The future is exciting. Ready? Vodafone Group Plc Annual Report 2018 Vodafone Group Plc Annual Report 2018 Our strategic framework Our purpose: Our strategy: We are building a competitive advantage through our core programmes… …as we reinvent our business model through… …all of which underpins our strategic growth engines. Connecting everybody to live a better today and build a better tomorrow A converged communications leader, enabling the Gigabit Society Network leadership Customer eXperience eXcellence (CARE) Fit for Growth 10 11 12 Digital Vodafone 13 Mobile data Fixed and Convergence Enterprise 15 16 17 These are supported by our responsible approach to… Sustainable business Our people and culture Risk management Governance 32 36 38 46 …so that we create value for society and The future is exciting. for shareholders. Ready? View our 2018 report online: vodafone.com/ar2018 Overview In this year’s report 01 Overview 00 Our strategic framework 02 Highlights 03 Chairman’s statement Strategic Report 04 Our business at a glance 06 Industry trends 08 Our business model 10 Our core programmes 14 Chief Executive’s strategic review 15 Our growth engines 18 Chief Financial Officer’s review 20 Key performance indicators 22 Our financial performance 30 Financial position and resources 32 Sustainable business 36 Our people and culture 38 Risk management Governance 46 Chairman’s governance statement 48 Board of Directors 50 Executive Committee 52 Leadership structure 54 Board activities 56 Board effectiveness 58 Engaging with our stakeholders 60 Board evaluation 62 Nominations and Governance Committee 64 Audit and Risk Committee 70 Remuneration Committee 88 Our US listing requirements 89 Directors’ report Financials 90 Reporting our financial performance 91 Directors’ statement of responsibility 93 Audit report on the consolidated and parent company financial statements 102 Consolidated financial statements and notes 178 Other unaudited financial information 183 Company financial statements and notes Other information 191 Shareholder information 198 History and development 199 Regulation 207 Alternative performance measures 221 Forward-looking statements 222 Definition of terms 225 Selected financial data This document is the Group’s UK Annual Report and is not the Group’s Annual Report on Form 20-F that will be filed separately with the US SEC at a later date. 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. Organic growth is an alternative performance measure. See “Alternative performance measures” on page 207 for further details and reconciliations to the respective closest equivalent GAAP measure. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 02 Highlights A year of good strategic progress and strong financial performance 22 Read more on our financial performance Statutory figures Group revenue Operating profit Profit/(loss) for the financial year Closing net debt Weighted average number of shares Total dividends per share Alternative performance measures Group service revenue Adjusted EBITDA Adjusted EBIT Adjusted earnings per share Free cash flow pre-spectrum Free cash flow Key financial ratios Organic service revenue growth Adjusted EBITDA margin Organic adjusted EBITDA growth Organic adjusted EBIT growth Capex intensity Net cost of debt Adjusted effective tax rate Adjusted earnings per share growth Leverage (net debt/adjusted EBITDA) Operational metrics Europe mobile customers2 AMAP mobile customers3 Group fixed broadband customers2,3 Group consumer converged customers2 Group data traffic European NGN homes passed (on-net)2 Average number of employees €m €m €m €m m €c €m €m €m €c €m €m % % % % % % % % n/a millions millions millions millions exabytes millions thousands Sustainable business metrics Women in management and leadership roles Estimated additional female customers in emerging markets Greenhouse gas emissions (scope 1 and 2) % millions m tonnes CO2e 2018 46,571 4,299 2,788 (31,469) 27,770 15.07 2017 47,631 3,725 (6,079) (31,169) 27,971 14.77 2016 49,810 1,320 (5,122) (28,801) 26,692 14.48 Read more on our Alternative performance measures 207 41,066 14,737 4,827 11.59 5,417 4,044 1.61 31.6 11.8 47.2 15.7 2.5 20.6 44.2 2.1 118.7 417.1 19.7 5.5 3.6 36.1 104 29 3.9 2.58 42,987 14,149 3,970 8.04 4,056 3,316 44,618 14,155 3,769 6.87 1,271 (2,163) Read more on our Key financial ratios 207 1.9 29.7 5.8 7.0 16.1 2.5 25.4 17.0 2.2 120.7 395.0 18.0 3.8 2.2 36.1 106 28 9.4 2.54 1.1 28.4 2.3 (7.3) 21.2 1.7 26.6 N/A 2.0 121.4 371.2 13.4 3.1 1.4 27.1 105 27 – 2.54 Strategic growth engines (2018) Mobile data growth Fixed/Convergence momentum Enterprise outperfomance 63% Group mobile data growth 1.3m Broadband net adds 2.1% ex. regulation4 Service revenue growth 1 Excluding the impact of a German legal settlement. 2 Including VodafoneZiggo. 3 Including India, JVs and associates. 4 Excluding the impact of EU regulation. Vodafone Group Plc Annual Report 2018Overview Chairman’s statement The future is exciting – for our customers and for Vodafone 03 Returns are improving We have previously highlighted the need for the Group to improve the returns that we are achieving on the substantial organic and inorganic investments that we have made in recent years. In part, this relies upon a better balancing of competition and investment considerations by European regulators and governments, particularly as we approach spectrum auctions for 5G. However, we also remain focused on making improvements under existing industry conditions. This has been a challenging year for the Telecoms sector in Europe and particularly in India. While we underperformed the FTSE 100 we outperformed our peers, in some cases materially so, as a result of the progress we are making. The Board’s confidence in our outlook is demonstrated by a further 2% increase in our dividend per share to 15.07 eurocents for the year. CEO succession: our thanks to Vittorio In May 2018, we announced the succession plan for the Group Chief Executive role. From 1 October, Vittorio Colao will be succeeded by Nick Read, our current Group CFO, with Margherita Della Valle (our Deputy CFO) succeeding Nick Read and joining the Board after the AGM in July. On behalf of the Board, I would like to express our gratitude to Vittorio for an outstanding tenure. He has been an exemplary leader and strategic visionary who has overseen a dramatic transformation of Vodafone into a global pacesetter in converged communications, ready for the Gigabit future. Vittorio will leave as his legacy a company of great integrity with strong inclusive values that is exceptionally well- positioned for the decade ahead. I would also like to recognise from a governance perspective the great way in which Vittorio has worked together with the Board in an atmosphere of openness, transparency and trust. Nick has been the co-architect of the Group’s strategy together with Vittorio, combining extensive international operational and commercial leadership with world-class financial acumen. I am confident Vodafone will benefit greatly from his experience, insight and wisdom in his new role as Group Chief Executive. Margherita has a strong track record in financial leadership at the highest levels, and I am delighted to welcome her to the Board. I would also add that the appointment of Nick and Margherita serves as a testament to the strength and depth of the Vodafone senior leadership team that Vittorio has assembled and led over the last decade. Significant strategic progress We have made further progress this year on our ambition to be a converged communications leader in all of our European markets, a mobile data leader in Africa and India, and an Enterprise leader internationally. These strategically strong positions will enhance our ability to achieve our purpose as a Group – which is to connect everybody to live a better today and build a better tomorrow. A key development was the announcement in May 2018 of our intention to acquire Liberty Global’s cable assets in Germany, the Czech Republic, Hungary and Romania for €18.4 billion, which will transform Vodafone into Europe’s leading next generation infrastructure owner and a truly converged challenger to dominant incumbents. Please see Vittorio Colao’s CEO review on pages 14 to 17 for more insight into this transaction. In addition, we made good progress in securing approvals for the merger of Vodafone India with Idea Cellular, which is expected to close in June 2018. A strong financial performance In addition to these strategic achievements, the Group enjoyed a strong financial performance. Our organic service revenue growth remained modest at a little below 2%, but our sustained focus on cost efficiencies through the “Fit for Growth” programme contributed to organic adjusted EBITDA growth of 12% (8% on an underlying basis)1, with broad-based improvements across most of our markets. This in turn drove a 47% rise in organic adjusted EBIT and 44% growth in adjusted earnings per share. Progress in Netherlands, challenges in India In order to strengthen our assets strategically amid highly competitive markets, in recent years we have announced joint ventures in the Netherlands (‘VodafoneZiggo’) and India (‘Vodafone-Idea’). Despite a 4% local currency revenue decline in the year, VodafoneZiggo’s financial performance is expected to stabilise during the year ahead, supported by the success of its convergence strategy and significant cost and capex synergies. Vodafone India experienced a 19% organic service revenue decline during the year, reflecting intense competitive and regulatory pressures. Nick Read will outline in his CFO review the steps which we are taking to strengthen the combined company’s future financial position, ensuring that we can compete effectively going forwards in a consolidated market. The future is exciting – for our customers and for Vodafone Vodafone’s ultrafast and widely available fixed and mobile networks are enabling a range of exciting new technologies, which contribute to society and create an exciting future for our customers, employees and shareholders. Our new global brand campaign, “The future is exciting. Ready?”, which launched last autumn, communicated that