during calendar 2018.
Associates and joint ventures
Vodafone Hutchison Australia ('VHA') continued to perform solidly in a competitive environment, with local currency service
revenue growth of 2.5% during the first half of the year. This was driven by growth in our mobile contract customer base.
Local currency adjusted EBITDA excluding changes in pricing structure for new mobile phone plans grew 8.4%, supported by
revenue growth and strong commercial cost discipline.
Our stake in Indus Towers, the Indian towers company in which Vodafone has a 42% interest, is excluded from the perimeter
of the merger of Vodafone India and Idea. Indus Towers achieved local currency revenue growth of 11.5% and adjusted EBITDA
growth of 11.6% during the first half of the year. Indus owned 123,075 towers as at 30 September 2017, with a tenancy ratio
of 2.45. During the period, Indus Towers paid dividends of E141 million to the Group. We continue to explore potential
monetisation options for our own and Idea's interests in this asset.
India1
On 20 March 2017, Vodafone announced an agreement to combine its subsidiary, Vodafone India (excluding its 42% stake in
Indus Towers), with Idea Cellular. The combined company will be jointly controlled by Vodafone and the Aditya Birla Group.
Vodafone India has been classified as discontinued operations for Group reporting purposes. From an operational
perspective, the Group remains highly focused on the management of the business and committed to its success, both prior to
the completion of the merger and thereafter. The results of Vodafone India are detailed below.
Six months ended 30 September Growth
2017 2016 Reported Organic*
Em Em % %
Mobile customer revenue 1,914 2,433
Mobile incoming revenue 435 328
Other service revenue 88 105
Mobile service revenue 2,437 2,866
Fixed service revenue 164 139
Service revenue 2,601 3,005 (13.4) (15.8)
Other revenue 9 10
Revenue 2,610 3,015 (13.4) (15.8)
Direct costs (758) (836)
Customer costs (142) (148)
Operating expenses (1,153) (1,139)
Adjusted EBITDA 557 892 (37.6) (39.2)
Depreciation and amortisation:
Acquired intangibles - (37)
Purchased licences - (210)
Other (13) (422)
Adjusted EBIT and operating profit 544 223 143.9 136.5
Impairment loss2 - (6,375)
Other (54) (65)
Operating profit/(loss) 490 (6,217)
Adjusted EBITDA margin 21.3% 29.6%
Capital additions 394 447
Closing net debt3 (8,022) (4,736)
Notes:
* All amounts in this document marked with an "*" represent organic growth which presents performance on a comparable
basis, both in terms of merger and acquisition activity and movements in foreign exchange rates. "Change at constant
exchange rates" presents performance on a comparable basis in terms of foreign exchange rates only. Organic growth and
change at constant exchange rates are alternative performance measures. See "Alternative performance measures" on page 42
for further details and reconciliations to the respective closest equivalent GAAP measure.
1. In accordance with IFRS, the results of Vodafone India were classified as discontinued operations with effect from 20
March 2017, after which depreciation and amortisation of assets ceased.
2. Half year ended 30 September 2016 includes a gross impairment charge E6,375 million recorded in respect of the Group's
investment in India, which together with the recognition of an associated E1,375 million deferred tax asset, led to an
overall E5.0 billion reduction in the carrying value of Vodafone India.
3. Closing net debt at 30 September 2016 comprised E2,784 million of external net debt and E1,952 million of internal
financing.
Service revenue declined 15.8%* (Q1: -13.9%*, Q2: -17.8%*) as a result of intense price competition from the new entrant
and aggressive incumbent responses. Competitive intensity in the market continued to rise throughout the period, with the
extension of data validity periods on prepaid top-ups as well as price reductions in the postpaid segment. As a result,
ARPU fell sharply, while our customer base declined in Q2 as customers consolidated their usage with a single operator.
However, we continued to retain our mid and high value customers, while our focused investment strategy ensured that our
revenue market share continued to rise in our leadership circles during Q1. The sequential deterioration in Q2 revenue
trends following a period of stability in Q1 reflects intensified price competition, seasonal weakness as a result of the
monsoon, and the impact of the new 'Goods and Services Tax' ('GST'), which increased the tax burden on our gross revenues
to 18% (previously 15%).
