REG - Vodafone Group Plc - Half-year Report <Origin Href="QuoteRef">VOD.L</Origin> - Part 4
14/11/2017 07:06
- Part 4: For the preceding part double click ID:nRSN3828Wc
664 - 664 (19) 645 (100)
Group 24,196 (103) 24,093 (42) 24,051 7,090
Note:
1. The "Other" segment primarily represents the results of partner markets and the net result of unallocated central
Group costs.
The Group's measure of segment profit and adjusted EBITDA, excludes depreciation and amortisation, gains/losses on disposal
of fixed assets, impairment losses, restructuring costs arising from discrete restructuring plans, the Group's share of
adjusted results in associates and joint ventures and other income and expense. A reconciliation of adjusted EBITDA to
operating profit is shown below. For a reconciliation of operating profit to profit/(loss) for the financial period, see
the consolidated income statement on page 24.
Six months ended 30 September
Restated
2017 2016
Em Em
Adjusted EBITDA 7,385 7,090
Depreciation, amortisation and loss on disposal of fixed assets (4,928) (5,040)
Share of adjusted results in equity accounted associates and joint ventures 171 73
Adjusted operating profit 2,628 2,123
Impairment loss - -
Restructuring costs (33) (37)
Amortisation of acquired customer bases and brand intangible assets (543) (515)
Other income and expense (44) (56)
Operating profit 2,008 1,515
3 Impairment review
Impairment testing was performed as at 30 September 2017 and 30 September 2016. The methodology adopted for impairment
testing for the six months ended 30 September 2017 was consistent with that disclosed on page 105 and pages 113 to 116 of
the Group's annual report for the year ended 31 March 2017.
For the six months ended 30 September 2017, the Group recorded a non-cash charge of E555 million (E395 million net of tax)
to reduce the carrying value of Vodafone India to fair value less costs to sell, primarily as a result of its assets no
longer being depreciated following its reclassification as an asset held for resale under IFRS 5 "Non-current Assets Held
for Sale and Discontinued Operations". For the six months ended 30 September 2016, the Group recorded a non-cash impairment
charge of E6,375 million 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, the results of which are included in discontinued operations (see note 5 'Discontinued operations and assets held
for sale').
For the six months ended 30 September 2017, as a discontinued operation, Vodafone India has been valued at fair value less
costs to sell. Vodafone India's fair value less costs to sell is not observable in a quoted market and accordingly it has
been determined with reference to the outcomes from the application of a number of potential valuation techniques, which
are considered to result in a "level 2" valuation as per IFRS 13. As such significant judgement is required and involves
the use of estimates. The two bases of valuation which were given the strongest weighting in the overall assessment of fair
value are set out below. Fair value less costs to sell excluding net debt has been assessed to be INR 971 billion at both
30 September 2017 and 31 March 2017, equivalent to E12.6 billion and E14.0 billion respectively at the foreign exchange
rates prevailing at those dates.
· The contracted cash price for the sale of a portion of the entity to the Aditya Birla Group as part of the planned merger of Vodafone India with Idea Cellular, adjusted for the expected level of debt being transferred to the merged entity, which is an
observable price relating to Vodafone India and
· The share price of Idea Cellular prior to the announcement of the planned merger of Vodafone India with Idea Cellular, adjusted for transaction specific factors. Idea Cellular equity shares are the primary component of the consideration for Vodafone India
to be received by the Group, and the value of the Idea Cellular shares has been adjusted to reflect 50% of the estimated cost synergies that management expects to be realised by the jointly controlled entity. A 10% increase or reduction in the expected
cost synergies included in this determination of fair value would result in a E220 million increase or reduction, respectively, in the fair value less costs to sell of Vodafone India calculated using this approach.