Vodafone will support our customers every step of the way, helping them to make the most of new and exciting innovations. We have ambitious sustainable business goals Our sustainable business strategy, which we outline on pages 32 to 35, lies at the heart of our development, as we are convinced that the long-term success of our business is closely tied to the success of the communities in which we operate. Vodafone’s digital networks and services act as a catalyst not only for economic growth, but also for equality and empowerment. We focus our efforts where we believe we can make the greatest impact, and we now have long-term external and internal ambitions in place to deliver our strategy. Key highlights include our commitment to reduce our greenhouse gas emissions by 40% and purchase 100% of electricity we use from renewable sources. We also intend to support 10 million young people by 2022 through our future digital jobs programme, “What will you be?”, which will help to address the dual challenges of youth unemployment and a growing digital skills gap. 1 Excluding the net impact of EU regulation, UK handset financing, and settlements. Gerard Kleisterlee Chairman Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 04 Our business at a glance What we offer We offer a broad range of communication services to both consumers and enterprises. Our wide range of products and services 66% Consumer Mobile We provide a range of mobile services, enabling customers to call, text and access data whether at home or travelling abroad. Fixed broadband, TV and voice Our fixed line services include broadband, TV offerings and voice. We offer high speed connectivity through our next-generation network (‘NGN’). Other value added services These include mobile money services through our M-Pesa offering, our consumer IoT proposition “V by Vodafone” (which launched this year), as well as security and insurance products. 5% Other We rent capacity to mobile virtual network operators (‘MVNOs’) who use this to provide mobile services. We also offer a variety of services to operators outside our footprint through our partner market agreements. Providing converged solutions Our converged offers, which combine mobile, fixed and content services, provide simplicity and better value for customers. They also increase customer loyalty and lower churn. We market these converged bundles as “GigaKombi” in Germany and “Vodafone One” in Spain and Italy. We also offer a comprehensive set of converged communication solutions to our Enterprise customers such as “Vodafone One Net Enterprise” and “Vodafone Meet Anywhere”. Split of service revenue 29% Enterprise We offer mobile, fixed and a suite of converged communication services to support the growing needs of our enterprise customers, who range from small businesses to large multinational companies. Internet of Things (‘IoT’) IoT connections bring objects to life by allowing them to communicate securely through our network. We offer a diverse range of services including managed IoT connectivity, automotive and insurance services, smart metering and health solutions. Cloud & Security Our Cloud & Security portfolio includes both public and private cloud services, as well as cloud-based applications and products for securing networks and devices. Carrier Services We sell capacity on our global submarine and terrestrial cable systems. The services we offer include international voice, IP transit and messaging. Europe 71% Mobile service revenue 29% Fixed service revenue A leading mobile operator 62.4m1 Mobile contract customers 17.8m1 Broadband customers 13.7m1 TV customers Europe’s largest fixed NGN footprint Note: 1 Includes VodafoneZiggo. 5.5m1 Converged consumer customers Vodafone Group Plc Annual Report 2018Strategic Report Where we operate We manage our business across two geographic regions – Europe, and Africa, Middle East and Asia-Pacific (‘AMAP’). Operations in 25 countries We are the number one or two mobile operator in most of our country operations and are a rapidly growing fixed provider. Mobile and fixed services We provide both mobile and fixed services in 18 countries. Mobile only We provide mobile only services in seven countries. Europe Albania, Czech Republic2, Germany2, Greece2, Hungary, Ireland2, Italy2, Malta2, Netherlands2 (joint venture), Portugal2, Romania2, Spain2, UK2 AMAP Australia (joint venture), Egypt2, Ghana2, India2,3, New Zealand2, Turkey2, Vodacom Group (South Africa2, Tanzania, Democratic Republic of Congo, Mozambique, Lesotho, Kenya2 (associate)) Notes: 2 Mobile and fixed broadband markets. 3 We also part-own the tower company, Indus Towers, in India. 05 Worldwide service reach 47 partner markets To extend our reach beyond the companies we own, we have partnership agreements with local operators in 47 countries. 77 countries with IP-VPN We are among the top five internet providers globally and one of the largest operators of submarine cables. 144 countries with 4G roaming coverage Our leading global 4G roaming footprint serves twice as many destinations as the next best local competitor in most of our markets. Group service revenues Our main markets and joint ventures Europe 75% AMAP 23% Vodacom €4.7bn Germany €10.3bn UK €6.1bn Other AMAP6 €4.8bn Other Europe5 €4.6bn €41bn Italy €5.3bn Spain €4.6bn Other 2% €0.7bn (includes partner markets and common functions)4 Notes: 4 Common functions includes 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. 5 Other Europe including eliminations. 6 Other AMAP including eliminations. Mobile revenue market share (%) Fixed broadband customers (m) Fixed revenue market share (%) Consumer converged customers (m) Convergence penetration (%)9 Mobile customers (m) Germany UK Italy Spain 30.2 33.6 17.5 22.0 22.3 32.7 14.1 19.07 6.6 0.4 2.5 3.3 21.3 4.9 7.1 19.07 South Africa 50.1 50.18 0.01 4.18 India 223 20.98 0.2 n/m10 0.7 0.2 0.7 2.3 – – VodafoneZiggo (NL) 4.9 29.3 3.3 39.4 0.9 12 63 36 89 – – 29 Notes: 7 Due to the converged nature of the Spanish market only total communications market shares are reported. 8 December 2017. 9 % of consumer broadband customer base that is converged. 10 Figure not material. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 06 Industry trends We operate in a rapidly changing industry where innovation and scale are key Rising global smartphone penetration, ubiquitous superfast internet access, increasingly converged solutions and remarkable new technologies are rapidly transforming the way that we live and work, while simultaneously creating a range of new commercial, regulatory and societal challenges. Growing demand for mobile data, high speed broadband and converged solutions 15 See pages 15–17 of this report for further insights Demand for mobile data is growing rapidly, driven by increased smartphone penetration, customers moving to 4G (which provides a significantly better data experience), the growing use of social, media, and video applications and bigger data bundles. On average, global consumers now use 1.7GB per month up from 0.1GB five years ago. As a result, between 2012 and 2017 total mobile data traffic increased by an average of 76% per annum and growth over the next four years is expected to average 48%. The challenge for operators is to monetise this strong volume growth. In Europe, total mobile service revenues remained flat last year due to substantial unitary price deflation, driven by technological improvements, regulation and a high level of competitive intensity. In emerging markets, revenue growth is stronger, supported by a lack of fixed infrastructure and rapid smartphone adoption. In fixed, demand for NGN high speed broadband services over cable or fibre is also growing rapidly. During the next five years it is estimated that around 50 million households in Europe will move to NGN services (almost double current levels) within Vodafone’s European footprint. Rapid technological change Over the last 30 years mobile and fixed networks have evolved significantly. In the 1990s, second generation (2G) mobile networks primarily carried voice calls and SMS data traffic (i.e. texts). Today, mobile phone users can experience 4G+ download speeds in excess of 800Mbps (>4,000 times faster than 2G) supported by the latest technological advancements, such as carrier aggregation and massive MIMO (multiple input and multiple output) antennae. The next technological evolution of mobile networks will be to deploy 5G, supported largely by the infrastructure deployed for 4G combined with new 5G radio spectrum and antennae. Global mobile data traffic ’000 petabytes (1 petabyte = 1m gigabytes) 516 366 242 144 73 43 European fixed broadband customers1 (m) % of customers on NGN Legacy copper 701 119 122 115 125 127 106 110 81% 76% 71% 66% 59% 51% 42% 2015 2016 Source: Analysys Mason 2017 2018e 2019e 2020e 2021e This represents a significant window of opportunity for operators with access to high quality NGN infrastructure. Fixed revenue trends in Europe have grown by 2% over the last three years, supported by the shift to NGN. Today, consumers are increasingly taking bundles of mobile, landline, broadband and TV services. For the consumer this provides the benefit of simplicity – one provider for multiple services – and better value. For operators this provides higher customer loyalty as well as operational efficiencies. This will eventually enable average download speeds in excess of 1Gbps combined with extremely low latency. We expect 5G services in Europe to be commercially available by 2020. The business case for 5G is driven primarily by the opportunity to provide substantial inexpensive incremental capacity. In time, 5G will also enable the development of new IoT services and niche fixed wireless solutions, as well as other new business cases. The evolution of fixed networks has been equally rapid, with legacy copper technology being superseded by NGN infrastructure such as cable and fibre-to-the-home (‘FTTH’). 