Vodafone
Annual Report 2016

Plain-text annual report

V o d a f o n e G r o u p P l c A n n u a l R e p o r t 2 0 1 6 Confi dence in the future Vodafone Group Plc Annual Report 2016 At Vodafone, we create connections. We’re helping people confidently connect to their families, friends, customers and content through any service, anywhere, at any time. And with our focus on being a high-quality provider we’re well-placed to continue this success. Find out how we’re… Overview Building a great platform for growth… Strategy Responding to a changing world… Strategy Managing our people and impact… Pages 02–09 Pages 10–17 Pages 18–29 Performance Performing across all our markets… Governance Creating and maintaining the right culture… Financials Delivering results for shareholders… Pages 30–37 Pages 38–74 Pages 75–162 Vodafone today We confidently connect more and more people each year. Today we have 462 million mobile customers, 13 million fixed broadband customers and 9.5 million TV customers. Why do they choose us? Because we are a leader in network quality, offer excellent customer experience and provide integrated, worry-free solutions. www.vodafone.com The production of this year’s report reflects our “Fit for Growth” programme – our commitment to driving cost efficiencies through the business without compromising our ability to deliver excellence. Whilst remaining focused on publishing high-quality communications and disclosures in our reporting, we have minimised the production costs of this document. More on Cost efficiency and “Fit for Growth”: Pages 14 and 15 Contents Welcome to our 2016 Annual Report The Overview, Strategy Review and Performance sections constitute the Strategic Report. These are based on an assessment of our performance using the key strategic areas as set out on page 10. Overview An introduction to the report covering who we are, the Chairman’s reflections on the year, notable events, and a snapshot of where and how we do business. 02 Performance highlights 03 Chairman’s statement 04 At a glance 06 Our business model 08 Market overview Strategy A summary of the changing landscape we operate in, and how that has shaped our strategy and financial position. Plus a review of performance against our goals and our approach to running a sustainable business. Performance Commentary on the Group’s operating performance. 30 Operating results 36 Financial position and resources 10 Chief Executive’s strategic review 14 Chief Financial Officer’s review 16 Key performance indicators 18 Our people 20 Sustainable business 22 Risk management Governance An explanation of how we are organised, what the Board has focused on and how it has performed, our diversity practices, how we communicate with our shareholders and how our Directors are rewarded. 38 Chairman’s introduction 39 Our governance framework 40 Board of Directors 42 Executive Committee 44 Board activities Financials The statutory financial statements of the Group and the Company and associated audit reports. 75 Contents 76 Directors’ statement of responsibility 78 79 87 Report of independent registered public accounting firm Audit report on the consolidated and parent company financial statements Consolidated financial statements and financial commentary 45 Board evaluation, induction and training 168 Company financial statements 46 Shareholder engagement 47 Board committees 54 Compliance with the 2014 UK Corporate Governance Code 56 Our US listing requirements 57 Directors’ remuneration 74 Directors’ report Additional Information Find out about our shares, information on our history and development, regulatory matters impacting our business and other statutory financial information. 175 Shareholder information 182 History and development 183 Regulation 190 Non-GAAP information 195 Form 20-F cross reference guide 198 Forward-looking statements 200 Definition of terms 202 Selected financial data Unless otherwise stated references to “year” or “2016” mean the financial year ended 31 March 2016, to “2015” or “previous year” mean the financial year ended 31 March 2015, and to the “fourth quarter” or “Q4” are to the quarter ended 31 March 2016. For other references please refer to page 35. All amounts marked with an “*” represent “organic growth”, which presents performance on a comparable basis, both in terms of merger and acquisition activity as well as in terms of movements in foreign exchange rates. See definition on page 191 for more information. Definitions of terms used throughout the report can be found on pages 200 and 201. The terms “Vodafone”, the “Group”, “we”, “our” and “us” refer to the Company and, as applicable, its subsidiaries and/or interests in joint ventures and associates. Website references are for information only and do not constitute part of this Annual Report. This report is dated 17 May 2016. 01 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Performance highlights Further improvement in our performance We have returned to organic growth in both revenue and EBITDA Revenue Reported revenue decreased by 3.0% over the year. On an organic basis, which adjusts for certain items*, revenue grew by 2.3% reflecting underlying improvement. £11.6bn EBITDA on a reported basis fell by 2.5%. On an organic basis it grew 2.7%. £1.4bn Operating profit declined due to reduction in EBITDA (2015: £2.0bn). £8.6bn Capital expenditure remained high due to our Project Spring investment (2015: £9.2bn). 11.45p Dividends per share up 2.0% over last year (2015: 11.22p). Our improved operational performance is encouraging steady customer growth Mobile customers 16 million customers joined our networks last year, mainly driven by growth in emerging markets. 47m 4G customers 26 million more customers used our superfast 4G during the year. 13.4m Fixed broadband customers rose by over one million, supported by the expansion of our broadband reach. 38m Internet of Things connections are up by 37% over the year, driven by our global scale and reach. 02 Vodafone Group Plc Annual Report 2016Chairman’s statement A year of solid progress This has been a year of continued strategy implementation and improved operational execution, with a return to growth enabling consistent attractive returns to shareholders. Our Project Spring investment programme is bearing fruit Good progress. Financial improvement is following The financial year 2016 has been a year of solid progress, both with respect to the further implementation of our strategy as well as regarding our focus on customer experience excellence and operational execution. Vodafone has been undergoing a substantial transformation over the last five years. While historically we developed as a business that was almost exclusively focused on mobile voice and text services, we now cover most of our markets with advanced mobile data networks, we reach 72 million homes in Europe with Vodafone-branded high speed broadband services, of which 41% are on our own fibre or cable networks, and we offer a broad portfolio of market-leading, integrated fixed and mobile communications services across a footprint of 26 countries. Vittorio covers this progress in more detail in his review on pages 10 to 13. Our progress has come about through significant organic investment and acquisitions. Our total spend in the last three years – across capital expenditure, spectrum licences and acquisitions – has exceeded £47 billion. We have funded this through the sale of valuable but non-controlled assets such as Verizon Wireless, while still maintaining a strong balance sheet and paying an attractive and growing dividend. This is one of the key roles of the Board: finding the right balance between long-term investment to secure the sustainability of the business; a strong credit position to weather uncertain economic times; and a regular and reliable return for shareholders. The crucial next step for Vodafone is to translate these investments into improving financial performance, and I am extremely pleased to report that Vodafone returned to organic growth this year in both revenue and EBITDA, aided by our Project Spring investment programme which completed in March 2016. Our performance will be further enhanced by our Customer eXperience eXcellence programme (CXX), which we launched last year and which, with Vittorio’s personal leadership, will continue to have the highest attention from the Board. These improvements are necessary to maintain our strong financial framework and underpin our dividend policy. Nick sets out in more detail our plans for continued growth, supported by increasing efficiency, on pages 14 and 15. The Board continues to view the dividend as the key element of shareholder returns and consistent with this policy we have raised the dividend per share by 2% to 11.45 pence for the year. For the financial year ending 31 March 2017 and beyond, dividends will be declared in euros and paid in euros, pounds sterling and US dollars. This is consistent with the change in the Group’s reporting currency to euros from pounds sterling. The regulatory agenda is still unresolved in key areas At Vodafone we are aiming for a regulatory environment that enables investment, innovation and returns for business, while always maintaining adequate levels of competition to provide customers choice and value for money. So far in several geographies we are still some way from such a position and this will remain a point of concern for the Board when making its investment decisions. In Europe, inconsistent industry regulations and spectrum policies, exacerbated by overly fragmented market structures, have led to a steep deterioration in return on capital employed over recent years. With the advent of new technologies designed to squeeze higher broadband speeds from outdated copper infrastructures, the risk of “re-monopolisation” is rising, at the expense of investment in 21st century fibre networks. Additionally, a number of incumbents are trying to use exclusive content ownership as a further lever to limit competition. Recent initiatives by the European Commission have started to address some of these issues, but we believe more needs to be done. In emerging markets, the positive economic impacts of mobile communications are well documented, but there too we face continued pressures from regulatory and fiscal intervention. For example, while India represents an excellent long-term investment opportunity, the present regulatory challenges are hampering economic development. Spectrum auction structures, combined with the piecemeal release of new spectrum, leave less capital available for investment in networks, and this is exacerbated by other ongoing regulatory and fiscal burdens. Vodafone Foundation This year we are celebrating 25 years of the Vodafone Foundation, the Group platform for charitable giving. In reality it is not one single Foundation, but a unique network of 27 local foundations and social investment programmes in Vodafone markets. We have raised and invested over £560 million since its formation in helping charities and philanthropic organisations to achieve their goals, more recently providing connectivity in refugee camps, access to healthcare for women in Tanzania, and emergency support for victims of domestic violence, among many other causes. The Foundation remains committed to connecting communities around the world to save lives and improve the livelihood and education of children. Gerard Kleisterlee Chairman 03 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016At a glance What we offer In recent years we have taken advantage of growth opportunities to move from being a pure mobile operator to delivering a broad mix of communication services including mobile, fixed broadband, video content, cloud & hosting and Internet of Things offerings. We believe the future is in converging these services to be a unified communications provider and we are well positioned to deliver on this trend. Fixed services increasingly important in line with trend to convergence… Enterprise continues to be a key growth driver of our business… 21% Fixed Split of service revenue 74% Mobile 5% Other (wholesale incl. MVNOs, IoT and partner markets) 66% Consumer Our services Mobile Fixed 462 million customers of which 43% are active data users. 13 million fixed broadband customers and 9.5 million are TV customers. We provide a range of mobile services, enabling customers to call, text and access the internet, stream music and watch videos whether at home or travelling abroad. We provide a range of services including voice, broadband and TV services to consumers and a wider range of services to our enterprise customers, including cloud & hosting and IP-VPN (Virtual Private Networks). Other services Includes Partner Markets and Common Functions (see page 5); Mobile Virtual Network Operators (‘MVNOs’) who are mobile providers that rent capacity from mobile operators to sell onto their customers; Internet of Things (‘IoT’) which is communication between devices via mobile technologies; international voice transit and roaming. 04 28% Enterprise Split of service revenue 6% Other (wholesale incl. MVNOs and partner markets) Converged services In many of our markets, there is a growing trend towards the convergence of fixed and mobile services (also known as unified communications). For customers and operators this provides many benefits including lower bills for users and higher customer loyalty towards operators. We believe this trend will continue to advance in Europe and start gaining traction in our AMAP region and that we are well positioned to take advantage and win market share. Today, we have nearly three million converged customers taking combined fixed and mobile services. More on our strategy: Pages 10 to 13 Vodafone Group Plc Annual Report 2016Where we operate Our business is organised into two geographic regions: Europe, and Africa, Middle East and Asia Pacific (‘AMAP’), which includes our emerging markets. Our reach and scale Germany 19% Vodacom 9% India 12% 32% AMAP UK 16% Split of service revenue Other AMAP 11% Italy 10% Other Europe 12% Spain 9% 2% Other (partner markets and common functions1) 66% Europe We provide mobile networks in 26 countries (including joint ventures and associates) and fixed services in 17 of these. There are 57 markets where we hold no equity interest but have partnership agreements with local mobile operators for them to use our products and services and in some cases our brand. of our service revenue comes from Europe of our service revenue comes from AMAP Core markets Germany5 UK5 Italy5 Spain5 Mobile customers 30.3m 18.2m 24.1m 14.3m Mobile market share2 33% 24% 32% Fixed market share2 20% 5% 6% 28% 22% Core markets India5 Vodacom3,5 Mobile customers 198.0m 70.4m Mobile market share2 22% 50%4 Also operating in: Albania Czech Republic5 Greece5 Hungary Ireland5 Malta5 Netherlands5 Portugal5 Romania5 Also operating in: Australia (joint venture) Egypt5 Ghana5 Kenya (associate) New Zealand5 Qatar5 Turkey5 Notes: 1 Common functions include revenue from services provided centrally or offered outside our operating company footprint, including some markets where we have a licensed network operation, for example offering IP-VPN services in Singapore. 2 Vodafone revenue share estimates at end December 2015. Customer share for Spain. 3 Democratic Republic of Congo (‘DRC’), Lesotho, Mozambique, South Africa and Tanzania. 4 South Africa. 5 Fixed broadband markets. 05 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Our business model Investing in a great platform for the future Our global scale and reach, leading network quality, and the breadth of services we offer helps differentiate us from our peers. Our business model is simple – maintain a virtuous circle of high investment, to maintain a superior network and customer experience, leading to strong cash generation so that we can reinvest and reward our shareholders. Superior network infrastructure Spectrum and Mobile Network Fixed network Information Technology (‘IT’) spent on spectrum in the last 3 years £7.7bn 300,000 base station sites 72m1 £15bn 25m 12 homes reached with high speed broadband My Vodafone app users (account self-service) spent acquiring fixed businesses in recent years countries have cloud & hosting capability We acquire spectrum and licences to use radio frequencies that deliver mobile services. We have steadily increased our spectrum holdings to boost network quality and our capacity to carry more data. We also have one of the world’s largest footprints of mobile base station sites, across 26 countries. More on spectrum holdings: Pages 187 Our fixed capabilities comprise cable, fibre and copper networks to enable TV, broadband and voice services. These depend on either building our own fixed line infrastructure, renting from incumbent operators or acquiring cable companies. which means… we can provide customers with wide coverage, both indoors and outdoors, a reliable connection, high- speed data transmission, and ample data capacity. which means… we can already reach around half of European households with high speed broadband over 30 Mbps. Our IT estate provides our data centres, customer relationship capability, customer billing services and online resources. Over the last three years we have invested £4.2 billion to upgrade our IT systems and to standardise and simplify our processes. This has enhanced customer services at all touchpoints – in-store, on the phone and online – and expanded the range of services we provide. which means… we can provide new offerings, such as single bills for converged fixed and mobile price plans, and cloud & hosting for business users for more flexible working. Note: 1 Europe. Investment and returns to shareholders £47bn re-investing in our business £19bn Project Spring £11bn returned to shareholders in the last 3 years We’ve invested £47 billion in capital expenditure, new acquisitions and spectrum and licences in the last three years. This has enhanced our networks, and competitive position and enabled us to generate substantial returns for shareholders. Project Spring was our two year £19 billion programme of accelerated investment in mobile and fixed networks, IT systems, products and services, and our retail platform. It aims to secure a premium position in most of our markets, and sustain strong cash flows and growing shareholder returns. We recognise that our shareholders regard the dividend as an important form of return on their investment. That is why we have consistently increased the dividend per share every year for the last 16 years and returned over £11 billion in normal cash dividends in the last three years. 06 Vodafone Group Plc Annual Report 2016Breadth of services A wide range of services to meet customers’ needs Convenient sales channels Simple customer service mobile money users 25m 9.5m 38m TV customers Internet of Things connections 16,000 4,900 24/7 41,0001 exclusive branded shops globally call centres in all European markets stores upgraded to new format in last 3 years retail customer service staff Although our roots are in mobile we now enable a much wider range of communication including TV, fixed broadband and landline calls. But we haven’t stopped there. We also provide enhanced services such as mobile money services, cloud & hosting and connected machines via our IoT services. More on our mobile money service, M-Pesa: Page 11 92% of our customers are individuals or families. We reach them through a variety of channels including branded stores, distribution partners, third-party retailers, and increasingly, online services. 8% of our customers are enterprises – from small shop owners to multinationals. We reach these customers via our direct sales teams, indirect partners, and telesales channels. which means… we unify communications, bringing together fixed and mobile services. which means… it is easy for our customers to get in touch wherever and however is convenient for them. We have a broad customer base comprising individuals, domestic businesses of all sizes, multinationals and public sector departments, with a wide range of communications needs. Our highly-trained and diverse workforce of employees from over 130 countries help provide these different services. More on People and Diversity: Page 18 which means… our customer satisfaction ranking, which we measure through our Net Promoter Score, makes us the leader in 13 out of 21 markets. Note: 1 Includes employees, contractors and third parties. Customer eXperience eXcellence We want to show customers we CARE We’re continually trying to improve our customer service, and we are pleased to be the leader or co-leader in mobile network quality tests and Net Promoter Scores in the majority of our markets. More on focusing on our customers: Page 10 While Project Spring has built better networks, we know that our customers also want great customer service, so we have launched a customer service excellence programme. The goal is simple: to substantially enhance the quality of service we provide and to be the Net Promoter Score leader in every single market in which we operate. Our programme has four simple pillars: Connectivity – that is reliable and secure “Network satisfaction guaranteed” Always in control “Control your costs with no surprises” Rewarding loyalty “Extra rewards and better service” Easy access “Always available, ask only once” 07 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Market overview Understanding our marketplace Our customers are demanding higher network speeds, reliable and secure data connections, and a better customer experience. Against this background, we can see great opportunities to create value, while managing risks. A fast-moving industry generating many new opportunities Global market potential mobile users expected by 2020 8.5bn US$1.1tn predicted mobile market in 2020 Growth in mobile data usage petabytes (calendar year) 2015 Actual 36,000 2016 Estimate 52,000 2017 Estimate 72,000 fixed connections by 2020 2.2bn US$690bn fixed service revenue by 2020 Growth in pay TV customers million (calendar year) 2015 Actual 2016 Estimate 2017 Estimate 875 910 939 What’s the scale and structure of our market? The communications market is growing as more communities around the globe gain access to new technology. The growth in the number of mobile users continues its momentum, now at 7.6 billion, up half a billion since last year, generating US$1 trillion in annual service revenue. Much of the momentum is coming from growth in emerging markets such as Africa and Asia due to the combination of large and relatively young populations, fast GDP growth, increased data usage and limited fixed line infrastructure. Global fixed market The global fixed market has two billion connections, generating US$678 billion in 2015, up 0.4% from 2014. This year revenue from fixed voice continued its decline as users switched to using fixed broadband and mobile. We are also seeing an increased take-up of pay TV, aligned to fixed broadband growth. These trends provide opportunities for differentiation, as not all operators are well- positioned to sustain the levels of investment needed for higher-speed networks, providing higher quality services for customers. Competition The industry is highly competitive with a large number of providers in both fixed line and mobile segments. There are 12 major telecom providers that are able to gain advantages by leveraging size and scale. In addition to competition between networks, over-the-top applications have enabled companies to offer data services via apps, increasing the number of competitors further. In this environment, Vodafone has differentiated its service through high-quality network performance, and also through converged offerings (mobile, fixed line, broadband, TV), allowing us to compete more effectively. Innovation As more communities connect there has been more investment in innovations such as mobile money transfer, video and entertainment, and the Internet of Things (formerly M2M). Operators are upgrading their mobile networks, providing 4G speeds of up to 450 Mbps. This is allowing customers to do more – moving from simply mobile- working with smartphones and tablets to now increasingly connecting cars, homes, and cities. We anticipate 5G will become commercially available around 2020, with speeds of up to 1 Gbps. This will reduce latency and allow faster connections and response times. As we look to the future the number of devices connected to the Internet of Things (via mobile and other technologies) is expected to grow significantly, which will massively expand the demand for data and allow customers to use these new services to increase their productivity. In the fixed broadband sector, operators are investing in more high-speed fibre broadband, which provides data speeds typically up to 1 Gbps, compared with up to 24 Mbps on copper-based ADSL broadband. Regulation Regulators and policy makers continue to have a significant impact on the structure and performance of the industry. Regulators continue to lower mobile termination rate (‘MTR’) fees, which are the fees mobile companies charge for calls received from other companies’ networks, and to limit the amount that operators can charge for mobile roaming services. These two areas represent 10% of Vodafone’s service revenue, down 11% from last year. More on Regulation: Page 183 08 Notes: 1 Compound annual growth rate. 2 Vodafone’s benchmark tests. 3 Vodafone, “The Connected Future for SMEs”. The industry data on these pages, unless stated, is from the following sources: GSMA, Analysys Mason, Ampere Analysis, Ovum and Strategy Analytics. Vodafone Group Plc Annual Report 2016Adapting and evolving our response We live in a fast-paced world where our customers’ needs are constantly evolving. In order to compete we are responding to key market trends, and building a stronger product offering for our customers. More on our strategy to respond to these trends: Pages 10 to 13 Focusing on services that will make a difference to our customers What’s the trend? How we are responding? Demand for continued network innovation 450 Mbps today’s peak performance for downloads, up from less than 1 Mbps in 2004 Network innovation continues to evolve rapidly as demand for data increases, offering significant improvements in performance, efficiency and customer experience. As we move towards a “gigabit society”, innovation will continue around mobile and fixed access solutions that enable even faster, more flexible and highly secure exchanges of data. Network With the completion of Project Spring we are ready to take on the significant data growth demanded by customers. We now have 73 million 3G customers in emerging markets and 47 million 4G customers in total using speeds of up to 450 Mbps. Our high-speed fibre broadband has speeds up to 1 Gbps. We are working with industry and universities on the next set of 5G standards, so we can continue to improve speed and user experience. Growing importance of data, emerging markets and other new revenue areas 40% CAGR1 mobile data usage growth by 2021 Demand for data is being driven by faster fixed and mobile networks with greater geographic reach and capacity, more advanced handsets with faster processing power and larger screens, increased use of applications such as social media, messaging, video streaming and general browsing. Data 50% of our European mobile data traffic is carried on 4G networks Vodafone was rated best or co-best for data services in 15 of 20 markets2. Our AMAP region now accounts for almost half of all data traffic carried in the 2016 financial year, compared to 30% three years ago. Growth in demand for converged services 56% of households in Spain use converged services Customers are increasingly choosing simplicity – either adding mobile to their fixed line services, or adding fixed line to their mobile service. They want one provider, with one customer service, and one simple interaction. Convergence We’re evolving to meet customer needs across all converged services, first adding fixed-line and then television service offerings for homes and businesses. Customers can access Vodafone services and content across multiple platforms, at their convenience. With the rapid growth of the Internet of Things (‘IoT’), we expect to see more demand for converged services across wearable devices, and in the transport, retail and healthcare sectors, amongst others. Improving business environment 80%3 of Europe’s SMEs say communication technologies are fundamental to how they operate today. Market competition remains intense for basic mobile and fixed communications. Regardless of size, enterprise customers are progressively adopting digital ways of working to improve their competitiveness and provide flexibility for their workforce. Enterprise Customers are increasingly looking for pre-integrated fixed, mobile and cloud services with simple, predictable and transparent pricing. We have invested in building these service offerings at scale helping us achieve a commercial advantage across our footprint. More on Enterprise: Page 13 09 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Chief Executive’s strategic review Responding to a changing world It has been a year of continued progress, with signs of recovery in Europe and continued growth in emerging markets. Our Project Spring investment programme is now complete. Executing our strategy to capture growth opportunities Review of the year We have made good progress on a number of fronts in the last year. We have significantly expanded our mobile and fixed data network coverage and quality, leading to strong growth in data usage; we have maintained encouraging commercial momentum, with consistent customer growth; and we have returned to organic growth in both revenue and EBITDA, thanks in part to strong cost efficiency. In emerging markets, we are achieving sustained growth supported by the strength of our brand, our networks and our distribution. In Europe, the majority of our markets have returned to growth, reflecting a more stable regulatory and macroeconomic environment and better competitive performance than in recent years. Our key strategic drivers – data, convergence and enterprise – are at the heart of this continued improvement. Project Spring, our two year £19 billion investment programme, which was designed to place Vodafone at the forefront of the growth in mobile data and the increasing trend towards the convergence of fixed and mobile services, came to its close in March 2016. Highlights include: a 4G population coverage of 87% in our European markets, up from just 32% in September 2013 a Extensive modernisation and capacity improvements, with 93% of our European network now ‘single RAN’ and 90% with high capacity backhaul a 3G population coverage of 95% in targeted urban areas in India, and 4G launched in the last few months a 91% of all customer data sessions in Europe now at speeds of 3 Mbps or better – the rate needed for high definition video streaming a Dropped call rates down by 40% since September 2013 – so customers on average now only lose one call in 217 a Fibre networks that provide high speed broadband to 72 million homes in Europe; including 30 million on our own infrastructure a Further expansion in enterprise products and services, with IP-VPN extended to 70 countries, IoT connectivity platform to 30 countries and cloud & hosting to 12 countries During the year we also significantly stepped up our focus on improving our customers’ experience of our network and customer service, in order to bring to life the clear customer benefits of our investments. As measured by Net Promoter Score, we ended the year as the leader in 13 out of 21 markets and improved in 15 of these markets: good progress, but still much to do to build clear differentiation. Vittorio Colao Chief Executive Our strategy We aim to be a converged communications leader, investing to provide our customers with differentiated network access and excellent customer service. Together with capturing the scale and efficiency benefits of our global presence, we aim to generate attractive returns, enabling us to sustain our investment levels, further increase our network differentiation and meet our customers’ high expectations. Data Convergence Enterprise 10 Vodafone Group Plc Annual Report 2016Data High speed, worry-free Context a As smartphone penetration increases, customers want faster and more reliable data services a Customers have multiple mobile devices and want a single, worry free bill a Customers who are on the move demand high-definition video capabilities and low latency speeds (fast reaction time) for a more enjoyable experience What we’re aiming for a We’re encouraging customers to use 4G to give them a better user experience. The number of 4G customers more than doubled to 47 million in the year a We are driving data usage by bundling content with 4G. Data usage grew 71% in the year, and video usage accounts for around one-third of data traffic a Increasing smartphone penetration also helps drive data usage. 58% of our customers have a smartphone in Europe, compared to 52% last year a We want our customers to use our services wherever they are. Our 4G roaming network reaches 93 countries Average smartphone usage in Europe MB/month 2014 2015 2016 473 755 1,120 197m of our customers use data, representing 43% of all customers, up from 40% last year We are witnessing various drivers of data growth across our markets: the increasing penetration of smartphones, both in Europe and emerging markets; high speed 3G and 4G networks, delivering consistent high-definition video to customers on the move; bigger screen sizes for a richer experience; the proliferation of “over-the-top” video services; and the rapid migration of social media from the desktop to mobile. Customers increasingly expect high speed data coverage as much as they expect reliable voice services. Our data strategy is simple: to build high quality mobile data networks, to encourage worry-free usage at fair prices, and to offer products and services tailored to specific needs and accessible to a wide range of users. Total data traffic across our network grew 71% in the year, mainly reflecting the increased take-up of 4G. Driven by Project Spring, we now offer 4G services in 21 of our markets, with India, Turkey and Albania added during the year. Our 4G customer base grew by 126% to 47 million, with average usage typically doubling when customers migrate from 3G to 4G. From a commercial perspective, we are focusing on offering customers worry-free data usage, with bigger data bundles and more inclusive roaming. We now have the most extensive 4G roaming network in the world, reaching over 90 countries. Despite this strong progress, only 27% of our European customers are using 4G, giving us significant opportunity for further growth. Our network investments are yielding very positive results in our major markets, with a number of independent tests demonstrating improvements in data coverage and performance, and placing us very clearly in the top tier of network operators. We ranked best overall in Italy and Spain, best network in London, and a strong number two network overall in Germany. In AMAP, progress has been equally strong. In South Africa, we have built 3G coverage to 99% and 4G coverage to 58% – significantly ahead of our competitors. We have developed pricing plans that make data affordable for customers across every demographic. This has been further boosted by the success of Vodafone-branded mobile phones and tablets. With these products, we are able to bring the same quality and functionality as well-known phone brands to the market at a much reduced price point, opening up mobile data services for low income customers for the first time. In India, we have experienced strong growth in data over the last few years since the launch of 3G in 2011. Through Project Spring, we have extended our 3G network by 40,000 base station sites to 55,000 since September 2013. We now have 27 million 3G customers out of a total base of 198 million mobile users. Enhancing customer services M-Pesa, our money transfer service, now has more than 25 million active customers, an increase of 27% in the year, boosted by market launches in Albania and Ghana and supported by a network of more than 261,000 agents in 11 countries. 11 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Chief Executive’s strategic review (continued) Convergence Connectivity and content, wherever you are Context a Customers are increasingly converging or unifying communications by sharing content between their fixed and mobile devices – phone, tablet, laptop or TV a Television and content, when bundled with broadband, are becoming increasingly important drivers of customer demand a The growing demand for converged services drives data usage, which in turn requires the combination of mobile and fibre infrastructure What we’re aiming for a We expect fixed revenue to continue to gain in importance to us, driven by convergence a We are aiming to increase our market share in fixed from a low level today a We seek to roll out more high-speed fibre or cable. We already reach 72 million households in Europe, up from 41 million last year a We’re aiming to expand our TV services, to support the take up of broadband. We already have TV services in seven markets Fixed broadband customers million 2014 2015 2016 9.2 12.0 13.4 21% of our service revenue comes from fixed services 12 In many of our markets, there is a growing trend towards the convergence of fixed and mobile services (also known as unified communications). This trend provides many benefits to both customers and operators. For customers, there is the convenience of a single bill, the likelihood of lower overall prices compared to buying services individually, and the potential of enhancements to the service: using your TV subscription on multiple mobile devices as well as your big screen at home, for example. For the provider, there is an important network benefit from the combination of mobile and fibre infrastructure, which is increasingly necessary as the volume of data continues to grow strongly. The bundling of services also increases customer loyalty and provides opportunities to sell additional services or sign-up more members of a household. We have transformed our presence in converged or unified communications in the last four years, particularly in Europe. With several significant acquisitions, capital investment in fibre networks and strong growth in customers, we are now a major player in high speed fixed broadband. With the ability to market fibre and cable broadband services to 72 million homes in Europe, 41% of these on our own next-generation networks, our reach is very broad. We achieved organic service revenue growth of 3.5% in fixed line during the year, and 26% of all our European service revenue now comes from the provision of fixed line and TV. Our broadband customer base grew 11% year-on-year to 13 million – with 48% of these customers taking high speed services on fibre or cable. The launch of broadband in the UK during 2015 means we now provide fixed services in most of our European countries, as well as significant growth markets such as Turkey and Egypt. In February 2016 we made another important strategic move with the announcement of our intention to form a 50:50 joint venture in the Netherlands, combining our strong mobile business with Ziggo, the cable operator owned by Liberty Global. This will create a business with 99% 4G coverage and over 90% cable footprint in one of our key European markets. This combination enables us to provide excellent converged services to customers, compete head-to-head with the incumbent operator, and realise synergies with a net present value of €3.5 billion. Television and content are becoming increasingly important parts of our offering, with customers often looking to buy as part of a bundle with broadband. In the year we launched TV services in Ireland and now offer TV in seven markets. We have 9.5 million TV customers, with 0.4 million added this year. Television and content are becoming increasingly important Our goal is to ensure access to premium content where our customers value it. In several markets, incumbents have sought to gain exclusive access to key content rights. In this scenario we will compete to secure access, which may increase our costs. We will also encourage regulators to prevent incumbents from using content – in addition to their dominance in fixed access markets – as a lever to reduce competition. Vodafone Group Plc Annual Report 2016 Enterprise Context a Businesses are increasingly searching for one communications provider to supply both fixed and mobile to their workforce a It is important for communication service providers to offer businesses reliable connectivity to employees, customers and suppliers What we’re aiming for a We want to maintain our strong mobile market share in enterprise, which has been earned from our trusted brand, global footprint and service quality a We aim to increase our market share in fixed enterprise services, by building on Project Spring investments a We intend to continue to invest in the growth areas of converged communications, cloud & hosting services, and the Internet of Things Enterprise communications is a substantial and growing market. In a digital world, it is vital for companies big and small to be always connected with each other, their customers and their suppliers. They want to do so in a seamless, cost-effective way, without managing multiple suppliers across many borders. They need to have a mobile and digital strategy: it is no longer simply about equipping a workforce with mobile phones. Our customers are assessing how new services such as the Internet of Things can enhance their customer proposition and simplify their businesses. Plain connectivity, whether mobile or fixed, is becoming more commoditised: enterprise communications providers increasingly need to be experts in a wider range of services to address these changing needs. Vodafone has positioned itself well in this changing marketplace. Enterprise has always been at the centre of our strategy, and we continue to enjoy strong market share in mobile enterprise across all our major markets. Enterprise customers value our trusted brand, network quality and wide geographic reach, and this has been a strong foundation on which to build our expansion into fixed-line and value-added data and managed services. With an estimated Enterprise market share in Europe of 33% in mobile and only 6% in non-mobile, the long- term growth opportunity is significant. Our Enterprise service revenue grew 2.1%* to reach £10 billion in the year, or 28% of total Group service revenue. All of our strategic growth areas performed well, supported by Project Spring investments. Enterprise fixed revenue grew 4.4%*, as customers increasingly look to procure fixed and mobile from a single provider. We have substantially expanded our international presence over the last two years: we now offer IP-VPN services (secure private data networks) in 70 countries, with 268 points of presence. In Cloud & Hosting, we now have capabilities in 12 countries. Both of these specialisms build on our acquisition of Cable & Wireless Worldwide in 2012. Vodafone Global Enterprise (‘VGE’), which serves our biggest multi-national customers, saw revenue growth of 5.9%* in the year driven by emerging markets. Our IoT unit achieved service revenue growth of 29%*, with a 37% rise in connections to 38 million. We are the acknowledged world leading mobile provider for IoT, in both scale and expertise, with a global SIM available in over 200 countries, and we are evolving our model from simple connectivity (for example, smart meters and vehicle tracking) to capture more of the value chain. The acquisition of Cobra in 2014, which now operates as Vodafone Automotive, has significantly extended the breadth and value of our services in the automotive sector, and we see similar opportunities in other industry sectors. Internet of Things connections million 2014 2015 2016 20.2 27.8 38.0 28% of our service revenue is from enterprise customers Project Spring has strengthened our Enterprise business Project Spring has helped scale our converged communications offer One Net, which is now available in 30 countries. It has also enabled us to increase our points of presence by 57% to 268 and double our IP-VPN geographic coverage to 70 countries. 13 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Chief Financial Officer’s review Meeting our objectives This has been a strong year of execution for the Group, meeting our strategic goals and delivering returns to shareholders. My priorities When I became CFO I highlighted three clear priorities which I believe will have a significant impact on our future financial performance: the execution of Project Spring according to the financial plan; the integration of acquisitions, most notably Kabel Deutschland (‘KDG’) and Ono; and a continued focus on cost efficiency. I believe that we have made good progress in all three areas and in the coming financial year it will be important to build on the improving execution seen during the 2016 financial year as we continue to monetise our Project Spring investments. Additionally, we intend to continue to pursue incremental operating efficiencies across all of our operating companies. During the year we initiated an ambitious cost efficiency project called “Fit for Growth” which we anticipate will deliver significant long-term benefits in terms of both cost savings and enhanced strategic flexibility. Executing these programmes with minimal disruption to customers is a priority. Our results are reviewed in more detail later in this report, but overall I am satisfied that we have made important progress in improving the financial performance of the business. More on our performance: Pages 30 to 37 Cost efficiency Project Spring execution Acquisition integration 14 Project Spring execution Our £19 billion, two-year programme of accelerated investment was designed to deliver tangible differences in the quality of our services compared to competitors. As Vittorio highlighted on page 10, the mobile build phase was completed and we now have a modernised network, delivering a much improved customer experience. In terms of progress against our operational plan we are ahead overall, achieving 108% of the build targets. In our AMAP region we delivered our mobile build targets three months ahead of plan. In Europe we are slightly behind. In particular our 4G build was impacted by rollout delays in the UK and Germany. I am pleased to say that all of our Project Spring customer experience targets have been met. In Europe, targets for both data sessions above three megabits per second (the threshold for high-definition quality video) and dropped call rates were achieved: above 90% and less than 0.5% respectively. In AMAP, our dropped call rate target has also been achieved at less than 0.9%. On the financial front, capital investment was broadly, as planned, £19 billion taking into account foreign exchange movements and timing differences. Consequently this has, as expected, depressed our cash flows over the last two years. Looking forward, we continue to expect that the level of capital spending will return to a more normalised level of capital intensity and we will generate the expected £1 billion of incremental cash flow by the 2019 financial year. KDG and Ono acquisition integration €600m Combined annual cost and capex synergies by 2018 (previously €540m) Net Present Value of synergies (was €5.0bn) €6.3bn 242,000 2.9m converged services customers (mostly KDG and Ono) Vodafone DSL customers migrated A key strategic focus for the Group is to gain competitive fixed networks to meet the growing demand for converged services. Part of the execution of this strategy is to acquire companies where we can see a clear return on that investment. KDG and Ono, two leading cable companies, were acquired in 2013 and 2014 respectively. In total we expected to generate combined annual cost and capex acquisition synergies of approximately €540 million by the 2018 financial year, mainly from migrating fixed and mobile customers onto our own infrastructure and combining backhaul and core networks and rationalisation of back office functions and procurement. I am pleased to say that progress on integration has been better than expected and we now aim to deliver annual synergies totalling €600 million. Vodafone Group Plc Annual Report 2016of the mobile build target met 108% 87% Europe 4G coverage, slightly behind >90% target £1bn incremental cash flow from Spring by 2019 In Spain the integration of Ono has proceeded successfully. We have so far connected over 800 mobile base station sites to Ono’s fibre to save on backhaul costs. In addition, the launch last May of Vodafone One, our fully converged cable, mobile and TV service, has attracted 1.5 million customers. Overall we have already secured 100% of the original €240 million of cost and capex synergies targeted. We now expect to deliver €300 million of annualised savings. We have also made solid progress in Germany, and we have already managed to secure 80% of the original €300 million synergy target. We have migrated 242,000 customers off our DSL platform (on which we pay high monthly fees) onto KDG’s cable infrastructure. In November, we launched Vodafone Red One, our converged offer, which now has 54,000 customers. Finally, we have identified further opportunities for savings in procurement and other efficiency measures and as a result we are now targeting synergies with a NPV of €3.5 billion, up from €3.0 billion previously. Cost efficiency We continued to make good progress on costs this year within the scope of our Fit for Growth programme. As a result we were able to reduce overall customer costs through commercial efficiencies and drive down the support cost base in Europe. This helped offset increased network costs driven by the Project Spring roll-out, and inflationary pressures in our high growth markets in AMAP. Our Group-wide initiatives are driving a meaningful improvement in our cost base. These include a focus on direct cost optimisation; commercial efficiencies; network & IT transformation opportunities; centralised procurement and shared services; zero-based budgeting; and cost & capex synergy savings at acquired companies, combined with comprehensive local market initiatives. We introduced a zero-based budgeting methodology for the first time this year of which there were three key components. The first was an absolute cost reduction across Group functions, which was fully implemented in March 2016, delivering an annual net saving of £100m. Secondly, for Group operational units such as data centres and Shared Services we established productivity targets to drive efficiencies further across the organisation. And thirdly, we set multi-year targets for each of our local markets to drive margin expansion. The revenue growth combined with our strict cost control and efficiency measures is enabling us to achieve greater operational leverage and begin to expand margins. £100m Fit for Growth net savings from zero based budgeting in Group functions 80% Procurement spend centralised by 2019 Performance against 2016 financial year guidance Based on guidance foreign exchange rates, EBITDA for the 2016 financial year was £11.9 billion, in line with the £11.5 billion to £12.0 billion range set in May 2015. On the same basis our free cash flow was £1.0 billion, consistent with our positive free cash flow guidance. Looking ahead The key goals for the year ahead are to build on the improving commercial execution evident last year, further enhance customer service, monetise the Project Spring investments, continue our focus on cost efficiency and grow the dividend to shareholders. With effect from 1 April 2016, our presentation currency will change from sterling to the euro to better align with the geographic split of the Group’s operations. We expect EBITDA to grow organically by 3–6%; this implies a range of €15.7 billion to €16.2 billion at guidance exchange rates. We expect free cash flow of at least €4 billion1. Total capital expenditure is now targeted to be in the mid-teens as a percentage of annual revenue; this is higher than the 13%–14% range that we previously anticipated, as we believe that there are attractive investment opportunities available to further accelerate our growth and improve our long-term strategic positioning. The Board intends to grow dividends per share annually. For the 2017 financial year and beyond, dividends will 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. Nick Read Chief Financial Officer Note: 1 Before the impact of M&A, spectrum purchases and restructuring costs. 15 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Key performance indicators Measuring our performance to keep us on track We track our performance against strategic, financial and operational metrics which allows the business and key stakeholders to assess our short term performance and enables us to see where we can do better. Changes to KPIs this year We have updated our Key Performance Indicators (‘KPI’s) this year to align better to our strategy and areas of investment. Enterprise is an engine of growth for the Group and contributes 28% of the Group’s revenues. We have included Enterprise in our KPIs as a reflection of its growing importance. With 4G and fixed broadband becoming more important in our emerging markets, we have adopted a Group metric for 4G customers and fixed broadband customers. Paying for performance The incentive plans used to reward the performance of our Directors and our senior managers, with some local variances, include measures linked to our KPIs. More on rewards for performance in the Remuneration Report: Pages 57 to 73 Strategic performance Europe 4G coverage 4G customers % Data million Data One of our main objectives of Project Spring was to roll out rapidly 4G across our European markets with a target to reach over 90% coverage by March 2016. We have now reached 87% coverage across our European markets, slightly behind our target of over 90%, which we expect to reach shortly. More work to do 2014 2015 2016 46 72 87 Europe average monthly smartphone data usage1 MB Data A key goal in Europe is to ensure customers are using more data which will support revenue growth in the years ahead. Average smartphone usage has almost tripled over the last two years, helped by the uptake of 4G and content packages. To ensure we get a return on our Project Spring 4G investment it is important that we migrate and attract new customers onto our 4G network. We more than doubled the number of our 4G customers in the year to 47 million and we expect this to continue to grow significantly. Achieved 2014 4.9 2015 2016 20.7 46.8 Europe NGN coverage (owned assets)2 million homes passed Convergence As customers move towards converged services we have been investing in either building fibre or acquiring cable networks so we can offer high-speed broadband to our consumer and enterprise customers. We can now reach 30 million homes across Europe with high-speed broadband (72 million when including our wholesale access deals). Achieved 2014 2015 2016 473 755 Achieved 2014 2015 2016 1,120 16 Fixed broadband customers million Convergence Fixed as a percentage of enterprise service revenue % 26 30 Enterprise As we expand our fixed broadband coverage we have successfully been able to increase our broadband base. Fixed services have become more important as businesses increasingly look to procure fixed and mobile from a single provider. We have added 1 million broadband customers across Europe and 266,000 customers across AMAP during the year, and expect to continue to grow our base this year and beyond. Enterprise fixed revenue grew 4.4% in the year and we expect that this will increase as we continue to invest in our global fixed line footprint. Achieved 2014 2015 2016 9.2 12.0 13.4 Achieved 2014 2015 2016 23 25 27 Notes: 1 Based on Android and iPhone devices. 2 Next Generation Network providing high-speed broadband over 30 Mbps. 3 Before the impact of M&A, spectrum purchases and restructuring costs. 16 Vodafone Group Plc Annual Report 2016 Financial performance Financial indicators This has been a strong year of execution for the Group, delivering a return to organic growth in both revenue and EBITDA for the first time since 2008. With the recovery of our European performance and the continued strong growth in AMAP, we met our financial guidance for both EBITDA and free cash flow and increased our dividend per share by 2.0% to 11.45 pence. More on Financial performance: Page 30 Operational performance Consumer mobile net promoter score out of 21 markets We use Net Promoter Scores (‘NPS’) to measure the extent to which our customers would recommend us to friends and family. This year we increased the number of markets where we are ranked number one, but have more work to do in the UK and Germany. Achieved 2014 2015 2016 9 11 13 Organic service revenue growth EBITDA Employee engagement % £ billion index Growth in revenue demonstrates our ability to increase our customer base and stabilise or raise ARPU. Our aim was to return to service revenue growth. We returned to service revenue growth supported by our Project Spring investment programme and achieved stabilisation in our European businesses. Growth in EBITDA supports our free cash flow which helps fund investment and shareholder returns. Our guidance was for EBITDA of £11.5 billion to £12 billion in the year. The employee engagement score measures a combination of the pride, loyalty and motivation of our workforce. Our goal here is to retain our top quartile position. EBITDA fell 2.5% to £11.6 billion (up 2.7% on an organic basis). On a guidance basis, EBITDA was £11.9 billion, in line with the guidance range. We increased our employee engagement score by two points this year, and we retained a top quartile position. Achieved 2014 2015 2016 +1.5 Achieved 11.1 11.9 11.6 2014 2015 2016 77 77 79 Dividend per share pence Cash generation is key to delivering strong shareholder returns. Our guidance was for positive free cash flow after all capital expenditure. The ordinary dividend remains the primary method of shareholder return. We intend to increase the dividend per share annually. Free cash flow fell slightly during the year due to elevated capital expenditures for Project Spring. On a guidance basis, free cash flow was £1.0 billion, consistent with the guidance range. We increased our dividend per share to 11.45 pence in the year. Our intention remains to grow the dividend per share annually. Achieved Percentage of women in senior management % Diversity increases the range of skills and styles in our business, and increased female representation across our senior management (top c.1,500 managers) is one measure of diversity. Our goal is to increase the proportion each year. We have made progress on this metric this year, with the proportion increasing slightly. More work to do Achieved 2014 –2.6 2015 2016 –1.6 Free cash flow3 £ billion Achieved 2014 2015 2016 1.1 1.0 4.4 2014 2015 2016 11.00 11.22 11.45 2014 2015 2016 24 23 24 17 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Our people The people behind our business Our people are behind every aspect of our strategy and execution, so it is important that we attract, develop and retain exceptional people who are empowered to use their best judgement in every situation. Building a high-performing culture This year we employed an average of 108,000 people from 138 countries as well as over 26,000 contractors. Our senior leadership team includes 21 nationalities, bringing together a diverse set of experiences and opinions to help us achieve our goals by better understanding the needs of our customers. Focusing on our customers Over the last year more than 14,000 retail store managers and sales advisers received training in the Vodafone Way of Retail programme. To date, more than 31,000 retail customer service employees and third-party staff have received training to enhance the services provided to our customers. We have standardised the recruitment process across all of our local markets to improve the quality of new recruits to our stores and have developed a new assessment approach for all customer facing employees. Our Group and local market senior leadership teams took part in the Customer Experience Leadership programme – a two-day workshop focused on listening to customers, external best practices, driving simplicity, and action planning. Increasing employee engagement We engage our employees on issues related to our strategy, our people agenda, our products and services and changes happening in the Company in a variety of ways, including executive video updates, events and forums, our intranet, emails, texts, as well as through individual team leaders. Every year all our employees are invited to participate in a global survey which allows us to measure engagement levels, identify ways to improve how we do things, and compare ourselves with 30 other large companies. This year our engagement index, which measures how committed our employees are, their desire to continue working for us and their willingness to recommend Vodafone as an employer, increased by two points to 79, which is three points higher than other comparable companies. Our employee net promoter score, which indicates employees’ commitment to promoting our products and services, rose eight points to 59 (17 points higher than other large companies). The increase showed the growing levels of employee confidence that Project Spring and our Customer eXperience eXcellence programme are delivering. Training and developing future leaders We empower our people to contribute to our business success by tailoring their training and development to their individual capabilities and ambitions. We provide a combination of formal training, on the job experiences, and regular feedback from managers. This year we trained around 50,000 people through our global academies which enable our employees to develop world class capabilities within their core discipline and support their career development. These academies have won several industry awards for innovation and quality. Our global employee survey showed that 80% of employees feel they can learn the skills and knowledge to do their jobs well. We conduct regular talent reviews to identify high-potential future leaders. Each year we provide 60 of those with the opportunity for an accelerated development through our “Inspire” programme. The programme offers development and executive coaching and may include an assignment to another Vodafone market or function. Making progress on Diversity and Inclusion We are committed to treating all employees fairly and offering equal opportunities in all aspects of employment and advancement. This year’s global employee survey showed that 89% of employees believe that Vodafone treats people fairly. Last year we launched a new global maternity policy, providing mandatory minimum maternity benefits, including 16 weeks of full pay followed by full pay for a 30-hour week for the first six months after employees return to work. This year, our CEO, Vittorio Colao, signed up to be a UN HeforShe Impact Champion, making significant commitments to gender equality for Vodafone. 37,000 colleagues, suppliers, and customers have already joined the campaign, which promotes gender equality – socially, economically and politically. In 2015 we developed a new unconscious bias training for all leadership teams to highlight the key decisions and everyday situations that may be affected by bias. In addition, employee networks in the areas of Lesbian, Gay, Bisexual and Transgender (‘LGBT’), disability and gender have expanded globally and these serve a critical purpose in supporting these communities. 18 Vodafone Group Plc Annual Report 2016Employees by location % Other 33% Spain 5% Italy 6% Vodacom 7% Germany 14% India 20% UK 15% Monthly average employees1 number 2014 2015 2016 Employee engagement 2014 2015 2016 Employee turnover rate 2014 2015 2016 Nationalities in top senior leadership roles 2014 2015 2016 Gender of employees Female 36% 92,812 101,443 107,667 15 index 77 77 79 % 18 19 21 24 24 % Male 64% Our “Discover” programme for graduates accelerates the careers of high performing graduates, with over 700 people recruited onto this programme during the year. After the programme, a number of “Discovers” join an international programme, “Columbus” with the purpose of building leadership skills through a challenging two-year assignment outside of their home market. Recognising performance We reward people based on their performance, potential and contribution to our success. This year, we simplified the process by directly empowering our line managers to make performance decisions without a higher level approval. We continue to benchmark roles regularly to ensure competitive, fair remuneration in every country in which we operate. We also offer competitive retirement and other benefit provisions which vary depending on conditions and practices in local markets. Global short-term incentive plans are offered to a large percentage of employees and global long-term incentive plans are offered to our senior managers. Our incentive arrangements are subject to company performance measures, comprising both financial and strategic metrics, and individual performance measures. During the year we introduced a Customer Appreciation metric into our Global short- term incentive plan. See page 57 for more on remuneration. Doing what’s right We recognise that ethical conduct is just as important as high performance, and failure to operate ethically will impact our business success. Our “Code of Conduct” sets out our business principles and what we expect from employees to ensure they protect themselves as well as the Company’s reputation and assets. This year we launched a mobile app and website so employees can access topics such as anti-bribery, conflict of interest, speak up, privacy, security and competition law via their phone when they are out of the office. Creating a safe place to work We want everyone working with Vodafone – employees and contractors – to return home safely every day. We start with the wellbeing of our employees: we launched our third annual Global Wellbeing Challenge on World Heart Day in October 2015. Around 5,000 employees took part in a wide range of exercise activities including cycling, dancing, running, swimming, and Zumba. Together, they covered a total of over 245,507 miles – equivalent to going around the world 10 times. For our safety campaign we focus on our top five risks: occupational road risk, working with electricity, working at height, control of contractors, and laying cables in the ground. Our efforts start at the top and our senior executives are personally involved, we train our people and suppliers, and we participate in best practice sharing with industry partners. Despite all our efforts, we deeply regret that 12 people2 lost their lives during the year. Traffic accidents involving contractors in India and Africa continue to be our main area of exposure. We have robust policies and processes to manage risks, and if incidents occur we work hard to identify and address the root causes. For more on Health & Safety read our sustainability report at www.vodafone.com/sustainability 1,700 women went on maternity leave this year and were eligible for our new global maternity policy Notes: 1 Employee numbers are shown on a full time employee basis. A statutory view is provided on page 140. 2 There were 12 fatalities, one was an employee, three were members of the public and eight were contractors. 19 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Sustainable business Sustainable business Mobile and digital technologies are a powerful social good, enhancing citizens’ understanding of, and ability to participate in, the world around them, and transforming the workplace, boosting productivity for businesses of all sizes in every industry. A new strategic approach Our businesses play an integral role in the daily lives of our more than 462 million mobile customers and are a vital part of the national infrastructure upon which the economies of our countries of operation depend. During 2016, we developed a new sustainable business strategy to ensure an even closer alignment between our core commercial goals and the maximum possible social and economic benefits achievable at scale as a consequence of those goals. Under that strategy, we have identified three areas where we believe our business activities can have the greatest positive societal impact: a Women’s empowerment, extending the benefits of mobile to more women in emerging markets while striving to become the world’s best employer for women by 2025 a Energy innovation, optimising energy efficiency in, and reducing greenhouse gas emissions from, our activities while helping our customers reduce their own emissions a Youth skills and jobs, using our technologies and expertise to help young adults enhance their skills and secure job opportunities in countries with high levels of youth unemployment In parallel, we will focus our ongoing corporate transparency programme on those aspects of our business that are the source of greatest public debate and concern, specifically: a Taxation and total economic contribution, building on our existing commitment to transparency in corporate taxation including country-by- country reporting a Supply chain integrity and safety, providing insights into our efforts to ensure responsible and ethical behaviour among our suppliers and sub-suppliers and to ensure safety in our operations a Mobile, masts and health, addressing public concern regarding electromagnetic frequency (‘EMF’) emissions from mobile phones and base stations a Digital rights and freedoms, building on our commitment to transparency in law enforcement assistance, censorship, privacy and data protection matters We are also committed to explaining how we put our principles into practice to ensure that our businesses operate responsibly. Further details of our approach are set out in the Group’s annual Sustainable Business Report, published on the same day as this Report. 20 Connecting women to healthcare In 2016, 164,000 women subscribed to Vodafone Turkey’s health and wellbeing SMS service which sends twice-weekly texts offering information and advice about prenatal, antenatal and infant care and women’s health. An interactive app with information about child development has also been downloaded 160,000 times. Energy innovation and greenhouse gas emissions There is clear evidence that global temperatures are rising quickly and a very strong consensus among scientists and policymakers that carbon dioxide emissions from hydrocarbon fuels such as coal, oil and gas – together with other greenhouse gases – are having a direct impact on the climate. The information, communications and technology (‘ICT’) industry requires significant amounts of electricity to connect billions of people, devices and machines and transmit vast amounts of data every second. Most power is supplied “on-grid” by national power generation companies whose predominant energy source is hydrocarbons, especially coal. Telecommunications operators also rely on hydrocarbons – in the form of diesel used in on-site generators – to power infrastructure “off-grid” in remote locations or areas of unreliable on-grid power. Vodafone is a signatory to the Paris Pledge for Action which recognises that climate change threatens future generations and calls for strong action to reduce emissions and achieve a safe and stable climate in which temperature rises are limited to well below 2ºC. Our networks account for most of the energy consumption in our businesses and are therefore the main source of our greenhouse gas emissions. As customer demand for data increases every year, our power requirements also grow; energy efficiency programmes (and, consequently, emissions reduction) are therefore an important priority. We collaborate closely with our major equipment suppliers to ensure that energy efficiency is integral to the design specification for new infrastructure. We have deployed highly efficient Single Radio Access Network (‘SRAN’) technologies (which allow 2G, 3G and 4G services to be run from a single piece of equipment) at more than 211,800 sites. We are also exploring a number of on-grid and off-grid renewable energy options. Vodafone Group Plc Annual Report 2016Greenhouse gas (‘GHG’) emissions million tonnes of CO2e 2014 0.34 2015 0.37 2016 0.41 2.04 2.38 2.10 2.47 2.16 2.57 Scope 1 emissions (over which we have direct control) Scope 2 emissions (from purchased electricity) Total of Scope 1 and Scope 2 Note: Calculated using local market actual or estimated data sourced from invoices, purchasing requisitions, direct data measurement and estimations. Carbon emissions calculated in line with GHG Protocol standards. The 2014 and 2015 values have been re-based in accordance with revised Scope 2 guidance. Scope 2 emissions are reported using the market-based methodology. For full methodology see our Sustainable Business Report 2016. Greenhouse gas emissions per petabyte of data carried by our mobile networks tonnes of CO2e 2014 2015 3,100 2016 1,900 8,200 Note: Figures include all data carried by our mobile networks with an adjustment to include only part of the data carried in India, where only base stations under Vodafone’s operational control are included in our greenhouse gas emissions totals. Ratio of GHG emission savings for customers to our own GHG footprint 2014 2015 2016 2018 Target 1.19 1.41 1.74 2.00 Note: 2014 figures have been extrapolated from actuals for 2013 and 2015. Emissions savings for customers have been calculated based on GeSI’s ICT Enablement Methodology. Our Sustainable Business Report 2016: www.vodafone.com/sustainability/ report2016 Our total greenhouse gas emissions in 2016 were 4% higher than in 2015 at 2.57 million tonnes of CO2e (carbon dioxide equivalent), as a consequence of a 71% increase in the volume of data carried across our mobile networks. However, our measure of greenhouse gas efficiency improved greatly: annual greenhouse gas emissions per petabyte of data carried by our mobile networks were 40% lower than in 2015, dropping to an average of 1,900 tonnes CO2e/ petabyte. Our technologies and services also provide our customers with the means to make a meaningful reduction in their own emissions, most notably through the deployment of Internet of Things (‘IoT’) applications – a field in which we are the world’s leading mobile provider. Using network intelligence to optimise energy use in a wide variety of machines, devices and processes could account for a 20% reduction in projected global CO2e emissions by 2030 – enabling emissions to remain at 2015 levels1. In 2015, we announced a new goal under which we would seek to help our customers reduce their CO2e emissions by two tonnes for every one tonne of emissions from our own operations. We aim to achieve that goal by the end of March 2018. As of the end of March 2016, we were well on track to do so, helping our customers to save 1.74 tonnes of CO2e for every tonne of CO2e generated through our activities. We estimate that more than 30% of the 38 million IoT connections operated by Vodafone directly enable our customers to reduce their emissions. The total emissions avoided as a consequence of our IoT technologies and services in 2016 increased by 29%, over the same period in 2015, to reach 4.5 million tonnes CO2e. We provide further details of our approach to energy innovation in our annual Sustainable Business Report. Human Rights Communications technologies play an important role in underpinning human rights, enabling citizens to share information and exercise freedom of expression. However, many governments are concerned that these technologies are also empowering people intent on harm, such as criminals and terrorists; conversely, civil society groups are concerned that state actions to address the malign use of communications technologies have the effect of eroding the individual’s right to privacy. Human rights that extend in to the digital realm are important priorities for Vodafone – as can be seen in our Law Enforcement Disclosure Report. However, we are also fully mindful of other human rights risks in our operations – as our Code of Conduct makes clear – which are the focus of senior management scrutiny across all of our businesses. These include labour rights (particularly with regard to our supply chain) and economic, social and cultural rights. Details of our principles, rules and compliance programmes in response to those risks are set out in our annual Sustainable Business Report including a statement – as stipulated under the UK Modern Slavery Act (2015) – summarising our actions to address the risk of modern slavery within our own operations and those of our suppliers and sub-suppliers. The Report also provides details of our ongoing work with our suppliers and other industry stakeholders to improve ethical, labour and environmental standards across our supply chain. Note: 1 Smarter Report 2030, Global e-Sustainability Initiative (GeSI) June 2015. 21 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Risk management Identifying and managing our risks We have a clear framework for identifying and managing risk, both at an operational and strategic level. Our risk identification and mitigation processes have been designed to be responsive to the ever-changing environments in which we operate. Our risk management framework Vodafone needs to take risks and assume exposures to achieve its strategy. Risk, within agreed and defined parameters, is essential to the success of Vodafone. Equally, failure to suitably manage risk may have an adverse impact upon Vodafone’s strategic goals and objectives. Vodafone has recently introduced an enhanced global framework designed to identify risks; set risk appetite: put in place appropriate measures to ensure risks are properly managed and monitored; and facilitate informed decision making. The framework, as set out in the diagram, ensures we have one, company-wide approach to risk management, with local oversight and approvals. Identify Measure Manage Monitor Report a Risks identified in each Vodafone local market and entity a Strategic risk reviews with Senior Leadership a Group principal risks reviewed and agreed with the Board a Risk appetites set by the Board for all principal risks and cascaded down a Standardised scoring and categorisation allows consolidation and escalation across Group a Controls and mitigating actions identified and measured a Risk action plans created to control risks outside of appetite a Integrated assurance mapping identifies all levels of control and oversight in place a Effectiveness of control and oversight is tested across the “three lines of defence”1 a Inform the Board and Executive Committee on how effectively risks are being managed versus appetite a Group-wide, consolidated views shared with risk managers Strengthening our approach to risk management To support the implementation of this framework, the following actions have been put in place during the 2016 financial year. a Created a Group Risk function reporting to the Group Risk & Compliance Director a Brought together a global risk community from local markets and specialist risk areas to support the delivery of the framework and share best practices a Completed an Integrated assurance mapping project to identify and enable oversight into the mitigations and level of assurance in place for the key risks in all local markets and entities a Assigned Executive Committee owners and Senior Leadership champions for each principal risk Further enhancements are planned during the 2017 financial year, including the implementation of a Risk & Integrated Assurance platform that can bring the framework to life and support the ongoing development of integrated assurance across the “three lines of defence”1. Note: 1 A term used to describe the systematic approach to how we manage risk and provide assurance to the Board that risks are managed effectively. The first line of defence typically sits in the business operations (e.g. Technology), the second line of defence has oversight over the first line of defence (e.g. Compliance or Risk Management), and the third line of defence are the independent assurance providers (e.g. Internal Audit). 22 Vodafone Group Plc Annual Report 2016Oversight of risks The Board has overall responsibility for the Group’s risk management and internal controls system. The Audit and Risk Committee, under delegation from the Board, monitors the nature and extent of risk exposure against risk appetite for our principal risks. Details of the activities of the Audit and Risk Committee are set out on pages 47 to 52 of this report. At an operational level, risks are reviewed and managed by the Executive Committee and through its delegated sub-committee, the Risk and Compliance Committee. Details of the activities of the Risk and Compliance Committee are set out on page 39 of this report. As part of the Board review of all risks, an exercise is completed to assess the long-term viability of the company, which includes stress-testing our principal risks. The output from this is contained in the Long-Term Viability Statement on page 29. Our principal risks The risk management framework covers all risks to our business but includes a process to identify the principal risks to our strategic objectives through the integration of bottom-up and top-down exercises. The bottom-up exercise identifies and consolidates all of the priority risks raised by local markets and entities. The top-down exercise involves interviews with around 30 senior executives. The aggregated results from these exercises are used to form the principal risks which are approved by the Executive Committee, prior to submission to the Audit and Risk Committee and the Board. Each principal risk is assigned to a senior executive who is responsible for managing the risk and reporting on progress to the Executive Committee. Vodafone’s principal risks are similar to those reported last year, although with some changes to the driving force behind the risks, and one new risk regarding legal and regulatory requirements. Any changes from last year’s principal risks are highlighted in the tables below. Cyber threat Movement from 2015: Stable What is the risk? A successful cyber-attack or internal event could result in us not being able to deliver service to our customers and/or failing to protect their data. This could include a terrorist attack, state sponsored hacking, hacktivists or threats from individuals. How could it impact us? This risk could have major customer, financial, reputational and regulatory impact in all markets in which we operate. As some systems operate at Group level and support more than one market, we could be affected in multiple markets at one time and for both consumer and enterprise customers, magnifying the impact. Changes from 2015 This risk combines two risks from our previous annual report; malicious attack causing service disruption; and customer data breach. We have merged these to reflect that a single cyber-attack could result in both outcomes. How do we manage it? a We have a global security strategy that is risk-based and approved by Executive Committee a We have a global security function that sets policies and processes. Security controls are implemented centrally and in local markets, and we have a continuous improvement programme to mitigate the changing threats we face a We manage the risk of malicious attacks on our infrastructure using our global security operations centre that provides 24/7 proactive monitoring of our global infrastructure, responds to incidents and manages recovery from those incidents a Applications or infrastructure that store or transmit confidential personal and business voice and data traffic have layers of security control applied a We have an assurance programme that incorporates both internal reviews and reviews of third parties that hold data on our behalf. Vodafone holds internationally recognised certifications for its information security processes a We regularly provide mandatory security and privacy awareness training to Vodafone employees 23 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Risk management (continued) Failure to deliver on convergence Movement from 2015: Increased What is the risk? We face competition from providers who have the ability to sell converged services (combinations of fixed line, broadband, TV content and mobile) on their existing infrastructure. If we fail to deliver converged services in key markets, due to inability to access infrastructure or content at a reasonable price, this could potentially lead to higher customer churn and/or significant downward pressure on our prices. How could it impact us? Our own convergence strategy may be compromised if we are unable to obtain regulated or equivalent access to infrastructure and content, or acquire, rent or build the right assets, or if we are unable to effectively integrate those businesses we do acquire into our existing operations. Changes from 2015 The risk has slightly increased as regulation is failing to deliver a level playing field across fixed and content markets leading to potential re-monopolisation by incumbent operators. How do we manage it? a We actively look for opportunities, in all markets, to provide services beyond mobile through organic investment, acquisition, partnerships, or joint ventures. In key European and some non-European markets we are already providing converged services a Timely and coordinated intervention with regulatory and competition authorities to ensure that dominant infrastructure access and content providers cannot discriminate or restrict competition a Integration plans ensure that cost synergies and revenue benefits are delivered and acquired businesses are successfully integrated through the alignment of policies, processes and systems Adverse political measures Movement from 2015: Stable What is the risk? Vodafone operates under licence in most markets. Increased financial pressures on governments may lead them to target foreign investors for further licence fees or to charge unreasonably high prices to obtain or renew spectrum. Similarly we could be exposed to additional liabilities if we faced a new challenge from tax or competition authorities or if local or international tax laws were to change, for example as a result of the OECD’s recommendations on base erosion and profit shifting or the proposed EU tax and financial reporting Directives. How could it impact us? If we are not licensed to operate, we cannot serve our customers. If the cost of operations were to significantly increase, directly or indirectly, this would impact Vodafone’s profitability and returns to shareholders. Additionally, disputes in regards to the level of tax payable and any related penalties could be significant, as reflected in our ongoing dispute in India. Changes from 2015 There have been no significant changes over the last 12 months. How do we manage it? a We work with governments and regulators, nationally and internationally, to help shape any proposals that impact our business a We maintain constructive but robust engagement with the tax authorities, relevant government representatives and non-governmental organisations as well as active engagement with a wide range of international companies and business organisations with similar issues a Where appropriate, we engage advisers and legal counsel to obtain opinions on tax legislation and principles 24 Vodafone Group Plc Annual Report 2016EMF related health risks Movement from 2015: Stable What is the risk? Concerns have been expressed that electromagnetic signals emitted by mobile telephone handsets and base stations may pose health risks. Authorities, including the World Health Organization (‘WHO’) agree there is no evidence that convinces experts that exposure to radio frequency fields from mobile devices and base stations operated within guideline limits has any adverse health effects. A change to this view could result in a range of impacts from a change to national legislation, to a major reduction in mobile phone usage or to major litigation. How could it impact us? This is an unlikely risk; however, it would have a major impact on services used by our customers in all our markets – particularly in countries that have a very low tolerance for environmental and health-related risks. Changes from 2015 There have been no significant changes to this risk over the last 12 months. How do we manage it? a We have a global health and safety policy that includes standards for electromagnetic fields (‘EMF’) that are mandated in all our local markets. Compliance to this policy is monitored and overseen by the Risk and Compliance Committee a We have a Group EMF Board that manages potential risks through cross sector initiatives and which oversees a coordinated global programme to respond to public concern, and develop appropriate advocacy related to possible precautionary legislation a We monitor scientific developments and engage with relevant bodies to support the delivery and transparent communication of the scientific research agenda set by the WHO Major enterprise contracts Movement from 2015: Stable What is the risk? We have a number of high-value, ongoing contracts with corporate customers, including some government agencies and departments. Successful and profitable delivery of our major enterprise contracts is dependent on complex technologies deployed across multiple geographies, as well as relative stability in the requirements, strategies and businesses of our customers. How could it impact us? Failure to deliver these enterprise services may lead to a reduction in our expected revenue and could impact our credibility to deliver on large, complex deals. Delivery challenges for any national critical service would have a particularly adverse impact on our reputation. Changes from 2015 We are facing new competitors for our Enterprise customers, specifically from major technology companies. Despite this, and the new business brought in over the last 12 months, the risk remains stable. How do we manage it? a Our Group Enterprise customer operations are now consolidated within one function, aligned to industry best practice which will deliver a standard service model to our customers a We have implemented a single process across Group Enterprise that ensures alignment, visibility and control across the entire customer experience, from sales governance and commercial risk through to service delivery, billing and in-life operations. This is supported by global standardised “ways of working” frameworks a We have an investment plan in implementation to digitise service operations, with investment having started in the 2016 financial year and to conclude in the 2018 financial year. This plan is aimed at lifting our Enterprise customer experience into a market leadership position 25 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Risk management (continued) Unstable economic conditions Movement from 2015: Stable What is the risk? As a multinational business, we operate in many countries and currencies, so changes to global economic conditions can impact us. This could be because another global crisis would result in reduced spending power for customers or because a relative strengthening or weakening of the major currencies in which we transact could impact our profitability. As a UK business, the UK leaving the European Union may impact us, and it could lead to wider concerns about the stability of the Eurozone. How could it impact us? The potential for another global financial crisis may lead to further economic instability and subsequent reductions in corporate and consumer confidence and spending. It could also have a prolonged impact on capital markets that may restrict our financing. Changes from 2015 Eurozone stability has improved but low commodity prices, in part a consequence of reduced forecast growth in China, means the threat of another global financial crisis remains a significant risk factor, given the inability of central banks to reduce interest rates much further. How do we manage it? a We monitor closely economic and currency situations in both our AMAP and European markets a We include contingencies in our business plans to cater for negative operational impacts that could arise from a variety of causes including the impact of lower economic growth than is generally expected a We have credit facilities with 30 relationship banks that are committed for a minimum of five years and which total £5.8 billion. Such facilities could be used in the event of a prolonged disruption to the capital market a Our exposure to any depreciation of sterling, for example from the UK leaving the EU, is limited by the fact that the vast majority of our income is denominated in other currencies Market disruption Movement from 2015: Stable What is the risk? We face increased competition from a variety of new technology providers, new market entrants and competitor consolidation. How could it impact us? There are two ways in which this risk could occur. First, advances in offerings of over the top (‘OTT’) services could reduce demand for our traditional voice and text services and impact revenue. Secondly, new entrants investing heavily or the consolidation of competitors could result in price wars in key markets. The threat from OTT competition is relevant for all markets where alternative services are commonly available and has the potential for major impact on service revenues. The risk of competitor disruption is higher in new and emerging markets. Changes from 2015 This risk previously included supplier concentration. Improvements in how we manage key supplier groups and ensuring competitive tendering have reduced this risk. How do we manage it? a We have developed strategies which strengthen our relationships with customers through integrated voice, messaging and data price plans to avoid customers reducing their out of bundle usage through internet/Wi-Fi based substitution. The loss of voice and messaging revenue is partially offset by the increase in data revenue a We monitor the competitor landscape in all markets, and react appropriately, working to make sure each market has a fair and competitive environment 26 Vodafone Group Plc Annual Report 2016Network/IT infrastructure failure Movement from 2015: Increased What is the risk? If our network or IT systems fail, voice, video or data transmissions may be significantly interrupted. We need to ensure that our critical assets are protected and our systems are resilient, so that impact on our customers is minimised, particularly during our major IT transformation projects. How could it impact us? For the majority of network and IT infrastructure failures, the associated impacts would be confined to a single market. There are, however, some exceptions where data centres and critical network sites serve multiple markets. There are a number of causes for failure such as major incidents caused by suppliers, natural disasters, deliberate attacks or a failure as a result of an internal project or transformation. Failure to successfully implement key IT transformation projects would also increase the risk of IT systems being unable to support our strategic objectives. Changes from 2015 During 2016 a number of major projects to improve key IT systems are taking place in some of our markets, which increases this risk, during the project implementation phase. How do we manage it? a Specific back-up and resilience policy requirements are built into our network and IT infrastructure a We monitor our ability to replace strategic equipment promptly in the event of end-of-life failure, and for high risk components we maintain dedicated back-up equipment ready for use a A blueprinted approach to geographic resilience, where the secondary IT location is expected to be in a different country, has been developed with external market specialists. This will be used for business applications which require this degree of location resilience a Network and IT contingency plans are in place to cover the residual risks that cannot be mitigated a A crisis management team and escalation processes are in place both nationally and internationally. Crisis simulations are conducted annually Non-compliance with laws and regulation Movement from 2015: New What is the risk? Vodafone must comply with a multitude of local and international laws as well as regulations. These encompass but are not limited to, licence requirements, customer registration, data privacy, anti-money laundering, competition law, anti-bribery and economic sanctions. Non-compliance with these requirements exposes Vodafone to financial and reputational risk. How could it impact us? Non-compliance with legislation or regulatory requirements could lead to reputational damage, financial penalties and/or suspension of our licence to operate. Changes from 2015 Now included in our principal risks due to changes in laws and their enforcement. How do we manage it? a We have subject matter experts in legal and regulatory teams at a local and global level who manage risk across the Group a Our Compliance team monitors all high risk policies and tracks remedial actions for non-compliance or partial compliance a We train our employees in “Doing what’s right”, our training and awareness programme which defines and reinforces our ethical culture across the organisation 27 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Risk management (continued) Customer Experience Movement from 2015: Reduced What is the risk? If we fail to deliver a differentiated and superior experience to our customers in store, online and on the phone, this could diminish our brand and reputation, weakening our relationship with customers and reducing their loyalty to Vodafone. How could it impact us? This risk is relevant to all our markets in both our consumer and enterprise businesses. Differentiation based on a superior customer experience involves a number of areas, including those that directly deal with customers and others that look after our network and IT systems. Changes from 2015 We have now completed one year of our Customer eXperience eXcellence programme. In the 2016 financial year we achieved improvements in our consumer Net Promoter Score (‘NPS’) position in 15 out of 20 of our Local Markets. Vodafone is now ranked number one in 13 out of 21 markets. Nine out of 13 of these markets increased their gap over the closest competitor, supporting our ambition to become a clear customer experience leader. Most of the remaining markets significantly decreased the gap between Vodafone and the leader. This marks Vodafone’s best annual improvement on overall NPS to date. How do we manage it? a Customer experience has been prioritised as a key component of our strategy. Our customer experience programme has been implemented across the business to deliver a range of system capability improvements to support an enhanced customer experience a We track and monitor our performance in delivering a superior customer experience through a range of KPIs; the most critical being our NPS and Brand Consideration metrics a We communicate with our customers clearly and transparently particularly around tariffs and roaming costs a We provide a leading customer experience through our My Vodafone app and online channels 28 Vodafone Group Plc Annual Report 2016Long-Term Viability Statement In accordance with the revised UK Corporate Governance Code, the Directors have assessed the prospects of the Group over a period significantly longer than 12 months from the approval of the financial statements. The Board has concluded that the most relevant time period for this assessment should be three years to align with the Group’s normal business forecasting cycle and to reflect the pace of ongoing change in the telecoms industry. The plans and projections prepared as part of this forecasting cycle include the Group’s cash flows, committed and required funding and other key financial ratios. They were drawn up on the basis that debt refinance will be available in all plausible market conditions and that there will be no material changes to the business structure over the review period. As of 31 March 2016, the Group had sources of liquidity (primarily comprised of certain cash and cash equivalent balances) and available facilities, of £17.7 billion, which includes undrawn Revolving Credit Facilities expiring in 2020. The Risk Management Framework on page 22 outlines the approach the Board has taken to identifying and managing risk. In making this statement, the Board carried out an assessment of the principal risks facing the Group, detailed on pages 23 to 28, including those that would threaten its business model, future performance, solvency or liquidity. Against this background, the output of the long-range plan has been used to perform central debt profile and cash headroom analysis, including a review of sensitivity to “business as usual” risks to revenue and profit growth. In addition, severe but plausible scenarios in the event of each of the principal risks materialising individually and where multiple risks occur in parallel, were also tested. This combined scenario included the impact of a global economic downturn, with a major impact on consumer and enterprise sentiment causing material impact on financial performance, and a significant reduction in the Group’s refinancing capability. This was considered together with a cyber-attack resulting in a major customer data breach in multiple markets leading to a broader reputational risk. To assess viability, the headroom position under these scenarios has been calculated using the cash and facilities available to the Group. The assessment took into account the availability and likely effectiveness of the mitigating actions that could be taken to reduce the impact of the identified underlying risks. The headroom remained positive in all scenarios tested. Having considered the principal risks that the Group may face, the Directors consider that this stress-testing based assessment of the Group’s prospects is reasonable in the circumstances, taking into account the inherent uncertainty involved. Although this review has considered severe but plausible scenarios relevant to the Group, any such review cannot consider all risks which may occur, therefore an overall view of the total level of risk required to impede our viability was also considered. The cash and available facilities at year end, along with the mitigating actions available to reduce cash outgoings, provides a sufficient level of headroom. Based on the results of their analysis, the Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period ending 31 March 2019. 