The table below shows key assumptions used in the value in use calculations at 30 September 2017:
Assumptions used in value in use calculation
Germany Spain Italy Romania
% % % %
Pre-tax risk adjusted discount rate 8.5 9.7 10.5 9.2
Long-term growth rate 0.5 1.5 1.0 1.0
Projected adjusted EBITDA1 3.0 7.9 (0.8) 0.1
Projected capital expenditure2 15.4-16.5 14.3-16.0 11.4-14.2 12.6-15.9
Sensitivity analysis
Other than as disclosed below, management believes that no reasonably possible change in any of the above key assumptions
would cause the carrying value of any cash-generating unit to materially exceed its recoverable amount.
The estimated recoverable amount of the Group's operations in Germany, Spain and Romania exceed their carrying values by
E3.8 billion, E1.3 billion and E0.2 billion respectively. The changes in the following table to assumptions used in the
impairment review would, in isolation, lead to an impairment loss being recognised for the six months ended 30 September
2017:
Change required for carrying value to equal the recoverable amount
Germany Spain Romania
pps pps pps
Pre-tax risk adjusted discount rate 1.1 0.8 1.4
Long-term growth rate (1.1) (0.9) (1.6)
Projected adjusted EBITDA1 (1.7) (1.5) (1.8)
Projected capital expenditure2 9.1 6.6 7.1
The carrying values for Vodafone UK, Ireland, Portugal and Czech Republic include goodwill arising from their acquisition
by the Group and/or the purchase of operating licences or spectrum rights. While the recoverable amounts for these
operating companies are not materially greater than their carrying value, each has a lower risk of giving rise to
impairment that would be material to the Group given their relative size or the composition of their carrying value. The
changes in the following table to assumptions used in the impairment review would have, in isolation, led to an impairment
loss being recognised in the six months ended 30 September 2017.
Change required for carrying value to equal the recoverable amount
UK Ireland Portugal Czech Republic
pps pps pps pps
Pre-tax risk adjusted discount rate 0.5 0.5 1.2 2.2
Long-term growth rate (0.5) (0.6) (1.2) (2.4)
Projected adjusted EBITDA1 (0.7) (0.8) (1.7) (2.9)
Projected capital expenditure2 3.0 3.3 7.5 13.2
Notes:
1. Projected adjusted EBITDA is expressed as the compound annual growth rates in the initial five years of the plans used
for impairment testing.
2. Projected capital expenditure, which excludes licences and spectrum, is expressed as the range of capital expenditure
as a percentage of revenue in the initial five years for all cash generating units of the plans used for impairment
testing.
4 Taxation
Six months ended 30 September
Restated
2017 2016
Em Em
United Kingdom corporation tax (expense)/income1:
Current year (71)
Adjustments in respect of prior years 3 4
Overseas current tax (expense)/income:
Current year (628) (398)
Adjustments in respect of prior years 87 38
Total current tax expense (609) (356)
Deferred tax on origination and reversal of temporary differences:
United Kingdom deferred tax (86) (57)
Overseas deferred tax 116 (701)
Total deferred tax expense 30 (758)
Total income tax expense (579) (1,114)
Note:
1. UK operating profits are largely offset by statutory allowances for capital investment in the UK network and systems
plus ongoing interest costs including those arising from the E10.3 billion of spectrum payments to the UK government in
2000 and 2013.
Overseas deferred tax expense for the six months ended 30 September 2017 included the recognition of E159 million (2016:
write off of E907million) in relation to losses in Luxembourg expected to be used within 60 years. The write off in the six
months ended 30 September 2016 was due to lower interest rates increasing the length of time over which these losses would
be utilised.
The six months ended 30 September 2016 also included an increase in the deferred tax assets in Luxembourg of E319 million
resulting from the tax treatment of the revaluation of investments following completion and approval of the Luxembourg
statutory accounts and tax returns. The Group expects to use its losses in Luxembourg over a period of 60 years and the
losses in Germany over a period of between 9 and 11 years; the actual use of these losses, and the period over which they
may be used, is dependent on many factors which may change. These factors include the level of profitability in both
Luxembourg and Germany, changes in tax law and changes to the structure of the Group. Further details about the Group's tax
losses can be found in note 6 of the Group's consolidated financial statements for the year ended 31 March 2017.