2015 2016 2017e 2018e 2019e 2020e 2021e Source: Analysys Mason 1 In Vodafone’s footprint. The same motivations apply for businesses, which are increasingly taking advantage of converged services that bring together communications tools that work across all fixed and mobile end points. The future is exciting Vodafone has leading or co-leading mobile network NPS scores in 14 out of 20 markets, and we have Europe’s largest NGN footprint covering 107 million European households. This provides us with a significant platform to grow. 10 See page 10 of this report for further insights Broadband download speeds have evolved quickly from sub-64Kbps via the dial up modem in the late 1990s to download speeds of 1Gbps today through high speed NGN services. Further technological advancements, such as DOCSIS 3.1 for cable and deeper fibre penetration, will deliver even faster speeds of up to 10Gbps in the future. The future is exciting Our mobile networks are already benefiting from the evolution to 4G+, and this year we have started 5G trials. In fixed, we are upgrading our cable infrastructure to DOCSIS 3.1, enabling us to deliver future-proof gigabit speeds. Vodafone Group Plc Annual Report 2018Strategic Report Digital transformation opportunity The world is undergoing a rapid digital transformation. New technologies including smartphones, cloud computing, artificial intelligence and robotic process automation are enabling companies to connect with customers directly, proactively offering personalised solutions, while simplifying and automating operational processes and improving the efficiency of all commercial and technological decisions. Digitalisation is a key operational theme for the telecoms industry, which has a significant proportion of costs that can be automated, while also having unrivalled insight into customer usage trends. 1 Goldman Sachs Regulatory intervention The remit of regulators is extensive, including wholesale charges between operators, spectrum allocation, and obligations in relation to consumer rights. Regulators are also responsible for topics relating to data protection and cyber security. The decision to regulate or not has material consequences. Regulators are tasked with protecting consumers and incentivising investment. Highly competitive markets The telecommunication industry is highly competitive, with many alternative providers giving customers a wide choice of suppliers. 07 13 See page 13 of this report for further insights The cost cutting opportunity alone for European telecoms has been estimated to be as much as €60 billion1. Speed of execution will be key in order for operators to further differentiate their services and retain the benefits from digitalisation. The future is exciting The “Digital Vodafone” programme was launched across the Group this year. This will enable us to deliver a leading digital customer experience; leverage the latest data analytics techniques; and automate and simplify our operations, underpinned by new agile ways of working. 199 See page 199 of this report for further insights The future is exciting Only 6.8% of our European service revenues now come from regulated roaming and termination fees; the code if finalised according to the original proposals is supportive of Vodafone’s position as Europe’s fastest growing fixed challenger. By using advanced digital technologies operators will be able to enhance their customers’ experience, generate incremental revenue opportunities, and reduce costs. Historically the balance has been tilted towards consumers. In the first half of calendar 2018, the European Commission is expected to complete the overhaul of its existing telecoms rules – the European Electronic Communications Code. The Commission’s original proposals struck a balance between investment incentives in networks and competition. In each of the countries in which we operate, there are typically three or four mobile network operators (MNOs), such as Vodafone, who own their own network infrastructure, as well as several resellers that “wholesale” network services from MNOs. In addition, there are an increasing number of over- the-top (‘OTT’) operators that provide internet-based apps for content and communication services. In fixed, there is usually one national incumbent (typically the former state owned operator), who is generally required to offer wholesale access to its network at regulated prices to resellers, while most markets will also have one or two cable or satellite operators. In some markets, the uncompetitive wholesale access terms offered by incumbents and the slow pace of NGN infrastructure rollout has seen the emergence of alternative fibre builders, who are looking to capitalise on the growing customer demand for gigabit speeds by offering attractive wholesale access and terms to resellers. The future is exciting Thanks to our substantial investments, we offer market leading network quality and customer service levels positioning us well for the future. Changing customer and societal expectations Today, communication networks underpin every aspect of society. Consumers have access to content and information of a breadth and depth that was inconceivable even a decade ago. This is bringing about a revolution in the way millions of people across the world share, learn and access education, healthcare and financial services, among others. Few industry sectors can claim a closer alignment between their commercial objectives and the achievement of meaningful gains for society. There are, however, areas within the communications industry that can be a source of public concern, including customer privacy, tax and digital human rights. 32 See page 32 of this report for further insights Our industry needs to continue to make sure these concerns are addressed in an ethical, responsible and transparent manner. The future is exciting Our sustainable business strategy aligns our commercial objectives with a clear social purpose to create long term value and meet customer expectations. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 08 Our business model Delivering value for society and returns for our shareholders Our leading scale enables us to sustain our investments in superior gigabit infrastructure, delivering an excellent customer experience which both benefits society and drives our revenue growth. Together with the substantial opportunity to improve all aspects of our business model through digitalisation, this allows us to grow our cash flows, reinvest and provide attractive returns to our shareholders. A virtuous business cycle. €81bn invested over the past five years. This comprises of: €48bn capex1 to modernise our mobile and IT networks and deploy fixed fibre networks in Europe. €15bn spectrum and licences1 €18bn M&A to secure spectrum primarily for 4G. including cable companies in Germany, Spain and the Netherlands. Sustained reinvestment Differentiated assets and leading scale – Leading/co-leading market positions in mobile supported by our 4G networks and deep spectrum positions. – Europe’s largest fixed NGN network. – Global Enterprise scale and footprint. – A strong brand and the best people. – A sustainable business focus. 36 Read more on our people and culture 32 Read more on our sustainable business Delivering value for society and improving returns for our shareholders Our focus on driving revenue growth as well as cost efficiencies is driving an improvement in cash generation. – Free cash flow (‘FCF’) pre-spectrum increased to €5.4bn in 2018 from €4.1bn in 2017. – After spectrum and restructuring we generated FCF of €4.0bn in 2018 vs €3.3bn in 2017. – A covered dividend post-spectrum and restructuring. 22 Read more on our financial performance 1 Including India. Improving cash flow Vodafone Group Plc Annual Report 2018Strategic Report Mobile data We are monetising the rapid growth in mobile data usage through “more-for- more” propositions and personalised offers. Fixed and Convergence As demand for NGN grows we have a window of opportunity to gain substantial market share in fixed line, and to drive convergence across our combined fixed/mobile customer base. Enterprise We are connecting the people, places and things that matter to businesses. 15 Read more on Mobile data 16 Read more on Fixed and Convergence 17 Read more on Enterprise Growing revenue streams 09 The dividend has grown at 2% for the past three years and is a key contributor to shareholder returns, along with share price performance. At the same time we have announced several new key milestones on our journey to build a better tomorrow for the societies in which we operate. €3.9bn Dividends to shareholders in 2018 (2017: €3.7bn) 50m Additional female customers connected to mobile in emerging markets (target by 2025) 10m Supporting young people to access digital skills (target by 2022) Digital transformation opportunity Digital Vodafone – The Digital Vodafone programme is the next step in our strategic development and is expected to generate incremental revenue and cost opportunities. – We aim to deliver a leading digital customer experience, data driven decisions, simpler and automated operations. 