29 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Operating results Our financial performance This section presents our operating performance, providing commentary on how the revenue and the EBITDA performance of the Group and its operating segments have developed over the last year. Group1 Revenue Service revenue Other revenue EBITDA Adjusted operating profit Adjustments for: Europe £m 26,718 24,461 2,257 7,686 1,409 AMAP £m 13,208 11,843 1,365 4,042 1,813 Other2 £m 1,160 968 192 (116) (105) Eliminations £m (113) (113) – – – Impairment loss Restructuring costs Amortisation of acquired customer bases and brand intangible assets Other income and expense Operating profit Non-operating income and expense Net financing costs Income tax (expense)/credit (Loss)/profit for the financial year from continuing operations Profit for the financial year from discontinued operations (Loss)/profit for the financial year 2016 £m 40,973 37,159 3,814 11,612 3,117 (450) (236) (979) (75) 1,377 (2) (1,824) (3,369) (3,818) – (3,818) 2015 £m 42,227 38,497 3,730 11,915 3,507 – (157) (1,269) (114) 1,967 (19) (853) 4,765 5,860 57 5,917 £ (3.0) (3.5) (2.5) (11.1) % change Organic 2.3 1.5 2.7 (3.9) Notes: 1 2016 results reflect average foreign exchange rates of £1:€1.37, £1:INR 98.61 and £1:ZAR 20.72. 2 The “Other” segment primarily represent the results of the partner markets and the net result of unallocated central Group costs. Revenue Group revenue decreased 3.0% to £41.0 billion and service revenue decreased by 3.5% to £37.2 billion. Reported growth includes the full year impact from the acquisitions of Hellas Online (‘HOL’) and Cobra Automotive (‘Cobra’) in the prior year. In Europe, organic service revenue declined 0.6%* reflecting continued competitive pressures in a number of markets, with improving trends throughout the year. In AMAP, organic service revenue increased by 6.9%* continuing its sustained track record of strong organic growth. Amortisation of intangible assets in relation to customer bases and brands are recognised under accounting rules after we acquire businesses and decreased to £979 million (2015: £1,269 million) due to the acquisition of Ono. Including the above items, operating profit decreased by £0.6 billion to £1.4 billion as the £0.45 billion impairment charge, £0.3 billion reduction in EBITDA and £0.1 billion increase in restructuring costs were partly offset by £0.1 billion of lower depreciation and amortisation charges and £0.1 billion higher contribution from associates and joint ventures. EBITDA Group EBITDA declined 2.5% to £11.6 billion, with organic growth in Europe and AMAP and the acquisitions of HOL and Cobra being more than offset by foreign exchange movements. On an organic basis, EBITDA rose 2.7%* and the Group’s EBITDA margin stabilised at 28.3%. Operating profit Adjusted operating profit excludes certain income and expenses that we have identified separately to allow their effect on the results of the Group to be assessed (see page 190). The items that are included in operating profit but are excluded from adjusted operating profit are discussed below. Net financing costs Investment income Financing costs Net financing costs Analysed as: Net financing costs before interest on settlement of tax issues Interest (expense)/credit arising on settlement of outstanding tax issues 2016 £m  300 (2,124) (1,824) 2015 £m  883 (1.736) (853) (1,107) (1,160) (15) (1,122) (247) (455) (1,824) 4 (1,156) (134) 437 (853) An impairment loss of £450 million was recognised in the current financial year (2015: £nil). Further detail is provided in note 4 to the Group’s consolidated financial statements. Restructuring costs of £236 million (2015: £157 million) have been incurred to improve future business performance and reduce costs. 30 Mark-to-market losses Foreign exchange1 Note: 1 Comprises foreign exchange rate differences in relation to certain intercompany balances. Vodafone Group Plc Annual Report 2016 Net financing costs, excluding mark-to-market losses and foreign exchange differences in relation to certain intercompany balances, decreased by 3% primarily due to the impact of foreign exchange losses on financing costs. Taxation Income tax Continuing operations before deferred tax on revaluation of investments in Luxembourg Deferred tax on revaluation of investments in Luxembourg Total income tax (expense)/credit – continuing operations Tax on adjustments to derive adjusted profit before tax Recognition of deferred tax asset for losses in Luxembourg Deferred tax following revaluation of investments in Luxembourg Deferred tax on use of Luxembourg losses Adjusted income tax expense Share of associates’ and joint ventures’ tax Adjusted income tax expense for calculating adjusted tax rate (Loss)/profit before tax Adjustments to derive adjusted profit before tax (see earnings per share) Adjusted profit before tax Share of associates’ and joint ventures’ tax and non-controlling interest Adjusted profit before tax for calculating adjusted effective tax rate Adjusted effective tax rate 2016 £m 2015 £m (162)  (703) (3,207)  5,468 (3,369)  4,765 (436) (305) – (3,341) 3,207 423 (175)  (104)  (2,127) 439 (569) (117) (279)  (686) (449) 1,095 2,191 1,742 1,122 2,217 104 117 1,846 2,334 15.1% 29.4% The Group’s underlying tax rate for the year ended 31 March 2016 was 28.8%. Certain non-recurring items had a significant effect on the adjusted effective tax rate in the year, which was 15.1%. These include a benefit of 18.4% following the restructuring and simplification of our Indian business, partially offset by a tax cost of 4.6% due to the reduction in the UK corporation tax rate (which resulted in a decrease in the value of our UK capital allowances). The Group’s adjusted effective tax rate is expected to be in the mid-twenties over the medium term reflecting the ongoing impact from the re-organisation of our Indian business. The Group’s adjusted effective tax rate for both years does not include the use of Luxembourg losses in the year of £423 million (2015: £439 million) and a reduction in the deferred tax asset in the period of £3,207 million (2015: recognition of an additional asset of £2,127 million) arising from the tax treatment of the revaluation of investments based upon the local GAAP financial statements. These items reduce the amount of 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. Additionally, the adjusted effective tax rate in the year ended 31 March 2015 did not include the impact of the recognition of an additional £3,341 million deferred tax asset in respect of the Group’s historic tax losses in Luxembourg. The losses were recognised as a consequence of the acquisition of Ono. Earnings per share Adjusted earnings per share, which excludes the reduction in the tax losses in Luxembourg following the revaluation of investments in the local statutory accounts in the current period and the recognition of deferred tax assets in respect of tax losses in Luxembourg in the prior year, was 5.04 pence, a decrease of 9.2% year-on-year, reflecting the Group’s lower adjusted operating profit for the year. Basic earnings per share was a loss of 15.08 pence primarily due to the reduction in deferred tax on losses, as described above, which has been excluded from adjusted earnings per share. (Loss)/profit attributable to owners of the parent Adjustments: Impairment loss Amortisation of acquired customer base and brand intangible assets Restructuring costs Other income and expense Non-operating income and expense Investment income and financing costs Taxation Discontinued operations Non-controlling interests Adjusted profit attributable to owners of the parent 2016 £m 2015 £m (4,024) 5,761 450 – 979 236 75 2 449 2,191 3,194 – (17) 1,269 157 114 19 (437) 1,122 (5,334) (57) (21) 1,344 1,471 31 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Operating results (continued) Europe1 Year ended 31 March 2016 Revenue Service revenue Other revenue EBITDA Adjusted operating profit EBITDA margin Germany £m 7,787 7,197 590 2,537 378 32.6% Italy £m UK £m Spain £m Other Europe £m Eliminations £m Europe £m 4,405 3,758 647 1,478 590 33.6% 6,173 5,849 324 1,289 (69) 20.9% 3,633 3,274 359 915 53 25.2% 4,835 4,494 341 1,467 457 30.3% (115) (111) (4) – – 26,718 24,461 2,257 7,686 1,409 28.8% Restated 2015 £m 27,687 25,588 2,099 7,894 1,733 28.5% % change Organic £ (3.5) (4.4) 0.4 (0.6) (2.6) (18.7) 1.7 (12.9) Note: 1 The Group has amended its reporting to reflect changes in the internal management of its Enterprise business. The primary change has been that on 1 April 2015 the Group redefined its segments to report international voice transit service revenue within Common Functions rather than within the service revenue amount disclosed for each country and region. The service revenue amounts presented for the year ended 31 March 2015 have been restated onto a comparable basis together with all disclosed organic service revenue growth rates. There is no impact on total Group service revenue or costs. Revenue decreased 3.5% for the year. M&A activity, including HOL and Cobra, contributed a 1.3 percentage point positive impact, while foreign exchange movements contributed a 5.2 percentage point negative impact. On an organic basis, service revenue decreased by 0.6%*, reflecting continued competitive pressures in a number of markets. EBITDA decreased 2.6%, including a 1.2 percentage point positive impact from M&A activity and a 5.5 percentage point negative impact from foreign exchange movements. On an organic basis EBITDA increased 1.7%* driven by good cost control in a number of our markets, as well as the benefits of acquisition integrations. Revenue – Europe Service revenue Germany Italy UK Spain Other Europe Europe EBITDA Germany Italy UK Spain Other Europe Europe Europe adjusted operating profit Organic change % 0.4 Other activity1 pps 1.3 Foreign exchange pps (5.2) Reported change % (3.5) (0.4) (0.8) (0.3) (3.5) 1.5 (0.6) 2.1 3.1 1.2 4.2 (1.5) 1.7 – – (0.4) 8.7 1.9 1.3 – – (5.4) 19.6 1.3 1.2 (6.7) (6.7) (0.1) (6.6) (6.8) (5.1) (6.7) (6.8) – (6.8) (6.5) (5.5) (7.1) (7.5) (0.8) (1.4) (3.4) (4.4) (4.6) (3.7) (4.2) 17.0 (6.7) (2.6) (12.9) (0.2) (5.6) (18.7) Note: 1 “Other activity” includes the impact of M&A activity. Refer to “Organic growth” on page 191 for further detail. 32 Germany Service revenue declined 0.4%* for the year, but returned to growth in Q4 (Q3: -0.4%*; Q4: 1.6%*) led by improvements in consumer mobile and fixed trends and aided by an accounting reclassification in fixed line. Mobile service revenue declined 1.6%*. Consumer contract revenue stabilised in the year, supported by consistent growth in contract net adds (+594,000 for the year). This performance has been driven by an increased focus on direct channels and our ‘Otelo’ second brand; during Q4, higher competition in indirect channels weighed on our contract net additions. The Enterprise market became increasingly competitive during the year, leading to a deteriorating revenue trend as falling ARPU more than offset good contract wins. We have made further strong progress on network investment, with 87% 4G coverage and dropped call rates declining 25% year-on-year to an all-time low of 0.44%. In November, the independent “Connect” test confirmed the premium quality of our voice network in Germany and a strong second and most improved data position. Fixed service revenue growth was 1.5%*, with continued strong growth in cable and a slowing decline in DSL-related revenue. Cable net adds growth continued to be strong throughout the year, supplemented by ongoing migrations from the DSL base; in the second half of the year DSL net adds also turned positive, with growing customer demand for VDSL. Broadband ARPU was down year-on-year in a promotional market, with improvements in cable offset by DSL declines, although the pace of decline began to moderate during H2. The integration of KDG has been completed; we expect cost synergies to meet the initial targets set out at the time of acquisition, and now expect further upside potential longer-term. In November, we launched Vodafone Red One, our fully integrated fixed, mobile and TV service combining high speed mobile and fixed; as of 31 March 2016 we had 54,000 customers. EBITDA grew 2.1%*, with EBITDA margin improving by 0.8* percentage points. The impact of lower revenues and increased Project Spring network opex was more than offset by opex efficiencies (including KDG synergies), savings in commercial costs (aided by our increased focus on direct channels) and a change in commission processes. Vodafone Group Plc Annual Report 2016Italy Service revenue declined 0.8%* for the year, but returned to growth in Q4 (Q3: -0.3%*; Q4: 1.3%*), aided by the leap-year benefit. The mobile business is on a steady recovery path, while fixed line performance continues to be positive despite increased competition in recent months. Mobile service revenue declined 1.1%*, as a recovery in ARPU supported by prepaid price increases only partially offset the year-on-year decline in the customer base. Mobile number portability in the market has reduced in recent quarters and the customer base decline stabilised during the year, aided by market-leading NPS scores in mobile following our Project Spring investments. Consumer trends improved faster than Enterprise, where competitive intensity has increased in H2. As of 31 March 2016 we have 95% population coverage on our 4G network and 6.5 million 4G customers (September 2015: 4.0 million). Fixed service revenue was up 1.2%*, driven by sustained commercial momentum. We added 168,000 broadband customers during the year, a strong performance, and in Q4 50% of our gross adds have taken a fibre-based service. Of our base of 2.0 million broadband customers, 297,000 are fibre customers. We have now built out our own fibre network to over 16,000 cabinets, enabling us to reach 3.6 million households. Our high speed broadband rollout in Italy will be enhanced by our commercial agreement with Enel, which plans to roll out Fibre-To-The-Home (FTTH) to 224 cities nationwide, providing access on competitive commercial terms. In these areas Enel will be our exclusive fibre partner going forward. EBITDA was up 3.1%*, as we successfully offset the decline in service revenue with savings in commercial costs and operating expenses. The EBITDA margin was stable year-on-year due principally to higher handset revenues. UK Service revenue declined 0.3%* for the year (Q3: -0.7%*; Q4: -0.1%*), with improving trends in fixed line offset by a slowdown in mobile, reflecting operational challenges following a billing system migration. Q4 growth benefited from strong carrier services activity; excluding this, underlying trends were stable. The organic growth rate for the year excludes one-off settlements with other network operators in Q2. Mobile service revenue declined 0.7%*. Contract customer growth slowed in Q4, impacted partly by higher churn in relation to the billing system migration. Revenue trends were also impacted by the pricing and usage of 08XX numbers following the introduction of Non-Geographic Call Services regulation, and a focus on giving customers more control of their out-of-bundle data spend. As a result, in-bundle revenue and demand for data add-ons continued to grow. Enterprise mobile trends remained relatively stable despite increased competition. National 4G coverage reached 91% (based on the OFCOM definition), and 99.5% in London; based on our estimations, 4G coverage was 84%, and despite some delays the pace of 4G coverage expansion in conjunction with our network sharing partner is now accelerating. We achieved significant growth in 4G customers, with 7.0 million at the period end (September 2015: 5.3 million). Fixed service revenue grew 1.1%*. Excluding carrier services, fixed service revenue grew 2.4%* in the second half of the year including an improving performance in Enterprise. After regional trials during the summer, we began to offer our consumer broadband service to 24 million premises across the UK (98% of BT’s fibre footprint) in October, securing 38,000 customers by 31 March 2016. Our new TV service is in field trials with plans to launch later in the current calendar year. EBITDA grew 1.2%*, with a 0.2* percentage point increase in the EBITDA margin driven by continued operational efficiencies. Reported EBITDA benefited from one-off settlements with other network operators in the first half of the year. Spain Service revenue declined 3.5%* (Q3: -3.1%*; Q4: -3.2%*), with mobile revenue recovering steadily despite the negative effect of handset financing, and continued positive momentum in fixed. Excluding handset financing effects, service revenues declined by 0.3%* in the year. Mobile service revenue fell 8.0%*. The contract customer base continued to grow in a more stable market, despite increased promotional activity around the start of the new football season. We are seeing signs that ARPU is beginning to stabilise, aided by our market- leading NPS scores in mobile and our ‘more-for-more’ pricing strategy, in which customers receive higher data allowances and additional features (e.g. free European roaming) together with an increase in the monthly tariff. Our 4G population coverage reached 91% at 31 March 2016 and we have 5.4 million 4G customers. Fixed service revenue rose 7.8%*, supported by consistent growth in broadband net additions. The integration of Ono has proceeded successfully and we have already achieved 100% of the original €240 million of cost and capex synergies targeted. We now expect to be able to deliver €300 million of annualised run-rate savings over the original timeframe. In part this reflects the very successful launch in May of Vodafone One, our fully integrated cable, mobile and TV service, which has already reached 1.5 million customers. Including our joint fibre network build with Orange, we now reach 8.5 million premises with cable or fibre. Our recent agreement with Mediapro together with the wholesale obligations imposed on the incumbent provide us with access to a full range of premium TV channels for the coming years, albeit at an increased cost. EBITDA increased 4.2%* year-on-year with a 1.3* percentage point increase in the EBITDA margin, as strong cost control, the benefit to margin from handset financing and the cost synergies from the Ono acquisition more than offset rising TV costs. Other Europe Service revenue rose 1.5%* (Q3: 1.6%*; Q4: 2.1%*), with all markets except Greece achieving growth during the year. In Q4, Romania (7.7%*), Portugal (3.5%*) and the Czech Republic enjoyed an improvement in top-line growth. 33 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Operating results (continued) In the Netherlands, service revenue increased 0.3%*, with growth moving into decline during H2 (Q3: 0.2%*; Q4: -1.3%*) as continued gains in fixed line (partly aided by a Q4 accounting reclassification) were offset by a decline in mobile contract ARPU. In Portugal, fixed service revenue continues to grow strongly and mobile is recovering as ARPU and churn pressure from the shift towards convergent pricing begins to moderate. Our FTTH network now reaches 2.4 million homes. Ireland returned to service revenue growth in Q2, with strong momentum in fixed line and an improving trend in mobile. The initial 4G roll-out is complete with 95% population coverage. In Greece macroeconomic conditions remained a drag, however good cost control led to improved margins. The integration of HOL is progressing according to plan. EBITDA declined 1.5%*, with a 1.0* percentage point decline in EBITDA margin, mainly driven by lower margins in Portugal and Romania. Africa, Middle East and Asia Pacific1 Year ended 31 March 2016 Revenue Service revenue Other revenue EBITDA Adjusted operating profit EBITDA margin India £m Vodacom £m Other AMAP £m Eliminations £m AMAP £m 4,516 4,497 19 1,331 469 29.5% 3,887 3,233 654 1,484 992 38.2% 4,814 4,122 692 1,227 352 25.5% (9) (9) – – – 13,208 11,843 1,365 4,042 1,813 30.6% Restated 2015 £m 13,382 11,935 1,447 4,086 1,802 30.5% £ (1.3) (0.8) (1.1) 0.6 % change Organic 7.0 6.9 7.2 11.7 Note: 1 The Group has amended its reporting to reflect changes in the internal management of its Enterprise business. The primary change has been that on 1 April 2015 the Group redefined its segments to report international voice transit service revenue within Common Functions rather than within the service revenue amount disclosed for each country and region. The service revenue amounts presented for the year ended 31 March 2015 have been restated onto a comparable basis together with all disclosed organic service revenue growth rates. There is no impact on total Group service revenues or costs. Revenue decreased 1.3%, with strong organic growth offset by a 7.7 percentage point adverse impact from foreign exchange movements, particularly with regards to the South African rand, Turkish lira and Egyptian pound. On an organic basis, service revenue was up 6.9%* driven by growth in the customer base, increased voice and data usage, and continued good commercial execution. Overall growth was negatively impacted by MTR cuts and other regulatory charges, mainly in India. EBITDA decreased 1.1%, including a 7.9 percentage point adverse impact from foreign exchange movements. On an organic basis, EBITDA grew 7.2%*, driven by growth in all major markets. Revenue – AMAP Service revenue India Vodacom Other AMAP AMAP EBITDA India Vodacom Other AMAP AMAP AMAP adjusted operating profit 34 Organic change % 7.0 Other activity1 pps (0.6) Foreign exchange pps (7.7) Reported change % (1.3) 5.0 5.4 10.1 6.9 4.1 12.7 4.5 7.2 – – (1.9) (0.7) – – (1.3) (0.4) (0.2) (12.7) (9.3) (7.0) (0.3) (15.5) (7.1) (7.9) 4.8 (7.3) (1.1) (0.8) 3.8 (2.8) (3.9) (1.1) 11.7 (1.1) (10.0) 0.6 Note: 1 “Other activity” includes the impact of M&A activity. Refer to “Organic growth” on page 191 for further detail. India Service revenue increased 5.0%* (Q3: 2.3%*; Q4: 5.3%*) as customer base growth and strong demand for 3G data was partially offset by a number of regulatory changes, including MTR cuts, roaming price caps and an increase in service tax. Excluding these impacts, service revenue growth was 10.0%*. Q4 growth recovered versus Q3 as voice price competition moderated during the quarter and regulatory impacts began to reduce in March. We added 14.1 million customers during the year, taking the total to 197.9 million. Growth in total minutes of use continued, but this was offset by a decline in average revenue per minute as a result of ongoing competition on voice business. Data growth continues to be very strong, with data usage over the network up 64% year-on-year, and the active data customer base increasing by 3.8 million to 67.5 million. The 3G customer base grew to 27.4 million, up 41.4% year-on-year, and smartphone penetration in our four biggest urban areas is now 52.8%. In Q4, browsing revenue represented 19.2% of local service revenue, up from 14.9% in the equivalent quarter last year. Vodafone Group Plc Annual Report 2016Since the launch of Project Spring we have added over 37,700 new 3G sites, taking the total to 55,500 and our population coverage to 95% of target urban areas. We have launched 4G in five key circles and plan to expand to cover over 60% of our data revenues in the coming year, ahead of the upcoming spectrum auction. Our M-Pesa business continues to expand, with 1.3 million active customers at March 2016, and approximately 120,000 agents. In August, the Reserve Bank of India granted us ‘in principle’ approval to set up a payments bank. EBITDA grew 4.1%*, with a 0.2* percentage point deterioration in EBITDA margin as the benefits of service revenue growth were offset by the ongoing increase in operating costs related to Project Spring, higher acquisition costs and the translation effects of non-rupee operating costs. Market conditions remain competitive and may be further impacted by the forthcoming spectrum auctions and a new entrant. Preparations continue for a potential IPO of Vodafone India. Vodacom Vodacom Group service revenue increased 5.4%* (Q3: 7.2%*; Q4: 6.3%*), supported by strong momentum in both South Africa and the International operations. In South Africa, organic service revenue grew 4.7%* (Q3: 7.2%*; Q4: 6.5%*), with the consumer and enterprise businesses both performing well. We continued to focus on building brand and network differentiation, with our performance driven by strong demand for data. We further enhanced our leading network position, more than doubling our LTE/4G sites to over 6,000, taking coverage to 58.2% on LTE/4G and 98.9% on 3G. Data revenue growth remained strong at 18.8*% in Q4 and data is now 36.3% of local service revenue. Our pricing transformation strategy is making good progress, with 85% of contract customers now on integrated price plans and churn falling to our lowest levels at 6.9% in Q4. Total bundle sales reached 1.1 billion, supported by our ‘Just 4 U’ personalised offers. Service revenue growth in Vodacom’s International operations outside South Africa was 10.0%*, driven by increased voice revenue as a result of pricing strategies and bundle offerings, data take-up and M-Pesa. Active data customers reached 10.1 million, 37% of total customers, and active M-Pesa customers totalled 6.8 million in Q4, all benefiting from sustained network investment. Vodacom Group EBITDA increased 12.7%*, significantly faster than revenues, with a 3.6* percentage point improvement in EBITDA margin. This strong performance partly reflected a change in accounting for certain transactions in the indirect channel, which depressed equipment sales and total revenues with no impact on EBITDA. Excluding this effect, EBITDA margins rose driven by operating leverage, tight cost control and a tailwind from foreign exchange gains. Other AMAP Service revenue increased 10.1%* (Q3: 10.8%*; Q4: 12.1%*), with strong growth in Turkey, Egypt and Ghana partially offset by a decline in Qatar. Service revenue in Turkey was up 19.7%*, reflecting continued strong growth in consumer contract and Enterprise revenue, and we launched 4G services in April 2016. Fixed line momentum was strong, almost quadrupling the fixed broadband customer base to 363,000 at the end of the period. In Egypt, service revenue was up 8.9%* driven by continued strong growth in data. New Zealand returned to modest growth, with solid mobile contract customer trends and improving fixed line ARPU. EBITDA grew 4.5%*, with a 2.1* percentage point contraction in EBITDA margin. A strong revenue performance and improved margins in Turkey were partly offset by higher costs for imported goods post foreign exchange rate devaluations across the region. Associates and joint ventures Indus Towers, the Indian towers company in which Vodafone has a 42% interest, achieved local currency revenue growth of 5.8%. Indus Towers owned 119,881 towers as at 31 March 2016, with a tenancy ratio of 2.25. Our share of Indus Towers EBITDA was £305 million and its contribution to the Group’s adjusted operating profit was £74 million. Safaricom, Vodafone’s 40% associate which is the leading mobile operator in Kenya, saw local currency service revenue growth of 13.8% for the year, with local currency EBITDA up 16.8%, driven by an increase in the customer base leading to growth across all revenue streams, predominantly mobile data and M-Pesa. 4G coverage is now in 20 out of 47 counties. Vodafone Hutchison Australia (‘VHA’), in which Vodafone owns a 50% stake, is performing solidly in an intensely competitive environment, with service revenues (excluding MTR impact) returning to growth after five years in decline. EBITDA growth was driven by an increase in revenue and improved cost management. Notes: References to “Q4” are to the quarter ended 31 March 2016 unless otherwise stated. References to “Q3” are to the quarter ended 31 December 2015 unless otherwise stated. References to the “second half of the year” or “H2” are to the six months ended 31 March 2016 unless otherwise stated. References to the “year” or “financial year” are to the financial year ended 31 March 2016 and references to the “prior financial year” are to the financial year ended 31 March 2015 unless otherwise stated. All amounts marked with an “*” represent “organic growth”, which presents performance on a comparable basis, both in terms of merger and acquisition activity as well as in terms of movements in foreign exchange rates. See page 191 “Non-GAAP information” for further details. 35 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Financial position and resources Consolidated statement of financial position The consolidated statement of financial position is set out on page 88. Details on the major movements of both our assets and liabilities in the year are set out below: Assets Goodwill and other intangible assets Goodwill and other intangible assets increased by £3.3 billion to £46.8 billion. The increase primarily arose as a result of £7.3 billion of additions, including £5.4 billion for spectrum purchased in India, Germany, Turkey, Spain, Italy and the UK, plus £2.3 billion of favourable movements in foreign exchange rates which were partly offset by £4.3 billion of amortisation, £1.7 billion transferred to assets held for resale and £0.5 billion of goodwill impairment. Property, plant and equipment Property, plant and equipment increased by £1.5 billion to £28.1 billion, principally due to £6.7 billion of additions driven by investment in the Group’s networks as a result of Project Spring plus £1.0 billion of favourable foreign exchange movements, partly offset by £5.2 billion of depreciation charges and £0.9 billion transferred to assets held for resale. Other non-current assets Other non-current assets decreased by £2.0 billion to £30.7 billion, mainly due to decrease in deferred tax assets primarily due to the reduction of tax losses in Luxembourg (see note 6 for further details). Current assets Current assets increased by £8.3 billion to £28.1 billion, mainly due to a £3.3 billion increase in cash and cash equivalents, £2.9 billion of assets held for resale and a £1.1 billion increase in trade receivables. Total equity and liabilities Total equity Total equity decreased by £0.4 billion to £67.3 billion as the £2.8 billion of proceeds from the convertible bonds was offset by £3.2 billion of dividends paid to equity shareholders and non-controlling interests and the total comprehensive loss for the year of £0.1 billion. Non-current liabilities Non-current liabilities increased by £7.1 billion to £33.0 billion, primarily due to a £6.9 billion increase in long-term borrowings. Current liabilities Current liabilities decreased by £4.5 billion to £33.4 billion, mainly due to £3.4 billion of additional short-term borrowings and a £0.8 billion increase in trade and other payables. Trade payables at 31 March 2016 were equivalent to 45 days (2015: 43 days) outstanding, calculated by reference to the amount owed to suppliers as a proportion of the amounts invoiced by suppliers during the year. It is our policy to agree terms of transactions, including payment terms, with suppliers and it is our normal practice that payment is made accordingly. Contractual obligations and commitments A summary of our principal contractual financial obligations and commitments is shown below. Payments due by period £m  Contractual obligations and commitments1 Borrowings2 Operating lease commitments3 Capital commitments3,4 Purchase commitments5 Total Total  53,816 < 1 year  16,188 1–3 years  9,999 3–5 years  7,215 >5 years  20,414 7,862 1,527 2,084 1,429 2,822 2,051 1,839 178 32 2 6,952 70,681 3,857 23,411 2,697 14,958 274 8,950 124 23,362 Notes: 1 This table includes commitments in respect of options over interests in Group businesses held by non-controlling shareholders (see “Potential cash outflows from option agreements and similar arrangements” on page 133) and obligations to pay dividends to non-controlling shareholders (see “Dividends from associates and to non-controlling shareholders” on page 133). The table excludes current and deferred tax liabilities and obligations under post employment benefit schemes, details of which are provided in notes 6 “Taxation” and 26 “Post employment benefits” respectively. The table also excludes the contractual obligations of associates and joint ventures. 2 See note 21 “Borrowings”. 3 See note 29 “Commitments”. 4 Primarily related to spectrum and network infrastructure. 5 Primarily related to device purchase obligations. Dividends We provide returns to shareholders through equity dividends and historically have generally paid dividends in February and August in each year. The Directors expect that we will continue to pay dividends semi-annually. The £3.0 billion equity dividend in the current year comprises £2.0 billion in relation to the final dividend for the year ended 31 March 2015 and £1.0 billion for the interim dividend for the year ended 31 March 2016. The interim dividend of 3.68 pence per share announced by the Directors in November 2015 represented a 2.2% increase over last year’s interim dividend. The Directors are proposing a final dividend of 7.77 pence per share. Total dividends for the year increased by 2.0% to 11.45 pence per share. Liquidity and capital resources Our liquidity and working capital may be affected by a material decrease in cash flow due to a number of factors as outlined in “Principal risk factors and uncertainties” on pages 22 to 28. We do not use non-consolidated special purpose entities as a source of liquidity or for other financing purposes. 36 Vodafone Group Plc Annual Report 2016 In addition to the commentary on the Group’s consolidated statement of cash flows below, further disclosure in relation to the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk can be found in “Borrowings”, “Liquidity and capital resources” and “Capital and financial risk management” in notes 21, 22 and 23 respectively to the consolidated financial statements. Cash flows A reconciliation of cash generated by operations to free cash flow, a non-GAAP measure used by management is shown on pages 190 and 191. The reconciliation to net debt is shown below. EBITDA Working capital Capital expenditure Disposal of property, plant and equipment Other Operating free cash flow1 Taxation Dividends received from associates and investments Dividends paid to non-controlling shareholders in subsidiaries Interest received and paid Free cash flow1 Licence and spectrum payments Acquisitions and disposals Equity dividends paid Foreign exchange Convertible issue Other2 Net debt increase Opening net debt Closing net debt3 2016 £m 11,612 (386) (8,599) 140 117 2,884 (689) 2015 £m 11,915 (121) (9,197) 178 88 2,863 (758) 67 224 (247) (223) (994) (1,026) 1,088 1,013 (443) (2,944) (7,040) (96) (2,927) (2,998) 895 (1,968) – 2,754 (144) (2,665) (8,571) (6,904) (13,700) (22,271) (29,175) (22,271) Notes: 1 Operating free cash flow for the year ended 31 March 2016 excludes £186 million (2015: £336 million) of restructuring costs, £nil (2015: £365 million) UK pensions contribution payment and £nil (2015; £116 million) of KDG incentive scheme payments that vested upon acquisition. 2 Other cash flows for the year ended 31 March 2016 include £2,020 million (2015: £nil) of debt recognised in respect of spectrum in India and Germany, £186 million (2015: £336 million) of restructuring costs, £nil (2015: £365 million) UK pensions contribution payment, £nil (2015: £359 million) of Verizon Wireless tax dividends received after the completion of the disposal, £nil (2015: £328 million) of interest paid on the settlement of the Piramal option, £nil (2015: £116 million) of KDG incentive scheme payments that vested upon acquisition, £nil (2015: £176 million) tax refund relating to the rationalisation and reorganisation of our non-US assets prior to the disposal of our stake in Verizon Wireless and a £50 million (2015: £100 million) payment in respect of the Group’s historic UK tax settlement. Includes cash and cash equivalents of £14 million (2015: £nil) in respect of assets held for sale. 3 Cash generated by operations Excluding restructuring and other costs, cash generated by operations increased 2.6% to £11.4 billion as lower EBITDA was offset by working capital movements. Capital expenditure Capital expenditure decreased £0.6 billion to £8.6 billion primarily driven by the completion of the Project Spring investment programme. Free cash flow Free cash flow was £1.0 billion, a decrease of £0.1 billion from the prior year, as higher cash generated by operations excluding restructuring and other costs and working capital movements in respect of capital expenditure were offset by lower capital expenditure and lower dividends received from Indus Towers. Licence and spectrum payments Payments for licences and spectrum include amounts relating to the purchase of spectrum in Germany of £1.4 billion, £0.6 billion in India, £0.6 billion in Turkey, £0.2 billion in Italy and £0.1 billion in the UK. Acquisitions and disposals Payments for acquisitions and disposals for the year ended 31 March 2015 primarily included £2,945 million in relation to the acquisition of the entire share capital of Ono plus £2,858 million of associated net debt acquired and £563 million in relation to the acquisition of the remaining 10.97% equity interest in Vodafone India. Convertible issue and foreign exchange A foreign exchange loss of £2.0 billion was recognised on net debt as losses on the euro and rupee offset favourable foreign exchange movements on the South African rand. This was offset by £2.8 billion of proceeds from the issue of £2.9 billion of mandatory convertible bonds in February 2016, £2.8 billion of which have been classified as equity after taking into account the cost of future coupon payments. The Group also holds $5.0 billion (2015: $5.25 billion) of Verizon loan notes, and has the potential to utilise the proceeds from these notes to repurchase the shares issued to satisfy the mandatory convertible bonds. This year’s report contains the strategic report on pages 1 to 37, which includes an analysis of our performance and position, a review of the business during the year, and outlines the principal risks and uncertainties we face. The strategic report was approved by the Board and signed on its behalf by the Chief Executive and Chief Financial Officer. Vittorio Colao Chief Executive Nick Read Chief Financial Officer 17 May 2016 37 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Our approach to governance Creating long-term value A commitment to act with integrity at all times is integral to the creation of shareholder value. We fully complied with the 2014 UK Corporate Governance Code during the year. What were the Board’s main priorities during the year? The Board’s role is to define the long-term strategic objectives for the Group and then evaluate progress against those objectives while ensuring there is a strong and effective system of corporate governance in place at all levels. 2016 was another important transitional year for Vodafone: as I explain in my introduction on page 3, our expansion across 4G, cable and fibre networks and TV and content services is transforming our businesses. A key priority during the year was to ensure that the significant investments involved were allocated in a manner most likely to maximise returns to shareholders over time as well as enhance our customers’ experience. We also continued to focus on measures to mitigate the wide range of operating and commercial risks that are inherent to our industry and which are summarised on pages 22 to 28. How would you describe the decision making culture of the Board? Highly collaborative and collegiate with a strong emphasis on open and honest debate involving all of the Directors. As Chairman, I strive to ensure that Vodafone has a Board that works effectively and where all can contribute freely. We are fortunate to be able to draw on a diverse range of professional skills and backgrounds around the boardroom table and I encourage each Director to share their intuitions to enrich the Board’s collective understanding. We seek to ensure that every Director has the facts and background context necessary to reach informed conclusions on the matters before the Board. We provide an insight into our induction process for new Directors on page 45. All Directors have access to training and specialist briefing opportunities to ensure they remain fully aware of major developments in this highly complex and dynamic industry. Contents 38 Chairman’s introduction 47 Board committees 39 Our governance framework 54 Compliance with the 2014 UK Corporate Governance Code 40 Board of Directors 42 Executive Committee 44 Board activities 45 Board evaluation, induction and training 46 Shareholder engagement 56 Our US listing requirements 57 Directors’ remuneration 74 Directors’ report What do the Non-Executive Directors bring to the Board? It is essential to ensure that the composition of the Board reflects the strategic priorities of the Group and provides a variety of informed insights to determine the appropriate approach to the management of risk. Each of the Directors brings a particular perspective to every discussion, shaped by their backgrounds in a number of industries and roles over many years, which underpins the Board’s commitment as a whole to rigorous scrutiny and analysis of the Group’s key issues and opportunities. We provide a summary of each Director’s experience on pages 40 and 41. During the year, we were pleased to welcome David Nish to the Board. David is a highly experienced business leader with extensive financial expertise and capital markets skills. Enhancing diversity in the boardroom, the executive team and at all levels in Vodafone is also a priority. This includes diversity of skills and experience, age, gender, disability, sexual orientation, cultural background and belief. I am pleased to report that 25% of our Board roles are held by women. Our ambition over the coming years is to increase that proportion further. Details of our commitment to increase the number of women in executive roles (and to empower our female customers) are set out in our 2016 Sustainable Business Report. What are the Board’s key objectives for the coming year? In March 2016 we concluded the largest organic investment programme in Vodafone’s history. Project Spring was designed to bring about a material enhancement to the quality of the networks and services relied on by 462 million mobile customers and 13 million fixed broadband customers and as we explain on pages 10 and 14, that goal has largely been achieved. The priority for the year ahead will be to ensure that the Group’s momentum post-Project Spring translates into stronger financial performance as well as a much better experience for our customers. Our return to growth after more than six years of significant macroeconomic pressure in Europe is very welcome. We intend to sustain that positive trend although, it should be noted, we continue to face a number of challenges in some markets. We will also maintain our focus on the effective management of risk and on compliance with the high standards of corporate governance across the Group. We comply with the corporate governance statement requirements pursuant to the FCA’s Disclosure and Transparency Rules by virtue of the information included in this “Governance” section of the Annual Report together with information contained in the “Shareholder information” section on pages 175 to 181. 38 Gerard Kleisterlee Chairman 17 May 2016 Vodafone Group Plc Annual Report 2016Our governance framework How we are governed We have a strong and effective governance system throughout the Group. Responsibility for good governance lies with your Board. Chairman Gerard Kleisterlee a Is responsible for leadership of the Board a Sets the Board’s agenda Chief Executive Vittorio Colao a Leads the business and implements strategy and policy a Chairs the Executive Committee a Meets regularly with the Chief Executive and other key executives to stay informed Board Responsible for the overall conduct of the Group’s business and: a is responsible for the long-term success of the Company; Executive Committee a Focuses on strategy a sets the Group strategy; a is responsible for ensuring the effectiveness of and reporting on our system of corporate governance; and a is accountable to shareholders for the proper conduct of the business. More on: Page 44 implementation, financial and competitive performance, commercial and technological developments, succession planning and organisational development Disclosure Committee a Oversees the accuracy and timeliness of Group disclosures and approves controls and procedures in relation to the public disclosure of financial information The Matters Reserved for the Board can be found on our website vodafone.com/governance Risk and Compliance Committee a Assists the Executive Committee to fulfil its accountabilities with regard to risk management and policy compliance Audit and Risk Committee a Provides effective governance over the Group’s financial results a Reviews the activity and performance of the internal audit function and external auditor a Reviews the integrity, adequacy and effectiveness of the Group’s system of internal control including the risk management framework and related compliance activities Nominations and Governance Committee a Evaluates and makes recommendations regarding Board and committee composition, succession planning and diversity a Oversees matters relating to corporate governance Remuneration Committee a Sets, reviews and recommends the Group’s overall remuneration policy and strategy and reviews the implementation of that policy and strategy More on: Pages 47 to 52 More on: Page 53 More on: Page 57 39 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Board of Directors Experienced, effective and diverse leadership Our business is led by our Board of Directors (the ‘Board’). Biographical details of the Directors and senior management as at 17 May 2016 are as follows (with further information available at vodafone.com/board). Key to Committee membership: A Audit and Risk N Nominations and Governance R Remuneration R Red background denotes Committee Chairman Gerard Kleisterlee Chairman N Tenure: 5 years Nationality: Dutch Skills and experience: Gerard has extensive experience of senior leadership of global businesses in both the developed and emerging markets. He brings to the Group a deep understanding of the consumer electronics, technology and lifestyle industries gained from his career with Philips Electronics spanning over 30 years and continues to use this experience to oversee the development of Vodafone’s strategy and the effectiveness of its operations as a total communications company. Other current appointments: a Royal Dutch Shell, non-executive director and member of the audit committee a IBEX Global Solutions plc, non-executive director a ASML, Chairman of supervisory board Vittorio Colao Chief Executive – Executive Director Tenure: 9 years Nationality: Italian Skills and experience: With over 20 years’ experience working in the telecoms industry, Vittorio has extensive leadership skills developed within both Vodafone and the wider industry and is widely recognised as an outstanding leader in the telecoms sector. Other current appointments: a European Round Table of Industrialists, vice chairman a Unilever Plc, non-executive director Nick Read Chief Financial Officer – Executive Director Tenure: 2 years Nationality: British Skills and experience: Nick combines strong operational leadership with a detailed understanding of the industry and its challenges and opportunities. Nick has wide-ranging experience in senior finance roles at both Vodafone and other multinational companies including United Business Media plc and Federal Express Worldwide. Other current appointments: None A Sir Crispin Davis Independent Non-Executive Director Tenure: 1 year Nationality: British Skills and experience: Sir Crispin has broad-ranging experience as a business leader in international content and technology markets from his roles as chief executive of Reed Elsevier and the digital agency Aegis Group plc and group managing director of Guinness PLC (now Diageo plc). He was knighted in 2004 for services to publishing and information. He brings a strong commercial perspective to Board discussions. Other current appointments: a Oxford University, trustee and member of the university board a CVC Capital Partners, adviser R Dr Mathias Döpfner Independent Non-Executive Director Tenure: 1 year Nationality: German Skills and experience: Mathias brings wide-ranging experience within the global digital media industry to his role. Having led his business, Axel Springer SE, through a highly successful transition into digital and international markets, he provides a digital perspective to the Board’s strategy. Other current appointments: a Axel Springer SE, chairman and chief executive officer a Time Warner and Warner Music Group, member of the board of directors a Business Insider Inc., chairman of the board of directors a American Academy, American Jewish Committee and the European Publishers Council, holds honorary offices a St John’s College, University of Cambridge, member Dame Clara Furse Independent Non-Executive Director Tenure: 1 year Nationality: British and A Canadian Skills and experience: Dame Clara brings to the Board a deep understanding of international capital markets, regulation, services industries and business transformation developed from her previous roles as chief executive of the London Stock Exchange Group plc and Credit Lyonnais Rouse Ltd. Her financial proficiency is highly valued as a member of the Audit and Risk Committee. In 2008 she was appointed Dame Commander of the Order of the British Empire. Other current appointments: a Bank of England, Financial Policy Committee member a Nomura Holdings Inc, non-executive director a Amadeus IT Holdings SA, non-executive director 40 R N Valerie Gooding cbe Independent Non-Executive Director Tenure: 2 years Nationality: British Skills and experience: Valerie brings a wealth of international business experience obtained at companies with high levels of customer service including British Airways and as chief executive of BUPA which, together with her focus on leadership and talent, is greatly valuable to Board discussions. Other current appointments: a Premier Farnell plc, non- executive chairman a TUI Group, non-executive director a English National Ballet, trustee a Historic Royal Palaces, trustee a Royal Botanic Gardens, Kew, trustee R Renee James Independent Non-Executive Director Tenure: 5 years Nationality: American Skills and experience: Renee brings comprehensive knowledge of the high technology sector developed from her long career at Intel Corporation where she was appointed president. Her extensive experience of international management and the development and implementation of corporate strategy is an asset to the Board and Remuneration Committee. Other current appointments: a US President’s National Security Telecommunications Advisory Committee, vice chair a C200, member a Carlyle Group, operating executive a Oracle Corporation, non-executive director a Citigroup Inc., non-executive director a Sabre Corporation, non-executive director a University of Oregon, College of Arts, advisory board member Vodafone Group Plc Annual Report 2016R Samuel Jonah kbe Independent Non-Executive Director Tenure: 7 years Nationality: Ghanaian Skills and experience: Samuel brings experience and understanding of business operations in emerging markets, particularly Africa. Previously executive president of AngloGold Ashanei Ltd and member of the Advisory Council of the President of the African Development Bank, he provides an international, commercial perspective to Board discussions. Other current appointments: a Iron Mineral Benefication Services, non-executive chairman a Jonah Capital (Pty) Limited, executive chairman a Metropolitan Insurance Company Limited, chairman a Presidents of Togo and Nigeria, adviser a The Investment Climate Facility, member of trustee board A Nick Land Independent Non-Executive Director Tenure: 9 years Nationality: British Skills and experience: After a career spanning 36 years at Ernst & Young UK where Nick was executive chairman, he brings strong financial expertise and experience of dealing with major corporations in many parts of the world to the Board and to his role as Chairman of the Audit and Risk Committee. Other current appointments: a Ashmore Group plc, non-executive director a Financial Reporting Council, non-executive director a The Vodafone Foundation, Chairman of the Board of Trustees a Dentons UKMEA LLP, adviser a Silicon Valley Bank, London, adviser David Nish Independent Non-Executive Director Tenure: <1 year Nationality: British Skills and experience: David has wide-ranging operational and strategic experience as a senior leader and has a strong understanding of financial and capital markets through his previous directorships which include chief executive officer and chief financial officer of Standard Life plc and chief financial officer of Scottish Power plc. Other current appointments: a HSBC Holdings Plc, non-executive director a London Stock Exchange Group Plc, non-executive director a Zurich Insurance Group, board member a UK Green Investment Bank Plc, non-executive director a Council of the Institute of Chartered Accountants of Scotland, member Philip Yea Senior Independent Director A N Tenure: 10 years Nationality: British Skills and experience: Philip’s experience as chief financial officer of Diageo plc and in the private equity industry at Investcorp and 3i Group plc, together with his knowledge of the Vodafone Group, makes him a valued member of the Board. Philip’s financial expertise is an asset to his role as member of the Audit and Risk Committee. Other current appointments: a Aberdeen Asian Smaller Companies Investment Trust PLC, non-executive director a The Francis Crick Institute, director of the trustee board a Computacenter Plc, non-executive director a Greene King Plc, chairman Attendance at scheduled meetings of the Board in the 2016 financial year Director Gerard Kleisterlee Vittorio Colao Stephen Pusey1 Nick Read Sir Crispin Davis Mathias Döpfner Dame Clara Furse Valerie Gooding Renee James Samuel Jonah Nick Land David Nish2 Luc Vandevelde1 Philip Yea Attendance 7/7 7/7 2/2 7/7 7/7 5/7 6/7 7/7 7/7 7/7 7/7 2/2 2/2 6/7 Audit and Risk Committee Director Nick Land Sir Crispin Davis Dame Clara Furse Philip Yea Nominations and Governance Committee Director Gerard Kleisterlee Valerie Gooding4 Philip Yea Luc Vandevelde1 Remuneration Committee3 Director Valerie Gooding Luc Vandevelde1 Renee James Samuel Jonah Attendance 5/5 5/5 4/5 5/5 Attendance 5/5 3/3 5/5 2/2 Attendance 5/5 2/2 5/5 5/5 Notes: 1 Stephen Pusey and Luc Vandevelde stepped down from the Board at the annual general meeting on 28 July 2015. 2 David Nish joined the Board on 1 January 2016. 3 Dr Mathias Döpfner joined the Remuneration Committee on 1 April 2016. 4 Valerie Gooding joined the Nominations and Governance Committee on 2 November 2015. 5 Some Directors have expertise in more than one sector. Board analysis 7+ years 33% Tenure (Non-Executive Directors) 0–3 years 56% 4–6 years 11% Sector experience5 Consumer Goods Media Technology Telecoms Finance Emerging markets 1 2 3 3 3 5 41 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Executive Committee Delivering our strategy, driving performance Chaired by Vittorio Colao, the Executive Committee focuses on managing Vodafone’s business affairs as a whole, which includes the delivery of a competitive strategy, developing our financial structure and planning, driving financial performance and ensuring good succession planning. Membership The Committee includes the Executive Directors and the senior managers as detailed below. Committee Meetings The Committee meets 11 times a year and typical agenda items include: a strategy; a substantial business developments and projects; a Chief Executive’s update on the business and the business environment; a updates on business performance; a Group function heads’ updates; a talent; a presentations on various topics, for example, from the Group Financial Controller, the Group Audit Director and the Group Risk and Compliance Director; and a competitor performance analysis. Each year the Committee conducts a strategy review to identify key strategic issues facing Vodafone to be presented to the Board. The agreed strategy is then used as a basis for developing the upcoming budget and three-year operating plans. Vittorio Colao Chief Executive (See page 40) Nick Read Chief Financial Officer (See page 40) Paolo Bertoluzzo Group Chief Commercial Operations & Strategy Officer Tenure: 3 years Nationality: Italian Responsibilities: Paolo has responsibility for Vodafone’s global commercial operations and strategy, as well as innovation and transformation projects, including the Customer eXperience eXcellence programme. Previous roles include: a Vodafone Group, Regional Chief Executive Officer, Southern Europe (2012–2013) a Vodafone Italy, Chief Executive Officer (2008–2013) a Vodacom Group, Board Director (2010–2012) Warren Finegold Group Business Development Director Tenure: 10 years Nationality: British Responsibilities: Warren has responsibility for managing Vodafone’s mergers and acquisitions and business development strategy. Warren worked on Vodafone’s initial IPO in 1988 as well as leading the recent sale of Vodafone’s interest in Verizon Wireless. He will retire from the Executive Committee on 30 June 2016. Previous roles include: a UBS Investment Bank, managing director and head of European Technology a Goldman Sachs, executive director (1985–1995) Nick Jeffery Group Enterprise Chief Executive Officer Tenure: 3 years Nationality: British Responsibilities: Nick is responsible for Vodafone’s strategy and execution in the Enterprise market worldwide, and has responsibility for a portfolio which includes: Vodafone Global Enterprise, Vodafone Carrier Services, The Internet of Things, Cloud & Hosting Services, Enterprise Marketing and Sales Operations as well as Enterprise Products and Operations and Enterprise Security Services. Previous roles include: a Cable & Wireless Worldwide, chief executive (2012–2013) a Vodafone Global Enterprise, Chief Executive (2006–2012) Matthew Kirk Group External Affairs Director Tenure: 7 years Nationality: British Responsibilities: Matthew leads Vodafone’s engagement with external stakeholders (including governments, regulators, international institutions, the media and industry commentators) in order to project Vodafone’s position on the contribution of our industry to broader policy objectives and on issues of importance to our customers and to the communities in which Vodafone operates. Matthew is also responsible for security, and for the Vodafone Foundation, of which he is a Trustee. Previous roles include: a British Ambassador to Finland (2002–2006) a Member of the British Diplomatic Service (20+ years) Rosemary Martin Group General Counsel and Company Secretary Tenure: 6 years Nationality: British Responsibilities: Rosemary has responsibility for managing Vodafone’s legal risk and for providing legal and company secretariat services to the Group. Previous roles include: a Practical Law Company, chief executive (2008) a Reuters Group Plc, various governance roles including group general counsel and company secretary (1997–2008) a Rowe & Maw, partner (1990–1997) Ronald Schellekens Group Human Resources Director Tenure: 7 years Nationality: Dutch Responsibilities: Ronald has responsibility for leading Vodafone’s people and organisation strategy which includes developing strong talent and leadership, effective organisations, strategic capabilities and an engaging culture and work environment, thereby building strong capabilities in Vodafone to deliver growth. Previous roles include: a Royal Dutch Shell, HR executive vice president (2003–2008) a PepsiCo, senior vice president (1994–2003) a AT&T Network Systems, various human resources roles (1986–1994) 42 Vodafone Group Plc Annual Report 2016 Serpil Timuray Regional Chief Executive Officer – Africa, Middle East and Asia Pacific Region (AMAP) Tenure: 2 years Nationality: Turkish Responsibilities: As Regional Chief Executive Officer of AMAP, Serpil oversees Vodafone’s operations in the Vodacom Group, India, Australia, Egypt, Ghana, Kenya, Qatar, New Zealand and Turkey. Previous roles include: a Vodafone Turkey, Chief Executive Officer (2009–2013) a Danone Turkey, chief executive officer (2002–2008) a Danone Turkey, marketing director with additional sales director role (1999–2002) a Procter & Gamble Turkey, various marketing roles including executive committee member (1991–1999) European Chief Executive Officers In October 2015, the Chief Executive Officers of our four large European markets became Executive Committee members. The remaining European markets are represented by Rob Shuter who also joined the Executive Committee in October 2015. The Chief Executive Officers are responsible for: a defining Vodafone strategy in their local markets in accordance with Group strategy and operating models; a executing the strategic vision into commercial plans; and a ensuring delivery against key performance indicators. In carrying out their role, they: a own the end-to-end accountability for in-country profit and loss, balance sheet performance and brand differentiation; a manage relationships with local stakeholders, protecting Vodafone’s reputation, legal compliance, and ensuring Vodafone is contributing to the development of its local community; and a define the culture and values of the organisation through the direction and communication of business objectives, vision and mission, and by developing people’s talents and competences. Tenure refers to the length of service in role. Dr Hannes Ametsreiter Chief Executive Officer – Vodafone Germany Tenure: <1 year Nationality: Austrian Previous roles include: a Telkom Austria Group, group chief executive officer (2009–2015) a A1 Telekom, chief executive officer (2009) a Mobilkom Austria/Telkom Austria, chief marketing officer (2001–2009) Aldo Bisio Chief Executive Officer – Vodafone Italy Tenure: 2 years Nationality: Italian Previous roles include: a Ariston Thermo Group, chief executive officer/managing director (2008–2013) a McKinsey & Company, senior partner (2007–2008) a RCS Quotidiani, managing director (2004–2006) Johan Wibergh Group Technology Officer Tenure: 1 year Nationality: Swedish Responsibilities: Johan has responsibility for defining and leading Vodafone’s global technology organisation which includes the organic investment programme and Project Spring. He is integral to developing Vodafone’s convergence strategy on a global scale. Previous roles include: a Ericsson, various roles including executive VP (1996–2015) António Coimbra Chief Executive Officer – Vodafone Spain Tenure: 3 years Nationality: Portuguese Previous roles include: a Vodafone Portugal, Chief Executive Officer (2009–2012) Jeroen Hoencamp Chief Executive Officer – Vodafone UK Tenure: 2 years Nationality: Dutch Previous roles include: a Vodafone UK, Enterprise Business Unit Director (2013) a Vodafone Portugal, Executive Committee a Vodafone Ireland, Chief Executive Officer member (1995–2009) a Apritel (on behalf of Vodafone Portugal), President (2005–2007) a Vodafone Japan, Chief Marketing Officer (2004) (2010–2012) a Vodafone Netherlands, various senior management positions (1998–2010) Rob Shuter Chief Executive Officer – Netherlands and Europe Cluster Tenure: <1 year Nationality: British and South African Responsibilities: As Chief Executive Officer for Netherlands and Europe cluster, Rob oversees Vodafone’s operations in the Netherlands, Portugal, Ireland, Greece, Romania, Czech Republic, Hungary, Albania and Malta. Previous roles include: a Vodafone Netherlands, Chief Executive Officer (2012–2015) a Vodacom Group, Finance Director (2009–2012) a Nedbank Retail, managing director (2000–2009) 43 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Board activities Key areas of focus for your Board Board activities are structured to assist the Board in achieving its goal to support and advise executive management on the delivery of the Group’s strategy within a transparent governance framework. What the Board did in 2016 Data Convergence Enterprise More on pages Link to strategic objectives More on pages Link to strategic objectives Governance The Board dealt with corporate governance matters, including: a reports from the Board Committees; a the appointment of new Board members; a the Annual Report; a assessment of risks and internal controls; a reports on compliance and litigation; a the conclusions and recommendations of the external evaluation of the Board’s performance; and a reviewing and approving the revisions to the terms of reference of the Board Committees and the Matters Reserved for the Board. 47 to 53, 57 to 73 53 76 and 77 23, 51 and 52 54 and 55, 149 to 152 45 54 and 55 People The Group HR Director updated the Board twice during the year on: a talent capability and diversity; a health and safety; and a other HR matters. 18 and 19 18 and 19 19 Deep dives The Board received presentations on the following topics: a local market focus on Spain, Vodacom, UK and India; a Germany and Turkey spectrum auctions; a potential initial public offering of Vodafone India; and a Vodafone UK’s TV offering. 32 to 35 37, 183, 186 35 33 Performance (financial and operational) Throughout the year the Board received and discussed: a reports from the Chief Executive on performance of operations in Europe, AMAP and Enterprise; a information on the financial performance of the Group; a network and customer satisfaction updates and quarterly market share metrics; and a the annual budget and operating plan. 10 to 13 10 to 15, 30 to 37 16 and 17 14 and 15 Strategy The Board continued to focus on overseeing the execution of our strategy. The Board: a received regular business development reports; 10 to 13 a discussed progress of the Customer eXperience eXcellence programme and commercial priority reports; a received updates on content strategy; a discussed and approved the strategic combination of Vodafone and Liberty Global’s Dutch operations; and a held a strategy day, focusing on the evolution and sustainability of Vodafone’s strategy, industry trends, competitor strategies and our organisation and governance. 7, 10 to 13 11 and 12 12, 149 10 to 13 Governance in action: Board’s visit to Munich Offsite Board meetings give the Board further insights into the business. In September 2015 the Board held its annual strategy meeting in Munich. As part of this visit, the Board received a presentation from local management of Vodafone Germany and KDG, visited a Vodafone Germany retail store and received a presentation on 5G communication. A Board meeting and an Audit and Risk Committee meeting were also held whilst in Munich. 44 Vodafone Group Plc Annual Report 2016Board evaluation, induction and training Evaluating our performance and keeping up to date The Board recognises that it continually needs to monitor and improve its performance. This is achieved through annual performance evaluation, full induction of new Board members and ongoing Board development activities. Board Evaluation Progress against recommendations set in 2015 Recommendation: The Board should continue to develop its understanding of the future challenges and trends in Vodafone’s sector, especially convergence, technology trends and the regulatory environment. Action taken in 2016: The Board received relevant training and carried out deep dives into these areas which were considered at Board meetings throughout the year. Recommendation: The Board should increase its focus on customers’ experience and it should continue to monitor management’s success in delivering operational strategic objectives. Action taken in 2016: The Board regularly reviewed the progress of the Customer eXperience eXcellence programme and continued to focus on the execution of our strategy. This year’s process In accordance with our three-year cycle, our 2016 Board evaluation was externally facilitated by Ffion Hague of Independent Board Evaluation which has no other connection with Vodafone. The evaluation included a series of one-on-one interviews with all Directors and key senior managers, and observations of Board, Audit and Risk, Remuneration, and Nominations and Governance Committee meetings. Ffion Hague discussed her initial findings with the Chairman and presented the final results to the Board in March 2016. Conclusions from this year’s review The conclusions of this year’s review have been positive and have confirmed that the Board and its Committees operate effectively and that each Director contributes to the overall effectiveness and success of the Group. The recommendations in this year’s review included: Board Development The Chairman is responsible for ensuring that all Non-Executive Directors receive ongoing training and development. Our Non- Executive Directors are conscious of the need to keep themselves properly briefed and informed about current issues. Specific areas covered at sessions attended by Vodafone Directors in 2016 were the Enterprise business, technology, share dealing rules and corporate governance. In June 2015, Val Gooding went on a local market visit with Vittorio Colao to Vodafone Italy. They attended customer focus groups, a Customer eXperience eXcellence session run by local management, visited three retail stores, and received a 4G and fibre presentation. Specific and tailored updates, delivered by PricewaterhouseCoopers LLP, were also provided to the members of our Audit and Risk Committee during the year covering key themes surrounding financial and narrative reporting, and accounting and auditing standards. The Board also received reports from the Group General Counsel and Company Secretary on current legal and governance issues. Governance in action: David Nish’s induction Expertise a Financial expertise and capital markets skills Focus areas a Learn about Vodafone and our business lines a Learn about Vodafone’s markets, competitions, customers, business opportunities and risks a Meet senior management across the Group Overview of induction programme David’s induction includes the following: a reviewing the Board induction and development programme a meetings with the members of the Executive Committee to focus on strategically significant areas; to discuss our business, strategy and operations; a increasing transparency around Board and executive a presentations from the management teams of the Europe cluster, succession plans; AMAP and Enterprise; a clarifying expectations on an overall strategic framework; and a visits to the headquarters of Vodafone UK, a Vodafone UK store a creating more opportunities for Board members to spend informal time together. The Board will address these recommendations during the 2017 financial year and will report on progress in our 2017 Annual Report. and Vodafone’s call centre in Stoke-on-Trent (UK); a meetings with various Group senior managers to discuss Group strategy, people strategy and remuneration, technology and marketing, external affairs, finance, investor relations and risk; a training on his duties as a director and on Vodafone’s governance structure; a meeting with the Chairs of the Board Committees and the Chairman; and a meeting key Group advisers. 45 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Shareholder engagement Communicating with our shareholders We are committed to communicating our strategy and activities clearly to all our shareholders. How we communicate with our shareholders We maintained an active dialogue with our shareholders throughout the year through a planned programme of investor relations activities. We also respond to daily queries from shareholders and analysts through our Investor Relations team and have a section of our website which is dedicated to shareholders and analysts: vodafone.com/ investor. Our registrars, Computershare, and BNY Mellon (as custodians of our American Depositary Receipts (‘ADR’) programme) also have a team of people to answer shareholder and ADR holder queries in relation to technical aspects of their holdings such as dividend payments and shareholding balances. All of our financial results presentations are available on our website at vodafone.com/investor. Our annual general meeting and our roadshows Our annual general meeting is attended by our Board and Executive Committee members and is open to all our shareholders to attend. A summary presentation of financial results is given before the Chairman deals with the formal business of the meeting. All shareholders present can question the Board during the meeting. We hold meetings with major institutional investors, individual shareholder groups and financial analysts to discuss the business performance and strategy. These are attended by the appropriate mix of Directors and senior management, including our Chairman, Chief Executive, Executive Committee members, senior leaders and the Investor Relations team. Institutional investors also meet with the Chairman to discuss matters of governance. What our shareholders have asked us this year Common topics raised by our institutional and individual shareholders include: a 4G and data; a shareholder returns; a cash flow, capital expenditure, a regulation in Europe and debt and dividend cover; emerging markets; a fixed broadband and TV strategy; a spectrum renewal costs; a performance outlook; a integration of KDG and Ono; and a Project Spring strategy; a administration of shareholding. Our investor calendar Set out below is a calendar of our investor events throughout the year. September 2015 a Investor meeting about regulation a Several investor conferences in London and New York October 2015 a 5G webinar a Investor conference in Germany November 2015 a Half-year results published a London, New York, Boston, Edinburgh, Paris, Toronto, Switzerland and Netherlands roadshows a Investor conference in Barcelona December 2015 a Investor conference in New York January 2016 a Investor meetings in Spain and Italy February 2016 a Q3 Trading Statement published March 2016 a Investor conference in Miami a Investor conference in London a Investor meeting with Enterprise May 2015 a Preliminary results published a London, New York, Boston, Toronto, Paris and Edinburgh roadshows June 2015 a Annual Report published a Switzerland, Netherlands, Spain and Frankfurt roadshows a Investor conference in London a Investor meetings in Spain, Turkey and Italy a Chairman’s London roadshow July 2015 a Q1 Trading Statement published a Annual general meeting in London a Investor meetings in India 46 Governance in action: Launch of our low-cost share dealing programme We launched a quick, simple and economical share dealing service for Vodafone shareholders with no more than 1,000 shares in February 2016. This service ran until 23 May 2016 and allowed shareholders to sell all their Vodafone shares or buy more shares either free of dealing costs or at a competitive rate. Over 27% of such shareholders chose to use this service. Vodafone Group Plc Annual Report 2016Board committees Audit and Risk Committee The Committee continued to focus its work on the Group’s financial reporting, financial control and risk management and compliance processes. The Committee’s role was expanded this year to provide assistance to the Board with assessing compliance with elements of the 2014 UK Corporate Governance Code. Chairman and financial expert Nick Land Independent Non-Executive Director Key objectives: The provision of effective governance over the appropriateness of the Group’s financial reporting, including the adequacy of related disclosures, the performance of both the internal audit function and the external auditor and oversight over the Group’s system of internal control including risk management and compliance activities. Responsibilities: The Board has approved terms of reference for the Committee which are available at vodafone.com/governance. These provided the framework for the Committee’s work in the year and can be summarised into four primary sets of activities. These are oversight of the: a appropriateness of the Group’s external financial reporting; a relationship with, and performance of, the external auditor; a Group’s system of internal control, including risk management framework and the work of the internal audit function; and a Group’s system of compliance activities. The 2016 financial year has seen the Committee’s activities and terms of reference reviewed and expanded to reflect the Group’s adoption of the 2014 UK Corporate Governance Code, to cover: a providing advice to the Board on the assessment, management and mitigation of the principal risks facing the Group; a monitoring the Group’s risk management system and its effectiveness; and a providing advice on how the Group’s prospects have been assessed in order to make the new longer-term viability statement. Membership The membership of the Committee has been selected with the aim of providing the range of financial and commercial expertise necessary to meet its responsibilities. Given my experience, I continue to be designated as the financial expert on the Committee for the purposes of the US Sarbanes-Oxley Act and the UK Corporate Governance Code. There were no changes to the membership of the Committee during the year, all of whom are Non-Executive Directors of the Company. How the Committee operates The Committee met five times during the year under its standard schedule of meetings, an increase from the four meetings in the last financial year, a change reflecting its increased responsibilities particularly in relation to risk management. Meetings of the Committee generally take place the day before a Board meeting to maximise the efficiency of interaction with the Board and I report to the Board, as a separate agenda item, on the activity of the Committee and matters of particular relevance to the Board in the conduct of its work. The external auditor, PricewaterhouseCoopers LLP, is invited to each meeting together with the Chief Executive, the Chief Financial Officer, the Deputy Chief Financial Officer, the Group Financial Reporting Director, the Group Audit Director, the Group Risk and Compliance Director, and the Group General Counsel and Company Secretary. The Committee also regularly meets separately with each of PricewaterhouseCoopers LLP, the Chief Financial Officer and the Group Audit Director without others being present. In the year, the Board appointed an external company to perform an independent review of the Committee which concluded that the Board members considered the Committee to be fully effective in meeting its objectives. Financial reporting The Committee’s primary responsibility in relation to the Group’s financial reporting is to review with both management and the external auditor the appropriateness of the half-year and annual financial statements concentrating on, amongst other matters: a the quality and acceptability of accounting policies and practices; a material areas in which significant judgements have been applied or where significant issues have been discussed with the external auditor; a the clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance reporting requirements, including the 2014 UK Corporate Governance Code; a any correspondence from regulators in relation to our financial reporting; and a an assessment of whether the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. This assessment forms the basis of the advice given to the Board to assist them in making the statement required by the 2014 UK Corporate Governance Code. 47 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Board committees (continued) Accounting policies and practices The Committee received reports from management in relation to the identification of critical accounting judgements and key sources of estimation uncertainty, significant accounting policies and proposed disclosure of these in the 2016 Annual Report. This disclosure also includes qualitative details in relation to IFRS 15 “Revenue from contracts with customers” and IFRS 16 “Leases”, both of which are likely to have a substantial effect on the Group’s accounting when adopted. Following discussions with management and the external auditor, the Committee approved these critical accounting judgements, significant accounting policies and disclosures which are set out in note 1 “Basis of preparation” to the consolidated financial statements. Regulators and our financial reporting There has been no correspondence from regulators in relation to our financial reporting during the 2016 financial year. The Committee is committed to improving the effectiveness and clarity of the Group’s corporate reporting and has continued to encourage management to consider, and adopt where appropriate, initiatives by regulatory bodies which would enhance our reporting, such as the FRC Lab projects on the use of digital media in corporate reporting, the disclosure of dividends and business model reporting. Significant judgements and issues The significant areas of focus considered and actions taken by the Committee in relation to the 2016 Annual Report are outlined below. We discussed these with the external auditor during the year and, where appropriate, these have been addressed as areas of audit focus as outlined in the Audit Report on pages 79 to 86. Significant judgements and issues Matter considered Action Revenue recognition The timing of revenue recognition, the recognition of revenue on a gross or net basis, the treatment of discounts, incentives and commissions and the accounting for arrangements with multiple deliverables are complex areas of accounting. See note 1 “Basis of preparation” for further detail. In addition there is heightened risk in relation to the accounting for revenue as a result of the inherent complexity of systems and changing pricing models. Taxation The Group is subject to a range of tax claims and related legal actions across a number of jurisdictions where it operates. The most material claim continues to be from the Indian tax authorities in relation to our acquisition of Vodafone India Limited in 2007, further details of which are included in note 30 “Contingent liabilities and legal proceedings”. Further, the Group has extensive accumulated tax losses as detailed in note 6 “Taxation”, and a key management judgement is whether a deferred tax asset should be recognised in respect of these losses. As at 31 March 2016, the Group had recognised a £22,382 million deferred tax asset primarily in respect of these tax losses. An in-depth review of revenue accounting was undertaken by the Committee during the previous financial year. PricewaterhouseCoopers LLP shared its approach to the audit of revenue in their detailed audit plan, which identified the primary risks attaching to the audit of revenue to be (a) the controls over the underlying accuracy of billing systems and (b) presumed fraud risk, and reported on the results of its audit work in this area to the Committee at both the half-year and year end. The Committee received reporting from PricewaterhouseCoopers LLP in relation to revenue recognition and discussed a number of judgements in relation to the presentation of revenue and commissions. The Committee was satisfied with the appropriateness of the revenue recognised in the financial statements. The Group Tax Director presented on both provisioning and disclosure of tax contingencies and deferred tax asset recognition at the November 2015 and May 2016 Committee meetings. He also provided an update on upcoming changes in the wider tax landscape that were potentially relevant to the Group. PricewaterhouseCoopers LLP also identified this as an area of higher audit effort and the Committee received reporting from it on these matters. The Committee challenged both management and PricewaterhouseCoopers LLP on the legal judgements underpinning both the provisioning and disclosure stance adopted in relation to material elements of tax contingent liabilities and the IFRS basis of, and operating assumptions underlying, the deferred tax assets recognised at the period end. The Committee was satisfied with the approach adopted in the financial statements by management for each matter. 48 Vodafone Group Plc Annual Report 2016Significant judgements and issues Matter considered Action Goodwill impairment testing This is an area of focus for the Committee given the materiality of the Group’s goodwill balances (£22.8 billion at 31 March 2016) and the inherent subjectivity in impairment testing. The judgements in relation to goodwill impairment continue to relate primarily to the assumptions underlying the calculation of the value in use of the business, being the achievability of the long-term business plan and the macroeconomic and related modelling assumptions underlying the valuation process. See note 4 “Impairment losses” for further detail. Liability provisioning The Group is subject to a range of claims and legal actions from a number of sources, including competitors, regulators, customers, suppliers and on occasion fellow shareholders in Group subsidiaries. The level of provisioning for contingent and other liabilities is an issue where management and legal judgements are important and accordingly an area of Committee focus. See note 30 “Contingent liabilities and legal proceedings” for further detail. Significant one-off transactions The Committee reviewed the accounting and reporting of a number of material one-off transactions. These included: a The recognition of spectrum assets and a corresponding liability of £2.7 billion during the 2016 financial year in relation to Vodafone India. See note 22 “Liquidity and capital resources” for further detail. a The issue by the Group in February 2016 of £2.9 billion of mandatory convertible bonds. See note 22 “Liquidity and capital resources” for further detail. Key business controls The Group has continued to devote considerable resources to the development of key business and related IT controls to ensure a robust system of internal control. During the year, this focused on ongoing work programmes over general ledger account controls and user access to the Group’s core Enterprise Resource Planning (‘ERP’) system as well as new activity, including a multi-year project to implement a suite of standard controls over the Group’s core financial processes and managing the business and IT control implications of changes to the scope of the Group’s section 404 of the US Sarbanes- Oxley compliance activities. The Committee received detailed reporting from management and challenged the appropriateness of the assumptions made, including: a the consistent application of management’s methodology; a the achievability of the business plans; a assumptions in relation to terminal growth in the businesses at the end of the plan period; and a discount rates. This remains an area of audit focus and PricewaterhouseCoopers LLP provided detailed reporting on these matters to the Committee, including sensitivity testing. The Committee was satisfied with both the appropriateness of the analysis performed by management that indicated a goodwill impairment charge of £450 million in relation to Vodafone Romania, and the impairment related disclosures set out in note 4 to the financial statements. The Committee received a presentation from the Group’s General Counsel and Company Secretary and the Director of Litigation in both November 2015 and May 2016 on management’s assessment of the most significant claims. As this is an area of audit focus, PricewaterhouseCoopers LLP also reviews these claims and relevant legal advice received by the Group, to form a view on the appropriateness of the level of provisioning that is shared with the Committee. The Committee challenged both management and PricewaterhouseCoopers LLP on the level of provisioning for legal claims and was satisfied that the amounts recorded appropriately reflected the risk of loss. Management outlined the key accounting and disclosure impacts in relation to these transactions. The Committee received detailed reporting from PricewaterhouseCoopers LLP on their assessment of the accounting and disclosures made by management in both the half-year and annual financial statements and were satisfied with the accounting and disclosure in the financial statements for both matters. The Committee reviewed the work performed by management in relation to the implementation and maintenance of these controls, including the degree to which they operated effectively throughout the year and at the year end. This was supplemented by the results of related reviews performed by Internal Audit. The audit scope of PricewaterhouseCoopers LLP included certain of these key business and IT controls and they reported to the Committee the results of their audit testing in these areas. Further detail is provided in the PricewaterhouseCoopers LLP audit report on pages 79 to 86. The Committee was satisfied with the basis of management’s report on internal control over financial reporting as required by section 404 of the US Sarbanes-Oxley Act and with management’s ongoing focus on enhancements to the internal control environment. 49 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Board committees (continued) Other matters The Committee also undertook a range of further activities in relation to the Group’s accounting and external reporting in the year: Adoption of recent accounting developments The Committee received regular reporting from management on the Group’s implementation of IFRS 15 “Revenue from contracts with customers”, which will be adopted in the financial year ending 31 March 2019, focusing on the key decision points relating to the choice of IT system for generating the necessary accounting entries, systems integration, the methodology in which the standard would be adopted and programme resourcing. The Committee will also review the Group’s implementation of IFRS 16 “Leases”, which will be adopted in either the financial years ending 31 March 2019 or 2020, once management has more fully assessed the impact of the changes. Fair, balanced and understandable As part of the Committee’s assessment of whether the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy, it draws on the work of the Group’s Disclosure Committee and has discussions with senior management. The processes and controls that underpin our consideration include ensuring that: a all contributors are fully briefed on the fair, balanced and understandable requirement; a a dedicated and experienced core team is responsible for the coordination of content submissions, verification, detailed review and challenge; a senior management confirms that the content in respect of their areas of responsibility is considered to be fair, balanced and understandable; a the Disclosure Committee reviews and assesses the Annual Report as a whole; and a the Committee receives an early draft of the Annual Report to enable timely review and comment. These processes allowed us to provide positive assurance to the Board to assist them in making the statement required by the 2014 UK Corporate Governance Code. Long-term viability statement Following the adoption of the 2014 UK Corporate Governance Code during the 2016 financial year, the Committee’s terms of reference were extended to include providing advice to the Board on the form and basis underlying the long-term viability statement as set out on page 29. The Committee reviewed the process and assessment of the Group’s prospects made by management, including: a the review period and alignment with the Group’s internal long-term forecasts; a the assessment of the capacity of the Group to remain viable after consideration of future cash flows, expected debt service requirements, undrawn facilities and access to capital markets; and a the modelling of the financial impact of certain of the Group’s principal risks materialising using severe but plausible scenarios. Management also sought independent external advice on best practice to ensure appropriate compliance with the requirements of the 2014 UK Corporate Governance Code. External audit The Committee has primary responsibility for overseeing the relationship with, and performance of, the external auditor. This includes making the recommendation on the appointment, reappointment and removal of the external auditor, assessing their independence on an ongoing basis and for negotiating the audit fee. Auditor appointment PricewaterhouseCoopers LLP were appointed as the Group’s external auditor in July 2014 following an audit tender and, in accordance with the 2014 UK Corporate Governance Code, the Group will be required to put the external audit contract out to tender by 2024. In addition, PricewaterhouseCoopers LLP will be required to rotate the audit partner responsible for the Group audit every five years and, as a result, the current lead audit partner will be required to change in 2019. The Committee continues to review the auditor appointment and the need to tender the audit, ensuring the Group’s compliance with the 2014 UK Corporate Governance Code and the reforms of the audit market by the UK Competition and Markets Authority. Accordingly, the Company confirms that it complied with the provisions of the Competition and Markets Authority’s Order for the financial year under review. For the financial year ending 31 March 2017, the Committee has recommended to the Board that PricewaterhouseCoopers LLP be reappointed under the current external audit contract and the Directors will be proposing the reappointment of PricewaterhouseCoopers LLP at the annual general meeting in July 2016. Audit risk At the start of the audit cycle for the new financial year we received from PricewaterhouseCoopers LLP a detailed audit plan identifying their audit scope, planning materiality and their assessment of key risks. The audit risk identification process is considered a key factor in the overall effectiveness of the external audit process, and the key risks for the 2016 financial year, which were unchanged from the previous year, were as follows: a Taxation matters, including a provisioning claim for withholding tax in India and the recognition and recoverability of deferred tax assets in Luxembourg and Germany. a Carrying value of goodwill. a Provisions and contingent liabilities. a Revenue recognition. a Accounting for significant one-off transactions. a Capitalisation and asset lives. a Management override of internal controls. These risks are regularly reviewed by the Committee to ensure the external auditor’s areas of audit focus remain appropriate. Working with the auditor We hold private meetings with the external auditor at each Committee meeting to provide additional opportunity for open dialogue and feedback from the Committee and the auditor without management being present. Matters typically discussed include the external auditor’s assessment of business risks, the transparency and openness of interactions with management, confirmation that there has been no restriction in scope placed on them by management, the independence of their audit and how they have exercised professional scepticism. I also meet with the external lead audit partner outside the formal Committee process throughout the year. 50 Vodafone Group Plc Annual Report 2016Effectiveness of the external audit process The Committee reviewed the quality of the external audit throughout the year and considered the performance of PricewaterhouseCoopers LLP, taking into account the Committee’s own assessment, the results of a detailed survey of senior finance personnel across the Group focusing on a range of factors we considered relevant to audit quality, feedback from PricewaterhouseCoopers LLP on their performance against their own performance objectives and the firm-wide audit quality inspection report issued by the FRC in May 2015. Based on this review, the Committee concluded that there had been appropriate focus and challenge on the primary areas of audit focus and PricewaterhouseCoopers LLP had applied robust challenge and scepticism throughout the audit. Independence and objectivity In its assessment of the independence of the auditor and in accordance with the US Public Company Accounting Oversight Board’s standard on independence, the Committee receives details of any relationships between the Company and PricewaterhouseCoopers LLP that may have a bearing on their independence and receives confirmation that they are independent of the Company within the meaning of the securities laws administered by the US Securities and Exchange Commission (‘SEC’). As one of the ways in which it seeks to protect the independence and objectivity of the external auditor, the Committee has a policy governing the engagement of the external auditor to provide non-audit services. This precludes PricewaterhouseCoopers LLP from providing certain services such as valuation work or the provision of accounting services and also sets a presumption that PricewaterhouseCoopers LLP should only be engaged for non-audit services where there is no legal or practical alternative supplier. For certain specific permitted services, the Committee has pre- approved that PricewaterhouseCoopers LLP can be engaged by management, subject to the policies set out above, and subject to a £50,000 fee limit for individual engagements, a £500,000 total fee limit for services where there is no legal alternative and a £500,000 total fee limit for services where there is no practical alternative supplier. For all other services or those permitted services that exceed these specified fee limits, I, as Chairman, or in my absence another Committee member, can pre-approve permitted services. Following the publication by the Competition and Markets Authority of its final order in relation to the responsibilities of the audit committee, the Board approved amendments to the Committee’s terms of reference during the 2016 financial year such that only the Committee can negotiate and approve the statutory audit fee, the scope of the statutory audit and approval of the appointment of the lead audit engagement partner. In addition, the Committee assessed the impact of further expected UK regulation restricting non-audit services that auditors can provide, including a cap on the amount of non-audit fees that can be billed and a list of prohibited services. Consequently, the Group’s policy on non- audit fees will be amended to reflect these additional restrictions during the financial year ending 31 March 2017 for implementation in the financial year ending 31 March 2018. For the 2016 financial year, the Committee considered the ongoing fee proposal included as part of the audit tender, negotiated audit scope changes for the 2016 financial year and, following the receipt of formal assurance that their fees were appropriate for the scope of the work required, agreed a charge from PricewaterhouseCoopers LLP and related member firms of £12 million for statutory audit services. In addition to the statutory audit fee, PricewaterhouseCoopers LLP and related member firms charged the Group £1 million for audit- related and other assurance services primarily in connection with local regulatory filings where we were legally required to appoint them by virtue of their position as statutory auditor. Further details of the fees paid, for audit and non-audit services to both PricewaterhouseCoopers LLP for the 2016 and 2015 financial years and to Deloitte LLP for the 2014 financial year, can be found in note 3 to the consolidated financial statements. Internal control and risk management The Committee has the primary responsibility for the oversight of the Group’s system of internal control, including the risk management framework and the work of the internal audit function. Assessment of Group’s system of internal control, including risk management framework The Group’s risk assessment process and the way in which significant business risks are managed is a key area of focus for the Committee. Our activity here was driven primarily by the Group’s assessment of its principal risks and uncertainties, as set out on pages 23 to 28. This year, the Committee performed a detailed review of the Company’s new risk management framework document which is designed to: clarify roles and responsibilities for risk management and oversight, set out a consistent end-to-end process for managing risk across the business, provide the Board with a clear line of sight over the principal risks, and provide an overview of how the principal risks are being managed. Our review included reports from the Group Risk and Compliance Director on the Group’s risk evaluation process as well as a review of changes to significant risks identified at both operating entity and Group levels. The Committee also maintains a programme of in-depth reviews into specific financial, operational and regulatory areas of the business. These reviews are critical to the role of the Committee, as they allow us to meet key business leaders responsible for these areas and provide independent challenge to their activities. During the 2016 financial year, the areas reviewed included: a the integration of KDG into Vodafone Germany and the transition to Vodafone compliance standards; a changes to the Group’s Enterprise operations to improve service and delivery to customers; a the risk and control framework associated with implementation of a new billing system in the Netherlands; a the Group’s cyber security strategy, covering network, IT and retail systems; and a the Group’s network resilience policy and the ability to recover from a significant fault or challenge to normal operations. The Group has in place an internal control environment to protect the business from the material risks which have been identified. Management is responsible for establishing and maintaining adequate internal controls over financial reporting and we have responsibility for ensuring the effectiveness of these controls. 