Starting from 1 October 2017, the regulator lowered mobile termination rates from 14 paise to 6 paise per minute; this is
expected to weigh on our revenues in H2. There are however signs of positive developments in the Indian market, with
consolidation of smaller operators and recent price increases from the new entrant.
Our active data customer base remained stable at 68 million, with strong growth in 4G customers (up 11.9 million to 14.1
million at the end of the period) offsetting the decline in 2G. Our total customer base as at the end of H1 was 207
million. Prepaid ARPU declined by 23% in H1, as the benefit of customers' consolidating their spend on a single-SIM post
the introduction of unlimited calling plans was offset by the trend in the market towards longer validity periods of up to
three months in promotional offers. Postpaid ARPU declined by 16%, dragged lower by the significant price declines in the
prepaid segment.
Adjusted EBITDA declined 39.2%*, with an 8.3 percentage point deterioration in adjusted EBITDA margin to 21.3%. This
reflected lower revenues, partially offset by significant cost actions. These cost initiatives included active network site
sharing, the renegotiation of tower maintenance contracts and the closure of sites with low utilisation. Adjusted EBITDA
margins have remained broadly stable for the past three quarters, despite significant revenue pressures.
Net debt in India was E8.0 billion at the end of the period (including E6.7 billion of spectrum-related debt), down from
E8.7 billion at the end of the prior financial year due to the positive translation impact of closing foreign exchange
rates on the debt balance of E0.9 billion and positive cash flow of E0.1 billion, partially offset by accrued interest
expense of E0.3 billion.
The merger of Vodafone India and Idea Cellular has received clearance from the Competition Commission and the Securities
and Exchange Board of India (SEBI); further approvals are required from the National Company Law Tribunal and the
Department of Telecommunications.
On 13 November 2017, the Group announced the sale of Vodafone India's and Idea's standalone towers to American Tower for
INR78.5 billion (E1.0 billion), with the proceeds intended to reduce debt at the combined company. This transaction is
subject to regulatory approvals and is expected to close in the first half of calendar 2018.
The Group continues to explore potential monetisation options for our own and Idea's interests in Indus Towers.
Group results
Revenue
Group revenue decreased 4.1% to E23.1 billion and service revenue decreased 5.6% to E20.6 billion.
Operating profit
The Group's operating profit rose to E2.0 billion, compared to an operating profit of E1.5 billion in the prior period,
primarily reflecting higher adjusted EBIT.
Group adjusted EBITDA increased 4.2% to E7.4 billion, with organic growth in Europe and AMAP partly offset by foreign
exchange movements and the deconsolidation of Vodafone Netherlands. The Group's adjusted EBITDA margin improved by 2.5
percentage points to 32.0%. On an organic basis, adjusted EBITDA rose 13.0%* and the Group's adjusted EBITDA margin
increased by 2.8* percentage points driven by organic margin improvements in both Europe and AMAP.
Adjusted EBIT increased by 19.9% to E2.5 billion as a result of strong adjusted EBITDA growth and broadly stable organic
depreciation and amortisation expenses. On an organic basis, adjusted EBIT increased by 51.9%* for the period.
The Group's share of associates and joint ventures was E0.2 billion, up from E0.1 billion in the prior period due to higher
contributions from Indus Towers and Australia. Amortisation charges for acquired customer bases and brand intangible assets
were E0.5 billion, largely unchanged compared to the prior period. Restructuring costs and other income and expense were
minimal during the period.
Net investment income/(net financing costs)
Six months ended 30 September
Restated
2017 2016
Em Em
333 552
Financing costs (181) (675)
Net investment income/(net financing costs) 152 (123)
Analysed as:
Net financing costs before interest on settlement of tax issues (312) (355)
Interest expense arising on settlement of outstanding tax issues (33) (31)
(345) (386)
Mark to market gains 195 24
Foreign exchange1 302 239
152 (123)
Note:
1. Primarily comprises foreign exchange rate differences reflected in the income statement in relation to certain
sterling and US dollar balances.