5 Discontinued operations and assets held for sale
On 20 March 2017, Vodafone announced the agreement to combine its subsidiary, Vodafone India (excluding its 42% stake in
Indus Towers), with Idea Cellular, which is listed on the Indian Stock Exchanges, with the combined company to be jointly
controlled by Vodafone and the Aditya Birla Group. Consequently, Vodafone India is now accounted for as a discontinued
operation, the results of which are detailed below.
Income statement and segment analysis of discontinued operations Six months ended 30 September
2017 2016
Em Em
Revenue 2,604 3,003
Cost of sales (1,721) (2,395)
Gross profit 883 608
Selling and distribution expenses (121) (124)
Administrative expenses (272) (326)
Impairment losses - (6,375)
Operating profit/( loss) 490 (6,217)
Financing costs (386) (562)
Profit/(loss) before taxation 104 (6,779)
Income tax (charge)/credit (54) 1,498
Profit/(loss) after tax of discontinued operations 50 (5,281)
Pre-tax loss on the re-measurement of disposal group1 (555) -
Income tax credit 160 -
After tax loss on the re-measurement of disposal group (395) -
Loss for the period from discontinued operations (345) (5,281)
Loss per share from discontinued operations
Six months ended 30 September
2017 2016
eurocents eurocents
- Basic (1.23c) (18.92c)
- Diluted (1.23c) (18.86c)
Total comprehensive expense for the period from discontinued operations
Six months ended 30 September
2017 2016
Em Em
Attributable to owners of the parent (345) (5,281)
Note:
1. Comprises a non-cash charge of E555 million (E395 million net of tax) to reduce the carrying value of Vodafone India to
fair value less costs to sell. See note 3 "Impairment review" for further details.
Assets and liabilities held for sale
Assets and liabilities relating to our operations in India have been classed as held for sale on the Consolidated statement
of financial position at 30 September 2017 and 31 March 2017. In addition, assets and liabilities held for sale at 30
September 2017 also include the assets and liabilities of our operations in Malta. The relevant assets and liabilities are
detailed in the table below.
Assets held for sale
30 September 2017 31 March 2017
Em Em
Non-current assets 13,148 14,572
Current assets 2,533 2,623
Total assets held for sale 15,681 17,195
Non-current liabilities (7,585) (8,862)
Current liabilities (3,412) (2,932)
Total liabilities held for sale (10,997) (11,794)
6 Earnings per share
Six months ended 30 September
2017 2016
Millions Millions
Weighted average number of shares for basic earnings per share 28,067 27,912
Effect of dilutive potential shares: restricted shares and share options 74 82
Weighted average number of shares for diluted earnings per share 28,141 27,994
Six months ended 30 September
Restated
Earnings per share attributable to owners of the parent during the period 2017 2016
Em Em
Profit for earnings per share from continuing operations 1,476 152
Loss for earnings per share from discontinued operations (345) (5,281)
Profit/(loss) for basic and diluted earnings per share 1,131 (5,129)
eurocents eurocents
Basic earnings per share from continuing operations 5.26c 0.54c
Basic loss per share from discontinued operations (1.23c) (18.92c)
Basic earnings/(loss) per share 4.03c (18.38c)
Diluted earnings per share from continuing operations 5.25c 0.54c
Diluted loss per share from discontinued operations (1.23c) (18.86c)
Diluted earnings/(loss) per share 4.02c (18.32c)
7 Equity dividends
Six months ended 30 September
2017 2016
Em Em
Declared during the financial period:
Final dividend for the year ended 31 March 2017: 10.03 eurocents per share (2016: 7.77 pence per share) 2,670 2,447
Proposed after the end of the reporting period and not recognised as a liability:
Interim dividend for the year ending 31 March 2018: 4.84 eurocents per share (2017: 4.74 eurocents per share) 1,291 1,262
8 Acquisitions
The aggregate cash consideration in respect of purchases in subsidiaries, net of cash acquired, is as follows:
Six months ended 30 September
2017 2016
Em Em
Cash consideration paid:
Acquisitions during the year 6 9
Acquisitions completed in previous years - 9
6 18
Net cash acquired - -
6 18
During the six month period ended 30 September 2017 the Group completed certain acquisitions for an aggregate net cash
consideration of E6 million. The aggregate fair values of goodwill, identifiable assets, and liabilities of the acquired
operations were E4 million, E5 million and E3 million respectively.