51 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Board committees (continued) This year, the Group implemented an integrated assurance mapping process to improve the coordination of assurance activities across the Group and to provide a framework that allowed a comprehensive assessment of the assurance and compliance activities for the Group’s significant risks. The mapping process was piloted in the UK and Irish operating companies before being rolled out to all business units during the second half of the 2016 financial year. We reviewed the process by which the Group evaluated its control environment. Our work here was driven primarily by the Group Audit Director’s reports on the effectiveness of internal controls, significant identified frauds and any identified fraud that involved management or employees with a significant role in internal controls. Oversight of the Group’s compliance activities in relation to section 404 of the US Sarbanes-Oxley Act also falls within the Committee’s remit. The Committee has completed its review of the effectiveness of the Group’s system of internal control, including risk management, during the year and up to the date of this Annual Report, in accordance with the requirements of the Guidance on Risk Management, Internal Control and related Financial and Business Reporting published by the FRC. It confirms that no significant failings or weaknesses were identified in the review for the 2016 financial year and allowed us to provide positive assurance to the Board to assist them in making the statements required by the 2014 UK Corporate Governance Code. Where areas for improvement were identified, processes are in place to ensure that the necessary action is taken and that progress is monitored. Compliance activities The Committee is responsible for the oversight of the Group’s compliance programme and held a number of deep dive sessions on compliance-related matters in the year. These focused on: a changes to the control environment, including the creation of two new management controls governance committees and a redefined finance operating model providing greater clarity of roles and responsibilities; a updates to the Group’s Code of Conduct, which is reviewed every three years; a the results from the annual Policy Compliance Review which tests the extent to which local markets and Group entities are compliant with our high risk policies; a the results from our “Doing What’s Right” employee awareness and e-learning programmes and other measures designed to assess the culture of the organisation; a the results of the use of “Speak Up” channels in place to enable employees to raise concerns about possible irregularities in financial reporting or other issues and the outputs of any resulting investigations; and a the methodology for fraud reporting and investigations into known or suspected fraudulent activities by both third parties and employees. Nick Land On behalf of the Audit and Risk Committee 17 May 2016 Internal audit Monitoring and review of the scope, extent and effectiveness of the activity of the Group Internal Audit department is an agenda item at each Committee meeting. We approve the annual audit plan prior to the start of each financial year and receive updates from the Group Audit Director on audit activities, progress against the approved Group audit plan, the results of any unsatisfactory audits and the action plans to address these areas. I play a major role in setting the Group Audit Director’s annual objectives and we meet regularly to discuss the team’s activities and any significant issues arising from their work. Compliance with section 404 of the US Sarbanes-Oxley Act The Committee takes an active role in monitoring the Group’s compliance activities in respect of section 404 of the US Sarbanes-Oxley Act, receiving reports from management in the year covering: a financial control governance; a changes to the section 404 programme, including scoping, the development of a standard controls framework and the development of a quality assurance programme; and a the enhancement of the wider control environment in response to ongoing business developments. The external auditor reported the status of their work in relation to this matter in each of their reports to the Committee. 52 Vodafone Group Plc Annual Report 2016Nominations and Governance Committee The Committee continues its work of ensuring the Board composition is right and that our governance is effective. Chairman Gerard Kleisterlee Chairman of the Board – Independent on appointment Key objective: To make sure the Board comprises individuals with the necessary skills, knowledge and experience to ensure that it is effective in discharging its responsibilities and to have oversight of all matters relating to corporate governance. Responsibilities: a assessing the composition of the Board and making recommendations on appointments to the Board and senior executive succession planning; a overseeing the performance evaluation of the Board, its committees and individual Directors; and a overseeing all matters relating to corporate governance, bringing any issues to the attention of the Board. The terms of reference of the Committee are available on vodafone.com/governance. Committee meetings The Committee met five times during the year. I invite other individuals and external advisers to attend all or part of any meeting, as and when appropriate. I report to the Board, as a separate agenda item, on the activities of the Committee at the following Board meeting. David Nish’s appointment The Committee reviewed the mix and skills of the Board and identified that it would be valuable for a Non-Executive Director to be appointed who had financial expertise and capital markets skills as well as experience as a chief executive. A description of the role and capabilities required for this appointment was prepared. Sciteb, an external search consultancy, was appointed, which has no other connection to Vodafone and has signed up to the voluntary Code of Conduct for Executive search firms. David was identified as a suitable candidate. He was invited to meet with the members of the Committee and following those meetings, the Committee recommended to the Board that he be invited to become a Non-Executive Director. The Board accepted the recommendation and David accepted the Board’s invitation and became a Non-Executive Director with effect from 1 January 2016. Assessment of the independence of the Non-Executive Directors The Committee reviewed the independence of all the Non-Executive Directors and in particular Philip Yea and Nick Land, who have both served on the Board for over nine years. The Committee considered their length of tenure on the Board, independence and other external commitments. As a result of its assessment, the Committee is confident that Philip and Nick continue to demonstrate qualities of independence and judgement in carrying out their roles. In addition, the Committee believes that Philip’s and Nick’s external commitments have not negatively impacted their commitment to Vodafone and therefore recommended to the Board that Philip and Nick stand for reappointment at the 2016 annual general meeting. All of the Non-Executive Directors are considered independent. Board evaluation The Committee oversaw the external evaluation of the Board and Committees. A description of the process and conclusions of the evaluation is set out on page 45. Succession planning The Committee received several presentations throughout the year from the Chief Executive and Group Human Resources Director. The presentations provided details of the changes to the Vodafone organisational structure in order to deliver our strategy as well as succession planning for senior management. Potential successors have been identified for the top senior management positions and the Committee reviewed the profiles for all of these positions during the year. The Committee also monitors a schedule on the length of tenure of the Chairman and Non-Executive Directors and the mix and skills of the Directors. The Committee is satisfied that adequate succession planning is currently in place for the Executive Directors and senior executives, but will keep succession planning under review and monitor the progress and success of the development plans which have been established for relevant employees. Diversity Vodafone acknowledges the importance of diversity and inclusion to the effective functioning of the Board. This includes diversity of skills and experience, age, gender, disability, sexual orientation, cultural background or belief. 25% of our Board roles are held by women and our ambition over the coming years is to increase that proportion further. Diversity extends beyond the boardroom. The Board supports management in its efforts to build a diverse organisation and endorses the Group’s “Recruiting and Managing People” policy, one of the objectives of which is to “attract and develop a highly qualified and diverse workforce and ensure that all selection decisions are based on merit”. Governance The Committee reviewed Vodafone’s compliance with the 2014 UK Corporate Governance Code and was satisfied that Vodafone complied with the Code during the year. It also received updates on corporate governance developments during the year and considered the impact of these developments on Vodafone. Changes to the Board and Committees The changes made to the composition of the Board and Committees during the year are set out on page 54. Gerard Kleisterlee On behalf of the Nominations and Governance Committee 17 May 2016 53 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Compliance with the 2014 UK Corporate Governance Code Throughout the financial year and to the date of this document, we complied with the provisions and applied the main principles of the 2014 version of the UK Corporate Governance Code (the ‘Code’). The Code can be found on the Financial Reporting Council website (frc.org.uk). This table sets out how we have applied the main principles of the Code, cross referring to other parts of this Annual Report. This table is intended to assist with the evaluation of our compliance during the year and should be read alongside the Governance section as a whole. Headings correspond to the headings in the Code. The auditor’s report on the corporate governance statement is on page 86. A. Leadership A.1 – The role of the Board The Board’s responsibilities are set out on page 39 along with a statement of how it operates. The Board held seven scheduled meetings during the year and holds additional meetings, as required. All Directors are expected, wherever possible, to attend all Board and relevant Committee meetings. Details of such attendance are on page 41. A.2 and A.3 – Division of responsibilities and the role of the Chairman The roles of the Chairman and Chief Executive are separate: their key responsibilities are set out on page 39. Board meetings are arranged to ensure sufficient time is available for the discussion of all items. The Chairman was independent on appointment. A.4 – Non-Executive Directors Philip Yea has been Senior Independent Director since July 2015 when he took over from Luc Vandevelde who stepped down from the Board. Philip: a acts as a sounding board for the Chairman and as an intermediary for the other Directors; a is available to shareholders if they have concerns which they have not been able to otherwise resolve; a reviews the performance of the Chairman annually; and a if necessary, convenes meetings of the Non-Executive Directors. The Non-Executive Directors are responsible for using their skills, experience and independent judgement to: a constructively challenge the strategy proposed by the Executive Directors; a scrutinise and challenge performance and risk management across the Group’s business; and a assess the risk and integrity of the financial information and controls. The Chairman met with just the Non-Executive Directors at every Board meeting this year. B. Effectiveness B.1 – The composition of the Board The Board consists of 12 Directors, (nine Non-Executive Directors, the Chairman and two Executive Directors). 11 Directors served throughout the year. Changes made to the composition of the Board and Committees during the year were as follows: a Philip Yea became Senior Independent Director on 28 July 2015 after Luc Vandevelde stepped down from the Board. Stephen Pusey also stepped down from the Board in July 2015; a Valerie Gooding became Chairman of the Remuneration Committee on 28 July 2015; and a Valerie Gooding joined the Nominations and Governance Committee on 2 November 2015. Dr Mathias Döpfner joined the Remuneration Committee on 1 April 2016. It is expected that David Nish will join the Audit and Risk Committee on 29 July 2016. The balance and independence of the Board is kept under review by the Nominations and Governance Committee. Its terms of reference are available at vodafone.com/governance. Philip Yea, Nick Land and Samuel Jonah have served on the Board for ten, nine and seven years respectively. The Board has determined that they, along with all of the Non-Executive Directors, continue to demonstrate qualities of independence and judgement in carrying out their roles, supporting the Executive Directors and senior management in an objective manner. Their length of service and resulting experience are of great benefit to the Board. B.2 – Appointments to the Board David Nish was appointed as a Non-Executive Director from 1 January 2016. Further details on the appointment process are set out on page 53, which also includes the Board’s policy on diversity. B.3 – Commitment The Board is satisfied that the external commitments of its Chairman and other Non-Executive Directors (set out on pages 40 and 41) do not conflict with their duties and commitments as Directors of the Company. Directors must: a report any changes to their commitments to the Board; a complete an annual conflicts questionnaire. Any conflicts identified are considered and, as appropriate, authorised by the Board. If authorised, it is recorded in a register and reviewed periodically; and a notify the Company of actual or potential conflicts or a change in circumstances relating to an existing authorisation. The Executive Directors’ service contracts and Non-Executive Directors’ appointment letters are available for inspection at our registered office and at our annual general meeting. B.4 – Development Details of Board induction and training and development are set out on page 45. 54 Vodafone Group Plc Annual Report 2016Further information can be found in the Directors’ statement of responsibility on pages 76 and 77 and in the Audit and Risk Committee report on pages 47 to 52 (which also covers the oversight and monitoring of the system, and its effectiveness). C.3 – Audit Committee and auditor The Audit and Risk Committee is responsible for governance around both the internal audit function and external auditor and for oversight of the Group’s systems of internal controls. Further details on the Audit and Risk Committee and its activities are set out on pages 47 to 52. Its terms of reference are available at vodafone.com/governance. D. Remuneration D.1 and D.2 – The level and components of remuneration and procedure a The Remuneration Committee is responsible for determining the policy on remuneration of the Chairman, executives and senior management team. More information is set out on pages 57 to 73. a The Chairman of the Board and the Remuneration Committee’s Chairman are also responsible for maintaining contact with the Company’s principal shareholders about remuneration. Full details are set out in its terms of reference, available at vodafone.com/governance. E. Relations with shareholders E.1 – Dialogue with shareholders The Chairman ensures that there is effective communication with investors and that the Board understands the views of major shareholders on matters such as governance and strategy. He is available to meet shareholders for this purpose. The other members of the Board are also available to meet major investors on request. Further information is set out on page 46. E.2 – Constructive use of the annual general meeting Our annual general meeting will be held on 29 July 2016 and is an opportunity for shareholders to vote on certain aspects of Group business and present questions to the Board. a A summary presentation of the full year results is given before the Chairman deals with the formal business of the meeting. a All shareholders can question any member of the Board both during the meeting and informally afterwards. The Board encourages participation of investors at the meeting. a The meeting is also broadcast live and on demand on our website at vodafone.com/agm. a Voting on all resolutions is on a poll. The proxy votes cast, including details of the votes withheld, are disclosed to those in attendance at the meeting and the results are published on our website and announced via the Regulatory News Service. a A copy of our notice of meeting can be found at vodafone.com/agm. B.5 – Information and support There is a procedure to enable Directors to take independent legal and/ or financial advice at the Company’s expense, managed by the Group General Counsel and Company Secretary. No such independent advice was sought in the 2016 financial year. The Group General Counsel and Company Secretary also: a assists the Chairman by organising induction and training programmes and ensuring that all Directors have full and timely access to all relevant information; a ensures that the correct Board procedures are followed; and a advises the Board on corporate governance matters. The removal of the Group General Counsel and Company Secretary is a matter for the Board as a whole. B.6 – Evaluation Information on Board evaluation is set out on page 45. B.7 – Election/Re-election All Directors have submitted themselves for re-election at the 2016 annual general meeting with the exception of David Nish who will be elected for the first time in accordance with our Articles of Association. The Nominations and Governance Committee confirmed to the Board that the contributions made by the Directors continue to be effective and that the Company should support their re-election. The biographies for our Directors can be found on pages 40 and 41. C. Accountability C.1 – Financial and business reporting The following statements can be found in this Annual Report Statement The Directors’ statement of responsibility regarding the financial statements, including the going concern assessment. A statement confirming that the Board considers that the Annual Report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. A statement on the responsibility of our auditor (set out in the Audit Report). An explanation of the Company’s business model and the strategy for delivering the objectives of the Company. Pages 76 and 77 76 78 to 86 6 to 13 C.2 – System of risk management and internal control An overview of the Group’s framework for identifying and managing risk is on pages 22 to 28. The Board has overall responsibility for the system of risk management and internal control (and for reviewing its effectiveness) and has conducted a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. Such a system is designed to manage rather than eliminate business risks and can only provide reasonable and not absolute assurance against material mistreatment or loss. The long-term viability statement can be found on page 29. The Board has implemented in full the FRC “Guidance on Risk Management Internal Control and related Financial and Business Reporting” for the year and to the date of this Annual Report. The resulting procedures, which are subject to regular monitoring and review, provide an ongoing process for identifying, evaluating and managing the Company’s principal risks. 55 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Our US listing requirements As Vodafone’s American depositary shares are listed on NASDAQ Stock Market LLC (‘NASDAQ’), we are required to disclose a summary of any material differences between the corporate governance practices we follow and those of US companies listed on NASDAQ. Vodafone’s corporate governance practices are primarily based on UK requirements but substantially conform to those required of US companies listed on NASDAQ. The material differences are set out in the following table: Board member independence Committees Code of Ethics and Code of Conduct Quorum Related party transactions Shareholder approval 56 Different tests of independence for Board members are applied under the Code and the NASDAQ listing rules. The Board is not required to take into consideration NASDAQ’s detailed definitions of independence as set out in the NASDAQ listing rules. The Board has carried out an assessment based on the independence requirements of the Code and has determined that, in its judgement, each of Vodafone’s Non-Executive Directors is independent within the meaning of those requirements. The NASDAQ listing rules require US companies to have a nominations committee, an audit committee and a compensation committee, each composed entirely of independent directors, with the nominations committee and the audit committee each required to have a written charter which addresses the committee’s purpose and responsibilities, and the compensation committee having sole authority and adequate funding to engage compensation consultants, independent legal counsel and other compensation advisers. a Our Nominations and Governance Committee is chaired by the Chairman of the Board and its other members are independent Non-Executive Directors. a Our Remuneration Committee is composed entirely of independent Non-Executive Directors. a Our Audit and Risk Committee is composed entirely of Non-Executive Directors, each of whom (i) the Board has determined to be independent based on the independence requirements of the Code and (ii) meets the independence requirements of the Securities Exchange Act 1934. a We have terms of reference for our Nominations and Governance Committee, Audit and Risk Committee and Remuneration Committee, each of which complies with the requirements of the Code and is available for inspection on our website at vodafone.com/governance. a These terms of reference are generally responsive to the relevant NASDAQ listing rules, but may not address all aspects of these rules. Under the NASDAQ listing rules, US companies must adopt a Code of Conduct applicable to all directors, officers and employees that complies with the definition of a “code of ethics” set out in section 406 of the Sarbanes-Oxley Act. a We have adopted a Code of Ethics that complies with section 406 of the Sarbanes-Oxley Act which is applicable only to the senior financial and principal executive officers, and which is available on our website at vodafone.com/governance. a We have also adopted a separate Code of Conduct which applies to all employees. The quorum required for shareholder meetings, in accordance with our articles of association, is two shareholders, regardless of the level of their aggregate share ownership, while US companies listed on NASDAQ are required by the NASDAQ listing rules to have a minimum quorum of 33.33% of the shareholders of ordinary shares for shareholder meetings. In lieu of obtaining an independent review of related party transactions for conflicts of interests in accordance with the NASDAQ listing rules, we seek shareholder approval for related party transactions that (i) meet certain financial thresholds or (ii) have unusual features in accordance with the Listing Rules issued by the FCA in the United Kingdom (the ‘Listing Rules’), the Companies Act 2006 and our articles of association. Further, we use the definition of a transaction with a related party as set out in the Listing Rules, which differs in certain respects from the definition of related party transaction in the NASDAQ listing rules. When determining whether shareholder approval is required for a proposed transaction, we comply with both the NASDAQ listing rules and the Listing Rules. Under the NASDAQ listing rules, whether shareholder approval is required for a transaction depends on, among other things, the percentage of shares to be issued or sold in connection with the transaction. Under the Listing Rules, whether shareholder approval is required for a transaction depends on, among other things, whether the size of a transaction exceeds a certain percentage of the size of the listed company undertaking the transaction. Vodafone Group Plc Annual Report 2016Directors’ remuneration Remuneration Committee During the year the Committee has continued to ensure its work supports our long-term strategic goals and that remuneration levels fairly reflect ongoing performance in the context of wider market conditions and shareholder views. Chairman Valerie Gooding Independent Non-Executive Director Key objective: To assess and make recommendations to the Board on the policies for executive remuneration and reward packages for the individual Executive Directors. Responsibilities: a determining, on behalf of the Board, the policy on the remuneration of the Chairman of the Board, the Executive Directors and the senior management team; a determining the total remuneration packages for these individuals including any compensation on termination of office; a operating within recognised principles of good governance; and a preparing an Annual Report on Directors’ remuneration. Contents of the Remuneration Report Remuneration policy The remuneration policy table Chairman and Non-Executive Directors’ remuneration Annual Report on remuneration Remuneration Committee 2016 remuneration 2017 remuneration Further remuneration information Page 59 Page 60 Page 64 Page 65 Page 65 Page 66 Page 72 Page 73 Letter from the Remuneration Committee Chairman Dear shareholder On behalf of the Board, I present our 2016 Directors’ Remuneration Report – my first as Chairman of the Remuneration Committee. This report sets out both our policy, as approved by shareholders at the 2014 annual general meeting, and how this policy was implemented during 2016. Last year’s report received a vote in favour from shareholders of over 97% – indicating support for the Committee’s focus on implementing the key principles of our executive remuneration approach. The Committee remains committed to ensuring that all of our decisions are guided by the principles of: a offering competitive and fair rates of pay and benefits; a ensuring our remuneration policy, and the manner in which it is implemented, drives the behaviours that support our strategy and business objectives; a maintaining a “pay for performance” approach to remuneration which ensures our incentive plans only deliver significant rewards if and when they are justified by business performance; and a aligning the interests of our senior management team with those of shareholders by developing an approach to share ownership that helps to maintain commitment over the long term. Project Spring during 2016 The year under review saw operational progress made under Project Spring. In AMAP this was reflected through continued customer and data growth whilst in Europe our progress was evident in the fact that c.70% of our markets returned to service revenue growth. Our improved financial performance was complemented by significant steps being made in the “Customer eXperience eXcellence” phase of Project Spring. This saw us increase the number of markets where we are Consumer NPS leader by 2, to 13 out of 21. In addition to the above, the combined impact of these results has led to a number of notable achievements this year, including: a doubling the number of our 4G customers to 47m; a increasing our fixed broadband base to 13.4m (an increase of 1.3m); a returning to full year growth in both EBITDA and service revenue; a strong enterprise performance; and a meeting targets in Europe for dropped call rates of less than 0.5% and for data sessions above three megabits per second of above 90%. 57 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016This will therefore constitute the third financial year in which the current policy has been in place – a reflection of its success in providing an effective framework which has demonstrated the flexibility to meet our changing strategic priorities over the last three years. In line with the reporting requirements our Policy Report will be put forward to a binding shareholder vote at the 2017 annual general meeting. The Committee is therefore in the process of conducting a full review of our existing arrangements to ensure that the Policy Report put forward for shareholder approval is appropriately positioned to support our executive remuneration programme over the next three years. Conclusion The success of Project Spring was always going to require more than financial investment. Indeed, our latest results show how our significant investment in infrastructure has been matched by a contribution from all our colleagues to improving our customers’ experience. Continuous improvement for customers will be crucial in maximising the benefits from Project Spring for years to come. Finally, I would like to take this opportunity to welcome Dr Mathias Döpfner to the Remuneration Committee and thank my predecessor, Luc Vandevelde, who stepped down from both the Committee and the Board following the 2015 annual general meeting, for his hard work and support during his tenure. I look forward to ensuring that the Committee continues to maintain and develop an executive remuneration framework that supports the opportunities ahead. Valerie Gooding Chairman of the Remuneration Committee 17 May 2016 Directors’ remuneration (continued) Remuneration outcomes during 2016 Annual bonus performance during the year was assessed against both financial and strategic measures. The former constituted 60% of maximum opportunity and was comprised of service revenue, EBITDA and adjusted cash flow (all equally weighted). Our strategic measure was comprised of Customer Appreciation KPIs, reflecting our focus on customer experience excellence and included Net Promoter Score and Brand Consideration, as well as consideration of other factors such as customer churn. During the year, performance under all of the financial measures exceeded target performance, with cash flow in particular recording strong results. These results reflected both a stabilisation of performance in our European markets, with outcomes for this region ranging from slightly below to slightly above financial targets, and continued strong performance in our AMAP markets where financial performance across all three measures was significantly above targets. Performance under the Customer Appreciation KPIs element of the bonus was slightly above on target performance highlighting that whilst there has been a positive start to our customer experience excellence focus, there still remain further gains to be made. We will be looking closely at underlying local market performance to ensure that all of our customers, regardless of where they are in the world, feel the benefit of our significant investment in this area. Further details about how this measure was assessed is provided on page 66. As part of our commitment to full and open disclosure we have, for several years, published details of the performance required to achieve a target payout under the GSTIP for the year under review. This year we have sought to further reflect best practice by disclosing full target ranges of which further details can also be found on page 66. Performance against these targets during the year resulted in an overall payout of 58.4% of maximum. In terms of long-term incentives, the 2014 GLTI award was measured over the three financial years ending 31 March 2016 and was assessed against both Free Cash Flow and TSR performance. Over the course of the performance period, the Free Cash Flow measure exceeded threshold performance, which was complemented by a slight outperformance of the median of the TSR comparator group. This resulted in a combined payout of 23.2% of maximum. Application of policy for the year ahead Following the Committee’s annual review of the current policy it was agreed that no changes would be made in respect of the year ahead. Similarly, it was determined that the current balance of performance measures, following last year’s introduction of the Customer Appreciation KPIs measure under the GSTIP, remains appropriate. As part of this annual review, the Committee also contacted our top 20 shareholders to consult on the proposed application of the policy for the year ahead. This included the decision to increase the base salary of the Chief Financial Officer by 2.0% in light of business performance, salary increases for other UK employees and external market information. The Chief Executive Officer requested not to be considered for a salary increase during the year, and the Committee respected this request. The Committee appreciates the importance of consulting with shareholders on matters of executive remuneration and was therefore pleased with the high level of engagement and support shown by investors. During the year the Committee also completed a risk assessment of the current incentive plans. Although such an assessment is conducted annually, the Committee saw the review as particularly important this year given the current external environment. Following the assessment, the Committee remains satisfied that the current incentive plans do not promote undue risk. 58 Vodafone Group Plc Annual Report 2016Remuneration policy No changes have been made to our policy since its approval at the 2014 annual general meeting which was held on 29 July 2014. Our approved Policy Report is available on our website at vodafone.com, and has been reproduced below exactly as it was set out in the 2014 Annual Report. As such, a few phrases (e.g. references to the 2014 annual general meeting) are now out of date. REMUNERATION POLICY (FIRST PUBLISHED IN THE 2014 ANNUAL REPORT) In this forward-looking section we describe our remuneration policy for the Board. This includes our considerations when determining policy, a description of the elements of the reward package and an indication of the potential future value of this package for each of the executive directors. In addition we describe our policy applied to the Chairman and non-executive directors. We will be seeking shareholder approval for our remuneration policy at the 2014 AGM and we intend to implement at that point. We do not envisage making any changes to our policy over the next three years, however, we will review it each year to ensure that it continues to support our Company strategy. If we feel it is necessary to make a change to our policy within the next three years, we will seek shareholder approval. Considerations when determining remuneration policy Our remuneration principles which are outlined on page 57 are the context for our policy. Our principal consideration when determining remuneration policy is to ensure that it supports our Company strategy and business objectives. The views of our shareholders are also taken into account when determining executive pay. In advance of asking for approval for the remuneration policy we have consulted with our major shareholders. We invited our top 20 shareholders to comment on remuneration at Vodafone and several meetings between shareholders and the Remuneration Committee Chairman took place. The main topics of consultation were as follows: a new share plan rules for which we will seek shareholder approval at the 2014 annual general meeting; a changes to executive remuneration arrangements (reduction of maximum long-term incentive vesting levels and pension provision); and a impact of Project Spring on Free Cash Flow performance under the global long-term incentive plan (‘GLTI’). We have not consulted with employees on the executive remuneration policy nor is any fixed remuneration comparison measurement used. However, when determining the policy for Executive Directors, we have been mindful of the pay and employment conditions of employees in Vodafone Group as a whole, with particular reference to the market in which the executive is based. Further information on our remuneration policy for other employees is given on page 62. Performance measures and targets Our Company strategy and business objectives are the primary consideration when we are selecting performance measures for our incentive plans. The targets within our incentive plans that are related to internal financial measures (such as revenue, profit and cash flow) are typically determined based on our budgets. Targets for strategic and external measures (such as competitive performance and Total Shareholder Return (‘TSR’)) are set based on Company objectives and in light of the competitive marketplace. The threshold and maximum levels of performance are set to reflect minimum acceptable levels at threshold and very stretching but achievable levels at maximum. As in previous remuneration reports we will disclose the details of our performance targets for our short and long-term incentive plans. However, our annual bonus targets are commercially sensitive and therefore we will only disclose our targets in the remuneration report following the completion of the financial year. We will disclose the targets for each long-term award in the remuneration report for the financial year preceding the start of the performance period. At the end of each performance period we review performance against the targets, using judgement to account for items such as (but not limited to) mergers, acquisitions, disposals, foreign exchange rate movements, changes in accounting treatment, material one-off tax settlements etc. The application of judgement is important to ensure that the final assessments of performance are fair and appropriate. In addition, the Remuneration Committee reviews the incentive plan results before any payments are made to executives or any shares vest and has full discretion to adjust the final payment or vesting downwards if they believe circumstances warrant it. In particular, the Committee may use discretion to clawback any unvested share award (or vested but unexercised options) as it sees appropriate, in which case the award may lapse wholly or in part, may vest to a lesser extent than it would otherwise have vested or vesting may be delayed. 59 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Opportunity Performance metrics a Average salary increases for existing Executive Committee members (including Executive None. Directors) will not normally exceed average increases for employees in other appropriate parts of the Group. Increases above this level may be made in specific situations. These situations could include (but are not limited to) internal promotions, changes to role, material changes to the business and exceptional company performance. a The pension contribution or cash payment is equal to 30% of annual gross salary. In light None. of pension levels elsewhere in the Group we have decided to reduce the pension benefits level from 30% to no more than 24% from November 2015. country of employment. external factors. a We expect to maintain benefits at the current level but the value of benefit may fluctuate depending on, amongst other things, personal situation, insurance premiums and other Directors’ remuneration (continued) Remuneration policy (continued) The remuneration policy table The table below summarises the main components of the reward package for Executive Directors. Base salary Purpose and link to strategy a To attract and retain the best talent. Pension a To remain competitive within the marketplace. Operation a Salaries are usually reviewed annually and fixed for 12 months commencing 1 July. Decision is influenced by: a level of skill, experience and scope of responsibilities of individual; a business performance, scarcity of talent, economic climate and market conditions; a increases elsewhere within the Group; and a external comparator groups (which are used for reference purposes only) made up of companies of similar size and complexity to Vodafone. a Executive Directors may choose to participate in the defined contribution pension scheme or to receive a cash allowance in lieu of pension. Benefits a To aid retention and remain competitive within a Travel related benefits. This may include (but is not limited a Benefits will be provided in line with appropriate levels indicated by local market practice in the None. the marketplace. to) company car or cash allowance, fuel and access to a driver where appropriate. a Private medical, death and disability insurance and annual health checks. a In the event that we ask an individual to relocate we would offer them support in line with Vodafone’s relocation or international assignment policies. This may cover (but is not limited to) relocation, cost of living allowance, housing, home leave, education support, tax equalisation and advice. a Legal fees if appropriate. a Other benefits are also offered in line with the benefits offered to other employees for example, all-employee share plans, mobile phone discounts, maternity/paternity benefits, sick leave, paid holiday, etc. Annual Bonus – Global Short- Term Incentive Plan (‘GSTIP’) a To drive behaviour and communicate the key priorities for a Bonus levels and the appropriateness of measures a Bonuses can range from 0–200% of base salary, with 100% paid for on-target performance. a Performance over each financial year the year. a To motivate employees and incentivise delivery of performance over the one year operating cycle. a The financial metrics are designed to both drive our growth strategies whilst also focusing on improving operating efficiencies. Measuring competitive performance with its heavy reliance on net promoter score (‘NPS’) means providing a great customer experience remains at the heart of what we do. and weightings are reviewed annually to ensure they continue to support our strategy. a Performance over the financial year is measured against stretching financial and non-financial performance targets set at the start of the financial year. a The annual bonus is usually paid in cash in June each year for performance over the previous year. Maximum is only paid out for exceptional performance. Long-Term Incentive – Global Long-Term Incentive Plan (‘GLTI’) base awards and co-investment awards (further details can be found in the notes that follow this table) a To motivate and incentivise delivery of sustained performance over the long term. a To support and encourage greater shareholder alignment through a high level of personal financial commitment. a The use of free cash flow as the principal performance measure ensures we apply prudent cash management and rigorous capital discipline to our investment decisions, whilst the use of TSR along with a performance period of not less than three years means that we are focused on the long-term interests of our shareholders. a Award levels and the framework for determining vesting are reviewed annually to ensure they continue to support our strategy. a Long-term incentive base awards consist of performance shares which are granted each year. a Individuals must co-invest in Vodafone shares and hold them in trust for at least three years in order to receive the full target award. a All awards vest not less than three years after the award based on Group operational and external performance. a Dividend equivalents are paid in cash after the vesting date. 60 a The basic target award level is 137.5% of base salary for the Chief Executive (110% for other a Performance is measured against Executive Directors). base salary. a The target award level may increase up to 237.5% of base salary for the Chief Executive (or 210% for others) if the individual commits to a co-investment in shares equal in value to their a Vesting is determined based on a matrix a Minimum vesting is 0% of target award level, threshold vesting is 50% and maximum vesting a adjusted free cash flow as our is 250% of the target award level. operational performance measure; and a Maximum long-term incentive face value at award of 594% of base salary for the Chief Executive a relative TSR against a peer group (237.5% x 250%) and 525% for others. a The awards that vest accrue cash dividend equivalents over the three year vesting period. a Awards vest to the extent performance conditions are satisfied. There is a mandatory holding period where 50% of the post-tax shares are released after vesting, a further 25% after the first anniversary of vesting, and the remaining 25% will be released after the second anniversary. of companies as our external performance measure. is measured against stretching targets set at the beginning of the year. a The performance measures normally comprise of a mix of financial and strategic measures. Financial measures may include (but are not limited to) profit, revenue and cash flow with a weighting of no less than 50%. Strategic measures may include (but are not limited to) competitive performance metrics such as net promoter score and market share. stretching targets set at the beginning of the performance period. of two measures: Vodafone Group Plc Annual Report 2016Remuneration policy (continued) The remuneration policy table The table below summarises the main components of the reward package for Executive Directors. Purpose and link to strategy Operation Base salary a To attract and retain the best talent. Opportunity a Average salary increases for existing Executive Committee members (including Executive Performance metrics None. Directors) will not normally exceed average increases for employees in other appropriate parts of the Group. Increases above this level may be made in specific situations. These situations could include (but are not limited to) internal promotions, changes to role, material changes to the business and exceptional company performance. Pension a To remain competitive within the marketplace. a Executive Directors may choose to participate in the a The pension contribution or cash payment is equal to 30% of annual gross salary. In light None. of pension levels elsewhere in the Group we have decided to reduce the pension benefits level from 30% to no more than 24% from November 2015. Benefits a To aid retention and remain competitive within a Travel related benefits. This may include (but is not limited a Benefits will be provided in line with appropriate levels indicated by local market practice in the None. the marketplace. country of employment. a We expect to maintain benefits at the current level but the value of benefit may fluctuate depending on, amongst other things, personal situation, insurance premiums and other external factors. a To drive behaviour and communicate the key priorities for a Bonus levels and the appropriateness of measures a Bonuses can range from 0–200% of base salary, with 100% paid for on-target performance. a Performance over each financial year Maximum is only paid out for exceptional performance. is measured against stretching targets set at the beginning of the year. a The performance measures normally comprise of a mix of financial and strategic measures. Financial measures may include (but are not limited to) profit, revenue and cash flow with a weighting of no less than 50%. Strategic measures may include (but are not limited to) competitive performance metrics such as net promoter score and market share. a The basic target award level is 137.5% of base salary for the Chief Executive (110% for other a Performance is measured against Executive Directors). a The target award level may increase up to 237.5% of base salary for the Chief Executive (or 210% for others) if the individual commits to a co-investment in shares equal in value to their base salary. stretching targets set at the beginning of the performance period. a Vesting is determined based on a matrix of two measures: a Minimum vesting is 0% of target award level, threshold vesting is 50% and maximum vesting a adjusted free cash flow as our is 250% of the target award level. a Maximum long-term incentive face value at award of 594% of base salary for the Chief Executive (237.5% x 250%) and 525% for others. a The awards that vest accrue cash dividend equivalents over the three year vesting period. a Awards vest to the extent performance conditions are satisfied. There is a mandatory holding period where 50% of the post-tax shares are released after vesting, a further 25% after the first anniversary of vesting, and the remaining 25% will be released after the second anniversary. operational performance measure; and a relative TSR against a peer group of companies as our external performance measure. 61 a Salaries are usually reviewed annually and fixed for 12 months commencing 1 July. Decision is influenced by: a level of skill, experience and scope of responsibilities of individual; a business performance, scarcity of talent, economic climate and market conditions; a increases elsewhere within the Group; and a external comparator groups (which are used for reference purposes only) made up of companies of similar size and complexity to Vodafone. defined contribution pension scheme or to receive a cash allowance in lieu of pension. to) company car or cash allowance, fuel and access to a driver where appropriate. a Private medical, death and disability insurance and annual health checks. a In the event that we ask an individual to relocate we would offer them support in line with Vodafone’s relocation or international assignment policies. This may cover (but is not limited to) relocation, cost of living allowance, housing, home leave, education support, tax equalisation and advice. a Legal fees if appropriate. a Other benefits are also offered in line with the benefits offered to other employees for example, all-employee share plans, mobile phone discounts, maternity/paternity benefits, sick leave, paid holiday, etc. and weightings are reviewed annually to ensure they continue to support our strategy. a Performance over the financial year is measured against stretching financial and non-financial performance targets set at the start of the financial year. a The annual bonus is usually paid in cash in June each year Annual Bonus – Global Short- Term Incentive Plan (‘GSTIP’) the year. a To motivate employees and incentivise delivery of performance over the one year operating cycle. a The financial metrics are designed to both drive our growth strategies whilst also focusing on improving operating efficiencies. Measuring competitive score (‘NPS’) means providing a great customer experience remains at the heart of what we do. performance with its heavy reliance on net promoter for performance over the previous year. Long-Term a To motivate and incentivise delivery of sustained a Award levels and the framework for determining vesting Incentive – Global performance over the long term. are reviewed annually to ensure they continue to support a To support and encourage greater shareholder alignment our strategy. through a high level of personal financial commitment. a Long-term incentive base awards consist of performance a The use of free cash flow as the principal performance shares which are granted each year. measure ensures we apply prudent cash management a Individuals must co-invest in Vodafone shares and hold and rigorous capital discipline to our investment them in trust for at least three years in order to receive decisions, whilst the use of TSR along with a performance the full target award. found in the notes period of not less than three years means that we are that follow this focused on the long-term interests of our shareholders. Long-Term Incentive Plan (‘GLTI’) base awards and co-investment awards (further details can be table) a All awards vest not less than three years after the award based on Group operational and external performance. a Dividend equivalents are paid in cash after the vesting date. OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Directors’ remuneration (continued) Remuneration policy (continued) Notes to the remuneration policy table Existing arrangements We will honour existing awards to Executive Directors, and incentives, benefits and contractual arrangements made to individuals prior to their promotion to the Board. This will last until the existing incentives vest (or lapse) or the benefits or contractual arrangements no longer apply. Long-Term Incentive (‘GLTI’) When referring to our long-term incentive awards we use the financial year end in which the award was made. For example, the ‘2013 award’ was made in the financial year ending 31 March 2013. The awards are usually made in the first half of the financial year (the 2013 award was made in July 2012). The extent to which awards vest depends on two performance conditions: a underlying operational performance as measured by adjusted free cash flow; and a relative Total Shareholder Return (‘TSR’) against a peer group median. Adjusted free cash flow The free cash flow performance is based on the cumulative adjusted free cash flow figure over the performance period. The detailed targets and the definition of adjusted free cash flow are determined each year as appropriate. The target adjusted free cash flow level is set by reference to our long-range plan and market expectations. We consider the targets to be critical to the Company’s long-term success and its ability to maximise shareholder value, and to be in line with the strategic goals of the Company. The Remuneration Committee sets these targets to be sufficiently demanding with significant stretch where only outstanding performance will be rewarded with a maximum payout. The cumulative adjusted free cash flow vesting levels as a percentage of target are shown in the table below (with linear interpolation between points): Performance Below threshold Threshold Target Maximum Vesting percentage 0% 50% 100% 125% TSR outperformance of a peer group median We have a limited number of appropriate peers and this makes the measurement of a relative ranking system volatile. As such, the outperformance of the median of a peer group is felt to be the most appropriate TSR measure. The peer group for the performance condition is reviewed each year and amended as appropriate. The relative TSR position determines the performance multiplier. This will be applied to the adjusted free cash flow vesting percentage. There will be no multiplier until TSR performance exceeds median. Above median, the following table will apply (with linear interpolation between points): Median Percentage outperformance of the peer group median equivalent to 65th percentile Percentage outperformance of the peer group median equivalent to 80th percentile Multiplier No increase 1.5 times 2.0 times In order to determine the percentages for the equivalent outperformance levels above median, the Remuneration Committee seeks independent external advice. Combined vesting matrix The combination of the two performance measures gives a combined vesting matrix as follows (with linear interpolation between points): Adjusted free cash flow measure Below threshold Threshold Target Maximum Up to Median 0% 50% 100% 125% 65th percentile equivalent 0% 75% 150% 187.5% TSR outperformance 80th percentile equivalent 0% 100% 200% 250% The combined vesting percentages are applied to the target number of shares granted. Outstanding awards For the awards made in the 2013 and 2014 financial years (vesting in July 2015 and June 2016 respectively) the award structure is as set out above, except that the maximum vesting percentage for cumulative adjusted free cash flow was 150% leading to an overall maximum of 300% of target award. Remuneration policy for other employees While our remuneration policy follows the same fundamental principles across the Group, packages offered to employees reflect differences in market practice in the different countries, role and seniority. For example, the remuneration package elements for our Executive Directors are essentially the same as for the other Executive Committee members, with some small differences, for example higher levels of share awards. The remuneration for the next level of management, our senior leadership team, again follows the same principles but with differences such as local and individual performance aspects in the annual bonus targets and performance share awards. They also receive lower levels of share awards which are partly delivered in restricted shares. 62 Vodafone Group Plc Annual Report 2016Estimates of total future potential remuneration from 2015 pay packages The tables below provide estimates of the potential future remuneration for each of the Executive Directors based on the remuneration opportunity granted in the 2015 financial year and therefore do not reflect the latest remuneration information. Potential outcomes based on different performance scenarios are provided for each Executive Director. The assumptions underlying each scenario are described below. Fixed Consists of base salary, benefits and pension. Base salary is at 1 July 2014. Benefits are valued using the figures in the total remuneration for the 2014 financial year table on page 78 (of the 2014 report) and on a similar basis for Nick Read (promoted to the Board on 1 April 2014). Pensions are valued by applying cash allowance rate of 30% of base salary at 1 July 2014. On target Maximum All scenarios Pension (£’000) 345 203 180 Base (£’000) 1,150 675 600 Benefits (£’000) 38 Chief Executive 23 Chief Financial Officer Chief Technology Officer 21 Based on what a Director would receive if performance was in line with plan. The target award opportunity for the annual bonus (‘GSTIP’) is 100% of base salary. The target award opportunity for the long-term incentive (‘GLTI’) is 237.5% of base salary for the Chief Executive and 210% for others. We assumed that TSR performance was at median. Two times the target award opportunity is payable under the annual bonus (‘GSTIP’). The maximum levels of performance for the long-term incentive (‘GLTI’) are 250% of target award opportunity. We assumed that TSR performance was at or above the 80th percentile equivalent. Each executive is assumed to co-invest the maximum allowed under the long-term incentive (‘GLTI’), 100% of salary, and the long-term incentive (‘GLTI’) award reflects this. Long-term incentives consist of share awards only which are measured at face value i.e. no assumption for increase in share price or cash dividend equivalents payable. Total fixed (£’000) 1,533 901 801 Vittorio Colao, Chief Executive £’000 Nick Read, Chief Financial Officer (appointed 1 April 2014) £’000 12,000 10,000 8,000 6,000 4,000 2,000 £5,414 51% 28% 21% 14% £1,533 £10,661 64% 22% Maximum 12,000 10,000 8,000 6,000 4,000 2,000 £901 £2,994 47% 30% 23% 16% £5,795 61% 23% Maximum 0 ¢ Salary and benefits ¢ Annual bonus ¢ Long-term incentive On target Fixed 0 ¢ Salary and benefits ¢ Annual bonus ¢ Long-term incentive On target Fixed Stephen Pusey, Chief Technology Officer £’000 12,000 10,000 8,000 6,000 4,000 2,000 £801 £2,661 23% 47% 30% 0 ¢ Salary and benefits ¢ Annual bonus ¢ Long-term incentive On target Fixed 61% 16% £5,151 23% Maximum Recruitment remuneration Our approach to recruitment remuneration is to pay no more than is necessary and appropriate to attract the right talent to the role. The remuneration policy table (pages 60 and 61) sets out the various components which would be considered for inclusion in the remuneration package for the appointment of an Executive Director. Any new Director’s remuneration package would include the same elements, and be subject to the same constraints, as those of the existing Directors performing similar roles. This means a potential maximum bonus opportunity of 200% of base salary and long-term incentive maximum face value of opportunity at award of 594% of base salary. When considering the remuneration arrangements of individuals recruited from external roles to the Board, we will take into account the remuneration package of that individual in their prior role. We only provide additional compensation to individuals for awards foregone. If necessary we will seek to replicate, as far as practicable, the level and timing of such remuneration, taking into account also any remaining performance requirements applying to it. This will be achieved by granting awards of cash or shares that vest over a timeframe similar to those forfeited and if appropriate based on performance conditions. A commensurate reduction in quantum will be applied where it is determined that the new awards are either not subject to performance conditions or subject to performance conditions that are not as stretching as those of the awards forfeited. 63 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Directors’ remuneration (continued) Remuneration policy (continued) Service contracts of Executive Directors After an initial term of up to two years Executive Directors’ contracts have rolling terms and are terminable on no more than 12 months’ notice. The key elements of the service contract for executives relate to remuneration, payments on loss of office (see below), and restrictions during active employment (and for 12 months thereafter). These restrictions include non-competition, non-solicitation of customers and employees etc. Additionally, all of the Company’s share plans contain provisions relating to a change of control. Outstanding awards and options would normally vest and become exercisable on a change of control to the extent that any performance condition has been satisfied and pro-rated to reflect the acceleration of vesting. Payments for departing executives In the table below we summarise the key elements of our policy on payment for loss of office. We will of course, always comply both with the relevant plan rules and local employment legislation. Provision Notice period and compensation for loss of office in service contracts Treatment of annual bonus (‘GSTIP’) on termination under plan rules Treatment of unvested long-term incentive awards (‘GLTI’) and co-investment awards on termination under plan rules Policy a 12 months’ notice from the Company to the Executive Director. a Up to 12 months’ base salary (in line with the notice period). Notice period payments will either be made as normal (if the executive continues to work during the notice period or is on gardening leave) or they will be made as monthly payments in lieu of notice (subject to mitigation if alternative employment is obtained). a The annual bonus will be pro-rated for the period of service during the financial year and will reflect the extent to which Company performance has been achieved. a The Remuneration Committee has discretion to reduce the entitlement to an annual bonus to reflect the individual’s performance and the circumstances of the termination. a An Executive Director’s award will vest in accordance with the terms of the plan and satisfaction of performance conditions measured at the normal completion of the performance period, with the award pro-rated for the proportion of the vesting period that had elapsed at the date of cessation of employment. a The Remuneration Committee has discretion to vary the level of vesting as deemed appropriate, and in particular to determine that awards should not vest in the case of a ‘bad leaver’ which may include, at their absolute discretion, departure in case of poor performance, departure without the agreement of the Board, or detrimental competitive activity. Pension and benefits a Generally pension and benefit provisions will continue to apply until the termination date. a Where appropriate other benefits may be receivable, such as (but not limited to) payments in lieu of accrued holiday and legal fees or tax advice costs in relation to the termination. a Benefits of relative small value may continue after termination where appropriate, such as (but not limited to) mobile phone provision. In exceptional circumstances, an arrangement may be established specifically to facilitate the exit of a particular individual albeit that any such arrangement would be made within the context of minimising the cost to the Group. We will only take such a course of action in exceptional circumstances and where it is considered to be in the best interests of shareholders. Chairman and Non-Executive Directors’ remuneration Our policy is for the Chairman to review the remuneration of Non-Executive Directors annually following consultation with the Remuneration Committee Chairman. Fees for the Chairman are set by the Remuneration Committee. Element Fees Policy a We aim to pay competitively for the role including consideration of the time commitment required. We benchmark the fees against an appropriate external comparator group. We pay fees to our Chairman and Senior Independent Director that include fees for chairmanship of any committees. We pay a fee to each of our other Non-Executive Directors and they receive an additional fee if they chair a committee. Non-executive fee levels are set within the maximum level as approved by shareholders as part of our articles of association. Allowances a An allowance is payable each time a non-Europe-based Non-Executive Director is required to travel to attend Board and committee meetings to reflect the additional time commitment involved. Incentives Benefits a Non-Executive Directors do not participate in any incentive plans. a Non-Executive Directors do not participate in any benefit plans. The Company does not provide any contribution to their pension arrangements. The Chairman is entitled to the use of a car and a driver whenever and wherever he is providing his services to or representing the Company. We have been advised that for Non-Executive Directors, certain travel and accommodation expenses in relation to attending Board meetings should be treated as a taxable benefit therefore we also cover the tax liability for these expenses. Non-Executive Director service contracts Non-Executive Directors are engaged on letters of appointment that set out their duties and responsibilities. The appointment of Non-Executive Directors may be terminated without compensation. Non-Executive Directors are generally not expected to serve for a period exceeding nine years. For further information refer to the “Nomination and Governance Committee” section of the Annual Report (pages 69 and 70). 64 Vodafone Group Plc Annual Report 2016Annual Report on remuneration Remuneration Committee In this section we give details of the composition of the Remuneration Committee and activities undertaken during the 2016 financial year. The Committee is comprised to exercise independent judgement and consists only of the following independent Non-Executive Directors: Chairman: Valerie Gooding (from 28 July 2015) Committee members: Renee James and Samuel Jonah The Committee regularly consults with Vittorio Colao, the Chief Executive, and Ronald Schellekens, the Group HR Director, on various matters relating to the appropriateness of awards for Executive Directors and senior executives, though they are not present when their own compensation is discussed. In addition, Adrian Jackson, the Group Reward and Policy Director, provides a perspective on information provided to the Committee, and requests information and analysis from external advisers as required. Rosemary Martin, the Group General Counsel and Company Secretary, advises the Committee on corporate governance guidelines and acts as secretary to the Committee. External advisers The Remuneration Committee seeks and considers advice from independent remuneration advisers where appropriate. The appointed advisers, Willis Towers Watson, were selected through a thorough process led by the Chairman of the Remuneration Committee and were appointed by the Committee in 2007. The Chairman of the Remuneration Committee has direct access to the advisers as and when required, and the Committee determines the protocols by which the advisers interact with management in support of the Committee. The advice and recommendations of the external advisers are used as a guide, but do not serve as a substitute for thorough consideration of the issues by each Committee member. Advisers attend Committee meetings occasionally, as and when required by the Committee. Willis Towers Watson is a member of the Remuneration Consultants’ Group and, as such, voluntarily operates under the Remuneration Consultants’ Group Code of Conduct in relation to executive remuneration consulting in the UK. This is based upon principles of transparency, integrity, objectivity, competence, due care and confidentiality by executive remuneration consultants. Willis Towers Watson has confirmed that it adheres to that Code of Conduct throughout the year for all remuneration services provided to Vodafone and therefore the Committee is satisfied that it is independent and objective. The Remuneration Consultants’ Group Code of Conduct is available at remunerationconsultantsgroup.com. Adviser Willis Towers Watson Remuneration Appointed by Committee in 2007 Services provided to the Committee Advice on market practice; governance; provision of market data on executive reward; reward consultancy; and performance analysis. Note: 1 Fees are determined on a time spent basis. Fees for services provided to the Committee £’0001 £102 Other services provided to the Company Reward and benefits consultancy; provision of benchmark data; pension administration; and insurance consultancy services. 2015 annual general meeting – Remuneration Report voting results At the 2015 annual general meeting there was an advisory vote on our Remuneration Report. Details of the voting outcomes are provided in the table below. Remuneration Report Votes for 17,072,436,151 % 97.19 Votes against 493,289,470 % 2.81 Total votes 17,565,725,621 Withheld 553,520,692 2014 annual general meeting – Remuneration Policy voting results At the 2014 annual general meeting there was a binding vote on our Remuneration Policy. Details of the voting outcomes are provided in the table below. Remuneration Policy Votes for 16,620,036,145 % 95.97 Votes against 698,459,069 % 4.03 Total votes 17,318,495,214 Withheld 227,447,313 Meetings The Remuneration Committee had seven formal meetings during the year. In addition, informal conference calls can also take place. The principal agenda items at the formal meetings were as follows: Meeting May 2015 June 2015 July 2015 September 2015 November 2015 January 2016 March 2016 Agenda items a 2015 annual bonus achievement and 2016 targets and ranges a 2012 long-term incentive award vesting and 2016 targets and ranges a Re-organisation of Europe region a 2016 long-term incentive awards a 2015 grant of co-investment awards a 2016 reward strategy a Annual review of remuneration policy a 2016 annual bonus framework a 2016 reward packages for the Executive Committee a Non-Executive Director fee levels a Chairman’s fees a 2015 Directors’ Remuneration Report a Large local market CEO remuneration a Corporate governance matters a 2016 Directors’ Remuneration Report a Committee’s Terms of Reference a Risk assessment 65 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Directors’ remuneration (continued) Annual Report on remuneration (continued) 2016 remuneration In this section we summarise the pay packages awarded to our Executive Directors for performance in the 2016 financial year versus 2015. Specifically we have provided a table that shows all remuneration that was earned by each individual during the year and computed a single total remuneration figure for the year. The value of the annual bonus (‘GSTIP’) reflects what was earned in respect of the year but will be paid out in cash in the following year. Similarly the value of the long-term incentive (‘GLTI’) reflects the share awards which will vest in June 2016 as a result of the performance through the three year period ended at the completion of our financial year on 31 March 2016. The Remuneration Committee reviews all incentive awards prior to payment and uses judgement to ensure that the final assessments of performance are fair and appropriate. If circumstances warrant it, the Committee may adjust the final payment or vesting downwards. On this occasion, based on the fact that final annual bonus payout and final vesting level long-term incentives awards GLTI were deemed to be an accurate reflection of performance and were considered fair and appropriate, the Committee did not use its discretion to adjust final outcomes. Total remuneration for the 2016 financial year (audited) Salary/fees Taxable benefits2 Annual bonus: GSTIP (see below for further detail) Total long-term incentive: GLTI vesting during the year3 Cash in lieu of GLTI dividends4 GLTR vesting during the year5 GLTR dividend equivalent shares6 Cash in lieu of pension Other7 Total Vittorio Colao Stephen Pusey1 Nick Read 2016 £’000 1,150 32 1,342 2,429 2,102 327 – – 316 1 5,270 2015 £’000 1,140 40 1,287 – – – – – 342 1 2,810 2016 £’000 200 7 233 754 653 101 – – 60 – 1,254 2015 £’000 594 21 671 – – – – – 178 – 1,464 2016 £’000 694 26 817 1,412 861 134 380 37 191 1 3,141 2015 £’000 675 28 755 – – – – – 203 1 1,662 Notes: 1 Stephen Pusey stepped down from the Board following the AGM held on 28 July 2015 and retired on 31 July 2015. 2 Taxable benefits include amounts in respect of: – Private healthcare (2016: £1,946; 2015: £1,854); – Cash car allowance £19,200 p.a.; and – Travel (2016: Vittorio Colao £10,764, Nick Read £4,546; 2015: Vittorio Colao £18,022; Nick Read £7,164). 3 The value shown in the 2016 column is the award which vests on 26 June 2016 and is valued using an average of closing share price over the last quarter of the 2016 financial year of 216.59 pence. 4 Participants also receive a cash award, equivalent in value to the dividends that would have been paid during the vesting period on any shares that vest. The cash in lieu of dividend value shown in 2016 relates to the award which vests on 26 June 2016. 5 On 26 June 2013, prior to his appointment to the Board, Nick Read was granted a GLTR share award which was subject to a continued employment condition. This award subsequently vested on June 2015 following the fulfilment of the continued employment condition. The value shown in the 2016 column in respect of Nick Read is based on the execution share price on 26 June 2015 of 238.09 pence. 6 Nick Read received an award of 15,620 dividend equivalent shares in respect of the GLTR share award which vested on 26 June 2015. 7 Reflects the value of the SAYE benefit which is calculated as £250 x 12 months x 20% to reflect the discount applied based on savings made during the year. 2016 annual bonus (‘GSTIP’) payout (audited) In the table below we disclose our achievement against each of the performance measures and targets in our annual bonus (‘GSTIP’) and the resulting total annual bonus payout level for the year ended 31 March 2016 of 116.7%. This is applied to the target bonus level of 100% of base salary for each executive. Commentary on our performance against each measure is provided below the table. Performance measure Service revenue EBITDA Adjusted free cash flow Customer Appreciation KPIs Total annual bonus payout level Payout at target performance 100% 20% 20% 20% 40% 100% Payout at maximum performance 200% 40% 40% 40% 80% Actual payout % 20.7% 23.7% 30.7% 41.6% 200% 116.7% Threshold performance level £bn 37.2 11.4 0.1 Target performance level £bn 39.2 12.2 0.7 Maximum performance level £bn 41.1 13.1 1.3 Actual performance level1 £bn 39.2 12.4 1.0 See below for further details Note: 1 These figures are adjusted to include the removal of the impact of M&A, foreign exchange movements and any changes in accounting treatment. During the year under review, service revenue performance was slightly above budget, with both Europe and AMAP regions recording above target performances. EBITDA results also demonstrated above target performance, with both Europe and AMAP again recording equally strong performances. With regards to Adjusted Free Cash Flow, overall performance reflected particularly strong AMAP performance, with our Europe region recording below target results. An assessment of performance under the Customer Appreciation KPIs measure was conducted on a market by market basis, with these scores then being subject to a revenue-weighted average to give an overall performance achievement. Performance was primarily judged against an assessment of net promoter score and brand consideration for both consumer and enterprise operations, where applicable, within each market. Additional consideration was then given to other relevant factors including customer churn rates and revenue market share. Group performance for the year was slightly above target reflecting our position as Consumer NPS leader in 13 out of 21 markets – an increase from our previous position as leader in 11 markets. 66 Vodafone Group Plc Annual Report 20162016 annual bonus (‘GSTIP’) amounts Vittorio Colao Stephen Pusey1 Nick Read Base salary £’000 1,150 600 700 Target bonus % of base salary 100% 100% 100% 2016 payout % of target 116.7% 116.7% 116.7% Actual payment £’000 1,342 233 817 Note: 1 The actual payment figure for Stephen Pusey reflects the pro-rated amount paid in respect of time served. Long-term incentive (‘GLTI’) award vesting in June 2016 (audited) The 2014 long-term incentive (‘GLTI’) awards which were made in June 2013 will partially vest in June 2016. The performance conditions for the three year period ending in the 2016 financial year are as follows: Adjusted free cash flow measure Below threshold Threshold Target Maximum £bn <12.4 12.4 14.4 16.4 0.0% (Up to median) 0% 50% 100% 150% 4.5% (65th percentile equivalent) 0% 75% 150% 225% TSR outperformance 9.0% (80th percentile equivalent) 0% 100% 200% 300% TSR peer group AT&T BT Group Deutsche Telekom Emerging markets composite Orange Telecom Italia Telefónica The adjusted free cash flow for the three year period ended on 31 March 2016, having removed the impact of the investment made under Project Spring as set out in our 2014 Annual Remuneration Report, was £13.1 billion. This compares with a threshold of £12.4 billion and a target of £14.4 billion. The chart to the right shows that our TSR performance against our peer group for the same period resulted in an outperformance of the median by 0.4% a year. Using the combined payout matrix above, this performance resulted in a payout of 69.6% of target. The combined vesting percentages are applied to the target number of shares granted as shown below. 2013 GLTI award: TSR performance (growth in the value of a hypothetical US$100 holding over the performance period, six-month averaging) 180 170 160 150 140 130 120 110 100 90 175 150 145 171 137 135 154 138 137 150 139 129 149 130 121 117 107 103 100 03/13 09/13 03/14 09/14 03/15 09/15 03/16 Vodafone Group Median of peer group Outperformance of median of 9% p.a. 2014 GLTI performance share awards vesting in June 2016 Vittorio Colao Stephen Pusey1 Nick Read Maximum number of shares 4,185,370 1,904,846 1,713,392 Target number of shares 1,395,123 634,948 571,130 Adjusted free cash flow performance payout % of target 66.6% 66.6% 66.6% TSR multiplier 1.05 times 1.05 times 1.05 times Overall vesting % of target 69.6% 69.6% 69.6% Number of shares vesting 970,586 301,272 397,335 Value of shares vesting (’000) £2,102 £653 £861 Note: 1 The number and value of shares vesting for Stephen Pusey reflect the pro-rated amount paid in respect of time served. These share awards will vest on 26 June 2016. Specified procedures are performed by PricewaterhouseCoopers LLP over the adjusted free cash flow to assist with the Committee’s assessment of performance. The performance assessment in respect of the TSR outperformance of the peer group median is undertaken by Willis Towers Watson. Details of how the plan works can be found on pages 60 to 62. Long-term incentive (‘GLTI’) awarded during the year (audited) The performance conditions for the 2016 long-term incentive awards made in June 2015 and September 2015 are a combination of adjusted free cash flow and TSR performance as follows: Adjusted free cash flow measure Below threshold Threshold Target Maximum £bn <7.3 7.3 9.0 10.7 0.0% (Up to median) 0% 50% 100% 125% 4.5% (65th percentile equivalent) 0% 75% 150% 187.5% TSR outperformance 9.0% (80th percentile equivalent) 0% 100% 200% 250% TSR peer group Bharti BT Group Deutsche Telekom MTN Orange Telecom Italia Telefónica The combined vesting percentages are applied to the target number of conditional shares granted. 67 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Directors’ remuneration (continued) Annual Report on remuneration (continued) In order to participate fully in this award, executives had to co-invest personal shares worth 100% of salary. The resulting awards to Executive Directors were as follows: 2016 GLTI performance share awards made in June 2015 and September 2015 Vittorio Colao Nick Read Number of shares awarded Face value of shares awarded1 Target vesting level (40% of max) 1,215,662 635,986 Maximum vesting level 3,039,156 1,589,967 Target vesting level £2,731,579 £1,417,652 Maximum vesting level £6,828,949 £3,544,135 Proportion of maximum award vesting at minimum performance Performance period end 1⁄5th 31 Mar 2018 1⁄5th 31 Mar 2018 Note: 1 Face value calculated based on target awards of 137.5 % of salary for Vittorio Colao and 110% of salary for Nick Read made in June 2015 using a share price for the awards of 239.4 pence and, following co-investment at the end of the close period, target awards of 100% of salary in September 2015 for both Executive Directors, using a share price for the awards of 207.2 pence (i.e. closing share price for the day prior to each grant). Dividend equivalents on the shares that vest are paid in cash after the vesting date. All-employee share plans The Executive Directors are also eligible to participate in the UK all-employee plans. Summary of plans Sharesave The Vodafone Group 2008 Sharesave Plan is an HM Revenue & Customs (‘HMRC’) approved scheme open to all staff permanently employed by a Vodafone Company in the UK as of the eligibility date. Options under the plan are granted at up to a 20% discount to market value. Executive Directors’ participation is included in the option table on page 69. Share Incentive Plan The Vodafone Share Incentive Plan (‘SIP’) is an HMRC approved plan open to all staff permanently employed by a Vodafone Company in the UK. Participants may contribute up to a maximum of £125 per month (or 5% of salary if less) which the trustee of the plan uses to buy shares on their behalf. An equivalent number of shares are purchased with contributions from the employing company. UK-based Executive Directors are eligible to participate. Pensions (audited) The Executive Directors received a cash allowance of 30% of base salary in lieu of pension contributions until 31 October 2015. From 1 November 2015, cash allowance in lieu of pension contributions for Vittorio Colao and Nick Read were reduced to 24% of base salary. No Executive Directors accrued benefits under any defined contribution pension plans during the year or have participated in a defined benefits scheme while an Executive Director. The Executive Directors are provided benefits in the event of death in service. They also have an entitlement under a long-term disability plan from which two-thirds of base salary, up to a maximum benefit determined by the insurer, would be provided until normal retirement date (aged 60). In respect of the Executive Committee members, the Group has made aggregate contributions of £130,806 (2015: £43,000) into defined contribution pension schemes. Alignment to shareholder interests (audited) All of our Executive Directors have shareholdings in excess of their goals. Current levels of ownership by the Executive Directors, and the date by which the goal should be or should have been achieved, are shown below. The values are calculated using an average share price over the six months to 31 March 2016 of 216.09 pence. At 31 March 2016 Vittorio Colao Stephen Pusey (position at retirement) Nick Read Goal as a % of salary 400% 300% 300% Current % of salary held 2,049% 569% 644% % of goal Number achieved of shares 512% 10,906,223 190% 1,579,543 2,086,257 215% Value of shareholding £23.6m £3.4m £4.5m Date for goal to be achieved July 2012 June 2014 April 2019 Collectively the Executive Committee including the Executive Directors own more than 24 million Vodafone shares, with a value of over £52.3 million. None of the Executive Committee members’ shareholdings amounts to more than 1% of the issued shares in that class of share, excluding treasury shares. Directors’ interests in the shares of the Company (audited) A summary of interests in shares and scheme interests of the Directors who served during the year is given below. More details of the performance shares and options follows. At 31 March 2016 Executive Directors Vittorio Colao Stephen Pusey (position at retirement) Nick Read Total Share plans Share options Total number of interests in shares Unvested GLTI shares (with performance conditions) SAYE (unvested without performance conditions) 21,490,367 4,317,502 8,120,116 33,927,985 10,574,537 2,737,959 5,096,027 18,408,523 9,607 – 10,389 19,996 GIP (vested) – – 927,443 927,443 The total number of interests in shares includes interests of connected persons, unvested share awards and share options. 68 Vodafone Group Plc Annual Report 2016At 31 March 2016 Non-Executive Directors Sir Crispin Davis Dr Mathias Döpfner Dame Clara Furse Valerie Gooding1 Renee James Samuel Jonah Gerard Kleisterlee Nick Land David Nish Luc Vandevelde (position at retirement on 28 July 2015) Philip Yea Total number of interests in shares 34,500 11,500 25,000 4,038 27,272 30,190 107,078 42,090 21,227 75,474 33,408 Note: 1 On 17 May 2016, Valerie Gooding acquired an interest in a further 7,962 shares resulting in a total interest in 12,000 shares as at 17 May 2016. At 17 May 2016 and during the period from 1 April 2016 to 17 May 2016, no Director had any interest in the shares of any subsidiary company. Other than those individuals included in the tables above who were Board members at 31 March 2016, members of the Group’s Executive Committee at 31 March 2016 had an aggregate beneficial interest in 11,188,246 ordinary shares of the Company. At 17 May 2016 the Directors had an aggregate beneficial interest in 13,336,745 ordinary shares of the Company and the Executive Committee members had an aggregate beneficial interest in 11,197,712 ordinary shares of the Company, which includes awards made under the Vodafone Share Incentive Plan after 31 March 2016 and share purchases made after the year-end outside of the close period. None of the Directors or the Executive Committee members had an individual beneficial interest amounting to greater than 1% of the Company’s ordinary shares. With the exception of the acquisition of an interest in 7,962 ordinary shares by Valerie Gooding as outlined above, the Directors’ total number of interests in shares did not change during the period from 1 April 2016 to 17 May 2016. Performance shares The maximum number of outstanding shares that have been awarded to Directors under the long-term incentive (‘GLTI’) plan are currently as follows: GLTI performance share awards Vittorio Colao Stephen Pusey Nick Read 2014 award Awarded: June 2013 and September 20131 Performance period ending: March 2016 Vesting date: June 2016 Share price at grant: 180.2 pence and 202.5 pence 4,185,370 1,904,846 1,713,392 2015 award Awarded: June 2014 Performance period ending: March 2017 Vesting date: June 2017 Share price at grant: 189.9 pence 3,350,011 833,113 1,792,668 2016 award Awarded: June 2015 and September 20151 Performance period ending: March 2018 Vesting date: June 2018 Share price at grant: 239.4 pence and 207.2 pence 3,039,156 – 1,589,967 Note: 1 Due to a close period, Executive Directors were not able to make co-investment commitments at the time of the main award in June 2013 and 2015 and therefore part of the award was made in September 2013 and 2015 respectively. For details of the performance conditions please see page 62. Share options The following information summarises the Executive Directors’ options under the Vodafone Group 2008 Sharesave Plan (‘SAYE’), the Vodafone Group Incentive Plan (‘GIP’) and the Vodafone Group Plc 1999 Long-Term Stock Incentive Plan (‘LTSIP’). HMRC approved awards may be made under all of the schemes mentioned. No other Directors have options under any schemes and, other than under the SAYE, no options have been granted since 2007. Options under the Vodafone Group 2008 Sharesave Plan were granted at a discount of 20% to the market value of the shares at the time of the grant. No other options may be granted at a discount. At 1 April 2015 or date of appointment Number of shares Options granted during the 2016 financial year Number of shares Options exercised during the 2016 financial year Options lapsed during the 2015 financial year Number of shares Number of shares Vittorio Colao SAYE Total Nick Read LTSIP2 GIP3 SAYE Total Grant date Jul 2014 9,607 9,607 Jul 2005 Jul 2007 Jul 2012 257,838 927,443 10,389 1,195,670 – – – – – 257,838 – – – – – – Options held at 31 March 2016 Number of shares Option price Pence1 Date from which exercisable Market price on exercise Expiry date Pence Gain on exercise 9,607 156.13 Sep 2019 Feb 2020 9,607 – – Jul 2008 Jul 2015 – 136.00 927,443 167.80 Jul 2010 Jul 2017 10,389 144.37 Sep 2017 Feb 2018 206.89 £182,786 – – – – 937,832 Notes: 1 The closing trade share price on 31 March 2016 was 221.20 pence. The highest trade share price during the year was 255.35 pence and the lowest price was 200.20 pence. 2 The options granted in July 2005 were subject to a three year cumulative growth in adjusted earnings per share performance condition. The options vested 100% in July 2008. 3 The options granted in July 2007 were subject to a three year cumulative growth in adjusted earnings per share performance condition. The options vested 100% in July 2010. 69 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Directors’ remuneration (continued) Annual Report on remuneration (continued) At 17 May 2016 there had been no change to the Directors’ interests in share options from 31 March 2016. Other than those individuals included in the table above, at 17 May 2016 members of the Group’s Executive Committee held options for 26,501 ordinary shares at prices ranging from 156.1 pence to 189.2 pence per ordinary share, with a weighted average exercise price of 174.3 pence per ordinary share exercisable at dates ranging from 1 September 2017 to 1 September 2020. Hannes Ametsreiter, Paolo Bertoluzzo, Aldo Bisio, António Coimbra, Warren Finegold, Ronald Schellekens, Robert Shuter and Serpil Timuray held no options at 17 May 2016. Loss of office payments (audited) Stephen Pusey retired on 31 July 2015 having worked 9 months of his 12 month notice period. Stephen was entitled to receive payments in lieu of notice each month for the remainder of his notice period subject to mitigation. In total, Stephen received the equivalent of 3 months salary (£150,000) and an amount equivalent to the pro-rated annual leave that had not been taken during his employment in the year (£16,846). Since Stephen was employed for part of the 2016 financial year his annual bonus payment (as disclosed on page 67) was pro-rated for time served (i.e. to 31 July 2015). Stephen’s 2014 GLTI award, the final vesting of which is described on page 67, will also be pro-rated for time worked and will vest at the normal vesting date. Stephen’s outstanding 2015 GLTI award will be pro-rated on a time worked basis and will vest, subject to performance, at the normal vesting date, in accordance with our share plan rules. Stephen will receive no further benefits aside from the provision of a SIM card for his personal use at the Company’s expense for a period of three years commencing on 1 August 2015. Payments to past Directors (audited) During the 2016 financial year Lord MacLaurin received benefit payments in respect of security costs as per his contractual arrangements. These costs exceeded our de minimis threshold of £5,000 p.a. and, including the tax paid, were £9,411. Fees retained for external non-executive directorships Executive Directors may hold positions in other companies as non-executive directors and retain the fees. With effect from 1 July 2015, Vittorio Colao was appointed to the boards of Unilever N.V. and Unilever PLC as a non-executive director. During the year ended 31 March 2016 Vittorio retained fees of £63,783 in respect of this role. With effect from 1 April 2015, Stephen Pusey was appointed to the board of Centrica plc as a non-executive director. During the period up to his retirement on 31 July 2015, Stephen retained fees of £24,000 in respect of this role. Assessing pay and performance In the table below we summarise the Chief Executive’s single figure remuneration over the past seven years, as well as how our variable pay plans have paid out in relation to the maximum opportunity. This can be compared with the historic TSR performance over the same period. The chart below shows the performance of the Company relative to the STOXX Europe 600 Index over a six year period. The STOXX Europe 600 Index was selected as this is a broad-based index that includes many of our closest competitors. It should be noted that the payout from the long-term incentive plan is based on the TSR performance shown in the chart on page 67 and not this chart. Seven-year historical TSR performance (growth in the value of a hypothetical €100 holding over seven years) 310 322 325 275 225 175 125 75 267 227 215 193 279 245 170 168 190 167 155 137 100 03/09 03/10 03/11 03/12 03/13 03/14 03/15 03/16 Vodafone Group STOXX Europe 600 Index Financial year remuneration for Chief Executive (Vittorio Colao) Single figure of total remuneration £’000 Annual variable element (actual award versus maximum opportunity) Long-term incentive (vesting versus maximum opportunity) 2011 2012 2013 20101 3,350 64% 62% 25% 2016 7,022 15,767 11,099 8,014 2,810 5,270 56% 58% 33% 44% 0% 23% 37% 57% 47% 31% 100% 2014 2015 Note: 1 The single figure reflects share awards which were granted in 2006 and 2007, prior to his appointment to Chief Executive in 2008. 70 Vodafone Group Plc Annual Report 2016 Change in the Chief Executive’s remuneration In the table below we show the percentage change in the Chief Executive’s remuneration (salary, taxable benefits and annual bonus payment) between the 2015 and 2016 financial years compared to the average for other Vodafone Group employees who are measured on comparable business objectives and who have been employed in the UK since 2015 (per capita). Vodafone has employees based all around the world and some of these individuals work in countries with very high inflation therefore a comparison to Vodafone’s UK-based Group employees is more appropriate than to all employees. Item Base salary Taxable benefits Annual bonus Chief Executive: Vittorio Colao 0.9% -20.0% 4.3% Percentage change from 2015 to 2016 Other Vodafone Group employees employed in the UK 5.1% 0.4% 15.4% Relative spend on pay The chart below shows both the dividends distributed in the year and the total cost of remuneration in the Group. Relative importance of spend on pay £m 5,000 4,000 3,000 2,000 1,000 0 4,194 4,411 2,930 2,998 2015 2016 Distributed by way of dividends 2015 Overall expenditure on remuneration for all employees 2016 For more details on dividends and expenditure on remuneration for all employees, please see pages 111 and 140 respectively. 2016 remuneration for the Chairman and Non-Executive Directors (audited) Chairman Gerard Kleisterlee Senior Independent Director Philip Yea Non-Executive Directors Sir Crispin Davis (appointed 28 July 2014) Dr Mathias Döpfner (appointed 1 April 2015) Dame Clara Furse (appointed 1 September 2014) Valerie Gooding Renee James2 Samuel Jonah2 Nick Land David Nish (appointed 1 January 2016) Former Non-Executive Directors Alan Jebson2 (retired 31 July 2014) Omid Kordestani2 (retired 31 December 2014) Anne Lauvergeon (retired 31 July 2014) Luc Vandevelde (retired 28 July 2015) Anthony Watson (retired 31 July 2014) Total 2016 £’000 625 128 115 115 115 132 133 151 140 29 – – – 53 – 1,736 Salary/fees 2015 £’000 625 115 78 – 67 115 145 151 140 – 56 116 38 160 38 1,844 2016 £’000 77 1 – 1 – 6 10 17 1 7 – – – 19 – 139 Benefits1 2015 £’000 66 – 26 – – 5 11 5 1 – 32 14 1 6 4 171 2016 £’000 702 129 115 116 115 138 143 168 141 36 – – – 72 – 1,875 Total 2015 £’000 691 115 104 – 67 120 156 156 141 – 88 130 39 166 42 2,015 Notes: 1 We have been advised that for Non-Executive Directors, certain travel and accommodation expenses in relation to attending Board meetings should be treated as a taxable benefit. The table above includes these travel expenses and the corresponding tax contribution. 2 Salary/fees include an additional allowance of £6,000 per meeting for Directors based outside Europe. 71 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Directors’ remuneration (continued) Annual Report on remuneration (continued) 2017 remuneration Details of how the remuneration policy will be implemented for the 2017 financial year are set out below. 2017 base salaries The Remuneration Committee considered business performance, salary increases for other UK employees and external market information and decided to increase the salary of the Chief Financial Officer by 2.0% which is in line with the average salary increase budget for all employees across the UK. The Chief Executive requested not to be considered for a salary increase during the review. The average salary increase for Executive Committee members will be 2.5%; this compares to a budget of 2.4% which is based on an average of the relevant local market budget for each Executive Committee member. The annual salaries for 2017 (effective 1 July 2016) are as follows: a Chief Executive: Vittorio Colao £1,150,000; and a Chief Financial Officer: Nick Read £714,000. 2017 annual bonus (‘GSTIP’) The performance measures and weightings for 2017, which remain unchanged from 2016, are as follows: a service revenue (20%); a EBITDA (20%); a adjusted free cash flow (20%); and a customer appreciation KPIs (40%). This includes an assessment of net promoter score (‘NPS’) and brand consideration measures. In respect of the measures included under the customer appreciation KPIs, net promoter score is used as a measure of the extent to which our customers would recommend us, whilst brand consideration acts as a measure of the percentage of people who would consider using a certain brand as their telecoms provider. Both measures utilise data collected in our local markets which is validated for quality and consistency by independent third party agencies. The data is sourced from studies involving both our own customers and customers of our competitors for the NPS measure, and both Vodafone users and non-users for the brand consideration measure. In formulating a final assessment of performance under the customer appreciation KPIs, the Committee will also consider other relevant customer factors such as churn, customer growth and service levels. Due to the potential impact on our commercial interests, annual bonus targets are considered commercially sensitive and therefore will be disclosed in the 2017 remuneration report following the completion of the financial year. Long-term incentive (‘GLTI’) awards for 2017 As described in our policy on pages 60 to 62 the performance conditions are a combination of adjusted free cash flow and TSR performance. The details for the 2017 award are provided in the table below (with linear interpolation between points). Following the annual review of the performance measure, the Committee decided that for the 2017 award the TSR outperformance range should remain unchanged. The Committee will keep the calibration of the range under review and continue to only make changes where there is sufficient evidence to suggest this is appropriate. Adjusted free cash flow measure Below threshold Threshold Target Maximum £bn1 <9.95 9.95 11.80 13.65 0.0% (Up to median) 0% 50% 100% 125% 4.5% (65th percentile equivalent) 0% 75% 150% 187.5% TSR outperformance 9.0% (80th percentile equivalent) 0% 100% 200% 250% TSR peer group Bharti BT Group Deutsche Telekom MTN Orange Telecom Italia Telefónica Note: 1 In line with the decision to change the Group’s reporting currency to euros from pounds sterling, as outlined in the Chairman’s statement on page 3, the equivalent targets in euros, based on internal foreign exchange rate assumptions, including €1.38 : £1, will be a threshold of €13.75bn, a target of €16.30bn and a maximum of €18.85bn. The combined vesting percentages are applied to the target number of shares granted. 2016 remuneration for the Chairman and Non-Executive Directors For the 2016 review, the fees for our Chairman and non-executives have been benchmarked against a comparator group of the FTSE 30 companies (excluding Financial Services). Following the review it was agreed that the additional fee for the Senior Independent Director should be increased by £5,000 which brings it in line with other fees for additional responsibilities. Position/role Chairman1 Non-Executive Director Additional fee for Senior Independent Director Additional fee for Chairmanship of Audit, Remuneration and Risk Committees Note: 1 The Chairman’s fee also includes the fee for the Chairmanship of the Nominations and Governance Committee. 