Net financing costs decreased by E275 million primarily driven by an increase in mark to market gains (including economic
hedges of the mandatory convertible bond) and favourable foreign exchange rate movements. Net financing costs before
interest on settlement of tax issues remained stable, reflecting consistent average net debt balances and weighted average
borrowing costs for both periods.
Taxation
Six months ended 30 September
Restated1
2017 2016
Em Em
Income tax expense: (579) (1,114)
Tax on adjustments to derive adjusted profit before tax (29) (104)
Deferred tax following revaluation of investments in Luxembourg - 588
Additional deferred tax asset recognised in the period (159) -
Deferred tax on use of Luxembourg losses in the period 168 230
Tax on the Safaricom transaction 110 -
Adjusted income tax expense for calculating adjusted tax rate (489) (400)
Profit before tax 2,159 1,392
Adjustments to derive adjusted profit before tax2 214 280
Adjusted profit before tax3 2,373 1,672
Share of adjusted results in associates and joint ventures (171) (73)
Adjusted profit before tax for calculating adjusted effective tax rate 2,202 1,599
Adjusted effective tax rate3 22.2% 25.0%
Notes:
1. The Group has changed the basis of calculation of the adjusted effective tax rate to focus on the Group's controlled
businesses, more closely aligning the adjusted effective rate to the cash taxes reported by the Group.
2. See "Earnings per share" on page 18.
3. Adjusted profit before tax and adjusted effective tax are alternative performance measures. Alternative performance
measures are non-GAAP measures that are presented to provide readers with additional financial information that is
regularly reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measure.
See "Alternative performance measures" on page 42 for further details.
The Group's adjusted effective tax rate for its controlled businesses for the six months ended 30 September 2017 was 22.2%
compared to 25.0% for the same period during the last financial year. The lower rate in the current year is primarily due
to a change in the country mix of the Group's profits, and a reduction in the corporate tax rate in Italy. We expect the
adjusted effective tax rate to remain in the mid-twenties over the medium term.
The Group's adjusted effective tax rate for both periods does not include the following items: deferred tax on the use of
Luxembourg losses of E168 million (2016: E230 million); additional deferred tax recognition in Luxembourg of E159 million
(2016: Enil), reflecting additional losses expected to be utilised, and a tax charge in respect of capital gains on the
transfer of shares in Vodafone Kenya Limited to the Vodacom Group of E110m (2016: Enil). The prior year also included a
decrease in the deferred tax asset of E588 million arising from a revaluation of investments based upon the local GAAP
financial statements and tax returns, partially offset by a reduction in the deferred tax asset as a result of lower
interest rates. These items change the total losses we have available for future use against our profits in Luxembourg and
do not affect the amount of tax we pay in other countries.
Adjusted earnings per share
Adjusted earnings per share, which excludes the results of Vodafone India which are now included in discontinued
operations, were 6.32 eurocents, an increase of 54.9% year-on-year, as higher adjusted operating profit and lower net
financing costs more than offset the increase in income tax expense.
Basic earnings per share were 4.03 eurocents, compared to a loss per share of 18.38 eurocents for the period ended 30
September 2016, with the increase largely due to the prior period including a non-cash impairment charge of E5.0 billion,
net of tax, recognised in discontinued operations in respect of the Group's investment in India.
Six months ended 30 September
Restated
2017 2016
Em Em
Profit/(loss) attributable to owners of the parent 1,131 (5,129)
Adjustments:
Amortisation of acquired customer base and brand intangible assets 543 515
Restructuring costs 33 37
Other income and expense 44 56
Non-operating income and expense 1 -
Investment income and financing costs (407) (328)
214 280
Taxation1 90 714
India2 345 5,281
Non-controlling interests (7) (8)
Adjusted profit attributable to owners of the parent3 1,773 1,138
Million Million
Weighted average number of shares outstanding - basic4 28,067 27,912
Earnings per share
eurocents eurocents
Basic earnings/(loss) per share 4.03c (18.38c)
Adjusted earnings per share3 6.32c 4.08c
Notes:
1. Half year ended 30 September 2017 includes a tax charge of E110m relating to a tax charge in respect of capital gains on
the transfer of shares in Vodafone Kenya Limited to the Vodacom Group. Half year ended 30 September 2016 includes a
reduction in the deferred tax asset of E588 million arising from the tax treatment of the revaluation of investments based
upon the local GAAP financial statements and tax returns, partially offset by a reduction in the deferred tax asset as a
result of lower interest rates.