13 Read more on Digital Vodafone Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 10 Our core programmes We are building a competitive advantage through our core strategic programmes Network leadership Our sustained investment in network quality has enabled us to establish differentiated and market leading network positions We continue to invest in our network and IT infrastructure to further expand coverage, improve reliability, and enhance data speeds. As a result, we now have leading or co-leading mobile network NPS scores in 14 out of 20 markets, including India. This strong and differentiated network position enables us to provide our customers with an excellent user experience, with 92% of all data sessions in Europe now at high definition video standard and a dropped call rate for voice of just 0.34%. In fixed line, we have created Europe’s largest NGN footprint covering 107 million households (including VodafoneZiggo), of which 36 million are owned cable or fibre and 7 million are through strategic partnerships with attractive wholesale rates. As a result we are able to market NGN services to 65% of our European footprint. In order to maintain our leadership position we will continue to enhance our network and deploy new market leading technologies. Evolving our 4G network to be 5G ready We are continuing to evolve our 4G network towards delivering gigabit data speeds, increased network capacity, improved response (latency) times, and new service capabilities. These network enhancements are being delivered through a range of advanced technological solutions. As an example, we are now rolling out massive MIMO (multiple input and multiple output) antennas in our markets. These antennae fundamentally change the way in which we transmit radio signals. Rather than the signal being transmitted everywhere, massive MIMO provides multiple beams of signal and each beam is assigned to a unique user or group. It therefore delivers a better and more reliable user experience, creates less interference, and has the benefit of increasing the site capacity by improving spectrum efficiency. This evolution of 4G combined with new 5G radio spectrum and antennae will provide the underlying network infrastructure for 5G. Radio site evolution Non-massive MIMO Massive MIMO Future-proofing our fixed line infrastructure In fixed, we are upgrading our cable infrastructure to the latest DOCSIS 3.1 technology and deploying fibre deeper into the network. This delivers a significant improvement in maximum user speeds and network capacity. The rollout of DOCSIS 3.1 is now well advanced in Spain, while in Germany we have commenced a two year rollout programme starting in 2018 . Vodafone Germany household cable coverage and speeds Today 12.7m 11m Future 2020 12.7m 7m 2.5m 100 Mbps 200 Mbps 400 Mbps 500 Mbps 1.00 Gbps 10.0 Gbps Vodafone Group Plc Annual Report 2018Strategic Report Customer eXperience eXcellence (‘CXX’) Delivering an outstanding and differentiated experience for our customers The Group’s CXX programme is our core marketing strategy for brand and service differentiation. Through our CXX programme we aim to deliver an outstanding and differentiated user experience for our customers, further building on our network leadership position. The programme focuses on four key aspects of our customers’ experience with Vodafone, summarised by the acronym “CARE”. Given the strategic importance of the programme, CXX performance indicators including Net Promoter Scores (‘NPS’) and brand consideration represent up to 40% of the annual bonus award for employees across the Group. 11 As the initiatives described below illustrate, we have made good progress this year in each of the areas covered by our CARE framework: C onnectivity that is secure and smart Our “Secure Net” proposition is now live in ten markets, providing customers with extra security protection. And we have mobile network guarantees in place across 17 markets, promising customers their money back if the network fails to meet their expectations within their first month of use. A lways excellent value Through our Big Data platform, which is live in 15 markets, we are able to notify customers of personalised solutions which meet their specific needs. Today, 35% of our communications with customers in these markets are supported by Big Data analysis. R eal-time relevant rewards Loyalty and reward programmes have now been implemented in 18 markets and are available either via the My Vodafone app or the Vodafone website. In 14 markets, we have also introduced gamification activities to make redemption of these rewards a fun experience, such as “Shake”, where customers shake their phone to receive rewards. E asy, personal instant access The My Vodafone app, which is now live across all of our markets, provides customers with a flexible way of monitoring and managing their services online. By the end of the financial year, My Vodafone app penetration across the Group reached 60%, up 5% year-on-year with customers on average using the app over nine times per month. We continued to see the benefits of these CXX initiatives in our customer satisfaction scores. Overall we maintained our market-leading or co-leading position in consumer NPS in 17 out of 20 markets, and maintained the average gap between Vodafone and the third placed operator at 16 points. Our Enterprise position is even stronger, with leading or co-leading positions in 19 out of 20 markets. We expect to further enhance our customers’ experience through digital channels and platforms. The focus will be on scaling up real-time and personalised offers, deploying artificial intelligence (AI) across both service and sales touchpoints and simplifying the access and use of our services, for example, via touch ID login and integrated virtual assistants. Market-leading net promoter score Consumer (points) Gap to next best Gap to third Improvement over the last three years 14 2 17 16 Net promoter score improved Gap to next best improved 6 4 15/20 markets 17/20 markets Average score improvement to next best +8 points 2016 2017 2018 Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 12 Our core programmes (continued) Fit for Growth Our comprehensive cost efficiency programme “Fit for Growth” is a comprehensive cost efficiency programme designed to drive operating leverage and margin expansion across the Group. This targeted programme uses external “best in class” benchmarks to determine cost saving opportunities both at a local market and a Group level, where our global scale can provide a competitive advantage. At the start of this year we launched our second phase of Fit for Growth, enabling us to broaden and deepen our cost saving initiatives. We have also developed a new customer profitability analytics platform, which has now been rolled out across nine markets. We see a substantial opportunity for margin improvement as we take commercial actions to capitalise on these insights. We have continued to make good progress this year in lowering our operating cost base, reflecting the success of our Fit for Growth efforts. These Group initiatives include centralising procurement, developing shared service centres in low cost regions, improving sales channel efficiency, standardising network design and zero based budgeting (‘ZBB’) initiatives. As a result, we were able to lower our net operating costs on an organic basis for the second year running. Importantly, this cost reduction was achieved while maintaining our robust commercial momentum and despite a 63% increase in mobile data traffic during the year. Fit for Growth impact over three years Centralised procurement 80% +20pp Number of full-time employees in Shared Services 19,000 Network design standardisation savings €340m Group support functions ZBB savings €240m This sustained focus on cost efficiencies meant that for the third year in a row we were able to grow our adjusted EBITDA faster than service revenues, supporting a significant improvement in our adjusted EBITDA margins. This improvement was broad-based, with 20 out of 25 markets growing adjusted EBITDA faster than service revenue during the past year. Overall, we achieved a 1.3 percentage point improvement in the Group’s underlying organic adjusted EBITDA margin (excluding EU regulation, UK handset financing, and settlements). Broad based adjusted EBITDA improvement from Fit for Growth 2018 YoY adjusted EBITDA margin movement (pp) Controlled Joint ventures 2.41 2.1 2.0 1.6 1.4 1.2 1.0 0.42 (0.3) (1.4) 0.0 (5.2) Germany Greece Portugal Ireland Turkey Spain Italy UK Vodacom Egypt 1 Adjusted EBITDA excluding the impact of a German legal settlement. 2 Adjusted EBITDA excluding UK handset financing and regulatory settlements. 3 Based on US GAAP reporting. 4 Merger with Idea Cellular in India has not yet closed. Netherlands3 India4 New “cost teardown” model implemented During the year we implemented a structured teardown methodology to better understand our costs at a component level. The model enables an accurate “should cost” figure to be calculated which can then be used to better inform negotiations with suppliers. €125m Our “cost teardown” model has enabled us to deliver procurement savings of €125 million this year. It does this by defining the absolute minimum requirements (AMR), increasing knowledge of discrete parts, and enabling design optimisation and trade-off of requirements. This year, we have been able to deliver procurement savings of €125 million from the adoption of this methodology. Our initial focus has been on hardware costs, while going forward we see further opportunity to expand into services and customer premises equipment to deliver future savings. Vodafone Group Plc Annual Report 2018Strategic Report Digital Vodafone The next phase of the Group’s strategic development The “Digital Vodafone” programme develops and strengthens our existing Customer eXperience eXcellence (‘CXX’) programme and enables us to build on our Fit for Growth achievements. We aim to deliver the most engaging digital experience for our customers, blending the digital and physical assets of Vodafone to provide personal, instant and easy interactions. By using advanced digital technologies our ambition is to enhance our customers’ experience, generate incremental revenues and continue to reduce net operating costs on an organic basis. 13 Our goal: to lead the industry in the transition to digital Digital customer management Digital technology Digital operations CVM campaigns enabled by Big Data Better targeting of the base1 Digital channels share of sales mix2 Reduce reliance on indirect channels My Vodafone app penetration Improve customer engagement Chatbots (% of contacts) Moving from mostly human to mostly digital Frequency of contacts3 Blending the best of digital and human interactions Notes: 1 Average of EU4 (Germany, Italy, UK and Spain). 