72 Fee payable £’000 From 1 April 2016 625 115 25 25 Vodafone Group Plc Annual Report 2016For 2017, the allowance payable each time a non-Europe-based Non-Executive Director is required to travel to attend Board and Committee meetings to reflect the additional time commitment involved is £6,000. Further remuneration information Dilution All awards are made under plans that incorporate dilution limits as set out in the guidelines for share incentive schemes published by the Investment Association. The current estimated dilution from subsisting executive awards is approximately 2.8% of the Company’s share capital at 31 March 2016 (3.0% at 31 March 2015), whilst from all-employee share awards it is approximately 0.5% (0.5% at 31 March 2015). This gives a total dilution of 3.3% (3.5% at 31 March 2015). Service contracts The terms and conditions of appointment of our Directors are available for inspection at the Company’s registered office during normal business hours and at the annual general meeting (for 15 minutes prior to the meeting and during the meeting). The Executive Directors have notice periods in their service contracts of 12 months. The Non-Executive Directors’ letters of appointment do not contain provision for notice periods or for compensation if their appointments are terminated. This report on remuneration has been approved by the Board of Directors and signed on its behalf by: Valerie Gooding Chairman of the Remuneration Committee 17 May 2016 73 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Dividends Full details of the Company’s dividend policy and proposed final dividend payment for the year ended 31 March 2016 are set out on pages 17 and 36 and note 9 to the consolidated financial statements. Sustainability Information about the Company’s approach to sustainability risks and opportunities is set out on pages 20 and 21. Also included on these pages are details of our greenhouse gas emissions. Political donations No political donations or contributions to political parties under the Companies Act 2006 have been made during the financial year. The Group policy is that no political donations be made or political expenditure incurred. Financial risk management objectives and policies Disclosures relating to financial risk management objectives and policies, including our policy for hedging are set out in note 23 to the consolidated financial statements and disclosures relating to exposure to price risk, credit risk, liquidity risk and cash flow risk are outlined in note 23. Important events since the end of the financial year Details of those important events affecting the Group which have occurred since the end of the financial year are set out in the Strategic Report and note 32 to the consolidated financial statements. Future developments within the Group The Strategic Report contains details of likely future developments within the Group. Group policy compliance Each Group policy is owned by a member of the Executive Committee so that there is clear accountability and authority for ensuring the associated business risk is adequately managed. Regional chief executives and the senior leadership team member responsible for each Group function have primary accountability for ensuring compliance with all Group policies by all our markets and entities. Our Group compliance team and policy champions support the policy owners and local markets in implementing policies and monitoring compliance. Code of Conduct All of the key Group policies have been consolidated into the Vodafone Code of Conduct. This is a policy document applicable to all employees and those who work for or on behalf of Vodafone. It sets out the standards of behaviour expected in relation to areas such as insider dealing, bribery and raising concerns through the whistle-blowing process (known internally as “Speak Up”). Branches The Group, through various subsidiaries, has branches in a number of different jurisdictions in which the business operates. Employee disclosures Our disclosures relating to the employment of disabled persons, women in senior management roles, employee engagement and policies are included in “Our people” on pages 18 and 19. By Order of the Board Rosemary Martin Group General Counsel and Company Secretary 17 May 2016 Directors’ report The Directors of the Company present their report together with the audited consolidated financial statements for the year ended 31 March 2016. This report has been prepared in accordance with requirements outlined within The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and forms part of the management report as required under Disclosure & Transparency Rule (‘DTR’) 4. Certain information that fulfils the requirements of the Directors’ report can be found elsewhere in this document and is referred to below. This information is incorporated into this Directors’ report by reference. Responsibility statement As required under the DTR a statement made by the Board regarding the preparation of the financial statements is set out on pages 76 and 77 which also provides details regarding the disclosure of information to the Company’s auditor and management’s report on internal control over financial information. Going concern The going concern statement required by the Listing Rules and the Code is set out in the “Directors’ statement of responsibility” on pages 76 and 77. Corporate governance statement The corporate governance statement setting out how the Company complies with the Code and which includes a description of the main features of its internal control and risk management arrangements in relation to the financial reporting process is set out on pages 54 and 55. The information required by DTR 7.2.6R can be found in the “shareholder information” section on pages 175 to 181. A description of the composition and operation of the Board and its Committees is set out on pages 38 to 73. Strategic Report The Strategic Report is set out on pages 2 to 37 and is incorporated into this Directors’ report by reference. Directors and their interests The Directors of the Company who served during the financial year ended 31 March 2016 and up to the date of signing the financial statements are as follows: Gerard Kleisterlee, Vittorio Colao, Nick Read, Sir Crispin Davis, Dr Mathias Döpfner, Dame Clara Furse, Valerie Gooding, Renee James, Samuel Jonah, Nick Land, Philip Yea and David Nish. Luc Vandevelde and Stephen Pusey stepped down during the financial year ended 31 March 2016. Details of Directors’ interests in the Company’s ordinary shares, options held over ordinary shares, interests in share options and long-term incentive plans are set out on pages 66 to 72. Directors’ conflicts of interest Established within the Company is a procedure for managing and monitoring conflicts of interest for Directors. Details of this procedure are set out on page 54. Directors’ indemnities In accordance with our Articles of Association and to the extent permitted by law, Directors are granted an indemnity from the Company in respect of liability incurred as a result of their office. In addition, we maintained a Directors’ and officers’ liability insurance policy throughout the year. Neither our indemnity nor the insurance provides cover in the event that a Director is proven to have acted dishonestly or fraudulently. Disclosures required under Listing Rule 9.8.4 The information on the amount of interest capitalised and the treatment of tax relief can be found in notes 5 and 6 to the consolidated financial statements respectively. The remaining disclosures required by Listing Rule 9.8.4 are not applicable to Vodafone. Capital structure and rights attaching to shares All information relating to the Company’s capital structure, rights attaching to shares, dividends, the policy to repurchase the Company’s own shares and other shareholder information is contained on pages 175 to 181. Change of control Details of change of control provisions in the Company’s revolving credit facilities is set out on page 130. Information on agreements between the Company and its Directors providing for compensation for loss of office of employment (including details of change of control provisions in share schemes) is set out on page 64. Subject to that, there are no agreements between the Company and its employees providing for compensation for loss of office of employment that occurs because of a takeover bid. 74 Vodafone Group Plc Annual Report 2016Contents Financials Reporting our financial performance We continue to review the format of our consolidated financial statements with the aim of making them clear and easier to follow. This year, we have changed the order of certain notes to the financial statements so as to incorporate a full listing of all the Group’s related undertakings, including subsidiaries, joint arrangements and associates, in note 33, as now required by Company Law. We hope these changes help you to navigate to the information that is important to you. 76 78 79 87 87 87 88 89 90 Directors’ statement of responsibility Report of independent registered public accounting firm Audit report on the consolidated and parent company financial statements Consolidated financial statements: Consolidated income statement Consolidated statement of comprehensive income Consolidated statement of financial position Consolidated statement of changes in equity Consolidated statement of cash flows 91 91 96 99 100 104 105 109 111 111 Notes to the consolidated financial statements: 1. Basis of preparation Income statement 2. Segmental analysis 3. Operating profit/(loss) 4. Impairment losses 5. Investment income and financing costs 6. Taxation 7. Discontinued operations and assets held for sale 8. Earnings per share 9. Equity dividends Financial position 112 10. Intangible assets 114 11. Property, plant and equipment 116 12. Investments in associates and joint arrangements 119 13. Other investments 120 14. Inventory 121 15. Trade and other receivables 122 16. Trade and other payables 123 17. Provisions 124 18. Called up share capital Cash flows 125 19. Reconciliation of net cash flow from operating activities 125 20. Cash and cash equivalents 126 21. Borrowings 130 22. Liquidity and capital resources 134 23. Capital and financial risk management Employee remuneration 139 24. Directors and key management compensation 140 25. Employees 141 26. Post employment benefits 145 27. Share-based payments Additional disclosures 147 28. Acquisitions and disposals 148 29. Commitments 149 30. Contingent liabilities and legal proceedings 153 31. Related party transactions 153 32. Subsequent events 154 33. Related undertakings 162 34. Subsidiaries exempt from audit 163 163 168 169 Other unaudited financial information: Prior year operating results Company balance sheet of Vodafone Group Plc Notes to the Company financial statements: 1. Basis of preparation 2. Fixed assets 3. Debtors 4. Other investments 5. Creditors 6. Share capital 7. Share-based payments 8. Reserves 9. Equity dividends 169 171 171 171 172 172 173 173 173 174 10. Contingent liabilities and legal proceedings 174 11. Other matters 75 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Directors’ statement of responsibility The Directors are responsible for preparing the financial statements in accordance with applicable law and regulations and keeping proper accounting records. Detailed below are statements made by the Directors in relation to their responsibilities, disclosure of information to the Company’s auditor, going concern and management’s report on internal control over financial reporting. The Directors are responsible for preparing the Annual Report in accordance with applicable law and regulations. Having taken advice from the Audit and Risk Committee, the Board considers the report and accounts, taken as a whole, is fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. Neither the Company nor the Directors accept any liability to any person in relation to the Annual 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. Disclosure of information to the auditor Having made the requisite enquiries, so far as the Directors are aware, there is no relevant audit information (as defined by section 418(3) of the Companies Act 2006) of which the Company’s auditor is unaware and the Directors have taken all the steps they ought to have taken to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. Going concern The Group’s business activities, performance, position and principal risks and uncertainties and how these are managed or mitigated are set out in the strategic report on pages 1 to 37. In addition, the financial position of the Group is included in “Borrowings”, “Liquidity and capital resources” and “Capital and financial risk management” in notes 21, 22 and 23 respectively to the consolidated financial statements, which include disclosure in relation to the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk. The Group believes it adequately manages or mitigates its solvency and liquidity risks through two primary processes, described below. Business planning process and performance management The Group’s forecasting and planning cycle consists of three in-year forecasts, a budget and a long-range plan. These generate income statement, cash flow and net debt projections for assessment by Group management and the Board. Each forecast is compared with prior forecasts and actual results so as to identify variances and understand the drivers of the changes and their future impact so as to allow management to take action where appropriate. Additional analysis is undertaken to review and sense check the key assumptions underpinning the forecasts. Financial statements and accounting records Company law of England and Wales requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the Group at the end of the financial year and of the profit or loss of the Group for that period. In preparing those financial statements the Directors are required to: a select suitable accounting policies and apply them consistently; a make judgements and estimates that are reasonable and prudent; a present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; a state whether the consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as adopted for use in the EU and Article 4 of the EU IAS Regulations. The Directors also ensure that the consolidated financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (‘IASB’); a state for the Company financial statements whether applicable UK accounting standards have been followed; and a prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and of the Group and to enable them to ensure that the financial statements comply with the Companies Act 2006 and for the consolidated financial statements, Article 4 of the EU IAS Regulation. They are also responsible for the system of internal control, for safeguarding the assets of the Company and the Group and, hence, for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors’ responsibility statement Each of the Directors, whose names and functions are listed on pages 40 and 41 confirm that, to the best of their knowledge: a the consolidated financial statements, prepared in accordance with IFRS as issued by the IASB and IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; a the parent company financial statements, prepared in accordance with United Kingdom generally accepted accounting practice, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and a the strategic report includes a fair review of the development and performance of the business and the position of the Group together with a description of the principal risks and uncertainties that it faces. 76 Vodafone Group Plc Annual Report 2016Cash flow and liquidity reviews The business planning process provides outputs for detailed cash flow and liquidity reviews, to ensure that the Group maintains adequate liquidity throughout the forecast periods. The prime output is a one year liquidity forecast which is prepared and updated on a daily basis which highlights the extent of the Group’s liquidity based on controlled cash flows and the headroom under the Group’s undrawn revolving credit facility (‘RCF’). Any internal control framework, no matter how well designed, has inherent limitations including the possibility of human error and the circumvention or overriding of the controls and procedures, and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or because the degree of compliance with the policies or procedures may deteriorate. Management has assessed the effectiveness of the internal control over financial reporting at 31 March 2016 based on the updated Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (‘COSO’) in 2013. Based on management’s assessment, management has concluded that internal control over financial reporting was effective at 31 March 2016. During the period covered by this document, there were no changes in the Group’s internal control over financial reporting that have materially affected or are reasonably likely to materially affect the effectiveness of the internal controls over financial reporting. The Group’s internal control over financial reporting at 31 March 2016 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm who also audit the Group’s consolidated financial statements. Their audit report on internal control over financial reporting is on page 78. By Order of the Board Rosemary Martin Group General Counsel and Company Secretary 17 May 2016 The key inputs into this forecast are: a free cash flow forecasts, with the first three month’s inputs being sourced directly from the operating companies (analysed on a daily basis), with information beyond this taken from the latest forecast/budget cycle; a bond and other debt maturities; and a expectations for shareholder returns, spectrum auctions and M&A activity. The liquidity forecast shows two scenarios assuming either maturing commercial paper is refinanced or no new commercial paper issuance. The liquidity forecast is reviewed by the Group Chief Financial Officer and included in each of his reports to the Board. In addition, the Group continues to manage its foreign exchange and interest rate risks within the framework of policies and guidelines authorised and reviewed by the Board, with oversight provided by the Treasury Risk Committee. Conclusion The Group has considerable financial resources, and the Directors believe that the Group is well placed to manage its business risks successfully. Accordingly, the Directors continue to adopt the going concern basis in preparing the Annual Report and accounts. Management’s report on internal control over financial reporting As required by section 404 of the US Sarbanes-Oxley Act, management is responsible for establishing and maintaining adequate internal control over financial reporting for the Group. The Group’s internal control over financial reporting includes policies and procedures that: a pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; a are designed to provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with IFRS, as adopted by the EU and IFRS as issued by the IASB, and that receipts and expenditures are being made only in accordance with authorisation of management and the Directors of the Company; and a provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of the Group’s assets that could have a material effect on the financial statements. 77 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Report of independent registered public accounting firm To the Board of directors and shareholders of Vodafone Group Plc In our opinion, the accompanying consolidated statement of financial position and the related consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows present fairly, in all material respects, the financial position Vodafone Group Plc and its subsidiaries (“the Company”) at 31 March 2016 and 31 March 2015, and the results of their operations and their cash flows for the years ended 31 March 2016 and 31 March 2015 in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board and in conformity with International Financial Reporting Standards as adopted by the European Union. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of 31 March 2016, based on criteria established in Internal Control – Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (‘COSO’). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s report on internal control over financial reporting. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audit. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and International Standards on Auditing. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We have audited the adjustments to the 2014 financial statements to reflect retrospectively the change in presentation of the segment information, as described in note 2. Our audit procedures that were applied to the restated disclosures for comparative 2014 reportable segments included: (i) agreeing the adjusted amounts of each segment to the underlying records obtained from management, and (ii) determining the mathematical accuracy of the reconciliations of segment amounts to the consolidated financial statements. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2014 financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2014 financial statements taken as a whole. PricewaterhouseCoopers LLP London, United Kingdom 17 May 2016 78 Note: The report set out above is included for the purposes of Vodafone Group Plc’s Annual Report on Form 20-F for 2016 only and does not form part of Vodafone Group Plc’s Annual Report for 2016. Vodafone Group Plc Annual Report 2016Audit report on the consolidated and parent company financial statements Independent auditors’ report to the members of Vodafone Group Plc Report on the financial statements Our opinion In our opinion: a Vodafone Group Plc’s Group financial statements and Company financial statements (the ‘financial statements’) give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 March 2016 and of the Group’s loss and cash flows for the year then ended; a the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union; a the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and a the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. Separate opinion in relation to IFRSs as issued by the IASB As explained in note 1 to the financial statements, the Group, in addition to applying IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (‘IASB’). In our opinion, the Group financial statements comply with IFRSs as issued by the IASB. What we have audited The financial statements, included within the 2016 Annual Report (the “Annual Report”), comprise: a the consolidated statement of financial position as at 31 March 2016; a the Company statement of financial position as at 31 March 2016; a the consolidated income statement and the consolidated statement of comprehensive income for the year then ended; a the consolidated statement of cash flows for the year then ended; a the consolidated statement of changes in equity for the year then ended; a the Company statement of changes in equity for the year then ended; and a the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross-referenced from the financial statements and are identified as audited. The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the preparation of the Company financial statements is United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law (together “United Kingdom Generally Accepted Accounting Practice”). Our audit approach Overview Materiality Audit scope Areas of focus Overall Group materiality: £180 million which represents 5% of a three year average of adjusted operating profit (‘AOP’). We used a three year average given the impact of Project Spring investment (for definition of Project Spring refer to pages 6 and 7 in the Annual Report) in the current year to ensure that the measure is more durable over a period of time. We identified eight local operations which, in our view, required an audit of their complete financial information, either due to their size or their risk characteristics including UK, Spain, Italy, India, Germany and Vodacom Group Limited. The scope of work in Spain and Germany included an audit of the complete financial information of Grupo Corporativo Ono.S.A. (‘Ono’) and Kabel Deutschland GmbH (‘KDG’). Further specific audit procedures over central functions and areas of significant judgement, including taxation, goodwill, treasury and material provisions and contingent liabilities, were performed at the Group’s Head Office. a Taxation matters including a provisioning claim for withholding tax in India and the recognition and recoverability of deferred tax assets in Luxembourg and Germany. a Carrying value of goodwill. a Provisions and contingent liabilities. a Revenue recognition – accuracy of revenue recorded given the complexity of systems. a Significant one-off transactions. a Capitalisation and asset lives. a IT systems and controls. 79 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Audit report on the consolidated and parent company financial statements (continued) The scope of our audit and our areas of focus We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (‘ISAs (UK and Ireland)’). We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud. The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as “areas of focus” in the table below. We have also set out how we tailored our audit to address these specific areas in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit. Area of focus Taxation matters The Group operates across a large number of jurisdictions and is subject to periodic challenges by local tax authorities on a range of tax matters during the normal course of business including transfer pricing, indirect taxes and transaction related tax matters. As at 31 March 2016, the Group has current taxes payable of £540 million. We have focused on two matters relating to the legal claim in respect of withholding tax on the acquisition of Hutchison Essar Limited and the recognition and recoverability of deferred tax assets in Luxembourg and Germany. Provisioning claim for withholding tax – there continues to be uncertainty regarding the resolution of the legal claim from the Indian authorities in respect of withholding tax on the acquisition of Hutchison Essar Limited. Recognition and recoverability of deferred tax assets in Luxembourg and Germany – significant judgement is required in relation to the recognition and recoverability of deferred tax assets, particularly in respect of losses in Luxembourg and Germany. During the current year, £3,207 million of deferred tax assets have been utilised or de-recognised connected with the revaluation of investments for Luxembourg GAAP purposes. Refer to the Audit and Risk Committee Report, note 1 – Critical accounting judgements and key sources of estimation uncertainty, note 6 – Taxation and note 30 – Contingent liabilities and legal proceedings. How our audit addressed the area of focus We evaluated the design and implementation of controls in respect of provisioning for withholding tax and the recognition and recoverability of deferred tax assets. We used our specialist tax knowledge to gain an understanding of the current status of the Indian tax investigation and monitored changes in the disputes by reading external advice received by the Group, where relevant, to establish that the tax provisions had been appropriately adjusted to reflect the latest external developments. In respect of the deferred tax assets, we assessed the recoverability of losses from a tax perspective through performing the following: a understanding how losses arose and where they are located, including to which subgroups they are attributed; a considering whether the losses can be reversed; a assessing any restrictions on future use; a evaluating the results of local statutory impairment assessments including reversals; a considering the impact of recent regulatory developments, as applicable; and a determining whether any of the losses will expire. In addition we assessed the application of International Accounting Standard 12 – Income Taxes including: a understanding the triggers for recognition and derecognition of deferred tax assets; a considering effects of tax planning strategies; and a assessing recoverability of assets against forecast income streams, including reliability of future income projections. We determined that the carrying value of deferred tax assets at 31 March 2016 was supported by management’s plans including intercompany funding arrangements. We validated the appropriateness of the related disclosures in note 6 and note 30 of the financial statements, including the enhanced disclosures made in respect of the utilisation period of deferred tax assets. 80 Vodafone Group Plc Annual Report 2016 Area of focus Carrying value of goodwill Vodafone Group Plc has goodwill of £22,789 million contained within 22 cash generating units (‘CGUs’). Impairment charges to goodwill have been recognised in prior periods. With challenging trading conditions continuing in certain territories, the Group’s performance and prospects could be impacted increasing the risk that goodwill is impaired. For the CGUs that contain goodwill, the determination of recoverable amount, being the higher of fair value less costs to sell and value-in-use, requires judgement on the part of management in both identifying and then valuing the relevant CGUs. Recoverable amounts are based on management’s view of variables such as future average revenue per user, average customer numbers and customer churn, timing and approval of future capital, spectrum and operating expenditure and the most appropriate discount rate. In the year ended 31 March 2016, a pre-tax impairment charge of £450 million was recognised related to goodwill in Romania. Refer to the Audit and Risk Committee Report, note 1 – Critical accounting judgements and key sources of estimation uncertainty, note 4 – Impairment losses and note 10 – Intangible assets. Provisions and contingent liabilities There are a number of threatened and actual legal, regulatory and tax cases against the Group. There is a high level of judgement required in estimating the level of provisioning required. Refer to the Audit and Risk Committee Report, note 1 – Critical accounting judgements and key sources of estimation uncertainty, note 17 – Provisions and note 30 – Contingent liabilities and legal proceedings. How our audit addressed the area of focus We evaluated the appropriateness of management’s identification of the Group’s CGUs and the continued satisfactory operation of the Group’s controls over the impairment assessment process. Our procedures included challenging management on the suitability of the impairment model and reasonableness of the assumptions, with particular attention paid to the European businesses, through performing the following: a benchmarking Vodafone’s key market-related assumptions in management’s valuation models with industry comparators and with assumptions made in the prior years including revenue and margin trends, capital expenditure on network assets and spectrum, market share and customer churn, foreign exchange rates and discount rates, against external data where available, using our valuation expertise; a testing the mathematical accuracy of the cash flow models and agreeing relevant data to Board approved Long-Range Plans; and a assessing the reliability of management’s forecast through a review of actual performance against previous forecasts. We validated the appropriateness of the related disclosures in note 4 and note 10 of the financial statements, including the sensitivities provided with respect to Germany, Spain, and Romania. Based on our procedures, we noted no exceptions and consider management’s key assumptions to be within a reasonable range. Our procedures included the following: a testing key controls surrounding litigation, regulatory and tax procedures; a where relevant, reading external legal opinions obtained by management; a meeting with regional and local management and reading subsequent Group correspondence; a discussing open matters with the Group general counsel, Group litigation, regulatory, general counsel and tax teams; a assessing and challenging management’s conclusions through understanding precedents set in similar cases; and a circularising where appropriate relevant third party legal representatives and direct discussion with them regarding certain material cases. Based on the evidence obtained, while noting the inherent uncertainty with such legal, regulatory and tax matters, we determined the level of provisioning at 31 March 2016 to be appropriate and at a level consistent with previous periods. We validated the completeness and appropriateness of the related disclosures through assessing that the disclosure of the uncertainties in note 17 and note 30 of the financial statements was sufficient. 81 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Audit report on the consolidated and parent company financial statements (continued) Area of focus Revenue recognition – accuracy of revenue recorded given the complexity of systems There is an inherent risk around the accuracy of revenue recorded given the complexity of systems and the impact of changing pricing models to revenue recognition (tariff structures, incentive arrangements, discounts etc.). The application of revenue recognition accounting standards is complex and involves a number of key judgements and estimates. Refer to the Audit and Risk Committee Report and note 1 – Critical accounting judgements and key sources of estimation uncertainty. Significant one-off transactions We focused on two significant one-off transactions which occurred during the year: the receipt of Indian spectrum auction allocations and the issuance of mandatory convertible bonds. Accounting for these transactions and related disclosures requires the exercise of significant judgement. Receipt of Indian spectrum auction allocations – at 31 March 2015 the allocation of spectrum was provisional subject to governmental and judiciary approval. During the year ended 31 March 2016, the Group recognised spectrum assets and a corresponding liability of £2,731 million as the prior material uncertainties surrounding the approval processes were no longer present. Issuance of mandatory convertible bonds – in February 2016 the Group issued £2.88 billion of mandatory convertible bonds. There is significant judgement on the accounting classification of the convertible bond. The bonds are classified as a compound financial instrument and £119 million has been recognised within liabilities and £2,754 million within equity. Refer to the Audit and Risk Committee Report, note 1 – Critical accounting judgements and key sources of estimation uncertainty and note 22 – Liquidity and capital resources. How our audit addressed the area of focus We instructed the eight local operations in Group audit scope to undertake consistent audit procedures. Our audit approach included controls testing and substantive procedures covering, in particular: a testing the IT environment in which billing, rating and other relevant support systems reside, including the change control procedures in place around systems that bill material revenue streams; a testing the end-to-end reconciliation from business support systems to billing and rating systems to the general ledger. This testing included validating material journals processed between the billing system and general ledger; a performing tests on the accuracy of customer bill generation on a sample basis and testing of a sample of the credits and discounts applied to customer bills; and a testing cash receipts for a sample of customers back to the customer invoice. We also considered the application of the Group’s accounting policies to amounts billed and the accounting implications of new business models to check that Group accounting policies were appropriate for these models and were followed. Based on our work, we noted no significant issues on the accuracy of revenue recorded in the year. Our procedures included the following: a evaluating the design and implementation of controls in respect of significant one-off transactions; and a evaluating management’s accounting papers on how IFRSs have been applied to the receipt of Indian spectrum auction allocations and the issuance of the mandatory convertible bonds. In addition we performed procedures on specific transactions as follows: a receipt of Indian spectrum auction allocations – assessed the key judgements around the timing of when substantially all of the risks and rewards of the spectrum asset transferred to the Group; and a issuance of mandatory convertible bonds – a reviewed the key terms within the bond contract to conclude that the designation as a compound financial instrument was appropriate and no separately accountable embedded derivatives were present; a assessed the appropriateness of the liability and equity split; and a considered the terms of related hedging transactions to confirm that these transactions should be accounted for independently to the bond. Based on our procedures, we noted no issues and were satisfied with the associated accounting for these matters. We validated the appropriateness of the related disclosures in note 22 of the financial statements. 82 Vodafone Group Plc Annual Report 2016 Area of focus Capitalisation and asset lives There are a number of areas where management judgement impacts the carrying value of property, plant and equipment, software intangible assets and their respective depreciation profiles. These include: a the decision to capitalise or expense costs; a the annual asset life review including the impact of changes in the Group’s strategy; and a the timeliness of the transfer from assets in the course of construction. Refer to the Audit and Risk Committee Report, note 1 – Critical accounting judgements and key sources of estimation uncertainty, note 10 – Intangible assets and note 11 – Property, plant and equipment. IT systems and controls We place a high level of reliance on the Group’s IT systems and key internal controls. As a result a significant proportion of our audit effort was conducted in this area at local, regional and Group levels and at the Group’s shared service centres. Our focus, in this our second year as auditors, was on understanding and validating the impacts of key changes being made to the control environment having established an extensive understanding and baseline last year. The Group has continued to devote considerable resources to the development of key business and related IT controls to ensure a robust system of internal control as described in the Audit and Risk Committee Report on pages 47 to 52. How our audit addressed the area of focus We tested controls in place over the fixed asset cycle, evaluated the appropriateness of capitalisation policies, performed tests of details on costs capitalised and assessed the timeliness of the transfer of assets in the course of construction. There were no exceptions noted from our testing. Our detailed testing on the application of the asset life review identified no issues. In performing these procedures, we challenged the judgements made by management including: a the nature of underlying costs capitalised as part of the cost of the network rollout; a the appropriateness of asset lives applied in the calculation of depreciation; and a in assessing the need for accelerated depreciation given the network modernisation programme in place across Europe under Project Spring. No issues were noted from our testing. We conducted detailed end-to-end walkthroughs of the finance processes, utilising our understanding from the prior year to reassess the design effectiveness of the key internal controls and to identify changes. We then conducted testing of the operating effectiveness of these controls to obtain evidence that they operated throughout the year. In response to the changes and control enhancements made during the year, we performed the following: a reviewed the design of the standard controls to ensure they mitigated the relevant financial reporting risks and testing samples from the periods immediately prior to and post implementation; a where systems changed during the year, tested IT general controls and data migration processes; a tested the enhanced user access management controls; a following issues with the implementation of a new billing platform in the UK, we amended our planned audit approach and performed additional substantive testing; and a tested controls and performed additional substantive procedures of key general ledger account reconciliations and manual journals. We did not regard any of the control issues identified in 2016 as significant in the context of the Group financial statements. No control matters identified represented a material weakness in internal control. 83 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Audit report on the consolidated and parent company financial statements (continued) How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the geographic structure of the Group, the accounting processes and controls including those performed at the Group’s shared service centres, and the industry in which the Group operates. The Group operates in 24 countries across two regions; “Europe” and “AMAP”. In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at the local operations by us, as the Group engagement team, or component auditors within PwC UK and from other PwC network firms operating under our instruction. Where the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those local operations to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the Group financial statements as a whole. The Group’s local operations vary in size with the eight operations in Group scope (UK, Spain, Italy, India, Germany, Vodacom Group Limited, Ono and KDG) representing 72% and 74% of the Group’s revenue and AOP. We identified these eight local operations as those that, in our view, required an audit of their complete financial information, due to their size or risk characteristics. The materiality applied by the component auditors in the context of the Group audit ranged from £12 million to £100 million. These local operations are also subject to audits for local statutory purposes where their local statutory materiality ranges from £12 million to £124 million. Specific audit procedures over certain balances and transactions were performed to give appropriate coverage of all material balances at both geographical division and Group levels. The Group engagement team visited all eight operations in scope for Group reporting during the audit cycle and the lead audit partner attended the year-end audit clearance meetings. Further specific audit procedures over central functions and areas of significant judgement, including taxation, goodwill, treasury and material provisions and contingent liabilities, were performed at the Group’s Head Office. In addition, audits for local statutory purposes are performed at a further 15 locations. Where possible, the timing of local statutory audits was accelerated to align to the Group audit timetable, with significant findings reported to the Group engagement team. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall Group materiality How we determined it Rationale for benchmark applied £180 million (2015: £220 million). 5% of AOP before tax averaged over three years. Consistent with the prior year, we consider this adjusted measure to be a key driver of business value and a focus for members, and used a three year average given the impact of Project Spring (for definition of Project Spring refer to pages 6 and 7 in the Annual Report) in the current year to ensure that the measure is more durable over a period of time. We agreed with the Audit and Risk Committee that we would report to them misstatements identified during our audit above £10 million (2015: £10 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. Going concern Under the Listing Rules we are required to review the Directors’ statement, set out on pages 76 and 77, in relation to going concern. We have nothing to report having performed our review. Under ISAs (UK & Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to the Directors’ statement about whether they considered it appropriate to adopt the going concern basis in preparing the financial statements. We have nothing material to add or to draw attention to. As noted in the Directors’ statement, the Directors have concluded that it is appropriate to adopt the going concern basis in preparing the financial statements. The going concern basis presumes that the Group and Company have adequate resources to remain in operation, and that the Directors intend them to do so, for at least one year from the date the financial statements were signed. As part of our audit we have concluded that the Directors’ use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s and Company’s ability to continue as a going concern. 84 Vodafone Group Plc Annual Report 2016Other required reporting Consistency of other information Companies Act 2006 opinions In our opinion: a the information given in the Strategic Report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and a the information given in the corporate governance statement set out on pages 76 and 77 with respect to internal control and risk management systems and about share capital structures is consistent with the financial statements. ISAs (UK and Ireland) reporting Under ISAs (UK and Ireland) we are required to report to you if, in our opinion: a Information in the Annual Report is: a materially inconsistent with the information in the audited financial statements; or a apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group and Company acquired in the course of performing our audit; or a otherwise misleading. a the statement given by the Directors on pages 76 and 77, in accordance with provision C.1.1 of the 2014 UK Corporate Governance Code (the ‘Code’), that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group’s and Company’s position and performance, business model and strategy is materially inconsistent with our knowledge of the Group and Company acquired in the course of performing our audit. We have no exceptions to report arising from this responsibility. We have no exceptions to report arising from this responsibility. a the section of the Annual Report on page 47, as required by provision C.3.8 of the Code, describing the work of the Audit and Risk Committee does not appropriately address matters communicated by us to the Audit and Risk Committee. We have no exceptions to report arising from this responsibility. The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group We have nothing material to add or to draw attention to. We have nothing material to add or to draw attention to. We have nothing material to add or to draw attention to. Under ISAs (UK and Ireland) we are required to report to you if we have anything material to add or to draw attention to in relation to: a the Directors’ confirmation on page 76 of the Annual Report, in accordance with provision C.2.1 of the Code, that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. a the disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated. a the Directors’ explanation on page 29 of the Annual Report, in accordance with provision C.2.2 of the Code, as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. Under the Listing Rules we are required to review the Directors’ statement that they have carried out a robust assessment of the principal risks facing the Group and the Directors’ statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the Directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit. We have nothing to report having performed our review. Adequacy of accounting records and information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion: a we have not received all the information and explanations we require for our audit; or a adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or a the Company financial statements and the part of the Directors’ remuneration report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. 85 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Audit report on the consolidated and parent company financial statements (continued) Directors’ remuneration Directors’ remuneration report – Companies Act 2006 opinion In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. Other Companies Act 2006 reporting Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility. Corporate governance statement Under the Companies Act 2006 we are required to report to you if, in our opinion, a corporate governance statement has not been prepared by the Company. We have no exceptions to report arising from this responsibility. Under the Listing Rules we are required to review the part of the corporate governance statement relating to 10 further provisions of the Code. We have nothing to report having performed our review. Responsibilities for the financial statements and the audit Our responsibilities and those of the Directors As explained more fully in the Directors’ statement of responsibility set out on pages 76 and 77, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. What an audit of financial statements involves An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: a whether the accounting policies are appropriate to the Group’s and the Company’s circumstances and have been consistently applied and adequately disclosed; a the reasonableness of significant accounting estimates made by the Directors; and a the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Andrew Kemp (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 17 May 2016 Notes: 1 2 3 86 The maintenance and integrity of the Vodafone Group Plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Note that the report set out above is included for the purposes of Vodafone Group Plc’s Annual Report for 2016 only and does not form part of Vodafone Group Plc’s Annual Report on Form 20-F for 2016. Vodafone Group Plc Annual Report 2016Consolidated income statement for the years ended 31 March Revenue Cost of sales Gross profit Selling and distribution expenses Administrative expenses Share of results of equity accounted associates and joint ventures Impairment losses Other income and expense Operating profit/(loss) Non-operating income and expense Investment income Financing costs (Loss)/profit before taxation Income tax (expense)/credit (Loss)/profit for the financial year from continuing operations Profit for the financial year from discontinued operations (Loss)/profit for the financial year Attributable to: – Owners of the parent – Non-controlling interests1 (Loss)/profit for the financial year (Loss)/earnings per share From continuing operations: – Basic – Diluted Total Group: – Basic – Diluted Note  2 4 3 5 5 6 7 8 8 2016 £m  40,973 (30,435) 10,538 (3,570) (5,110) 44 (450) (75) 1,377 (2) 300 (2,124) (449) (3,369) (3,818) – (3,818) (4,024) 206 (3,818) (15.08)p (15.08)p (15.08)p (15.08)p 2015 £m  42,227 (30,882) 11,345 (3,455) (5,746) (63) – (114) 1,967 (19) 883 (1,736) 1,095 4,765 5,860 57 5,917 5,761 156 5,917 21.53p 21.42p 21.75p 21.63p 2014  £m  38,346 (27,942) 10,404 (3,033) (4,245) 278 (6,600) (717) (3,913) (149) 346 (1,554) (5,270) 16,582 11,312 48,108 59,420 59,254 166 59,420 42.10p 41.77p 223.84p 222.07p Note: 1 Profit attributable to non-controlling interests solely derives from continuing operations. Consolidated statement of comprehensive income for the years ended 31 March (Loss)/profit for the financial year Other comprehensive income: Items that may be reclassified to profit or loss in subsequent years: (Losses)/gains on revaluation of available-for-sale investments, net of tax Foreign exchange translation differences, net of tax Foreign exchange losses/(gains) transferred to the income statement Fair value gains transferred to the income statement Other, net of tax Total items that may be reclassified to profit or loss in subsequent years Items that will not be reclassified to profit or loss in subsequent years: Net actuarial gains/(losses) on defined benefit pension schemes, net of tax Total items that will not be reclassified to profit or loss in subsequent years Other comprehensive income/(expense) Total comprehensive expense/(income) for the year Attributable to: – Owners of the parent – Non-controlling interests Note  2016  £m  (3,818) 2015  £m  5,917 2014  £m  59,420 26 (2) 3,540 70 – 34 3,642 126 126 3,768 (50) (123) 73 (50) 4 (6,516) (1) (9) 7 (6,515) (212) (212) (6,727) (810) (1,076) 266 (810) (119) (4,104) 1,493 (25) – (2,755) 37 37 (2,718) 56,702 56,711 (9) 56,702 Further details on items in the consolidated statement of comprehensive income can be found in the consolidated statement of changes in equity on page 89. 87 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Consolidated statement of financial position at 31 March Non-current assets Goodwill Other intangible assets Property, plant and equipment Investments in associates and joint ventures Other investments Deferred tax assets Post employment benefits Trade and other receivables Current assets Inventory Taxation recoverable Trade and other receivables Other investments Cash and cash equivalents Assets held for sale Total assets Equity Called up share capital Additional paid-in capital Treasury shares Accumulated losses Accumulated other comprehensive income Total attributable to owners of the parent Non-controlling interests Put options over non-controlling interests Total non-controlling interests Total equity Non-current liabilities Long-term borrowings Deferred tax liabilities Post employment benefits Provisions Trade and other payables Current liabilities Short-term borrowings Taxation liabilities Provisions Trade and other payables Liabilities for sale Total equity and liabilities 31 March 2016  £m  31 March 2015  £m  Note  10 10 11 12 13 6 26 15 14 15 13 20 7 18 21 6 26 17 16 21 17 16 7 22,789 23,979 28,082 (82) 3,662 22,382 177 4,580 105,569 565 1,109 9,141 4,220 10,218 2,891 28,144 133,713 3,792 119,925 (6,940) (56,608) 5,716 65,885 1,437 (5) 1,432 22,537 20,953 26,603 (3) 3,757 23,845 169 4,865 102,726 482 575 8,053 3,855 6,882 – 19,847 122,573 3,792 117,054 (7,045) (49,471) 1,815 66,145 1,595 (7) 1,588 67,317 67,733 29,327 446 447 1,280 1,501 33,001 16,020 540 757 15,732 346 33,395 133,713 22,435 595 567 1,082 1,264 25,943 12,623 599 767 14,908 – 28,897 122,573 The consolidated financial statements on pages 87 to 162 were approved by the Board of Directors and authorised for issue on 17 May 2016 and were signed on its behalf by: Vittorio Colao Chief Executive 88 Nick Read Chief Financial Officer Vodafone Group Plc Annual Report 2016 Consolidated statement of changes in equity for the years ended 31 March 1 April 2013 Issue or reissue of shares Redemption or cancellation of shares Capital reduction and creation of B and C shares Cancellation of B shares Share-based payments Transactions with non-controlling interests in subsidiaries Dividends Comprehensive income Profit OCI – before tax OCI – taxes Transfer to the income statement Other 31 March 2014 Issue or reissue of shares Share-based payments Transactions with non-controlling interests in subsidiaries Dividends Comprehensive income Profit OCI – before tax OCI – taxes Transfer to the income statement Other 31 March 2015 Issue or reissue of shares Share-based payments Issue of mandatory convertible bonds8 Transactions with non-controlling interests in subsidiaries Dividends Comprehensive income Profit OCI – before tax OCI – taxes Transfer to the income statement Other 31 March 2016 Share  capital1  £m  Additional  paid-in  capital2 £m  3,866 154,279 Treasury  shares  £m  (9,029) Retained  losses  £m  Currency  reserve3  £m  (88,834) 10,600 Pensions  reserve  £m  (648) Investment Revaluation surplus5 £m 1,040 reserve4 £m 135 Other comprehensive income Equity  share-  holders’  Other6  funds  £m  £m  68 71,477 Non-  controlling  interests  £m  Total  £m  1,011 72,488 – 2 194 (173) (74) 74 1,648 (1,648) 16,613 (37,470) – (16,613) 887 – – 20,857 1,115 – – – – – – – – – – – – – – – – – – – – (1,451) – – (40,566) – 59,254 – 59,254 – – – – – – (2,436) – (3,932) 3 – – – – 3,792 116,973 – – 1,493 – (7,187) (51,428) 8,164 – 18 – – – – – – – – 2 957 142 – (126) – – – – – – – – – – – – – – – (756) (2,930) 5,761 5,761 – – (6,627) – – (6,842) 216 – – – (1) – 3,792 117,054 (7,045) (49,471) 1,537 – (16) – 8 – – – – – – – – – – – 1 1167 105 – 2,754 – – – – – – – – – – – – – (93) – – – – – (31) (2,998) (4,024) (4,024) – – – – 3,743 – 3,789 (116) – – 70 – 3,792 119,925 (6,940) (56,608) 5,280 – 9 – – – – – – – – – – – 37 – 57 (20) – – (611) – – – – (212) – (269) 57 – – (823) – – – – – 126 – 156 (30) – – (697) – – – – – – – (119) – (119) – – – – – – – – – – – – – – 23 – – – – (15,498) 88 – – – 23 – – – – (15,498) 88 – (1,451) – – (40,566) (25) 56,711 – 59,254 (3,991) 3 (20) (3) (1,191) 260 (284) (40,850) (9) 56,702 166 59,420 (4,163) (172) (23) (3) – – – – 16 1,040 (25) 1,468 18 43 70,802 – – 1 1,468 19 979 71,781 – – – – (5) – 4 – – – – – – – – – – – – – 7 – 12 (5) 18 95 – – 18 95 (756) (2,930) (1,076) 5,761 (7,095) 268 (151) 605 (3,192) (262) (810) 266 5,917 156 113 (6,982) 265 (3) (9) – 11 – – 1,040 – – (10) (8) 50 66,145 – – (10) (8) 1,588 67,733 – – – – – (2) – (3) 1 – – 9 – – – – – – – – – – – – 13 116 2,754 – – – 13 116 2,754 – (31) – (2,998) (123) 34 (4,024) – 3,988 46 (157) (12) (44) (13) (3,236) (238) (50) 73 206 (3,818) (130) 3,858 (160) (3) – – 1,040 – – 70 9 84 65,885 – 22 70 31 1,432 67,317 Notes: 1 See note 18 “Called up share capital”. 2 Includes share premium, capital reserve, 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. 3 The currency reserve is used to record cumulative translation differences on the assets and liabilities of foreign operations. The cumulative translation differences are recycled to the income statement on disposal of the foreign operation. 4 The investment reserve is used to record the cumulative fair value gains and losses on available-for-sale financial assets. The cumulative gains and losses are recycled to the income statement on disposal of the assets. 5 The revaluation surplus derives from acquisitions of subsidiaries made before the Group’s adoption of IFRS 3 (Revised) on 1 April 2010 and comprises the amounts arising from recognising the Group’s pre-existing equity interest in the acquired subsidiary at fair value. Includes the impact of the Group’s cash flow hedges with £267 million net gain deferred to other comprehensive income during the year (2015: £607 million net gain; 2014: £129 million net loss) and £233 million net gain (2015: £649 million net gain; 2014: £171 million net loss) recycled to the income statement. Includes £3 million tax credit (2015: £7 million tax credit; 2014: £12 million charge). Includes the equity component of mandatory convertible bonds which are compound instruments issued in the year. 6 7 8 89 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Consolidated statement of cash flows for the years ended 31 March Inflow from operating activities Cash flows from investing activities Purchase of interests in subsidiaries, net of cash acquired Purchase of interests in associates and joint ventures Purchase of intangible assets Purchase of property, plant and equipment Purchase of investments Disposal of interests in associates and joint ventures Disposal of property, plant and equipment Disposal of investments Dividends received from associates and joint ventures Dividends received from investments Interest received (Outflow)/inflow from investing activities Cash flows from financing activities Issue of ordinary share capital and reissue of treasury shares Net movement in short-term borrowings Proceeds from issue of long-term borrowings Repayment of borrowings Purchase of treasury shares B and C share payments Issue of subordinated mandatory convertible bonds Equity dividends paid Dividends paid to non-controlling shareholders in subsidiaries Other transactions with non-controlling shareholders in subsidiaries Other movements in loans with associates and joint ventures Interest paid Inflow/(outflow) from financing activities Net cash inflow/(outflow) Cash and cash equivalents at beginning of the financial year Exchange gain/(loss) on cash and cash equivalents Cash and cash equivalents at end of the financial year Note  19  28 10 11 13 12 11 13 18 9 2016  £m  10,481 (43) (2) (5,018) (6,836) (77) – 140 1,357 67 – 261 (10,151) 13 5 7,504 (2,738) – – 2,754 (2,998) (223) (48) (22) (1,287) 2,960 3,290 20  20  6,861 58 10,209 2015  £m  9,715 (3,093) (85) (2,315) (6,568) (207) 27 178 899 583 – 254 (10,327) 18 4,722 2,432 (4,070) – – – (2,927) (247) (718) (52) (1,576) (2,418) 2014  £m  6,227 (4,279) (11) (2,327) (4,396) (214) 34,919 79 1,483 4,897 10 582 30,743 38 (2,887) 1,060 (9,788) (1,033) (14,291) – (5,076) (264) (111) – (1,897) (34,249) (3,030) 2,721 10,112 (221) 6,861 7,506 (115) 10,112 During the year ended 31 March 2014 there were a number of material non-cash investing and financing activities that arose in relation to the disposal of our interest in Verizon Wireless, the acquisition of the remaining 23% of Vodafone Italy and the return of value to shareholders. Full details of these material non-cash transactions are included in note 28 to the consolidated financial statements. 90 Vodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements 1. Basis of preparation This section describes the critical accounting judgements that management has identified as having a potentially material impact on the Group’s consolidated financial statements and sets out our significant accounting policies that relate to the financial statements as a whole. Where an accounting policy is generally applicable to a specific note to the financial statements, the policy is described within that note. We have also detailed below the new accounting pronouncements that we will adopt in future years and our current view of the impact they will have on our financial reporting. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (‘IFRS’) as issued by the International Accounting Standards Board (‘IASB’) and are also prepared in accordance with IFRS adopted by the European Union (‘EU’), the Companies Act 2006 and Article 4 of the EU IAS Regulations. The consolidated financial statements are prepared on a going concern basis. The preparation of financial statements in conformity with IFRS 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 date of the financial statements and the reported amounts of revenue and expenses during the reporting period. A discussion on the Group’s critical accounting judgements and key sources of estimation uncertainty is detailed below. Actual results could differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period; they are recognised in the period of the revision and future periods if the revision affects both current and future periods. Amounts in the consolidated financial statements are stated in pounds sterling. With effect from 1 April 2016, the presentation currency of the Group will change from sterling to the euro to better align with the geographic split of the Group’s operations. Vodafone Group Plc is incorporated and domiciled in England and Wales (registration number 1833679). The registered address of the Company is Vodafone House, The Connection, Newbury, Berkshire, RG14 2FN, England. IFRS requires the Directors to adopt accounting policies that are the most appropriate to the Group’s circumstances. These have been applied consistently to all the years presented, unless otherwise stated. In determining and applying accounting policies, Directors and management are required to make judgements in respect of items where the choice of specific policy, accounting estimate or assumption to be followed could materially affect the Group’s reported financial position, results or cash flows; it may later be determined that a different choice may have been more appropriate. Management has identified accounting estimates and assumptions relating to revenue recognition, taxation, business combinations and goodwill, joint arrangements, finite lived intangible assets, property, plant and equipment, post employment benefits, provisions and contingent liabilities and impairment that it considers to be critical due to their impact on the Group’s financial statements. These critical accounting judgements, assumptions and related disclosures have been discussed with the Company’s Audit and Risk Committee. Critical accounting judgements and key sources of estimation uncertainty Revenue recognition Arrangements with multiple deliverables In revenue arrangements where more than one good or service is provided to the customer, customer consideration is allocated between the goods and services using relative fair value principles. The fair values determined for deliverables may impact the timing of the recognition of revenue. Determining the fair value of each deliverable can require complex estimates. The Group generally determines the fair value of individual elements based on prices at which the deliverable is regularly sold on a stand-alone basis after considering any appropriate volume discounts. Gross versus net presentation When the Group sells goods or services as a principal, income and payments to suppliers are reported on a gross basis in revenue and operating costs. If the Group sells goods or services as an agent, revenue and payments to suppliers are recorded in revenue on a net basis, representing the margin earned. Whether the Group is considered to be the principal or an agent in the transaction depends on analysis by management of both the legal form and substance of the agreement between the Group and its business partners; such judgements impact the amount of reported revenue and operating expenses but do not impact reported assets, liabilities or cash flows. Taxation The Group’s tax charge on ordinary activities is the sum of the total current and deferred tax charges. The calculation of the Group’s total tax charge involves estimation and judgement in respect of certain matters where the tax impact is uncertain until a conclusion is reached with the relevant tax authority or through a legal process. The final resolution of some of these items may give rise to material profits, losses and/or cash flows. Resolving tax issues can take many years as it is not always within the control of the Group and often depends on the efficiency of legal processes in the relevant tax jurisdiction. Recognition of deferred tax assets Significant items on which the Group has exercised accounting estimation and judgement include the recognition of deferred tax assets in respect of losses in Luxembourg, Germany, Spain and India and capital allowances in the United Kingdom. The recognition of deferred tax assets, particularly in respect of tax losses, is based upon whether it is probable that there will be sufficient and suitable taxable profits in the relevant legal entity or tax group against which to utilise the assets in the future. Judgement is required when determining probable future taxable profits. The Group assesses the availability of future taxable profits using the same undiscounted five year forecasts for the Group’s operations as are used in the Group’s value in use calculations (see “Impairment reviews” below). Where tax losses are forecast to be recovered beyond the five year period, the availability of taxable profits is assessed using the cash flows and long-term growth rates used for the value in use calculations. 91 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Notes to the consolidated financial statements (continued) 1. Basis of preparation (continued) The cash flows inherent in these forecasts include the unsystematic risks of operating in the telecommunications business including the potential impacts of changes in the market structure, trends in customer pricing, the costs associated with the acquisition and retention of customers, future technological evolutions and potential regulatory changes, such as our ability to acquire and/or renew spectrum licences. Changes in the assumptions which underpin the Group’s forecasts could have an impact on the amount of future taxable profits and could have a significant impact on the period over which the deferred tax asset would be recovered. The Group only considers substantively enacted tax laws when assessing the amount and availability of tax losses to offset against the future taxable profits. See note 6 “Taxation” to the consolidated financial statements. Business combinations and goodwill When the Group completes a business combination, the fair values of the identifiable assets and liabilities acquired, including intangible assets, are recognised. The determination of the fair values of acquired assets and liabilities is based, to a considerable extent, on management’s judgement. If the purchase consideration exceeds the fair value of the net assets acquired then the incremental amount paid is recognised as goodwill. If the purchase price consideration is lower than the fair value of the assets acquired then the difference is recorded as a gain in the income statement. Allocation of the purchase price between finite lived assets (discussed below) and indefinite lived assets such as goodwill affects the subsequent results of the Group as finite lived intangible assets are amortised, whereas indefinite lived intangible assets, including goodwill, are not amortised. On transition to IFRS the Group elected not to apply IFRS 3 “Business combinations” retrospectively as the difficulty in applying these requirements to business combinations completed by the Group between incorporation and 1 April 2004 exceeded any potential benefits. Goodwill recorded before the date of transition to IFRS amounted to £78,753 million. If the Group had elected to apply IFRS 3 retrospectively it may have led to an increase or decrease in goodwill, licences, customer bases, brands and related deferred tax liabilities recognised on acquisition. See note 28 “Acquisitions and disposals” to the consolidated financial statements for further details. Joint arrangements The Group participates in a number of joint arrangements where control of the arrangement is shared with one or more other parties. A joint arrangement is classified as a joint operation or as a joint venture, depending on management’s assessment of the legal form and substance of the arrangement. The classification can have a material impact on the consolidated financial statements. The Group’s share of assets, liabilities, revenue, expenses and cash flows of joint operations are included in the consolidated financial statements on a line-by-line basis, whereas the Group’s investment and share of results of joint ventures are shown within single line items in the consolidated statement of financial position and consolidated income statement respectively. See note 12 “Investments in associates and joint arrangements” to the consolidated financial statements. Finite lived intangible assets Other intangible assets include amounts spent by the Group acquiring licences and spectrum, customer bases and brands and the costs of purchasing and developing computer software. Where intangible assets are acquired through business combinations and no active market for the assets exists, the fair value of these assets is determined by discounting estimated future net cash flows generated by the asset. Estimates relating to the future cash flows and discount rates used may have a material effect on the reported amounts of finite lived intangible assets. Estimation of useful life The useful life over which intangible assets are amortised depends on management’s estimate of the period over which economic benefit will be derived from the asset. Reducing the useful life will increase the amortisation charge in the consolidated income statement. Useful lives are periodically reviewed to ensure that they remain appropriate. The basis for determining the useful life for the most significant categories of intangible assets is discussed below. Licence and spectrum fees The estimated useful life is generally the term of the licence unless there is a presumption of renewal at negligible cost; this is adjusted if necessary, for example taking into account the impact of any expected changes in technology. Customer bases The estimated useful life principally reflects management’s view of the average economic life of the customer base and is assessed by reference to customer churn rates. An increase in churn rates may lead to a reduction in the estimated useful life and an increase in the amortisation charge. Capitalised software For computer software, the useful life is based on management’s view, considering historical experience with similar products as well as anticipation of future events which may impact their life such as changes in technology. The useful life will not exceed the duration of a licence. Property, plant and equipment Property, plant and equipment represents 21.0% (2015: 21.7%) of the Group’s total assets; estimates and assumptions made may have a material impact on their carrying value and related depreciation charge. See note 11 “Property, plant and equipment” to the consolidated financial statements for further details. Estimation of useful life The depreciation charge for an asset is derived using estimates of its expected useful life and expected residual value, which are reviewed annually. Increasing an asset’s expected life or residual value would result in a reduced depreciation charge in the consolidated income statement. Management determines the useful lives and residual values for assets when they are acquired, based on experience with similar assets and taking into account other relevant factors such as any expected changes in technology. The useful life of network infrastructure is assumed not to exceed the duration of related operating licences unless there is a reasonable expectation of renewal or an alternative future use for the asset. 92 Vodafone Group Plc Annual Report 2016Post employment benefits Management judgement is exercised when determining the Group’s liabilities and expenses arising for defined benefit pension schemes. Management is required to make assumptions regarding future rates of inflation, salary increases, discount rates and longevity of members, each of which may have a material impact on the defined benefit obligations that are recorded. Further details, including a sensitivity analysis, are included in note 26 “Post employment benefits” to the consolidated financial statements. Provisions and contingent liabilities The Group exercises judgement in measuring and recognising provisions and the exposures to contingent liabilities related to pending litigation or other outstanding claims subject to negotiated settlement, mediation, arbitration or government regulation, as well as other contingent liabilities (see note 30 “Contingent liabilities and legal proceedings” to the consolidated financial statements). Judgement is necessary to assess the likelihood that a pending claim will succeed, or a liability will arise, and to quantify the possible range of any financial settlement. The inherent uncertainty of such matters means that actual losses may materially differ from estimates. Impairment reviews IFRS requires management to perform impairment tests annually for indefinite lived assets and, for finite lived assets, if events or changes in circumstances indicate that their carrying amounts may not be recoverable. Impairment testing requires management to judge whether the carrying value of assets can be supported by the net present value of future cash flows that they generate. Calculating the net present value of the future cash flows requires assumptions to be made in respect of highly uncertain matters including management’s expectations of: a growth in EBITDA, calculated as adjusted operating profit before depreciation and amortisation; a timing and amount of future capital expenditure, licence and spectrum payments; a long-term growth rates; and a appropriate discount rates to reflect the risks involved. Management prepares formal five year forecasts for the Group’s operations, which are used to estimate their value in use. In certain developing markets ten year forecasts are used if it is considered that the fifth year of a forecast is not indicative of expected long-term future performance as operations may not have reached maturity. For operations where five year forecasts are used for the Group’s value in use calculations, a long-term growth rate into perpetuity has been determined as the lower of: a the nominal GDP growth rates for the country of operation; and a the long-term compound annual growth rate in EBITDA in years six to ten estimated by management. For operations where ten year forecasts are used for the Group’s value in use calculations, a long-term growth rate into perpetuity has been determined as the lower of: a the nominal GDP growth rates for the country of operation; and a the compound annual growth rate in EBITDA in years nine to ten of the management plan. Changing the assumptions selected by management, in particular the discount rate and growth rate assumptions used in the cash flow projections, could significantly affect the Group’s impairment evaluation and hence reported assets and profits or losses. Further details, including a sensitivity analysis, are included in note 4 “Impairment losses” to the consolidated financial statements. 93 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Notes to the consolidated financial statements (continued) 1. Basis of preparation (continued) Significant accounting policies applied in the current reporting period that relate to the financial statements as a whole Accounting convention The consolidated financial statements are prepared on a historical cost basis except for certain financial and equity instruments that have been measured at fair value. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company, subsidiaries controlled by the Company (see note 33 “Related undertakings” to the consolidated financial statements) and joint operations that are subject to joint control (see note 12 “Investments in associates and joint arrangements” to the consolidated financial statements). Foreign currencies The consolidated financial statements are presented in sterling, which was the parent company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. With effect from 1 April 2016 the functional currency of the Company changed from sterling to the euro. The euro is now the primary currency in which the Company’s financing activities and investment returns are denominated. The consolidated financial statements are presented in sterling. With effect from 1 April 2016, the Group’s presentation currency will change from sterling to the euro to better align with the geographic split of the Group’s operations. The change of presentation and functional currency will not change either the Group’s or Company’s foreign exchange management strategy. Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated into the respective functional currency of the entity at the rates prevailing on the reporting period date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the initial transaction dates. Non-monetary items measured in terms of historical cost in a foreign currency are not retranslated. Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analysed between translation differences and other changes in the carrying amount of the security. Translation differences are recognised in the income statement and other changes in carrying amount are recognised in equity. Translation differences on non-monetary financial assets, such as investments in equity securities classified as available-for-sale, are reported as part of the fair value gain or loss and are included in equity. For the purpose of presenting consolidated financial statements, the assets and liabilities of entities with a functional currency other than sterling are expressed in sterling using exchange rates prevailing at the reporting period date. Income and expense items and cash flows are translated at the average exchange rates for the period and exchange differences arising are recognised directly in equity. On disposal of a foreign entity, the cumulative amount previously recognised in equity relating to that particular foreign operation is recognised in profit or loss. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated accordingly. In respect of all foreign operations, any exchange differences that have arisen before 1 April 2004, the date of transition to IFRS, are deemed to be nil and will be excluded from the determination of any subsequent profit or loss on disposal. The net foreign exchange loss recognised in the consolidated income statement for the year ended 31 March 2016 is £802 million (31 March 2015: £273 million gain; 2014: £1,688 million loss). The net gains and net losses are recorded within operating profit (2016: £2 million credit; 2015: £8 million charge; 2014: £16 million charge), other income and expense and non-operating income and expense (2016: £70 million charge; 2015: £1 million credit; 2014: £1,493 million charge), investment and financing income (2016: £726 million charge; 2015: £276 million credit; 2014: £180 million charge) and income tax expense (2016: £8 million charge; 2015: £4 million credit; 2014: £1 million credit). The foreign exchange gains and losses included within other income and expense and non-operating income and expense arise on the disposal of interests in joint ventures, associates and investments from the recycling of foreign exchange gains previously recorded in the consolidated statement of comprehensive income. New accounting pronouncements adopted on 1 April 2015 On 1 April 2015 the Group adopted the following new accounting policies to comply with amendments to IFRS. The accounting pronouncements, none of which is considered by the Group as significant on adoption, are: a Amendments to IAS 19 “Defined Benefit Plans: Employee Contributions”; a “Improvements to IFRS 2010–2012 cycle” amendment to IFRS 8 “Operating Segments”; and a “Improvements to IFRS 2011–2013 cycle”. 94 Vodafone Group Plc Annual Report 2016New accounting pronouncements to be adopted on 1 April 2016 The following pronouncements which are potentially relevant to the Group have been issued by the IASB are effective for annual periods beginning on or after 1 January 2016 and have been endorsed for use in the EU: a Amendments to IAS 1 “Disclosure Initiative”; a Amendments to IAS 16 and IAS 38 “Clarification of Acceptable Methods of Depreciation and Amortisation”; a Amendments to IFRS 11 “Accounting for Acquisitions of Interests in Joint Operations”; and a “Improvements to IFRS: 2012–2014 cycle”. The Group’s financial reporting will be presented in accordance with the new standards above, which are not expected to have a material impact on the consolidated results, financial position or cash flows of the Group, from 1 April 2016. New accounting pronouncements to be adopted on or after 1 April 2017 On 1 April 2017 the Group will adopt “Recognition of Deferred Tax Assets for Unrealised Losses, Amendments to IAS 12” and “Disclosure Initiative, Amendments to IAS 7” which are effective for accounting periods on or after 1 January 2017 and which have not yet been endorsed by the EU. The Group is currently confirming the impacts of the above new pronouncements on its results, financial position and cash flows, which are not expected to be material. IFRS 15 “Revenue from Contracts with Customers” IFRS 15 “Revenue from Contracts with Customers” was issued in May 2014 and subsequent amendments, “Clarifications to IFRS 15”, were issued in April 2016. IFRS 15, as amended, is effective for accounting periods beginning on or after 1 January 2018; it has not yet been adopted by the EU. IFRS 15 will have a material impact on the Group’s reporting of revenue and costs as follows: a IFRS 15 will require the Group to identify deliverables in contracts with customers that qualify as “performance obligations”. The transaction price receivable from customers must be allocated between the Group’s performance obligations under the contracts on a relative stand-alone selling price basis. Currently revenue allocated to deliverables is restricted to the amount that is receivable without the delivery of additional goods or services; this restriction will no longer be applied under IFRS 15. The primary impact on revenue reporting will be that when the Group sells subsidised devices together with airtime service agreements to customers, revenue allocated to equipment and recognised when control of the device passes to the customer will increase and revenue recognised as services are delivered will reduce. Where additional up-front unbilled revenue is recorded for the sale of devices, this will be reflected in the balance sheet as a contract asset. a Under IFRS 15, certain incremental costs incurred in acquiring a contract with a customer will be deferred on the balance sheet and amortised as revenue is recognised under the related contract; this will generally lead to the later recognition of charges for some commissions payable to third party dealers and employees. a Certain costs incurred in fulfilling customer contracts will be deferred on the balance sheet under IFRS 15 and recognised as related revenue is recognised under the contract. Such deferred costs are likely to relate to the provision of deliverables to customers that do not qualify as performance obligations and for which revenue is not recognised; currently such costs are generally expensed as incurred. The Group is continuing to assess the impact of these and other accounting changes that will arise under IFRS 15; however, the changes highlighted above will have a material impact on the consolidated income statement and consolidated statement of financial position after the Group adopts IFRS 15 on 1 April 2018. When IFRS 15 is adopted, it can be applied either on a fully retrospective basis, requiring the restatement of the comparative periods presented in the financial statements, or with the cumulative retrospective impact of IFRS 15 applied as an adjustment to equity on the date of adoption; when the latter approach is applied it is necessary to disclose the impact of IFRS 15 on each line item in the financial statements in the reporting period. The Group currently intends to reflect the cumulative impact of IFRS 15 in equity on the date of adoption. IFRS 9 “Financial Instruments” IFRS 9 “Financial Instruments” was issued in July 2014 to replace IAS 39 “Financial Instruments: Recognition and Measurement”. The standard is effective for accounting periods beginning on or after 1 January 2018 with early adoption permitted but has not yet been endorsed for use in the EU. The standard will impact the classification and measurement of the Group’s financial instruments and will require certain additional disclosures. The changes to recognition and measurement of financial instruments and changes to hedge accounting rules are not currently considered likely to have any major impact on the Group’s current accounting treatment or hedging activities. The Group will not consider early adoption of IFRS 9 until the standard has been endorsed by the EU which is currently expected in the second half of 2016. IFRS 16 “Leases” IFRS 16 “Leases” was issued in January 2016 to replace IAS 17 “Leases”. The standard is effective for accounting periods beginning on or after 1 January 2019 with early adoption permitted if IFRS 15 “Revenue from Contracts with Customers” has been adopted. IFRS 16 has not yet been adopted by the EU. IFRS 16 will primarily change lease accounting for lessees; lease agreements will give rise to the recognition of an asset representing the right to use the leased item and a loan obligation for future lease payables. Lease costs will be recognised in the form of depreciation of the right to use asset and interest on the lease liability. Lessee accounting under IFRS 16 will be similar to existing IAS 17 accounting for finance leases, but will be substantively different for operating leases where rental charges are currently recognised on straight-line basis and no lease asset or lease loan obligation is recognised. Lessor accounting under IFRS 16 is similar to existing IAS 17 accounting. The Group is assessing the impact of the accounting changes that will arise under IFRS 16; however, the changes are expected to have a material impact on the consolidated income statement and consolidated statement of financial position. The Group has not yet decided whether to adopt IFRS 16 when IFRS 15 is adopted, on 1 April 2018, or on 1 April 2019. 95 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Notes to the consolidated financial statements (continued) 2. Segmental analysis The Group’s businesses are managed on a geographical basis. Selected financial data is presented on this basis below. The Group’s operating segments are established on the basis of those components of the Group that are evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. 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. Transactions between operating segments are charged at arm’s-length prices. Segment information is provided on the basis of geographic areas, being the basis on which the Group manages its worldwide interests, with each country in which the Group operates treated as an operating segment. The aggregation of operating segments into the Europe and AMAP regions reflects, in the opinion of management, the similar economic characteristics within each of those regions as well the similar products and services offered and supplied, classes of customers and the regulatory environment. In the case of the Europe region this largely reflects membership of the European Union, while for the AMAP region this largely includes emerging and developing economies that are in the process of rapid growth and industrialisation. Certain financial information is provided separately within the Europe region for Germany, Italy, the UK and Spain, and within the AMAP region for India and Vodacom, as these operating segments are individually material for the Group. During the year ended 31 March 2016, the Group amended its segmental reporting to reflect changes in the internal management of its Enterprise business. The primary change has been that on 1 April 2015, the Group redefined its segments to report international voice transit revenue and costs within common functions rather than within the results disclosed for each country and region. The results presented for the years ended 31 March 2015 and 31 March 2014 have been restated onto a comparable basis. There is no impact on total Group revenue or cost. Accounting policies Revenue Revenue is recognised to the extent the Group has delivered goods or rendered services under an agreement, the amount of revenue can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the Group. Revenue is measured at the fair value of the consideration receivable, exclusive of sales taxes and discounts. The Group principally obtains revenue from providing mobile and fixed telecommunication services including: access charges, voice and video calls, messaging, interconnect fees, fixed and mobile broadband and related services such as providing televisual and music content, connection fees and equipment sales. Products and services may be sold separately or in bundled packages. Revenue for access charges, voice and video calls, messaging and fixed and mobile broadband provided to contract customers is recognised as services are performed, with unbilled revenue resulting from services already provided accrued at the end of each period and unearned revenue from services to be provided in future periods deferred. Revenue from the sale of prepaid credit is deferred until such time as the customer uses the airtime, or the credit expires. Revenue from interconnect fees is recognised at the time the services are performed. Revenue for the provision of televisual and music content is recognised when or as the Group performs the related service and, depending on the nature of the service, is recognised either at the gross amount billed to the customer or the amount receivable by the Group as commission for facilitating the service. Customer connection revenue is recognised together with the related equipment revenue to the extent that the aggregate equipment and connection revenue does not exceed the fair value of the equipment delivered to the customer. Any customer connection revenue not recognised together with related equipment revenue is deferred and recognised over the period in which services are expected to be provided to the customer. Revenue for device sales is recognised when the device is delivered to the end customer and the significant risks and rewards of ownership have transferred. For device sales made to intermediaries, revenue is recognised if the significant risks associated with the device are transferred to the intermediary and the intermediary has no general right to return the device to receive a refund. If the significant risks are not transferred, revenue recognition is deferred until sale of the device to an end customer by the intermediary or the expiry of any right of return. In revenue arrangements including more than one deliverable, the arrangements are divided into separate units of accounting. Deliverables are considered separate units of accounting if the following two conditions are met: (i) the deliverable has value to the customer on a stand-alone basis and (ii) there is evidence of the fair value of the item. The arrangement consideration is allocated to each separate unit of accounting based on its relative fair value. Revenue allocated to deliverables is restricted to the amount that is receivable without the delivery of additional goods or services. This restriction typically applies to revenue recognised for devices provided to customers, including handsets. Commissions Intermediaries are given cash incentives by the Group to connect new customers and upgrade existing customers. For intermediaries who do not purchase products and services from the Group, such cash incentives are accounted for as an expense. Such cash incentives to other intermediaries are also accounted for as an expense if: a the Group receives an identifiable benefit in exchange for the cash incentive that is separable from sales transactions to that intermediary; and a the Group can reliably estimate the fair value of that benefit. Cash incentives that do not meet these criteria are recognised as a reduction of the related revenue. 96 Vodafone Group Plc Annual Report 2016Segmental revenue and profit 31 March 2016 Germany Italy UK Spain Other Europe Europe India Vodacom1 Other AMAP AMAP Common Functions Group 31 March 2015 restated Germany Italy UK Spain Other Europe Europe India Vodacom Other AMAP AMAP Common Functions Group 31 March 2014 restated Germany Italy UK Spain Other Europe Europe India Vodacom Other AMAP AMAP Common Functions Group Discontinued operations Verizon Wireless2 Intra-region revenue £m (26) (15) (13) (19) (42) (115) (9) – – (9) – (124) (16) (13) (13) (18) (30) (90) (11) – – (11) – (101) (9) (1) (9) (14) (9) (42) – – – – – (42) Regional revenue £m 7,761 4,390 6,160 3,614 4,793 26,718 4,507 3,887 4,814 13,208 1,160 41,086 8,368 4,574 6,186 3,596 4,963 27,687 4,298 4,341 4,743 13,382 1,257 42,326 8,211 517 6,239 3,457 5,505 23,929 3,939 4,718 4,730 13,387 1,065 38,381 Inter-region revenue £m (7) (1) (7) (1) (3) (19) (14) – (15) (29) (65) (113) (22) (1) (2) (2) (1) (28) (15) – (10) (25) (46) (99) (11) – (3) (2) (3) (19) (3) – (9) (12) (4) (35) Group revenue £m 7,754 4,389 6,153 3,613 4,790 26,699 4,493 3,887 4,799 13,179 1,095 40,973 8,346 4,573 6,184 3,594 4,962 27,659 4,283 4,341 4,733 13,357 1,211 42,227 8,200 517 6,236 3,455 5,502 23,910 3,936 4,718 4,721 13,375 1,061 38,346 Segment revenue £m 7,787 4,405 6,173 3,633 4,835 26,833 4,516 3,887 4,814 13,217 1,160 41,210 8,384 4,587 6,199 3,614 4,993 27,777 4,309 4,341 4,743 13,393 1,257 42,427 8,220 518 6,248 3,471 5,514 23,971 3,939 4,718 4,730 13,387 1,065 38,423 9,955 EBITDA £m 2,537 1,478 1,289 915 1,467 7,686 1,331 1,484 1,227 4,042 (116) 11,612 2,659 1,535 1,345 782 1,573 7,894 1,282 1,527 1,277 4,086 (65) 11,915 2,688 181 1,398 786 1,735 6,788 1,135 1,716 1,279 4,130 166 11,084 4,274 Notes: 1 With effect from 1 April 2015, Vodacom changed its accounting for the acquisition of handsets by certain customers through Vodacom SA’s indirect distribution channels. This had the effect of reducing equipment revenue and decreasing direct expenses, with no impact on profits or cash flows. The impact on prior years is not material. 2 Discontinued operations comprise our US group whose principal asset was a 45% interest in Verizon Wireless, which was sold on 21 February 2014. Refer to note 7 “Discontinued operations and assets held for sale” to the consolidated financial statements for further details. Total revenue recorded in respect of the sale of goods for the year ended 31 March 2016 was £3,269 million (2015: £3,211 million, 2014: £2,660 million). The Group’s measure of segment profit, EBITDA, excludes depreciation, amortisation, impairment loss, restructuring costs, loss on disposal of fixed assets, the Group’s share of results in associates and joint ventures and other income and expense. A reconciliation of EBITDA to operating profit/ (loss) is shown overleaf. For a reconciliation of operating profit/(loss) to profit for the financial year, see the consolidated income statement on page 87. 97 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 2. Segmental analysis (continued) EBITDA Depreciation, amortisation and loss on disposal of fixed assets Share of results in associates and joint ventures Adjusted operating profit Impairment loss Restructuring costs Amortisation of acquired customer based and brand intangible assets Other income and expense Operating profit/(loss) Segmental assets and cash flow 2016 £m  11,612 (8,539) 44 3,117 (450) (236) (979) (75) 1,377 2015  £m  11,915 (8,345) (63) 3,507 – (157) (1,269) (114) 1,967 2014  £m  11,084 (7,098) 324 4,310 (6,600) (355) (551) (717) (3,913) 31 March 2016 Germany Italy UK Spain Other Europe Europe India Vodacom Other AMAP AMAP Common Functions Group 31 March 2015 Germany Italy UK Spain Other Europe Europe India Vodacom Other AMAP AMAP Common Functions Group 31 March 2014 Germany Italy UK Spain Other Europe Europe India Vodacom Other AMAP AMAP Common Functions Group Non-current assets1 £m Capital expenditure2 £m Other expenditure on intangible assets £m Depreciation and amortisation £m Impairment loss £m Restated Operating free cash flow3 £m 22,306 7,748 7,508 9,148 5,984 52,694 11,115 4,183 5,381 20,679 1,477 74,850 19,521 6,938 7,759 8,154 8,189 50,561 8,599 4,712 4,915 18,226 1,306 70,093 22,780 7,984 8,031 3,653 8,736 51,184 7,824 4,560 4,850 17,234 1,121 69,539 1,737 1,123 890 867 1,015 5,632 812 621 864 2,297 670 8,599 2,003 1,105 980 858 1,083 6,029 882 745 919 2,546 622 9,197 1,312 180 932 511 800 3,735 633 663 711 2,007 571 6,313 1,501 170 103 355 6 2,135 2,731 17 593 3,341 – 5,476 3 95 15 – 193 306 140 2 35 177 1 484 3 – – – 273 276 1,938 3 11 1,952 – 2,228 2,443 1,223 1,393 1,060 1,004 7,123 937 530 859 2,326 49 9,498 2,574 1,334 1,363 954 1,017 7,242 863 566 900 2,329 (6) 9,565 2,036 164 1,290 587 1,047 5,124 828 593 932 2,353 83 7,560 – – – – 450 450 – – – – – 450 – – – – – – – – – – – – 4,900 – – 800 900 6,600 – – – – – 6,600 651 373 265 (111) 409 1,587 544 792 385 1,721 (424) 2,884 992 542 185 (30) 541 2,230 332 762 398 1,492 (859) 2,863 1,695 251 602 254 978 3,780 811 1,174 605 2,590 209 6,579 Notes: 1 Comprises goodwill, other intangible assets and property, plant and equipment. 2 3 The Group’s measure of segment cash flow is reconciled to the closest equivalent GAAP measure cash generated by operations, on page 191. Includes additions to property, plant and equipment and computer software, reported within intangibles. Excludes licences and spectrum additions. 98 Vodafone Group Plc Annual Report 2016 3. Operating profit/(loss) Detailed below are the key amounts recognised in arriving at our operating profit/(loss) Net foreign exchange (gains)/losses Depreciation of property, plant and equipment (note 11): Owned assets Leased assets Amortisation of intangible assets (note 10) Impairment of goodwill in subsidiaries, associates and joint arrangements (note 4) Staff costs (note 25) Operating lease rentals payable Loss on disposal of property, plant and equipment and intangible assets Own costs capitalised attributable to the construction or acquisition of property, plant and equipment 2016  £m  (2) 5,189 57 4,252 450 4,411 2,315 20 (562) 2015  £m  8 5,002 44 4,519 – 4,194 2,303 49 (547) 2014 £m  16 3,990 48 3,522 6,600 3,875 2,153 85 (455) The total remuneration of the Group’s auditor, PricewaterhouseCoopers LLP and other member firms of PricewaterhouseCoopers International Limited, for services provided to the Group during the year ended 31 March 2016 is analysed below. PricewaterhouseCoopers LLP was appointed as the Group’s auditor for the year ended 31 March 2015. Accordingly, comparative figures in the table below for the year ended 31 March 2014 are in respect of remuneration paid to the Group’s previous auditor, Deloitte LLP and other member firms of Deloitte Touche Tohmatsu Limited. Parent company Subsidiaries Audit fees: Audit-related fees1 Other assurance services2, 3 Tax fees3 Non-audit fees: Total fees 2016 £m  2 10 12 1 – – 1 13 2015 £m  2 10 12 1 1 2 4 16 2014 £m  1 8 9 1 3 – 4 13 Notes: 1 Relates to fees for statutory and regulatory filings. 2 Amount for 2014 primarily arose from regulatory filings and shareholder documentation requirements in respect of the disposal of Verizon Wireless and the acquisition of the outstanding minority stake in Vodafone Italy. 3 At the time of the Board decision to recommend PricewaterhouseCoopers LLP as the statutory auditor for the year ended 31 March 2015 in February 2014, PricewaterhouseCoopers LLP were providing a range of services to the Group. All services that were prohibited by the Securities and Exchange Commission (‘SEC’) for a statutory auditor to provide, ceased by 31 March 2014. All engagements that are not prohibited by the SEC, but would not have met the Group’s own internal approval policy for non-audit services, ceased by 30 June 2014 to enable a transition to alternative suppliers, where required. These services had a value of approximately £3 million through to completion and are included in the table above. 99 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 4. Impairment losses Impairment occurs when the carrying value of assets is greater than the present value of the net cash flows they are expected to generate. We review the carrying value of assets for each country in which we operate at least annually. For further details of our impairment review process see “Critical accounting judgements and key sources of estimation uncertainty” in note 1 “Basis of preparation” to the consolidated financial statements. Accounting policies Goodwill Goodwill is not subject to amortisation but is tested for impairment annually or whenever there is an indication that the asset may be impaired. For the purpose of impairment testing, assets are grouped at the lowest levels for which there are separately identifiable cash flows, known as cash- generating units. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Impairment losses recognised for goodwill are not reversible in subsequent periods. The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. The Group prepares and approves formal five year management plans for its operations, which are used in the value in use calculations. In certain developing markets the fifth year of the management plan may not be indicative of the long-term future performance as operations may not have reached maturity. For these operations, the Group may extend the plan data for an additional five year period. Property, plant and equipment and finite lived intangible assets At each reporting period date, the Group reviews the carrying amounts of its property, plant and equipment and finite lived intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent, if any, of the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount and an impairment loss is recognised immediately in the income statement. Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, not to exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset or cash-generating unit in prior years and an impairment loss reversal is recognised immediately in the income statement. Impairment losses Following our annual impairment review, the impairment charges recognised in the consolidated income statement within operating profit in respect of goodwill are stated below. The impairment losses were based on value in use calculations. Cash-generating unit Germany Spain Portugal Czech Republic Romania Reportable segment Germany Spain Other Europe Other Europe Other Europe Goodwill The remaining carrying value of goodwill at 31 March was as follows: Germany Italy Spain Other 100 2016  £m  – – – – 450 450 2015  £m  – – – – – – 2016  £m  9,867 2,889 3,015 15,771 7,018 22,789 2014  £m  4,900 800 500 200 200 6,600 2015 £m  9,019 2,641 2,755 14,415 8,122 22,537 Vodafone Group Plc Annual Report 2016 Key assumptions used in the value in use calculations The key assumptions used in determining the value in use are: Assumption Budgeted EBITDA Budgeted capital expenditure Budgeted licence and spectrum payments Long-term growth rate How determined Budgeted EBITDA has been based on past experience adjusted for the following: a voice and messaging revenue is expected to benefit from increased usage from new customers, especially in emerging markets, the introduction of new services and traffic moving from fixed networks to mobile networks, though these factors will be offset by increased competitor activity, which may result in price declines, and the trend of falling termination and other regulated rates; a non-messaging data revenue is expected to continue to grow as the penetration of 3G (plus 4G where available) enabled devices and smartphones rise along with higher data bundle attachment rates, and new products and services are introduced; and a margins are expected to be impacted by negative factors such as the cost of acquiring and retaining customers in increasingly competitive markets and the expectation of further termination rate cuts by regulators and by positive factors such as the efficiencies expected from the implementation of Group initiatives. The cash flow forecasts for capital expenditure are based on past experience and include the ongoing capital expenditure required to roll out networks in emerging markets, to provide voice and data products and services and to meet the population coverage requirements of certain of the Group’s licences. Capital expenditure includes cash outflows for the purchase of property, plant and equipment and computer software. The cash flow forecasts for licence and spectrum payments for each operating company for the initial five years include amounts for expected renewals and newly available spectrum. Beyond that period, a long-run cost of spectrum is assumed. For businesses where the five year management plans are used for the Group’s value in use calculations, a long-term growth rate into perpetuity has been determined as the lower of: a the nominal GDP rates for the country of operation; and a the long-term compound annual growth rate in EBITDA in years six to ten estimated by management. Pre-tax risk adjusted discount rate The discount rate applied to the cash flows of each of the Group’s operations is generally based on the risk free rate for ten year bonds issued by the government in the respective market. Where government bond rates contain a material component of credit risk, high quality local corporate bond rates may be used. These rates are adjusted for a risk premium to reflect both the increased risk of investing in equities and the systematic risk of the specific Group operating company. In making this adjustment, inputs required are the equity market risk premium (that is the required increased return required over and above a risk free rate by an investor who is investing in the market as a whole) and the risk adjustment, beta, applied to reflect the risk of the specific Group operating company relative to the market as a whole. In determining the risk adjusted discount rate, management has applied an adjustment for the systematic risk to each of the Group’s operations determined using an average of the betas of comparable listed mobile telecommunications companies and, where available and appropriate, across a specific territory. Management has used a forward-looking equity market risk premium that takes into consideration both studies by independent economists, the average equity market risk premium over the past ten years and the market risk premiums typically used by investment banks in evaluating acquisition proposals. Year ended 31 March 2016 During the year ended 31 March 2016 impairment charges of £450 million were recorded in respect of the Group’s investments in Romania. The impairment charge relates solely to goodwill. The recoverable amount of Romania is £0.7 billion. The impairment charges were driven by lower projected cash flows within the business plans resulting in our reassessment of expected future business performance in the light of the current trading environment. The table below shows key assumptions used in the value in use calculations. Pre-tax risk adjusted discount rate Long-term growth rate Budgeted EBITDA1 Budgeted capital expenditure2 Assumptions used in value in use calculation Romania %  9.7 1.0 (0.3) 11.5–18.8 Germany %  8.2 0.5 3.1 14.5–15.6 Spain %  9.7 1.5 8.8 11.2–19.7 Notes: 1 Budgeted 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 testing. 2 Budgeted 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. 101 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 4. Impairment losses (continued) 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 amounts of the Group’s operations in Romania, Germany and Spain are equal to, or not materially greater than, their carrying values; consequently, any adverse change in key assumptions would, in isolation, cause a further impairment loss to be recognised. The estimated recoverable amounts of the Group’s operations in Germany and Spain exceed their carrying values by £1.6 billion and £0.8 billion respectively. Pre-tax risk adjusted discount rate Long-term growth rate Budgeted EBITDA1 Budgeted capital expenditure2 Change required for carrying value to equal the recoverable amount Germany pps 0.5 (0.5) (0.9) 4.4 Spain pps  0.6 (0.8) (1.2) 4.8 The changes in the following table to assumptions used in the impairment review would have, in isolation, led to an (increase)/decrease to the aggregate impairment loss recognised in the year ended 31 March 2016. Pre-tax risk adjusted discount rate Long-term growth rate Budgeted EBITDA1 Budgeted capital expenditure2 Increase by 2pps £bn (0.2) 0.3 0.2 – Romania Decrease by 2pps £bn  0.3 (0.1) (0.2) – Notes: 1 Budgeted 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 testing. 2 Budgeted 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. Year ended 31 March 2015 During the year ended 31 March 2015, no impairment charges were recorded in respect of the Group’s goodwill balances. The table below shows key assumptions used in the value in use calculations. Pre-tax risk adjusted discount rate Long-term growth rate Budgeted EBITDA1 Budgeted capital expenditure2 Assumptions used in value in use calculation Germany %  8.2 0.5 3.2 11.6–21.7 Italy %  10.5 1.0 0.8 12.5–25.6 Spain %  9.8 1.5 11.0 11.5–23.3 Notes: 1 Budgeted 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 testing. 2 Budgeted 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. Sensitivity analysis Other than as disclosed below, management believed 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 amounts of the Group’s operations in Germany, Italy and Spain exceeded their carrying values by £2.2 billion, £1.3 billion and £0.3 billion respectively. Pre-tax risk adjusted discount rate Long-term growth rate Budgeted EBITDA1 Budgeted capital expenditure2 Change required for carrying value to equal the recoverable amount Spain pps  0.3 (0.3) (2.6) 0.7 Germany pps 0.8 (0.9) (7.3) 2.1 Italy pps 1.6 (1.8) (7.5) 2.9 Notes: 1 Budgeted 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 testing. 2 Budgeted capital expenditure, which excludes licences and spectrum, is expressed as a percentage of revenue in the initial five years for all cash-generating units of the plans used for impairment testing. 102 Vodafone Group Plc Annual Report 2016 Year ended 31 March 2014 During the year ended 31 March 2014 impairment charges of £4,900 million, £800 million, £500 million, £200 million and £200 million were recorded in respect of the Group’s investments in Germany, Spain, Portugal, Czech Republic and Romania respectively. The impairment charges related solely to goodwill. The recoverable amounts of Germany, Spain, Portugal, Czech Republic and Romania were £23.0 billion, £3.3 billion, £1.3 billion, £0.6 billion and £1.2 billion respectively. The impairment charges were driven by lower projected cash flows within the business plans resulting in our reassessment of expected future business performance in the light of current trading and economic conditions. The table below shows key assumptions used in the value in use calculations. Pre-tax risk adjusted discount rate Long-term growth rate Budgeted EBITDA1 Budgeted capital expenditure2 Germany %  7.7 0.5 2.8 12.5–21.7 Italy %  10.5 1.0 (2.2) 11.1–25.5 Spain %  9.9 1.9 (0.7) 9.0–23.5 Portugal %  11.1 1.5 (0.8) 11.0–28.3 Czech Republic %  8.0 0.8 (0.6) 15.9–21.2 Romania %  11.0 1.0 1.7 10.5–17.3 Greece %  24.3 1.0 4.7 7.6–12.2 Assumptions used in value in use calculation Notes: 1 Budgeted 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 testing. 2 Budgeted 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. Sensitivity analysis Other than as disclosed below, management believed that no reasonably possible change in any of the above key assumptions would cause the carrying value of any cash-generating unit to exceed its recoverable amount. The estimated recoverable amounts of the Group’s operations in Germany, Italy, Spain, Portugal, Czech Republic, Romania and Greece were equal to, or not materially greater than, their carrying values; consequently, any adverse change in key assumptions would, in isolation, have caused a further impairment loss to be recognised. The changes in the following table to assumptions used in the impairment review would, in isolation, have led to an (increase)/decrease to the aggregate impairment loss recognised in the year ended 31 March 2014. Pre-tax risk adjusted discount rate Long-term growth rate Budgeted EBITDA1 Budgeted capital expenditure2 Pre-tax risk adjusted discount rate Long-term growth rate Budgeted EBITDA1 Budgeted capital expenditure2 Increase by 2pps £bn (7.1) 4.9 0.8 (2.4) Germany Decrease by 2pps £bn 4.9 (5.2) (0.8) 2.4 Increase by 2pps £bn (0.9) 0.8 0.2 (0.8) Increase by 2pps £bn (0.2) 0.2 – – Spain Decrease by 2pps £bn 0.8 (0.8) (0.2) 0.8 Czech Republic Decrease by 2pps £bn 0.2 (0.2) – – Increase by 2pps £bn (0.3) 0.4 0.1 (0.2) Increase by 2pps £bn (0.2) 0.2 0.1 – Portugal Decrease by 2pps £bn 0.4 (0.2) (0.1) 0.2 Romania Decrease by 2pps £bn 0.2 (0.2) (0.1) – Notes: 1 Budgeted 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 testing. 2 Budgeted capital expenditure is expressed as a percentage of revenue in the initial five years for all cash-generating units of the plans used for impairment testing. 103 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 5. Investment income and financing costs Investment income comprises interest received from short-term investments, bank deposits, government bonds and results from foreign exchange contracts which are used to hedge net debt. Financing costs mainly arise from interest due on bonds and commercial paper issued, bank loans and the results of hedging transactions used to manage foreign exchange and interest rate movements. Investment income: Available-for-sale investments: Dividends received Loans and receivables at amortised cost Fair value through the income statement (held for trading): Derivatives – foreign exchange contracts Other1 Financing costs: Items in hedge relationships: Other loans Interest rate and cross currency interest rate swaps Fair value hedging instrument Fair value of hedged item Other financial liabilities held at amortised cost: Bank loans and overdrafts2 Bonds and other loans3 Interest charge/(credit) on settlement of tax issues4 Equity put rights and similar arrangements5 Fair value through the income statement (held for trading): Derivatives – forward starting swaps and futures Other1 Net financing costs 2016  £m  2015  £m  2014  £m  – 293 – 7 300 171 (96) (106) 125 669 767 15 – – 324 – 559 883 245 (123) (461) 418 842 677 (4) 11 10 184 82 70 346 265 (196) 386 (363) 557 770 (15) 143 146 433 2,124 1,824 131 – 1,736 853 1 6 1,554 1,208 Notes: 1 Amounts for 2016 include net foreign exchange losses of £433 million (2015: £526 million gain; 2014: £21 million gain) arising from net foreign exchange movements on certain intercompany balances. 2 The Group capitalised £179 million of interest expense in the year (2015: £142 million; 2014: £3 million) predominantly in relation to interest on India spectrum licence debt with a capitalisation rate of 10% (2015: 10%) 3 Amounts for 2016 include net foreign exchange losses of £293 million (2015: £250 million; 2014: £201 million). 4 Amounts for 2016 include an increase in provision for potential interest on tax issues. Amounts for 2015 and 2014 includes reductions of the provision for potential interest on tax issues. 5 Includes amounts in relation to the Group’s arrangements with its non-controlling interests. 104 Vodafone Group Plc Annual Report 2016 6. Taxation This note explains how our Group tax charge arises. The deferred tax section of the note also provides information on our expected future tax charges and sets out the tax assets held across the Group together with our view on whether or not we expect to be able to make use of these in the future. Accounting policies Income tax expense represents the sum of the current and deferred taxes. Current tax payable or recoverable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because some items of income or expense are taxable or deductible in different years or may never be taxable or deductible. The Group’s liability for current tax is calculated using UK and foreign tax rates and laws that have been enacted or substantively enacted by the reporting period date. Deferred tax is the tax expected to be payable or recoverable in the future arising from temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. It is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that temporary differences or taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition (other than in a business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are not recognised to the extent they arise from the initial recognition of non-tax deductible goodwill. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint arrangements, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each reporting period date and adjusted to reflect changes in the Group’s assessment that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised, based on tax rates that have been enacted or substantively enacted by the reporting period date. Tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they either relate to income taxes levied by the same taxation authority on either the same taxable entity or on different taxable entities which intend to settle the current tax assets and liabilities on a net basis. Tax is charged or credited to the income statement, except when it relates to items charged or credited to other comprehensive income or directly to equity, in which case the tax is recognised in other comprehensive income or in equity. Income tax expense United Kingdom corporation tax income/(expense): Current year1 Adjustments in respect of prior years Overseas current tax expense: Current year Adjustments in respect of prior years Total current tax expense Deferred tax on origination and reversal of temporary differences: United Kingdom deferred tax Overseas deferred tax Total deferred tax expense/(income) Total income tax expense/(income)2 Notes: 1 Relates to a claim under international conventions for the avoidance of double taxation. 2 The income statement tax charge includes tax relief on capitalised interest. 2016  £m (94) 49 (45) 609 (329) 280 235 2015  £m – 11 11 846 (149) 697 708 2014  £m – 17 17 3,114 (25) 3,089 3,106 (20) 3,154 3,134 3,369 (39) (5,434) (5,473) (4,765) 57 (19,745) (19,688) (16,582) UK operating profits are more than offset by statutory allowances for capital investment in the UK network and systems plus ongoing interest costs including those arising from the £6.8 billion of spectrum payments to the UK Government in 2000 and 2013. 105 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 6. Taxation (continued) Tax on discontinued operations Tax (credit)/charge on profit from ordinary activities of discontinued operations Total tax (credit)/charge on discontinued operations Tax (credited)/charged directly to other comprehensive income Current tax Deferred tax Total tax charged/(credited) directly to other comprehensive income Tax (credited)/charged directly to equity Current tax Deferred tax Total tax (credited)/charged directly to equity 2016  £m – – 2016  £m (58) 218 160 2016  £m (5) 2 (3) 2015  £m (57) (57) 2015  £m 2 (267) (265) 2015  £m (4) (3) (7) 2014  £m 1,709 1,709 2014  £m – 23 23 2014  £m 12 – 12 Factors affecting the tax expense for the year The table below explains the differences between the expected tax expense at the UK statutory tax rate of 20% (2015: 21% and 2014: 23%), and the Group’s total tax expense for each year. Continuing (loss)/profit before tax as shown in the consolidated income statement Expected income tax (income)/expense at UK statutory tax rate Effect of different statutory tax rates of overseas jurisdictions Impairment losses with no tax effect Disposal of Group investments Effect of taxation of associates and joint ventures, reported within profit before tax Derecognition/(recognition) of deferred tax assets for losses including Luxembourg and Germany1 Deferred tax charge/(credit) following revaluation of investments in Luxembourg1 Tax charge on rationalisation and re-organisation of non-US assets prior to VZW disposal2 Previously unrecognised temporary differences we expect to use in the future Previously unrecognised temporary differences we used in the year Current year temporary differences (including losses) that we currently do not expect to use Adjustments in respect of prior year tax liabilities Restructuring and simplification of our Indian business Impact of tax credits and irrecoverable taxes Deferred tax on overseas earnings Effect of current year changes in statutory tax rates on deferred tax balances Expenses not deductible for tax purposes Tax on income derived from discontinued operations Exclude taxation of associates and joint ventures Income tax expense/(income) 2016  £m (449) (90) 142 90 – 21 1,001 2,277 – – (6) 119 (32) (340) (43) 14 72 248 – (104) 3,369 2015  £m 1,095 230 138 – – 25 (3,341) (2,127) – (40) – 342 (245) – 66 38 118 148 – (117) (4,765) 2014  £m (5,270) (1,212) (328) 1,958 211 61 (19,318) – 1,365 (164) – 215 (43) – 37 4 158 210 418 (154) (16,582) Notes: 1 See commentary regarding deferred tax asset recognition in Luxembourg and Germany on page 108. 2 Amounts for 2014 include the US tax charge of £2,210 million on the rationalisation and reorganisation of non-US assets prior to the disposal of our interest in Verizon Wireless. 106 Vodafone Group Plc Annual Report 2016 Deferred tax Analysis of movements in the net deferred tax balance during the year: 1 April 2015 Exchange movements Charged to the income statement (continuing operations) Charged directly to OCI Charged directly to equity Reclassifications Arising on acquisition and disposals 31 March 2016 Deferred tax assets and liabilities, before offset of balances within countries, are as follows: Accelerated tax depreciation Intangible assets Tax losses Deferred tax on overseas earnings Other temporary differences 31 March 2016 Amount  (charged)/  credited  in income  statement  £m  243 27 (3,588) (14) 198 (3,134) Gross  deferred tax asset  £m  1,264 67 26,929 – 1,818 30,078 Gross  deferred tax  liability  £m  (1,309) (1,610) – (53) (98) (3,070) Less  amounts  unrecognised1 £m  (37) 12 (4,828) – (219) (5,072) £m  23,250 2,043 (3,134) (218) (2) 8 (11) 21,936 Net  recognised  deferred tax  (liability)/  asset  £m  (82) (1,531) 22,101 (53) 1,501 21,936 Note: 1 Other unrecognised temporary differences include £141 million relating to Minimum Alternative Tax credits in India, of which £47 million expire within 0–5 years and £94 million expire within 6–10 years. Deferred tax assets and liabilities are analysed in the statement of financial position, after offset of balances within countries, as follows: Deferred tax asset Deferred tax liability 31 March 2016 At 31 March 2015, deferred tax assets and liabilities, before offset of balances within countries, were as follows: Accelerated tax depreciation Intangible assets Tax losses Deferred tax on overseas earnings Other temporary differences 31 March 2015 Amount  credited/  (charged)  in income  statement  £m  382 195 4,866 (38) 68 5,473 Gross  deferred tax asset  £m  1,183 107 28,080 – 1,695 31,065 Gross  deferred tax  liability  £m  (1,355) (1,704) – (40) (94) (3,193) Less  amounts  unrecognised  £m  (61) 13 (4,430) – (144) (4,622) £m  22,382 (446) 21,936 Net  recognised  deferred tax  (liability)/  asset  £m  (233) (1,584) 23,650 (40) 1,457 23,250 At 31 March 2015 deferred tax assets and liabilities were analysed in the statement of financial position, after offset of balances within countries, as follows: Deferred tax asset Deferred tax liability 31 March 2015 £m  23,845 (595) 23,250 Factors affecting the tax charge in future years The Group’s future tax charge, and effective tax rate, could be affected by several factors including; tax reform in countries around the world, including any arising from the implementation of the OECD’s BEPS actions and European Commission initiatives such as the proposed anti-tax avoidance directive, tax and financial reporting directive or as a consequence of state aid investigations, future corporate acquisitions and disposals, any restructuring of our businesses and the resolution of open tax issues (see below). The Group is routinely subject to audit by tax authorities in the territories in which it operates and, specifically, in India these are usually resolved through the Indian legal system. We consider each issue on its merits and, where appropriate, hold provisions in respect of the potential tax liability that may arise. However, the amount ultimately paid may differ materially from the amount accrued and could therefore affect the Group’s overall profitability and cash flows in future periods. See note 30 “Contingent liabilities and legal proceedings” to the consolidated financial statements. 107 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 6. Taxation (continued) At 31 March 2016, the gross amount and expiry dates of losses available for carry forward are as follows: Losses for which a deferred tax asset is recognised Losses for which no deferred tax is recognised Expiring  within  5 years  £m  56 278 334 At 31 March 2015, the gross amount and expiry dates of losses available for carry forward were as follows: Losses for which a deferred tax asset is recognised Losses for which no deferred tax is recognised Expiring  within  5 years  £m  104 1,124 1,228 Expiring  within  6–10 years  £m  44 51 95 Expiring  within  6–10 years  £m  64 543 607 Unlimited  £m  82,630 18,887 101,517 Total  £m  82,730 19,216 101,946 Unlimited  £m  87,246 16,084 103,330 Total  £m  87,414 17,751 105,165 Deferred tax assets on losses in Luxembourg Included in the table above are losses of £64,186 million (2015: £70,576 million) that have arisen in Luxembourg companies, principally as a result of revaluations of those companies’ investments for local GAAP purposes. These losses do not expire. A deferred tax asset of £18,931 million (2015: £20,755 million) has been recognised in respect of these losses as we conclude it is probable that the Luxembourg entities will continue to generate taxable profits in the future against which we can utilise these losses. The Luxembourg companies’ income is derived from the Group’s internal financing and procurement and roaming activities. The Group has reviewed the latest forecasts for the Luxembourg companies, including their ability to continue to generate income beyond the forecast period under the tax laws substantively enacted at the balance sheet date. The assessment also considered whether the structure of the Group would continue to allow the generation of taxable income. Based on this the Group concludes that it is probable that the Luxembourg companies will continue to generate taxable income in the future. Based on the current forecasts the losses will be fully utilised over the next 50 to 60 years. A 5%–10% change in the forecast income in Luxembourg would change the period over which the losses will be fully utilised by 2–6 years. Any future changes in tax law or the structure of the Group could have a significant effect on the use of losses, including the period over which the losses are utilised. In February 2016 the Luxembourg Government announced their intention to reduce the corporate tax rate (including municipal business tax) to 27.1% for the year ending 31 March 2017 and 26.1% for the year ending 31 March 2018. The announced decrease in the corporate tax rate would reduce the value of our deferred tax assets by approximately £2.1 billion. During the current year we utilised £2,277 million of our deferred tax asset as a result of the revaluation of investments based upon the local GAAP financial statements at 31 March 2016 (2015: recognition of an additional asset of £2,127 million). The revaluation of investments for local GAAP purposes, which are based on the Group’s value in use calculations, can give rise to impairments or the reversal of previous impairments. These can result in a significant change to our deferred tax assets and the period over which these assets will be utilised. During the year the Group de-recognised a deferred tax asset of £930 million relating to losses in Luxembourg as a result of the absence of complete clarity on the tax treatment of certain revaluations of investments for Luxembourg GAAP purposes, combined with the length of time which would be likely to elapse before these losses would be utilised. We also have £7,642 million (2015: £7,642 million) of Luxembourg losses in a former Cable & Wireless Worldwide Group company, for which no deferred tax asset has been recognised as it is uncertain whether these losses will be utilised. Deferred tax assets on losses in Germany The Group has tax losses of £14,597 million (2015: £13,600 million) in Germany arising on the write down of investments in Germany in 2000. The losses are available to use against both German federal and trade tax liabilities and they do not expire. A deferred tax asset of £2,260 million (2015: £2,086 million) has been recognised in respect of these losses as we conclude it is probable that the German business will continue to generate taxable profits in the future against which we can utilise these losses. The Group has reviewed the latest forecasts for the German business which incorporate the unsystematic risks of operating in the telecommunications business (see pages 22 to 28). In the period beyond the 5 year forecast we have reviewed the profits inherent in the terminal period and based on these and our expectations for the German business we believe it is probable the German losses will be fully utilised. Based on the current forecasts the losses will be fully utilised over the next 10 to 15 years. A 5%–10% change in the forecast profits of the German business would change the period over which the losses will be fully utilised by one year. Deferred tax assets on losses in Spain During the 2015 year end, the Group acquired Grupo Corporativo Ono S.A. which had tax losses of £2,375 million in Spain and which are available to offset against the future profits of the Spanish business. The losses do not expire. A deferred tax asset of £673 million (2015: £603 million) has been recognised in respect of Ono’s losses as we conclude it is probable that the Spanish business will continue to generate taxable profits in the future against which we can utilise these losses. The Group has reviewed the latest forecasts for the Spanish business which incorporate the unsystematic risks of operating in the telecommunications business (see pages 22 to 28). In the period beyond the 5 year forecast we have reviewed the profits inherent in the value in use calculations and based on these and our expectations for the Spanish business we believe it is probable the losses will be fully utilised. Based on the current forecasts the losses will be fully utilised over the next 8 to 10 years. A 5%–10% change in the forecast profits of the Spanish business would not significantly alter the utilisation period. 108 Vodafone Group Plc Annual Report 2016 Other tax losses The Group has losses amounting to £6,724 million (2015: £6,735 million) in respect of UK subsidiaries which are only available for offset against future capital gains and since it is uncertain whether these losses will be utilised, no deferred tax asset has been recognised, in line with the prior year. The remaining losses relate to a number of other jurisdictions across the Group. There are also £384 million (2015: £310 million) of unrecognised other temporary differences. The Group holds a deferred tax liability of £53 million (2015: £40 million) in respect of deferred taxation that would arise if temporary differences on investments in subsidiaries, associates and interests in joint ventures were to be realised after the balance sheet date (see table above). No deferred tax liability has been recognised in respect of a further £14,106 million (2015: £14,925 million) of unremitted earnings of subsidiaries, associates and joint ventures because the Group is in a position to control the timing of the reversal of the temporary difference and it is probable that such differences will not reverse in the foreseeable future. It is not practicable to estimate the amount of unrecognised deferred tax liabilities in respect of these unremitted earnings. 7. Discontinued operations and assets held for sale Discontinued operations On 21 February 2014 we completed the sale of our US group whose principal asset was its 45% interest in Verizon Wireless. The results of these discontinued operations are detailed below. Income statement and segment analysis of discontinued operations Share of result in associates Net financing income Profit before taxation Taxation relating to performance of discontinued operations Post-tax profit from discontinued operations Gain on disposal of discontinued operations Gain on disposal of discontinued operations before taxation (see note 28) Other items arising from the disposal1 Net gain on disposal of discontinued operations Note: 1 Includes dividends received from Verizon Wireless after the date of the announcement of the disposal. Profit for the financial year from discontinued operations Profit for the financial year from discontinued operations Net gain on disposal of discontinued operations Profit for the financial year from discontinued operations Earnings per share from discontinued operations – Basic – Diluted Total comprehensive income for the financial year from discontinued operations Attributable to owners of the parent Cash flows from discontinued operations1 Net cash flows from operating activities Net cash flows from investing activities Net cash flows from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Exchange gain on cash and cash equivalents Cash and cash equivalents at the end of the financial year 2016  £m  – – – – – 2016  £m  – – – 2016  £m  – – – 2015  £m  – – – 57 57 2015  £m  – – – 2015  £m  57 – 57 2014  £m  3,191 27 3,218 (1,709) 1,509 2014  £m  44,996 1,603 46,599 2014  £m  1,509 46,599 48,108 2016  Pence per share  – – 2015  Pence per share  0.22p 0.21p 2014  Pence per share  181.74p 180.30p 2016  £m  – 2016  £m  – – – – – – – 2015  £m  57 2015  £m  – – – – – – – 2014  £m  48,108 2014  £m  (2,617) 4,830 (2,225) (12) – 12 – Note: 1 During the year ended 31 March 2015, the Group received a final tax distribution from Verizon Wireless of £359 million and a taxation refund of £84 million in relation to our disposed US Group. 109 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Notes to the consolidated financial statements (continued) 7. Discontinued operations and assets held for sale (continued) Assets held for sale On 15 February 2016 the Group agreed with Liberty Global Europe Holding B.V. to merge operations in the Netherlands as a 50:50 joint venture. As a part of the agreement, Vodafone agreed to pay cash consideration totalling €1 billion to equalise ownership in the joint venture. Assets and liabilities relating to our operations in the Netherlands have been classed as held for sale on the Statement of Financial Position. The relevant assets and liabilities are detailed in the table below. 2016  £m  680 1,099 847 27 2,653 25 6 193 14 238 2,891 6 14 20 4 322 326 346 Assets and liabilities held for sale Non-current assets Goodwill Other intangible assets Plant, property and equipment Trade and other receivables Current assets Inventory Taxation recoverable Trade and other receivables Cash and cash equivalents Total assets held for sale Non-current liabilities Deferred tax liabilities Provisions for liabilities and charges Current liabilities Provisions for liabilities and charges Trade and other payables Total liabilities held for sale 110 Vodafone Group Plc Annual Report 20168. Earnings per share Basic earnings per share is the amount of profit generated for the financial year attributable to equity shareholders divided by the weighted average number of shares in issue during the year. Weighted average number of shares for basic earnings per share Effect of dilutive potential shares: restricted shares and share options Weighted average number of shares for diluted earnings per share (Loss)/earnings for basic and diluted earnings per share Basic (loss)/earnings per share Diluted (loss)/earnings per share 2016  Millions  26,692 – 26,692 2016 £m  (4,024) (15.08)p (15.08)p 2015  Millions  26,489 140 26,629 2015 £m  5,761 21.75p 21.63p 2014  Millions  26,472 210 26,682 2014 £m  59,254 223.84p 222.07p On 19 February 2014, we announced a “6 for 11” share consolidation effective 24 February 2014. This had the effect of reducing the number of shares in issue from 52,821,751,216 ordinary shares (including 4,351,833,492 ordinary shares held in Treasury) as at the close of business on 18 February 2014 to 28,811,864,298 new ordinary shares in issue immediately after the share consolidation on 24 February 2014. 9. Equity dividends Dividends are one type of shareholder return, historically paid to our shareholders in February and August. Declared during the financial year: Final dividend for the year ended 31 March 2015: 7.62 pence per share (2014: 7.47 pence per share, 2013: 6.92 pence per share) Interim dividend for the year ended 31 March 2016: 3.68 pence per share (2015: 3.60 pence per share, 2014: 3.53 pence per share) Special dividend for the year ended 31 March 2016: nil (2015: nil, 2014: 172.94 US cents per share – see below) Proposed after the end of the reporting period and not recognised as a liability: Final dividend for the year ended 31 March 2016: 7.77 pence per share (2015: 7.62 pence per share, 2014: 7.47 pence per share) 2016  £m  2015 £m  2014 £m  2,020 978 – 2,998 1,975 955 – 2,930 3,365 1,711 35,490 40,566 2,064 2,020 1,975 On 2 September 2013 Vodafone announced that it had reached agreement to dispose of its US group whose principal asset was its 45% interest in Verizon Wireless (‘VZW’) to Verizon Communications Inc. (‘Verizon’), for a total consideration of US$130 billion (£79 billion). At a General Meeting of the Company on 28 January 2014, shareholders approved the transactions and following completion on 21 February 2014, Vodafone shareholders received all of the Verizon shares and US$23.9 billion (£14.3 billion) of cash (the ‘Return of Value’) totalling US$85.2 billion (£51.0 billion). The Return of Value was carried out in the form of a B share scheme pursuant to a Court-approved scheme of arrangement and associated reduction of capital (the ‘Scheme’). The Scheme provided shareholders (other than shareholders in the United States and certain other jurisdictions) with the flexibility to receive their proceeds as either an income or capital return. Under the Scheme, Vodafone shareholders were issued unlisted, non-voting bonus shares, which were shortly thereafter either cancelled in consideration of the relevant amount of Verizon shares and cash or the holders received the relevant amount of Verizon shares and cash in satisfaction of a special distribution on the bonus shares, depending on shareholder elections and subject to applicable securities laws. 111 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 10. Intangible assets Our statement of financial position contains significant intangible assets, mainly in relation to goodwill and licences and spectrum. Goodwill, which arises when we acquire a business and pay a higher amount than the fair value of its net assets primarily due to the synergies we expect to create, is not amortised but is subject to annual impairment reviews. Licences and spectrum are amortised over the life of the licence. For further details see “Critical accounting judgements” in note 1 “Basis of preparation” to the consolidated financial statements. Accounting policies Identifiable intangible assets are recognised when the Group controls the asset, it is probable that future economic benefits attributed to the asset will flow to the Group and the cost of the asset can be reliably measured. Goodwill Goodwill arising on the acquisition of an entity represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the entity recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. Goodwill is not subject to amortisation but is tested for impairment or whenever there is evidence that it may be required. Goodwill is denominated in the currency of the acquired entity and revalued to the closing exchange rate at each reporting period date. Negative goodwill arising on an acquisition is recognised directly in the income statement. On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss recognised in the income statement on disposal. Goodwill arising before the date of transition to IFRS, on 1 April 2004, has been retained at the previous UK GAAP amounts, subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal. Finite lived intangible assets Intangible assets with finite lives are stated at acquisition or development cost, less accumulated amortisation. The amortisation period and method is reviewed at least annually. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. Licence and spectrum fees Amortisation periods for licence and spectrum fees are determined primarily by reference to the unexpired licence period, the conditions for licence renewal and whether licences are dependent on specific technologies. Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives from the commencement of related network services. Computer software Computer software comprises computer software purchased from third parties as well as the cost of internally developed software. Computer software licences are capitalised on the basis of the costs incurred to acquire and bring into use the specific software. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and are probable of producing future economic benefits, are recognised as intangible assets. Direct costs of software development include employee costs and directly attributable overheads. Software integral to an item of hardware equipment is classified as property, plant and equipment. Costs associated with maintaining computer software programs are recognised as an expense when they are incurred. Internally developed software is recognised only if all of the following conditions are met: a an asset is created that can be separately identified; a it is probable that the asset created will generate future economic benefits; and a the development cost of the asset can be measured reliably. Amortisation is charged to the income statement on a straight-line basis over the estimated useful life from the date the software is available for use. Other intangible assets Other intangible assets, including brands and customer bases, are recorded at fair value at the date of acquisition. Amortisation is charged to the income statement, over the estimated useful lives of intangible assets from the date they are available for use, on a straight-line basis, with the exception of customer relationships which are amortised on a sum of digits basis. The amortisation basis adopted for each class of intangible asset reflects the Group’s consumption of the economic benefit from that asset. 112 Vodafone Group Plc Annual Report 2016Estimated useful lives The estimated useful lives of finite lived intangible assets are as follows: a Licence and spectrum fees a Computer software a Brands a Customer bases 3–25 years 3–5 years 1–10 years 2–10 years Cost: 1 April 2014 Exchange movements Arising on acquisition Additions Disposals Other 31 March 2015 Exchange movements Arising on acquisition Additions Disposal Transfer of assets held for resale Other 31 March 2016 Accumulated impairment losses and amortisation: 1 April 2014 Exchange movements Amortisation charge for the year Disposals Other 31 March 2015 Exchange movements Amortisation charge for the year Impairment losses (note 4) Disposals Transfer of assets held for resale Other 31 March 2016 Net book value: 31 March 2015 31 March 2016 Goodwill  £m  77,121 (8,756) 1,634 – – – 69,999 5,443 17 – – (680) – 74,779 53,806 (6,344) – – – 47,462 4,078 – 450 – – – 51,990 Licences and  spectrum  £m  30,592 (1,235) – 467 – (20) 29,804 1,136 – 5,474 (2,362)1 (1,654) – 32,398 13,420 (717) 1,751 – – 14,454 467 1,707 – (2,362)1 (722) – 13,544 22,537 22,789 15,350 18,854 Computer  software  £m  10,212 (1,036) 48 1,844 (464) 11 10,615 688 5 1,850 (445) (374) 98 12,437 6,864 (707) 1,491 (454) 8 7,202 481 1,559 – (410) (209) 17 8,640 3,413 3,797 Other  £m  5,332 (542) 905 17 (12) – 5,700 162 27 10 (2) (9) – 5,888 2,479 (234) 1,277 (12) – 3,510 73 986 – (2) (7) – 4,560 2,190 1,328 Total  £m  123,257 (11,569) 2,587 2,328 (476) (9) 116,118 7,429 49 7,334 (2,809) (2,717) 98 125,502 76,569 (8,002) 4,519 (466) 8 72,628 5,099 4,252 450 (2,774) (938) 17 78,734 43,490 46,768 Note: 1 Disposals of licences and spectrum comprise the removal of fully amortised assets that have expired. For licences and spectrum and other intangible assets, amortisation is included within the cost of sales line within the consolidated income statement. Licences and spectrum with a net book value of £1,124 million (2015: £2,059 million) have been pledged as security against borrowings. The net book value and expiry dates of the most significant licences are as follows: Germany Italy UK India Qatar Netherlands Expiry date 2016/2020/2025/2033 2018/2021/2029 2023/2033 2016–2035 2028/2029 2020/2029/2030 2016  £m  4,267 1,262 2,779 6,437 942 932 2015  £m  2,843 1,094 3,050 3,994 987 940 The remaining amortisation period for each of the licences in the table above corresponds to the expiry date of the respective licence. A summary of the Group’s most significant spectrum licences can be found on pages 187 and 188. 113 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 11. Property, plant and equipment We make significant investments in network equipment and infrastructure – the base stations and technology required to operate our networks – that form the majority of our tangible assets. All assets are depreciated over their useful economic lives. For further details on the estimation of useful economic lives, see “Critical accounting judgements” in note 1 “Basis of preparation” to the consolidated financial statements. Accounting policies Land and buildings held for use are stated in the statement of financial position at their cost, less any subsequent accumulated depreciation and any accumulated impairment losses. Amounts for equipment, fixtures and fittings, which includes network infrastructure assets and which together comprise an all but insignificant amount of the Group’s property, plant and equipment, are stated at cost less accumulated depreciation and any accumulated impairment losses. Assets in the course of construction are carried at cost, less any recognised impairment losses. Depreciation of these assets commences when the assets are ready for their intended use. The cost of property, plant and equipment includes directly attributable incremental costs incurred in their acquisition and installation. Depreciation is charged so as to write off the cost of assets, other than land, using the straight-line method, over their estimated useful lives, as follows: Land and buildings a Freehold buildings a Leasehold premises 25–50 years the term of the lease Equipment, fixtures and fittings a Network infrastructure and other 1–35 years Depreciation is not provided on freehold land. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between any sale proceeds and the carrying amount of the asset and is recognised in the income statement. 114 Vodafone Group Plc Annual Report 2016Cost: 1 April 2014 Exchange movements Arising on acquisition Additions Disposals Other 31 March 2015 Exchange movements Additions Disposals Transfer of assets held for resale Other 31 March 2016 Accumulated depreciation and impairment: 1 April 2015 Exchange movements Charge for the year Disposals Other 31 March 2015 Exchange movements Charge for the year Disposals Transfer of assets held for resale Other 31 March 2016 Net book value: 31 March 2015 31 March 2016 Land and  buildings  £m  1,646 (117) 7 172 (52) 13 1,669 33 133 (37) (2) 96 1,892 732 (62) 118 (24) (10) 754 31 131 (26) (2) 14 902 915 990 Equipment,  fixtures  and fittings  £m  48,563 (4,107) 3,443 7,181 (1,664) 14 53,430 2.382 6,608 (1,583) (1,769) (172) 58,896 26,626 (2,296) 4,928 (1,550) 34 27,742 1,375 5,115 (1,488) (922) (18) 31,804 Total  £m  50,209 (4,224) 3,450 7,353 (1,716) 27 55,099 2,415 6,741 (1,620) (1,771) (76) 60,788 27,358 (2,358) 5,046 (1,574) 24 28,496 1,406 5,246 (1,514) (924) (4) 32,706 25,688 27,092 26,603 28,082 The net book value of land and buildings and equipment, fixtures and fittings includes £27 million and £592 million respectively (2015: £24 million and £468 million) in relation to assets held under finance leases. Included in the net book value of land and buildings and equipment, fixtures and fittings are assets in the course of construction, which are not depreciated, with a cost of £26 million and £1,527 million respectively (2015: £85 million and £1,705 million). Property, plant and equipment with a net book value of £nil (2015: £nil) has been pledged as security against borrowings. 115 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 12. Investments in associates and joint arrangements We hold interests in several associates where we have significant influence, with the most significant being Safaricom Limited following the disposal of Verizon Wireless on 21 February 2014 as well as interests in a number of joint arrangements where we share control with one or more third parties. For further details see “Critical accounting judgements” in note 1 “Basis of preparation” to the consolidated financial statements. Accounting policies Interests in joint arrangements A joint arrangement is a contractual arrangement whereby the Group and other parties undertake an economic activity that is subject to joint control; that is, when the relevant activities that significantly affect the investee’s returns require the unanimous consent of the parties sharing control. Joint arrangements are either joint operations or joint ventures. Joint operations A joint operation is a joint arrangement whereby the parties that have joint control have the rights to the assets, and obligations for the liabilities, relating to the arrangement or that other facts and circumstances indicate that this is the case. The Group’s share of assets, liabilities, revenue, expenses and cash flows are combined with the equivalent items in the financial statements on a line-by-line basis. Any goodwill arising on the acquisition of the Group’s interest in a jointly controlled entity is accounted for in accordance with the Group’s accounting policy for goodwill arising on the acquisition of a subsidiary. Joint ventures A joint venture is a joint arrangement whereby the parties that have joint control have the rights to the net assets of the arrangement. At the date of acquisition, any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the joint venture is recognised as goodwill. The goodwill is included within the carrying amount of the investment. The results and assets and liabilities of joint ventures are incorporated in the consolidated financial statements using the equity method of accounting. Under the equity method, investments in joint ventures are carried in the consolidated statement of financial position at cost as adjusted for post-acquisition changes in the Group’s share of the net assets of the joint venture, less any impairment in the value of the investment. The Group’s share of post-tax profits or losses are recognised in the consolidated income statement. Losses of a joint venture in excess of the Group’s interest in that joint venture are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint venture. Associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but do not have control or joint control over those policies. At the date of acquisition, any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate is recognised as goodwill. The goodwill is included within the carrying amount of the investment. The results and assets and liabilities of associates are incorporated in the consolidated financial statements using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated statement of financial position at cost as adjusted for post- acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of the investment. The Group’s share of post-tax profits or losses are recognised in the consolidated income statement. Losses of an associate in excess of the Group’s interest in that associate are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Joint operations The Company’s principal joint operation has share capital consisting solely of ordinary shares and is indirectly held, and principally operates in the UK. The financial and operating activities of the operation are jointly controlled by the participating shareholders and are primarily designed for all but an insignificant amount of the output to be consumed by the shareholders. Name of joint operation Cornerstone Telecommunications Infrastructure Limited Note: 1 Effective ownership percentages of Vodafone Group Plc at 31 March 2016 rounded to the nearest tenth of one percent. Principal activity Network infrastructure Country of incorporation or registration UK Percentage1 shareholdings 50.0 116 Vodafone Group Plc Annual Report 2016Joint ventures and associates Investment in joint ventures Investment in associates 31 March 2016  £m  (438) 356 (82) 2015 £m  (331) 328 (3) Joint ventures The financial and operating activities of the Group’s joint ventures are jointly controlled by the participating shareholders. The participating shareholders have rights to the net assets of the joint ventures though their equity shareholdings. Unless otherwise stated, the Company’s principal joint ventures all have share capital consisting solely of ordinary shares and are all indirectly held. The country of incorporation or registration of all joint ventures is also their principal place of operation. Name of joint venture Indus Towers Limited2 Vodafone Hutchison Australia Pty Limited3 Notes: 1 Effective ownership percentages of Vodafone Group Plc at 31 March 2016 rounded to the nearest tenth of one percent. 2 42% of Indus Towers Limited is held by Vodafone India Limited (‘VIL’). 3 Vodafone Hutchison Australia Pty Limited has a year end of 31 December. Principal activity Network infrastructure Network operator Country of incorporation or registration India Australia Percentage1 shareholdings 42.0 50.0 Joint ventures included the results of the Vodafone Omnitel B.V. until 21 February 2014. On 21 February 2014 the Group acquired the remaining 23.1% interest upon which date the results of the wholly-acquired entity were consolidated in the Group’s financial statements. The following table provides aggregated financial information for the Group’s joint ventures as it relates to the amounts recognised in the income statement, statement of comprehensive income and statement of financial position. Vodafone Omnitel B.V.1 Indus Towers Limited Vodafone Hutchison Australia Pty Limited Other Total Investment in joint ventures 2016 £m – 316 (816) 62 (438) 2015 £m – 247 (667) 89 (331) 2014 £m – 373 (559) 28 (158) (Loss)/profit from continuing operations Other comprehensive income Total comprehensive (expense)/income 2016 £m – 74 (112) (29) (67) 2015 £m – 18 (160) (9) (151) 2014 £m 261 21 (66) 5 221 2016 £m – – (1) – (1) 2015 £m – – 1 – 1 2014 £m – – – – – 2016 £m – 74 (113) (29) (68) 2015 £m – 18 (159) (9) (150) 2014 £m 261 21 (66) 5 221 Note: 1 Prior to 21 February 2014 the other participating shareholder held substantive veto rights such that the Group did not unilaterally control the financial and operating policies of Vodafone Omnitel B.V. The summarised financial information for each of the Group’s material equity accounted joint ventures on a 100% ownership basis is set out below. Vodafone Omnitel B.V.1 2014 £m 2015 £m 2016 £m Indus Towers Limited Vodafone Hutchison Australia Pty Limited 2016 £m 2015 £m 2014 £m 2016 £m 2015 £m 2014 £m Income statement and statement of comprehensive income Revenue Depreciation and amortisation Interest income Interest expense Income tax (expense)/income Profit or loss from continuing operations Other comprehensive (expense)/income Total comprehensive income/(expense) Statement of financial position Non-current assets Current assets Non-current liabilities Current liabilities Equity shareholders’ funds Cash and cash equivalents within current assets Non-current liabilities excluding trade and other payables and provisions Current liabilities excluding trade and other payables and provisions – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 4,931 (937) 1 (15) (174) 339 – 339 1,669 1,580 1,547 (507) (407) (358) 20 29 7 (124) (75) (62) 39 (182) (137) 51 44 176 – – – 51 44 176 1,722 1,838 2,032 (423) (415) (379) 10 2 2 (212) (228) (197) 1 – – (132) (320) (225) – 2 (1) (132) (318) (226) 1,494 1,482 278 (686) (487) (587) 6 239 (519) (461) (753) 37 (301) (170) (481) (188) 2,119 2,285 424 395 (2,591) (3,473) (743) (1,735) 1,812 1,507 90 123 (2,532) (3,325) (90) (1,152) Note: 1 Prior to 21 February 2014 the other participating shareholder held substantive veto rights such that the Group did not unilaterally control the financial and operating policies of Vodafone Omnitel B.V. The Group did not receive a dividend in the year to 31 March 2016 (2015: £166 million; 2014: £26 million) from Indus Towers Limited. 117 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 12. Investments in associates and joint arrangements (continued) Associates Unless otherwise stated, the Company’s principal associates all have share capital consisting solely of ordinary shares and are all indirectly held. The country of incorporation or registration of all associates is also their principal place of operation. Name of associate Safaricom Limited2,3 Principal activity Network operator Country of incorporation or registration Kenya Percentage1 shareholdings 40.0 Notes: 1 Effective ownership percentages of Vodafone Group Plc at 31 March 2016 rounded to the nearest tenth of one percent. 2 The Group also holds two non-voting shares. 3 At 31 March 2016 the fair value of Safaricom Limited was KES 270 billion (£1,851 million) based on the closing quoted share price on the Nairobi Stock Exchange. On 21 February 2014 the Group disposed of its 45% interest in Cellco Partnership which traded under the name Verizon Wireless. Results from discontinued operations are disclosed in note 7 “Discontinued operations and assets held for resale” to the consolidated financial statements. The Group received £4,828 million of dividends in the year to 31 March 2014 from Cellco Partnership. The following table provides aggregated financial information for the Group’s associates as it relates to the amounts recognised in the income statement, statement of comprehensive income and consolidated statement of financial position. Cellco Partnership Other Total Investment in associates 2016 £m – 356 356 2015 £m – 328 328 2014 £m – 272 272 Profit from continuing operations Other comprehensive expense Total comprehensive expense 2016 £m – 111 111 2015 £m – 88 88 2014 £m – 57 57 2016 £m – – – 2015 £m – – – 2014 £m (1) – (1) 2016 £m – 111 111 2015 £m – 88 88 2014 £m 3,190 57 3,247 The summarised financial information for the Group’s former material equity accounted associate on a 100% ownership basis is set out below. Income statement and statement of comprehensive income Revenue Depreciation and amortisation Interest income Interest expense Income tax (expense)/income Post-tax profit from discontinued operations Other comprehensive expense Total comprehensive income Statement of financial position Non-current assets Current assets Non-current liabilities Current liabilities Equity shareholders’ funds Cash and cash equivalents within current assets Non-current liabilities excluding trade and other payables and provisions Current liabilities excluding trade and other payables and provisions 2016 £m Cellco Partnership 2015 £m 2014 £m – – – – – – – – – – – – – – – – – 22,122 (2,186) – 1 – (38) – (111) – 7,092 – (2) – 7,090 – – – – – – – – – 118 Vodafone Group Plc Annual Report 2016 13. Other investments We hold a number of other listed and unlisted investments, mainly comprising US$5.0 billion of loan notes from Verizon Communications Inc. Accounting policies Other investments are recognised and derecognised on a trade date where a purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, including transaction costs. Other investments classified as held for trading and available-for-sale are stated at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in net profit or loss for the period. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity, determined using the weighted average cost method, is included in the net profit or loss for the period. Other investments classified as loans and receivables are stated at amortised cost using the effective interest method, less any impairment. Included within non-current assets: Equity securities: Listed Unlisted Debt securities: Public debt and bonds Other debt and bonds 2016  £m  3 82 95 3,482 3,662 2015 £m  4 222 148 3,383 3,757 The listed and unlisted securities are classified as available-for-sale. Public debt and bonds are classified as held for trading, and other debt and bonds which are not quoted in an active market, are classified as loans and receivables. Unlisted equity investments are recorded at fair value where appropriate. Other debt and bonds includes loan notes of US$5.0 billion (£3,481 million) issued by Verizon Communications Inc. as part of the Group’s disposal of its interest in Verizon Wireless all of which is recorded within non-current assets. The carrying amount of these loan notes approximates fair value. Current other investments comprise the following: Included within current assets: Debt securities: Public debt and bonds Other debt and bonds Cash and other investments held in restricted deposits 2016  £m  2015 £m  888 2,541 791 4,220 982 2,223 650 3,855 Public debt and bonds are classified as held for trading. Cash held in restricted deposits are classified as loans and receivables and include amounts held in qualifying assets by Group insurance companies to meet regulatory requirements. Other debt and bonds includes £967 million (2015: £2,016 million) of assets held for trading in managed investment funds with liquidity of up to 90 days and £1,574 million (2015: £38 million) of assets classified as loans and receivables comprising collateral paid on derivative financial instruments. Collateral passed in 2016 includes £1,460 million in relation to put options issued with regard to the mandatory convertible bonds’ hedging strategy. Current public debt and bonds include government bonds of £659 million (2015: £830 million) which consist of highly liquid index linked gilts with less than two years to maturity held on an effective floating rate basis. For public debt and bonds, other debt and bonds and cash held in restricted deposits, the carrying amount approximates fair value. 119 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 14. Inventory Our inventory primarily consists of mobile handsets and is presented net of an allowance for obsolete products. Accounting policies Inventory is stated at the lower of cost and net realisable value. Cost is determined on the basis of weighted average costs and comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Goods held for resale Inventory is reported net of allowances for obsolescence, an analysis of which is as follows: 1 April Exchange movements Amounts (debited)/credited to the income statement 31 March Cost of sales includes amounts related to inventory of £5,427 million (2015: £5,701 million; 2014: £5,340 million). 2016  £m  565 2015 £m  (88) 8 6 (74) 2015 £m  482 2014 £m  (89) 6 (5) (88) 2016  £m  (74) (3) (22) (99) 120 Vodafone Group Plc Annual Report 2016 15. Trade and other receivables Our trade and other receivables mainly consist of amounts owed to us by customers and amounts that we pay to our suppliers in advance. Trade receivables are shown net of an allowance for bad or doubtful debts. Derivative financial instruments with a positive market value are reported within this note. Accounting policies Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Estimated irrecoverable amounts are based on the ageing of the receivable balances and historical experience. Individual trade receivables are written off when management deems them not to be collectible. Included within non-current assets: Trade receivables Amounts owed by associates and joint ventures Other receivables Prepayments Derivative financial instruments Included within current assets: Trade receivables Amounts owed by associates and joint ventures Other receivables Prepayments Accrued income Derivative financial instruments 2016  £m 371 96 493 130 3,490 4,580 4,401 173 954 1,040 1,759 814 9,141 2015 £m 288 85 190 566 3,736 4,865 3,944 133 930 938 1,839 269 8,053 The Group’s trade receivables are stated after allowances for bad and doubtful debts based on management’s assessment of creditworthiness, an analysis of which is as follows: 1 April Exchange movements Amounts charged to administrative expenses Other 31 March 2016  £m  802 4 498 (209) 1,095 2015 £m  589 (60) 541 (268) 802 2014  £m  770 (67) 347 (461) 589 The carrying amounts of trade and other receivables approximate their fair value and are predominantly non-interest bearing. The fair values of the derivative financial instruments are calculated by discounting the future cash flows to net present values using appropriate market interest rates and foreign currency rates prevailing at 31 March. Included within “Derivative financial instruments”: Fair value through the income statement (held for trading): Interest rate swaps Cross currency interest rate swaps Options Foreign exchange contracts Designated hedge relationships: Interest rate swaps Cross currency interest rate swaps 2016  £m  2015 £m  2,027 236 36 231 2,530 384 1,390 4,304 2,378 218 – 33 2,629 88 1,288 4,005 121 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 16. Trade and other payables Our trade and other payables mainly consist of amounts we owe to our suppliers that have been invoiced or are accrued. They also include taxes and social security amounts due in relation to our role as an employer. Derivative financial instruments with a negative market value are reported within this note. Accounting policies Trade payables are not interest bearing and are stated at their nominal value. Included within non-current liabilities: Other payables Accruals Deferred income Derivative financial instruments Included within current liabilities: Trade payables Amounts owed to associates and joint ventures Other taxes and social security payable Other payables Accruals Deferred income Derivative financial instruments 2016  £m  2015  £m  98 144 130 1,129 1,501 5,867 53 1,040 760 6,022 1,555 435 15,732 86 161 123 894 1,264 5,054 44 1,028 621 6,408 1,663 90 14,908 The carrying amounts of trade and other payables approximate their fair value. The fair values of the derivative financial instruments are calculated by discounting the future cash flows to net present values using appropriate market interest and foreign currency rates prevailing at 31 March. Included within “Derivative financial instruments”: Fair value through the income statement (held for trading): Interest rate swaps Cross currency interest rate swaps Options Foreign exchange contracts Designated hedge relationships Interest rate swaps Cross currency interest rate swaps 2016  £m  2015  £m  885 347 64 59 1,355 22 187 1,564 672 229 11 46 958 10 16 984 122 Vodafone Group Plc Annual Report 2016 17. Provisions A provision is a liability recorded in the statement of financial position, where there is uncertainty over the timing or amount that will be paid, and is therefore often estimated. The main provisions we hold are in relation to asset retirement obligations, which include the cost of returning network infrastructure sites to their original condition at the end of the lease, and claims for legal and regulatory matters. For further details see “Critical accounting judgements” in note 1 “Basis of preparation” to the consolidated financial statements. Accounting policies Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the reporting date and are discounted to present value where the effect is material. Asset retirement obligations In the course of the Group’s activities, a number of sites and other assets are utilised which are expected to have costs associated with de-commissioning. The associated cash outflows are substantially expected to occur at the dates of exit of the assets to which they relate, which are long-term in nature, primarily in periods up to 25 years from when the asset is brought into use. Legal and regulatory The Group is involved in a number of legal and other disputes, including notifications of possible claims. The Directors of the Company, after taking legal advice, have established provisions after taking into account the facts of each case. The timing of cash outflows associated with the majority of legal claims are typically less than one year, however, for some legal claims the timing of cash flows may be long-term in nature. For a discussion of certain legal issues potentially affecting the Group see note 30 “Contingent liabilities and legal proceedings” to the consolidated financial statements. Other provisions Other provisions comprises various provisions including those for restructuring costs and property. The associated cash outflows for restructuring costs are primarily less than one year. The timing of the cash flows associated with property is dependent upon the remaining term of the associated lease. 1 April 2014 Exchange movements Arising on acquisition Amounts capitalised in the year Amounts charged to the income statement Utilised in the year − payments Amounts released to the income statement Other 31 March 2015 Exchange movements Amounts capitalised in the year Amounts charged to the income statement Utilised in the year − payments Amounts released to the income statement Transfer of liabilities held for resale Other 31 March 2016 Asset  retirement  obligations  £m  485 (34) – 58 – (13) (30) – 466 21 31 – (38) (15) (14) – 451 Legal and  regulatory  £m  557 (18) 26 – 277 (51) (100) 143 834 19 – 172 (60) (58) (1) 55 961 Other  £m  767 (47) 59 – 270 (385) (96) (19) 549 30 – 386 (260) (76) (3) (1) 625 Total  £m  1,809 (99) 85 58 547 (449) (226) 124 1,849 70 31 558 (358) (149) (18) 54 2,037 123 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 17. Provisions (continued) Provisions have been analysed between current and non-current as follows: 31 March 2016 Current liabilities Non-current liabilities 31 March 2015 Current liabilities Non-current liabilities Asset  retirement  obligations  £m  12 439 451 Asset  retirement  obligations  £m  14 452 466 Legal and  regulatory  £m  242 719 961 Legal and  regulatory  £m  311 523 834 Other  £m  503 122 625 Other  £m  442 107 549 Total  £m  757 1,280 2,037 Total  £m  767 1,082 1,849 18. Called up share capital Called up share capital is the number of shares in issue at their par value. A number of shares were allotted during the year in relation to employee share schemes. Accounting policies Equity instruments issued by the Group are recorded at the amount of the proceeds received, net of direct issuance costs. Ordinary shares of 2020⁄ 21 US cents each allotted, issued and fully paid:1 1 April Allotted during the year 31 March 28,812,787,098 608,910 28,813,396,008 3,792 – 28,811,923,128 863,970 3,792 28,812,787,098 Note: 1 At 31 March 2016, the Group held 2,254,825,696 (2015: 2,300,749,013) treasury shares with a nominal value of £297 million (2015: £303 million). The market value of shares held was £4,988 million (2015: £5,072 million). During the year 45,923,317 (2015: 71,213,894) treasury shares were reissued under Group share schemes. Number 2016  £m Number Allotted during the year UK share awards US share awards Total share awards Number  – 608,910 608,910 Nominal  value  £m  – – – 2015 £m 3,792 – 3,792 Net  proceeds  £m  – 1 1 On 19 February 2016, we announced the placing of subordinated mandatory convertible bonds totalling £1.44 billion with an 18 months maturity date due in 2017 and £1.44 billion with a 3 year maturity due in 2019. The bonds are convertible into a total of 1,325,356,650 ordinary shares with a conversion price of £2.1730 per share. For further details see note 22 “Liquidity and capital resources”. 124 Vodafone Group Plc Annual Report 2016 19. Reconciliation of net cash flow from operating activities The table below shows how our profit for the year from continuing operations translates into cash flows generated from our operating activities. (Loss)/profit for the financial year Profit for the financial year from discontinued operations (Loss)/profit for the financial year from continuing operations Non-operating income and expense Investment income Financing costs Income tax expense /(credit) Operating profit/(loss) Adjustments for: Share-based payments Depreciation and amortisation Loss on disposal of property, plant and equipment and intangible assets Share of result of equity accounted associates and joint ventures Impairment losses Other income and expense (Increase)/decrease in inventory (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables Cash generated by operations Net tax paid Net cash flow from operating activities 20. Cash and cash equivalents Notes 7 6 27 10, 11 3 12 4 14 15 16 2016  £m  (3,818) – (3,818) 2 (300) 2,124 3,369 1,377 117 9,498 20 (44) 450 75 (98) (547) 372 11,220 (739) 10,481 2015  £m  5,917 (57) 5,860 19 (883) 1,736 (4,765) 1,967 88 9,565 49 63 – 114 (73) (230) (1,146) 10,397 (682) 9,715 2014  £m  59,420 (48,108) 11,312 149 (346) 1,554 (16,582) (3,913) 92 7,560 85 (278) 6,600 620 4 526 851 12,147 (5,920) 6,227 The majority of the Group’s cash is held in bank deposits, money market funds or in repurchase agreements which have a maturity of three months or less to enable us to meet our short-term liquidity requirements. Accounting policies Cash and cash equivalents comprise cash in hand and call deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Cash at bank and in hand Money market funds Repurchase agreements Commercial paper Cash and cash equivalents as presented in the statement of financial position Bank overdrafts Cash and cash equivalents as presented in the statement of cash flows 2016 £m  1,737 5,781 2,700 – 10,218 (9) 10,209 2015  £m  2,379 2,402 2,000 101 6,882 (21) 6,861 Cash and cash equivalents are held by the Group on a short-term basis with all having an original maturity of three months or less. The carrying amount approximates their fair value. Cash and cash equivalents of £1,284 million (2015: £1,722 million) are held in countries with restrictions on remittances but where the balances could be used to repay subsidiaries’ third party liabilities. Of the balance at 31 March 2015, INR 57,863 million (£623 million) was used to settle India spectrum licence obligations on 8 April 2015. 125 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 21. Borrowings The Group’s sources of borrowing for funding and liquidity purposes come from a range of committed bank facilities and through short-term and long-term issuances in the capital markets including bond and commercial paper issues and bank loans. We manage the basis on which we incur interest on debt between fixed interest rates and floating interest rates depending on market conditions using interest rate derivatives. The Group enters into foreign exchange contracts to mitigate the impact of exchange rate movements on certain monetary items. Accounting policies Capital market and bank borrowings Interest bearing loans and overdrafts are initially measured at fair value (which is equal to cost at inception), and are subsequently measured at amortised cost, using the effective interest rate method, except where they are identified as a hedged item in a designated hedge relationship. Any difference between the proceeds net of transaction costs and the amount due on settlement or redemption of borrowings is recognised over the term of the borrowing. Where bonds issued with certain conversion rights are identified as compound instruments they are initially measured at fair value with the nominal amounts recognised as a component in equity and the fair value of future coupons included in borrowings. These are subsequently measured at amortised cost using the effective interest rate method. Carrying value and fair value information Financial liabilities measured at amortised cost: Bank loans Bank overdrafts Commercial paper Bonds Other liabilities1,2 Bonds in designated hedge relationships Short-term  borrowings  £m  Long-term  borrowings  £m  2,254 9 7,396 412 4,328 1,621 16,020 6,957 – – 11,287 235 10,848 29,327 2016  Total  £m  9,211 9 7,396 11,699 4,563 12,469 45,347 Short-term  borrowings  £m  1,876 21 5,077 1,297 3,863 489 12,623 Long-term  borrowings  £m  5,128 – – 6,684 133 10,490 22,435 2015  Total  £m  7,004 21 5,077 7,981 3,996 10,979 35,058 Notes: 1 At 31 March 2016, amount includes £2,837 million (2015: £2,542 million) in relation to collateral support agreements. 2 Includes a £1.4 billion (2015: £1.3 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. Amount also includes £50 million (2015: £nil) and £69 million (2015: £nil) in short and long-term borrowings respectively in relation to the debt component of the mandatory convertible bonds maturing on 25 August 2017 and 25 February 2019. These are compound instruments with nominal values recorded in equity. The initial fair value of future coupons is recognised as debt and subsequently measured at amortised cost using the effective interest rate method. Bank loans include INR 629 billion (£6.6 billion) (2015: INR 457 billion (£4.9 billion)) of loans held by Vodafone India Limited (‘VIL’) and its subsidiaries (the “VIL Group”). The VIL Group has a number of security arrangements supporting certain licences secured under the terms of agreements between the Group, the Department of Telecommunications and the Government of India including certain pledges of the shares within the VIL Group. The terms and conditions of the security arrangements mean that, should members of the VIL Group not meet all of their loan payment and performance obligations, the lenders may sell the pledged shares and enforce rights over the certain licences under the terms of the tri-party agreements to recover their losses, with any remaining sales proceeds being returned to the VIL Group. Each of the eight legal entities within the VIL Group provide cross guarantees to the lenders in respect of debt contracted by the other entities. The fair value and carrying value of the Group’s short-term borrowings are as follows: Financial liabilities measured at amortised cost1 Bonds: 5.125% euro 500 million bond due April 2015 6.25% euro 1,250 million bond due January 2016 4.75% euro 500 million bond due June 2016 Bonds in designated hedge relationships: 2.15% Japanese yen 3,000 million bond due April 2015 Floating rate note US dollar 700 million due February 2016 5.625% US dollar 1,300 million bond due February 2017 1.625% US dollar 1,000 million bond due March 2017 Short-term borrowings Sterling equivalent nominal value  2015  £m  10,689 2016  £m  13,737 395 – – 395 1,598 – – 903 695 15,730 1,265 361 904 – 489 17 472 – – 12,443 2016  £m  13,995 399 – – 399 1,637 – – 939 698 16,031 Fair value  2015  £m  10,843 1,309 362 947 – 489 17 472 – – 12,641 2016  £m  13,987 Carrying value  2015  £m  10,837 412 – – 412 1,621 – – 927 694 16,020 1,297 379 918 – 489 17 472 – – 12,623 Note: 1 Amounts for 2016 include £50 million in relation to the short -term debt component of the mandatory convertible bonds. 126 Vodafone Group Plc Annual Report 2016 The fair value and carrying value of the Group’s long-term borrowings are as follows: Financial liabilities measured at amortised cost: Bank loans Other liabilities1 Bonds: 4.75% euro 500 million bond due June 2016 5.375% sterling 600 million bond due December 2017 5% euro 750 million bond due June 2018 8.125% sterling 450 million bond due November 2018 Floating rate note euro 1,750 million bond due February 2019 1% euro 1,750 million bond due September 2020 0% convertible sterling 600 million bond due November 2020 0.875% euro 750 million bond due November 2020 Floating rate note US dollar 60 million bond due March 2021 1.25% euro 1,250 million bond due August 2021 4.65% euro 1,250 million bond due January 2022 5.375% euro 500 million bond due June 2022 1.75% euro 1,250 million bond due August 2023 1.875% euro 1,000 million bond due September 2025 5.625% sterling 250 million bond due December 2025 5.9% sterling 450 million bond due November 2032 2.75% euro 332 million bond due December 2034 Bonds in designated hedge relationships: 5.625% US dollar 1,300 million bond due February 2017 1.625% US dollar 1,000 million bond due March 2017 1.25% US dollar 1,000 million bond due September 2017 1.5% US dollar 1,400 million bond due February 2018 4.625% US dollar 500 million bond due July 2018 5.45% US dollar 1,250 million bond due June 2019 4.375% US dollar 500 million bond due March 2021 2.5% US dollar 1,000 million bond due September 2022 2.95% US dollar 1,600 million bond due February 2023 3.125% norwegian krona 850 million bond due November 2025 2.2% euro 1,750 million bond due August 2026 6.6324% euro 50 million bond due December 2028 7.875% US dollar 750 million bond due February 2030 6.25% US dollar 495 million bond due November 2032 6.15% US dollar 1,700 million bond due February 2037 4.375% US dollar 1,400 million bond due February 2043 5.35% US dollar 186 million bond due December 2045 Long-term borrowings Sterling equivalent nominal value  2015  £m  5,306 2016  £m  5,533 5,298 235 10,707 – 549 593 450 1,384 1,384 600 593 42 988 988 395 988 791 250 450 262 9,680 – – 695 973 347 868 347 695 1,112 71 1,384 40 521 344 1,181 973 129 25,920 5,173 133 6,002 268 549 542 450 – 1,265 – – – – 904 361 – 723 250 450 240 9,397 876 674 674 943 337 842 337 674 1,078 – – 36 505 333 1,145 943 – 20,705 2016  £m  7,260 7,025 235 11,475 – 583 656 524 1,397 1,402 600 597 42 1,012 1,192 497 1,026 817 299 545 286 10,218 – – 693 973 369 957 379 694 1,100 78 1,451 115 665 399 1,327 886 132 28,953 Fair value  2015  £m  5,346 5,213 133 6,908 283 605 622 553 – 1,283 – – – – 1,129 475 – 768 313 592 285 10,201 946 679 670 942 367 955 371 654 1,066 – – 109 711 410 1,392 929 – 22,455 2016 £m  7,192 6,957 235 11,287 – 566 617 473 1,386 1,383 553 591 41 985 1,157 513 986 790 335 647 264 10,848 – – 694 972 376 957 363 713 1,199 72 1,379 102 781 454 1,615 1,040 131 29,327 Carrying value  2015  £m  5,261 5,128 133 6,684 287 568 564 476 – 1,263 – – – – 1,081 484 – 721 343 656 241 10,490 920 672 672 941 375 938 346 667 1,121 – – 86 771 445 1,578 958 – 22,435 Note: 1 Amounts for 2016 include £69 million in relation to the long-term debt component of the mandatory convertible bonds. Fair values of bonds and financial liabilities measured at amortised cost are based on level 1 and 2 of the fair value hierarchy respectively, using quoted market prices or discounted cash flows with a discount rate based upon forward interest rates available to the Group at the reporting date. Further information can be found in note 23 “Capital and financial risk management”. 127 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 21. Borrowings (continued) Maturity of borrowings and other financial liabilities The maturity profile of the anticipated future cash flows including interest in relation to the Group’s non-derivative financial liabilities on an undiscounted basis which, therefore, differs from both the carrying value and fair value, is as follows: Within one year In one to two years In two to three years In three to four years In four to five years In more than five years Effect of discount/financing rates 31 March 2016 Within one year In one to two years In two to three years In three to four years In four to five years In more than five years Effect of discount/financing rates 31 March 2015 Bank  loans  £m  2,444 1,257 1,599 1,297 1,106 4,716 12,419 (3,208) 9,211 1,928 831 1,090 920 862 1,660 7,291 (287) 7,004 Commercial  paper  £m  7,405 – – – – – 7,405 (9) 7,396 5,092 – – – – – 5,092 (15) 5,077 Bonds  £m  703 889 2,681 180 2,798 5,816 13,067 (1,368) 11,699 1,588 610 831 1,191 135 4,958 9,313 (1,332) 7,981 Other  liabilities  £m  4,338 57 43 14 15 141 4,608 (36) 4,572 3,885 18 11 12 12 115 4,053 (36) 4,017 Loans in designated hedge  relationships  £m  1,304 2,787 686 1,175 630 9,741 16,323 (3,854) 12,469 873 1,256 2,650 626 1,101 8,118 14,624 (3,645) 10,979 Total  £m  16,194 4,990 5,009 2,666 4,549 20,414 53,822 (8,475) 45,347 13,366 2,715 4,582 2,749 2,110 14,851 40,373 (5,315) 35,058 The maturity profile of the Group’s financial derivatives (which include interest rate swaps, cross currency interest rate swaps and foreign exchange swaps) using undiscounted cash flows, is as follows: Within one year In one to two years In two to three years In three to four years In four to five years In more than five years Payable  £m  25,990 8,429 3,807 2,088 1,913 18,851 61,078 2016  Receivable  £m  26,912 8,632 4,147 2,363 2,050 20,897 65,001 Payable  £m  2,647 5,457 4,179 1,430 1,145 13,177 28,035 2015  Receivable  £m  3,537 4,005 4,617 1,942 2,164 17,864 34,129 Payables and receivables are stated separately in the table above as settlement is on a gross basis. The net effect of discount/financing rates is £1,183 million (2015: £3,073 million), leaving a £2,740 million (2015: £3,021 million) net receivable in relation to financial instruments. This is split £1,564 million (2015: £984 million) within trade and other payables and £4,304 million (2015: £4,005 million) within trade and other receivables. Gains and losses recognised in the hedging reserve in equity on cross currency interest rate swaps as at 31 March 2016 will be continuously released to the income statement within financing costs until the repayment of certain bonds classified as loans designated in hedge relationships in the table of maturities of non-derivative financial liabilities above. The currency split of the Group’s foreign exchange derivatives (which includes cross currency interest rate swaps and foreign exchange swaps) is as follows: Sterling Euro US dollar Japanese yen Other Payable  £m  17,890 11,672 7,748 673 5,388 43,371 2016  Receivable  £m  14,253 19,369 10,178 – 795 44,595 Payable  £m  11,461 8,158 5,598 594 3,238 29,049 2015  Receivable  £m  12,578 6,228 9,908 17 1,374 30,105 Payables and receivables are stated separately in the table above as settlement is on a gross basis. The net effect of discount/financing rates is £40 million (2015: £192 million), leaving a £1,264 million (2015: £1,248 million) net receivable in relation to foreign exchange financial instruments. This is split £593 million (2015: £291 million) within trade and other payables and £1,857 million (2015: £1,539 million) within trade and other receivables. 128 Vodafone Group Plc Annual Report 2016 The present value of minimum lease payments under finance lease arrangements under which the Group has leased certain of its equipment is included within other liabilities and is analysed as follows: Within one year In two to five years In more than five years Interest rate and currency of borrowings is as follows: Currency Sterling Euro US dollar Other 31 March 2016 Sterling Euro US dollar Other 31 March 2015 2016  £m  12 50 109 Fixed rate  borrowings1  £m  2,575 16,849 189 4,645 24,258 2,046 13,972 180 2,559 18,757 2015  £m  14 40 85 Other  borrowings2 £m  124 1,430 – – 1,554 7 1,307 – – 1,314 Total borrowings  £m  2,789 29,900 5,632 7,026 45,347 2,108 19,531 7,962 5,457 35,058 Floating rate  borrowings  £m  90 11,621 5,443 2,381 19,535 55 4,252 7,782 2,898 14,987 Notes: 1 The weighted average interest rate for the Group’s sterling denominated fixed rate borrowings is 4.6% (2015: 6.3%). The weighted average time for which these rates are fixed is 6.4 years (2015: 8.1 years). The weighted average interest rate for the Group’s euro denominated fixed rate borrowings is 2.7% (2015: 3.4%). The weighted average time for which the rates are fixed is 6.5 years (2015: 7.5 years). The weighted average interest rate for the Group’s US dollar denominated fixed rate borrowings is 3.6% (2015: 2.8%). The weighted average time for which the rates are fixed is 2.0 years (2015: 3.5 years). The weighted average interest rate for the Group’s other currency fixed rate borrowings is 9.4% (2015: 9.6%). The weighted average time for which the rates are fixed is 6.8 years (2015: 0.6 years). 2 At 31 March 2016 other borrowings of £1,554 million (2015: £1,314 million) include a £1.4 billion (2015: £1.3 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. The figures shown in the tables above take into account interest rate swaps used to manage the interest rate profile of financial liabilities. Interest on floating rate borrowings is generally based on national LIBOR equivalents or government bond rates in the relevant currencies. Additional protection from euro interest rate movements is provided by fixing interest rates or reducing floating interest rates using interest rate swaps or interest rate futures1. Within one year In one to two years In two to three years In three to four years In four to five years In more than five years2 Interest rate  futures  £m  (2,953) 2,700 1,607 – – – 2016 Interest rate  swaps £m 1,696 1,518 1,429 5,625 (1,429) (2,411) Interest rate  futures  £m  (2,282) 1,659 3,000 1,687 (20) – 2015 Interest rate  swaps £m 655 – – – 4,782 (5,258) Notes: 1 2 Figures shown as “in more than five years” relate to the periods from March 2021 to March 2022 (2015: March 2020 to March 2021). In the table above, figures shown as positive indicate an increase in fixed interest debt and figures shown in brackets indicate a reduction in fixed interest debt. 129 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 21. Borrowings (continued) Borrowing facilities Committed facilities expiry Within one year In one to two years In two to three years In three to four years In four to five years In more than five years 31 March Drawn  £m  1,317 694 971 691 662 609 4,944 2016  Undrawn  £m  1,816 9 7 230 5,855 280 8,197 Drawn  £m  1,065 431 736 757 317 1,065 4,371 2015  Undrawn  £m  – – – 573 2,790 3,257 6,620 At 31 March 2016, the Group’s most significant committed facilities comprised two revolving credit facilities which remained undrawn throughout the year of US$4.1 billion (£2.8 billion) and €4.0 billion (£3.2 billion) maturing in five years. Under the terms of these bank facilities, lenders have the right, but not the obligation, to cancel their commitment 30 days from the date of notification of a change of control of the Company and have outstanding advances repaid on the last day of the current interest period. The facility agreements provide for certain structural changes that do not affect the obligations of the Company to be specifically excluded from the definition of a change of control. This is in addition to the rights of lenders to cancel their commitment if the Company has committed an event of default. The terms and conditions of the Group’s drawn facilities obtained in relation to projects in its Italian, German, Turkish and Romanian operations of €1.2 billion in aggregate (£0.9 billion) and the undrawn facilities in the Group’s UK and Irish operations totalling £0.5 billion and the undrawn facility in the German operation of €0.4 billion (£0.3 billion) are similar to those of the US dollar and euro revolving credit facilities. Further information on these facilities can be found in note 22 “Liquidity and capital resources”. 22. Liquidity and capital resources This section includes an analysis of net debt, which we use to manage capital, and committed borrowing facilities. Net debt Net debt was £29.2 billion at 31 March 2016 and includes liabilities for amounts payable under the domination agreement in relation to Kabel Deutschland AG (£1.4 billion) and deferred spectrum licence costs in India (£4.1 billion). This increased by £6.9 billion in the year as a result of payments for spectrum licences and equity shareholder dividends which outweighed positive free cash flow. Net debt represented 45.8% of our market capitalisation at 31 March 2016 compared to 35.1% at 31 March 2015. Average net debt at month end accounting dates over the 12 month period ended 31 March 2016 was £25.9 billion and ranged between net debt of £22.3 billion and £30.8 billion. Our consolidated net debt position at 31 March was as follows: Cash and cash equivalents Short-term borrowings Bonds Commercial paper1 Put options over non-controlling interests2 Bank loans Other short-term borrowings3 Long-term borrowings Put options over non-controlling interests Bonds, loans and other long-term borrowings4 Other financial instruments5 Net debt 2016  £m  10,218 2015  £m  6,882 (2,033) (7,396) (1,430) (2,254) (2,907) (16,020) (1,786) (5,077) (1,307) (1,876) (2,577) (12,623) (5) (29,322) (29,327) (7) (22,428) (22,435) 5,940 (29,189) 5,905 (22,271) Notes: 1 At 31 March 2016 US$471 million was drawn under the US commercial paper programme and €8,907 million and US$38 million were drawn under the euro commercial paper programme. 2 Includes a £1.4 billion (2015: £1.3 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 31 March 2016 the amount includes £2,837 million (2015: £2,542 million) in relation to cash received under collateral support agreements. Amount also includes £50 million (2015: £nil) in relation to the short-term debt component of the mandatory convertible bonds maturing on 25 August 2017 and 25 February 2019. 4 At 31 March 2016 the amount includes £69 million (2015: £nil) in relation to the long -term debt component of the mandatory convertible bonds maturing on 25 August 2017 and 25 February 2019. 5 Comprises mark-to-market adjustments on derivative financial instruments which are included as a component of trade and other receivables £4,304 million (2015: £4,005 million) and trade and other payables £1,564 million (2015: £984 million). Amount also includes short-term investments primarily in index linked government bonds and managed investment funds included as a component of other investments and cash paid as collateral £3,200 million (2015: £2,884 million). 130 Vodafone Group Plc Annual Report 2016 At 31 March 2016 we had £10,218 million of cash and cash equivalents which are held in accordance with the counterparty and settlement risk limits of the Board approved treasury policy. The main forms of liquid investment at 31 March 2016 were managed investment funds, money market funds, UK index linked government bonds, tri-party repurchase agreements and bank deposits. The cash received from collateral support agreements mainly reflects the value of our interest rate swap and cross currency interest rate swap portfolios which are substantially net present value positive. See note 23 “Capital and financial risk management” for further details on these agreements. Commercial paper programmes We currently have US and euro commercial paper programmes of US$15 billion and £8 billion respectively which are available to be used to meet short-term liquidity requirements. At 31 March 2016 amounts external to the Group of €8,907 million (£7,043 million) and US$38 million (£26 million) were drawn under the euro commercial paper programme and US$471 million (£327 million) were drawn down under the US commercial paper programme, with such funds being provided by counterparties external to the Group. At 31 March 2015 amounts external to the Group of €3,928 million (£2,839 million) were drawn under the euro commercial paper programme and US$3,321 million (£2,237 million) were drawn down under the US commercial paper programme, with such funds being provided by counterparties external to the Group. The commercial paper facilities were supported by US$4.1 billion (£2.8 billion) and €4.0 billion (£3.2 billion) of syndicated committed bank facilities (see “Committed facilities” below). No amounts had been drawn under either bank facility. Bonds We have a €30 billion euro medium-term note programme and a US shelf programme which are used to meet medium to long-term funding requirements. At 31 March 2016 the total amounts in issue under these programmes split by currency were US$14.1 billion, £2.3 billion, €12.9 billion and NOK 850 million. At 31 March 2016 we had bonds outstanding with a nominal value of £22,380 million (2015: £17,153 million). In the year ended 31 March 2016 bonds with a nominal value equivalent of £129 million and £5,450 million were issued under the US shelf programme and euro medium-term note programme respectively. The bonds issued in the year were: Date of bond issue 25 February 2016 17 November 2015 30 March 2016 25 February 2016 25 February 2016 27 November 2015 25 February 2016 3 December 2015 Maturity of bond 25 February 2019 17 November 2020 30 March 2021 25 August 2021 25 August 2023 27 November 2025 25 August 2026 3 December 2045 Programme EMTN EMTN EMTN EMTN EMTN EMTN EMTN US shelf Currency Euro Euro US dollar Euro Euro Norwegian krona Euro US dollar Nominal amount m  1,750 750 60 1,250 1,250 850 1,750 186 Sterling equivalent £m  1,384 593 42 988 988 71 1,384 129 On 26 November 2015, the Group issued £600 million zero-coupon equity linked bonds maturing on 26 November 2020. On 25 February 2016, the Group issued £2.9 billion of subordinated mandatory convertible bonds issued in two tranches, with the first £1.4 billion maturing on 25 August 2017 and a further £1.4 billion maturing on 25 February 2019 with coupons of 1.5% and 2.0% respectively. At the initial conversion price of £2.1730, at maturity the bonds will convert to 1, 325,356,650 Vodafone Group Plc shares representing approximately 5% of Vodafone’s share capital. The mandatory bonds are compound instruments with nominal values of £2.8 billion recognised as a component of shareholders’ funds in equity. The initial fair value of future coupons of £0.1 billion is recognised as a financial liability in borrowings and subsequently measured at amortised cost using the effective interest rate method. Refer to the consolidated statement of changes in equity on page 89. The Group has hedged its exposure under the subordinated mandatory convertible bonds to any future movements in its share price by an option strategy designed to hedge the economic impact of share price movements during the term of the bonds. Should the Group decide to buy back ordinary shares to mitigate the dilution resulting from the conversion, the hedging strategy will provide a hedge for the repurchase price. Own shares The Group held a maximum of 2,300,749,013 of its own shares during the year which represented 8.0 % of issued share capital at that time. 131 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Notes to the consolidated financial statements (continued) 22. Liquidity and capital resources (continued) Committed facilities In aggregate we have committed facilities of approximately £13,141 million, of which £8,197 million was undrawn and £4,944 million was drawn at 31 March 2016. The following table summarises the committed bank facilities available to us at 31 March 2016. Amounts drawn Terms and conditions Committed bank facilities 28 March 2014 €4.0 billion syndicated revolving credit facility, maturing 28 March 2021. No drawings have been made against this facility. The facility supports our commercial paper programmes and may be used for general corporate purposes including acquisitions. 27 February 2015 US$4.1 billion syndicated revolving credit facility, maturing 27 February 2021. No drawings have been made against this facility. The facility supports our commercial paper programmes and may be used for general corporate purposes including acquisitions. 27 November 2013 £0.5 billion loan facility, maturing 12 December 2021. This facility was drawn down in full in euros, as allowed by the terms of the facility, on 12 December 2014. 15 September 2009 €0.4 billion loan facility, maturing 30 July 2017. This facility was drawn down in full on 30 July 2010. This facility is fully drawn down and is amortising. Lenders have the right, but not the obligation, to cancel their commitments and have outstanding advances repaid no sooner than 30 days after notification of a change of control. This is in addition to the rights of lenders to cancel their commitment if we commit an event of default; however, it should be noted that a material adverse change clause does not apply. The facility matures on 28 March 2021. From 28 March 2020 the facility size will be €3.9 billion as one lender did not extend the facility as per the request from the Company. Lenders have the right, but not the obligation, to cancel their commitments and have outstanding advances repaid no sooner than 30 days after notification of a change of control. This is in addition to the rights of lenders to cancel their commitment if we commit an event of default; however, it should be noted that a material adverse change clause does not apply. The facility matures on 27 February 2021, with each lender having the option to extend the facility for a further year prior to the second anniversary of the facility, if requested by the Company. From 27 February 2020 the facility size will be US$3.9 billion as one lender did not extend the facility as per the request from the Company. As per the syndicated revolving credit facilities with the addition that, should our UK and Irish operating companies spend less than the equivalent of £0.9 billion on capital expenditure, we will be required to repay the drawn amount of the facility that exceeds 50% of the capital expenditure. As per the syndicated revolving credit facilities with the addition that, should our German operating company spend less than the equivalent of €0.8 billion on VDSL related capital expenditure, we will be required to repay the drawn amount of the facility that exceeds 50% of the VDSL capital expenditure. As per the syndicated revolving credit facilities with the addition that the Company was permitted to draw down under the facility based upon the eligible spend with Ericsson up until the final draw down date of 30 June 2011. Quarterly repayments of the drawn balance commenced on 30 June 2012 with a final maturity date of 19 September 2018. This facility was drawn down in full on 5 June 2013. As per the syndicated revolving credit facilities with the addition that, should our Italian operating company spend less than the equivalent of €1.3 billion on capital expenditure, we will be required to repay the drawn amount of the facility that exceeds 50% of the capital expenditure. This facility was drawn down in full on 18 September 2012. This facility was drawn down in full on 4 December 2013. As per the syndicated revolving credit facilities with the addition that, should our Turkish and Romanian operating companies spend less than the equivalent of €1.3 billion on capital expenditure, we will be required to repay the drawn amount of the facility that exceeds 50% of the capital expenditure. 29 September 2009 US$0.7 billion export credit agency loan facility, final maturity date 19 September 2018. 8 December 2011 €0.4 billion loan facility, maturing on 5 June 2020. 20 December 2011 €0.3 billion loan facility, maturing 18 September 2019. 4 March 2013 €0.1 billion loan facility, maturing 4 December 2020. 132 Vodafone Group Plc Annual Report 2016 Committed bank facilities 2 December 2014 US$0.85 billion loan facility, maturing 2 June 2018. 17 December 2014 €0.35 billion loan facility, maturing on the seven year anniversary of the first drawing. 9 September 2015 US$1.0 billion loan facility, maturing 8 September 2016. 9 November 2015 US$1.0 billion loan facility, maturing 8 November 2016. Amounts drawn Terms and conditions US$ 0.8 billion was drawn from the facility on 8 June 2015. The remaining US$ 0.05 billion was cancelled on the same date. This facility is undrawn and has an availability period of 18 months. The facility is available to finance a project to upgrade and expand the mobile network in Germany. No drawings have been made against this facility. The facility supports our commercial paper programmes and may be used for general corporate purposes including acquisitions. No drawings have been made against this facility. The facility supports our commercial paper programmes and may be used for general corporate purposes including acquisitions. As per the syndicated revolving credit facilities with the addition that the expenditure should be spent on projects involving Canadian domiciled entities. As per the syndicated revolving credit facilities with the addition that, should our German operating company spend less than the equivalent of €0.7 billion on capital expenditure, we will be required to repay the drawn amount of the facility that exceeds 50% of the capital expenditure. As per the syndicated revolving credit facilities. As per the syndicated revolving credit facilities. Furthermore, certain of our subsidiaries are funded by external facilities which are non-recourse to any member of the Group other than the borrower. These facilities may only be used to fund their operations. At 31 March 2016, Vodafone India had facilities of INR242 billion (£2.5 billion) of which INR236 billion (£2.5 billion) was drawn. Vodafone Egypt had undrawn revolving credit facilities of US$120 million (£83 million) and EGP4 billion (£313 million). Vodacom had a fully drawn facility of US$184 million (£128 million) and a facility of ZAR3.5 billion (£166 million) of which ZAR2.2 billion (£102 million) was drawn. Ghana had fully drawn facilities of US$192 million (£134 million) and GHS60 million (£11 million). Dividends from associates and to non-controlling shareholders Dividends from our associates are generally paid at the discretion of the Board of Directors or shareholders of the individual operating and holding companies, and we have no rights to receive dividends except where specified within certain of the Group’s shareholders’ agreements. Similarly, other than ongoing dividend obligations to the KDG minority shareholders should they continue to hold their minority stake, we do not have existing obligations under shareholders’ agreements to pay dividends to non-controlling interest partners of our subsidiaries or joint ventures. The amount of dividends received and paid in the year are disclosed in the consolidated statement of cash flows. Potential cash outflows from option agreements and similar arrangements Under the terms of the sale and purchase agreement governing the disposal of the US Group, including the 45% interest in Verizon Wireless, the Group retains the responsibility for any tax liabilities of the US Group, excluding those relating to the Verizon Wireless partnership, for periods up to the completion of the transaction on 21 February 2014. Put options issued as part of the hedging strategy for the mandatory convertible bonds permit the holders to exercise against the Group if there is decrease in our share price. Under the terms of the options, settlement must be made in cash which will equate to the reduced value of shares from the initial conversion price on 1,325 million shares. Off-balance sheet arrangements We do not have any material off-balance sheet arrangements as defined in item 5.E.2. of the SEC’s Form 20-F. Please refer to notes 29 and 30 for a discussion of our commitments and contingent liabilities. 