9 Investment in associates and joint arrangements
30 September 31 March
2017 2017
Em Em
Investment in joint ventures 2,239 2,689
Investment in associates 372 449
2,611 3,138
10 Reconciliation of net cash flow from operating activities
Six months ended 30 September
Restated
2017 2016
Note Em Em
Profit/(loss) for the financial period 1,235 (5,003)
Loss from discontinued operations 345 5,281
Profit for the financial period from continuing operations 1,580 278
Non-operating income and expense 1 -
Investment income (333) (552)
Financing costs 181 675
Income tax expense 4 579 1,114
Operating profit 2,008 1,515
Adjustments for:
Share based payments 65 50
Depreciation and amortisation 5,230 5,550
Loss on disposal of property, plant and equipment and intangible assets 14 5
Share of results of equity accounted associates and joint ventures 58 (73)
Other income and expense 44 56
(Increase)/decrease in inventory (85) 9
Increase in trade and other receivables (858) (415)
Decrease in trade and other payables (871) (1,232)
Cash generated by operations 5,605 5,465
Net tax paid (400) (468)
Cash flow from discontinued operations 616 823
Net cash flow from operating activities 5,821 5,820
11 Related party transactions
The Group has a number of related parties including joint arrangements and associates, pension schemes, directors and
Executive Committee members. Related party transactions with the Group's joint arrangements and associates primarily
comprise fees for the use of products and services including network airtime and access charges, and cash pooling
arrangements. No related party transactions have been entered into during the period which might reasonably affect any
decisions made by the users of these unaudited condensed consolidated financial statements except as disclosed below.
Six months ended 30 September
Restated
2017 2016
Em Em
Sales of goods and services to associates 14 17
Purchase of goods and services from associates 1 54
Sales of goods and services to joint arrangements 10 2
Purchase of goods and services from joint arrangements 102 48
Net interest income receivable from joint arrangements 60 39
30 September 31 March
2017 2017
Em Em
Trade balances owed:
by associates 5 -
to associates 2 1
by joint arrangements 129 158
to joint arrangements 34 15
Other balances owed by joint arrangements 1,369 1,209
Other balances owed to joint arrangements 138 127
In the six months ended 30 September 2017 the Group made contributions to defined benefit pension schemes of E32 million
(six months ended 30 September 2016: E27 million).
In addition, E2.2 million of dividends were paid to Board members and executive committee members (six months ended 30
September 2016: E2.2 million). Dividends received from associates are disclosed in the consolidated statement of cash
flows.
12 Fair value of financial instruments
The table below sets out the valuation basis1 of the financial instruments held at fair value by the Group.
Level 12 Level 23 Total
30 30 30
September 31 March September 31 March September 31 March
2017 2017 2017 2017 2017 2017
Em Em Em Em Em Em
Financial assets:
Fair value through the income statement - - 4,536 4,323 4,536 4,323
Derivative financial instruments:
Interest rate swaps - - 2,380 2,460 2,380 2,460
Cross currency interest rate swaps - - 1,183 1,707 1,183 1,707
Options - - 134 12 134 12
Foreign exchange contracts - - 33 103 33 103
Interest rate futures - - - 3 - 3
- - 8,266 8,608 8,266 8,608
Financial investments available for sale:
Listed equity securities4 3 3 - - 3 3
Unlisted equity securities4 - - 74 82 74 82
3 3 74 82 77 85
3 3 8,340 8,690 8,343 8,693
Financial liabilities:
Derivative financial instruments:
Interest rate swaps - - 644 614 644 614
Cross currency interest rate swaps - - 1,576 1,324 1,576 1,324
Options - - 25 63 25 63
Foreign exchange contracts - - 67 76 67 76
- - 2,312 2,077 2,312 2,077
Notes:
1. There were no changes made during the year to valuation methods or the processes to determine classification and no
transfers were made between the levels in the fair value hierarchy.