2 Mobile and Fixed acquisitions and upgrades. March 2017 March 2018 March 2021 15% 9% 55% 0% 1.9 35% 11% 60% 1% 1.7 100% >40% 95% 60% 1.2 3 FOC requiring human intervention per year. Digital customer management We intend to increase the use of data analytics to provide predictive, proactive and personalised offers to our customers, optimising the efficiency of our marketing spend, enhancing ARPU and improving our direct channel mix. The My Vodafone app and our digital marketing channels will, over time, become our main customer acquisition and management platform. We will also be able to meet any customer request through automated, digital support – for example, by using chatbots and digital agents that utilise rapidly developing artificial intelligence technologies, developed and shared on a Group-wide basis. Digital technology management We will rapidly install new “middleware” on top of our legacy IT systems. This “Digital eXperience Layer” will accelerate the deployment of new digital capabilities, de-coupling them from the longer and financially costly upgrade cycles for our legacy billing and other systems. In addition, real-time data analytics will enable even smarter network planning and deployment, as well as more precise ROI-based investment decisions. Together with the ongoing effort to migrate 65% of our IT applications to the cloud, we aim to achieve significant capex and opex efficiencies, allowing us to re-invest based on customers’ actual and predicted profitability. Digital operations We see substantial scope for digitalisation to accelerate the simplification and automation of standard processes, in both operational and support areas. These include IT and network operations, customer management back office functions and all other administrative activities. We have already established an automation unit and we have made good progress with over 200 bots active in our Shared Service Centres. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 14 Chief Executive’s strategic review Building a digital leader in data communications Review of the year This has been a year of robust commercial momentum and significant strategic progress, with a strong financial performance that exceeded our initial expectations for profitability and cash generation. Our customers enjoyed our best ever mobile network performance, and together with improvements in customer service and in the stability of our modernised IT and billing platforms, particularly in the UK, this contributed to our highest ever net promoter scores (‘NPS’) at year-end. As I describe in more detail overleaf, our three “growth engines” performed well. Mobile data growth remains strong, up 63% year on year, and our “more-for-more” propositions helped to offset regulatory headwinds. We remained Europe’s fastest growing and leading challenger in broadband, adding 1.1 million households during the year, and also added 0.8 million converged customers, typically increasing ARPU and reducing churn. Meanwhile, our Enterprise business continued to outperform our peers thanks to the success of our world-leading IoT division, despite an overall declining market environment. We achieved all of this while lowering our net operating costs on an organic basis for the second year in a row, thanks to our Fit for Growth initiatives. Network leadership: preparing for 5G The substantial investments we made during Project Spring, supported by sustained ongoing capital expenditure, have allowed us to maintain our network leadership and co-leadership positions in mobile. In several markets – notably in Germany and Italy – the gap in performance between ourselves and the value players continued to widen, supporting a premium price differential. We are optimistic about the long-term potential of 4.5G and 5G services, and we intend to invest in the upcoming 5G spectrum auctions over the next two years in order to maintain and optimise our spectrum position across all technologies. We expect to deepen our 4.5G coverage and then launch 5G services in 2020, once handsets are widely available, as this will become the lowest cost option to add incremental capacity. We expect 5G investments to be funded from within our existing levels of capital expenditure. Acquiring Liberty Global’s cable assets in Germany, Central and Eastern Europe In May 2018, we announced our intention to acquire Unitymedia in Germany, as well as the UPC cable assets in Central and Eastern Europe (‘CEE’), from Liberty Global for a total enterprise value of €18.4 billion. This transaction transforms Vodafone into Europe’s leading next generation infrastructure owner with 54 million on-net homes, out of a total NGN footprint of 114 million. In Germany we will become a converged national challenger, and in our predominately mobile-only markets in CEE we will significantly accelerate our convergence strategy. In total we will acquire gigabit capable networks passing 17.4 million marketable homes, including 11.0 million in Germany, with an attractive organic growth outlook given a speed advantage versus local incumbents and relatively low broadband penetration. In-market consolidation across the four countries is expected to create synergies with an NPV of over €7.5 billion, with run-rate cost and capex savings of €535 million by the fifth year post completion (before integration costs). The transaction is subject to regulatory approvals and is expected to close around the middle of calendar 2019. Creating a new market leader in India I am pleased with the progress we are making in securing regulatory approvals for the merger of Vodafone India with Idea Cellular, which is expected to close by the end of June, and we recently announced the appointment of a combined management team. Separately, in April 2018 we also announced the merger of Indus Towers with Bharti Infratel, creating India’s leading listed tower company in which we will own a significant liquid stake. Customer eXperience eXcellence (‘CXX’) and Digital Vodafone Our efforts to deliver an outstanding customer experience, capitalising on our leading network quality, contributed to further gains in NPS across most of our markets during the year. In 17 out of 20 markets we now have a leading or co-leading consumer NPS score. Even more importantly, the NPS gap between ourselves and the third placed competitor (typically the value-players) is now 16 points. During the year we decided to initiate a new strategic programme, “Digital Vodafone”, which will leverage on our earlier work with the CXX programme. We aim to transform our business model by delivering the most engaging digital experience for our customers; using advanced data analytics to improve all commercial and technology investment decisions; and automating key aspects of our operations. Our ambition is to generate incremental revenues and to further reduce net operating costs on an organic basis. The programme is already being implemented across our largest operating businesses, where we are merging commercial and technology teams to achieve better and more efficient product and service development, at a lower cost than in the traditional “siloed” functional model. We are also insourcing critical digital skills, in order to reduce reliance on external developers and adopt more agile working processes, and we have strengthened our internal digital marketing platforms and units, to achieve a better return on our media investments. This transformational programme will be the most important source of differentiation and efficiency gains for Vodafone in the coming years. Chief Executive succession It has been a privilege to spend 20 years of my life working at Vodafone, the last ten of which as Group CEO. The company has evolved from a collection of assets – mostly consumer mobile – and minorities, to a strong mobile and fixed infrastructure owner, with co-controlled JVs and a strong Enterprise business. I am highly confident that Nick Read and Margherita Della Valle, whom I have worked with extensively throughout this time, are the right choices to lead the company through this exciting next phase of convergence and digital transformation. Vittorio Colao Chief Executive Vodafone Group Plc Annual Report 2018Strategic Report 15 In AMAP, data revenues grew strongly, supported by the relative scarcity of fixed internet access, low data penetration and the success of our personalised offers to customers. We have launched new “worry-free” services In 2017, we launched “Vodafone Pass”, an innovative proposition which allows customers to buy passes that give worry-free access to social, media and video applications without using their data allowance. Vodafone Pass is now available in 13 markets, with 13.0 million unique users enjoying over 19 million passes by the end of the year. 13.0m unique Vodafone Pass users Following the introduction of “Roam-like-at- home” regulation in Europe our customers can now also benefit from worry-free roaming across 35 markets where they can use their domestic voice and data allowances abroad at no additional cost. As a result, roaming data usage is up 132% YoY. The future is exciting In November, we launched our new “V by Vodafone” consumer Internet of Things (IoT) business. This enables customers to connect both Vodafone branded and third party electronics products to Vodafone’s leading international IoT network. These products can be easily managed using the “V by Vodafone” smartphone app, providing customers with a single overview of all IoT-enabled products registered to their account. Customers pay a low-cost fixed monthly subscription for each “V-Sim”; initial products include the V-Auto, V-Camera, V-Pet, V-Bag and V-Home connected devices. Our growth engines Mobile data Providing the best mobile data experience Context – The demand for mobile data is growing rapidly. Over the past three years data usage on our network has more than tripled – This is being driven by increased smartphone adoption, customers moving to 4G (which provides faster data speeds and lower latency for a better user experience), and an increasing trend towards bigger data bundles – Customers want to use data in a “worry-free” way, without incurring unexpected costs whether using their mobiles at home or abroad – Our substantial network investments create a strong platform to capture this demand and enable us to differentiate ourselves versus our competitors on data quality Our goals – To monetise this growth in mobile data through a range of “more-for-more propositions” (where we provide additional benefits to customers for a small incremental monthly fee), as well as providing personalised offers supported by our advanced data analytics – Provide worry-free offers to customers to further