133 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 23. Capital and financial risk management This note details our treasury management and financial risk management objectives and policies, as well as the exposure and sensitivity of the Group to credit, liquidity, interest and foreign exchange risk, and the policies in place to monitor and manage these risks. Accounting policies Financial instruments Financial assets and financial liabilities, in respect of financial instruments, are recognised on the Group’s statement of financial position when the Group becomes a party to the contractual provisions of the instrument. Financial liabilities and equity instruments Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that provides a residual interest in the assets of the Group after deducting all of its liabilities and includes no obligation to deliver cash or other financial assets. The accounting policies adopted for specific financial liabilities and equity instruments are set out below. Put option arrangements over non-controlling interest The potential cash payments related to put options issued by the Group over the equity of subsidiary companies are accounted for as financial liabilities when such options may only be settled by exchange of a fixed amount of cash or another financial asset for a fixed number of shares in the subsidiary. The amount that may become payable under the option on exercise is initially recognised at present value within borrowings with a corresponding charge directly to equity. The charge to equity is recognised separately as written put options over non-controlling interests, adjacent to non-controlling interests in the net assets of consolidated subsidiaries. The Group recognises the cost of writing such put options, determined as the excess of the present value of the option over any consideration received, as a financing cost. Such options are subsequently measured at amortised cost, using the effective interest rate method, in order to accrete the liability up to the amount payable under the option at the date at which it first becomes exercisable; the charge arising is recorded as a financing cost. In the event that the option expires unexercised, the liability is derecognised with a corresponding adjustment to equity. Derivative financial instruments and hedge accounting The Group’s activities expose it to the financial risks of changes in foreign exchange rates and interest rates which it manages using derivative financial instruments. The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors, which provide written principles on the use of financial derivatives consistent with the Group’s risk management strategy. Changes in values of all derivatives of a financing nature are included within investment income and financing costs in the income statement unless designated in an effective cash flow hedge relationship or a hedge of a net investment in foreign operations when changes in value are deferred to other comprehensive income or equity respectively. The Group does not use derivative financial instruments for speculative purposes. Derivative financial instruments are initially measured at fair value on the contract date and are subsequently remeasured to fair value at each reporting date. The Group designates certain derivatives as: a hedges of the change of fair value of recognised assets and liabilities (“fair value hedges”); or a hedges of highly probable forecast transactions or hedges of foreign currency or interest rate risks of firm commitments (“cash flow hedges”); or a hedges of net investments in foreign operations. Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting, or if the Company chooses to end the hedging relationship. Fair value hedges The Group’s policy is to use derivative instruments (primarily interest rate swaps) to convert a proportion of its fixed rate debt to floating rates in order to hedge the interest rate risk arising, principally, from capital market borrowings. The Group designates these as fair value hedges of interest rate risk with changes in fair value of the hedging instrument recognised in the income statement for the period together with the changes in the fair value of the hedged item arising from the hedged risk, to the extent the hedge is effective. Gains or losses relating to any ineffective portion are recognised immediately in the income statement. Cash flow hedges Cash flow hedging is used by the Group to hedge certain exposures to variability in future cash flows. The portion of gains or losses relating to changes in the fair value of derivatives that are designated and qualify as effective cash flow hedges is recognised in other comprehensive income; gains or losses relating to any ineffective portion are recognised immediately in the income statement. When the hedged item is recognised in the income statement, amounts previously recognised in other comprehensive income and accumulated in equity for the hedging instrument are reclassified to the income statement. However, when the hedged transaction results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously recognised in other comprehensive income and accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability. When hedge accounting is discontinued, any gain or loss recognised in other comprehensive income at that time remains in equity and is recognised in the income statement when the hedged transaction is ultimately recognised in the income statement. If a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in the income statement. 134 Vodafone Group Plc Annual Report 2016Net investment hedges Exchange differences arising from the translation of the net investment in foreign operations are recognised directly in equity. Gains and losses on those hedging instruments (which include bonds, commercial paper, cross currency swaps and foreign exchange contracts) designated as hedges of the net investments in foreign operations are recognised in equity to the extent that the hedging relationship is effective; these amounts are included in exchange differences on translation of foreign operations as stated in the statement of comprehensive income. Gains and losses relating to hedge ineffectiveness are recognised immediately in the income statement for the period. Gains and losses accumulated in the translation reserve are included in the income statement when the foreign operation is disposed of. Capital management The following table summarises the capital of the Group at 31 March: Financial assets: Cash and cash equivalents Fair value through the income statement (held for trading) Loans and receivables Derivative instruments in designated hedge relationships Financial liabilities: Fair value through the income statements (held for trading) Derivative instruments in designated hedge relationships Financial liabilities held at amortised cost Net debt Equity Capital 2016  £m  (10,218) (4,160) (1,570) (1,774) 1,355 209 45,347 29,189 67,317 96,506 2015  £m  (6,882) (5,513) – (1,376) 958 26 35,058 22,271 67,733 90,004 The Group’s policy is to borrow centrally using a mixture of long-term and short-term capital market issues and borrowing facilities to meet anticipated funding requirements. These borrowings, together with cash generated from operations, are loaned internally or contributed as equity to certain subsidiaries. The Board has approved three internal debt protection ratios being: net interest to operating cash flow (plus dividends from associates); retained cash flow (operating cash flow plus dividends from associates less interest, tax, dividends to non-controlling shareholders and equity dividends) to net debt; and operating cash flow (plus dividends from associates) to net debt. These internal ratios establish levels of debt that the Group should not exceed other than for relatively short periods of time and are shared with the Group’s debt rating agencies being Moody’s, Fitch Ratings and Standard & Poor’s. Financial risk management The Group’s treasury function provides a centralised service to the Group for funding, foreign exchange, interest rate management and counterparty risk management. Treasury operations are conducted within a framework of policies and guidelines authorised and reviewed by the Board, most recently on 3 November 2015. A treasury risk committee comprising the Group’s Chief Financial Officer, Group General Counsel and Company Secretary, Group Financial Controller, Group Treasury Director and Director of Financial Reporting meets three times a year to review treasury activities and its members receive management information relating to treasury activities on a quarterly basis. The Group’s accounting function, which does not report to the Group Treasury Director, provides regular update reports of treasury activity to the Board. The Group’s internal auditor reviews the internal control environment regularly. The Group uses a number of derivative instruments for currency and interest rate risk management purposes only that are transacted by specialist treasury personnel. The Group mitigates banking sector credit risk by the use of collateral support agreements. Credit risk The Group considers its exposure to credit risk at 31 March to be as follows: Bank deposits Repurchase agreements Cash held in restricted deposits UK government bonds Money market fund investments Derivative financial instruments Other investments – debt and bonds Trade receivables Other receivables and accrued income 2016  £m  1,737 2,700 791 659 5,781 4,304 6,347 4,772 3,206 30,297 2015  £m  2,379 2,000 650 830 2,402 4,005 5,906 4,232 2,959 25,363 135 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 23. Capital and financial risk management (continued) The Group invested in UK index linked government bonds on the basis that they generated a floating rate return in excess of £ LIBOR and are amongst the most creditworthy of investments available. The Group has two managed investment funds. These funds hold fixed income sterling securities and the average credit quality is high double A. Money market investments are in accordance with established internal treasury policies which dictate that an investment’s long-term credit rating is no lower than mid BBB. Additionally, the Group invests in AAA unsecured money market mutual funds where the investment is limited to 10% of each fund. The Group has investments in repurchase agreements which are fully collateralised investments. The collateral is sovereign and supranational debt with at least one AAA rating denominated in euros, sterling and US dollars and can be readily converted to cash. In the event of any default, ownership of the collateral would revert to the Group. Detailed below is the value of the collateral held by the Group at 31 March: Sovereign Supranational 2016 £m  2,700 – 2,700 2015  £m  1,977 23 2,000 In respect of financial instruments used by the Group’s treasury function, the aggregate credit risk the Group may have with one counterparty is limited by (i) reference to the long-term credit ratings assigned for that counterparty by Moody’s, Fitch Ratings and Standard & Poor’s; (ii) that counterparty’s five year credit default swap (‘CDS’) spread; and (iii) the sovereign credit rating of that counterparty’s principal operating jurisdiction. Furthermore, collateral support agreements were introduced from the fourth quarter of 2008. Under collateral support agreements the Group’s exposure to a counterparty with whom a collateral support agreement is in place is reduced to the extent that the counterparty must post cash collateral when there is value due to the Group under outstanding derivative contracts that exceeds a contractually agreed threshold amount. When value is due to the counterparty the Group is required to post collateral on identical terms. Such cash collateral is adjusted daily as necessary. In the event of any default, ownership of the cash collateral would revert to the respective holder at that point. Detailed below is the value of the cash collateral, which is reported within short-term borrowings, held by the Group at 31 March: Cash collateral 2016  £m  2,837 2015  £m  2,542 The majority of the Group’s trade receivables are due for maturity within 90 days and largely comprise amounts receivable from consumers and business customers. At 31 March 2016 £3,227 million (2015: £2,869 million) of trade receivables were not yet due for payment. Overdue trade  receivables consisted of £1,293 million (2015: £1,141 million) relating to the Europe region, and £252 million (2015: £222 million) relating to the AMAP region. Financial statements are monitored by management and provisions for bad and doubtful debts raised where it is deemed appropriate. The following table presents ageing of receivables that are past due and provisions for doubtful receivables that have been established: 30 days or less Between 31 and 60 days Between 61 and 180 days Greater than 180 days Gross receivables £m  727 261 394 1,108 2,490 Less provisions £m  (272) (69) (89) (515) (945) 2016  Net receivables £m  455 192 305 593 1,545 Gross receivables £m  417 231 288 1,205 2,141 Less provisions £m  (61) (35) (67) (615) (778) 2015  Net receivables £m  356 196 221 590 1,363 Concentrations of credit risk with respect to trade receivables are limited given that the Group’s customer base is large and unrelated. Due to this, management believes there is no further credit risk provision required in excess of the normal provision for bad and doubtful receivables. Amounts charged to administrative expenses during the year ended 31 March 2016 were £498 million (2015: £541 million; 2014: £347 million) (see note 15 “Trade and other receivables”). As discussed in note 30 “Contingent liabilities and legal proceedings”, the Group has covenanted to provide security in favour of the trustee of the Vodafone Group UK Pension Scheme in respect of the funding deficit in the scheme. The security takes the form of an English law pledge over UK index linked government bonds. 136 Vodafone Group Plc Annual Report 2016 Liquidity risk At 31 March 2016 the Group had €4.0 billion and US$4.1 billion syndicated committed undrawn bank facilities which support the US$15 billion and £8 billion commercial paper programme available to the Group. The Group uses commercial paper and bank facilities to manage short-term liquidity and manages long-term liquidity by raising funds in the capital markets. The euro syndicated committed facility has a maturity date of 28 March 2021. From 28 March 2020 the facility will be downsized to €3.9 billion as one lender did not exercise the option to extend the facility for a further year as requested by the Company. The US$ syndicated committed facility has a maturity date of 27 February 2021 with each lender having the option to extend the facility for a further year prior to the second anniversary of the facility, if requested by the Company. From 27 February 2020 the facility will be downsized to US$3.9 billion as one lender did not exercise the option to extend the facility for a further year as requested by the Company. Both facilities have remained undrawn throughout the financial year and since year end and provide liquidity support. The Group manages liquidity risk on long-term borrowings by maintaining a varied maturity profile with a cap on the level of debt maturity in any one calendar year, therefore minimising refinancing risk. Long-term borrowings mature between one and 29 years. Liquidity is reviewed daily on at least a 12 month rolling basis and stress tested on the assumption that all commercial paper outstanding matures and is not reissued. The Group maintains substantial cash and cash equivalents which at 31 March 2016 amounted to £10,218 million (2015: £6,882 million). Market risk Interest rate management Under the Group’s interest rate management policy, interest rates on monetary assets and liabilities denominated in euros, US dollars and sterling are maintained on a floating rate basis except for periods up to six years where interest rate fixing has to be undertaken in accordance with treasury policy. Where assets and liabilities are denominated in other currencies interest rates may also be fixed. In addition, fixing is undertaken for longer periods when interest rates are statistically low. For each one hundred basis point fall or rise in market interest rates for all currencies in which the Group had borrowings at 31 March 2016 there would be an increase or decrease in profit before tax by approximately £23 million (2015: increase or decrease by £36 million) including mark-to- market revaluations of interest rate and other derivatives and the potential interest on outstanding tax issues. There would be no material impact on equity. Foreign exchange management As Vodafone’s primary listing is on the London Stock Exchange its share price is quoted in sterling. Since the sterling share price represents the value of its future multi-currency cash flows, principally in euro, South African rand, Indian rupee and sterling, the Group maintains the currency of debt and interest charges in proportion to its expected future principal multi-currency cash flows and has a policy to hedge external foreign exchange risks on transactions denominated in other currencies above certain de minimis levels. At 31 March 2016, 109% of net debt was denominated in currencies other than sterling (59% euro, 26% India rupee, 10% US dollar and 14% other) while 9% of net debt had been purchased forward in sterling in anticipation of sterling denominated shareholder returns via dividends. This allows euro, US dollar and other debt to be serviced in proportion to expected future cash flows and therefore provides a partial hedge against income statement translation exposure, as interest costs will be denominated in foreign currencies. Under the Group’s foreign exchange management policy, foreign exchange transaction exposure in Group companies is generally maintained at the lower of €5 million per currency per month or €15 million per currency over a six month period. The Group recognises foreign exchange movements in equity for the translation of net investment hedging instruments and balances treated as investments in foreign operations. However, there is no net impact on equity for exchange rate movements on net investment hedging instruments as there would be an offset in the currency translation of the foreign operation. At 31 March 2016 the Group held financial liabilities in a net investment against the Group’s consolidated euro net assets. Sensitivity to foreign exchange movements on the hedging liabilities, analysed against a strengthening of the euro by 8% (2015: 5%) would result in a decrease in equity of £1,350 million (2015: £876 million) which would be fully offset by foreign exchange movements on the hedged net assets. The following table details the Group’s sensitivity of the Group’s adjusted operating profit to a strengthening of the Group’s major currency in which it transacts. The percentage movement applied to the currency is based on the average movements in the previous three annual reporting periods. Amounts are calculated by retranslating the operating profit of each entity whose functional currency is euro. Euro 8% (2015: 5%) change – Operating profit1 Note: 1 Operating profit before impairment losses and other income and expense. 2016 £m 109 2015  £m  81 At 31 March 2016 the Group’s sensitivity to foreign exchange movements, analysed against a strengthening of the US dollar by 8% (2015: 9%) on its external US dollar exposure, would decrease the profit before tax by £60 million (2015: £71 million). Foreign exchange on certain internal balances analysed against a strengthening of the US dollar of 8% (2015: 9%) and euro of 8% (2015: 5%) would increase the profit before tax by £0.8 million (2015: decrease profit by £65 million) and decrease profit before tax by £318 million (2015: £186 million) for US dollar and euro respectively. Equity risk There is no material equity risk relating to the Group’s equity investments which are detailed in note 13 “Other investments”. The Group has hedged its exposure under the subordinated mandatory convertible bonds to any future movements in its share price by an option strategy designed to hedge the economic impact of share price movements during the term of the bonds. As at 31 March 2016 the Group’s sensitivity to a movement of 5% in its share price would result in an increase or decrease in profit before tax of approximately £144 million. 137 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 23. Capital and financial risk management (continued) Fair value of financial instruments The table below sets out the valuation basis1 of financial instruments held at fair value by the Group at 31 March. Financial assets: Fair value through the income statement Derivative financial instruments: Interest rate swaps Cross currency interest rate swaps Interest rate options Foreign exchange contracts Interest rate futures Financial investments available-for-sale: Listed equity securities4 Unlisted equity securities4 Financial liabilities: Derivative financial instruments: Interest rate swaps Cross currency interest rate swaps Interest rate options Foreign exchange contracts 2016  £m  Level 12  2015  £m  2016  £m  Level 23 2015  £m  2016  £m  Total  2015  £m  – – – – – – – 3 – 3 3 – – – – – – – – – – – – 4 – 4 4 – – – – – 1,950 3,184 1,950 3,184 2,411 1,626 36 231 4 6,258 – 82 82 6,340 907 534 64 59 1,564 2,466 1,506 – 33 8 7,197 – 222 222 7,419 682 245 11 46 984 2,411 1,626 36 231 4 6,258 3 82 85 6,343 907 534 64 59 1,564 2,466 1,506 – 33 8 7,197 4 222 226 7,423 682 245 11 46 984 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 for similar items. Details are included in note 13 “Other investments”. Fair value and carrying value information The fair values and carrying values of the Group’s financial assets and financial liabilities held at amortised cost are set out in the table below1. Unless otherwise stated, the valuation basis is level 2, comprising financial instruments where fair value is determined from inputs other than quoted prices observable for the asset or liability either directly or indirectly. The fair value of bonds are based on level 1 of the fair value hierarchy, using unadjusted quoted market prices for identical assets or liabilities. Cash and cash equivalents2 Cash and other investments held in restricted deposits2 Other debt and bonds3 Short-term borrowings: Bonds4 Commercial paper5 Bank loans and other short-term borrowings5 Long-term borrowings: Bonds4 Bank loans and other long-term borrowings5 2016  £m  10,218 791 5,052 16,061 (2,036) (7,396) (6,599) (16,031) (21,693) (7,260) (28,953) Fair value 2015  £m  6,882 650 3,551 11,083 (1,798) (5,077) (5,766) (12,641) (17,109) (5,346) (22,455) 2016  £m  10,218 791 5,052 16,061 (2,033) (7,396) (6,591) (16,020) (22,135) (7,192) (29,327) Carrying value  2015  £m  6,882 650 3,551 11,083 (1,786) (5,077) (5,760) (12,623) (17,174) (5,261) (22,435) (28,923) (24,013) (29,286) (23,975) 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 Other debt and bonds is predominantly comprised of loan notes from Verizon Communications Inc. (refer to note 13 “Other investments”) and collateral paid on derivative financial instruments. 4 The Group’s bonds are held at amortised cost with fair values available from market observable prices. 5 Commercial paper and other banks loans are held at amortised cost with fair values calculated from market observable data where appropriate. 138 Vodafone Group Plc Annual Report 2016 Net financial instruments The table below shows the Group’s financial assets and liabilities that are subject to offset in the balance sheet and the impact of enforceable master netting or similar agreements. At 31 March 2016 Derivative financial assets Derivative financial liabilities Total At 31 March 2015 Derivative financial assets Derivative financial liabilities Total Gross amount £m  4,304 (1,564) 2,740 Amount set off  £m  – – – Related amounts not set off in the balance sheet Amounts presented in balance sheet  £m  4,304 (1,564) 2,740 Right of set off with derivative counterparties  £m  (1,216) 1,216 – Cash collateral  £m  (2,837) 110 (2,727) Net amount £m  251 (238) 13 Gross amount £m  4,005 (984) 3,021 Amount set off  £m  –  – –  Related amounts not set off in the balance sheet Amounts presented in balance sheet  £m  4,005 (984) 3,021 Right of set off with derivative counterparties  £m  (726) 726 – Cash collateral  £m  (2,542) 30 (2,512) Net amount £m  737 (228) 509 Financial assets and liabilities are offset and the amount reported in the consolidated balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Derivative financial instruments that do not meet the criteria for offset could be settled net in certain circumstances under ISDA (International Swaps and Derivatives Association) agreements where each party has the option to settle amounts on a net basis in the event of default from the other. Collateral may be offset and net settled against derivative financial instruments in the event of default by either party. The aforementioned collateral balances are recorded in “other short-term investments” or “short-term debt” respectively. 24. Directors and key management compensation This note details the total amounts earned by the Company’s Directors and members of the Executive Committee. Directors Aggregate emoluments of the Directors of the Company were as follows: Salaries and fees Incentive schemes1 Other benefits2 2016  £m  4 2 1 7 2015  £m  4 3 1 8 2014  £m  4 2 1 7 Notes: 1 Excludes gains from long-term incentive plans. 2 Includes the value of the cash allowance taken by some individuals in lieu of pension contributions. The aggregate gross pre-tax gain made on the exercise of share options in the year ended 31 March 2016 by one Director who served during the year was £0.2 million (2015: one Director, <£0.1 million; 2014: three Directors, £4.0 million). Key management compensation Aggregate compensation for key management, being the Directors and members of the Executive Committee, was as follows: Short-term employee benefits Share-based payments 2016  £m  22 20 42 2015  £m 18 18 36 2014  £m 17 21  38 139 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 25. Employees This note shows the average number of people employed by the Group during the year, in which areas of our business our employees work and where they are based. It also shows total employment costs. 2016  Employees  2015  Employees  2014  Employees  By activity: Operations Selling and distribution Customer care and administration By segment: Germany Italy Spain UK Other Europe Europe India Vodacom Other Africa, Middle East and Asia Pacific Africa, Middle East and Asia Pacific Non-Controlled Interests and Common Functions Total The cost incurred in respect of these employees (including Directors) was: Wages and salaries Social security costs Other pension costs (note 26) Share-based payments (note 27) 18,869 38,325 54,490 111,684 17,602 35,629 52,069 105,300 14,862 6,676 5,935 13,323 16,058 56,854 13,346 7,515 14,262 35,123 14,520 6,757 5,324 12,437 15,190 54,228 12,303 7,260 14,312 33,875 19,707 111,684 17,197 105,300 2016  £m  3,632 455 207 117 4,411 2015  £m  3,469 442 195 88 4,194 14,947 31,342 42,857 89,146 10,623 1,123 3,552 12,979 15,392 43,669 11,925 7,176 16,002 35,103 10,374 89,146 2014  £m  3,261 364 158 92 3,875 140 Vodafone Group Plc Annual Report 2016 26. Post employment benefits We operate a number of defined benefit and defined contribution pension plans for our employees. The Group’s largest defined benefit scheme is in the UK. For further details see “Critical accounting judgements and key sources of estimation uncertainty” in note 1 “Basis of preparation” to the consolidated financial statements. Accounting policies For defined benefit retirement plans, the difference between the fair value of the plan assets and the present value of the plan liabilities is recognised as an asset or liability on the statement of financial position. Scheme liabilities are assessed using the projected unit funding method and applying the principal actuarial assumptions at the reporting period date. Assets are valued at market value. Actuarial gains and losses are taken to the statement of comprehensive income as incurred. For this purpose, actuarial gains and losses comprise both the effects of changes in actuarial assumptions and experience adjustments arising because of differences between the previous actuarial assumptions and what has actually occurred. The return on plan assets, in excess of interest income, is also taken to other comprehensive income. Other movements in the net surplus or deficit are recognised in the income statement, including the current service cost, any past service cost and the effect of any settlements. The interest cost less the expected interest income on assets is also charged to the income statement. The amount charged to the income statement in respect of these plans is included within operating costs or in the Group’s share of the results of equity accounted operations, as appropriate. Cumulative actuarial gains and losses at 1 April 2004, the date of transition to IFRS, were recognised in the statement of financial position. The Group contributions to defined contribution pension plans are charged to the income statement as they fall due. Background At 31 March 2016 the Group operated a number of pension plans for the benefit of its employees throughout the world, with varying rights and obligations depending on the conditions and practices in the countries concerned. The Group’s pension plans are provided through both defined benefit and defined contribution arrangements. Defined benefit schemes provide benefits based on the employees’ length of pensionable service and their final pensionable salary or other criteria. Defined contribution schemes offer employees individual funds that are converted into benefits at the time of retirement. The Group operates defined benefit schemes in Germany, Ghana, India, Ireland, Italy, the UK and the United States. Defined contribution pension schemes are currently provided in Australia, Egypt, Germany, Greece, Hungary, India, Ireland, Italy, the Netherlands, New Zealand, Portugal, South Africa, Spain and the UK. Income statement expense Defined contribution schemes Defined benefit schemes Total amount charged to income statement (note 25) 2016  £m  163 44 207 2015  £m  155 40 195 2014  £m  124 34 158 141 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 26. Post employment benefits (continued) Defined benefit schemes The Group’s main defined benefit scheme is in the UK, being the Vodafone UK Group Pension Scheme (‘Vodafone UK plan’). There are two segregated sections of the Vodafone UK plan, the pre-existing assets and liabilities of the Vodafone UK plan in the Vodafone Section and the former Cable & Wireless Worldwide Retirement Plan (‘CWWRP’) assets and liabilities, which were transferred into the Vodafone UK plan on 6 June 2014, in the CWW Section, with the CWWRP then being wound up. The pre-existing Vodafone UK plan and the former CWWRP plan closed to future accrual on 31 March 2010 and 30 November 2013 respectively. Until 30 November 2013 the CWWRP allowed employees to accrue a pension at a rate of 1/85th of their final salary for each year of service until the retirement age of 60 with a maximum pension of two thirds of final salary. Employees contributed 5% of their salary into the scheme. The defined benefit plans are administered by Trustee Boards that are legally separated from the Group. The Trustee Board of each pension fund consists of representatives who are employees, former employees or are independent from the Company. The Boards of the pension funds are required by law to act in the best interest of the plan participants and are responsible for setting certain policies, such as investment and contribution policies, and the governance of the fund. The defined benefit pension schemes expose the Group to actuarial risks such as longer than expected longevity of members, lower than expected return on investments and higher than expected inflation, which may increase the liabilities or reduce the value of assets of the plans. The UK pensions environment is regulated by the Pensions Regulator whose statutory objectives are set out in legislation and include promoting and improving understanding of the good administration of work-based pensions, protecting member benefits and regulating occupational defined benefit and contribution schemes. The Pensions Regulator is a non-departmental public body established under the Pensions Act 2004 and sponsored by the Department for Work And Pensions, operating within a legal regulatory framework set by the UK Parliament. The Pensions Regulator’s statutory objectives and regulatory powers are described on its website at thepensionsregulator.gov.uk. The Vodafone UK plan is registered as an occupational pension plan with HMRC and is subject to UK legislation and oversight from the Pensions Regulator. UK legislation requires that pension schemes are funded prudently and that valuations are undertaken at least every three years. Separate valuations are required for the Vodafone Section and CWW Section. Within 15 months of each valuation date, the plan trustees and the Group must agree any contributions required to ensure that the plan is fully funded over time on a suitably prudent measure. The publication by the International Accounting Standards Board in June 2015 of its Exposure Draft of amendments to IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, has provided additional clarity on the role of trustees’ rights in an assessment of the recoverability of a surplus in an employee pension fund. The trustees of the Vodafone UK plan have neither a unilateral right to wind up the plan and purchase annuities nor a unilateral right to improve members’ benefits and consequently the Exposure Draft as currently proposed is not expected to have a material impact on the Group’s results. The most recent valuations for the Vodafone and CWWRP sections of the Vodafone UK plan were carried out as at 31 March 2013 by independent actuaries appointed by the plan trustees. These valuations revealed a total deficit of £437 million on the schemes’ funding basis. Following the valuation, the Group paid special one-off contributions totalling £365 million in April 2014 (£325 million into the Vodafone Section and £40 million into the CWW Section). These lump sum contributions represented accelerated funding amounts that would otherwise have been due over the period to 31 March 2020. No further contributions were therefore due to the Vodafone UK plan for the period to 31 March 2016. The next valuation, which is being performed as at 31 March 2016, will be completed during the 2017 financial year after which the position of the scheme will be reassessed. Funding plans are individually agreed for each of the Group’s defined benefit pension schemes with the respective trustees, taking into account local regulatory requirements. It is expected that ordinary contributions relating to future service of £39 million will be paid into the Group’s defined benefit pension schemes during the year ending 31 March 2017. The main UK defined benefit scheme will be carrying out a Pension Increase Exchange (‘PIE’) exercise between May and August 2016. All eligible pensioners will be given the opportunity to exchange future increases on part or all of their pension and receive a higher pension immediately. If they accept the offer (after taking financial advice), they will no longer receive future increases on that part of their pension. It is expected that this exercise will reduce the future liabilities of the scheme which will be reflected in next year’s accounts The Group has also provided certain guarantees in respect of the Vodafone UK plan; further details are provided in note 30 “Contingent liabilities and legal proceedings” to the consolidated financial statements. Actuarial assumptions The Group’s scheme liabilities are measured using the projected unit credit method using the principal actuarial assumptions set out below: Weighted average actuarial assumptions used at 31 March1: Rate of inflation2 Rate of increase in salaries Discount rate Notes: 1 Figures shown represent a weighted average assumption of the individual schemes. 2 The rate of increase in pensions in payment and deferred payment is the rate of inflation. 2016 % 2.8 2.6 3.2 2015 %  3.0 2.8 3.0 2014 %  3.2  3.1  4.2  Mortality assumptions used are based on recommendations from the individual scheme actuaries which include adjustments for the experience of the Group where appropriate. The Group’s largest scheme is the Vodafone UK plan. Further life expectancies assumed for the UK schemes are 24.0/25.3 years (2015: 24.5/25.8 years; 2014: 23.3/24.7 years) for a male/female pensioner currently aged 65 and 26.6/28.1 years (2015: 27.1/28.7 years; 2014: 25.9/27.5 years) from age 65 for a male/female non-pensioner member currently aged 40. 142 Vodafone Group Plc Annual Report 2016 Charges made to the consolidated income statement and consolidated statement of comprehensive income (‘SOCI’) on the basis of the assumptions stated above are: Current service cost Net interest charge Total included within staff costs Actuarial (gains)/losses recognised in the SOCI1 Note: 1 Amounts disclosed in the SOCI are stated net of £30 million of tax (2015: £57 million; 2014: £20 million). 2016  £m  36 8 44 (156) 2015  £m  37 3 40 269 2014  £m  14 20 34 (57) Fair value of the assets and present value of the liabilities of the schemes The amount included in the statement of financial position arising from the Group’s obligations in respect of its defined benefit schemes is as follows: 1 April 2014 Service cost Interest income/(cost) Return on plan assets excluding interest income Actuarial losses arising from changes in financial assumptions Actuarial losses arising from experience adjustments Employer cash contributions Member cash contributions Benefits paid Exchange rate movements Other movements 31 March 2015 Service cost Interest income/(cost) Return on plan assets excluding interest income Actuarial gains arising from changes in demographic assumptions Actuarial gains arising from changes in financial assumptions Actuarial losses arising from experience adjustments Employer cash contributions Member cash contributions Benefits paid Exchange rate movements Other movements 31 March 2016 An analysis of net (deficit)/assets is provided below for the Group as a whole. Analysis of net deficit: Total fair value of scheme assets Present value of funded scheme liabilities Net deficit for funded schemes Present value of unfunded scheme liabilities Net deficit Net deficit is analysed as: Assets1 Liabilities Assets  £m  3,842 – 176 721 – – 404 9 (95) (83) (18) 4,956 – 149 (151) – – – 27 7 (118) 59 (4) 4,925 Liabilities  £m  (4,391) (37) (179) – (982) (8) – (9) 95 116 41 (5,354) (36) (157) – 71 276 (40) – (7) 118 (84) 18 (5,195) Net deficit  £m  (549) (37) (3) 721 (982) (8) 404 – – 33 23 (398) (36) (8) (151) 71 276 (40) 27 – – (25) 14 (270) 2016  £m  2015 £m 2014  £m  2013  £m  2012  £m  4,925 (5,129) (204) (66) (270) 177 (447) 4,956 (5,288) (332) (66) (398) 3,842 (4,325) (483) (66) (549) 3,723 (4,239) (516) (12) (528) 169 (567) 35 (584) 52 (580) 1,604  (1,853) (249) (12) (261) 31  (292) Note: 1 Pension assets are deemed to be recoverable and there are no adjustments in respect of minimum funding requirements as future economic benefits are available to the Company either in the form of future refunds or, for plans still open to benefit accrual, in the form of possible reductions in future contributions. 143 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 26. Post employment benefits (continued) An analysis of net assets/(deficit) is provided below for the Group’s largest defined benefit pension scheme in the UK, which is a funded scheme. Following the merger of the Vodafone UK plan and the CWWRP plan on 6 June 2014 the assets and liabilities of the CWW Section are segregated from the Vodafone Section and hence are reported separately below. Analysis of net assets/(deficit): Total fair value of scheme assets Present value of scheme liabilities Net assets/(deficit) Net assets/(deficit) are analysed as: Assets3 Liabilities 2016  £m  2015 £m CWW Section1 2013 £m 2014 £m 2016  £m  2015 £m 2014  £m  Vodafone Section2  2012  £m  2013  £m  2,184 (2,011) 173 2,251 (2,085) 166 1,780 (1,732) 48 173 – 166 – 48 – 1,827 (1,874) (47) – (47) 1,904 (2,015) (111) 1,912 (2,133) (221) 1,343 (1,677) (334) 1,328 (1,647) (319) 1,218  (1,444) (226) – (111) – (221) – (334) – (319) –  (226) Notes: 1 Cable & Wireless Worldwide Retirement Plan until 6 June 2014. 2 Vodafone UK plan until 6 June 2014. 3 Pension assets are deemed to be recoverable and there are no adjustments in respect of minimum funding requirements as future economic benefits are available to the Company either in the form of future refunds or, for plans still open to benefit accrual, in the form of possible reductions in future contributions. Duration of the benefit obligations The weighted average duration of the defined benefit obligation at 31 March 2016 is 22.3 years (2015: 22.7 years; 2014: 21.7 years). Fair value of pension assets Cash and cash equivalents Equity investments: With quoted prices in an active market Without quoted prices in an active market Debt instruments: With quoted prices in an active market Property: With quoted prices in an active market Without quoted prices in an active market Derivatives:1 With quoted prices in an active market Without quoted prices in an active market Investment fund Annuity policies – Without quoted prices in an active market Total Note: 1 Derivatives include collateral held in the form of cash. 2016  £m  87 1,487 157 2,747 8 15 (292) – 231 485 4,925 2015  £m  97 1,489 154 2,567 7 12 99 – – 531 4,956 The schemes have no direct investments in the Group’s equity securities or in property currently used by the Group. Each of the plans manages risks through a variety of methods and strategies including equity protection, to limit downside risk in falls in equity markets, inflation and interest rate hedging and, in the CWW Section of the Vodafone UK plan, a substantial insured pensioner buy-in policy. The actual return on plan assets over the year to 31 March 2016 was a loss of £2 million (2015: £897 million return). Sensitivity analysis Measurement of the Group’s defined benefit retirement obligation is sensitive to changes in certain key assumptions. The sensitivity analysis below shows how a reasonably possible increase or decrease in a particular assumption would, in isolation, result in an increase or decrease in the present value of the defined benefit obligation as at 31 March 2016. Rate of inflation Rate of increase in salaries Discount rate Life expectancy Decrease by 0.5% £m Increase by 0.5% £m Decrease by 0.5% £m Increase by 0.5% £m Decrease by 0.5% £m Increase by 0.5% £m Increase by 1 year £m Decrease by 1 year £m (Decrease)/increase in present value of defined obligation (395) 448 (4) 4 597 (511) 126 (126) The sensitivity analysis may not be representative of an actual change in the defined benefit obligation as it is unlikely that changes in assumptions would occur in isolation of one another. In presenting this sensitivity analysis, the change in the present value of the defined benefit obligation has been calculated on the same basis as prior years using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognised in the statement of financial position. 144 Vodafone Group Plc Annual Report 2016 27. Share-based payments We have a number of share plans used to award shares to Directors and employees as part of their remuneration package. A charge is recognised over the vesting period in the consolidated income statement to record the cost of these, based on the fair value of the award on the grant date. Accounting policies The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the shares that will eventually vest and adjusted for the effect of non-market-based vesting conditions. A corresponding increase in retained earnings is also recognised. Some share awards have an attached market condition, based on total shareholder return (‘TSR’), which is taken into account when calculating the fair value of the share awards. The valuation for the TSR is based on Vodafone’s ranking within the same group of companies, where possible, over the past five years. The fair value of awards of non-vested shares is equal to the closing price of the Group’s shares on the date of grant, adjusted for the present value of the delay in receiving dividends where appropriate. The maximum aggregate number of ordinary shares which may be issued in respect of share options or share plans will not (without shareholder approval) exceed: a 10% of the ordinary share capital of the Company in issue immediately prior to the date of grant, when aggregated with the total number of ordinary shares which have been allocated in the preceding ten year period under all plans; and a 5% of the ordinary share capital of the Company in issue immediately prior to the date of grant, when aggregated with the total number of ordinary shares which have been allocated in the preceding ten year period under all plans, other than any plans which are operated on an all-employee basis. Share options Vodafone Group executive plans No share options have been granted to any Directors or employees under the Company’s discretionary share option plans in the year ended 31 March 2016. There are options outstanding under the Vodafone Group 1999 Long-Term Stock Incentive Plan and the Vodafone Global Incentive Plan. These options are normally exercisable between three and ten years from the date of grant. The vesting of some of these options was subject to satisfaction of performance conditions. Grants made to US employees are made in respect of American Depositary Shares (‘ADS’). Vodafone Group Sharesave Plan The Vodafone Group 2008 Sharesave Plan enables UK staff to acquire shares in the Company through monthly savings of up to £250 over a three and/or five year period, at the end of which they may also receive a tax free bonus. The savings and bonus may then be used to purchase shares at the option price, which is set at the beginning of the invitation period and usually at a discount of 20% to the then prevailing market price of the Company’s shares. Share plans Vodafone Group executive plans Under the Vodafone Global Incentive Plan awards of shares are granted to Directors and certain employees. The release of these shares is conditional upon continued employment and, for some awards, achievement of certain performance targets measured over a three year period. Vodafone Share Incentive Plan The Vodafone Share Incentive Plan enables UK staff to acquire shares in the Company through monthly purchases of up to £125 per month or 5% of salary, whichever is lower. For each share purchased by the employee, the Company provides a free matching share. 145 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Notes to the consolidated financial statements (continued) 27. Share-based payments (continued) Movements in outstanding ordinary share and ADS options 1 April Granted during the year Forfeited during the year Exercised during the year Expired during the year 31 March Weighted average exercise price: 1 April Granted during the year Forfeited during the year Exercised during the year Expired during the year 31 March 2016  Millions  2015  Millions  – – – – – – – – – – – – – – – – – – – – – – ADS options  2014  Millions  – – – – – – US$22.16 – – US$29.31 – – Summary of options outstanding and exercisable at 31 March 2016 Outstanding  Weighted  average  remaining  contractual  life  Months  Weighted  average  exercise  price  Outstanding  shares  Millions  Vodafone Group savings related and Sharesave Plan: £1.01–£2.00 Vodafone Group 1999 Long-Term Stock Incentive Plan: £1.01–£2.00 23 1 £1.62 £1.68 29 16 Share awards Movements in non-vested shares are as follows: 1 April Granted Vested Forfeited 31 March 2016  Weighted  average fair  value at  grant date  £1.56 £2.22 £1.80 £1.40 £1.77 Millions  217 63 (32) (50) 198 Millions  243 83 (62) (47) 217 2016  Millions  25 7 (1) (5) (2) 24 £1.49 £1.89 £1.54 £1.42 £1.59 £1.62 Exercisable  shares  Millions  – 1 2015  Weighted  average fair  value at  grant date  £1.44 £1.63 £1.35 £1.35 £1.56 Ordinary share options  2015  Millions  27 7 (2) (6) (1) 25 £1.42 £1.56 £1.45 £1.25 £1.45 £1.49 Weighted  average  exercise  price  – £1.68 Millions  294 84 (81) (54) 243 2014  Millions  40 12 (1) (22) (2) 27 £1.41 £1.49 £1.34 £1.43 £1.37 £1.42 Exercisable  Weighted  average  remaining  contractual  life  Months  – 16 2014  Weighted  average fair  value at  grant date  £1.27 £1.58 £1.11 £1.19 £1.44 Other information The total fair value of shares vested during the year ended 31 March 2016 was £58 million (2015: £84 million; 2014: £90 million). The compensation cost included in the consolidated income statement in respect of share options and share plans was £117 million (2015: £88 million; 2014: £92 million) which is comprised principally of equity-settled transactions. The average share price for the year ended 31 March 2016 was 224.2 pence (2015: 212.7 pence; 2014: 212.2 pence). 146 Vodafone Group Plc Annual Report 2016 28. Acquisitions and disposals We completed a number of small acquisitions during the year. The note below provides details of these transactions as well as those in the prior year including, most significantly, the acquisition of Grupo Corporativo Ono, S.A. (‘Ono’). For further details see “Critical accounting judgements and key sources of estimation uncertainty” in note 1 “Basis of preparation” to the consolidated financial statements. Accounting policies Business combinations Acquisitions of subsidiaries are accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values at the date of exchange of assets given, liabilities incurred or assumed and equity instruments issued by the Group. Acquisition-related costs are recognised in the income statement as incurred. The acquiree’s identifiable assets and liabilities are recognised at their fair values at the acquisition date. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the Group’s previously held equity interest in the acquiree, if any, over the net amounts of identifiable assets acquired and liabilities assumed at the acquisition date. The interest of the non-controlling shareholders in the acquiree may initially be measured either at fair value or at the non-controlling shareholders’ proportion of the net fair value of the identifiable assets acquired, liabilities and contingent liabilities assumed. The choice of measurement basis is made on an acquisition-by-acquisition basis. Acquisition of interests from non-controlling shareholders In transactions with non-controlling parties that do not result in a change in control, the difference between the fair value of the consideration paid or received and the amount by which the non-controlling interest is adjusted is recognised in equity. Acquisitions The aggregate cash consideration in respect of purchases of interests in subsidiaries, net of cash acquired, is as follows: Cash consideration paid: Acquisitions completed during the year Net cash acquired £m 44 (1) 43 Acquisitions During the 2016 financial year, the Group completed a number of acquisitions for an aggregate net cash consideration of £43 million. The aggregate fair values of goodwill, identifiable assets and liabilities of the acquired operations were £17 million, £38 million and £12 million respectively. In addition, the Group completed the acquisition of certain non-controlling interests for a net cash consideration of £48 million. Grupo Corporativo Ono, S.A. (‘Ono’) On 23 July 2014, the Group acquired the entire share capital of Ono for a cash consideration of £2,945 million. The primary reason for acquiring the business was to create a leading integrated communications operator in Spain, offering customers unified communication services. The purchase price allocation is set out in the table below: Net assets acquired: Identifiable intangible assets1 Property, plant and equipment Other investments Trade and other receivables Cash and cash equivalents Current and deferred taxation Short and long-term borrowings Trade and other payables Provisions Net identifiable assets acquired Non-controlling interests Goodwill2 Total consideration3 Fair value  £m  777 3,272 7 156 143 647 (3,001) (391) (83) 1,527 (5) 1,423 2,945 Notes: 1 2 The goodwill arising on acquisition is principally related to the synergies expected to arise following the integration of the Ono business. These principally relate to synergies expected Identifiable intangible assets of £777 million consisted of customer contracts and relationships of £710 million, brand of £33 million and software of £34 million. to arise following integration of the respective networks, operating cost rationalisation and revenue synergies driven by the larger network footprint and incremental revenue streams from integrated services. 3 Transaction costs of £11 million were charged in the Group’s consolidated income statement in the year ended 31 March 2015. 147 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 28. Acquisitions and disposals (continued) Vodafone Omnitel B.V. (‘Vodafone Italy’) On 21 February 2014 the Group acquired a 100% interest in Vodafone Italy, having previously held a 76.9% stake which was accounted for as a joint venture. The Group acquired the additional 23.1% equity as part of the consideration received for the disposal of the Group’s interests in Verizon Wireless (see “Disposals” below). There was no observable market for Verizon shares and so the fair value of consideration paid by the Group for the acquisition was considered to be more reliably determined based on the acquisition-date fair value of Group’s existing equity interest in Vodafone Italy. Using a value in use basis, the consideration paid for the acquisition was determined to be £7,121 million, comprising £5,473 million for the Group’s existing 76.9% equity interest and £1,648 million for the additional 23.1% equity interest. Disposals Verizon Wireless (‘VZW’) On 21 February 2014 the Group sold its US sub-group which included its entire 45% shareholding in VZW to Verizon Communications Inc. for a total consideration of £76.7 billion before tax and transaction costs, comprising cash of £35.2 billion, shares in Verizon Communications Inc. of £36.7 billion, loan notes issued by Verizon Communications Inc. of £3.1 billion and a 21.3% interest in Vodafone Italy valued at £1.7 billion. The Group recognised a net gain on disposal of £44,996 million, reported in profit for the financial year from discontinued operations. 29. Commitments A commitment is a contractual obligation to make a payment in the future, mainly in relation to leases and agreements to buy assets such as network infrastructure and IT systems. These amounts are not recorded in the consolidated statement of financial position since we have not yet received the goods or services from the supplier. The amounts below are the minimum amounts that we are committed to pay. Accounting policies Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership of the asset to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments as determined at the inception of the lease. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in the income statement. Rentals payable under operating leases are charged to the income statement on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. Operating lease commitments The Group has entered into commercial leases on certain properties, network infrastructure, motor vehicles and items of equipment. The leases have various terms, escalation clauses, purchase options and renewal rights, none of which are individually significant to the Group. Future minimum lease payments under non-cancellable operating leases comprise: Within one year In more than one year but less than two years In more than two years but less than three years In more than three years but less than four years In more than four years but less than five years In more than five years 2016  £m  1,527 1,096 988 797 632 2,822 7,862 2015 £m  1,403 925 797 698 550 2,207 6,580 The total of future minimum sublease payments expected to be received under non-cancellable subleases is £397 million (2015: £358 million). Capital commitments Contracts placed for future capital expenditure not provided in the financial statements1 Company and subsidiaries Share of joint operations 2016 £m 2015 £m  1,954 4,871 2016 £m 97 2015 £m  86 2016 £m Group 2015 £m  2,051 4,957 Note: 1 Commitment includes contracts placed for property, plant and equipment and intangible assets. Capital commitments at 31 March 2015 included £2,682 million in relation to spectrum acquired in 12 telecom circles in India, the purchase of which was completed during the year. 148 Vodafone Group Plc Annual Report 2016 Acquisition commitments On 15 February 2016 Vodafone announced that Liberty Global Europe Holding B.V. and Vodafone International Holdings B.V. had reached an agreement to merge their operating businesses in the Netherlands to form a 50:50 joint venture. The joint venture will operate under both the Vodafone and Ziggo brands and will create a nationwide integrated communications provider in the Netherlands. Based upon the enterprise value of each business, and after deducting Ziggo’s €7.3 billion of net debt, Vodafone will make a cash payment to Liberty Global of €1 billion to equalise ownership in the JV, reflecting the €2 billion difference in the two companies’ equity value. Vodafone Netherlands will be contributed to the JV on a debt and cash free basis. The transaction is expected to close around the end of 2016 and is subject to regulatory approvals and consultations with the Works Councils. During the year ended 31 March 2016 Vodafone agreed to acquire You Broadband (India) Private Limited and You System Integration Private Limited in India for £35 million. The transaction, which is expected to close later this year, is subject to regulatory approval by the Foreign Investment Promotion Board. 30. Contingent liabilities and legal proceedings Contingent liabilities are potential future cash outflows, where the likelihood of payment is considered more than remote, but is not considered probable or cannot be measured reliably. Performance bonds1 Other guarantees and contingent liabilities2 2016  £m  849 2,543 2015 £m  766 2,539 Notes: 1 Performance bonds require the Group to make payments to third parties in the event that the Group does not perform what is expected of it under the terms of any related contracts or commercial arrangements. 2 Other guarantees principally comprise Vodafone Group Plc’s guarantee of the Group’s 50% share of an AUD 1.7 billion loan facility and a US$3.5 billion loan facility of its joint venture, Vodafone Hutchison Australia Pty Limited. UK pension schemes The Group’s main defined benefit scheme is the Vodafone UK Group Pension Scheme which has two segregated sections, the Vodafone Section and the CWW Section, as detailed in note 26. The Group has covenanted to provide security in favour of the Vodafone UK Group Pension Scheme – Vodafone Section whilst there is a deficit in this section. The deficit is measured on a prescribed basis agreed between the Group and Trustee. In 2010 the Group and Trustee agreed security of a charge over UK index linked gilts (‘ILG’) held by the Group. The level of the security has varied since inception in line with the movement in the Scheme deficit. At the 31 March 2016 the Scheme retains security over £264.5 million (notional value) 2017 ILGs and £76.3 million (notional value) 2016 ILGs. The security may be substituted either on a voluntary or mandatory basis. As and when alternative security is provided, the Group has agreed that the security cover should include additional headroom of 33%, although if cash is used as the security asset the ratio will revert to 100% of the relevant liabilities or, where the proposed replacement security asset is listed on an internationally recognised stock exchange in certain core jurisdictions, the trustee may decide to agree a lower ratio than 133%. The Company has also provided two guarantees to the Vodafone Section of the scheme for a combined value up to £1.25 billion to provide security over the deficit under certain defined circumstances, including insolvency of the employers. The Company has also agreed a similar guarantee of up to £1.25 billion for the CWW Section. An additional smaller UK defined benefit scheme, the THUS Plc Group Scheme, has a guarantee from the Company for up to £110 million. Legal proceedings The Company and its subsidiaries are currently, and may from time to time become, involved in a number of legal proceedings, including inquiries from, or discussions with, governmental authorities that are incidental to their operations. However, save as disclosed below, the Company does not believe that it or its subsidiaries are currently involved in (i) any legal or arbitration proceedings (including any governmental proceedings which are pending or known to be contemplated) which may have, or have had in the 12 months preceding the date of this report, a material adverse effect on the financial position or profitability of the Company or its subsidiaries; or (ii) any material proceedings in which any of the Company’s Directors, members of senior management or affiliates are either a party adverse to the Company or its subsidiaries or have a material interest adverse to the Company or its subsidiaries. Due to inherent uncertainties, the Company cannot make any accurate quantification of any cost, or timing of such cost, which may arise from any of the legal proceedings referred to in this Annual Report. Telecom Egypt arbitration In October 2009 Telecom Egypt began an arbitration against Vodafone Egypt in Cairo alleging breach of non-discrimination provisions in an interconnection agreement as a result of lower interconnection rates paid to Vodafone Egypt by Mobinil. Telecom Egypt also sought to join Vodafone International Holdings BV (‘VIHBV’), Vodafone Europe BV (‘VEBV’) and Vodafone Group Plc to the arbitration. In January 2015 the arbitral tribunal issued its decision. It held unanimously that it had no jurisdiction to arbitrate the claim against VIHBV, VEBV and Vodafone Group Plc. The tribunal also held by a three to two majority that Telecom Egypt had failed to establish any liability on the part of Vodafone Egypt. Telecom Egypt applied to the Egyptian court to set aside the decision. On 15 March 2016 the Court of Appeal dismissed Telecom Egypt’s application to annul the arbitration award. Telecom Egypt had 60 days to appeal to the Cour de Cassation, which has now expired. Vodafone Egypt has applied for a certificate to confirm that no appeal has been filed. 149 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 30. Contingent liabilities and legal proceedings (continued) Indian tax case In August 2007 and September 2007, Vodafone India Limited (‘VIL’) and 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 subsidiary that indirectly holds interests in VIL. In January 2012 the Indian Supreme Court 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 Indian Supreme Court quashed the relevant notices and demands issued to VIHBV in respect of withholding tax and interest. On 20 March 2012 the Indian Government returned VIHBV’s deposit of INR 25 billion and released the guarantee for INR 85 billion, which was based on the demand for payment issued by the Indian tax authority in October 2010, for tax of INR 79 billion plus interest. On 28 May 2012 the Finance Act 2012 became law. The Finance Act 2012 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 reminding it of the tax demand raised prior to the Indian Supreme Court’s judgement and purporting to update the interest element of that demand to a total amount of INR 142 billion. On 17 January 2014, VIHBV served an amended trigger notice on the Indian Government under the Dutch-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. VIHBV arbitration proceedings On 17 April 2014, VIHBV served its notice of arbitration under the Dutch BIT, formally commencing the Dutch BIT arbitration proceedings. An arbitrator has been appointed by VIHBV. The Indian Government has also appointed its arbitrator. The two party-appointed arbitrators failed to appoint a chairman. Consequently, the President of the International Court of Justice will now appoint the third arbitrator who will act as the presiding arbitrator. 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 Finance Act 2012. On 4 February 2016, VIHBV received a reminder of an outstanding tax demand of INR 221 billion. The latest reminder threatens enforcement action if the demand is not satisfied. 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 Indian Supreme Court. The hearing was adjourned to a date yet to be listed. Should a further demand for taxation be received by VIHBV or any member of the Group as a result of the retrospective legislation, we believe it is probable that we will be able to make a successful claim under the Dutch BIT and/or UK BIT. We did not carry a provision for this litigation or in respect of the retrospective legislation at 31 March 2016, or at previous reporting dates. 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 £1.4 billion plus interest, and penalties of up to 300% of the principal. VISPL tax claims VISPL has been assessed as owing tax of approximately £223 million (plus interest of £123 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 recently appealed to the Supreme Court of India. Indian regulatory cases Litigation remains pending in the Telecommunications Dispute Settlement Appellate Tribunal (‘TDSAT’), High Courts and the Indian Supreme Court in relation to a number of significant regulatory issues including mobile termination rates (‘MTRs’), spectrum and licence fees, licence extension and 3G intra-circle roaming (‘ICR’). Public interest litigation: Yakesh Anand v Union of India, Vodafone and others The Petitioner brought a special leave petition in the Indian Supreme Court on 30 January 2012 against the Government of India and mobile network operators, including VIL, seeking recovery of the alleged excess spectrum allocated to the operators, compensation for the alleged excess spectrum held in the amount of approximately €4.7 billion and a criminal investigation of an alleged conspiracy between government officials and the network operators. A claim with similar allegations was dismissed by the Indian Supreme Court in March 2012, with an order that the Petitioner should pay a fine for abuse of process. The case is pending before the Indian Supreme Court and is expected to be called for hearing at some uncertain future date. 150 Vodafone Group Plc Annual Report 20163G inter-circle roaming: Vodafone India and others v Union of India In April 2013, the Indian Department of Telecommunications (‘DoT’) issued a stoppage notice to VIL’s operating subsidiaries and other mobile operators requiring the immediate stoppage of the provision of 3G services on other operators’ mobile networks in an alleged breach of licence claim. The DoT also imposed a fine of approximately €5.5 million. VIL applied to the Delhi High Court for an order quashing the DoT’s notice. Interim relief from the notice has been granted (but limited to existing customers at the time with the effect that VIL was not able to provide 3G services to new customers on other operators’ 3G networks pending a decision on the issue). The dispute was referred to the TDSAT for decision, which ruled on 28 April 2014 that VIL and the other operators were permitted to provide 3G services to their customers (current and future) on other operators’ networks. The DoT has appealed the judgement and sought a stay of the tribunal’s judgement. The DoT’s stay application was rejected by the Indian Supreme Court. The matter is pending before the Indian Supreme Court. One time spectrum charges: VIL v Union of India The Indian Government has sought to impose one time spectrum charges of approximately €525 million on certain operating subsidiaries of VIL. VIL filed a petition before the TDSAT challenging the one time spectrum charges on the basis that they are illegal, violate VIL’s licence terms and are arbitrary, unreasonable and discriminatory. The tribunal stayed enforcement of the Government’s spectrum demand pending resolution of the dispute. The matter is due to go for final hearing before the Indian Supreme Court, and will be listed in due course. Other public interest litigation Three public interest litigations have been initiated in the Indian Supreme Court against the Indian Government and private operators on the grounds that the grant of additional spectrum beyond 4.4/6.2 MHz has been illegal. The cases seek appropriate investigation and compensation for the loss to the exchequer. Adjusted Gross Revenue (‘AGR’) dispute before the Indian Supreme Court: 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 license fees and spectrum usage charges are based. The cumulative impact of the inclusion of these components is approximately Rs. 2,200 Crores. The DoT also moved cross appeals challenging the tribunal’s judgement. In the hearing before the Indian Supreme Court, the Court orally directed the DoT not to take any coercive steps in the matter, which was adjourned. On 29 February 2016, the Supreme Court 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: Patent litigation The telecoms industry is currently involved in significant levels of patent litigation brought by non-practicing entities (‘NPEs’) which have acquired patent portfolios from current and former industry companies. Vodafone is currently a party to patent litigation cases in Germany brought against Vodafone Germany by IPCom, St Lawrence Communications LLC (a subsidiary of Acacia Research Corporation), and by Intellectual Ventures, all NPEs. Vodafone has contractual indemnities from suppliers which have been invoked in relation to the alleged patent infringement liability. Germany: Mannesman 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 Mannesman. This matter has been ongoing since 2001. The German courts are also determining whether “squeeze out” compensation is payable to affected Mannesman shareholders in a similar proceeding. In September 2014, the German courts awarded compensation to minority shareholders of Mannesman in the amount of €229.58 per share, which would result in a pay-out of €19 million (plus €10 million of accrued interest). The German courts also ruled that the “squeeze out” compensation should amount to €251.31 per share, which would result in a pay-out of €43.8 million (plus interest of €23 million of accrued interest). Vodafone has appealed these decisions. Similar proceedings were initiated by 80 Kabel Deutschland shareholders. This proceeding is in its early stages, and, accordingly, Vodafone believes that it is too early to assess the likely quantum of any claim (however, Vodafone does not expect that the quantum of any such claim to be material). The next oral hearing is scheduled for 18 May 2016. Italy: British Telecom (Italy) v Vodafone Italy The Italian Competition Authority concluded an investigation in 2007 when Vodafone Italy gave certain undertakings in relation to allegations that it had abused its dominant position in the wholesale market for mobile termination. In 2010, British Telecom (Italy) brought a civil damages claim against Vodafone Italy on the basis of the Competition Authority’s investigation and Vodafone Italy’s undertakings. British Telecom (Italy) seeks damages in the amount of €280 million for abuse of dominant position by Vodafone Italy in the wholesale fixed to mobile termination market for the period from 1999 to 2007. A court appointed expert delivered an opinion to the Court that the range of damages in the case should be in the region of €10 million to €25 million which was reduced in a further supplementary report published in September 2014 to a range of €8 million to €11 million. Judgement was handed down by the court in August 2015, awarding €12 million, (including interest) to British Telecom (Italy). British Telecom (Italy) has appealed the amount of the damages to the Court of Appeal of Milan. In addition, British Telecom (Italy) has asked again for a reference to the European Court of Justice for an interpretation of the European community law on antitrust damages. Vodafone Italy has filed an appeal. Italy: FASTWEB v Vodafone Italy The Italian Competition Authority concluded an investigation in 2007 when Vodafone Italy gave certain undertakings in relation to allegations it had abused its dominant position in the wholesale market for mobile termination. In 2010, FASTWEB brought a civil damages claim against Vodafone Italy on the basis of the Competition Authority’s investigation and Vodafone Italy’s undertakings. FASTWEB sought damages in the amount of €360 million for abuse of dominant position by Vodafone Italy in the wholesale fixed to mobile termination market. A court appointed expert delivered an opinion to the Court that the range of damages in the case should be in the region of €0.5 million to €2.3 million. On 15 October 2014, the Court decided to reject FASTWEB’s damages claim in its entirety. FASTWEB appealed the decision and the first appeal hearing took place in September 2015. The Court has scheduled a final hearing for September 2016. 151 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Notes to the consolidated financial statements (continued) 30. Contingent liabilities and legal proceedings (continued) Italy: Telecom Italia v Vodafone Italy (Teletu) Telecom Italia brought civil claims against Vodafone Italy in relation to TeleTu’s alleged anti-competitive retention of customers. Telecom Italia seeks damages in the amount of €101 million. The Court decided on 9 June 2015 to appoint an expert to verify whether TeleTu has put in place anticompetitive retention activities. The experts’ work is now underway, and the parties have been invited by the Court to consider settlement. Greece: Papistas Holdings SA, Mobile Trade Stores (formerly Papistas SA) and Athanasios and Loukia Papistas v Vodafone Greece, Vodafone Group Plc and certain Directors and Officers of Vodafone. In December 2013, Mr and Mrs Papistas, and companies owned or controlled by them, brought three claims in the Greek court in Athens against Vodafone Greece, Vodafone Group Plc and certain Directors and officers of Vodafone Greece and Vodafone Group Plc for purported damage caused by the alleged abuse of dominance and wrongful termination of a franchise arrangement with a Papistas company. Approximately €1.0 billion of the claim is directed exclusively at one former and one current Director of Vodafone Greece. The balance of the claim (approximately €285.5 million) is sought from Vodafone Greece and Vodafone Group Plc on a joint and several basis. Both cases have been adjourned until September 2018, but it is possible that Papistas may re-file his claim under the new Greek civil procedure regime (which aims to hear trials within one year). Netherlands: Consumer credit/handset case In February 2016, the Dutch Supreme Court ruled on the Dutch implementation of the EU Consumer Credit Directive and “instalment sales agreements” (a Dutch law concept), holding that bundled ‘all-in’ mobile subscription agreements (i.e. Device along with mobile services) are considered consumer credit agreements. As a result Vodafone Netherlands, together with the industry, has been working with the Ministry of Finance and the Competition Authority on compliance requirements going forward for such offers. The ruling also has retrospective effect and a claim has been submitted by a claims organisation, which is currently being reviewed by Vodafone Netherlands. 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 has been 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 has been postponed without a new date having been fixed. South Africa: CWN v Vodacom There are various legal matters relating to Vodacom’s investment in Vodacom Congo (DRC) SA (‘VDRC‘), the most recent of which is a claim brought by Mr Alieu Badara Mohamed Conteh (‘Conteh’) in the Commercial Court of Kinshasa/Gombe against Vodacom International Limited (‘VCOMIL’) and VDRC. Conteh is the controlling shareholder of Congolese Wireless Network s.a.r.l (‘CWN’), a company incorporated in the DRC. CWN is a minority shareholder in VDRC. These proceedings seek to invalidate a court decision removing Conteh as the statutory manager of CWN, as well as the liquidation of VDRC and the payment of various sums to CWN and Conteh. The action also includes an unsubstantiated claim for US$14 billion against VCOMIL for its alleged role in helping to undermine Conteh’s position as former statutory manager of CWN. The Court of Appeal of Kinshasa/Gombe in December 2015 dismissed Conteh’s case against VCOMIL on the grounds of a lack of proper service of legal process. South Africa: Makate v Vodacom (Proprietary) Limited (‘Vodacom’) In 2008, Mr Makate instituted legal proceedings to claim compensation for a business idea that led to a product known as ‘Please Call Me’. On 1 July 2014, the South Gauteng High Court, Johannesburg (‘the High Court’) found that Mr Makate had proven the existence of a contract. However, the High Court ruled that the Company was not bound by that contract because the responsible director of product development and services did not have authority to enter into any such agreement on the Company’s behalf. The High Court also rejected Mr Makate’s claim on the basis that it had lapsed in terms of the Prescription Act 68 of 1969. The High Court and Supreme Court of Appeal turned down Mr Makate’s application for leave to appeal on 11 December 2014 and 2 March 2015, respectively. Mr Makate applied for leave to appeal in the Constitutional Court. On 26 April 2016, after having heard the application on 1 September 2015, the Constitutional Court granted leave to appeal and upheld Mr Makate’s appeal. In doing so, the Constitutional Court ordered that: (i) the Company is bound by the agreement concluded between Mr Makate and the then director of product development and services; (ii) the Company is to commence negotiations in good faith with Mr Makate to determine reasonable compensation; and (iii) in the event of the parties failing to agree on the reasonable compensation, the matter must be submitted to Vodacom’s Chief Executive Officer for determination of the amount within a reasonable time. Negotiations between the Company and Mr Makate will commence in accordance with the order of the Constitutional Court. 152 Vodafone Group Plc Annual Report 2016 31. Related party transactions The Group has a number of related parties including joint arrangements and associates, pension schemes and Directors and Executive Committee members (see note 12 “Investments in associates and joint arrangements”, note 26 “Post employment benefits” and note 24 “Directors and key management compensation”). Transactions with joint arrangements and associates 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, fees for the provision of network infrastructure and cash pooling arrangements. No related party transactions have been entered into during the year which might reasonably affect any decisions made by the users of these consolidated financial statements except as disclosed below. Sales of goods and services to associates Purchase of goods and services from associates Sales of goods and services to joint arrangements Purchase of goods and services from joint arrangements Net interest income receivable from joint arrangements1 Trade balances owed: by associates to associates by joint arrangements to joint arrangements Other balances owed by joint arrangements1 Other balances owed to joint arrangements1 2016  £m  30 92 16 598 66 1 3 183 55 85 84 2015 £m  32 85 6 566 79 3 4 182 48 61 54 2014 £m  231 109 12 570 75 3 3 82 170 57 63 Note: 1 Amounts arise primarily through Vodafone Italy, Vodafone Hutchison Australia, Indus Towers Limited and Cornerstone Telecommunications Infrastructure Limited. Interest is paid in line with market rates. Dividends received from associates and joint ventures are disclosed in the consolidated statement of cash flows. Transactions with Directors other than compensation During the three years ended 31 March 2016, and as of 17 May 2016, no Director nor any other executive officer, nor any associate of any Director or any other executive officer, was indebted to the Company. During the three years ended 31 March 2016 and as of 17 May 2016, the Company has not been a party to any other material transaction, or proposed transactions, in which any member of the key management personnel (including Directors, any other executive officer, senior manager, any spouse or relative of any of the foregoing or any relative of such spouse) had or was to have a direct or indirect material interest. 32. Subsequent events Euro reporting With effect from 1 April 2016 the functional currency of the Company has been changed from pounds sterling to the euro. The euro is now the primary currency in which the Company’s financing activities and investment returns are denominated. Similarly, with effect from 1 April 2016, the Group’s presentation currency has been changed from pounds sterling to the euro to better align with the geographic split of the Group’s operations. 153 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 33. Related undertakings A full list of all of our subsidiaries, joint arrangements and associated undertakings is detailed below. A full list of subsidiaries, joint arrangements and associated undertakings (as defined in the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008) as at 31 March 2016 is detailed below. The registered office address for each entity is also disclosed as additional information. No subsidiaries are excluded from the Group consolidation. Unless otherwise stated the Company’s subsidiaries all have share capital consisting solely of ordinary shares and are indirectly held. The percentage held by Group companies reflect both the proportion of nominal capital and voting rights unless otherwise stated. Subsidiaries Accounting policies A subsidiary is an entity controlled by the Company. Control is achieved where the Company has existing rights that give it the current ability to direct the activities that affect the Company’s returns and exposure or rights to variable returns from the entity. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling shareholder’s share of changes in equity since the date of the combination. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance. Company name % held by Group companies Share class Company name % held by Group companies Share class Company name % held by Group companies Share class Albania Autostrada Tirane-Durres, Rruga: “Pavaresia”, Nr 61, Kashar, Tirana, Albania Vodafone M-PESA SH.P.K. 99.94 Ordinary shares  Vodafone Albania Sh.A 99.94 Ordinary shares  Brazil Av José Rocha Bonfim, 214, Cond Praça Capital – Edifício Toronto, sls 228/229 13080-900 Jardim Santa Genebra, Campinas, São Paulo, Brazil Cobra do Brasil Serviços de Telemàtica ltda. 70.00 Ordinary shares  Angola Avenida Che Guevara, No 49, Maculusso, Luanda, Angola Vodacom Business Limitada3 65.00 Ordinary shares  Avenida Cidade Jardim, 400, 7th and 20th Floors, Jardim Paulistano, Sao Paulo, Brazil, 01454-000, Brazil Vodafone Serviços Empresariais Brasil Ltda. 100.00 Ordinary shares  Congo, The Democratic Republic of the 292 Avenue de la Justice, Commune de la Gombe, Kinshasa, Congo Vodacash s.p.r.l.3 Vodacom Congo (RDC) SA3,4 33.15 Ordinary shares  33.15 Ordinary shares, 4% redeemable preference shares  Côte d’Ivoire No 62, Rue du Docteur Blanchard, Zone 4C, Abidjan, Cote d’Ivoire Argentina Cerrito 348, 5to B, C1010AAH, Buenos Aires, Argentina CWGNL S.A. 100.00 Ordinary shares Australia HLB Mann Judd (NSW) Pty Ltd, Level 19, 207 Kent Street, Sydney NSW NSW 2000, Australia Bluefish Australia Pty Ltd 100.00 Ordinary shares  Level 12, 210 George Street, Sydney NSW 2001, Australia Vodafone Enterprise Australia Pty Limited 100.00 Ordinary shares  Level 7, 210 George Street, Sydney NSW 2000, Australia Quickcomm Pty Limited 100.00 Ordinary shares, Redeemable convertible preference shares Level 7, 40 Mount Street, North Sydney NSW 2060, Australia PPL Pty Limited 100.00 Ordinary shares  Talkland Australia Pty Limited 100.00 Ordinary shares  VAPL No. 2 Pty Limited 100.00 Ordinary shares  Austria Kohlmarkt 8-10, 1010, Wien, Austria Vodafone Enterprise Austria GmbH 100.00 Ordinary shares  Bahrain Office 304, Building 60 Falcon Tower, Road 1701, Diplomatic Area, Manama, 317, Bahrain Vodafone Enterprise Bahrain W.L.L. 100.00 Ordinary shares  Belgium Malta House, rue Archimède 25, 1000 Bruxelles, Belgium Rua Iguatemi, 1521. 29 anddar, Sao Paulo, Brazil Datora Mobile Telecomunicacoes S.A10 N/A N/A Vodacom Business Cote D’ivoire S.A.R.L.3 65.00 Ordinary shares  Cyprus Ali Rıza Efendi Caddesi No:33/A Ortaköy, Lefkoşa, Cyprus Vodafone Mobile Operations Limited 100.00 Ordinary shares  Czech Republic Náměstí Junkových 2, Prague 5, Czech Republic, 13000, Czech Republic Vodafone Czech Republic A.S. 100.00 Ordinary shares  Oskar Mobil S.R.O. 100.00 Basic capital shares  náměstí Junkových 2, Praha 5, Stodůlky, 155 00, Czech Republic Nadace Vodafone Česká republika 100.00 Ordinary shares  Olbrachtova 1980/5, Krč, 140 00 Praha 4, Czech Republic Vodafone Enterprise Europe (UK) Limited – Czech Branch 100.00 Branch Denmark c/o BDO, Havneholmen 29, 1561, København V, Denmark Vodafone Enterprise Denmark A/S 100.00 Ordinary shares  Cameroon Porte 201A 3eme Etage Entree C, immeuble SOCAR, Boulevard de la liberte, Akwa, Douala, Cameroon Vodacom Business Cameroon SA3 65.00 Ordinary shares  Canada 53 Glenellen Drive East, Etobicoke ON M8Y 2G7, Canada Cable & Wireless Canada Inc 100.00 Common shares  Cayman Islands 190 Elgin Avenue, George Town, Grand Cayman, KY1-9005, Cayman Islands CGP Investments (Holdings) Limited 100.00 Ordinary shares  Chile 222 Miraflores, P.28, Santiago, Metrop 97-763 Vodafone Enterprise Chile SA 100.00 Regular nominative shares China Building 21, 11, Kangding St., BDA, Beijing, 100176 - China, Cobra (Beijing) Automotive Technologies Co, Ltd 100.00 Ordinary shares  Unit 3626, China World Tower 1, No. 1 Jianguomenwai Avenue, Chaoyang District, Beijing 100004, China Vodafone China Limited (China) 100.00 Equity interest shares  Unit 558-560, Regus SCB Tower, No. 210 Century Avenue, Pudong District, Shanghai, 200120, China Vodafone Belgium SA/NV 100.00 Ordinary shares  Zaventemsesteenweg 162 1831 Diegem, Belgium Ipergy Communications NV 100.00 Ordinary shares  Cable & Wireless Communications Technical Services (Shanghai) Co. Ltd 100.00 Ordinary shares  154 Vodafone Group Plc Annual Report 2016Company name % held by Group companies Share class Company name % held by Group companies Share class Company name % held by Group companies Share class Egypt 14 Wadi el Nile ST, Dokki, Giza, Egypt, Egypt Medienallee 24, 85774, Unterfohring, Germany Kabelfernsehen Munchen Servicenter GmbH & Co. KG7 23.18 Ordinary shares  Sarmady Communications 54.91 Ordinary shares  Nobelstrasse 55, 18059, Rostock, Germany 17 Port Said Street, Maadi El Sarayat, Cairo, Egypt Misrfone Trading Company LLC 54.38 Ordinary shares  2 Building, 36 Central road, Giza, Egypt Vodafone Data 54.93 Ordinary shares  Piece No. 1215, Plot of Land No. 1/14A, 6th October City, Egypt Vodafone International Services LLC 54.93 Ordinary shares  Site No 15/3C, Central Axis, 6th October City, Egypt Vodafone Egypt Telecommunications S.A.E. 54.93 Ordinary shares  37 Kaser El Nil St, 4th. Floor, Cairo, Egypt Starnet 54.93 Ordinary shares  France 1300 route de Cretes, Le WTC, Bat I1, 06560, Valbonne Soph, France Vodafone Automotive Telematics Development S.A.S 100.00 Ordinary shares  144, Avenue Roger Salengro, 92372 – Chaville Cedex, France Vodafone Automotive France S.A.S 50.94 Ordinary shares  Tour Neptune – 20, Place de Seine, 92400 Courbevoie, France Vodafone Enterprise France SAS 100.00 New euro shares  Germany Altes Forsthaus 2, 67661, Kaiserslautern, Germany TKS Telepost Kabel-Service Kaiserslautern Beteiligungs GmbH7 TKS Telepost Kabel-Service Kaiserslautern GmbH & Co. KG7 76.70 Ordinary shares  76.70 Ordinary shares  Betastraße 6-8, 85774 Unterföhring, Germany Kabel Deutschland Holding AG7 76.70 Ordinary shares  Urbana Teleunion Rostock GmbH & Co.KG Verwaltung “Urbana Teleunion” Rostock GmbH7 53.69 Ordinary shares 38.35 Ordinary shares  Seilerstrasse 18, 38440, Wolfsburg, Germany KABELCOM Wolfsburg Gesellschaft Fur Breitbandkabel- Kommunikation Mit Beschrankter Haftung7 76.70 Ordinary shares  Sudwestpark 15, 90449, Nurnberg, Germany Vodafone Kabel Deutschland Field Services GmbH7 76.70 Ordinary shares  Ghana 25 Sir Arku Korsah Road, Airport Residential Area, Accra, Ghana Vodacom Business (Ghana) Limited3 65.00 Ordinary shares and non-voting, irredeemable, non-cumulative preference shares Telecom House, Nswam Road, Accra-North, Greater Accra Region, PMB 221, Ghana Ghana Telecommunications Company Limited National Communications Backbone Company Limited 70.00 Ordinary shares  70.00 Ordinary shares  Greece 1-3 Tzavella str, 152 31 Halandri, Athens, Greece 100.00 Ordinary shares  Vodafone Global Enterprise Telecommunications (Hellas) A.E. Vodafone-Panafon Hellenic Telecommunications Company S.A. Kabel Deutschland Holding Erste Beteiligungs GmbH7 Kabel Deutschland Holding Zweite Beteilgungs GmbH7 Kabel Deutschland Siebte Beteiligungs GmbH7 Vodafone Kabel Deutschland GmbH7 Vodafone Kabel Deutschland Kundenbetreuung GmbH7 76.70 Ordinary shares  2 Adrianiou & Papada, Athens, 115 25, Greece 76.70 Ordinary shares  Hellas Online S.A. 99.87 Ordinary shares  Marathonos Ave 18 km & Pylou, Pallini, Attica, Pallini, Attica, 15351, Greece 76.70 Ordinary shares  Victus Networks S.A. 50.00 Ordinary shares  76.70 Ordinary shares  Parnithos 43 & Dilou, Metamorfosi, Athens 76.70 Ordinary shares  Pireos 74A Avenue, Neo Faliro, Neo Faliro, 18547, Greece Buschurweg 4, 76870 Kandel, Germany Vodafone Automotive Deutschland GmbH 100.00 Ordinary shares  Ferdinand-Braun-Platz 1, 40549, Duesseldorf, Germany Bluefish Communications GmbH 100.00 Ordinary shares  Vodafone Erste Beteiligungsgesellschaft mbH 100.00 Ordinary shares  360 Connect S.A. 99.87 Ordinary shares  Hong Kong 2207-08, 22/F, St. George’s Building, No. 2 Ice House Street, Central, Hong Kong Vodafone Global Enterprise (Hong Kong) Limited 100.00 Ordinary shares  35th Floor, Bank of China Tower, 1 Garden Road, Central Hong Kong, Hong Kong Vodafone GmbH 100.00 Ordinary A shares  Vodafone Group Services GmbH 100.00 Ordinary shares  Vodafone China Limited (Hong Kong)1 100.00 Ordinary shares  Vodafone Institut für Gesellschaft und Kommunikation GmbH Vodafone Stiftung Deutschland Gemeinnutzige GmbH7 100.00 Ordinary shares  Level 24, Dorset House, Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong 76.70 Ordinary shares  Vodafone Enterprise Global Network HK Ltd 100.00 Ordinary shares  Vodafone Vierte Verwaltungs AG 100.00 Ordinary shares  Vodafone Enterprise Hong Kong Ltd 100.00 Ordinary shares  Vouchercloud GmbH 82.89 Ordinary shares  Friedrich-Wilhelm-Strasse 2, 38100, Braunschweig, Germany Hungary 40-44 Hungaria Krt. Budapest, H-1087, Hungary 76.70 Ordinary shares  VSSB Vodafone Shared Services Budapest Private Limited Company 100.00 Registered ordinary shares  KABELCOM Braunschweig Gesellschaft Fur Breitbandkabel- Kommunikation Mit Beschrankter Haftung7 Landsberger Strasse 155, 80687 Munich, Germany Vodafone Enterprise Germany GmbH 100.00 Ordinary shares, Ordinary #2 shares  India 127, Maker Chamber III, Nariman Point, Mumbai, Maharashtra, 400021, India Ag Mercantile Company Private Limited Jaykay Finholding (India) Private Limited Nadal Trading Company Private Limited Omega Telecom Holdings Private Limited Plustech Mercantile Company Private Limited SMMS Investments Pvt Limited Telecom Investments India Private Limited 100.00 Equity shares  100.00 Equity shares  100.00 Equity shares  100.00 Equity shares  100.00 Equity shares  100.00 100.00 Equity shares  Equity shares  8th Floor, RDB Boulevard, Plot K-1, Block- EP & GP, Sector - V, Saltlake City, Kolkata, West Bengal, 700091, India UMT Investments Limited Usha Martin Telematics Limited 100.00 100.00 Equity shares  Equity shares  C-48, Okhla Industrial Estate, Phase - II, New Delhi, 110 020, India Vodafone Mobile Services Limited Vodafone Towers Limited 100.00 100.00 Equity shares  Equity shares  First Floor, Annexe Building, 30,Nizamuddin East, New Delhi, 110013, India MV Healthcare Services Private Limited ND Callus Info Services Private Limited 100.00 Equity shares  100.00 Equity shares  Scorpios Beverages Pvt. Ltd 100.00 Equity shares  Flat No.6, 3rd Floor, Plot No. 22, Dsk, Nishigandh, Opp. Joshi Sweets, Erandwane, Pune- 411038 India Peninsula Corporate Park, Ganpatrao Kadam Marg, Lower Parel, Mumbai, Maharashtra, 400013, India Vodafone India Limited Vodafone m-pesa Limited Vodafone Technology Solutions Limited Mobile Commerce Solutions Limited 100.00 100.00 100.00 Equity shares  Equity shares  Equity shares  100.00 Equity shares  Unit 1A & 1B Creator ITPL Whitefield Road Bangalore KA 56006 Cable & Wireless Global (India) Private Limited 100.00 Ordinary shares  Skyline Ikon, 1st Floor, 86/92, Andheri Kurla Road, Marol Naka, Andheri East, Mumbai, Maharashtra, 400059, India Connect (India) Mobile Technologies Private Limited 100.00 Equity shares  Unit 2B, Creator, Itpl, Whitefield Road, Bangalore, Bangalore, Karnataka, 560066, India Cable & Wireless Networks India Private Limited 74.00 Equity shares  Vodafone House, Corporate Road, Prahladnagar, Off S. G. Highway, Ahmedabad, Gujarat, 380051, India Vodafone Business Services Limited Vodafone India Services Private Limited 100.00 Equity shares  100.00 Ordinary shares  99.87 Ordinary shares  Vodafone Global Services Private Limited 100.00 Equity shares  Zelitron S.A. 99.87 Ordinary shares  Vodafone Foundation 100.00 Equity shares  6 Lechner Ödön fasor, Budapest, 1096, Hungary TESCO MBL Telecommunications Company Limited by Shares9 Vodafone Magyarorszag Mobile Tavkozlesi Zartkoruen Mukodo Reszvenytarsasag2 100.00 Ordinary shares  100.00 Series A registered common shares  155 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Notes to the consolidated financial statements (continued) 33. Related undertakings (continued) Company name % held by Group companies Share class Company name % held by Group companies Share class Company name % held by Group companies Share class Ireland 27 Lower Fitzwilliam Street, Dublin 2, Ireland Siro Limited 50.00 Ordinary shares  Mountainview, Leopardstown, Dublin 18, Ireland Japan 5-2-32 Minami-azabu, Minato-ku, Tokyo, 106-0047, Japan Vodafone Global Enterprise (Japan) K.K. 100.00 Ordinary shares  Vodafone Ireland Marketing Limited 100.00 Ordinary shares  KAKiYa building, 9F, 2-7-17 Shin-Yokohama, Kohoku-ku, Yokoha- City, Kanagawa, 222-0033, Japan Cable & Wireless (Ireland) Limited 100.00 Ordinary shares  Cable & Wireless GN Limited 100.00 Ordinary shares  Vodafone Ireland Property Holdings Limited Cable & Wireless Services (Ireland) Limited Energis Communications (Ireland) Limited8 100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  Person To Person Limited 100.00 Ordinary shares  Vodafone Japan K.K 100.00 Ordinary shares  1-1-1 Uchisaiwai cho, Chiyoda-ku, Tokyo 111-0011 Japan Cable & Wireless U.K. - Japan Branch 100.00 Branch Multi Risk Benefits Limited Kenya 3rd Floor, The Rahimtulla Towers, Upper Hill Road, Nairobi, Kenya Vodacom Business (Kenya) Limited3 52.00 Ordinary shares and ordinary B shares Multi Risk Indemnity Company Limited Multi Risk Limited Malaysia Level 18, The Gardens North Tower, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur, Malaysia Vodafone Global Enterprise (Malaysia) Sdn Bhd 100.00 Ordinary shares  Malta SkyParks Business Centre, Malta International Airport, Luqa, LQA 4000, Malta Vodafone Malta Limited 100.00 Ordinary shares  Stentor Limited Talk To Me Limited Vodafone Enterprise Global Limited 100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  6th Floor, ABC Towers, ABC Place, Waiyaki Way, Nairobi, 00100, Kenya M-PESA Holding Co. Limited 100.00 Ordinary shares  Mauritius DTOS Ltd 10th Floor, Raffles Tower, 19, Cybercity, Ebene, Mauritius Vodafone Global Network Limited 100.00 Ordinary shares  Vodafone Ireland Distribution Limited 100.00 Ordinary shares  8th floor, Lonrho House, Standard Street, Nairobi, LR No 209/, Kenya Vodafone Kenya Limited 100.00 Ordinary voting shares  Mobile Wallet VM13 Vodacom International Limited3 M-PESA Foundation 100.00 N/A Mobile Wallet VM23 100.00 Ordinary shares  Array Holdings Limited 100.00 Ordinary shares  Vodafone Ireland Limited 100.00 Ordinary shares  Vodafone Ireland Retail Limited 100.00 Ordinary shares  Vodafone Ireland Sales Limited 100.00 Ordinary shares  Western Cellular Limited 100.00 Ordinary shares  Interfusion Networks Limited 100.00 Ordinary shares  Complete Network Technology Limited Vodafone Group Services Ireland Limited 100.00 Ordinary shares  100.00 Ordinary shares  Korea, Republic of 3rd Floor, 54 Gongse-ro, Gieheung-gu, Yongin-si, Gyeonggi-do, Korea, Republic of Vodafone Automotive Korea Limited Seocho-dong, Gangnam Building, 16th Floor, 396, Seocho-daero, Seocho-gu, Seoul VGE South Korea Limited 100.00 Ordinary shares Italy SS 33 del Sempione KM 35, 212, 21052 Busto Arsizio (VA), Italy Lesotho Block B, Level 7, Development House, Kingsway Road, Maseru, Lesotho Vodafone Automotive Italia S.p.A 100.00 Ordinary shares  Vodacom Lesotho (Pty) Limited3 52.00 Ordinary shares  Via Astico 41, 21100 Varese, Italy Vodafone Automotive Electronic Systems S.r.L 100.00 Ordinary shares  Luxembourg 15 rue Edward Steichen, Luxembourg, 2540, Luxembourg Vodafone Automotive SpA 100.00 Ordinary shares  Via Battistotti Sassi 11, 20133, Milano, Italy Vodafone Enterprise Italy S.r.L 100.00 Euro shares  Vodafone Asset Management Services S.à r.l. Vodafone Enterprise Global Businesses S.à r.l. 100.00 Ordinary shares  100.00 Ordinary shares  Via Lorenteggio 240, 20147, Milan, Italy Vodafone International 1 S.à r.l. 100.00 Ordinary shares  Vodafone Gestioni S.p.A. 100.00 Ordinary shares  Vodafone International M S.à r.l. 100.00 Ordinary shares  VBA (Mauritius) Limited3 Fifth Floor, Ebene Esplanade, 24 Cybercity, Ebene, Mauritius Al-Amin Investments Limited 100.00 Ordinary shares  Asian Telecommunication Investments (Mauritius) Limited 100.00 Ordinary shares  CCII (Mauritius), Inc. 100.00 Ordinary shares  CGP India Investments Ltd. 100.00 Ordinary shares  Euro Pacific Securities Ltd. 100.00 Ordinary shares  Mobilvest Prime Metals Ltd. Trans Crystal Ltd. 100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  Vodafone Mauritius Ltd. 100.00 Ordinary shares  Vodafone Telecommunications (India) Limited Vodafone Tele-Services (India) Holdings Limited 100.00 Ordinary shares  100.00 Ordinary shares  Mexico Ejercito Nacional 904, Piso 12, Polanco Los Morales, Miguel Hidalgo, C.P, 11510 MEXICO D.F, Mexico Vodafone Servizi E Tecnologie S.R.L. 100.00 Equity shares  Viale Bianca Maria 23, 20122, Milan, Italy Vodafone Investments Luxembourg S.à r.l. 100.00 Ordinary shares  Vodafone Empresa México S.de R.L. de C.V. 100.00 100.00 Ordinary A shares, ordinary B shares   100.00 A shares, B shares, ordinary A shares 100.00 Ordinary A shares, ordinary B shares  65.00 Ordinary shares  65.00 Ordinary shares, non cumulative preference shares  65.00 Ordinary shares  65.00 Ordinary shares  Corporate certificate series A shares, corporate certificate series B shares  Morocco 129 Rue du Prince Moulay, Abdellah, Casablanca, Morocco Vodafone Maroc SARL 79.75 Ordinary shares  Vodafone Global Enterprise (Italy) S.R.L. 100.00 Ordinary shares  Vodafone Luxembourg 5 S.à r.l. 100.00 Ordinary shares  Vodafone Luxembourg S.à r.l. 100.00 Ordinary shares  Via Jervis 13, 10015, Ivrea, Tourin, Italy Vodafone Payment Solutions S.à r.l. 100.00 Ordinary shares  Vodafone Italia S.p.A. 100.00 Ordinary shares  Vodafone Procurement Company S.à r.l. 100.00 Ordinary shares  Vodafone Roaming Services S.