2. India is classified as discontinued operations and includes the operating results, financing, tax and other gains and
losses of Vodafone India recognised during the period.
3. Adjusted profit attributable to owners of the parent and adjusted earnings per share are alternative performance
measures. Alternative performance measures are non-GAAP measures that are presented to provide readers with additional
financial information that is regularly reviewed by management and should not be viewed in isolation or as an alternative
to the equivalent GAAP measure. See "Alternative performance measures" on page 42 for further details.
4. Weighted average number of shares outstanding includes a dilution of 1,292 million shares (2016: 1,325 million shares)
following the issue of £2.9 billion of mandatory convertible bonds in February 2016 which are classified as equity after
taking into account the cost of future coupon payments.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows and funding
Six months ended 30 September
Restated1
2017 2016
Em Em
Adjusted EBITDA 7,385 7,090
Capital additions2 (3,263) (3,526)
Working capital (2,294) (2,925)
Disposal of property, plant and equipment 9 7
Other 65 50
Operating free cash flow3 1,902 696
Taxation (400) (468)
Dividends received from associates and investments 284 129
Dividends paid to non-controlling shareholders in subsidiaries (154) (274)
Interest received and paid (343) (231)
Free cash flow (pre-spectrum)3 1,289 (148)
Licence and spectrum payments (747) (138)
Restructuring payments (127) (142)
Free cash flow3 415 (428)
Acquisitions and disposals 1,079 (61)
Equity dividends paid (2,637) (2,449)
Share buybacks (549) -
Foreign exchange 693 (413)
Other4 113 (5,732)
Net debt increase (886) (9,083)
Opening net debt (31,169) (28,801)
Closing net debt (32,055) (37,884)
Notes:
1. Cash flows and funding for the half year ended 30 September 2016 excludes the cash flows, funding and net debt of
Vodafone India.
2. Capital additions include the purchase of property, plant and equipment and intangible assets, other than licence and
spectrum, during the period.
3. Operating free cash flow, free cash flow (pre-spectrum) and free cash flow are alternative performance measures which
are non-GAAP measures that are presented to provide readers with additional financial information that is regularly
reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measure. See
"Alternative performance measures" on page 42 for more information and reconciliations to the closest respective equivalent
GAAP measure and "Definition of terms" on page 52 for further details.
4. Other cash flows for the period ended 30 September 2017 includes Enil (2016: E5,416 million) capital injection into
Vodafone India.
Operating free cash flow increased E1.2 billion mainly due to higher organic EBITDA and lower working capital cash
outflows, predominately relating to the final payments for Project Spring in the prior year.
Free cash flow (pre-spectrum) was E1.3 billion, an increase of E1.4 billion, largely driven by the E1.2 billion increase in
operating free cash flow (see above) and E0.2 billion higher dividends, primarily from VodafoneZiggo.
Licence and spectrum payments include amounts relating to the purchase of spectrum in Italy of E0.6 billion and Germany of
E0.1 billion (2016: E0.1 billion).
Acquisitions and disposals include E1.0 billion of proceeds from the placing of Vodacom shares following the transfer of
the Group's interests in Safaricom to Vodacom and E0.2 billion from the Tanzanian initial public offering.
A foreign exchange gain of E0.7 billion was recognised on net debt as a result of the translation impact of closing foreign
exchange rates, mainly due to movements in the US Dollar and Sterling against the euro.
Closing net debt at 30 September 2017 was E32.1 billion (31 March 2017: E31.2 billion) and excludes E8.0 billion of net
debt for Vodafone India, which is instead included in assets and liabilities held for sale on the consolidated statement of
financial position; the remaining £1.4 billion mandatory convertible bond issued in February 2016 which will be settled in
equity shares; £1.0 billion of accruals for the new irrevocable and non-discretionary share buyback programme; US$2.5
billion of loan notes receivable from Verizon Communications Inc.; and E1.0 billion of shareholder loans receivable from
VodafoneZiggo.