encourage data usage – Further increase smartphone and data penetration across our customer base. In Europe and AMAP smartphone penetration is 73% and 43% respectively – Accelerate the adoption of new consumer IoT products and services, both using our own “V by Vodafone” and third-party solutions – Further improve and enhance our network to provide the best data experience The demand for mobile data has continued to grow rapidly During the financial year, data traffic across our network increased by 63% (Europe: 61%, AMAP: 66%). Additionally, India data traffic increased fourfold following a steep decline in data prices. This reflected strong 4G customer growth, up 63% to 122 million customers (an increase of 47 million in the year), together with increased data allowances. Smartphone usage also continued to grow, with customers using 2.5GB on average each month, up 51% year-on-year (Europe: 2.6GB, AMAP 2.2GB, India 3.5GB). Sustained data growth YoY growth (%) YoY growth (PB) Monthly usage (GB)1 62 63 67 61 2.0 368 2.2 355 1.7 288 1.6 249 60 2.5 388 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 1 iPhone and Android monthly average usage. Monetising data growth through “more-for-more” propositions In Europe, we are monetising the growth in data usage through a range of “more-for- more” propositions as well as personalised offers utilising advanced data analytics. As a result, underlying consumer contract ARPU is stabilising across many of our markets, although regulatory drags and a mix shift towards lower priced SIM-only contracts are weighing on reported ARPU metrics. Examples of our more-for-more and personalised offers More-for-more Vodafone Pass Germany In October 2017 all new customers received a monthly “pass” in return for +€3/month Live in 13 markets Available for different durations, for example, in Egypt available on an hourly basis Segmented offers Personalised offers/data analytics Portugal Youth segment “Yorn Shake It” prepaid top-up gaming experience South Africa 1.45 billion “Just 4 You” bundles sold this year, +99% year-on-year Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 16 Our growth engines (continued) We have Europe’s largest NGN footprint Our fixed NGN footprint has continued to expand and now covers 107 million marketable households, an increase of 11 million in the year. Within this, 36 million households are on our fully owned network (‘on-net’) including VodafoneZiggo in the Netherlands, and a further 7 million households are covered through strategic partnership agreements where we have attractive commercial/access terms. This provides us with a significant platform for growth. European homes marketable2 (Q4 2018 – million) 165m 100 Total homes Total (incl. ADSL and NGN) NGN wholesale Strategic wholesale partnerships Owned NGN network 139m 107m 43m 36m 84 65 26 22 % of homes Using our flexible and capital smart infrastructure strategy Our market-leading NGN footprint has been achieved using a flexible and capital efficient strategy which combines build/ co-build, strategic partnering, wholesale and acquisition/buy options. This approach allows us to continually optimise and improve our fixed access position over time. For example, during the year we signed a number of strategically important agreements, these included: – Our “Gigabit investment plan” in Germany, where we intend to invest approximately €2 billion on ultrafast services by the end of 2021. We expect this largely success- based plan to drive incremental growth and attractive returns. We aim to deploy fibre to around 2,000 business parks, working with partners and independently; partner with local municipalities to reach around 1 million rural consumer homes with FTTH; and upgrade our existing cable infrastructure to deliver 1Gbps speeds to 12.7 million households. – A long-term strategic partnership with CityFibre in the UK. This provides us with the ability to market FTTH to up to five million UK households by 2025 at attractive commercial terms. Our initial commitment is to one million households. Capital-smart infrastructure strategy Buy Co/self build Strategic p’ships Rent We are Europe’s fastest growing broadband provider Penetration of our European on-net NGN households is 28%1, leaving substantial room for growth given competition primarily comes from incumbent’s copper-centric networks. Our off-net wholesale penetration is just 4%, a further growth opportunity. During the past year, we added 1.3 million new broadband customers across the Group and maintained our position as the fastest growing broadband provider in Europe. As a result, our total broadband customer base across the Group is 16.1 million (19.7 million including JVs and associates). This strong commercial performance was supported by record growth in our NGN customer base of 2.0 million, reaching 9.9 million (13.2 million including VodafoneZiggo). Gaining momentum in convergence Our momentum in convergence has accelerated with 0.8 million converged customers added in the past year. In total our Group converged customer base now totals 4.5 million (5.5 million including VodafoneZiggo). We are seeing clear improvements in both customer churn and NPS for converged customers. The opportunity to grow our converged base remains significant with c.35% of our consumer broadband base in Europe (including VodafoneZiggo) taking both fixed and mobile products. The future is exciting – In May 2018, we announced our intention to acquire Liberty Global’s operations in Germany, the Czech Republic, Hungary and Romania. – This further accelerates our convergence strategy, enabling us to become the leading NGN owner in Europe, expanding our “on-net” footprint to 54 million cable and fibre households covered and a total reach of 114 million homes and businesses including wholesale arrangements. Fixed and Convergence Winning fixed share, combining fixed and mobile Context – Over the next five years, the number of households with NGN broadband (i.e. fibre or cable) is expected to double within Vodafone’s European footprint. This equates to c.50 million additional NGN households – This shift to NGN represents a significant window of opportunity for Vodafone to capture substantial and profitable market share gains – This opportunity is available to us as a result of our flexible and capital-smart infrastructure strategy, which has enabled us to create Europe’s largest NGN footprint covering 107 million households – Gaining scale in fixed also allows us to sell bundles of fixed and mobile services within a single contract to our combined base, providing the opportunity to lower customer churn, grow ARPU through upselling additional services and increase customer lifetime value – Demand for convergence across our European markets is moving at different speeds, but we are well prepared to capitalise on this opportunity as it develops Our goals – To make substantial and profitable market share gains in fixed line – Further grow and optimise our NGN footprint utilising our capital-smart strategy – Increase on-net penetration on our owned NGN network. Today, penetration across our European markets is 28%1 – Continue to grow fixed service revenue as a percentage of our total service revenues. Over the last three years this percentage has grown from 22% to 25% today (29% in Europe) – Drive convergence across our markets in a disciplined way – making our customer base increasingly secure and more valuable Vodafone Germany: Converged customers have lower churn Q3 2018 customer churn reduction (%) 16 Significant mobile churn reduction in convergent households -50% c.8 Mobile churn Converged churn Including VodafoneZiggo. 1 2 Across all Vodafone’s 13 markets. Vodafone Group Plc Annual Report 2018Strategic Report Enterprise Connecting the people, places and things that matter to businesses Context – The ability to turn inanimate objects into intelligent assets, collecting data and communicating, now makes it possible for businesses of all sizes to create new revenue streams and business models. Digital transformation is now a means of competitive differentiation – The divisions between mobile, fixed and IT have blurred and competition from OTT providers is intensifying – The growth of IoT, security and other value added services such as data analytics, artificial intelligence and virtual reality continues to accelerate Our goals – To help businesses, small and large, to succeed in a digital world – We aim to maintain our strong mobile market share and gain a profitable share in fixed line and converged services – We also aim to lead the market in integrating value added services for SOHO and SMEs and be the partner of choice for large enterprises to connect their people, places and things to the Cloud Our Enterprise business Enterprise is a key part of our business, representing 29% of Group service revenue. During the year, we continued to grow enterprise service revenue by 0.9%*, led by the success of our world-leading IoT platform, despite headwinds from roaming regulation in Europe. Excluding the impact of regulation, we grew service revenue by 2.1%* in the year. Organic Enterprise service revenue growth (%) Reported Ex-regulation1 2.4 1.9 2.1 0.9 0.2 Mobile Fixed Total 1 Excludes the impact of EU regulation and mobile termination rate changes. What differentiates us We have a unique global footprint that spans 25 countries where we own networks and have partner agreements in 47 countries. As a result, we have a cost advantage compared to nationally based competitors who are forced to wholesale at a higher cost in order to provide services outside of their home footprint. We are also able to provide global service level agreements (‘SLAs’) to multinational customers as we own all of our infrastructure. Being a challenger in fixed line, we are not held back by either legacy infrastructure or the loss of fixed voice revenues and continue to gain market share. Additionally, the upcoming technology shift to Software Defined Networking enhances the opportunity for us to provide new fixed services. Our business also continues to benefit from greater exposure to fast growing emerging markets, such as South Africa, Turkey and Egypt, which make up 17% of Enterprise service revenues. Finally, we have a market-leading platform in the rapidly growing Internet of Things (‘IoT’) segment. This provides us with the benefits of owner economics, and the ability to control the platform’s development and deployment as customer demands evolve. We also provide not just connectivity but truly “end-to-end” IoT services. This year, we grew our IoT service revenue by 14%*, adding more than a million SIMs per month and scaled our services businesses in key verticals including automotive and financial services. In total, we now have 68 million SIMs on our network. This differentiation is reflected in our market- leading NPS scores, where we are the leader or co-leader in 19 out of 20 countries. Outperforming our peers These important differences have enabled us to maintain our service revenue growth over the past year while also continuing to outperform our peers. 