à r.l. 100.00 Ordinary shares  Vodafone Enterprise Luxembourg S.A. 100.00 Ordinary shares  156 Vodafone Group Plc Annual Report 2016Company name % held by Group companies Share class Company name % held by Group companies Share class Company name % held by Group companies Share class Mozambique Rua dos Desportistas, Numero 649, Cidade de Maputo, Mozambique VM, SA3 55.25 Ordinary shares and redeemable preference shares  Qatar P.O. Box 27727, Doha, Qatar Vodafone And Qatar Foundation L.L.C 51.00 Ordinary shares  Vodafone Qatar Q.S.C.4 22.95 Ordinary shares  Netherlands Avenue Ceramique 300, 6221 KX, Maastricht, Netherlands Vodafone Libertel B.V. 100.00 Ordinary shares  Klipperaak 2 D, 2411 ND, Bodegraven, Netherlands Romania 15 Charles de Gaulle Square, 10 floor, Bucharest, District 1, Romania Vodafone Shared Services Romania SRL 100.00 Ordinary shares  Wiericke B.V. 100.00 Ordinary shares  Kronenburgplantsoen 10, 3401 BP, Ijsselstein, Netherlands mITE Systems B.V. 100.00 Ordinary shares  Oraş Voluntari, Şoseaua Pipera, Tunari, Nr. 2/II, Etaj 3, Ilfov, Oras Voluntari, Romania Vodafone România Technologies SRL 100.00 Ordinary shares  Rivium Quadrant 173, 15th Floor, 2909 LC, Capelle Aan Den Ijssel, Netherlands Oraş Voluntari, Şoseaua Pipera, Tunari, Nr. 2/II, Etaj 5, Judet Ilfov, Romania Cable & Wireless Aspac BV 100.00 Ordinary shares  European Networks B.V. 100.00 Ordinary shares  Vodafone România M - Payments SRL 52.32 Ordinary shares  Vodafone Enterprise Netherlands BV 100.00 Ordinary shares  Sector 1, 15 Charles de Gaulle Piata, Bucharest, Romania Vodafone Europe B.V. 100.00 Ordinary shares  Vodafone Romania S.A 100.00 Vodafone International Holdings B.V. 100.00 Ordinary shares  Vodafone Panafon International Holdings B.V. 100.00 Ordinary shares  XM Mobile B.V. 100.00 Ordinary shares  Russian Federation Chayanova ulitsa 14/10, stroenye 2, 125047 Moscow, Russia Cable & Wireless Internet Service Provider B.V. 100.00 Ordinary shares Cable & Wireless CIS Svyaz LLC 100.00 Charter Capital shares  New Zealand Level 1, 20 Viaduct Harbour Avenue, Auckland, 1010, New Zealand Sadovnicheskaya st. 82, bld.2, 115035, Moscow, Russian Federation Vodafone Global Enterprise Russia LLC 100.00 Equity shares  Vodafone Mobile NZ Limited 100.00 Ordinary shares  Vodafone New Zealand Foundation Limited 100.00 Ordinary shares  Seychelles F20, 1st Floor, Eden Plaza, Eden Island, Seychelles Vodafone New Zealand Limited 100.00 Ordinary shares  Cavalry Holdings Ltd3 31.85 Ordinary A and Ordinary B shares Nominactive shares, Ordinary shares  Vodafone Next Generation Services Limited 100.00 Ordinary shares  Level 1, Building C, 14-22 Triton Drive, Albany, New Zealand TNAS Limited 50.00 Ordinary shares  Nigeria 3A Aja Nwachukwu Close, Ikoyi, Lagos, Nigeria Spar Aerospace (Nigeria) Limited3 65.00 Ordinary shares East Africa Investment (Mauritius) Limited3 31.85 Ordinary A and Ordinary B shares Sierra Leone 12 White Street, Brookfield, Off Railway Line, Freetown, Sierra Leone VBA International (SL) Limited3 65.00 Ordinary shares Vodacom Business Africa (Nigeria) Limited3 65.00 Ordinary shares and preference shares Singapore Asia Square Tower 2, 12 Marina View, #17-01, Singapore, 018961, Singapore ICT Lawyers & Consultants, 2nd Floor, Oakland Center, Plot 2940, Aguyi Ironi Street, Maitama, Abuja, Nigeria C&W Worldwide Nigeria Limited 100.00 Ordinary shares  Norway Sørkedalsveien 6 in Oslo, post address is PB. Box. 7000, Majorstuen, 0306 Oslo Vodafone Enterprise Norway AS 100.00 Ordinary shares Bluefish Apac Communications Pte. Ltd Vodafone Enterprise Global Network Pte. Ltd. Vodafone Enterprise Regional Business Singapore Pte.Ltd. Vodafone Enterprise Singapore Pte.Ltd 100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  Portugal Av. D. Joao II, Lote 1.04.01, 8 Piso, Parques Das Nacoes, 1990-093 Lisboa, Portugal Oni Way – Infocomunicacoes, S.A 100.00 Ordinary shares  Vodafone Portugal – Comunicacoes Pessoais, S.A.1 100.00 Ordinary shares  Av. da República, 50 - 10º, 1069-211, Lisboa, Portugal Vodafone Enterprise Spain, S.L.U. – Portugal Branch 100.00 Branch Slovakia Namestie, SNP15, Bratislava, 811 06, Slovakia Vodafone Global Network Limited – Slovakia Branch 100.00 Branch South Africa 15 Burnside Island, 410 Jan Smuts Avenue, Craighall, 2024, South Africa XLink Communications (Proprietary) Limited3 73.23 Ordinary A shares 319 Frere Road, Glenwood, 4001, South Africa Cable and Wireless Worldwide South Africa (Pty) Ltd 65.00 Ordinary shares  76 Maude Street, Sandton, Johannesberg, 2196, South Africa Waterberg Lodge (Proprietary) Limited3 65.00 Ordinary shares  9 Kinross Street, Germiston South, 1401, South Africa Vodafone Holdings (SA) Proprietary Limited 100.00 Ordinary shares  9 Kinross Street, PO Box 4119, Germiston South, 1411, Germiston South, 1401, South Africa Vodafone Investments (SA) Proprietary Limited 100.00 Ordinary A shares, “B” ordinary no par value shares  Vodacom Corporate Park, 082 Vodacom Boulevard, Midrand, 1685, South Africa GS Telecom (Pty) Limited3 65.00 Ordinary shares  Motifpros 1 (Proprietary) Limited3 60.94 Ordinary shares  Scarlet Ibis Investments 23 (Pty) Limited3 Vodacom (Pty) Limited3 Vodacom Business Africa Group (Pty) Limited3 Vodacom Financial Services (Proprietary) Limited3 Vodacom Group Limited3 Vodacom Insurance Administration Company (Proprietary) Limited3 Vodacom Insurance Company(RF) Limited3 Vodacom International Holdings (Pty) Limited3 Vodacom Life Assurance Company (RF) Limited3 Vodacom Payment Services (Proprietary) Limited3 Vodacom Properties No 1 (Proprietary) Limited3 Vodacom Properties No.2 (Pty) Limited3 Wheatfields Investments 276 (Proprietary) Limited3 Wheatfields Investments No 261 (Proprietary) Limited3 60.94 Ordinary shares  60.94 Ordinary shares  65.00 Ordinary shares  60.94 Ordinary shares  65.00 Ordinary shares  60.94 Ordinary shares  65.00 Ordinary shares  65.00 Ordinary shares  60.94 Ordinary shares  60.94 Ordinary shares  60.94 Ordinary shares  60.94 Ordinary shares  65.00 Ordinary shares  65.00 Ordinary shares  Jupicol (Proprietary) Limited3 42.65 Ordinary shares  Mezzanine Ware Proprietary Limited (RF)3 Storage Technology Services (Pty) Limited3 45.07 Ordinary shares  31.00 Ordinary shares  157 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Notes to the consolidated financial statements (continued) 33. Related undertakings (continued) Company name % held by Group companies Share class Company name % held by Group companies Share class Company name % held by Group companies Share class Spain Antracita, 7 – 28045, Madrid CIF B-91204453, Spain Vodafone Automotive Espana S.L 100.00 Ordinary shares  Avenida de América 115, 28042, Madrid, Spain Grupo Corporativo ONO, S.A.U. 100.00 Ordinary shares  Vodafone Espana S.A.U. 100.00 Ordinary shares  Vodafone Holdings Europe S.L.U. 100.00 Ordinary shares  Vodafone ONO, S.A.U. 100.00 Ordinary A shares  Vodafone Enabler España, S.L. 100.00 Ordinary shares  Vodafone Enterprise Spain SLU 100.00 Ordinary shares  Ctra. Zaragoza, Km. 3, 31191, Cordovilla, Navarra, Spain Tenaria, S.A.U. 100.00 Ordinary shares  Sweden c/o Hellström advokatbyrå, Box 7305, 103 90, Stockholm, Sweden Vodafone Enterprise Sweden AB 100.00 Ordinary shares  Switzerland BDO Ltd, Fabrikstrasse 50, CH-8031, Zurich, Switzerland Vodafone Enterprise Switzerland AG 100.00 Ordinary shares  Via Franscini 10, 6850 Mendrisio, Switzerland Vodafone Automotive Telematics S.A 100.00 Ordinary shares  Taiwan 13F, No. 156, Sec. 3, Minsheng E. Rd., Songshan District, Taipei City 10596, Taiwan (R.O.C.) United Kingdom 1-2 Berkeley Square, 99 Berkeley Street, Glasgow, G3 7HR, Scotland Thus Group Holdings Limited 100.00 Ordinary shares Thus Profit Sharing Trustees Limited 100.00 Ordinary shares Thus Group Limited 100.00 Ordinary shares  5th Floor Legal Department, Group Corporate Secretariat, 1 Kingdom Street, Paddington, London, England, W26BY, United Kingdom Cable & Wireless Worldwide Pension Trustee Limited 100.00 Ordinary shares  90 Long Acre, London, WC2E 9NP, England Apollo Submarine Cable System Limited 100.00 Ordinary shares  Avon House, Horizon West, Canal View Road, Newbury, Berkshire, RG15 5XF, United Kingdom Talkmobile Limited 100.00 Ordinary shares  Crossgate House, Cross Street, Sale, Cheshire, M33 7FT, United Kingdom Vodafone Automotive UK Limited 100.00 Ordinary shares  Imperial House, 4–10 Donegall Square East, Belfast, BT1 5HD Vodafone (NI) Limited 100.00 Ordinary shares  Leven House, 10 Lochside Place, Edinburgh Park, Edinburgh, Scotland, EH12 9RG, United Kingdom Cable & Wireless a-Services Limited 100.00 Ordinary shares  Cable & Wireless Aspac Holdings Limited 100.00 Ordinary shares  Cable & Wireless Capital Limited 100.00 Ordinary shares  Cable & Wireless CIS Services Limited 100.00 Ordinary shares  Cable & Wireless Communications Data Network Services Limited 100.00 ‘A’ Ordinary shares, ‘B’ Ordinary shares  Cable & Wireless Communications Starclass Limited Cable & Wireless Europe Holdings Limited Cable & Wireless Global Business Services Limited Cable & Wireless Global Holding Limited Cable & Wireless Global Telecommunication Services Limited 100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  Cable & Wireless Holdco Limited 100.00 Ordinary shares  Cable & Wireless U.K. Cable & Wireless UK Holdings Limited Cable & Wireless UK Services Limited Cable & Wireless Waterside Holdings Limited 100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  Pinnacle Cellular Group Limited 100.00 Ordinary shares  Cable & Wireless Worldwide plc 100.00 Ordinary shares  Vodafone Global Enterprise Taiwan Limited 100.00 Ordinary shares Vodafone (Scotland) Limited 100.00 Ordinary shares  Woodend Cellular Limited 100.00 Ordinary shares  Pinnacle Cellular Limited 100.00 Ordinary shares  Cable & Wireless Worldwide Services Limited Cable & Wireless Worldwide Voice Messaging Limited 100.00 Ordinary shares  100.00 Ordinary shares  Tanzania, United Republic of 3rd Floor, Maktaba (Library), ComplexBibi, Titi Mohaned Road, Dar es Salaam, Tanzania, United Republic of Woodend Communications Limited 100.00 Ordinary shares  Cable and Wireless (India) Limited 100.00 Ordinary shares  Woodend Group Limited 100.00 Ordinary shares  Woodend Holdings Limited 100.00 Ordinary shares  Cable and Wireless Nominee Limited 100.00 Ordinary shares  Gateway Communications Tanzania Limited3 65.00 Ordinary shares  Quarry Corner, Dundonald, Belfast, BT16 1UD, Northern Ireland Cellops Limited 100.00 Ordinary shares  Cellular Operations Limited 100.00 Ordinary shares  Mlimani City Office Park, Mlimani City, Sam Nujoma Road, Dar es Salaam, Tanzania, United Republic of Energis (Ireland) Limited 100.00 A Ordinary shares, B Ordinary shares  Central Communications Group Limited 100.00 Ordinary shares, Ordinary A shares  Vodacom Tanzania Limited3 53.40 Ordinary shares  Vodacom Tanzania Limited Zanzibar3 53.40 Ordinary shares  Plot No 77, Kipawa industrial area, P. O. Box 40985, Dar es Salaam, Tanzania Mirambo Limited3 31.85 Ordinary shares Turkey Büyükdere Cad. No:251 Maslak, Şişli, İstanbul, Turkey, 34398, Turkey Vodafone Holding A.S. 100.00 Registered shares  Vodafone Dagitim Hizmetleri A.S. 100.00 Registered shares  Vodafone Net İletişim Hizmetleri A.Ş. 100.00 Ordinary shares  Vodafone Elektronik Para Ve Ödeme Hizmetleri A.Ş. 100.00 Registered shares  Vodafone Telekomunikasyon A.S 100.00 Registered shares  Vodafone Bilgi Ve Iletisim Hizmetleri AS 100.00 Registered shares  İTÜ Ayazağa Kampüsü, Koru Yolu, Arı Teknokent Arı 3 Binası, Maslak, İstanbul, 586553, Turkey Vodafone Teknoloji Hizmetleri A.S. 100.00 Registered shares  Ukraine 01033, Kyiv, Haydar Street 50, Ukraine LLC Vodafone Enterprise Ukraine 100.00 Ordinary shares  United Arab Emirates Premises 2120, Floor 21, Building AL Shatha Tower, Dubai, United Arab Emirates Vodafone Enterprise Europe (UK) Limited – DUBAI BRANCH 100.00 Branch Shuttleworh House, 21 Bridgewater Close, Network 65 Business Park, Hapton, Burnley, Lancashire, England, BB11 5TE, United Kingdom Navtrak Ltd 100.00 Ordinary shares  Staple Court, 11 Staple Inn Building, London, WC1V 7QH, United Kingdom Vodacom Business Africa Group Services Limited3 Vodacom UK Limited3 65.00 Ordinary shares and preference shares 65.00 Ordinary shares, ordinary A shares  Vodafone House, The Connection, Newbury, Berkshire, RG14 2FN, United Kingdom Central Telecom (Northern) Limited 100.00 Ordinary shares  Chelys Limited 100.00 Ordinary shares  City Cable (Holdings) Limited 100.00 Ordinary shares  CT Networks Limited 100.00 Ordinary shares  CWW Operations Limited 100.00 Ordinary shares  Dataroam Limited Digital Island (UK) Ltd Emtel Europe Limited 100.00 Ordinary shares, Ordinary A shares  100.00 Ordinary shares  100.00 Ordinary shares  Energis Communications Limited 100.00 Ordinary shares  AAA (Euro) Limited AAA (MCR) Limited AAA (UK) Limited 100.00 Ordinary shares  Energis Holdings Limited 100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  Energis Local Access Limited 100.00 Ordinary shares  Energis Management Limited 100.00 Ordinary shares  Acorn Communications Limited 100.00 Ordinary shares  Energis Squared Limited 100.00 Ordinary shares  Aspective Limited 100.00 Ordinary shares, A preference shares, B preference shares and C preference shares  Erudite Systems Limited 100.00 Ordinary shares  Eurocall Holdings Limited 100.00 Ordinary shares  Flexphone Limited 100.00 Ordinary shares  FM Associates (UK) Limited 100.00 Ordinary shares  Astec Communications Limited 100.00 Ordinary shares  Bluefish Communications Limited 100.00 Ordinary B shares, ordinary A shares, ordinary C shares, ordinary D shares  General Mobile Corporation Limited 100.00 Ordinary shares  Generation Telecom Limited 100.00 Ordinary shares  Global Cellular Rental Limited 50.00 Ordinary shares  Business Serve Limited C.S.P. Solutions Limited 100.00 Ordinary shares  How2 Telecom Limited 100.00 Ordinary shares  100.00 Ordinary shares  Intercell Communications Limited 100.00 Ordinary shares  Cable & Wireless Access Limited 100.00 Ordinary-A shares, ordinary-B shares, series A convertible preference shares  Intercell Limited 100.00 Ordinary shares  Internet Network Services Limited 100.00 Ordinary shares  Invitation Digital Limited 82.89 Ordinary shares, series A preferred shares  158 Vodafone Group Plc Annual Report 2016Company name % held by Group companies Share class Company name % held by Group companies Share class Company name % held by Group companies Share class P.C.P. (North West) Limited 100.00 Ordinary shares  Vodafone Financial Operations 100.00 Ordinary shares  United Kingdom (continued) Vodafone House, The Connection, Newbury, Berkshire, RG14 2FN, United Kingdom Isis Telecommunications Management Limited 100.00 A ordinary shares, C ordinary shares, B ordinary shares  Jaguar Communications Limited 100.00 Ordinary shares  Legend Communications Plc 100.00 Ordinary shares  London Hydraulic Power Company 100.00 Ordinary shares, 5% non-cumulative preference shares  MetroHoldings Limited 100.00 Ordinary shares  ML Integration Group Limited 100.00 Ordinary shares  ML Integration Limited 100.00 Ordinary shares  ML Integration Services Limited 100.00 Ordinary shares  Mobile Phone Centre Limited 100.00 Ordinary shares  Mobiles 4 Business.com Limited 100.00 Ordinary shares  Nat Comm Air Limited Netforce Group Public Limited Company Oxygen Solutions Limited 100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares, redeemable preference shares, participating preference shares  Peoples Phone Limited 100.00 Ordinary shares  Project Telecom Holdings Limited1 100.00 Ordinary shares  PT Network Services Limited 100.00 Ordinary shares  PTI Telecom Limited 100.00 Ordinary shares  Quickcomm UK Limited 100.00 Ordinary shares  Rian Mobile Limited 100.00 Ordinary shares  Singlepoint (4U) Limited 100.00 Ordinary shares  Singlepoint Payment Services Limited 100.00 Ordinary shares  Stentor Communications Limited 100.00 Ordinary shares  T.W. Telecom Limited 100.00 Ordinary shares  T3 Telecommunications Limited 100.00 Ordinary shares  Talkland Communications Limited 100.00 Ordinary shares  Talkland International Limited 100.00 Ordinary shares  Talkland Midlands Limited 100.00 Ordinary shares  Telecommunications Europe Limited Ternhill Communications Limited The Eastern Leasing Company Limited 100.00 Ordinary shares  100.00 Ordinary shares, non C redeemable preference shares  100.00 Ordinary shares  The Old Telecom Sales Co. Limited 100.00 Ordinary shares  Thus Limited 100.00 Ordinary shares  Townley Communications Limited 100.00 Ordinary shares  Uniqueair Limited Vizzavi Limited Voda Limited Vodacall Limited1 Vodafone (New Zealand) Hedging Limited Vodafone 2. Vodafone 4 UK Vodafone 5 Limited Vodafone 5 UK Vodafone 6 UK Vodafone Americas 4 Vodafone Benelux Limited Vodafone Business Services Limited Vodafone Business Solutions Limited 100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  100.00 Preference shares, ordinary shares  100.00 Ordinary shares 100.00 Ordinary shares  Vodafone Cellular Limited1 100.00 Ordinary shares  Vodafone Central Services Limited 100.00 Ordinary shares  Vodafone Connect 2 Limited 100.00 Ordinary shares  Vodafone Panafon UK 100.00 Ordinary shares  Vodafone Connect Limited 100.00 Ordinary shares  Vodafone Partner Services Limited 100.00 Ordinary shares  Vodafone Consolidated Holdings Limited 100.00 Ordinary shares  Vodafone Property Investments Limited 100.00 Ordinary shares  Vodafone Corporate Limited 100.00 Ordinary shares  Vodafone Retail (Holdings) Limited 100.00 Ordinary shares  Vodafone Corporate Secretaries Limited1 Vodafone DC Pension Trustee Company Limited1 Vodafone Distribution Holdings Limited Vodafone Enterprise Equipment Limited Vodafone Enterprise Europe (UK) Limited 100.00 Ordinary shares  Vodafone Retail Limited 100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  Vodafone Sales & Services Limited 100.00 Ordinary shares  Vodafone Satellite Services Limited 100.00 Ordinary shares  Vodafone Specialist Communications Limited Vodafone UK Content Services Limited 100.00 Ordinary shares  100.00 Ordinary shares  Vodafone UK Investments Limited 100.00 Ordinary shares  Vodafone UK Limited1 100.00 Ordinary shares  Vodafone Euro Hedging Limited 100.00 Ordinary shares  Vodafone Ventures Limited1 100.00 Ordinary shares  Vodafone Euro Hedging Two 100.00 Ordinary shares  Vodafone Europe UK 100.00 Ordinary shares  Vodafone European Investments1 100.00 Ordinary shares  Vodafone European Portal Limited1 100.00 Ordinary shares  Vodafone Finance Limited1 100.00 Ordinary shares  Vodafone Finance Luxembourg Limited 100.00 Ordinary shares  Vodafone Finance Sweden 100.00 Ordinary shares  Vodafone Finance UK Limited 100.00 Ordinary shares  Vodafone Global Content Services Limited 100.00 Ordinary shares  100.00 Ordinary shares  Vodafone Worldwide Holdings Limited 100.00 Ordinary shares  Vodafone Yen Finance Limited 100.00 Ordinary shares  Vodafone-Central Limited 100.00 Ordinary shares  Vodaphone Limited Vodata Limited Your Communications Group Limited 100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  c/o BDO MPR Management Limited, PO Box 119, Martello Court, Admiral park, St Peter Port, Guernsey FB Holdings Limited 100.00 Ordinary shares  Ogier House, St Julian’s Avenue, St Peter Port, Guernsey, GY1 1WA, Guernsey Silver Stream Investments Limited 100.00 Ordinary shares  100.00 Ordinary shares  P.O. Box 119, Commerce House, St Peter Port, Guernsey, Channel Islands, GY1 3HB Vodafone Global Enterprise Limited Vodafone Group (Directors) Trustee Limited1 Vodafone Group Pension Trustee Limited1 Vodafone Group Services Limited Vodafone Group Services No.2 Limited1 Vodafone Group Share Trustee Limited1 Vodafone Holdings Luxembourg Limited Vodafone Intermediate Enterprises Limited Vodafone International Holdings Limited Vodafone International Operations Limited 100.00 Ordinary shares  100.00 Ordinary shares, deferred shares  100.00 Ordinary shares  Le Bunt Holdings Limited 100.00 Ordinary shares  Roseneath, The Grange, St Peter Port, GY1 2QJ, Guernsey VBA Holdings Limited3 65.00 100.00 Ordinary shares  VBA International Limited3 65.00 100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  Aztec Limited Globe Limited 100.00 Ordinary shares  Plex Limited Ogier House, The Esplanade, St. Helier, JE4 9WG, Jersey Ordinary shares And non-voting irredeemable non-cumulative preference Ordinary shares And non-voting irredeemable non-convertible non-cumulative Preference 100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  Vodafone Investment UK 100.00 Ordinary shares  Vodafone Investments Australia Limited 100.00 Ordinary shares  Vizzavi Finance Limited 100.00 Ordinary shares  Vodafone Holdings (Jersey) Limited 100.00 Ordinary shares  Vodafone International 2 Limited 100.00 Ordinary shares  Vodafone Investments Limited1 100.00 Ordinary shares  Vodafone IP Licensing Limited1 100.00 Ordinary shares  Vodafone Jersey Dollar Holdings Limited 100.00 Ordinary shares  Vodafone Leasing Limited 100.00 Ordinary shares  Vodafone Jersey Finance 100.00 Ordinary shares  Vodafone Limited Vodafone M.C. Mobile Services Limited 100.00 Ordinary shares  100.00 Ordinary shares  Vodafone Jersey Yen Holdings Unlimited 100.00 Limited liability shares  Vodafone Marketing UK 100.00 Ordinary shares  Vodafone Mobile Commerce Limited Vodafone Mobile Communications Limited Vodafone Mobile Enterprises Limited Vodafone Mobile Network Limited 100.00 Ordinary shares  100.00 Ordinary shares  100.00 A ordinary shares, ordinary shares,   100.00 A ordinary shares, ordinary shares  Vodafone Multimedia Limited 100.00 Ordinary shares  Vodafone Nominees Limited1 100.00 Ordinary shares  Vodafone Oceania Limited 100.00 Ordinary shares  Vodafone Old Show Ground Site Management Limited Vodafone Overseas Finance Limited Vodafone Overseas Holdings Limited 100.00 Ordinary shares  100.00 Ordinary shares  100.00 Ordinary shares  159 Talkland Airtime Services Limited 100.00 Ordinary shares  Vodafone Hire Limited OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Notes to the consolidated financial statements (continued) 33. Related undertakings (continued) Company name % held by Group companies Share class Associated undertakings and joint arrangements Company Name % held by Group Companies Share class Company Name % held by Group Companies Share class United Kingdom 83 Baker Street, London, W1U 6AG, United Kingdom Australia Level 7, 40 Mount Street, North Sydney, NSW 2060, Australia H3ga Properties (No 3) Pty Limited 50.00 Ordinary shares Digital Mobile Spectrum Limited 25.00 Ordinary shares  260 Bath Road, Slough, Berkshire, SL1 4DX, United Kingdom Cornerstone Telecommunications Infrastructure Limited 50.00 Ordinary shares  Mobileworld Communications Pty Limited 50.00 Ordinary shares 62-65, Chandos Place, London, WC2N 4LP, United Kingdom United States 560 Lexington Avenue, 8th Floor, New York NY 10022, United States Bluefish Communications Inc. 100.00 Vodafone Americas Virginia Inc. 100.00 Vodafone US Inc. 100.00 Common stock shares  Common stock shares  Common stock shares  c/o United Corporate Services Inc., 15 North East Street, Kent County, Dover DE 19901, United States Cable & Wireless a-Services, Inc 100.00 Common shares  Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware, 19808, United States of America Cable & Wireless Americas Systems, Inc. 100.00 Common stock shares  Denver Place, South Tower, 17th Floor, 999 18th Street, Denver 80202, United States Mobileworld Operating Pty Ltd 50.00 Ordinary shares Vodafone Australia Pty Limited 50.00 Ordinary shares Vodafone Foundation Australia Pty Limited Vodafone Hutchison Australia Pty Limited Vodafone Hutchison Finance Pty Limited 50.00 Ordinary shares 50.00 Ordinary shares 50.00 Ordinary shares Vodafone Network Pty Limited 50.00 Ordinary shares Cable & Wireless Trade Mark Management Limited 50.00 Ordinary B shares  Notes: 1 Entities directly held by Vodafone Group Plc. 2 Trades as Vodafone Hungary Mobile Telecommunications Company Limited. 3 Shareholding is indirect through Vodacom Group Limited. The indirect shareholding is calculated using the 65.0% ownership interest in Vodacom. 4 The Group has rights that enable it to control the strategic and operating decisions of Vodafone Qatar Q.S.C. and Vodacom Congo (RDC) S.A.. The Group is assessing the impact of changes to company law in Qatar, which will be applicable in the financial year ending 31 March 2017, on its ability to exercise control over Vodafone Qatar Q.S.C. 5 The Group also holds two non-voting shares. 6 At 31 March 2016 the fair value of Safaricom Limited was KES 270 billion (£1,851 million) based on the closing quoted share price on the Nairobi Stock Exchange. 7 Shareholding is indirect through Vodafone Kabel Deutschland GmbH. 8 The entity was merged with its parent company Cable & Wireless Ireland Holdings Limited now re-named Vodafone Ireland Property Holdings Limited on 31 March 2016 by means of the domestic merger procedure, which involves passing all assets and liabilities of the subsidiary to its direct parent. 9 This entity is under voluntary dissolution. 10 The Group holds no shares in this entity but consolidates it by virtue of our options over shares pursuant to a Call Option Agreement dated 12 July 2013. Vodafone Americas Foundation 100.00 N/A Vodafone Pty Limited 50.00 Ordinary shares Zambia Orange Park, Plot 35185, Alick Nkhata Road, Lusaka, Zambia Africonnect (Zambia) Limited3 65.00 Ordinary shares Czech Republic U Rajské zahrady 1912/3, Praha 3, 130 00, Czech Republic COOP Mobil s.r.o. 33.33 Ordinary shares  Egypt 23 Kasr El Nil St., Cairo, Egypt, 11211 Wataneya Telecommunications S.A.E 50.00 Ordinary shares  India Bharti Crescent, 1 Nelson Mandela Road, Vasant Kunj, Phase-II, New Delhi – 110070, India Indus Towers Limited 42.00 Equity shares  Ireland 8/9 Fairview, Dublin, 3, Ireland MediaOne Limited 22.50 Ordinary Euro shares  Unit 2, 77 Furze Road, Sandyford Industrial Estate, Dublin 18, Ireland Fonua Limited 49.00 Ordinary shares  Kenya Safaricom, P O Box 46350, 00100, Nairobi, Kenya Safaricom Limited5,6 40.00 Ordinary shares  New Zealand 2nd Floor, Ferry Building, 99 Quay Street, Auckland, 1010, New Zealand TSM NZ Limited 32.50 Ordinary shares  Portugal Avenida D. João II Lote 1.03.23 Parque das Nações, 1998- 017, Lisboa, Portugal Celfocus – Solucoes Informaticas Para Telecomunicacoes S.A 45.00 Ordinary shares  Russian Federation bld. 3, 11, Promishlennaya Street, Moscow, 115516, Russian Federation Autoconnex Limited 35.00 Ordinary shares  South Africa Building 13 Ground Floor East, Thornhill, Office Park, 94 Bekker Road, Vorna Valley X67, Midrand, 1685, South Africa Number Portability Company (Proprietary) Limited3 20.00 Ordinary shares  160 Vodafone Group Plc Annual Report 2016The table below shows selected financial data in respect of subsidiaries that have non-controlling interests that are material to the Group. Summary comprehensive income information Revenue Profit/(loss) for the financial year Other comprehensive expense/(income) Total comprehensive income/(expense) Other financial information Profit/(loss) for the financial year allocated to non-controlling interests Dividends paid to non-controlling interests Summary financial position information Non-current assets Current assets Total assets Non-current liabilities Current liabilities Total assets less total liabilities Equity shareholders’ funds Non-controlling interests Total equity Statement of cash flows Net cash flow from operating activities Net cash flow from investing activities Net cash flow from financing activities Net cash flow Cash and cash equivalents brought forward Exchange (loss)/gain on cash and cash equivalents Cash and Cash Equivalents Vodacom Group Limited 2016 £m 2015 £m Vodafone Egypt Telecommunications S.A.E. 2016 £m 2015 £m 3,887 551 28 579 193 196 4,287 1,304 5,591 (1,586) (1,196) 2,809 2,337 472 2,809 1,154 (632) (584) (62) 492 (63) 367 4,341 603 (17) 586 205 229 4,844 1,405 6,249 (490) (2,478) 3,281 2,722 559 3,281 1,215 (733) (300) 182 330 (20) 492 1,202 224 – 224 101 2 1,250 690 1,940 (61) (709) 1,170 708 462 1,170 485 (235) (16) 234 311 (56) 489 1,191 156 – 156 71 2 1,357 518 1,875 (57) (729) 1,089 673 416 1,089 438 (267) (3) 168 138 5 311 Vodafone Qatar Q.S.C. 2016 £m 374 (86) – (86) (66) 16 1,237 96 1,333 (205) (189) 939 215 724 939 76 (65) (15) (4) 28 1 25 2015 £m 394 (37) – (37) (29) 11 1,301 76 1,377 (8) (339) 1,030 237 793 1,030 96 (71) (17) 8 16 4 28 The voting rights held by the Group equal the Group’s percentage shareholding as shown on pages 154 to 160. 161 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the consolidated financial statements (continued) 34. Subsidiaries exempt from audit The following UK subsidiaries will take advantage of the audit exemption set out within section 479A of the Companies Act 2006 for the year ended 31 March 2016. Name AAA (MCR) Ltd AAA (UK) Ltd Cable & Wireless Capital Limited Cable & Wireless CIS Services Limited Cable & Wireless Europe Holdings Limited Cable & Wireless Global Holding Limited Cable and Wireless Nominee Limited Cable & Wireless Worldwide plc Cable & Wireless UK Holdings Limited Cable & Wireless Waterside Holdings Limited Cellops Limited Cellular Operations Limited Erudite Systems Limited Energis Communications Limited Energis Holdings Limited Flexphone Limited Generation Telecom Limited Legend Communications Plc Oxygen Solutions Limited The Eastern Leasing Company Limited Thus Group Holdings Limited T.W. Telecom Limited Vizzavi Limited Vodafone 2 Vodafone 4 UK Vodafone 5 Limited Vodafone 5 UK Vodafone Americas 4 Vodafone Benelux Limited Vodafone Business Services Limited Vodafone Cellular Limited Vodafone Consolidated Holdings Limited Vodafone Enterprise Equipment Limited Vodafone Enterprise Europe (UK) Limited Vodafone Euro Hedging Limited Vodafone Euro Hedging Two Vodafone European Investments Registration number 2797823 2484222 6702535 2964774 4659719 3740694 3249884 7029206 3840888 6859946 3942192 3231393 3948967 2630471 3649524 4949207 4131101 3923166 2405625 1672832 SC192666 1971198 4017435 4083193 6357658 6688527 2960479 6389457 4200960 4321446 896318 5754561 1648524 3137479 3954207 4055111 3961908 Name Vodafone European Portal Limited Vodafone Europe UK Vodafone Finance Luxembourg Limited Vodafone Finance Sweden Vodafone Finance UK Limited Vodafone Financial Operations Vodafone Global Content Services Limited Vodafone Holdings Luxembourg Limited Vodafone IP Licensing Limited Vodafone Intermediate Enterprises Limited Vodafone International Holdings Limited Vodafone International Operations Limited Vodafone Investments Australia Limited Vodafone Investments Limited Vodafone Investment UK Vodafone Marketing UK Vodafone Mobile Communications Limited Vodafone Mobile Enterprises Limited Vodafone Mobile Network Limited Vodafone (New Zealand) Hedging Limited Vodafone (NI) Limited Vodafone Nominees Limited Vodafone Oceania Limited Vodafone Overseas Finance Limited Vodafone Overseas Holdings Limited Vodafone Panafon UK Vodafone Partner Services Limited Vodafone Property Investments Limited Vodafone (Scotland) Limited Vodafone UK Limited Vodafone Worldwide Holdings Limited Vodafone Yen Finance Limited Voda Limited Vodaphone Limited Vodata Limited Your Communications Group Limited Registration number 3973442 5798451 5754479 2139168 3922620 4016558 4064873 4200970 6846238 3869137 2797426 2797438 2011978 1530514 5798385 6858585 3942221 3961390 3961482 4158469 NI23033 1172051 3973427 4171115 2809758 6326918 4012582 3903420 SC170238 2227940 3294074 4373166 1847509 2373469 2502373 4171876 162 Vodafone Group Plc Annual Report 2016Other unaudited financial information Prior year operating results This section presents our operating performance for the 2015 financial year compared to the 2014 financial year, providing commentary on how the revenue and the EBITDA performance of the Group and its operating segments have developed over those years. Group1,2 Revenue Service revenue Other revenue EBITDA Adjusted operating profit Adjustments for: Restated2 Europe £m 27,687 25,588 2,099 7,894 1,733 Restated2 AMAP £m 13,382 11,934 1,448 4,086 1,802 Restated2 Other3 £m 1,257 1,073 184 (65) (28) Restated2 Eliminations £m (99) (98) (1) – – Impairment loss Restructuring costs Amortisation of acquired customer bases and brand intangible assets Other income and expense Operating loss % change Organic* (0.8) (1.6) £ 10.1 9.4 7.5 (18.6) (6.9) (24.1) 2015 £m 42,227 38,497 3,730 11,915 3,507 – (157) (1,269) (114) 1,967 2014 £m 38,346 35,190 3,156 11,084 4,310 (6,600) (355) (551) (717) (3,913) Notes: 1 2015 results reflect average foreign exchange rates of £1:€1.28, £1:INR 98.51 and £1:ZAR 17.82. (2014: £1:€1.19 and £1:US$1.59). 2 The Group has amended its reporting to reflect changes in the internal management of its Enterprise business. The primary change has been that on 1 April 2015, the Group redefined its segments to report international voice transit revenue and costs within Common Functions rather than within the results disclosed for each country and region. The results presented for the year ended 31 March 2015 and 2014 have been restated onto a comparable basis. There is no impact on total Group revenue or cost. 3 The “Other” segment primarily represents the results of the partner markets and the net result of unallocated central Group costs. Revenue Group revenue increased by 10.1% to £42.2 billion and service revenue increased 9.4% to £38.5 billion. Reported growth rates reflect the acquisitions of KDG in October 2013 and of Ono in July 2014, as well as the consolidation of Italy after we increased our ownership to 100% in February 2014. Operating loss Adjusted operating profit excludes certain income and expenses that we have identified separately to allow their effect on the results of the Group to be assessed (see page 190). The items that are included in operating profit but are excluded from adjusted operating profit are discussed below. No impairment losses were recognised in the 2015 financial year (2014: £6,600 million). Further detail is provided in note 4 to the Group’s consolidated financial statements. Restructuring costs of £157 million (2014: £355 million) were incurred to improve future business performance and reduce costs. In Europe, organic service revenue declined by 5.0%* as growing demand for 4G and data services continues to be offset by challenging competitive and macroeconomic pressures and the impact of MTR cuts. In AMAP, organic service revenue increased by 5.7%* driven by continued growth in India, Turkey, Ghana, Qatar and Egypt, partially offset by declines in Vodacom and New Zealand. EBITDA Group EBITDA rose 7.5% to £11.9 billion, with organic EBITDA down 6.9%*, mainly affected by revenue declines in Europe. The Group EBITDA margin fell 0.7 percentage points to 28.2%, or 1.8* percentage points on an organic basis. This reflects ongoing revenue declines in Europe and the growth in operating expenses as a result of Project Spring, partially offset by operating efficiencies. H2 EBITDA fell 3.6%*, with the improved trend supported by the better revenue performance and continued good cost control. Note: * All amounts in the Operating Results section 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. Refer to “Organic growth” on page 191 for further detail. 163 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Other unaudited financial information (continued) Prior year operating results (continued) Europe1 Germany £m Italy £m UK £m Spain £m Other Europe £m Eliminations £m Europe £m % change £ Organic* Year ended 31 March 2015 restated Revenue Service revenue Other revenue EBITDA Adjusted operating profit EBITDA margin Service revenue Other revenue EBITDA Adjusted operating profit EBITDA margin Year ended 31 March 2014 restated Revenue 8,384 7,746 638 2,659 530 31.7% 8,220 7,687 533 2,688 907 32.7% 4,587 4,062 525 1,535 644 33.5% 518 461 57 181 372 34.9% 6,199 5,893 306 1,345 26 21.7% 6,249 5,918 331 1,399 167 22.4% 3,614 3,320 294 782 2 21.6% 3,470 3,183 287 785 179 22.6% 4,993 4,652 341 1,573 531 31.5% 5,515 5,090 425 1,735 676 31.5% (90) (85) (5) – – (43) (40) (3) – – 27,687 25,588 2,099 7,894 1,733 28.5% 23,929 22,299 1,630 6,788 2,301 28.4% 15.7 14.7 16.3 (24.7) 0.2 0.6 (5.5) (38.5) (4.5) (5.0) (12.3) (40.6) (8.8) (8.2) (17.1) (41.9) Note: 1 The Group has amended its reporting to reflect changes in the internal management of its Enterprise business. The primary change has been that on 1 April 2015, the Group redefined its segments to report international voice transit revenue and costs within Common Functions rather than within the results disclosed for each country and region. The results presented for the year ended 31 March 2015 and 2014 have been restated onto a comparable basis. There is no impact on total Group revenue or cost. Revenue increased 15.7%. M&A activity, including KDG, Ono and the consolidation of Vodafone Italy, contributed a 26.7 percentage point positive impact, while foreign exchange movements contributed a 6.5 percentage point negative impact. On an organic basis, service revenue declined 5.0%*, driven primarily by price competition and the impact of MTR cuts. EBITDA increased 16.3%, including a 35.6 percentage point positive impact from M&A activity and a 7.0 percentage point negative impact from foreign exchange movements. On an organic basis EBITDA declined 12.3%*, reflecting the weak organic revenue trend. Revenue – Europe Service revenue Germany Italy1 UK Spain Other Europe Europe EBITDA Germany Italy1 UK Spain Other Europe Europe Organic change* % (4.5) (3.7) (10.2) (1.8) (10.9) (2.2) (5.0) (11.0) (15.3) (12.4) (29.5) (2.8) (12.3) Other activity1 pps 26.7 Foreign exchange pps (6.5) Reported change % 15.7 12.0 916.7 1.4 22.9 0.8 26.2 17.3 882.7 8.5 36.3 0.5 35.6 (7.5) (125.4) – (7.7) (7.2) (6.5) (7.4) (119.3) – (7.2) (7.0) (7.0) 0.8 781.1 (0.4) 4.3 (8.6) 14.7 (1.1) 748.1 (3.9) (0.4) (9.3) 16.3 Adjusted operating profit Europe (40.6) 20.6 (4.7) (24.7) Note: 1 “Other activity” includes the impact of M&A activity. Refer to “Organic growth” on page 191 for further detail. Germany Service revenue decreased 3.7%* excluding KDG. Q4 service revenue was down 3.5%*. Mobile service revenue fell 3.5%*, mainly as a result of price reductions in the prior year continuing to penetrate the consumer customer base. The contract customer base grew, supported by a stronger commercial performance as we look to increase our focus on direct, branded channels, falling churn and the ongoing substantial investment in network infrastructure. We increased our 4G coverage to 77% of the population and significantly improved voice coverage and reliability, as evidenced in independent tests. At the end of the period we had 5.0 million 4G customers. Fixed service revenue excluding KDG fell 4.4%*, reflecting ongoing declines in our Vodafone DSL customer base, in part from migrations to KDG cable infrastructure. The rate of decline eased during the year (H1 -5.0%*; H2 -3.8%*), with an improving rate of gross customer additions and increasing demand for high speed broadband (‘VDSL’), as well as stronger growth in carrier services. KDG maintained its strong rate of growth, contributing £1,492 million to service revenue and £676 million to EBITDA, and adding 0.4 million broadband customers (excluding migrations from Vodafone DSL) during the year. The integration of KDG has continued, including the launch of a combined fixed/mobile proposition in H2. EBITDA declined 11.0%*, with a 3.0* percentage point decline in EBITDA margin, driven by lower service revenue and a higher level of customer investment year-on-year, partially compensated by a year-on-year reduction in operating expenses. 164 Vodafone Group Plc Annual Report 2016Fixed service revenue rose 7.8%* excluding Ono, supported by consistently strong broadband net additions. Since its acquisition in July 2014, Ono contributed £699 million to service revenue and £267 million to EBITDA. Including our joint fibre network build with Orange, we now reach 8.5 million premises with fibre. We have made good progress with the integration of Ono, and launched in April 2015 a fully converged service, “Vodafone One”, a new ultra high-speed fixed broadband service with Ono Fibre, home landline, 4G mobile telephony and Vodafone TV. EBITDA declined 29.5%* year-on-year, with a 4.9* percentage point decline in EBITDA margin. The margin was impacted by falling mobile service revenue and growth in lower margin fixed revenue, partially offset by lower direct costs and operating expenses, and the change in the commercial model described above. Other Europe Service revenue declined 2.2%* due to price competition, the generally weak macroeconomic environment and MTR cuts. Again, we saw a recovery in H2, with Q3 service revenue -1.1%* and Q4 service revenue -0.9%*. Hungary grew by 8.6%* for the full year, the Netherlands and Czech Republic returned to growth in H2, and Greece and Ireland showed a clear improvement in trends over the year. In the Netherlands, we have nationwide 4G coverage, and the return to growth has been driven by continued contract customer growth, stabilising ARPU and growth in fixed revenue. In Portugal, we continue to see a decline in mobile service revenue driven by convergence pricing pressure reflecting a prolonged period of intense competition, partially offset by strong fixed revenue growth. We now reach 1.6 million homes with fibre, including our network sharing deal with Portugal Telecom. In Ireland, 4G coverage has reached 87%, and we have begun trials on our FTTH roll-out, with a commercial launch planned for later in 2015. In Greece, the steady recovery in revenue trends through the year stalled in Q4 as a result of the worsening macroeconomic conditions. The integration of Hellas Online is continuing in line with expectations. EBITDA declined 2.8%*, with a 0.1* percentage point increase in EBITDA margin, as the impact of lower service revenue was largely offset by strong cost control. Italy Service revenue declined 10.2%*. Trends in both mobile and fixed improved in H2, and Q4 service revenue declined 4.1%*. Mobile service revenue fell 12.1%* as a result of a decline in the prepaid customer base and lower ARPU following last year’s price cuts. We took a number of measures to stabilise ARPU during the year, and in Q4, consumer prepaid ARPU was up 6% year-on-year. We also began to take a more active stance on stabilising the customer base in the second half of the year, in what remains a very competitive market. Enterprise performed strongly, returning to growth in H2. We now have 4G coverage of 84%, and 2.8 million 4G customers at 31 March 2015. Fixed service revenue was up 1.3%*. Broadband revenue continued to grow and we added 134,000 broadband customers over the year, but overall growth was partially offset by an ongoing decline in fixed voice usage. We accelerated our fibre roll-out plans in H2, and by March 2015 we had installed more than 5,000 cabinets. EBITDA declined 15.3%*, with a 2.4* percentage point decline in EBITDA margin. The decline in service revenue was partially offset by continued strong cost control, with operating expenses down 3.1%* and customer investment down 3.0%*. UK Service revenue fell 1.8%* as a good performance in consumer mobile was offset by a decline in fixed. The UK returned to service revenue growth in H2. Q4 service revenue was up 0.6%*. Mobile service revenue grew 0.5%*. Consumer contract service revenue grew strongly, supported by customer growth and a successful commercial strategy bundling content with 4G. Enterprise mobile revenue returned to growth in H2, as a result of growing data demand. During the year we acquired 139 stores from the administrator of Phones 4U, taking our total portfolio to over 500 and accelerating our direct distribution strategy. 4G coverage reached 63% at 31 March 2015 (or 71% based on the OFCOM definition), and we had 3.0 million 4G customers at the year end. Fixed service revenue declined 9.1%*, excluding the one-off benefit of a settlement with another network operator in Q4. Underlying performance improved from -11.3%* in H1 to -6.8%* in H2, driven by a strong pick-up in carrier services revenue and improving enterprise pipeline conversion. We plan to launch our consumer fibre broadband proposition in the coming weeks. EBITDA declined 12.4%*, with a 2.4* percentage point decline in EBITDA margin due mainly to a reclassification of some central costs to the UK business. Reported EBITDA benefited from one-off settlements with two network operators. Spain Service revenue declined 10.9%* excluding Ono, as growth in fixed continued to be offset by price pressure in mobile and converged services. Q4 service revenue growth was -7.8%*. Ono Q4 local currency revenue growth was -1.9% excluding wholesale. Mobile service revenue fell 12.7%*, although there was some improvement in H2 with the contract customer base stabilising year-on- year. However, ARPU continued to be under pressure throughout the year as a result of aggressive convergence offers. During H2, we saw an increase in the take-up of handset financing arrangements as a result of a change in the commercial model. We reduced handset subsidies in Q4 and introduced bigger data allowances at slightly higher price points. Our 4G network roll-out has now reached 75% population coverage, and we had 2.9 million 4G customers at March 2015. We continue to lead the market in net promoter scores (‘NPS’) in both consumer and enterprise. 165 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Other unaudited financial information (continued) Prior year operating results (continued) Africa, Middle East and Asia Pacific1 Year ended 31 March 2015 restated Revenue Service revenue Other revenue EBITDA Adjusted operating profit EBITDA margin Year ended 31 March 2014 restated Revenue Service revenue Other revenue EBITDA Adjusted operating profit EBITDA margin India £m Vodacom £m Other AMAP £m Eliminations £m AMAP £m 4,309 4,291 18 1,282 458 29.8% 3,939 3,920 19 1,135 327 28.8% 4,341 3,489 852 1,527 1,030 35.2% 4,718 3,866 852 1,716 1,228 36.4% 4,743 4,166 577 1,277 314 26.9% 4,730 4,258 472 1,279 377 27.0% (11) (11) – – – – – – – – 13,382 11,935 1,447 4,086 1,802 30.5% 13,387 12,044 1,343 4,130 1,932 30.9% £ – (0.9) (1.1) (6.7) (2.4) (4.2) (1.6) 12.0 % change Organic* 6.9 5.7 5.9 0.1 8.9 6.7 10.8 30.7 Note: 1 The Group has amended its reporting to reflect changes in the internal management of its Enterprise business. The primary change has been that on 1 April 2015, the Group redefined its segments to report international voice transit revenue and costs within Common Functions rather than within the results disclosed for each country and region. The results presented for the year ended 31 March 2015 and 2014 have been restated onto a comparable basis. There is no impact on total Group revenue or cost. Revenue remained stable as a result of a 7.4 percentage point adverse impact from foreign exchange movements, particularly with regards to the Indian rupee, South African rand and the Turkish lira. On an organic basis service revenue was up 6.9%* driven by a growth in the customer base, increased voice usage, strong demand for data and continued good commercial execution. Overall growth was offset by MTR cuts, particularly in South Africa. Excluding MTRs, organic growth was 7.0%. EBITDA declined 1.1%, including a 7.1 percentage point adverse impact from foreign exchange movements. On an organic basis, EBITDA grew 5.9%* driven by growth in India, Turkey, Qatar and Egypt, offset by Vodacom and New Zealand. Revenue – AMAP Service revenue India Vodacom Other AMAP AMAP EBITDA India Vodacom Other AMAP AMAP Adjusted operating profit AMAP Organic change* % 6.9 Other activity1 pps 0.5 Foreign exchange pps (7.4) Reported change % – 12.4 (1.0) 5.2 5.7 16.3 (2.1) 7.0 5.9 0.1 – – 1.8 0.5 – – 0.3 0.1 0.1 (2.9) (8.8) (9.2) (7.1) (3.4) (8.9) (7.4) (7.1) 9.5 (9.8) (2.2) (0.9) 12.9 (11.0) (0.1) (1.1) (6.9) (6.7) Note: 1 “Other activity” includes the impact of M&A activity. Refer to “Organic growth” on page 191 for further detail. India Service revenue increased 12.4%*, driven by continued customer base growth, an acceleration in 3G data uptake and stable voice pricing. Q4 service revenue grew 11.7%*. We added 17.2 million mobile customers during the year, taking the total to 183.8 million. Voice yields were relatively flat after a period of improvement, but we saw a decline in average minutes of use in H2 as competition increased in some circles. Customer demand for data services has been very strong. Total data usage grew 86% year-on-year, with the active data customer base increasing 23% to 64 million. Within this, the 3G customer base increased to over 19 million, reflecting the significant investment in our 3G network build. During the year we added 12,585 new 3G sites, taking the total to over 35,000 and our coverage of target urban areas to 90%. 3G internet revenue rose 140%. In March 2015 we successfully bid for spectrum in 12 telecom circles for a total cost of INR 258.1 billion (£2.78 billion). This included spectrum in all six of our 900MHz circles due for extension in December 2015. We also successfully bid for new 3G spectrum in seven circles, allowing us to address 88% of our revenue base with 3G services. We have continued to expand our M-Pesa mobile money transfer service, and now have 89,000 agents, with a nationwide presence. At March 2015 we had 3.1 million registered customers and 378,000 active users. Our strategy is to focus on building scale on specific migratory corridors. EBITDA grew 16.3%*, with a 1.0%* percentage point improvement in EBITDA margin as economies of scale from growing service revenue were partly offset by the increase in operating costs related to the Project Spring network build and higher acquisition costs. 166 Vodafone Group Plc Annual Report 2016Associates Vodafone Hutchison Australia (‘VHA’), in which Vodafone owns a 50% stake, continued its good recovery, returning to local currency service revenue growth in Q4 as a result of improving trends in both customer numbers and ARPU, supported by significant network enhancements. Safaricom, Vodafone’s 40% associate which is the number one mobile operator in Kenya, saw local currency service revenue growth of 12.9% for the year, with local currency EBITDA up 16.8%. The total value of deposits, customer transfers, withdrawals and other payments handled through the M-Pesa system grew 26% to KES 4,181 billion in the 2015 financial year. Indus Towers Limited, the Indian towers company in which Vodafone has a 42% interest, achieved local currency revenue growth of 4.3%. Indus owns 116,000 towers, with a tenancy ratio of 2.19x. Our shares of Indus Towers’ EBITDA and adjusted operating profit were £285 million and £19 million respectively. Vodacom Vodacom Group service revenue declined 1.0%*, as the negative impact of MTR cuts and a more competitive environment in South Africa offset growth in Vodacom’s operations outside South Africa. Q4 service revenue was -0.2%*, reflecting some easing of competition in South Africa. In South Africa, organic service revenue declined -2.7%*. Excluding the impact of MTR cuts, service revenue grew 1.4%*. Strong growth in smartphone penetration and data adoption drove 23.4% growth in local currency data revenue, although this was offset by aggressive voice price competition. We have increased our 3G footprint to 96% population coverage and 4G to 35% coverage as part of the Project Spring programme, with 81% of sites now connected to high capacity backhaul. During the year we began to trial our first fibre to the business services, and fibre to the home. The regulatory authorities continue to review our proposed acquisition of Neotel, a fibre-based fixed operator. Service revenue growth in Vodacom’s operations outside South Africa was 4.8%*, driven by customer base growth, data take-up and M-Pesa, Active M-Pesa customers totalled 5.6 million, with M-Pesa now representing 23% of service revenue in Tanzania. Vodacom Group EBITDA fell 2.1%*, with a 1.1* percentage point decline in EBITDA margin. The significant negative impact of MTR cuts on the EBITDA margin was substantially offset by good cost control. Other AMAP Service revenue increased 5.2%*, with growth in Turkey, Egypt, Qatar and Ghana partially offset by a decline in New Zealand. Service revenue in Turkey was up 9.9%*, reflecting continued strong growth in consumer contract and enterprise revenue, including higher ARPU and data usage, partly offset by a 1.8 percentage point negative impact from voice and SMS MTR cuts. In Egypt, service revenue grew 2.8%* as a result of an increase in data and voice usage and a more stable economic environment. In New Zealand, service revenue was down 3.1%* as a result of aggressive competition, but the contract mobile base grew 4.6% year-on-year and the fixed base benefited from continued uptake of VDSL, TV and unlimited broadband. Service revenue in Ghana grew 18.9%* driven by growth in customers, voice bundles and data. Total revenue growth in Qatar was 13.2%*, but slowed in H2 due to significantly increased price competition. EBITDA grew 7.0%* with a 0.3* percentage point decline in EBITDA margin. 167 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Company statement of financial position of Vodafone Group Plc at 31 March Fixed assets Shares in Group undertakings Current assets Debtors: amounts falling due after more than one year Debtors: amounts falling due within one year Other investments Cash at bank and in hand Creditors: amounts falling due within one year Net current assets/(liabilities) Total assets less current liabilities Creditors: amounts falling due after more than one year Capital and reserves Called up share capital Share premium account Capital reserve Other reserves Own shares held Profit and loss account Total equity shareholders’ funds Note 2016  £m  2015 £m  2  3  3  4  5  5  6  66,891 64,798 3,422 167,674 1,574 105 172,775 (171,303) 1,472 68,363 (25,432) 42,931 3,792 16,112 88 3,497 (7,042) 26,484 42,931 3,676 157,470 37 183 161,366 (163,164) (1,798) 63,000 (19,404) 43,596 3,792 16,111 88 720 (7,147) 30,032 43,596 The Company financial statements on pages 168 to 174 were approved by the Board of Directors and authorised for issue on 17 May 2016 and were signed on its behalf by: Vittorio Colao Chief Executive Nick Read Chief Financial Officer The accompanying notes are an integral part of these financial statements. Company statement of changes in equity of Vodafone Group Plc For the years ended 31 March 1 April 2014 Issue or reissue of shares Loss for the financial year Dividends Capital contribution given relating to share-based payments Contribution received relating to share-based payments Other movements 31 March 2015 Issue or reissue of shares Issue of mandatory convertible bonds4 Loss for the financial year Dividends Capital contribution given relating to share-based payments Contribution received relating to share-based payments Other movements 31 March 2016 Called up share capital £m Share premium account1 £m 3,792 16,109 2 – – – – – 3,792 16,111 – – – – – – – – – – – – – 3,792 1 – – – – – – 16,112 Capital redemption reserve1 £m 88 – – – – – – 88 – – – – – – – 88 Other reserves1 £m 758 – – – 88 (126) – 720 – 2,754 – – 116 (93) – 3,497 Reserve for own shares2 £m Profit and loss account3 £m Total equity shareholders’ funds £m (7,289) 33,900 47,358 144 (934) (2,930) 88 (126) (4) (7,147) 30,032 43,596 – (934) (2,930) – – (4) 142 – – – – – 105 – – – – – – – – (596) (2,998) – – 46 106 2,754 (596) (2,998) 116 (93) 46 (7,042) 26,484 42,931 Notes: 1 These reserves are not distributable. 2 Own shares relate to treasury shares which are purchased out of distributable profits and therefore reduce reserves available for distribution. 3 The Company has determined what is realised and unrealised in accordance with the guidance provided by ICAEW TECH 2/10 and the requirements of UK law. In accordance with UK Companies Act 2006 s831(2), a public company may make a distribution only if, after giving effect to such distribution, the amount of its net assets is not less than the aggregate of its called up share capital and non-distributable reserves as shown in the relevant financial statements. Includes the equity component of the mandatory convertible bonds which are compound instruments issued in the year. 4 168 Vodafone Group Plc Annual Report 2016           Notes to the Company financial statements 1. Basis of preparation The Company has transitioned from the previously extant UK Generally Accepted Accounting Practice (UK GAAP) to Financial Reporting Standard 101 “Reduced disclosure framework”, (FRS 101), for all periods presented. The Company will continue to prepare its financial statements in accordance with FRS 101 on an ongoing basis until such time as it notifies shareholders of any change to its chosen accounting framework. As required by FRS 101, Vodafone Group Plc notified its shareholders of the proposed change in its letter to shareholders in March 2016. The Company financial statements have been prepared using the historical cost convention, as modified by the revaluation of certain financial assets and financial liabilities and in accordance with the UK Companies Act 2006. The financial statements have been prepared on a going concern basis. The accounting policies set out below have been applied consistently to all periods presented in these financial statements. The following exemptions available under FRS 101 have been applied: a Paragraphs 45(b) and 46 to 52 of IFRS 2, “Shared-based payment” (details of the number and weighted-average exercise prices of share options, and how the fair value of goods or services received was determined); a IFRS 7 “Financial Instruments: Disclosures”; a Paragraph 91 to 99 of IFRS 13, “Fair value measurement” (disclosure of valuation techniques and inputs used for fair value measurement of assets and liabilities); a Paragraph 38 of IAS 1 “Presentation of financial statements” comparative information requirements in respect of paragraph 79(a)(iv) of IAS 1; a The following paragraphs of IAS 1 “Presentation of financial statements”: a 10(d) (statement of cash flows); a 16 (statement of compliance with all IFRS); a 38A (requirement for minimum of two primary statements, including cash flow statements); a 38B-D (additional comparative information); a 40A-D (requirements for a third statement of financial position); a 111 (cash flow statement information); and a 134-136 (capital management disclosures). a IAS 7 “Statement of cash flows”; a Paragraph 30 and 31 of IAS 8 “Accounting policies, changes in accounting estimates and errors” (requirement for the disclosure of information when an entity has not applied a new IFRS that has been issued but is not yet effective); a Paragraph 17 of IAS 24 “Related party disclosures” (key management compensation); and a The requirements in IAS 24 “Related party disclosures” to disclose related party transactions entered into between two or more members of a group. As permitted by section 408(3) of the Companies Act 2006, the income statement of the Company is not presented in this Annual Report. These separate financial statements are not intended to give a true and fair view of the profit or loss or cash flows of the Company. The Company has not published its individual cash flow statement as its liquidity, solvency and financial adaptability are dependent on the Group rather than its own cash flows. Critical accounting judgements and key sources of estimation uncertainty The preparation of Company financial statements in conformity with FRS 101 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 date of the Company financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The key area of judgement that has the most significant effect on the amounts recognised in the financial statements is the review for impairment of investment carrying values. Significant accounting policies applied in the current reporting period that relate to the financial statements as a whole Foreign currencies The Company’s financial statements are presented in sterling, which is its functional currency. With effect from 1 April 2016 the functional currency of the Company changed from sterling to the euro and its presentation currency will also change from sterling to euro. The euro is now the primary currency in which the Company’s financing activities and investment returns are denominated. Transactions in foreign currencies are initially recorded at the functional rate of currency prevailing on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated into the Company’s functional currency at the rates prevailing on the reporting period date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the initial transaction dates. Non-monetary items measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the income statement for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in the income statement for the period. 169 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Notes to the Company financial statements (continued) 1. Basis of preparation (continued) Borrowing costs All borrowing costs are recognised in the income statement in the period in which they are incurred. Taxation Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantively enacted by the reporting period date. Deferred tax is provided in full on timing differences that exist at the reporting period date and that result in an obligation to pay more tax, or a right to pay less tax in the future. The deferred tax is measured at the rate expected to apply in the periods in which the timing differences are expected to reverse, based on the tax rates and laws that are enacted or substantively enacted at the reporting period date. Timing differences arise from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the Company financial statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax assets and liabilities are not discounted. Financial instruments Financial assets and financial liabilities, in respect of financial instruments, are recognised on the Company statement of financial position when the Company becomes a party to the contractual provisions of the instrument. Financial liabilities and equity instruments Financial liabilities and equity instruments issued by the Company are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities and includes no obligation to deliver cash or other financial assets. The accounting policies adopted for specific financial liabilities and equity instruments are set out below. Derivative financial instruments and hedge accounting The Company’s activities expose it to the financial risks of changes in foreign exchange rates and interest rates which it manages using derivative financial instruments. The use of derivative financial instruments is governed by the Group’s policies approved by the Board of Directors, which provide written principles on the use of derivative financial instruments consistent with the Group’s risk management strategy. Changes in values of all derivative financial instruments are included within the income statement unless designated in an effective cash flow hedge relationship when changes in value are deferred to other comprehensive income or equity respectively. The Company does not use derivative financial instruments for speculative purposes. Derivative financial instruments are initially measured at fair value on the contract date and are subsequently remeasured to fair value at each reporting date. The Company designates certain derivatives as hedges of the change of fair value of recognised assets and liabilities (‘fair value hedges’) or hedges of highly probable forecast transactions or hedges of foreign currency or interest rate risks of firm commitments (‘cash flow hedges’). Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, no longer qualifies for hedge accounting or the Company chooses to end the hedging relationship. Fair value hedges The Company’s policy is to use derivative financial instruments (primarily interest rate swaps) to convert a proportion of its fixed rate debt to floating rates in order to hedge the interest rate risk arising, principally, from capital market borrowings. The Company designates these as fair value hedges of interest rate risk with changes in fair value of the hedging instrument recognised in the income statement for the period together with the changes in the fair value of the hedged item due to the hedged risk, to the extent the hedge is effective. Gains and losses relating to any ineffective portion are recognised immediately in the income statement. Cash flow hedges Cash flow hedging is used by the Company to hedge certain exposures to variability in future cash flows. The portion of gains or losses relating to changes in the fair value of derivatives that are designated and qualify as effective cash flow hedges is recognised in other comprehensive income; gains or losses relating to any ineffective portion are recognised immediately in the income statement. However, when the hedged transaction results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously recognised in other comprehensive income and accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non- financial liability. When the hedged item is recognised in the income statement, amounts previously recognised in other comprehensive income and accumulated in equity for the hedging instrument are reclassified to the income statement. When hedge accounting is discontinued, any gain or loss recognised in other comprehensive income at that time remains in equity and is recognised in the income statement when the hedged transaction is ultimately recognised in the income statement. If a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in the income statement. Pensions The Company is the sponsoring employer of the Vodafone Group pension scheme, a defined benefit pension scheme. There is insufficient information available to enable the scheme to be accounted for as a defined benefit scheme because the Company is unable to identify its share of the underlying assets and liabilities on a consistent and reasonable basis. Therefore, the Company has applied the guidance within IAS 19 to account for defined benefit schemes as if they were defined contribution schemes and recognise only the contribution payable each year. The Company had no contributions payable for the years ended 31 March 2016 and 31 March 2015. New accounting pronouncements To the extent applicable the Company will adopt new accounting policies as set out in note 1 “Basis for preparation” in the consolidated financial statements. 170 Vodafone Group Plc Annual Report 20162. Fixed assets Accounting policies Shares in Group undertakings are stated at cost less any provision for impairment. The Company assesses investments for impairment whenever events or changes in circumstances indicate that the carrying value of an investment may not be recoverable. If any such indication of impairment exists, the Company makes an estimate of the recoverable amount. If the recoverable amount of the cash-generating unit is less than the value of the investment, the investment is considered to be impaired and is written down to its recoverable amount. An impairment loss is recognised immediately in the income statement. Shares in Group undertakings Cost: 1 April 2015 Additions Capital contributions arising from share-based payments Contributions received in relation to share-based payments 31 March 2016 Amounts provided for: 1 April 2015 Amounts provided in the year 31 March 2016 Net book value: 31 March 2015 31 March 2016 £m  70,604 2,070 116 (93) 72,697 5,806 – 5,806 64,798 66,891 At 31 March 2016 the Company had the following principal subsidiary: Name Vodafone European Investments Principal activity Holding company Country of incorporation England Percentage shareholding 100  Details of direct and indirect related undertakings are set out in note 33 “Related undertakings” to the consolidated financial statements. 3. Debtors Amounts falling due within one year: Amounts owed by subsidiaries Taxation recoverable Other debtors Derivative financial instruments1 Amounts falling due after more than one year: Derivative financial instruments1 2016  £m  2015 £m  166,609 162 108 795 167,674 156,933 161 109 267 157,470 3,422 3,676 Note: 1. Amounts falling due within one year include amounts in relation to cross currency swaps £484 million (2015: £158 million), interest rate swaps £43 million (2015: £76 million), options £36 million (2015: £nil) and foreign exchange contracts £231 million (2015: £33 million). The amounts falling due in more than one year includes amounts in relation to cross currency swaps £1,140 million (2015: £1,288 million) and interest rate swaps £2,281 million (2015: £2,388 million). 4. Other investments Accounting policies Investments classified as loans and receivables are stated at amortised cost using the effective interest rate method, less any impairment. Investments1 2016  £m  1,574 2015  £m  37  Note: 1 Investments include collateral paid on derivative financial instruments of £1,574 million (2015: £37 million). The amount for 2016 includes £1,460 million paid as collateral on put options issued in relation to the mandatory convertible bond issue. 171 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the Company financial statements (continued) 5. Creditors Accounting policies Capital market and bank borrowings Interest bearing loans and overdrafts are initially measured at fair value (which is equal to cost at inception) and are subsequently measured at amortised cost using the effective interest rate method, except where they are identified as a hedged item in a designated hedge relationship. Any difference between the proceeds net of transaction costs and the amount due on settlement or redemption of borrowings is recognised over the term of the borrowing. Amounts falling due within one year: Bank loans and other loans Amounts owed to subsidiaries Derivative financial instruments1 Other creditors Accruals and deferred income Amounts falling due after more than one year: Deferred tax Other loans Derivative financial instruments1 2016  £m  2015  £m  13,263 157,538 387 78 37 171,303 – 24,304 1,128 25,432 9,895 152,904 327 13 25 163,164 4 18,736 664 19,404 Note: 1 Amounts falling due within one year include amounts in relation to cross currency swaps £235 million (2015: £237 million) of which £229 million relates to transactions with joint ventures (2015: £237 million), interest rate swaps £29 million (2015: £44 million), options £64 million (2015: £nil) and foreign exchange contracts £59 million (2015: £46 million). The amounts falling due in more than one year include amounts in relation to cross currency swaps £528 million (2015: £8 million), interest rate swaps £600 million (2015: £645 million) and options £nil (2015: £11 million). Included in amounts falling due after more than one year are other loans of £13,611 million which are due in more than five years from 1 April 2016 and are payable otherwise than by instalments. Interest payable on these loans ranges from 0.491% to 7.875%. On November 2015, the Group issued £600 million zero-coupon equity linked bonds maturing on 26 November 2020. Amounts included in bank loans and other loans due within one year and in other loans due after more than one year of £50 million and £69 million respectively represent the carrying value of future coupons on the mandatory convertible bonds issued on 25 February 2016. The mandatory convertible bonds are compound instruments with nominal values recognised as a component of shareholders’ equity (refer to the statement of changes in equity on page 168) with the initial fair value of future coupons recognised as financial liabilities in borrowings and subsequently measured at amortised cost using the effective interest rate method. Details of bond and other debt issuances are set out in note 22 “Liquidity and capital resources” on pages 131 to 133 in the consolidated financial statements. 6. Share capital Accounting policies Equity instruments issued by the Company are recorded as the proceeds received, net of direct issuance costs. Ordinary shares of 2020⁄ 21 US cents each allotted, issued and fully paid:1, 2 1 April Allotted during the year 31 March Number  28,812,787,098 608,910 28,813,396,008 2016  £m  3,792 – 3,792 Number  28,811,923,128 863,970 28,812,787,098 2015 £m  3,792 – 3,792 Notes: 1 50,000 (2015: 50,000) 7% cumulative fixed rate shares of £1 each were allotted, issued and fully paid by the Company. 2 At 31 March 2016, the Company held 2,254,825,696 (2015: 2,300,749,013) treasury shares with a nominal value of £328 million (2015: £303 million). During 2014, the Company issued 14,732,741,283 B shares of US$1.88477 per share and 33,737,176,433 C shares of US$0.00001 per share as part of the Return of Value following the disposal of our US Group, whose principal asset was its 45% stake in Verizon Wireless (‘VZW’). The B shares were cancelled as part of the Return of Value. The C shares were reclassified as deferred shares with no substantive rights as part of the Return of Value and transferred to LDC (Shares) Limited (‘LDC’). On 8 May 2015, the Company repurchased and then subsequently cancelled all deferred shares. On 19 February 2016, the Company issued £2.9 billion of subordinated mandatory convertible bonds issued in two tranches, with the first £1.4 billion maturing on 25 August 2017 and a further £1.4 billion maturing on 25 February 2019. At the initial conversion price of £2.1730, at maturity the bonds will convert to 1, 325,356,650 Vodafone Group Plc shares representing approximately 5% of Vodafone’s share capital. Further details are included in note 22 “Liquidity and capital resources” to the consolidated financial statements. 172 Vodafone Group Plc Annual Report 2016 Allotted during the year The Company allotted the following shares under share award and option schemes: US share awards and option scheme awards Number  608,910 Nominal  value  £m  – Net  proceeds  £m  1 7. Share-based payments Accounting policies The Group operates a number of equity-settled share-based payment plans for the employees of subsidiaries using the Company’s equity instruments. The fair value of the compensation given in respect of these share-based payment plans is recognised as a capital contribution to the Company’s subsidiaries over the vesting period. The capital contribution is reduced by any payments received from subsidiaries in respect of these share-based payments. The Company currently uses a number of equity settled share plans to grant options and shares to the Directors and employees of its subsidiaries. At 31 March 2016, the Company had 24 million ordinary share options outstanding (2015: 25 million) and no ADS options outstanding (2015: nil). The Company has made capital contributions to its subsidiaries in relation to share-based payments. At 31 March 2016, the cumulative capital contribution net of payments received from subsidiaries was £69 million (2015: £93 million). During the year ended 31 March 2016, the total capital contribution arising from share-based payments was £116 million (2015: £88 million), with payments of £93 million (2015: £126 million) received from subsidiaries. Full details of share-based payments, share option schemes and share plans are disclosed in note 27 “Share-based payments” to the consolidated financial statements. 8. Reserves The loss for the financial year dealt with in the financial statements of the Company is £596 million (2015: £934 million). The Board is responsible for the Group’s capital management including the approval of dividends. This includes an assessment of both the level of reserves legally available for distribution and consideration as to whether the Company would be solvent and retain sufficient liquidity following any proposed distribution. As Vodafone Group Plc is a Group holding company with no direct operations, its ability to make shareholder distributions is dependent on its ability to receive funds for such purposes from its subsidiaries in a manner which creates profits available for distribution for the Company. The major factors that impact the ability of the Company to access profits held in subsidiary companies at an appropriate level to fulfil its needs for distributable reserves on an ongoing basis include: a the absolute size of the profit pools either currently available for distribution or capable of realisation into distributable reserves in the relevant entities; a the location of these entities in the Group’s corporate structure; a profit and cash flow generation in those entities; and a the risk of adverse changes in business valuations giving rise to investment impairment charges, reducing profits available for distribution. The Group’s consolidated reserves set out on page 89 do not reflect the profits available for distribution in the Group. 9. Equity dividends Accounting policies Dividends paid and received are included in the Company financial statements in the period in which the related dividends are actually paid or received or, in respect of the Company’s final dividend for the year, approved by shareholders. Declared during the financial year: Final dividend for the year ended 31 March 2015: 7.62 pence per share (2014: 7.47 pence per share) Interim dividend for the year ended 31 March 2016: 3.68 pence per share (2015: 3.60 pence per share) Proposed after the balance sheet date and not recognised as a liability: Final dividend for the year ended 31 March 2016: 7.77 pence per share (2015: 7.62 pence per share) 2016  £m  2,020 978 2,998 2015 £m  1,975 955 2,930 2,064 2,020 173 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Notes to the Company financial statements (continued) 10. Contingent liabilities and legal proceedings Other guarantees and contingent liabilities 2016  £m  1,722 2015 £m  1,670 Other guarantees and contingent liabilities Other guarantees principally comprise the Company’s guarantee of the Group’s 50% share of an AUD 1.7 billion loan facility and a US$3.5 billion loan facility of its joint venture, Vodafone Hutchison Australia Pty Limited. The Company will guarantee the debts and liabilities of certain of its UK subsidiaries at the balance sheet date in accordance with section 479C of the Companies Act 2006. The Company has assessed the probability of loss under these guarantees as remote. As detailed in note 26 “Post employment benefits” to the consolidated financial statements, the Company is the sponsor of the Group’s main defined benefit scheme in the UK, being the Vodafone UK Group Pension Scheme (‘Vodafone UK plan’). The results, assets and liabilities associated with the Vodafone UK plan are recognised in the financial statements of Vodafone UK Limited and Vodafone Group Services Limited. As detailed in note 30 “Contingent liabilities and legal proceedings” to the consolidated financial statements, the Company has covenanted to provide security in favour of the trustee of the Vodafone Group UK Pension Scheme and the Trustees of THUS Plc Group Scheme. Legal proceedings Details regarding certain legal actions which involve the Company are set out in note 30 “Contingent liabilities and legal proceedings” to the consolidated financial statements. 11. Other matters The auditor’s remuneration for the current year in respect of audit and audit-related services was £1.9 million (2015: £2.0 million) and for non-audit services was £0.4 million (2015: £2.0 million). The Directors are remunerated by the Company for their services to the Group as a whole. No remuneration was paid to them specifically in respect of their services to Vodafone Group Plc for either year. Full details of the Directors’ remuneration are disclosed in “Directors’ remuneration” on pages 57 to 73. There were no employees other than Directors of the Company throughout the current or the preceding year. 174 Vodafone Group Plc Annual Report 2016 Shareholder information Unaudited information Investor calendar Ex-dividend date for final dividend Record date for final dividend Trading update Annual general meeting Final dividend payment Half-year financial results Ex-dividend date for interim dividend1 Record date for interim dividend1 Interim dividend payment1 Note: 1 Provisional dates. 9 June 2016 10 June 2016 22 July 2016 29 July 2016 3 August 2016 15 November 2016 24 November 2016 25 November 2016 2 February 2017 Dividends See pages 36 and 111 for details on dividend amount per share. Payment of dividends by direct credit We pay cash dividends directly to shareholders’ bank or building society accounts. This ensures secure delivery and means dividend payments are credited to shareholders’ bank or building society accounts on the same day as payment. A dividend confirmation covering both the interim and final dividends paid during the financial year is sent to shareholders at the time of the interim dividend in February. ADS holders may alternatively have their cash dividends paid by cheque. Overseas dividend payments Holders of ordinary shares resident in the Eurozone (defined for this purpose as a country that has adopted the euro as its national currency) automatically receive their dividends in euros. The sterling/ euro exchange rate is determined by us in accordance with our Articles of Association up to 13 business days before the payment date. Holders resident outside the UK and Eurozone automatically receive dividends in pounds sterling but may elect to receive dividends in local currency directly into their bank account by registering for our registrar’s (Computershare) Global Payments Service. Visit investorcentre.co.uk for details and terms and conditions. Cash dividends to ADS holders will be paid by the ADS depositary in US dollars. The sterling/US dollar exchange rate for this purpose is determined by us up to ten New York and London business days before the payment date. For the financial year ending 31 March 2017 and beyond, dividends will 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 of the five business days during the week prior to the payment of the dividend. The Board has determined that future dividend growth will be calculated from the level of 14.48 eurocents per share in 2016, which is equivalent to the 2016 total dividend payout of 11.45 pence at the year-end £:€ exchange rate of 1.2647. See vodafone.com/dividends for further information about dividend payments or, alternatively, please contact our registrar or the ADS depositary, as applicable. See page 176 for their contact information. Dividend reinvestment plan We offer a dividend reinvestment plan which allows holders of ordinary shares who choose to participate to use their cash dividends to acquire additional shares in the Company. These are purchased on their behalf by the plan administrator through a low cost dealing arrangement. For ADS holders, BNY Mellon maintains a Global BuyDIRECT Plan which is a direct purchase and sale plan for depositary receipts with a dividend reinvestment facility. Dividend tax allowance From April 2016 dividend tax credits will be replaced by an annual £5,000 tax-free allowance on dividend income across an individual’s entire share portfolio. Above this amount, individuals will pay tax in the UK on their dividend income at a rate dependent on their income tax bracket and personal circumstances. Vodafone will continue to provide registered shareholders with a confirmation of the dividends paid and this should be included with any other dividend income received when calculating and reporting total dividend income received. It is the shareholder’s responsibility to include all dividend income when calculating any tax liability. This change was announced by the Chancellor, as part of the UK Government Budget in July 2015. If you have any tax queries, please contact a financial adviser. Managing your shares via Investor Centre Computershare operates a portfolio service for investors in ordinary shares, called Investor Centre. This provides our shareholders with online access to information about their investments as well as a facility to help manage their holdings online, such as being able to: a update dividend mandate bank instructions and review dividend payment history; a update member details and address changes; and a register to receive Company communications electronically. Computershare also offers an internet and telephone share dealing service to existing shareholders. The service can be obtained at investorcentre.co.uk. Shareholders with any queries regarding their holding should contact Computershare. See page 176 for their contact details. Shareholders may also find the investors section of our corporate website, vodafone.com/investor, useful for general queries and information about the Company. Shareholder communications A growing number of our shareholders have opted to receive their communications from us electronically using email and web-based communications. The use of electronic communications, rather than printed paper documents, means information about the Company can be received as soon as it is available and has the added benefit of reducing costs and our impact on the environment. Each time we issue a shareholder communication, shareholders who have positively elected for electronic communication (or are deemed to have consented to receive electronic communication in accordance with the Companies Act 2006) will be sent an email alert containing a link to the relevant documents. 175 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Shareholder information (continued) Unaudited information We encourage all our shareholders to sign up for this service by providing us with an email address. You can register your email address via our registrar at investorcentre.co.uk or contact them via the telephone number provided on page 176. See vodafone.com/investor for further information about this service. Annual General Meeting Our thirty-second annual general meeting will be held at the Hilton London Metropole Hotel, 225 Edgware Road, London W2 1JU, on Friday 29 July 2016 at 11.00 am. The annual general meeting will be transmitted via a live webcast which can be viewed on our website at vodafone.com/agm on the day of the meeting. A recording will be available to view after that date. ShareGift We support ShareGift, the charity share donation scheme (registered charity number 1052686). Through ShareGift, shareholders who have only a very small number of shares, which might be considered uneconomic to sell, are able to donate them to charity. Donated shares are aggregated and sold by ShareGift, the proceeds being passed on to a wide range of UK charities. See sharegift.org or call +44 (0)20 7930 3737 for further details. Registrar and transfer office The Registrar Computershare Investor Services PLC The Pavilions Bridgwater Road, Bristol BS99 6ZZ, England Telephone: +44 (0)370 702 0198 investorcentre.co.uk/contactus ADS depositary BNY Mellon Shareowner Services PO Box 30170 College Station, TX 77842-3170, United States of America Telephone: +1 800 233 5601 (toll free) or, for calls outside the United States, +1 201 680 6825 (not toll free) and enter company number 2160 Email: shrrelations@cpushareownerservices.com Share price history The closing share price at 31 March 2016 was 221.20 pence (31 March 2015: 220.45 pence). The closing share price on 16 May 2016 was 223.65 pence. The following tables set out, for the periods indicated, (i) the reported high and low middle market quotations of ordinary shares on the London Stock Exchange, and (ii) the reported high and low sales prices of ADSs on NASDAQ. Year ended 31 March 2012 2013 2014 2015 2016 London Stock Exchange Pounds per ordinary share NASDAQ Dollars per ADS High 1.84 1.92 2.52 2.40 2.55 Low 1.54 1.54 1.80 1.85 2.00 High 29.46 30.07 41.57 38.26 39.21 Low 24.31 24.42 27.74 29.67 29.19 Landmark Asset Search We participate in an online service which provides a search facility for solicitors and probate professionals to quickly and easily trace UK shareholdings relating to deceased estates. Visit www.landmarkfas.co.uk or call +44 (0)844 844 9967 for further information. Warning to shareholders (“boiler room” scams) Over recent years we have become aware of investors who have received unsolicited calls or correspondence, in some cases purporting to have been issued by us, concerning investment matters. These callers typically make claims of highly profitable opportunities in UK or US investments which turn out to be worthless or simply do not exist. These approaches are usually made by unauthorised companies and individuals and are commonly known as “boiler room” scams. Investors are advised to be wary of any unsolicited advice or offers to buy shares. If it sounds too good to be true, it often is. See the FCA website at fca.org.uk/consumers/scams for more detailed information about this or similar activities. Holders of ordinary shares resident in Ireland Computershare Investor Services (Ireland) Ltd PO Box 9742 Dublin 18, Ireland Telephone: +353 (0)818 300 999 investorcentre.co.uk/contactus Quarter 2014/2015 First quarter Second quarter Third quarter Fourth quarter 2015/2016 First quarter Second quarter Third quarter Fourth quarter 2016/2017 First quarter1 Month November 2015 December 2015 January 2016 February 2016 March 2016 April 2016 May 20161 High Low High Low 2.27 2.10 2.34 2.40 2.55 2.46 2.26 2.25 1.90 1.89 1.85 2.15 2.20 2.04 2.04 2.00 38.26 34.54 36.55 36.03 39.21 38.25 34.42 32.72 32.00 32.18 29.67 32.30 32.71 30.90 31.00 29.19 2.33 2.16 33.82 30.66 London Stock Exchange Pounds per ordinary share NASDAQ Dollars per ADS High 2.26 2.22 2.24 2.25 2.23 2.33 2.25 Low 2.14 2.04 2.10 2.00 2.13 2.16 2.18 High 34.42 33.47 32.54 32.72 32.10 33.82 33.01 Low 32.31 31.20 30.05 29.19 30.57 30.66 32.08 176 Note: 1 Covering period up to 16 May 2016. Vodafone Group Plc Annual Report 2016Foreign currency translation The following table sets out the pounds sterling exchange rates of the other principal currencies of the Group, being: “euros”, “€” or “eurocents”, the currency of the European Union (‘EU’) member states which have adopted the euro as their currency, and “US dollars”, “US$”, “cents” or “¢”, the currency of the United States. Currency (=£1) Average: Euro US dollar At 31 March: Euro US dollar 31 March 2016 2015 % Change 1.37 1.51 1.26 1.44 1.28 1.61 1.38 1.48 7.0 (6.2) (8.7) (2.7) Low 1.53 1.49 1.49 1.46 1.39 The following table sets out, for the periods and dates indicated, the period end, average, high and low exchanges rates for pounds sterling expressed in US dollars per £1.00. Year ended 31 March 2012 2013 2014 2015 2016 31 March 1.60 1.52 1.67 1.48 1.44 Average 1.60 1.58 1.59 1.61 1.51 High 1.67 1.63 1.67 1.71 1.59 The following table sets out, for the periods indicated, the high and low exchange rates for pounds sterling expressed in US dollars per £1.00. Year ended 31 March November 2015 December 2015 January 2016 February 2016 March 2016 April 2016 High 1.54 1.52 1.47 1.46 1.45 1.46 Low 1.50 1.48 1.42 1.39 1.39 1.41 Markets Ordinary shares of Vodafone Group Plc are traded on the London Stock Exchange and in the form of ADSs on NASDAQ. ADSs, each representing ten ordinary shares, are traded on NASDAQ under the symbol “VOD”. The ADSs are evidenced by ADRs issued by BNY Mellon, as depositary, under a deposit agreement, dated as of 12 October 1988, as amended and restated on 26 December 1989, 16 September 1991, 30 June 1999, 31 July 2006 and 24 February 2015 between the Company, the depositary and the holders from time to time of ADRs issued thereunder. ADS holders are not members of the Company but may instruct BNY Mellon on the exercise of voting rights relative to the number of ordinary shares represented by their ADSs. See “Articles of Association and applicable English laws and rights attaching to the Company’s shares – Voting rights” on page 178. Shareholders as at 31 March 2016 Number of ordinary shares held 1–1,000 1,001–5,000 5,001–50,000 50,001–100,000 100,001–500,000 More than 500,000 Number of accounts 338,780 49,830 15,606 525 672 1,172 406,585 % of total issued shares 0.22 0.38 0.64 0.12 0.54 98.10 100.00 Major shareholders BNY Mellon, as custodian of our ADR programme, held approximately 13.46% of our ordinary shares of 2020/21 US cents each at 16 May 2016 as nominee. The total number of ADRs outstanding at 16 May 2016 was 387,958,868. At this date 1,495 holders of record of ordinary shares had registered addresses in the United States and in total held approximately 0.008% of the ordinary shares of the Company. At 31 March 2016 the following percentage interests in the ordinary share capital of the Company, disclosable under the Disclosure and Transparency Rules, (DTR 5), have been notified to the Directors. Shareholder Black Rock Investment Management Ltd. Legal & General Investment Management Ltd. Shareholding 6.62% 3.19% No changes in the interests disclosed under DTR 5 have been notified to the Company between 31 March 2016 and 16 May 2016. Between 1 April 2013 and 16 May 2016 Capital Group Companies Inc. has held more than 3% of, or 3% of voting rights attributable to, the ordinary shares of the Company. During this period, and as notified, its holding was reduced to below the 3% reporting threshold. The rights attaching to the ordinary shares of the Company held by these shareholders are identical in all respects to the rights attaching to all the ordinary shares of the Company. The Directors are not aware at 16 May 2016 of any other interest of 3% or more in the ordinary share capital of the Company. The Company is not directly or indirectly owned or controlled by any foreign government or any other legal entity. There are no arrangements known to the Company that could result in a change of control of the Company. Articles of Association and applicable English law The following description summarises certain provisions of the Company’s Articles of Association and applicable English law. This summary is qualified in its entirety by reference to the Companies Act 2006 of England and Wales and the Company’s Articles of Association. See “Documents on display” on page 179 for information on where copies of the Articles of Association can be obtained. The Company is a public limited company under the laws of England and Wales. The Company is registered in England and Wales under the name Vodafone Group Public Limited Company with the registration number 1833679. All of the Company’s ordinary shares are fully paid. Accordingly, no further contribution of capital may be required by the Company from the holders of such shares. English law specifies that any alteration to the Articles of Association must be approved by a special resolution of the shareholders. Articles of Association The Company’s Articles of Association do not specifically restrict the objects of the Company. Directors The Directors are empowered under the Articles of Association to exercise all the powers of the Company subject to any restrictions in the Articles of Association, the Companies Act (as defined in the Articles of Association) and any special resolution. Under the Company’s Articles of Association a Director cannot vote in respect of any proposal in which the Director, or any person connected with the Director, has a material interest other than by virtue of the Director’s interest in the Company’s shares or other securities. However, this restriction on voting does not apply in certain circumstances set out in the Articles of Association. 177 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Shareholder information (continued) Unaudited information The Directors are empowered to exercise all the powers of the Company to borrow money, subject to the limitation that the aggregate amount of all liabilities and obligations of the Group outstanding at any time shall not exceed an amount equal to 1.5 times the aggregate of the Group’s share capital and reserves calculated in the manner prescribed in the Articles of Association unless sanctioned by an ordinary resolution of the Company’s shareholders. The Company can make market purchases of its own shares or agree to do so in the future provided it is duly authorised by its members in a general meeting and subject to and in accordance with section 701 of the Companies Act 2006. Such authority was given at the 2015 annual general meeting but no purchases were made during this financial year. At each annual general meeting all Directors who were elected or last re-elected at or before the annual general meeting held in the third calendar year before the current year shall automatically retire. However, the Board has decided in the interests of good corporate governance that all of the Directors wishing to continue in office should offer themselves for re-election annually. Directors are not required under the Company’s Articles of Association to hold any shares of the Company as a qualification to act as a Director, although the Executive Directors are required to under the Company’s remuneration policy. Further details are set out on pages 57 to 73. Rights attaching to the Company’s shares At 31 March 2016 the issued share capital of the Company was comprised of 50,000 7% cumulative fixed rate shares of £1.00 each and 26,558,570,312 ordinary shares (excluding treasury shares) of 2020⁄21 US cents each. As at 31 March 2016, 2,254,825,696 ordinary shares were held in Treasury. Dividend rights Holders of 7% cumulative fixed rate shares are entitled to be paid in respect of each financial year, or other accounting period of the Company, a fixed cumulative preferential dividend of 7% per annum on the nominal value of the fixed rate shares. A fixed cumulative preferential dividend may only be paid out of available distributable profits which the Directors have resolved should be distributed. The fixed rate shares do not have any other right to share in the Company’s profits. Holders of the Company’s ordinary shares may, by ordinary resolution, declare dividends but may not declare dividends in excess of the amount recommended by the Directors. The Board of Directors may also pay interim dividends. No dividend may be paid other than out of profits available for distribution. Dividends on ordinary shares can be paid to shareholders in whatever currency the Directors decide, using an appropriate exchange rate for any currency conversions which are required. If a dividend has not been claimed for one year after the date of the resolution passed at a general meeting declaring that dividend or the resolution of the Directors providing for payment of that dividend, the Directors may invest the dividend or use it in some other way for the benefit of the Company until the dividend is claimed. If the dividend remains unclaimed for 12 years after the relevant resolution either declaring that dividend or providing for payment of that dividend, it will be forfeited and belong to the Company. Voting rights At a general meeting of the Company, when voting on substantive resolutions (i.e. any resolution which is not a procedural resolution) each shareholder who is entitled to vote and is present in person or by proxy has one vote for every share held (a poll vote). Procedural resolutions (such as a resolution to adjourn a general meeting or a resolution on the choice of Chairman of a general meeting) shall be decided on a show of hands, where each shareholder who is present at the meeting has one vote regardless of the number of shares held, unless a poll is demanded. Shareholders entitled to vote at general meetings may appoint proxies who are entitled to vote, attend and speak at general meetings. Two shareholders present in person or by proxy constitute a quorum for purposes of a general meeting of the Company. Under English law shareholders of a public company such as the Company are not permitted to pass resolutions by written consent. Record holders of the Company’s ADSs are entitled to attend, speak and vote on a poll or a show of hands at any general meeting of the Company’s shareholders by the depositary’s appointment of them as corporate representatives with respect to the underlying ordinary shares represented by their ADSs. Alternatively, holders of ADSs are entitled to vote by supplying their voting instructions to the depositary or its nominee who will vote the ordinary shares underlying their ADSs in accordance with their instructions. Holders of the Company’s ADSs are entitled to receive notices of shareholders’ meetings under the terms of the deposit agreement relating to the ADSs. Employees are able to vote any shares held under the Vodafone Group Share Incentive Plan and “My ShareBank” (a vested nominee share account) through the respective plan’s trustees. Holders of the Company’s 7% cumulative fixed rate shares are only entitled to vote on any resolution to vary or abrogate the rights attached to the fixed rate shares. Holders have one vote for every fully paid 7% cumulative fixed rate share. Liquidation rights In the event of the liquidation of the Company, after payment of all liabilities and deductions in accordance with English law, the holders of the Company’s 7% cumulative fixed rate shares would be entitled to a sum equal to the capital paid up on such shares, together with certain dividend payments, in priority to holders of the Company’s ordinary shares. The holders of the fixed rate shares do not have any other right to share in the Company’s surplus assets. Pre-emptive rights and new issues of shares Under section 549 of the Companies Act 2006 Directors are, with certain exceptions, unable to allot the Company’s ordinary shares or securities convertible into the Company’s ordinary shares without the authority of the shareholders in a general meeting. In addition, section 561 of the Companies Act 2006 imposes further restrictions on the issue of equity securities (as defined in the Companies Act 2006 which include the Company’s ordinary shares and securities convertible into ordinary shares) which are, or are to be, paid up wholly in cash and not first offered to existing shareholders. The Company’s articles of association allow shareholders to authorise Directors for a period specified in the relevant resolution to allot (i) relevant securities generally up to an amount fixed by the shareholders; and (ii) equity securities for cash other than in connection with a pre-emptive offer up to an amount specified by the shareholders and free of the pre-emption restriction in section 561. At the 2015 annual general meeting the amount of relevant securities fixed by shareholders under (i) above and the amount of equity securities specified by shareholders under (ii) above were both in line with corporate governance guidelines. Further details of such proposals are provided in the 2016 notice of annual general meeting. 178 Vodafone Group Plc Annual Report 2016Disclosure of interests in the Company’s shares There are no provisions in the Articles of Association whereby persons acquiring, holding or disposing of a certain percentage of the Company’s shares are required to make disclosure of their ownership percentage although such requirements exist under rules derived from the UK Disclosure and Transparency Rules. General meetings and notices Subject to the Articles of Association, annual general meetings are held at such times and place as determined by the Directors of the Company. The Directors may also, when they think fit, convene other general meetings of the Company. General meetings may also be convened on requisition as provided by the Companies Act 2006. An annual general meeting needs to be called on not less than 21 days’ notice in writing. Subject to obtaining shareholder approval on an annual basis, the Company may call other general meetings on 14 days’ notice. The Directors may determine that persons entitled to receive notices of meetings are those persons entered on the register at the close of business on a day determined by the Directors but not later than 21 days before the date the relevant notice is sent. The notice may also specify the record date, the time of which shall be determined in accordance with the Articles of Association and the Companies Act 2006. Under section 336 of the Companies Act 2006 the annual general meeting of shareholders must be held each calendar year and within six months of the Company’s year end. Variation of rights If at any time the Company’s share capital is divided into different classes of shares, the rights attached to any class may be varied, subject to the provisions of the Companies Act 2006, either with the consent in writing of the holders of three quarters in nominal value of the shares of that class or at a separate meeting of the holders of the shares of that class. At every such separate meeting all of the provisions of the Articles of Association relating to proceedings at a general meeting apply, except that (i) the quorum is to be the number of persons (which must be at least two) who hold or represent by proxy not less than one third in nominal value of the issued shares of the class or, if such quorum is not present on an adjourned meeting, one person who holds shares of the class regardless of the number of shares he holds; (ii) any person present in person or by proxy may demand a poll; and (iii) each shareholder will have one vote per share held in that particular class in the event a poll is taken. Class rights are deemed not to have been varied by the creation or issue of new shares ranking equally with or subsequent to that class of shares in sharing in profits or assets of the Company or by a redemption or repurchase of the shares by the Company. Limitations on transfer, voting and shareholding As far as the Company is aware there are no limitations imposed on the transfer, holding or voting of the Company’s ordinary shares other than those limitations that would generally apply to all of the shareholders, those that apply by law (e.g. due to insider dealing rules) or those that apply as a result of failure to comply with a notice under section 793 of the Companies Act 2006. No shareholder has any securities carrying special rights with regard to control of the Company. The Company is not aware of any agreements between holders of securities that may result in restrictions on the transfer of securities. Documents on display The Company is subject to the information requirements of the Exchange Act applicable to foreign private issuers. In accordance with these requirements the Company files its Annual Report on Form 20-F and other related documents with the SEC. These documents may be inspected at the SEC’s public reference rooms located at 100 F Street, NE Washington, DC 20549. Information on the operation of the public reference room can be obtained in the United States by calling the SEC on +1-800-SEC-0330. In addition, some of the Company’s SEC filings, including all those filed on or after 4 November 2002, are available on the SEC’s website at sec.gov. Shareholders can also obtain copies of the Company’s Articles of Association from our website at vodafone.com/governance or from the Company’s registered office. Material contracts At the date of this Annual Report the Group is not party to any contracts that are considered material to the Group’s results or operations except for: a its US$4.1 billion and €4.0 billion revolving credit facilities which are discussed in note 22 “Liquidity and capital resources” to the consolidated financial statements; a its subscription agreements for the £2.9 billion of subordinated mandatory convertible bonds placed on 25 February 2016 as discussed in note 22 “Liquidity and capital resources” to the consolidated financial statements; and a the agreed form Contribution and Transfer Agreement in respect of the Dutch joint venture with Liberty Global as detailed in note 29 “Commitments” to the consolidated financial statements. Exchange controls There are no UK Government laws, decrees or regulations that restrict or affect the export or import of capital, including but not limited to, foreign exchange controls on remittance of dividends on the ordinary shares or on the conduct of the Group’s operations. Taxation As this is a complex area investors should consult their own tax advisor regarding the US federal, state and local, the UK and other tax consequences of owning and disposing of shares and ADSs in their particular circumstances. This section describes, primarily for a US holder (as defined below), in general terms, the principal US federal income tax and UK tax consequences of owning or disposing of shares or ADSs in the Company held as capital assets (for US and UK tax purposes). This section does not, however, cover the tax consequences for members of certain classes of holders subject to special rules including, for example, US expatriates and former long-term residents of the United States; officers and employees of the Company; holders that, directly, indirectly or by attribution, hold 5% or more of the Company’s voting stock; financial institutions; insurance companies; individual retirement accounts and other tax-deferred accounts; tax-exempt organisations; dealers in securities or currencies; investors that will hold shares or ADSs as part of straddles, hedging transactions or conversion transactions for US federal income tax purposes; investors holding shares or ADSs in connection with a trade or business conducted outside of the US; or investors whose functional currency is not the US dollar. 