Closing net debt also continues to include liabilities of E1.9 billion (31 March 2017: E1.8 billion) relating to minority
holdings in KDG and certain bonds which are reported at an amount E1.8 billion (31 March 2017: E2.0 billion) higher than
their euro-equivalent cash redemption value as a result of hedge accounting under IFRS. In addition, where bonds are issued
in currencies other than euros, the Group has entered into foreign currency swaps to fix the euro cash outflows on
redemption. The impact of these swaps are not reflected in gross debt and would increase the euro equivalent redemption
value of the bonds by E0.2 billion (31 March 2017: reduction E0.9 billion).
Analysis of net debt:
30 September 31 March
2017 2017
Em Em
Bonds (33,056) (34,381)
Commercial paper1 (3,859) (3,648)
Put options over non-controlling interests2 (1,876) (1,837)
Bank loans (3,010) (3,608)
Cash collateral liabilities (2,004) (2,654)
Other borrowings3 (376) (444)
Gross borrowings (44,181) (46,572)
Derivative financial instruments4 (2,312) (2,077)
Gross debts (46,493) (48,649)
Cash and cash equivalents5 5,365 8,835
Other financial instruments:
Mark to market derivative financial instruments6 3,730 4,282
Short term investments7 4,867 3,979
Cash collateral8 476 384
Total cash and cash equivalents and other financial instruments 14,438 17,480
Net debt (32,055) (31,169)
Notes:
1. At 30 September 2017 US$406 million (31 March 2017: US$1,484 million) was drawn under the US commercial paper programme
and E3,515 million (31 March 2017: E2,262 million) was drawn under the euro commercial paper programme.
2. Includes a E1.9 billion (31 March 2017: E1.8 billion) liability for payments due to holders of the equity shares in
Kabel Deutschland AG under the terms of a domination and profit and loss transfer agreement.
3. At 30 September 2017 the amount includes E46 million (31 March 2017: E80 million) in relation to the debt component of
the mandatory convertible bonds.
4. Comprises mark-to-market adjustments on derivative financial instruments which are included as a component of trade and
other payables (30 September 2017: E2,312 million, 31 March 2017: E2,077 million).
5. Includes cash and cash equivalents of E7 million (31 March 2017: Enil) in respect of assets held for sale.
6. Comprises mark-to-market adjustments on derivative financial instruments which are included as a component of trade and
other receivables (30 September 2017: E3,730 million; 31 March 2017: E4,282 million).
7. At 30 September 2017 the amount primarily includes E2,495 million (31 March 2017: E2,039 million) in managed investment
funds, E1,130 million (31 March 2017: E1,172 million) of gilts used as collateral primarily passed in relation to put
options issued with regards to the mandatory convertible bonds with maturities 2017 and 2019, E452 million (31 March 2017:
E466 million) in index-linked government bonds and E670 million (31 March 2017: E182 million) short-term investments in a
fund where the underlying assets are supply chain receivables.
8. At 30 September 2017 the amount includes E476 million (31 March 2017: E384 million) in relation to cash paid under
collateral support agreements.
The following table sets out the Group's undrawn committed bank facilities:
30 September
2017
Maturity Em
US$4.1 billion committed revolving credit facility1 February 2022 3,465
E4.0 billion committed revolving credit facility1 March 2021 4,010
Other committed credit facilities Various 193
Undrawn committed facilities 7,668
Note:
1. Both facilities support US and euro commercial paper programmes of up to US$15 billion and E8 billion respectively.
US$155 million and E150 million of the US$ and E facilities mature in February 2020 and March 2020 respectively.
Share buyback programme
On 25 August 2017, Vodafone announced the commencement of a new irrevocable and non-discretionary share buyback programme
(the 'Programme'). The sole purpose of the Programme is to reduce the issued share capital of Vodafone and thereby avoid
any change in Vodafone's issued share capital as a result of the maturing of the
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