17 We are also highly focused on our cost base and have implemented a multi-year margin improvement programme. This includes retiring expensive-to-run networks and services and migrating legacy customers to more profitable solutions. Through our own digital transformation programmes, we are also driving operational efficiencies by using Artificial Intelligence, machine learning and greater use of digital self-service tools. Outperforming peers Q4 2018 revenue growth +1.5* e n o f a d o V -1.3 -1.6 -2.3 -5.3 -5.7 -12.7 1 r o t i t e p m o C 2 r o t i t e p m o C 3 r o t i t e p m o C 4 r o t i t e p m o C 5 r o t i t e p m o C 6 r o t i t e p m o C In alphabetical order: AT&T Business Solutions, BT Business & Public Sector, BT Global Services, Deutsche Telekom T-Systems, Orange Enterprise, Verizon Enterprise Solutions. Challenges Consistent with the industry, we continue to experience downward pressure on mobile prices and ARPU, driven by aggressive competition and the consumerisation of Enterprise services, such as the Bring Your Own Device (‘BYOD’) trend. We are also reaching high smartphone penetration levels, and near ubiquitous availability of Wi-Fi that enables OTT operators to offer substitute services. For example, using WhatsApp to call when abroad instead of roaming on our network. To off-set these challenges, we continue to develop value added services such as “Device Lifecycle Management” and new tariffs that monetise data. The future is exciting – Our performance in the IoT automotive segment remains particularly strong, with over 14.4 million vehicles connected to our IoT platform. Vodafone is the only telco that is a Tier 1 supplier to automotive original equipment manufacturers (‘OEMs’), with customers including eight of the top ten car manufacturers globally. – We are continuing to expand our services in the automotive and insurance sectors with five vehicle manufacturers taking additional telematics services and we are now the second biggest provider of Usage Based Insurance information in Europe. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 18 Chief Financial Officer’s review Improving margins and strong financial results Digital Vodafone will build on “Fit for Growth” achievements I am pleased to report that for the third year in a row we grew our adjusted EBITDA faster than service revenues, supporting a significant improvement in our adjusted EBITDA margins, which have now risen from a low of 28.3% in 2015 to 31.6% in 2018. Adjusted EBIT has recovered even more sharply with organic growth of 47%. This margin improvement was supported by a further annual reduction in our organic operating costs on an absolute basis, reflecting the success of our “Fit for Growth” efforts. These include centralising procurement, developing Shared Service Centres and undertaking zero based budgeting efforts across the Group. Importantly, we achieved this cost reduction while maintaining robust commercial momentum, and despite a 63% increase in mobile data traffic during the year. 20 out of 25 markets growing adjusted EBITDA faster than service revenue Our ambition is to continue to reduce net operating costs over the long-term through the “Digital Vodafone” programme, which aims to achieve savings by digitalising key aspects of our customer management, technology management and operational processes – activities which at present represent over €8 billion of annual cash costs. We are increasing our investments in “Agile” cross-functional teams, digital tools and IT capabilities, in order to strengthen our ability to market directly to our customers via the web and the My Vodafone app. By the 2021 financial year, our target is that over 40% of our sales are via digital channels, up from just 11% today. This will allow us to reduce the commissions paid to third-party distributors and optimise the size of our retail footprint. We are also creating efficient digital customer care solutions, including AI-enabled chatbots, in order to reduce the loading in our call centres, with a target that 60% of contacts are via digital agents by 2021. And we are introducing new “smart capex” allocation methodologies, based on broader and deeper data analytics which enable us to understand our profitability both by customer and by mobile site. Maintaining a strong balance sheet post acquisitions Vodafone has benefited throughout its history from a strong balance sheet and a robust investment grade credit rating, providing reliable and cost-effective access to debt capital markets. Our proposed acquisition of Unitymedia in Germany and cable operations in Central and Eastern Europe from Liberty Global does not alter this fundamental commitment. We believe that modestly higher financial leverage – within an expected range of 2.5x–3.0x net debt/adjusted EBITDA moving forwards – is fully justified by an improved organic growth outlook and a more resilient revenue mix, as the Group becomes both more converged and more European following the acquisition. Our determination to maintain a robust investment grade credit rating is reflected in our intention to issue around €3 billion of new mandatory convertible bonds, as well as hybrid debt securities (which receive equity credit from rating agencies), as part of the financing for the acquisition. We will have the option to buy the mandatory convertible bonds back in three years’ time, avoiding equity dilution for our shareholders, providing that we have sufficient headroom within our targeted leverage range. On a pro-forma basis for the transaction with Liberty Global, our leverage was 3.0x as at 31 March 2018. Developments in India Given high competitive intensity and regulatory pressure, Vodafone India’s service revenue contracted by 19%* and adjusted EBITDA by 35%* on an organic basis during the year, while Idea Cellular reported a similar financial performance. We have taken a number of steps during the year to strengthen the financial position of the future joint venture, raising approximately €3.5 billion in incremental financing for the business. These actions include: – The sale of Vodafone India and Idea’s standalone tower assets for €1.0 billion, which we announced in October 2017 – Idea’s equity raise of €0.8 billion in January 2018, which Vodafone Group will match at the time the merger closes; combined with other adjustments, we currently estimate a net capital injection into India of up to €1 billion at closing in June 2018 – The option to sell Idea’s 11.15% stake in Indus Towers to Bharti Infratel for approximately €0.8 billion in cash (based on the announcement on 25 April 2018); alternatively, the JV can elect to receive shares in the enlarged Indus Towers Ltd when the merger between Indus Towers and Bharti Infratel completes (by the end of fiscal 2019, subject to regulatory and other approvals). These measures will support the joint venture while it focuses on capturing operational synergies as fast as possible; in addition, post competitor rationalisation the Indian mobile market has scope to recover, especially given the cash outflows currently experienced by the remaining operators. However, the company’s financial leverage is currently high on a pro-forma basis. In the event that in the future the joint venture partners decide to put in additional funding, the Group would draw upon the value of its stake in Indus Towers. Vodafone Group Plc Annual Report 2018Strategic Report 19 My priorities: Delivering a Digital Vodafone, leading in a Gigabit world I feel both privileged and hugely energised by the opportunity to lead Vodafone, supported by a world class team, and I would like to recognise Vittorio for transforming Vodafone into the company it is today, and personally thank him for his mentorship over the past 12 years. My immediate priorities will be to continue to work closely with Vittorio to conclude the India merger process, to make good progress in securing regulatory approvals for the acquisition of Liberty Global’s cable assets, and to accelerate the Digital Vodafone programme. The Group has a clear strategic direction, so in the coming year I intend to focus on our organic performance, building on our leadership in next-generation networks and mobile to place us at the heart of a converged Gigabit Society. We need to deliver on our integration plans and the substantial synergies arising from our transactions in India, Germany and Central and Eastern Europe. At the same time, we must use Digital Vodafone to transform not only the world around us, but also our own business – enhancing the experience for our customers, while simplifying and streamlining our internal processes to achieve a much higher level of efficiency, and generate higher returns. Nick Read Chief Financial Officer Third consecutive year of EBITDA margin expansion Group adjusted EBITDA margin (%) 31.6% 30.8% 29.7% Excluding EU roaming, handset financing and settlements 28.3% 2015 28.4% 2016 2017 2018 Strong 2018 financial results – exceeding guidance During the year we exceeded our initial guidance for “4-8% organic adjusted EBITDA growth” and “around €5 billion of FCF pre- spectrum”. At our half year results we revised our guidance upwards to “around 10% organic adjusted EBITDA growth”, stating that we expected “to