179 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Taxation of dividends UK taxation Under current UK law, no amount will be required to be withheld on account of UK tax from the dividends that we pay. Shareholders who are within the charge to UK corporation tax will be subject to corporation tax on the dividends we pay unless the dividends fall within an exempt class and certain other conditions are met. It is expected that the dividends we pay would generally be exempt. Individual shareholders in the Company who are residents in the UK will be subject to the income tax on the dividends we pay. For dividends received before 6 April 2016, a tax credit equal to one-ninth of the cash dividend will be available. For dividends received on or after 6 April 2016 dividends received will no longer be eligible for tax credit and will be taxable in the UK at the dividend rates applicable where the income received is above the tax-free dividend allowance (£5,000 per tax year). US federal income taxation Subject to the passive foreign investment company (‘PFIC’) rules described below, a US holder is subject to US federal income taxation on the gross amount of any dividend we pay out of our current or accumulated earnings and profits (as determined for US federal income tax purposes). However, the Company does not maintain calculations of its earnings and profits in accordance with US federal income tax accounting principles. US holders should therefore assume that any distribution by the Company with respect to shares will be reported as ordinary dividend income. Dividends paid to a non- corporate US holder will be taxable to the holder at the reduced rate normally applicable to long-term capital gains provided that certain requirements are met. Dividends must be included in income when the US holder, in the case of shares, or the depositary, in the case of ADSs, actually or constructively receives the dividend and will not be eligible for the dividends-received deduction generally allowed to US corporations in respect of dividends received from other US corporations. The amount of the dividend distribution to be included in income will be the US dollar value of the pound sterling payments made determined at the spot pound sterling/US dollar rate on the date the dividends are received by the US holder, in the case of shares, or the depositary, in the case of ADSs, regardless of whether the payment is in fact converted into US dollars at that time. If dividends received in pounds sterling are converted into US dollars on the day they are received, the US holder generally will not be required to recognise any foreign currency gain or loss in respect of the dividend income. Where UK tax is payable on any dividends received, a foreign tax credit may be claimable under the treaty. Shareholder information (continued) Unaudited information A US holder is a beneficial owner of shares or ADSs that is for US federal income tax purposes: a an individual citizen or resident of the United States; a a US domestic corporation; a an estate, the income of which is subject to US federal income tax regardless of its source; or a a trust, if a US court can exercise primary supervision over the trust’s administration and one or more US persons are authorised to control all substantial decisions of the trust, or the trust has validly elected to be treated as a domestic trust for US federal income tax purposes. If an entity or arrangement treated as a partnership for US federal income tax purposes holds the shares or ADSs, the US federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. Holders that are entities or arrangements treated as partnerships for US federal income tax purposes should consult their tax advisors concerning the US federal income tax consequences to them and their partners of the ownership and disposition of shares or ADSs by the partnership. This section is based on the US Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations thereunder, published rulings and court decisions, and on the tax laws of the UK, the Double Taxation Convention between the United States and the UK (the ‘treaty’) and current HM Revenue and Customs published practice, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. This section also assumes that the UK Finance Bill, as ordered to be published on 24 March 2016, will be enacted without amendment. This section is further based in part upon the representations of the depositary and assumes that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms. For the purposes of the treaty and the US–UK double taxation convention relating to estate and gift taxes (the ‘Estate Tax Convention’), and for US federal income tax and UK tax purposes, this section is based on the assumption that a holder of ADRs evidencing ADSs will generally be treated as the owner of the shares in the Company represented by those ADRs. Investors should note that a ruling by the first-tier tax tribunal in the UK has cast doubt on this view, but HMRC have stated that they will continue to apply their long-standing practice of regarding the holder of such ADRs as holding the beneficial interest in the underlying shares. Similarly, the US Treasury has expressed concern that US holders of depositary receipts (such as holders of ADRs representing our ADSs) may be claiming foreign tax credits in situations where an intermediary in the chain of ownership between such holders and the issuer of the security underlying the depositary receipts, or a party to whom depositary receipts or deposited shares are delivered by the depositary prior to the receipt by the depositary of the corresponding securities, has taken actions inconsistent with the ownership of the underlying security by the person claiming the credit, such as a disposition of such security. Such actions may also be inconsistent with the claiming of the reduced tax rates that may be applicable to certain dividends received by certain non-corporate holders, as described below. Accordingly, (i) the creditability of any UK taxes and (ii) the availability of the reduced tax rates for any dividends received by certain non-corporate US Holders, each as described below, could be affected by actions taken by such parties or intermediaries. Generally exchanges of shares for ADRs and ADRs for shares will not be subject to US federal income tax or to UK tax other than stamp duty or stamp duty reserve tax (see the section on these taxes on page 181). 180 Vodafone Group Plc Annual Report 2016Following rulings of the European Court of Justice and the first-tier tax tribunal in the UK, HMRC have confirmed that the 1.5% SDRT charge will not be levied on an issue of shares to a depositary receipts system on the basis that such a charge is contrary to EU law. No stamp duty should in practice be required to be paid on any transfer of our ADSs provided that the ADSs and any separate instrument of transfer are executed and retained at all times outside the UK. A transfer of our shares in registered form will attract ad valorem stamp duty generally at the rate of 0.5% of the purchase price of the shares. There is no charge to ad valorem stamp duty on gifts. SDRT is generally payable on an unconditional agreement to transfer our shares in registered form at 0.5% of the amount or value of the consideration for the transfer, but if, within six years of the date of the agreement, an instrument transferring the shares is executed, any SDRT which has been paid would be repayable or, if the SDRT has not been paid, the liability to pay the tax (but not necessarily interest and penalties) would be cancelled. However, an agreement to transfer our ADSs will not give rise to SDRT. PFIC rules We do not believe that our shares or ADSs will be treated as stock of a PFIC for US federal income tax purposes for our current taxable year or the foreseeable future. This conclusion is a factual determination that is made annually and thus is subject to change. If we are treated as a PFIC, US holders of shares would be required (i) to pay a special US addition to tax on certain distributions and (ii) any gain realised on the sale or other disposition of the shares or ADSs would in general not be treated as a capital gain unless a US holder elects to be taxed annually on a mark-to-market basis with respect to the shares or ADSs. Otherwise a US holder would be treated as if he or she has realised such gain and certain “excess distributions” rateably over the holding period for the shares or ADSs and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated. An interest charge in respect of the tax attributable to each such preceding year beginning with the first such year in which our shares or ADSs were treated as stock in a PFIC would also apply. In addition, dividends received from us would not be eligible for the reduced rate of tax described above under “Taxation of Dividends – US federal income taxation”. Back-up withholding and information reporting Payments of dividends and other proceeds to a US holder with respect to shares or ADSs, by a US paying agent or other US intermediary will be reported to the Internal Revenue Service (‘IRS’) and to the US holder as may be required under applicable regulations. Back-up withholding may apply to these payments if the US holder fails to provide an accurate taxpayer identification number or certification of exempt status or fails to comply with applicable certification requirements. Certain US holders are not subject to back-up withholding. US holders should consult their tax advisors about these rules and any other reporting obligations that may apply to the ownership or disposition of shares or ADSs, including requirements related to the holding of certain foreign financial assets. Taxation of capital gains UK taxation A US holder that is not resident in the UK will generally not be liable for UK tax in respect of any capital gain realised on a disposal of our shares or ADSs. However, a US holder may be liable for both UK and US tax in respect of a gain on the disposal of our shares or ADSs if the US holder: a is a citizen of the United States and is resident in the UK; a is an individual who realises such a gain during a period of “temporary non-residence” (broadly, where the individual becomes resident in the UK, having ceased to be so resident for a period of five years or less, and was resident in the UK for at least four out of the seven tax years immediately preceding the year of departure from the UK); a is a US domestic corporation resident in the UK by reason of being centrally managed and controlled in the UK; or a is a citizen or a resident of the United States, or a US domestic corporation, that has used, held or acquired the shares or ADSs in connection with a branch, agency or permanent establishment in the UK through which it carries on a trade, profession or vocation in the UK. In such circumstances, relief from double taxation may be available under the treaty. Holders who may fall within one of the above categories should consult their professional advisers. US federal income taxation Subject to the PFIC rules described below, a US holder that sells or otherwise disposes of our shares or ADSs generally will recognise a capital gain or loss for US federal income tax purposes equal to the difference between the US dollar value of the amount realised and the holder’s adjusted tax basis, determined in US dollars, in the shares or ADSs. This capital gain or loss will be a long-term capital gain or loss if the US holder’s holding period in the shares or ADSs exceeds one year. The gain or loss will generally be income or loss from sources within the US for foreign tax credit limitation purposes. The deductibility of losses is subject to limitations. Additional tax considerations UK inheritance tax An individual who is domiciled in the United States (for the purposes of the Estate Tax Convention) and is not a UK national will not be subject to UK inheritance tax in respect of our shares or ADSs on the individual’s death or on a transfer of the shares or ADSs during the individual’s lifetime, provided that any applicable US federal gift or estate tax is paid, unless the shares or ADSs are part of the business property of a UK permanent establishment or pertain to a UK fixed base used for the performance of independent personal services. Where the shares or ADSs have been placed in trust by a settlor they may be subject to UK inheritance tax unless, when the trust was created, the settlor was domiciled in the United States and was not a UK national. Where the shares or ADSs are subject to both UK inheritance tax and to US federal gift or estate tax, the estate tax convention generally provides a credit against US federal tax liabilities for UK inheritance tax paid. UK stamp duty and stamp duty reserve tax Stamp duty will, subject to certain exceptions, be payable on any instrument transferring our shares to the custodian of the depositary at the rate of 1.5% on the amount or value of the consideration if on sale or on the value of such shares if not on sale. Stamp duty reserve tax (‘SDRT’), at the rate of 1.5% of the amount or value of the consideration or the value of the shares, could also be payable in these circumstances but no SDRT will be payable if stamp duty equal to such SDRT liability is paid. 181 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016History and development Unaudited information The Company was incorporated under English law in 1984 as Racal Strategic Radio Limited (registered number 1833679). After various name changes, 20% of Racal Telecom Plc share capital was offered to the public in October 1988. The Company was fully demerged from Racal Electronics Plc and became an independent company in September 1991, at which time it changed its name to Vodafone Group Plc. Since then we have entered into various transactions which significantly impacted on the development of the Group. The most significant of these transactions are summarised below: a The merger with AirTouch Communications, Inc. which completed on 30 June 1999. The Company changed its name to Vodafone AirTouch Plc in June 1999 but then reverted to its former name, Vodafone Group Plc, on 28 July 2000. a The completion on 10 July 2000 of the agreement with Bell Atlantic and GTE to combine their US cellular operations to create the largest mobile operator in the United States, Verizon Wireless, resulting in the Group having a 45% interest in the combined entity. a The acquisition of Mannesmann AG which completed on 12 April 2000. Through this transaction we acquired businesses in Germany and Italy and increased our indirect holding in Société Française u Radiotéléphone S.A. (‘SFR’). a Through a series of business transactions between 1999 and 2004 we acquired a 97.7% stake in Vodafone Japan. This was then disposed of on 27 April 2006. a On 8 May 2007 we acquired companies with controlling interests in Vodafone India Limited (‘VIL’), formerly Vodafone Essar Limited, for US$10.9 billion (£5.5 billion). a On 20 April 2009 we acquired an additional 15.0% stake in Vodacom for cash consideration of ZAR 20.6 billion (£1.6 billion). On 18 May 2009 Vodacom became a subsidiary. a Through a series of business transactions in 2011 and 2012, Vodafone assigned its rights to purchase approximately 11% of VIL from the Essar Group to Piramal Healthcare Limited (‘Piramal’). On 18 August 2011 Piramal purchased 5.5% of VIL from the Essar Group for a cash consideration of INR 28.6 billion (£368 million). On 8 February 2012, they purchased a further 5.5% of VIL from the Essar Group for a cash consideration of approximately INR 30.1 billion (£399 million) taking Piramal’s total shareholding in VIL to approximately 11%. a On 9 November 2011 we sold our entire 24.4% interest in Polkomtel in Poland for cash consideration of approximately €920 million (£784 million) before tax and transaction costs. a On 27 July 2012 we acquired the entire share capital of Cable & Wireless Worldwide plc for a cash consideration of £1,050 million. a On 31 October 2012 we acquired TelstraClear Limited in New Zealand for a cash consideration of NZ$840 million (£440 million). a On 13 September 2013 we acquired a 76.57% interest in Kabel Deutschland Holding AG in Germany for cash consideration of €5.8 billion (£4.9 billion). a The completion on 21 February 2014 of the agreement, announced on 2 September 2013, to dispose of our US Group whose principal asset was its 45% interest in Verizon Wireless (‘VZW’) to Verizon Communications Inc. (‘Verizon’), Vodafone’s joint venture partner, for a total consideration of US$130 billion (£79 billion) including the remaining 23.1% minority interest in Vodafone Italy. Following completion, Vodafone shareholders received Verizon shares and cash totalling US$85 billion (£51 billion). a In March 2014 we acquired the indirect equity interests in VIL held by Analjit Singh and Neelu Analjit Singh, taking our stake to 89.03% and then in April 2014 we acquired the remaining 10.97% of VIL from Piramal Enterprises Limited for cash consideration of INR 89.0 billion (£0.9 billion), taking our ownership interest to 100%. a On 10 September 2010 we sold our entire 3.2% interest in China a On 23 July 2014 we acquired the entire share capital of Grupo Mobile Limited for cash consideration of £4.3 billion. a On 16 June 2011 we sold our entire 44% interest in SFR to Vivendi for a cash consideration of €7.75 billion (£6.8 billion) and received a final dividend from SFR of €200 million (£176 million). a Through a series of business transactions on 1 June and 1 July 2011, we acquired an additional 22% stake in VIL from the Essar Group for a cash consideration of US$4.2 billion (£2.6 billion) including withholding tax. Corporativo Ono, S.A. (‘Ono’) in Spain for total consideration, including associated net debt acquired, of €7.2 billion (£5.8 billion). Details of significant transactions that occurred during year ended 31 March 2016 are included in note 28 “Acquisitions and disposals” and in note 29 “Commitments”. Details of significant transactions that occurred after 31 March 2016 and before the signing of this Annual Report on 17 May 2016 are included in note 32 “Subsequent events”. 182 Vodafone Group Plc Annual Report 2016Regulation Unaudited information Our operating companies are generally subject to regulation governing the operation of their business activities. Such regulation typically takes the form of industry specific law and regulation covering telecommunications services and general competition (antitrust) law applicable to all activities. The following section describes the regulatory frameworks and the key regulatory developments at national and supranational level and in selected countries in which we have significant interests during the year ended 31 March 2016. Many of the regulatory developments reported in the following section involve ongoing proceedings or consideration of potential proceedings that have not reached a conclusion. Accordingly, we are unable to attach a specific level of financial risk to our performance from such matters. European Union (‘EU’) In October 2015 the European Parliament and the European Council adopted the European Commission’s (‘the Commission’) proposed regulation known as the Telecoms Single Market Package. The regulation requires the abolition of retail roaming surcharges by June 2017 and introduces net neutrality rules which come into force from 30 April 2016. In May 2015 the Commission published the Digital Single Market strategy, aimed at producing a more advanced digital single market. The strategy has three pillars: (i) maximising the growth potential of the European digital economy; (ii) creating the right conditions for digital networks and services to flourish; and (iii) better access for consumers and businesses to online e-goods and services across Europe. The Commission is currently undertaking various consultations which will lead to the revision of existing, or the adoption of new, legislation. One of these consultations considers the revision of the EU telecoms regulatory framework that covers five areas: Next-Generation Access (‘NGA’) regulation, spectrum, rules for communications services, universal service, and the institutional set-up and governance. There is a clear focus on incentivising investment in NGA (including access for mobile backhaul), the further harmonisation of spectrum regulation and the creation of a fair and level playing field for competing services. Other consultations we have or are responding to include: Internet speed and quality; review of national wholesale roaming markets, fair use policy and the sustainability mechanism; online platforms, cloud & data, liability of intermediaries, collaborative economy; ICT Standards; tackling unjustified geo-blocking; the needs for internet speed and quality beyond 2020; review of the Satellite and Cable Directive; the revision of the Audio Visual Media Services Directive; contract rules for online purchases of digital content and tangible goods; the e Privacy Directive; and the evaluation of Commission Recommendation 2009/396/EU on the regulatory treatment of fixed and mobile termination rates in the EU. The Commission are also planning a consultation on the review of safety of apps and other non-embedded software. Europe region Germany In June 2015 Vodafone Germany acquired 110MHz out of the 270MHz made available in the spectrum auction. This consisted of 2x10MHz of 700MHz band, 2x10MHz of 900MHz band, 1x20MHz of 1500MHz band and 2x25MHz of 1800MHz band for a total of €2,091 million. Total auction bids amounted to €5,081 million. In February 2016 Deutsche Telekom applied for approval of new Unbundled Local Loop (‘ULL’) fees that would lead to an average increase of 10% and would be valid until the end of 2019. On 20 April 2016 the National Regulatory Authority (‘BNetzA’) proposed reducing the existing ULL rates by up to 1.7%. The rate decision will, after EU consolidation proceedings, become effective on 1 July 2016. In April 2016 BNetzA issued its draft decision on Deutsche Telekom’s layer 2 bitstream access product proposal. The final BNetzA decision is expected in June 2016. Furthermore, BNetzA has proposed to mandate an additional Virtual Unbundled Local Access (‘VULA’) product at street cabinets which is not currently technically and commercially defined. In May 2016 the Commission announced that BNetzA’s proposal to allow DT the exclusive deployment of vectoring within the nearshore areas of the main distribution frames may not be compliant with EU law, based on the apparent restrictions it places on alternative operators. Therefore the vectoring proposal and the associated conditions for the new VULA product will be subject to further scrutiny, with the Commission due to announce its decision by September 2016. Italy In September 2015 Vodafone obtained one of the two L band TDD blocks equal to 20MHz at just under €232 million. The licence commenced on 1 January 2016 and expires on 31 December 2029. In December 2015 further to its investigation into irregularities in the maintenance services of fixed networks, the Italian competition authority (‘AGCM‘) announced its decision to fine Telecom Italia (‘TI’) €21.5 million on the basis it had engaged in agreements with six other undertakings that abused its market dominance. In accordance with the decision, TI is now obliged to provide unbundled access to maintenance activities and to allow their competitors to acquire maintenance services from third parties. In December 2015 the National Regulatory Authority (‘AGCOM’) adopted the final decision regarding the wholesale fixed access market. The decision requires the application of the same remedies and prices nationally, cost orientation for all wholesale copper and fibre access services and price reductions from 2015 to 2017 for VULA fibre to the cabinet (‘FTTC’) (-36%) and copper bit-stream (-18%). For information on litigation in Italy, see note 30 “Contingent liabilities and legal proceedings” to the consolidated financial statements. United Kingdom In September 2015 the national regulatory authority (‘Ofcom’) published its final decision revising the annual licence fees payable on licences for the use of spectrum in the 900MHz and 1800MHz bands to reflect full market value, following the completion of the 4G auction. From 31 October 2016 Vodafone UK will pay annual fees of approximately £50 million for the spectrum. An application has been made by Everything Everywhere (‘EE’) to appeal this decision. Vodafone has given notice of its intention to intervene in any resulting appeal. In May 2016 the European Commission competition authority (‘DGCOMP’) announced its decision to prohibit the proposed Hutchison 3G acquisition of Telefonica UK (‘O2’). Hutchinson 3G have the option to appeal to the EU’s General Court in Luxembourg. In December 2015 Vodafone UK acquired 20MHz of 1400MHz spectrum with an indefinite licence from Qualcomm. In January 2016 British Telecom’s acquisition of mobile network operator EE received final approval from the UK’s Competition and Markets Authority (’CMA’). 183 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Regulation (continued) Unaudited information In February 2016 Ofcom released its initial conclusions following its Strategic Review of Digital Communications. Ofcom’s proposals include requirements on BT to open up its network to competitors, reforming BT Openreach’s governance and delivering better Quality of Service for all customers. Vodafone UK will continue to engage with Ofcom as it implements these proposals including a consultation on Openreach governance expected in summer 2016. Spain The fines applied to Telefónica, Orange and Vodafone Spain in December 2012 for abuse of dominant position by imposing excessive pricing of wholesale SMS/MMS services on mobile virtual network operators (‘MVNO’), remain suspended until the judicial review is concluded. In June 2015 in response to the national competition authority’s (‘CNMC’) conditional approval of Telefónica’s acquisition of pay-TV operator Distribuidora de Televisión Digital (‘DTS’), Vodafone Spain appealed to the National Court. The appeal required the adoption of precautionary measures to increase the amount of premium content made available to other operators from 50% to 75% and to include football within the same pricing mechanism as other premium content channels. The National Court rejected the adoption of the precautionary measures on 18 April 2016. In January 2016 following a review of the regulatory ex ante price squeeze test run on Telefónica’s retail offers, CNMC issued a draft decision that proposes to modify the test to ensure it is capable of being replicated by other operators. This was further to Vodafone Spain’s submission to CNMC’s surveillance procedure that called for action on the retail offers of Telefónica; the wholesale conditions of access; and the breach by Telefónica of its commitments. In October 2015 DGCOMP approved Orange’s proposed acquisition of Jazztel, based on an agreement that included, among other provisions, the commitment to sell a certain amount of Jazztel’s fibre- optic assets to Masmóvil. In January 2016 Telefónica and Mediapro reached an agreement under which Telefónica acquires the rights to broadcast the beIN Sports LaLiga channel (Spanish first division and King’s Cup/Copa del Rey) and the beIN Sports channel (Champions League and Europa League), for the seasons 2016/17 to 2018/19, for a total amount of €2.4 billion. Vodafone Spain challenged the exclusive nature of the agreement and, after obtaining CNMC’s support, in February 2016 Mediapro initiated a second round of talks where Vodafone Spain confirmed its interest to acquire the beIN Sports LaLiga channel on a non-exclusive basis and the contract for the licence with Mediapro was signed on 5 April 2016. In March 2016 CNMC approved the resolution on wholesale regulation of broadband markets (Markets 3a, 3b & 4, including NGA). Netherlands The Dutch Government has renewed the existing 2.1GHz licences that were due to expire by the end of 2016. The renewal is for a period of four years (2017–2020), and provides an opportunity for a simultaneous auction with the 700MHz band. In October 2014 the Court of Appeal (‘CBb’) decided to refer the ongoing case of termination rates to the European Court of Justice (‘ECJ’) regarding the legal status of the recommendation to use pure bottom up long run incremental cost (‘BULRIC’). The CBb will be able to issue its final decision once it has received the ruling of the ECJ, which is currently expected during the second half of 2016. In February 2016 the Dutch Supreme Court ruled on the Dutch implementation of the EU Consumer Credit Directive and “instalment sales agreements” (a Dutch law concept), holding that bundled “all-in” mobile subscription agreements (i.e. device along with mobile services) are considered consumer credit agreements. As a result Vodafone Netherlands together with the industry has been working with the Ministry of Finance and the Competition Authority on compliance requirements going forward for such offers. The ruling also has retrospective effect and a claim has been submitted by a claims organisation which is currently being reviewed by Vodafone Netherlands. Ireland In February 2016 further to Vodafone Ireland’s successful appeal in the High Court against the national regulatory authority’s (‘ComReg’) interim mobile termination rate (‘MTR’) decision, ComReg published a revised MTR decision. Effective from 1 September 2016 and based on a pure Long Run Incremental Cost (‘LRIC’) model, the MTR will be 0.84 eurocents per minute. ComReg confirmed that following discussions with Vodafone Ireland they would drop their appeal to the Supreme Court. Vodafone Ireland has agreed to accept the new rate and drop the remaining related challenges outstanding before the High Court. Portugal In February 2016 the national regulatory authority (‘ANACOM’) confirmed the renewal of Vodafone Portugal’s 2.1GHz spectrum band with increased coverage obligations and additional reporting commitments but without the requirement of an auction or licence fee. The expiry date has been extended to 5 May 2033. In March 2016 ANACOM commenced a consultation into the 3a (Wholesale local access), 3b (Wholesale central access) and 4 (Wholesale high-quality access) markets. Romania In November 2015 the national regulatory authority (‘ANCOM’) announced their decision to deregulate the wholesale local access market (market 3a/2014), removing all of the fixed wholesale access regulations previously imposed on Telekom Romania, the former incumbent. ANCOM’s analysis concludes that the retail broadband market in Romania is competitive and ex ante regulation at the wholesale level cannot be justified. The decision was unopposed by the European Commission. Greece In December 2015 Vodafone Greece’s spectrum (2x56MHz) at 2.6GHz band licence expired. To date, we await the Ministry of Infrastructure, Transport and Networks (‘MITN’) to take the appropriate action for renewal, in the meantime Vodafone Greece continues to have access to the spectrum. The MITN and the national regulatory authority, (‘EETT’ – where currently the role of Chair is vacant) have not commenced the formal procedure to determine price and the award process prior to the August 2016 expiration date of Vodafone Greece’s 2x15MHz spectrum at 1800MHz. Czech Republic In June 2015 the former fixed incumbent (O2 Czech Republic) was split into two legally separate entities (network and service company) but both entities are still controlled by the private investment fund PPF. In February 2016 further to the national regulatory authority (‘CTU’) consultation on the unsold 1800MHz and 2.6GHz spectrum from 2013, an auction was announced with bidding commencing in April 2016. The auction for the 3.7GHz spectrum is due to commence in the second half of 2016. Hungary Vodafone Hungary has no material items to report for 2016. 184 Vodafone Group Plc Annual Report 2016Albania In March 2015 Vodafone M-Pesa was licensed as an e-money issuance institution and has since been able to perform utility payments and money transfer services for its customers. Between April and June 2015 Vodafone Albania secured spectrum for 2x1.8MHz of 900MHz band, 2x14.4MHz of 1800MHz and 2x20+20MHz of 2.6GHz band, allowing 4G services to be made available. In September 2015 spectrum neutrality and reshuffling in the 1800MHz spectrum band was introduced. Malta In March 2014 the national regulatory authority (‘MCA’) set the MTR at 0.40 eurocents per minute. Vodafone Malta has submitted an appeal to the Administrative Review Tribunal on the basis that there was a lack of transparency in the consultation process. For information on litigation in India, see note 30 “Contingent liabilities and legal proceedings” to the consolidated financial statements. Vodacom: South Africa In March 2014 the High Court ruled in favour of Vodacom and MTN in their challenge to the national regulatory authority’s (‘ICASA’) decision on Call Termination Regulations (‘CTR’). This led to ICASA initiating another consultation process and in September 2014 they published the final CTR that reduces the rate to ZAR 0.13 cents per minute by October 2016. In December 2014 Cell C served ICASA (including other interested parties such as Vodacom and MTN) with a notice of motion in terms of which it is seeking an order for the review and setting aside by the High Court, of the September 2014 CTRs. Vodacom had filed a notice to oppose Cell C’s application. This matter was due to be heard from 7 March 2016 however Cell C withdrew its application. Africa, Middle East and Asia-Pacific region India In February 2012 Vodafone India challenged the Department of Telecommunications (‘DoT’) at the Telecom Tribunal on the financial requirements for approving the transfer of Vodafone India telecom licenses that were held under seven subsidiary companies to create two telecom licensed companies – Vodafone India Limited and its subsidiary Vodafone Mobile Services Limited. Pleadings were completed on 6 April 2016 and the next hearing is due on 19 May 2016. In February 2015 the national regulatory authority (‘TRAI’) announced its revised regulation on MTRs, reducing the rate from 20 paisa to 14 paisa per minute for mobile termination and nil termination for calls originating from, or terminating on, a fixed line. Vodafone India has challenged TRAI’s decision in the Delhi High Court and the hearing is due to commence in May 2016. In April 2015 TRAI launched a consultation on the regulatory framework for Over-The-Top (‘OTT’) services and Net Neutrality and the completion of that consultation is awaited. In February 2016 TRAI issued a regulation prohibiting the charging of discriminatory tariffs on the basis of content or services accessed. In March 2015 in the spectrum auction for 800MHz, 900MHz, 1800MHz and 2.1GHz bands, Vodafone India won spectrum in all six circles where the existing spectrum was due for expiry in December 2015, thus ensuring continuity of business. It also won an additional 2.1GHz spectrum in six service areas. The total auction spend by Vodafone India was INR 258 billion. In May 2015 the Supreme Court dismissed Vodafone India’s appeal against the DoT’s refusal to extend its existing spectrum licences in Delhi, Mumbai and Kolkata. In September and October 2015 guidelines for Spectrum Sharing and Spectrum Trading were issued respectively. In January 2016 TRAI submitted its recommendations to the DoT on the Valuation & Reserve price of Spectrum and DoT’s decision is expected by the end of May 2016. In February 2016 further to Prime Minister Narendra Modi’s allocation of budget for the Government’s Digital India agenda, TRAI recommended a public-private partnership (‘PPP’) “build own operate transfer” (‘BOOT’) model as the preferred means of the implementation strategy for BharatNet (the Government’s national optic fibre network programme). DoT’s decision on the TRAI recommendation is awaited. In May 2016 further to a challenge by the telecom operators, the Indian Supreme Court held that the order announced in October 2015 by TRAI, mandating MNOs to compensate customers for any call drops, was “arbitrary, unreasonable and non-transparent” and therefore cancelled. In May 2014 the national competition authority (‘CompCom’) confirmed its intention to proceed with the investigation into an allegation by Cell C that Vodacom and MTN have abused their market dominance in contravention of section 8 of the Competition Act. Once the investigation is completed, the matter may be referred to the Competition Tribunal where Vodacom will have a further opportunity to make its case. In May 2014 Vodacom entered into a sale and purchase agreement under which it would acquire 100% of the issued share capital of Neotel as well as Neotel’s shareholder loans and liabilities. The proposed acquisition of the majority of Neotel’s assets has been abandoned due to regulatory complexities and certain conditions not being fulfilled. In September 2015 further to its International Mobile Telecommunications (‘IMT’) Radio Frequency Spectrum Assignment Plans (‘RFSAP’) published in March 2015 ICASA published an Information Memorandum (‘IM’) on the prospective licensing of the 700MHz, 800MHz and 2.6GHz High Demand Spectrum bands. The IM is a precursor to an Invitation to Apply (‘ITA’). Vodacom has raised its concerns that the IM does not provide sufficient detail on some of the critical aspects of the auction design and process. In February 2016 the Department of Trade and Industry (‘DTI’) published the revised draft ICT Sector Code for consultation. This code follows the May 2015 implementation of the revised generic DTI Codes on Black Economic Empowerment (‘BEE’) which saw a complete overhaul of the targets and requirements of the 2007 Codes, which included the removal of the recognition of ZAR7.5 billion rule for ownership and retention of 30% investing target that Vodacom must be compliant with to be eligible to bid in future Spectrum auctions. The revised Codes are expected to be finalised in June 2016 and will be applicable to the financial period of 1 April 2016 to 31 March 2017. Vodacom: Democratic Republic of Congo In December 2015 the Government ordered all operators to disconnect any unregistered customers. In February 2016 all operators received a non-compliance letter from the National Intelligence Agency, stating sanctions would be applied. Vodacom DRC is suspending customers with insufficient registration records and communicating to such customers the requirement to register to avoid disconnection. To date, no sanctions have been imposed. In September 2015 the national regulatory authority (‘ARPTC’) retained the current on-net voice price floor at 5.1 US cents per minute and off net 8.5 US cents per minute set in March 2015 and extended the price floor to cover international outgoing calls and promotions until June 2016. In December 2015 Vodacom Congo’s 2G licence was renewed with a ten-year extension taking the expiry date to 1 January 2028, together with securing additional spectrum 2x5.8 1800MHz and 1x15 1900MHz. Collectively, the licence and spectrum fees paid was US$22.5 million. 185 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Regulation (continued) Unaudited information Vodacom: Tanzania In February 2016 further to the gazetted final regulations which set out voluntary requirements for all telecommunications licensees to list a minimum of 20% of their ordinary share capital on the Dar Stock Exchange to be held by Tanzanian investors, or make a one- off payment of 0.6% of gross revenues into an ICT development fund within 12 months of effective date of regulation, the Ministry of Communications commenced consultations with the industry on the governance, structure and payments into this fund. In February 2016 the national regulatory authority (‘TCRA’) approved Vodacom Tanzania’s acquisition of Shared Networks Tanzania which holds 2x5 900MHz spectrum which will be used to support provision of rural services. The national competition authority’s (‘FCC’) approval is still pending. In March 2016 TCRA commenced a Request for Proposal for spectrum auction consultants which is required ahead of the planned 700MHz auction. Vodacom: Mozambique In August 2015 following an announcement from the Minister of Communications that unregistered customers must be disconnected, a new registration regulation was introduced, which approved electronic registration. Subsequently, the operators and regulator agreed on a joint campaign and phased disconnection process to achieve complete registration by November 2016. A new communications bill is being reviewed by the Parliament. The bill introduces inter alia, a new electronic communications licence regime, price regulation approval process, a competition law-based regulatory regime, and new law enforcement powers. Vodacom: Lesotho In September 2015 the national regulatory authority (‘LCA’) confirmed in writing to Vodacom Lesotho that its service licence will be renewed when it expires on 31 May 2016 at a cost of ZAR5 million. In February 2016 Vodacom Lesotho was awarded 2 x 20 1800MHz spectrum to be used for Long-Term Evolution (‘LTE’). International roaming in Africa In November 2014 East Africa Community (‘EAC’) Ministers of Communications met and set the national regulation authorities (‘NRAs’) the task to implement “Phase 1” price caps for wholesale (US 7 cents) and retail (US 10 cents). It was agreed that Phase 1 would be interim until “Phase 2” Single Area Network regulation is issued following a study to be conducted by the regulators for the region. In November 2015, the Tanzania Ministry of Communications commenced a consultation on the Phase 1 price caps for EAC countries. In September 2015 further to Southern African Development Community (‘SADC’) Ministers of Communications requirements that the NRAs implement international roaming wholesale and retail five-year glide-paths, the Communications Regulators’ Association of Southern Africa (‘CRASA’) issued Regulatory Guidance and accompanying Policy. The CRASA requested that NRAs implement the glide-paths from 1 October 2015 and transparency measures in accordance with their applicable national law. The policy recognised that the glide-paths should not take prices below underlying cost and that member countries should take steps to reduce issues which increase costs, notably taxes on international incoming calls. Vodacom is participating in the processes conducted by NRAs in SADC member states. Turkey In March 2015 further to Vodafone’s letter of appeal in the administrative court to the announcement by the national regulatory authority (‘ICTA’) in August 2014 that the scope of the 3G coverage must be broadened to include new metropolitan areas, the Council of State adopted a motion suspending the ICTA’s action and the lawsuit is pending. In May 2015 after the Electronic Trade Law came into force, secondary legislation was finalised by both the Ministry of Customs and Trade (‘MoCT’) and the ICTA. Under the new regulations, operators will only be permitted to use their marketing database for operator related marketing reasons. Third parties were permitted to send one time SMSs to mobile operators’ databases asking their customers to opt into their database, up to and including 15 September 2015. In August 2015 the 4.5G (IMT Advanced) auction was completed grossing total revenue of €3.36 billion excluding taxes, compared to reserve prices of €2.3 billion. Only three mobile operators bid for the spectrum bands and there were no bids for the 2.6GHz block reserved for a fourth operator. Vodafone Turkey paid a total of €778 million for 82.8MHz (2x10MHz in the 800MHz band, 2x1.4MHz in 900MHz band, 2x10MHz in 1800MHz band, 2x15MHz FDD in the 2.6GHz band and 1x10MHz TDD in the 2.6GHz band). The operators launched 4.5G services as of 1 April 2016. Australia The national regulatory authority (‘ACMA’) has completed an auction of up to 60MHz of regional 1800MHz spectrum to be made available in two to three years’ time (currently allocated for fixed link wireless services). Vodafone Australia acquired spectrum in many regional areas, including Canberra. After extensive lobbying by the industry, the Government is looking to undertake the most comprehensive overhaul of spectrum management in 15 years. Vodafone Australia is advocating for a framework that better considers the competition effects of spectrum policy (60% of regional spectrum is held by Telstra) and the establishment of more market-orientated spectrum licences and a better renewal process and more flexible payment terms. Egypt The Administrative Court ruling in favour of Vodafone Egypt in the case filed against Telecom Egypt and the national regulatory authority (‘NTRA’), regarding the NTRA’s authority to set MTRs between operators has been partially implemented with Orange Egypt (formerly Mobinil) and Telecom Egypt, however, an arbitration case is pending with Etisalat Misr. The implementation of the Unified License remains on hold. The 4G and fixed licence proposals are being developed by the NTRA and will be presented for approval to the Egyptian Cabinet. For information on litigation in Egypt, see note 30 “Contingent liabilities and legal proceedings” to the consolidated financial statements. Ghana In December 2015 the national regulatory authority (‘NCA’) conducted a spectrum auction in the 800MHz band. Vodafone Ghana as well as the other four mobile network operators and three mobile broadband wireless access operators declined to participate in the auction on the basis of the high reserve price. Scancom Ghana (trading as MTN Ghana) was the only entity to participate and submit bids in the auction. MTN was therefore awarded one of the blocks in the two lots of 2x10MHz at a reserve price of US$67.5 million. New Zealand In March 2015 the New Zealand Government announced the expansion of the existing Ultra-fast Broadband fibre to the premises (‘FTTP’) initiative from 75% to 80% of premises passed at a projected cost of between NZ$152 million and NZ$210 million. In addition, the Government announced a further NZ$150 million of funding to improve broadband coverage in rural areas and address mobile blackspots. Competitive tenders for these initiatives are expected to be completed in 2016. 186 Vodafone Group Plc Annual Report 2016Safaricom: Kenya Safaricom continues to operate on a periodically renewed trial licence for the 2x15MHz 800MHz band spectrum granted in February 2015 until the national regulatory authority (‘CA’) is ready to issue the full Commercial Licence. The CA is also conducting a stakeholders’ consultation on the allocation of LTE spectrum in the 800MHz band to all mobile operators. In August 2015 CA issued new subscriber regulations to be implemented by February 2016. Safaricom is working with the authorities on revised timelines to ensure an effective transition to the new regime as the envisaged timeframe wasn’t operationally feasible. The CA has announced its intention to commission a study on competition within the telecommunications sector. The date for the commencement of the review has not been announced. Overview of spectrum licences at 31 March 2016 Qatar In January 2016 Qatar underwent a significant government re-shuffle at cabinet level resulting in the amalgamation of the Ministry of Information and Communications Technology with the Ministry of Transport and the replacement of the incumbent Telecoms Minister. Vodafone Qatar is currently challenging decisions made by both the previous Ministry and national regulatory authority (‘NRA’) relating to the application and enforcement of the dominance framework. Preliminary decisions were issued in respect of all three actions in March 2016. The action taken against the Ministry was rejected on technical grounds with the Court declining to recognise the decision of the Ministry as a “final administrative decision” under the Administrative Law. The two separate cases relating to subsequent decisions of the NRA have been reserved for further investigation and consideration. Country by region Europe region Germany Italy UK Spain Netherlands Ireland Portugal Romania Greece Czech Republic Hungary 700MHz Quantity1 (Expiry date) 800MHz Quantity1 (Expiry date) 900MHz Quantity1 (Expiry date) 1400/1500MHz Quantity1 (Expiry date) 1800MHz Quantity1 (Expiry date) 2x10 (2033) 2x10 (2025) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 2x10 (2029) 2x10 (2033) 2x10 (2030) 2x10 (2029) 2x10 (2030) 2x10 (2027) 2x10 (2029) 2x10 (2030) 2x10 (2029) 2x10 (2029) 2x10 (2021) 2x5 (2016) 2x252 (2033) 2x15 (2018) 2x52 (2029) 2x6 See note3 2x20 (2030) 2x20 (2030) 2x25 (2030) 2x6 (2021) 2x142 (2027) 2x30 (2029) 2x10 (2027) 2x152 (2016) 2x18 (2021) 2x42 (2029) 2x15 (2022)3 2.1GHz Quantity1 (Expiry date) 2x10+5 (2020) 2x52 (2025) 2x15+5 (2021) 2x15 See note3 2x15+5 (2030) 2x20+5 (2020) 2x15+5 (2022) 2x20 (2033) 2.6GHz Quantity1 (Expiry date) 3.5GHz Quantity1 (Expiry date) 2x20+25 (2025) 2x15 (2029) 2x20+25 (2033) 2x20+20 (2030) 2x10 (2030) n/a 2x20+25 (2027) n/a n/a n/a n/a n/a n/a n/a 2x15+5 (2020) 2x20+5 (2021) 1x15 (2029) 2x20+20 (2030) 1x40 (2025) n/a 2x20 (2025) 2x20 (2029) 2x15 (2019) 2x20+25 (2029) n/a n/a n/a 2x20+20 (2030) 2x9 (2016) 2x142 (2030) 2x25 (2026) 2x15+5 (2025) 2x52 (2029) 2x20+5 (2020) 2x12 (2016) 2x102 (2033) 2x10 (2018) 2x17 See note3 2x10 (2028) 2x10 (2030) 2x10 (2030) 2x5 (2021) 2x52 (2027) 2x10 (2029) 2x15 (2027) 2x10 (2022)4 2x1 (2029)4 2x8 (2016) 2x22 (2030) 2x15 (2026) 1x20 (2033) 1x20 (2029) 1x20 (2023) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Albania n/a n/a Malta n/a n/a n/a 1x42 (2020) 187 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Regulation (continued) Unaudited information 700MHz Quantity1 Country by region (Expiry date) Africa, Middle East and Asia-Pacific India5 n/a Vodacom: South Africa6 n/a n/a Vodacom: Democratic Republic of Congo Lesotho7 Mozambique n/a n/a Tanzania Turkey Australia8 Egypt New Zealand Safaricom: Kenya Ghana Qatar n/a n/a n/a n/a 2x15 (2031) n/a n/a n/a 800MHz Quantity1 (Expiry date) 900MHz Quantity1 (Expiry date) 1400/1500MHz Quantity1 (Expiry date) 1800MHz Quantity1 (Expiry date) 2.1GHz Quantity1 (Expiry date) 2.6GHz Quantity1 (Expiry date) 3.5GHz Quantity1 (Expiry date) 2x207 n/a n/a (2016–2035)5 2x116 n/a 2x6 n/a (2028) 2x227 2x8 (2018) 2x8 (2031) 2x11 (2023) 2x12 (2029) 2x8 (2028) n/a 2x10 (2029) 2x10 (850MHz) (2028) n/a n/a 2x15 (Trial) n/a 2x10 (2029) 2x13 (2022) 2x15 (2031) 2x17 (2024) 2x8 (2019) 2x11 (2028) n/a n/a n/a (2016–2035)5 2x126 n/a 2x18 n/a (2028) 2x307 2x8 (2018) 2x10 (2031) 2x10 (2029) n/a n/a (2030) 2x15+56 2x10+15 (2032) 2x157 2x15+10 (2023) 2x15 (2031) 2x15+5 (2029) n/a n/a n/a n/a n/a n/a 2x30 (annual) 2x25+5 (2017) 2x15 (2022) 2x25+10 (2021) 2x10 (2022) 2x15 (2023)9 2x15 (2028) 2x10 (2022) 2x25 (2021) 2x20 (2024) 2x10 (2019) 2x20 (2028) 2x52 (2029) n/a n/a n/a 1x407 n/a n/a 2x15+10 (2029) n/a n/a 2x15+5 (2028) n/a n/a n/a n/a n/a 1x30 (2026) 1x427 n/a 1x28 (2031) n/a n/a n/a 2x28 (2022) n/a n/a n/a Notes: 1 Single (or unpaired) blocks of spectrum are used for asymmetric data (non-voice) use; block quantity has been rounded to the nearest whole number. 2 Blocks within the same spectrum band but with different licence expiry dates are separately identified. 3 UK – 900MHz, 1800MHz and 2.1GHz – indefinite licence with a five-year notice of revocation. 4 Hungary – 900MHz and 1800MHz – conditional options to extend these licences to 2034. 5 6 Vodacom’s South African spectrum licences are renewed annually. As part of the migration to a new licensing regime the national regulator has issued Vodacom a service licence and a network India comprises 22 separate service area licences with a variety of expiry dates. licence which will permit Vodacom to offer mobile and fixed services. The service and network licences have a twenty-year duration and will expire in 2028. 7 Vodacom’s Lesotho spectrum licences are renewed annually, N.B. 1x40MHz in 2.6GHz column is actually 2.3GHz. 8 Australia –table refers to Sydney/Melbourne only. In total VHA has: – 850MHz band – 2x10MHz in Sydney/Melbourne/Brisbane/Adelaide/Perth and 2x5MHz across the rest of Australia. – 900MHz band – 2x8MHz across Australia. – 1800MHz band – 2x30MHz in Sydney/Melbourne, 2x25MHz in Brisbane/Adelaide/Perth/Canberra, 2x10MHz in Victoria/North Queensland/Western Australia and 2x5MHz in Darwin/Tasmania/South Queensland. – 2.1GHz band, VHA holds 2x25 MHz in Sydney/Melbourne, 2x20MHz in Brisbane/Adelaide/Perth, 2x10MHz in Canberra/Darwin/Hobart and 2x5MHz in regional Australia. 9 Ghana – The NRA has issued provisional licences with the intention of converting them to full licences once the NRA has been reconvened. 188 Vodafone Group Plc Annual Report 2016 Mobile Termination Rates (‘MTRs’) National regulators are required to take utmost account of the Commission’s existing recommendation on the regulation of fixed and MTRs. This recommendation requires MTRs to be set using a long run incremental cost methodology. Over the last three years MTRs effective for our subsidiaries were as follows: Country by region Europe Germany (€ cents) Italy (€ cents) UK (GB £ pence) Spain (€ cents) Netherlands (€ cents)3 Ireland (€ cents) Portugal (€ cents) Romania (€ cents) Greece (€ cents) Czech Republic (CZK) Hungary (HUF) Albania (ALL) Malta (€ cents) Africa, Middle East and Asia-Pacific India (rupees)4 Vodacom: South Africa (ZAR)5 Vodacom: Democratic Republic of Congo (USD cents) Lesotho (LSL/ZAR) Mozambique (MZN/USD cents) Tanzania (TZN) Turkey (lira) Australia (AUD cents) Egypt (PTS/piastres) New Zealand (NZD cents) Safaricom: Kenya (shilling) Ghana (peswas) Qatar (dirhams) 20141 1.79 0.98 0.85 1.09 1.86 2.60 1.27 0.96 1.19 0.27 7.06 2.66 2.07 0.20 0.40 3.70 0.47 1.44 32.40 0.0258 3.60 10.00 3.72 1.15 4.00 16.60 20151 1.72 0.98 0.67 1.09 1.86 2.60 1.27 0.96 1.099 0.27 7.06 1.48 0.40 0.14 0.20 3.40 0.38 0.86 30.58 0.0258 3.60 10.00 3.56 1.15 4.00 16.60 20161 1.66 0.98 0.68 1.09 1.86 2.60 0.83 0.96 1.081 0.27 1.71 1.48 0.40 0.14 0.16 3.40 0.32 0.86 28.57 0.0258 1.70 10.00 3.56 0.99 5.00 9.00 1 April 20162 1.66 0.98 0.51 1.09 1.86 0.84 (from September 2016) 0.79 (from July 2016) 0.96 1.081 0.27 1.71 1.48 0.40 0.14 0.13 (from October 2016) 3.40 (until June 2016) 0.26 (from October 2016) 0.86 26.96 (from January 2017) 0.0258 1.70 10.00 3.56 0.99 5.00 8.31 Notes: 1 All MTRs are based on end of financial year values. 2 MTRs established from 1 April 2016 are included at the current rate or where a glide-path or a final decision has been determined by the national regulatory authority. 3 MTR under review by ECJ and decision due after June 2016. 4 MTR under appeal and due to be heard 18 May 2016. 5 Please see Vodacom: South Africa on page 185. 189 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Non-GAAP information Unaudited information In the discussion of our reported financial position, operating results and cash flows, information is presented to provide readers with additional financial information that is regularly reviewed by management. However, this additional information presented is not uniformly defined by all companies, including those in the Group’s industry. Accordingly, it may not be comparable with similarly titled measures and disclosures by other companies. Additionally, certain information presented is derived from amounts calculated in accordance with IFRS but is not itself an expressly permitted GAAP measure. Such non-GAAP measures should not be viewed in isolation or as an alternative to the equivalent GAAP measure. EBITDA EBITDA is operating profit excluding share in results of associates, depreciation and amortisation, gains/losses on the disposal of fixed assets, impairment losses, restructuring costs, other operating income and expense and significant items that are not considered by management to be reflective of the underlying performance of the Group. We use EBITDA, in conjunction with other GAAP and non-GAAP financial measures such as adjusted operating profit, operating profit and net profit, to assess our operating performance. We believe that EBITDA is an operating performance measure, not a liquidity measure, as it includes non-cash changes in working capital and is reviewed by the Chief Executive to assess internal performance in conjunction with EBITDA margin, which is an alternative sales margin figure. We believe it is both useful and necessary to report EBITDA as a performance measure as it enhances the comparability of profit across segments. Because EBITDA does not take into account certain items that affect operations and performance, EBITDA has inherent limitations as a performance measure. To compensate for these limitations, we analyse EBITDA in conjunction with other GAAP and non-GAAP operating performance measures. EBITDA should not be considered in isolation or as a substitute for a GAAP measure of operating performance. A reconciliation of EBITDA to the closest equivalent GAAP measure, operating profit, is provided above and in note 2 “Segmental analysis” to the consolidated financial statements. Group adjusted operating profit and adjusted earnings per share Group adjusted operating profit excludes non-operating income of associates, impairment losses, restructuring costs, amortisation of customer bases and brand intangible assets, other operating income and expense and other significant one-off items. Adjusted earnings per share also excludes certain foreign exchange rate differences, together with related tax effects. We believe that it is both useful and necessary to report these measures for the following reasons: a these measures are used for internal performance reporting; a these measures are used in setting director and management remuneration; and a they are useful in connection with discussion with the investment analyst community and debt rating agencies. A reconciliation of adjusted operating profit to the respective closest equivalent GAAP measure, operating profit, is provided above and in note 2 “Segmental analysis” to the consolidated financial statements. A reconciliation of adjusted earnings per share to basic earnings per share is provided in the “Operating results” on page 31. Cash flow measures In presenting and discussing our reported results, free cash flow and operating free cash flow are calculated and presented even though these measures are not recognised within IFRS. We believe that it is both useful and necessary to communicate free cash flow to investors and other interested parties, for the following reasons: a free cash flow allows us and external parties to evaluate our liquidity and the cash generated by our operations. Free cash flow does not include payments for licences and spectrum included within intangible assets, items determined independently of the ongoing business, such as the level of dividends, and items which are deemed discretionary, such as cash flows relating to acquisitions and disposals or financing activities. In addition, it does not necessarily reflect the amounts which we have an obligation to incur. However, it does reflect the cash available for such discretionary activities, to strengthen the consolidated statement of financial position or to provide returns to shareholders in the form of dividends or share purchases; a free cash flow facilitates comparability of results with other companies, although our measure of free cash flow may not be directly comparable to similarly titled measures used by other companies; a these measures are used by management for planning, reporting and incentive purposes; and a these measures are useful in connection with discussion with the investment analyst community and debt rating agencies. 190 Vodafone Group Plc Annual Report 2016A reconciliation of cash generated by operations, the closest equivalent GAAP measure, to operating free cash flow and free cash flow, is provided below. Cash generated by operations (refer to note 19) Capital expenditure Working capital movement in respect of capital expenditure Disposal of property, plant and equipment Restructuring costs Other1 Operating free cash flow Taxation Dividends received from associates and investments Dividends paid to non-controlling shareholders in subsidiaries Interest received and paid Free cash flow 2016  £m 11,220 (8,599) (63) 140 186 – 2,884 (689) 67 (223) (1,026) 1,013 2015 £m  10,397 (9,197) 762 178 336 387 2,863 (758) 224 (247) (994) 1,088 2014 £m  12,147 (6,313) 456 79 210 – 6,579 (3,449) 2,842 (264) (1,315) 4,393 Note: 1 Other movements for the year ended 31 March 2016 include £nil (2015: £365 million, 2014: £nil) UK pensions contribution payment and £nil (2015: £116 million, 2014: £nil) of KDG incentive scheme payments that vested upon acquisition. Other Certain of the statements within the section titled “Chief Executive’s strategic review” on pages 10 to 13 contain forward-looking non-GAAP financial information for which at this time there is no comparable GAAP measure and which at this time cannot be quantitatively reconciled to comparable GAAP financial information. Certain of the statements within the section titled “Looking ahead” on page 15 contain forward-looking non-GAAP financial information which at this time cannot be quantitatively reconciled to comparable GAAP financial information. Organic growth All amounts in this document marked with an “*” represent organic growth which presents performance on a comparable basis, in terms of both merger and acquisition activity and foreign exchange movements. While “organic growth” is neither intended to be a substitute for reported growth, nor is it superior to reported growth, we believe that the measure provides useful and necessary information to investors and other related parties for the following reasons: a it provides additional information on underlying growth of the business without the effect of certain factors unrelated to its operating performance; a it is used for internal performance analysis; and a it facilitates comparability of underlying growth with other companies (although the term “organic” is not a defined term under IFRS and may not, therefore, be comparable with similarly titled measures reported by other companies). For the quarter ended 31 March 2015 and consequently the year ended 31 March 2015, the Group’s organic service revenue growth rate was adjusted to exclude the beneficial impact of a settlement of a historical interconnect rate dispute in the UK and the beneficial impact of an upward revision to interconnect revenue in Egypt from a re-estimation by management of the appropriate historical mobile interconnection rate. The adjustments in relation to Vodafone UK and Vodafone Egypt also impacted the disclosed organic growth rates for those countries. In addition, the Group’s organic service revenue growth rates for the year ended 31 March 2015, the six months ended 30 September 2015 and the quarters ended 31 March 2015, 30 June 2015, 30 September 2015 and 31 December 2015 have been amended to exclude the adverse impact of an adjustment to intercompany revenue. For the year ended 31 March 2016, the Group has amended its reporting to reflect changes in the internal management of its Enterprise business. The primary change has been that, on 1 April 2015, the Group redefined its segments to report international voice transit service revenue and costs within common functions rather than within the service revenue and cost amounts disclosed for each country and region. The results presented for the year ended 31 March 2015 have been restated on a comparable basis together with all disclosed organic growth rates. There is no impact on total Group results. In addition, for the quarter and six months ended 30 September 2015 and year ended 31 March 2016, the Group’s and Vodafone UK’s organic service revenue growth rate has been adjusted to exclude the beneficial impact of a settlement of a historical interconnect rate dispute in the UK. 191 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Non-GAAP information (continued) Unaudited information Reconciliation of organic growth to reported growth is shown where used, or in the table below: 31 March 2016 Group Revenue Service revenue Service revenue excluding the impact of MTR cuts Enterprise service revenue Enterprise fixed service revenue Vodafone Global Enterprise service revenue Machine-to-machine revenue EBITDA Percentage point change in EBITDA margin Adjusted operating profit EBITDA Service revenue Europe Mobile service revenue Fixed service revenue Germany – Mobile service revenue Germany – Fixed service revenue Italy – Mobile service revenue Italy – Fixed service revenue UK – Mobile service revenue UK – Fixed service revenue UK – Fixed service revenue excluding carrier services Spain – Service revenue excluding the impact of handset financing Spain – Mobile service revenue Spain – Fixed service revenue Netherlands – Service revenue Germany – Percentage point change in EBITDA margin Italy – Percentage point change in EBITDA margin UK – Percentage point change in EBITDA margin Spain – Percentage point change in EBITDA margin Other Europe – Percentage point change in EBITDA margin Europe – Percentage point change in EBITDA margin EBITDA Europe – Percentage point change in EBITDA margin Service revenue Mobile service revenue Fixed service revenue Germany – Service revenue Italy – Service revenue UK – Service revenue Spain – Service revenue Other Europe – Service revenue Romania – Service revenue Portugal – Service revenue Netherlands – Service revenue Mobile service revenue Fixed service revenue Germany – Service revenue Italy – Service revenue UK – Service revenue Spain – Service revenue Other Europe – Service revenue Netherlands – Service revenue 192 Period Organic change % Other activity1 pps Foreign exchange pps Reported change % FY FY FY FY FY FY FY FY FY FY H2 Q4 FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY H2 H2 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q4 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 2.3 1.5 2.1 2.1 4.4 5.9 28.6 2.7 0.1 (3.9) 3.6 2.5 (2.0) 3.5 (1.6) 1.5 (1.1) 1.2 (0.7) 1.1 2.4 0.3 (8.0) 7.8 0.3 0.8 – 0.2 1.3 (1.0) 0.4 2.3 0.6 0.5 (1.1) 5.4 1.6 1.3 (0.1) (3.2) 2.1 7.7 3.5 (1.3) (2.0) 3.7 (0.4) (0.3) (0.7) (3.1) 1.6 0.2 0.7 0.7 0.7 1.5 4.9 3.2 10.8 1.0 0.1 0.2 (2.1) (1.8) 0.2 5.1 – – – – (0.6) – – 8.7 2.5 30.5 – – – (1.0) 2.1 (0.1) – (3.2) (0.8) (1.1) 0.2 (5.3) – – (5.5) – 0.1 – – – (0.3) 1.2 – – (0.8) (0.1) 1.8 – (6.0) (5.7) (5.7) (5.3) (3.7) (1.3) (14.7) (6.2) (0.1) (7.4) (4.9) (0.8) (5.1) (5.2) (6.6) (6.8) (6.7) (6.7) – – – (6.6) (6.3) (7.1) (6.7) 0.1 – – 0.2 – (0.1) (1.9) 0.1 2.7 2.7 2.7 3.7 3.6 – 3.4 4.1 3.9 4.0 3.8 (6.4) (7.0) (8.4) (8.5) – (8.3) (8.7) (8.3) (3.0) (3.5) (2.9) (1.7) 5.6 7.8 24.7 (2.5) 0.1 (11.1) (3.4) (0.1) (6.9) 3.4 (8.2) (5.3) (7.8) (5.5) (1.3) 1.1 2.4 2.4 (11.8) 31.2 (6.4) 0.9 – (0.8) 3.6 (1.1) 0.3 (2.8) (0.1) 2.1 1.8 2.8 5.3 4.9 (5.6) 0.2 6.3 11.6 7.5 2.5 (8.7) (2.1) (8.8) (8.8) (1.5) (11.5) (5.3) (8.1) Vodafone Group Plc Annual Report 2016AMAP India – Service revenue excluding the impact of MTR cuts and other South Africa – Service revenue Vodacom’s international operations – Service revenue Turkey – Service revenue Egypt – Service revenue India – Percentage point change in EBITDA margin Vodacom – Percentage point change in EBITDA margin Other AMAP – Percentage point change in EBITDA margin AMAP – Percentage point change in EBITDA margin Service revenue India – Service revenue Vodacom – Service revenue South Africa – Service revenue South Africa – Data revenue Other AMAP – Service revenue Service revenue India – Service revenue Vodacom – Service revenue South Africa – Service revenue Other AMAP – Service revenue 31 March 2015 restated Group Revenue Service revenue EBITDA Percentage point change in EBITDA margin Adjusted operating profit EBITDA Europe Germany – Mobile service revenue Germany – Fixed service revenue Germany – Service revenue Germany – Fixed service revenue Germany – Fixed service revenue Germany – Percentage point change in EBITDA margin Italy – Service revenue Italy – Mobile service revenue Italy – Fixed service revenue Italy – Percentage point change in EBITDA margin Italy – Operating expenses Italy – Customer costs UK – Service revenue UK – Mobile service revenue UK – Fixed service revenue UK – Fixed service revenue UK – Fixed service revenue UK – Percentage point change in EBITDA margin Spain – Service revenue Spain – Mobile service revenue Spain – Fixed service revenue Spain – Percentage point change in EBITDA margin Other Europe – Service revenue Other Europe – Service revenue Hungary – Service revenue Other Europe – Percentage point change in EBITDA margin Period Organic change % Other activity1 pps Foreign exchange pps Reported change % FY FY FY FY FY FY FY FY FY Q4 Q4 Q4 Q4 Q4 Q4 Q3 Q3 Q3 Q3 Q3 FY FY FY FY FY H2 FY FY Q4 H1 H2 FY Q4 FY FY FY FY FY Q4 FY FY H1 H2 FY Q4 FY FY FY Q4 Q3 FY FY 10.0 4.7 10.0 19.7 8.9 (0.2) 3.6 (2.1) 0.1 8.1 5.3 6.3 6.5 18.8 12.1 6.5 2.3 7.2 7.2 10.8 (0.8) (1.6) (6.9) (1.8) (24.1) (3.6) (3.5) (4.4) (3.5) (5.0) (3.8) (3.0) (4.1) (12.1) 1.3 (2.4) 3.1 3.0 (0.6) 0.5 (9.1) (11.3) (6.8) (2.4) (7.8) (12.7) 7.8 (4.9) (0.9) (1.1) 8.6 0.1 – – – – (6.3) – – – – (2.2) – – – – (7.1) (0.1) – – – – 17.8 17.7 21.4 1.2 11.0 18.4 – 40.2 1.6 96.0 8.0 2.0 133.9 902.8 998.6 0.9 (1,079.3) (775.9) 5.7 – 5.8 – 11.4 1.7 35.0 5.8 201.9 3.9 2.7 0.8 – (0.1) (0.2) (14.1) (10.1) (18.5) (2.0) – (0.6) 0.7 – (8.7) (2.6) (19.3) (22.9) (25.4) (6.5) (10.0) (1.8) (17.5) (18.7) (12.7) (6.9) (6.7) (7.0) (0.1) (5.5) (5.3) (6.6) (9.8) (10.0) (10.8) (8.5) – (28.7) (123.7) (130.2) – 149.3 108.1 – – – – – – (13.0) (6.3) (21.6) – (10.5) (6.6) (10.8) – 9.8 (9.4) (0.1) 1.2 0.6 (0.2) 3.0 (1.4) 0.1 (2.8) 2.7 (13.0) (16.4) (6.6) (1.5) (3.6) 0.5 (10.3) (11.5) (1.9) 10.1 9.4 7.5 (0.7) (18.6) 9.5 (10.1) 26.0 (11.9) 80.2 (4.3) (1.0) 101.1 767.0 869.7 (1.5) (926.9) (664.8) 5.1 0.5 (3.3) (11.3) 4.6 (0.7) 14.2 (13.2) 188.1 (1.0) (8.7) (6.9) (2.2) – 193 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Non-GAAP information (continued) Unaudited information AMAP Service revenue excluding the impact of MTR cuts India – Service revenue India – Percentage point change in EBITDA margin Vodacom – Service revenue South Africa – Service revenue South Africa – Service revenue excluding the impact of MTR cuts Vodacom’s international operations – Service revenue Turkey – Service revenue Egypt – Service revenue New Zealand – Service revenue Ghana – Service revenue Qatar – Total revenue Vodacom – Percentage point change in EBITDA margin Other AMAP – Percentage point change in EBITDA margin 31 March 2014 restated Group Revenue Service revenue EBITDA Adjusted operating profit Europe Revenue Service revenue EBITDA Adjusted operating profit AMAP Revenue Service revenue EBITDA Adjusted operating profit Note: 1 “Other activity” includes the impact of M&A activity. Refer to “Organic growth” on page 191 for further detail. Period Organic change % Other activity1 pps Foreign exchange pps Reported change % FY Q4 FY Q4 FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY FY 7.0 11.7 1.0 (0.2) (2.7) 1.4 4.8 9.9 2.8 (3.1) 18.9 13.2 (1.1) (0.3) (1.6) (2.0) (6.7) (21.7) (8.8) (8.2) (17.1) (41.9) 8.9 6.7 10.8 30.7 0.5 – – – – – – – 6.4 – – – – (0.2) 4.9 4.9 5.8 57.8 6.6 6.5 9.1 1.3 0.8 0.8 1.1 (0.1) (7.1) 9.3 (0.1) 1.4 (9.7) (9.7) (5.3) (13.4) (5.5) (2.8) (40.2) (1.0) (0.1) 0.5 (2.5) (2.4) (2.4) (52.3) 2.4 2.3 2.5 2.1 (12.1) (11.7) (13.5) (18.6) 0.4 21.0 0.9 1.2 (12.4) (8.3) (0.5) (3.5) 3.7 (5.9) (21.3) 12.2 (1.2) – 0.8 0.5 (3.3) (16.2) 0.2 0.6 (5.5) (38.5) (2.4) (4.2) (1.6) 12.0 194 Vodafone Group Plc Annual Report 2016Form 20-F cross reference guide Unaudited information The information in this document that is referenced in the following table is included in our Annual Report on Form 20-F for 2016 filed with the SEC (the “2016 Form 20-F”). The information in this document may be updated or supplemented at the time of filing with the SEC or later amended if necessary. No other information in this document is included in the 2016 Form 20-F or incorporated by reference into any filings by us under the Securities Act. Please see “Documents on display” on page 179 for information on how to access the 2016 Form 20-F as filed with the SEC. The 2016 Form 20-F has not been approved or disapproved by the SEC nor has the SEC passed judgement upon the adequacy or accuracy of the 2016 Form 20-F. Item 1 2 3 4 Form 20-F caption Identity of Directors, senior management and advisers Offer statistics and expected timetable Key information 3A Selected financial data 3B Capitalisation and indebtedness 3C Reasons for the offer and use of proceeds 3D Risk factors Information on the Company 4A History and development of the Company 4B Business overview 4C Organisational structure 4D Property, plant and equipment 4A Unresolved staff comments Location in this document Not applicable Not applicable Selected financial data Shareholder information: Foreign currency translation Not applicable Not applicable Risk management History and development Contact details Shareholder information: Registrar and transfer office Shareholder information: Articles of association and applicable English law Chief Executive’s strategic review Chief Financial Officer’s review Note 1 “Basis of preparation” Note 2 “Segmental analysis” Note 11 “Property, plant and equipment” Note 28 “Acquisitions and disposals” Note 29 “Commitments” Performance highlights At a glance Our business model: Investing in a great platform for the future Market overview: Understanding our market place Market overview: Adapting and evolving our response Chief Executive’s strategic review Operating results Financial position and resources Prior year operating results Note 2 “Segmental analysis” – Segmental revenue and profit Regulation Note 33 “Related undertakings” Note 12 “Investments in associates and joint arrangements” Note 13 “Other investments” Chief Executive’s strategic review Chief Financial Officer’s review Financial position and resources Note 11 “Property, plant and equipment” None Page – – 202 177 – – 22 to 28 182 Back cover 176 177 10 to 13 14 and 15 91 to 95 96 to 98 114 and 115 147 and 148 148 and 149 2 4 and 5 6 and 7 8 9 10 to 13 30 to 35 36 and 37 163 to 167 97 183 to 189 154 to 161 116 to 118 119 10 to 13 14 and 15 36 and 37 114 and 115 – 195 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016 Form 20-F cross reference guide (continued) Unaudited information Item 5 Form 20-F caption Operating and financial review and prospects 5A Operating results 5B Liquidity and capital resources 5C Research and development, patents and licences, etc. 5D Trend information 5E Off-balance sheet arrangements 5F Tabular disclosure of contractual obligations 5G Safe harbor Directors, senior management and employees 6A Directors and senior management 6B Compensation 6C Board practices 6D Employees 6E Share ownership Major shareholders and related party transactions 7A Major shareholders 7B Related party transactions 7C Interests of experts and counsel Financial information 8A Consolidated statements and other financial information 8B Significant changes The offer and listing 9A Offer and listing details 9B Plan of distribution 9C Markets 9D Selling shareholders 9E Dilution 9F Expenses of the issue 6 7 8 9 196 Location in this document Operating results Prior year operating results Note 21 “Borrowings” Shareholder information: Foreign currency translation Regulation Financial position and resources: Liquidity and capital resources Note 23 “Capital and financial risk management” Note 22 “Liquidity and capital resources” Note 21 “Borrowings” Note 29 “Commitments” Chief Executive’s strategic review Chief Financial Officer’s review Regulation: Licences Chief Executive’s strategic review Market overview: Understanding our market place Market overview: Adapting and evolving our response Note 22 “Liquidity and capital resources” – Off-balance sheet arrangements Note 29 “Commitments” Note 30 “Contingent liabilities and legal proceedings” Financial position and resources: Contractual obligations and commitments Forward-looking statements Board of Directors Executive Committee Directors’ remuneration Note 24 “Directors and key management compensation” Compliance with the 2014 UK Corporate Governance Code Shareholder information: Articles of association and applicable English law Directors’ remuneration Board of Directors Board Committees Our people Note 25 “Employees” Directors’ remuneration Note 27 “Share-based payments” Shareholder information: Major shareholders Directors’ remuneration Note 30 “Contingent liabilities and legal proceedings” Note 31 “Related party transactions” Not applicable Financials1 Audit report on the consolidated and parent company financial statements1 Note 30 “Contingent liabilities and legal proceedings” Not applicable Shareholder information: Share price history Not applicable Shareholder information: Markets Not applicable Not applicable Not applicable Page 30 to 35 163 to 167 126 to 130 177 183 to 189 36 and 37 134 to 139 130 to 133 126 to 130 148 and 149 10 to 13 14 and 15 187 and 188 10 to 13 8 9 130 to 133 148 and 149 149 to 152 36 198 and 199 40 and 41 42 and 43 57 to 73 139 54 and 55 177 57 to 73 40 and 41 47 to 53 18 and 19 140 57 to 73 145 and 146 177 57 to 73 149 to 152 153 – 87 to 162 78 to 86 149 to 152 – 176 – 177 – – – Vodafone Group Plc Annual Report 2016Item 10 Form 20-F caption Additional information 10A Share capital 10B Memorandum and articles of association 10C Material contracts 10D Exchange controls 10E Taxation 10F Dividends and paying agents 10G Statement by experts 10H Documents on display 10I Subsidiary information Quantitative and qualitative disclosures about market risk Description of securities other than equity securities 12A Debt securities 12B Warrants and rights 12C Other securities 12D American depositary shares Defaults, dividend arrearages and delinquencies Material modifications to the rights of security holders and use of proceeds Controls and procedures 16A Audit Committee financial expert 16B Code of ethics 16C Principal accountant fees and services Location in this document Not applicable Shareholder information: Articles of association and applicable English law Shareholder information: Material contracts Shareholder information: Exchange controls Shareholder information: Taxation Not applicable Not applicable Shareholder information: Documents on display Not applicable Note 23 “Capital and financial risk management” Not applicable Not applicable Not applicable Filed with the SEC Not applicable Not applicable Governance Directors’ statement of responsibility: Management’s report on internal control over financial reporting Report of independent registered public accounting firm Board Committees Our US listing requirements Note 3 “Operating profit/(loss)” Board Committees: Audit and Risk Committee – External 16D Exemptions from the listing standards for audit committees 16E Purchase of equity securities by the issuer and affiliated purchasers 16F Change in registrant’s certifying accountant 16G Corporate governance 16H Mine safety disclosure Financial statements Financial statements Exhibits audit Not applicable Not applicable Not applicable Our US listing requirements Not applicable Not applicable Financials1 Filed with the SEC 11 12 13 14 15 16 17 18 19 Page – 177 179 179 179 to 181 – – 179 – 134 to 139 – – – – – – 38 to 56 77 78 47 to 53 56 99 50 and 51 – – – 56 – – 87 to 162 – Note: 1 The parent company financial statements together with the associated notes and the audit report relating thereto, on pages 168 to 174 and pages 79 to 86 respectively, should not be considered to form part of the Company’s annual report on Form 20-F. 197 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Forward-looking statements Unaudited information This document contains “forward-looking statements” within the meaning of the US Private Securities Litigation Reform Act of 1995 with respect to the Group’s financial condition, results of operations and businesses, and certain of the Group’s plans and objectives. In particular, such forward-looking statements include statements with respect to: a the Group’s expectations and guidance regarding its financial and operating performance, the performance of associates and joint ventures, other investments and newly acquired businesses, expectations regarding the Project Spring organic investment programme and expectations regarding fixed revenue and broadband customers; a intentions and expectations regarding the development of products, services and initiatives introduced by, or together with, Vodafone or by third parties; a expectations regarding the global economy and the Group’s operating environment and market position, including future market conditions, growth in the number of worldwide mobile phone users and other trends; a revenue and growth expected from the Group’s Enterprise and total communications strategy; a mobile penetration and coverage rates, MTR cuts, the Group’s ability to acquire spectrum, expected growth prospects in the Europe and AMAP regions and growth in customers and usage generally; a anticipated benefits to the Group from cost-efficiency programmes; a possible future acquisitions, including increases in ownership in existing investments, the timely completion of pending acquisition transactions and pending offers for investments; a expectations and assumptions regarding the Group’s future revenue, operating profit, EBITDA, EBITDA margin, free cash flow, depreciation and amortisation charges, foreign exchange rates, tax rates and capital expenditure; a expectations regarding the Group’s access to adequate funding for its working capital requirements and share buyback programmes, and the Group’s future dividends or its existing investments; and a the impact of regulatory and legal proceedings involving the Group and of scheduled or potential regulatory changes. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as “will”, “anticipates”, “aims”, “could”, “may”, “should”, “expects”, “believes”, “intends”, “plans” or “targets”. By their nature, forward-looking statements are inherently predictive, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements. These factors include, but are not limited to, the following: a general economic and political conditions in the jurisdictions in which the Group operates and changes to the associated legal, regulatory and tax environments; a increased competition; a levels of investment in network capacity and the Group’s ability to deploy new technologies, products and services; a rapid changes to existing products and services and the inability of new products and services to perform in accordance with expectations; a the ability of the Group to integrate new technologies, products and services with existing networks, technologies, products and services; a the Group’s ability to generate and grow revenue; a a lower than expected impact of new or existing products, services or technologies on the Group’s future revenue, cost structure and capital expenditure outlays; a slower than expected customer growth, reduced customer retention, reductions or changes in customer spending and increased pricing pressure; a the Group’s ability to expand its spectrum position, win 3G and 4G allocations and realise expected synergies and benefits associated with 3G and 4G; 198 Vodafone Group Plc Annual Report 2016 A review of the reasons why actual results and developments may differ materially from the expectations disclosed or implied within forward- looking statements can be found under “Risk management” on pages 22 to 28 of this document. All subsequent written or oral forward- looking statements attributable to the Company or any member of the Group or any persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. No assurances can be given that the forward-looking statements in this document will be realised. Subject to compliance with applicable law and regulations, Vodafone does not intend to update these forward-looking statements and does not undertake any obligation to do so. a the Group’s ability to secure the timely delivery of high-quality products from suppliers; a loss of suppliers, disruption of supply chains and greater than anticipated prices of new mobile handsets; a changes in the costs to the Group of, or the rates the Group may charge for, terminations and roaming minutes; a the impact of a failure or significant interruption to the Group’s telecommunications, networks, IT systems or data protection systems; a the Group’s ability to realise expected benefits from acquisitions, partnerships, joint ventures, franchises, brand licences, platform sharing or other arrangements with third parties; a acquisitions and divestments of Group businesses and assets and the pursuit of new, unexpected strategic opportunities; a the Group’s ability to integrate acquired business or assets; a the extent of any future write-downs or impairment charges on the Group’s assets, or restructuring charges incurred as a result of an acquisition or disposition; a developments in the Group’s financial condition, earnings and distributable funds and other factors that the Board takes into account in determining the level of dividends; a the Group’s ability to satisfy working capital requirements; a changes in foreign exchange rates; a changes in the regulatory framework in which the Group operates; a the impact of legal or other proceedings against the Group or other companies in the communications industry; and a changes in statutory tax rates and profit mix. 199 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Definition of terms Unaudited information 2G 3G 4G/LTE 5G Acquisition costs ADR ADS AGM AMAP Applications (‘apps’) ARPU Capital expenditure (‘capex’) Churn Cloud services 2G networks are operated using global system for mobile (‘GSM’) technology which offers services such as voice, text messaging and low speed data. In addition, all the Group’s controlled networks support general packet radio services (‘GPRS’), often referred to as 2.5G. GPRS allows mobile devices to access IP based data services such as the internet and email. A cellular technology based on wide band code division multiple access delivering voice and faster data services. 4G or long-term evolution (‘LTE’) technology offers even faster data transfer speeds than 3G/HSPA. 5G is the coming fifth-generation wireless broadband technology which will provide better speeds and coverage than the current 4G. The total of connection fees, trade commissions and equipment costs relating to new customer connections. American depositary receipts is a mechanism designed to facilitate trading in shares of non-US companies in the US stock markets. The main purpose is to create an instrument which can easily be settled through US stock market clearing systems. American depositary shares are shares evidenced by American depositary receipts. ADSs are issued by a depositary bank and represent one or more shares of a non-US issuer held by the depositary bank. The main purpose of ADSs is to facilitate trading in shares of non-US companies in the US markets and, accordingly, ADRs which evidence ADSs are in a form suitable for holding in US clearing systems. Annual general meeting. The Group’s region: Africa, Middle East and Asia Pacific. Apps are software applications usually designed to run on a smartphone or tablet device and provide a convenient means for the user to perform certain tasks. They cover a wide range of activities including banking, ticket purchasing, travel arrangements, social networking and games. For example, the My Vodafone app lets customers check their bill totals on their smartphone and see the minutes, texts and data allowance remaining. Average revenue per user, defined as revenue and incoming revenue divided by average customers. This measure includes the aggregate of property, plant and equipment additions and capitalised software costs. Total gross customer disconnections in the period divided by the average total customers in the period. This means the customer has little or no equipment at their premises and all the equipment and capability associated with the service is run from the Vodafone network and data centres instead. This removes the need for customers to make capital investments and instead they have an operating cost model with a recurring monthly fee. Controlled and jointly controlled Controlled and jointly controlled measures include 100% of the Group’s mobile operating subsidiaries and the Customer costs Depreciation and other amortisation Direct costs EBITDA Enterprise FCA Fixed broadband customer FTTC FTTH FRC Free cash flow Gbps HSPA+ ICT IFRS Impairment Interconnect costs Group’s share of joint ventures and the Group’s proportionate share of joint operations. Customer costs include acquisition costs, retention costs and expenses related to ongoing commissions. The accounting charge that allocates the cost of a tangible or intangible asset to the income statement over its useful life. This measure includes the profit or loss on disposal of property, plant and equipment and computer software. Direct costs include interconnect costs and other direct costs of providing services. Operating profit excluding share of results in associates, depreciation and amortisation, gains/losses on the disposal of fixed assets, impairment losses, restructuring costs and other operating income and expense. The Group’s definition of EBITDA may not be comparable with similarly titled measures and disclosures by other companies. The Group’s customer segment for businesses. Financial Conduct Authority. A fixed broadband customer is defined as a customer with a connection or access point to a fixed line data network. Fibre-to-the-Cabinet involves running fibre optic cables from the telephone exchange or distribution point to the street cabinets which then connect to a standard phone line to provide broadband. Fibre-to-the-Home provides an end-to-end fibre optic connection the full distance from the exchange to the customer’s premises. Financial Reporting Council. Operating free cash flow after cash flows in relation to taxation, interest, dividends received from associates and investments and dividends paid to non-controlling shareholders in subsidiaries but before restructuring costs and licence and spectrum payments. For the year ended 31 March 2014 and 31 March 2013, the income dividends received from Verizon Wireless and payments in respect of a tax case settlement were also excluded. Gigabits (billions) of bits per second. An evolution of high speed packet access (‘HSPA’). An evolution of third generation (‘3G’) technology that enhances the existing 3G network with higher speeds for the end user. Information and communications technology. International Financial Reporting Standards. A downward revaluation of an asset. A charge paid by Vodafone to other fixed line or mobile operators when a Vodafone customer calls a customer connected to a different network. 200 Vodafone Group Plc Annual Report 2016Internet of Things (‘IoT’) (formerly Machine-to-Machine (‘M2M’)) IP IP-VPN Mark-to-market Mbps Mobile broadband Mobile customer Mobile termination rate (‘MTR’) MVNO Net debt Net promoter score (‘NPS’) Operating expenses Operating free cash flow Organic growth Partner markets Penetration Petabyte Pps RAN Reported growth Retention costs Roaming Service revenue Smartphone devices Smartphone penetration SME Spectrum SRAN Supranational Tablets VGE VoIP VZW The network of physical objects embedded with electronics, software, sensors, and network connectivity, including built-in mobile SIM cards, that enables these objects to collect data and exchange communications with one another or a database. Internet protocol (‘IP’) is the format in which data is sent from one computer to another on the internet. A virtual private network (‘VPN’) is a network that uses a shared telecommunications infrastructure, such as the internet, to provide remote offices or individual users with secure access to their organisation’s network. Mark-to-market or fair value accounting refers to accounting for the value of an asset or liability based on the current market price of the asset or liability. Megabits (millions) of bits per second. Mobile broadband allows internet access through a browser or a native application using any portable or mobile device such as smartphone, tablet or laptop connected to a cellular network. A mobile customer is defined as a subscriber identity module (‘SIM’), or in territories where SIMs do not exist, a unique mobile telephone number, which has access to the network for any purpose, including data only usage. A per minute charge paid by a telecommunications network operator when a customer makes a call to another mobile or fixed line network operator. Mobile virtual network operators, companies that provide mobile phone services under wholesale contracts with a mobile network operator, but do not have their own licence or spectrum or the infrastructure required to operate a network. Long-term borrowings, short-term borrowings and mark-to-market adjustments on financing instruments less cash and cash equivalents. Net promoter score is a customer loyalty metric used to monitor customer satisfaction. Operating expenses comprise primarily sales and distribution costs, network and IT related expenditure and business support costs. Cash generated from operations after cash payments for capital expenditure (excludes capital licence and spectrum payments) and cash receipts from the disposal of intangible assets and property, plant and equipment, but before restructuring costs. All amounts marked with an “*” represent organic growth which presents performance on a comparable basis, both in terms of merger and acquisition activity and movements in foreign exchange rates. See page 191 “Non-GAAP information” for further details. Markets in which the Group has entered into a partner agreement with a local mobile operator enabling a range of Vodafone’s global products and services to be marketed in that operator’s territory and extending Vodafone’s reach into such markets. Number of SIMs in a country as a percentage of the country’s population. Penetration can be in excess of 100% due to customers owning more than one SIM. A petabyte is a measure of data usage. One petabyte is a million gigabytes. Percentage points. Radio access network is the part of a mobile telecommunications system which provides cellular coverage to mobile phones via a radio interface, managed by thousands of base stations installed on towers and rooftops across the coverage area, and linked to the core nodes through a backhaul infrastructure which can be owned, leased or a mix of both. Reported growth is based on amounts reported in pounds sterling as determined under IFRS. The total of trade commissions, loyalty scheme and equipment costs relating to customer retention and upgrade. Allows customers to make calls, send and receive texts and data on other operators’ mobile networks, usually while travelling abroad. Service revenue comprises all revenue related to the provision of ongoing services including, but not limited to, monthly access charges, airtime usage, roaming, incoming and outgoing network usage by non-Vodafone customers and interconnect charges for incoming calls. A smartphone is a mobile phone offering advanced capabilities including access to email and the internet. The number of smartphone devices divided by the number of registered SIMs (excluding data only SIMs) and telemetric applications. Small to medium-sized enterprise. The radio frequency bands and channels assigned for telecommunication services. Single Radio Access network, which allows 2G, 3G and 4G services to be run from a single piece of equipment. An international organisation, or union, whereby member states go beyond national boundaries or interests to share in the decision making and vote on issues pertaining to the wider grouping. A tablet is a slate shaped, mobile data or portable computing device equipped with a finger operated touchscreen or stylus, for example, the Apple iPad. Vodafone Global Enterprise (VGE), which serves the Group’s biggest multi-national customers. Voice over IP is a set of facilities used to manage the delivery of voice information over the internet in digital form via discrete packets rather than by using the traditional public switched telephone network. Verizon Wireless, the Group’s former associate in the United States. 201 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Selected financial data Unaudited information At/for the year ended 31 March Consolidated income statement data (£m) Revenue Operating profit/(loss) (Loss)/profit before taxation (Loss)/profit for financial year from continuing operations (Loss)/profit for the financial year Consolidated statement of financial position data (£m) Total assets Total equity Total equity shareholders’ funds Earnings per share1,2 Weighted average number of shares (millions) – Basic – Diluted Basic earnings per ordinary share Diluted earnings per ordinary share Basic earnings per share from continuing operations Cash dividends1,3 Amount per ordinary share (pence) Amount per ADS (pence) Amount per ordinary share (US cents) Amount per ADS (US cents) Other data Ratio of earnings to fixed charges4 Deficiency between fixed charges and earnings (£m)4 2016 2015 2014 2013 2012 40,973 1,377 (449) (3,818) (3,818) 42,227 1,967 1,095 5,860 5,917 38,346 (3,913) (5,270) 11,312 59,420 38,041 (2,202) (3,483) (3,959) 657 38,821 5,618 4,144 3,439 6,994 133,713 122,573 121,840 138,324 135,450 78,202 71,781 67,317 76,935 70,802 65,885 72,488 71,477 67,733 66,145 26,692 26,692 26,489 26,629 26,472 26,682 26,831 26,831 (15.08)p (15.08)p (15.08)p 21.75p 223.84p 21.63p 222.07p 42.10p 21.53p 1.54p 1.54p (15.66)p 11.45p 114.5p 16.49c 164.9c 11.22p 111.2p 16.65c 166.5c 11.00p 110.0p 18.31c 183.1c 10.19p 101.9p 15.49c 154.9c 27,624 27,938 25.15p 24.87p 12.28p 13.52p 135.2p 21.63c 216.3c – 672 1.6 – – 654 1.7 – 4.3 – Notes: 1 See note 8 to the consolidated financial statements, “Earnings per share”. Earnings and dividends per ADS is calculated by multiplying earnings per ordinary share by ten, the number of ordinary shares per ADS. 2 On 19 February 2014, we announced a “6 for 11” share consolidation effective 24 February 2014. This had the effect of reducing the number of shares in issue from 52,821,751,216 ordinary shares (including 4,351,833,492 ordinary shares held in Treasury) as at the close of business on 18 February 2014 to 28,811,864,298 new ordinary shares in issue immediately after the share consolidation on 24 February 2014. Earnings per share for the years ended 31 March 2013 and 2012 have been restated accordingly. 3 The final dividend for the year ended 31 March 2016 was proposed by the Directors on 17 May 2016 and is payable on 3 August 2016 to holders of record as of 10 June 2016. The total dividends have been translated into US dollars at 31 March 2016 for purposes of the above disclosure but the dividends are payable in US dollars under the terms of the ADS depositary agreement. 4 For the purposes of calculating these ratios, earnings consist of loss or profit before tax adjusted for fixed charges, dividend income from associates, share of profits and losses from associates, interest capitalised and interest amortised. Fixed charges comprise one third of payments under operating leases, representing the estimated interest element of these payments, interest payable and similar charges, interest capitalised and preferred share dividends. 202 Vodafone Group Plc Annual Report 2016Notes 203 OverviewStrategy reviewPerformanceGovernanceFinancialsAdditional informationVodafone Group Plc Annual Report 2016Notes 204 Vodafone Group Plc Annual Report 2016Vodafone, the Vodafone Portrait, the Vodafone Speechmark, Vodacom, M-Pesa, Vodafone One and Vodafone Red are trade marks of the Vodafone Group. The Vodafone Rhombus is a registered design of the Vodafone Group. Other product and company names mentioned herein may be the trade marks of their respective owners. The content of our website (vodafone.com) should not be considered to form part of this annual report or our annual report on Form 20-F. Text printed on revive 50 silk which is made from 50% recycled and 50% virgin fibres. The cover is on amadeus 100 revive silk, made entirely from de-inked post-consumer waste. Both products are Forest Stewardship Council® (‘FSC’®) certified and produced using elemental chlorine free (‘ECF’) bleaching. The manufacturing mill also holds ISO 14001 accreditation for environmental management. © Vodafone Group 2016 Designed and produced by Radley Yeldar ry.com V V o o d d a a f f o o n n e e G G r r o o u u p p P P l l c c A A n n n n u u a a l l R R e e p p o o r r t t 2 2 0 0 1 1 6 6 Vodafone Group Plc Contact details: Registered Offi ce: Vodafone House The Connection Newbury Berkshire RG14 2FN England Registered in England No. 1833679 Telephone: +44 (0)1635 33251 Fax: +44 (0)1635 238080 vodafone.com Shareholder helpline Telephone: +44 (0)370 702 0198 (In Ireland): +353 (0)818 300 999 Investor Relations ir@vodafone.co.uk vodafone.com/investor Media Relations vodafone.com/media/contact Sustainability vodafone.com/sustainability Access our online Annual Report at: vodafone.com/ar2016 

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