2. Level 1 classification comprises financial instruments where fair value is determined by unadjusted quoted prices in
active markets for identical assets or liabilities.
3. Level 2 classification comprises items where fair value is determined from inputs other than quoted prices that are
observable for the asset or liability, either directly or indirectly. Derivative financial instrument fair values are
present values determined from future cash flows discounted at rates derived from market sourced data.
4. Listed and unlisted securities are classified as held for sale financial assets and fair values are derived from
observable quoted market prices or observable quoted market prices for similar items respectively.
The fair value and carrying value1 of the Group's financial assets and financial liabilities held at amortised cost are set
out in the table below:
Fair value Carrying value
30 September 31 March 30 September 31 March
2017 2017 2017 2017
Em Em Em Em
Cash and cash equivalents2 5,358 8,835 5,358 8,835
Cash and other investment held in restricted deposits 1,071 1,109 1,071 1,109
Other debt and bonds 4,415 4,062 4,415 4,062
10,844 14,006 10,844 14,006
Short-term borrowings:
Bonds (3,026) (2,908) (3,043) (2,904)
Commercial paper (3,859) (3,648) (3,859) (3,648)
Bank loans and other short-term borrowings3 (5,062) (5,532) (5,059) (5,499)
(11,947) (12,088) (11,961) (12,051)
Long-term borrowings:
Bonds (29,720) (30,635) (30,015) (31,477)
Bank loans and other long-term borrowings (2,232) (3,074) (2,206) (3,046)
(31,952) (33,709) (32,221) (34,523)
(33,055) (31,791) (33,338) (32,568)
Notes:
1. The Group's trade and other receivables and trade and other payables are not shown in the table above. The carrying
amounts of both categories approximate their fair values.
2. Cash and cash equivalents are held by the Group on a short term basis with all having a maturity of three months or
less. The carrying value approximates their fair value.
3. Includes a liability for payment to holders of equity shares in Kabel Deutschland AG under the terms of a domination and
profit and loss transfer agreement of E1.9 billion (March 2017: E1.8 billion). The carrying value approximates the fair
value.
13 Commitments, contingent liabilities and legal proceedings
There have been no material changes to the Group's commitments, contingent liabilities or legal proceedings during the
period, except as disclosed below.
Indian tax cases
In August 2007 and September 2007, Vodafone India Limited ('VIL') and Vodafone International Holdings BV ('VIHBV')
respectively received notices from the Indian tax authority alleging potential liability in connection with an alleged
failure by VIHBV to deduct withholding tax from consideration paid to the Hutchison Telecommunications International
Limited group ('HTIL') in respect of HTIL's gain on its disposal to VIHBV of its interests in a wholly-owned Cayman Island
incorporated subsidiary that indirectly holds interests in VIL. Following approximately five years of litigation in the
Indian courts in which VIHBV sought to set aside the tax demand issued by the Indian tax authority, in January 2012 the
Supreme Court of India handed down its judgement, holding that VIHBV's interpretation of the Income Tax Act 1961 was
correct, that the HTIL transaction in 2007 was not taxable in India, and that consequently, VIHBV had no obligation to
withhold tax from consideration paid to HTIL in respect of the transaction. The Supreme Court of India quashed the relevant
notices and demands issued to VIHBV in respect of withholding tax and interest.
On 28 May 2012 the Finance Act 2012 became law. The Finance Act 2012, which amended various provisions of the Income Tax
Act 1961 with retrospective effect, contained provisions intended to tax any gain on transfer of shares in a non-Indian
company, which derives substantial value from underlying Indian assets, such as VIHBV's transaction with HTIL in 2007.
Further, it seeks to subject a purchaser, such as VIHBV, to a retrospective obligation to withhold tax. VIHBV received a
letter on 3 January 2013 from the Indian tax authority reminding it of the tax demand raised prior to the Supreme Court of
India's judgement and purporting to update the interest element of that demand to a total amount of INR142 billion, which
amount includes principal and interest as calculated by the Indian tax authority but does not include penalties.
On 10 January 2014, VIHBV served an amended trigger notice on the Indian Government under the Netherlands-India Bilateral
Investment Treaty ('Dutch BIT'), supplementing a trigger notice filed on 17 April 2012, immediately prior to the Finance
Act 2012 becoming effective, to add claims relating to an attempt by the Indian Government to tax aspects of the
transaction with HTIL under transfer pricing rules. A trigger notice announces a party's intention to submit a claim to
arbitration and triggers a cooling off period during which both parties may seek to resolve the dispute amicably.
Notwithstanding their attempts, the parties were unable to amicably resolve the dispute within the cooling off period
stipulated in the Dutch BIT. On 17 April 2014, VIHBV served its notice of arbitration under the Dutch BIT, formally
commencing the Dutch BIT arbitration proceedings.
In June 2016, the tribunal was fully constituted with Sir Franklin Berman KCMG QC appointed as presiding arbitrator. The
Indian Government has raised objections to the application of the treaty to VIHBV's claims and to the jurisdiction of the
tribunal under the Dutch BIT. On 19 June 2017, the tribunal decided to try both these jurisdictional objections along with
the merits of VIHBV's claim in a trial now scheduled for February 2019.
Separately, on 15 June 2015, Vodafone Group Plc and Vodafone Consolidated Holdings Limited served a trigger notice on the
Indian Government under the United Kingdom-India Bilateral Investment Treaty ('UK BIT') in respect of retrospective tax
claims under the Income Tax Act 1961 (as amended by the Finance Act 2012). Although relating to the same underlying facts
as the claim under the Dutch BIT, the claim brought by Vodafone Group Plc and Vodafone Consolidated Holdings Limited is a
separate and distinct claim under a different treaty. On 24 January 2017, Vodafone Group Plc and Vodafone Consolidated
Holdings Limited served a Notice of Arbitration on the Indian Government formally commencing the arbitration. The Indian
Government has appointed a second arbitrator as required under the UK BIT under protest.
The Indian Government has indicated that it considers the arbitration under the UK BIT to be an abuse of process but this
is strongly denied by Vodafone. On 22 August 2017, the Indian Government obtained an injunction from the Delhi High Court
preventing Vodafone from progressing the UK BIT arbitration. Vodafone was not present when India obtained this injunction.
On 26 October 2017, the Delhi High Court varied its order to permit Vodafone to participate in the formation of the UK BIT
tribunal. A hearing is scheduled for 17 November 2017 in the Delhi High Court.
On 12 February 2016, VIHBV received a notice dated 4 February 2016 of an outstanding tax demand of INR221 billion (which
included interest accruing since the date of the original demand) along with a statement that enforcement action, including
against VIHBV's indirectly held assets in India would be taken if the demand was not satisfied. On 29 September 2017, VIHBV
received an electronically generated demand in respect of alleged principal, interest and penalties in the amount of
INR190.7 billion. This demand does not appear to have included any element for alleged accrued interest liability.
Separate proceedings in the Bombay High Court taken against VIHBV to seek to treat it as an agent of HTIL in respect of its
alleged tax on the same transaction, as well as penalties of up to 100% of the assessed withholding tax for the alleged
failure to have withheld such taxes, were listed for hearing at the request of the Indian Government on 21 April 2016
despite the issue having been ruled upon by the Supreme Court of India. The hearing has since been periodically listed and
then adjourned or not reached hearing. VIHBV and Vodafone Group Plc will continue to defend vigorously any allegation that
VIHBV or VIL is liable to pay tax in connection with the transaction with HTIL and will continue to exercise all rights to
seek redress including pursuant to the Dutch BIT and the UK BIT (subject to the Delhi High Court injunction). We have not
recorded a provision in respect of the retrospective provisions of the Income Tax Act 1961 (as amended by the Finance Act
2012) and any tax demands based upon such provisions.
Other Indian tax cases
VIL and Vodafone India Services Private Limited ('VISPL') (formerly 3GSPL) are involved in a number of tax cases with total
claims exceeding E2.4 billion plus interest, and penalties of up to 300% of the principal.
VISPL tax claims
VISPL has been assessed as owing tax of approximately E276 million (plus interest of E412 million) in respect of (i) a
transfer pricing margin charged for the international call centre of HTIL prior to the 2007 transaction with Vodafone for
HTIL assets in India; (ii) the sale of the international call centre by VISPL to HTIL; and (iii) the acquisition of and/or
the alleged transfer of options held by VISPL for VIL. The first two of the three heads of tax are subject to an indemnity
by HTIL. The larger part of the potential claim is not subject to any indemnity. VISPL unsuccessfully challenged the merits
of the tax demand in the statutory tax tribunal and the jurisdiction of the tax office to make the demand in the High
Court. The Tax Appeal Tribunal heard the appeal and ruled in the Tax Office's favour. VISPL lodged an appeal (and stay
application) in the Bombay High Court which was concluded in early May 2015. On 13 July 2015 the tax authorities issued a
revised tax assessment reducing the tax VISPL had previously been assessed as owing in respect of (i) and (ii) above. In
the meantime, (i) a stay of the tax demand on a deposit of £20 million and (ii) a corporate guarantee by VIHBV for the
balance of tax assessed remain in place. On 8 October 2015, the Bombay High Court ruled in favour of Vodafone in relation
to the options and the call centre sale. The Tax Office has appealed to the Supreme Court of India. A hearing has been
adjourned with no specified date.
Indian regulatory cases
Adjusted Gross Revenue ('AGR') dispute before the Supreme Court of India: VIL and others v Union of India
VIL has challenged the tribunal's judgement dated 23 April 2015 to the extent that it dealt with the calculation of AGR,
upon which licence fees and spectrum usage charges are based. The cumulative impact of the inclusion of these components is
approximately E1.2 billion. The DoT also moved cross appeals challenging the tribunal's judgement. In the hearing before
the Supreme Court of India, the Court orally directed the DoT (Department of Telecommunications) not to take any coercive
steps in the matter, which was adjourned. On 29 February 2016, the Supreme Court of India ordered that the DoT may continue
to raise demands for fees and charges, but may not enforce them until a final decision on the matter.
Other cases in the Group
Germany: Mannesmann and Kabel Deutschland takeover - class actions
The German courts are determining the adequacy of the mandatory cash offer made to minority shareholders in Vodafone's
takeover of Mannesmann. This matter has been ongoing since 2001. The German courts are also determining whether "squeeze
out" compensation is payable to affected Mannesmann shareholders in a similar proceeding. In September 2014, the German
courts awarded compensation to minority shareholders of Mannesmann in the amount of E229.58 per share, which would result
in a pay-out of E19 million (plus E13 million of accrued interest). The German courts also ruled that the "squeeze out"
compensation should amount to E251.31 per share, which would result in a pay-out of E43.8 million (plus interest of E23
million of accrued interest). Vodafone has appealed these decisions. Similar proceedings were initiated by 80 Kabel
Deutschland shareholders. These proceeding are in their early stages, and, accordingly, Vodafone believes that it is too
early to assess the likely quantum of any claim.
In a hearing on 6 October 2016, the Court examined the Kabel Deutschland business plan which formed the main basis for the
calculation of the offer per share. The next hearings are scheduled for 15 and 16 November 2017.
Spain: Patent litigation
Vodafone Group Plc has been sued in Spain by TOT Power Control ('TOT'), an affiliate of Top Optimized Technologies. The
claim makes a number of allegations including patent infringement, with TOT seeking over E500 million from Vodafone Group
Plc as well as an injunction against using the technology in question. Vodafone's initial challenge of the appropriateness
of Spain as a venue for this dispute was denied. Vodafone Group Plc appealed the denial and was partially successful. In a
decision dated 30 October 2017, the court ruled that while it did have jurisdiction to hear the infringement case relating
to the Spanish patent, it was not competent to hear TOT's contractual and competition law claims. This decision is subject
to appeal. TOT's application for an injunction was unsuccessful and TOT is appealing. A trial date has now been set to
commence on 10 September 2018.
Italy: British Telecom (Italy) v Vodafone Italy
The Italian Competition Authority concluded an investigation in 2007 when Vodafone Italy gave certain undertakings in
relation to allegations that it had abused its dominant position in the wholesale market for mobile termination. In 2010,
British Telecom (Italy) brought a civil damages claim against Vodafone Italy on the basis of the Competition Authority's
investigation and Vodafone Italy's undertakings. British Telecom (Italy) seeks damages in the amount of E280 million for
abuse of dominant position by Vodafone Italy in the wholesale fixed to mobile termination market for the period from 1999
to 2007. A court appointed expert delivered an opinion to the Court that the range of damages in the case should be in the
region of E10 million to E25 million which was reduced in a further supplementary report published in September 2014 to a
range of E8 million to E11 million. Judgement was handed down by the court in August 2015, awarding E12 million (including
interest) to British Telecom (Italy).
British Telecom (Italy) has appealed the amount of the damages to the Court of Appeal of Milan. In addition, British
Telecom (Italy) has asked again for a reference to the European Court of Justice for an interpretation of the European
community law on antitrust damages. Vodafone Italy also filed an appeal which was heard on 13 September 2017 and a decision
is awaited.
South Africa: GH Investments ('GHI') v Vodacom Congo
Vodacom Congo contracted with GHI to install ultra-low cost base stations on a revenue share basis. After rolling out three
sites, GHI stopped and sought to renegotiate the terms. Vodacom Congo refused. GHI accused it of bad faith and infringement
of intellectual property rights. In April 2015, GHI issued a formal notice for a claim of US$1.16 billion, although there
does not seem to be a proper basis nor any substantiation for the compensation claimed. The dispute was submitted to
mediation under the International Chamber of Commerce. A mediator was appointed in September 2015 who convened a first
meeting which took place in early November 2015. A follow-up mediation meeting was scheduled for December 2015 but was
postponed without a new date having been fixed. In July 2016, Vodacom filed a request for arbitration with the
International Chamber of Commerce's International Court of Arbitration. In their response GHI revised their claim down to
E237 million. Each party has appointed an arbitrator and the arbitrators have appointed a third arbitrator to act as
chairman of the tribunal. A trial is scheduled for March 2018. GHI has failed to pay its share of the arbitration fees and
has written to the ICC demanding that Vodacom Congo carry all the costs of the arbitration proceedings.
14 Other matters
Vodacom and Safaricom
On 15 May 2017, the Group announced that its wholly-owned subsidiary, Vodafone International Holdings B.V. ('VIHBV'), had
agreed to transfer part of its indirect shareholding in Safaricom Limited ('Safaricom') to Vodacom Group Limited
('Vodacom'), its sub-Saharan African subsidiary. On 18 July 2017, Vodacom shareholders voted in favour of the transaction.
The transaction completed on 7 August 2017, with the Group being issued with 233.5 million new shares in Vodacom,
increasing Vodafone Group's shareholding in Vodacom from 65.0% to 69.7%. Vodafone retains an indirect stake of 5% in
Safaricom.
On 5 September 2017, the Group announced that VIHBV intended
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