exceed €5 billion of FCF pre-spectrum”. We more than met these revised targets, with 12%* organic adjusted EBITDA growth and €5.6 billion of FCF pre- spectrum on a guidance basis. However, it is important to note that excluding the benefit of UK handset financing, settlements in the UK and Germany and the impact of EU regulation, our organic adjusted EBITDA growth was closer to 8%*. A covered dividend During the year we invested €1.1 billion in spectrum, renewing our 2G spectrum in Italy and making a down-payment for the UK 5G spectrum auction. Consequently, our FCF generation post spectrum and restructuring was €4.0 billion, higher than our cash dividend obligation of €3.9 billion. In the coming two years we expect higher spectrum costs as we look to acquire 5G spectrum in the 3.4-3.7GHz bands, as well the 700MHz band, across most European markets. On the basis that this concentration of auction activity does not change our long-term average annual spectrum cost, which was €1.2 billion taking the average of the past nine years, we expect that our FCF generation will – on average – continue to cover our dividend obligations. This provides the Board with the confidence to reiterate our intention to grow the dividend per share annually, and recommend a further 2.0% increase in the dividend to 15.07 eurocents for the year. Looking ahead In the 2019 financial year, we expect to grow adjusted EBITDA by 1–5% on an organic basis, excluding the impact of UK handset financing and settlements, despite the arrival of a new entrant in Italy and increased competition in Spain. This implies an adjusted EBITDA range of €14.15–€14.65 billion at guidance exchange rates, under current accounting standards. We expect to generate FCF pre-spectrum of at least €5.2 billion. During the coming year we will report our results under the new IFRS 15 accounting standard as well as under the prior accounting standards. Under IFRS 15, we expect our organic service revenue growth will be slightly higher, and our absolute adjusted EBITDA slightly lower, primarily due to the elimination of the impact of UK handset financing under our current accounting standards, with no impact on FCF. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 20 Key performance indicators Monitoring progress and performance We measure our success by tracking key performance indicators that reflect our strategic, operational and financial progress and performance. These drive internal management of the business and our remuneration. Changes to KPIs this year We have updated some of our KPIs to more accurately reflect our progress and performance. New KPIs – Mobile data growth and network quality – Average smartphone data usage per customer in Europe – IoT SIM growth KPIs removed – 4G coverage Notes: Includes Netherlands. 1 2 Includes India. 3 Excludes Qatar. 4 Excluding the impact of a German legal settlement. Core programmes Network leadership Mobile data growth and network quality The growth of Group data traffic over our network and proportion of data sessions delivered at high-definition (HD) quality (i.e. exceeds 3 Mbps). Achieved % data growth % of data sessions >3 Mbps (iPhone & Android only) 2016 2017 2018 74 65 63 89 90 91 Customer eXperience eXcellence (‘CXX’) Consumer mobile net promoter score1,2 number of markets with NPS leadership or co-leadership, out of 20 markets We use NPS to measure the extent to which our customers would recommend us to friends and family. Our goal is to be NPS leader in all of our markets. More work to do Growth engines Mobile data 4G customers1,2 million To monetise our network investments, we aim to migrate and attract new customers on to our 4G network. We have continued to significantly grow our 4G customer base and as a result data usage on our network has increased by 63% over the last year. Achieved 2016 2017 2018 46.8 74.7 121.7 Fixed and Convergence Fixed broadband and converged consumer customers1,2 million We aim to rapidly grow our fixed broadband customer base through market share gains, and drive convergence across our fixed and mobile customer base. During the year we added 1.3 million broadband customers, and maintained our position as the fastest growing broadband provider in Europe, taking our total customer base to 19.7 million (including JVs and associates). We also added 0.8 million converged customers in the year, taking our overall total base to 5.5 million (including VodafoneZiggo). Achieved of which, consumer converged customers 2016 3.1 13.4 2017 2018 3.8 5.5 18.0 19.7 Service revenue, fixed revenue, enterprise service revenue, IoT revenue, adjusted EBITDA, adjusted EBITDA margin, free cash flow (pre-spectrum) and organic growth are alternative performance measures. See “Alternative performance measures” on page 207 for further details and reconciliations to the respective closest equivalent GAAP measure. 2016 2017 2018 13 19 173 Enterprise: Fixed as a percentage of enterprise service revenue % Our core European mobile business continued to face ARPU pressure in mobile reflecting ongoing price competition. As a result, we are seeking to diversify into fixed and enterprise related services to offset this pressure. Fit for Growth Grow adjusted EBITDA faster than service revenue, improving margins out of 25 markets The number of markets growing organic adjusted EBITDA faster than service revenue. 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. These KPIs continued to show improvement, and as a result this year’s Group annual bonus was higher than last years as overall performance was ahead of our internal targets. 70 Read more on rewards and performance in the Remuneration Report Achieved 2016 2017 2018 15 17 20 Achieved 2016 2017 2018 28 29 30 Vodafone Group Plc Annual Report 2018Strategic Report Growth engines Financial performance The Group delivered a strong financial performance supported by our good commercial momentum and sustained focus on cost efficiencies. As a result we were able to exceed both our initial and revised financial targets for the year, delivering 11.8% organic adjusted EBITDA growth and €5.6 billion of free cash flow pre-spectrum. Our dividend per share grew by 2% to 15.07 eurocents. 22 Read more on financial performance 21 Organic service revenue growth % Growth in revenue demonstrates our ability to grow our customer base and/or ARPU. Our goal is to continue to grow our service revenue. We met this goal again this year despite new EU roaming regulation dragging on our reported results. Overall, we delivered organic Group service revenue growth of 1.6%*,4 in the year (Europe: 0.6%*,4; AMAP 7.7%). Achieved 2016 2017 2018 1.1 1.9 1.64 Organic adjusted EBITDA growth % Organic adjusted EBIT growth % Growth in adjusted EBITDA supports our free cash flow which helps fund investment and shareholder returns. Our adjusted EBITDA grew organically by 11.8% this year, a significantly faster pace than service revenue, or 7.9% excluding regulation, UK handset financing and settlements. Consequently, the Group’s adjusted EBITDA margin improved by 1.9 percentage points to 31.6%, or by 1.3 percentage points on an organic basis excluding regulation, UK handset financing and settlements. Adjusted EBIT is an important indicator of profitability and returns for the Group. On a reported basis, our organic adjusted EBIT grew by 47% driven by our strong adjusted EBITDA performance, which translated into even faster adjusted EBIT growth, combined with lower depreciation and amortisation expenses which continue to stabilise as our capital intensity normalises post Project Spring. It has been a strong in-year performance, but there is still more work to be done to improve profitability and our return on capital. Mobile data Average smartphone data usage per customer in Europe GB/month (iPhone & Android only) Our range of “more-for-more” propositions (where we provide additional benefits to our customers for a small incremental fee) and “worry-free” offers are encouraging customers to use more data and enabling us to monetise this growth. Achieved 2016 2017 2018 1.1 1.7 2.6 Fixed and Convergence European owned NGN coverage and strategic partnerships1 million marketable households passed To meet the growing demand for NGN fixed and converged services we aim to continually grow and optimise our NGN reach. We now have the largest NGN footprint in Europe covering 107 million marketable households. This comprises of 36 million homes passed by our owned cable and fibre network (including VodafoneZiggo), 7 million through strategic partnership agreements, and a further 64 million via wholesale access terms. Achieved On-net Strategic partnerships Exceeded 2016 2017 2018 27 2 36 36 5 7 2.3 2016 2017 2018 5.8 Exceeded 2016 -7.3 2017 2018 7.0 11.8 47.2 Enterprise: IoT SIM growth million We are a market leader in the rapidly growing Internet of Things (‘IoT’) segment. We offer a diverse range of services to our Enterprise customers including managed IoT connectivity, automotive and insurance services, smart metering and health solutions. This year we grew our IoT service revenue by 14%*, and in total we now have 68 million SIMs on our network. Free cash flow pre-spectrum € billion Dividend per share eurocents Cash generation is key to delivering strong shareholder returns. On a guidance basis, we delivered €5.6 billion of free cash flow pre- spectrum in the year, fully covering our dividend obligations, or €5.4 billion pre-spectrum payments on a reported basis. The ordinary dividend per share continues to be a key component of shareholder return. It is the Board’s intention to grow the dividend per share annually. This year we increased the dividend per share by 2%. Achieved 2016 2017 2018 Exceeded reported guidance basis 37 52 68 1.3 2016 2017 2018 4.1 5.4 5.6 Achieved 2016 2017 2018 14.48 14.77 15.07 Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 22 Our financial performance Our financial performance This section presents our operating performance, providing commentary on how the revenue and the adjusted EBITDA performance of the Group and its operating segments have developed over the last year. The results for both years include the results of Vodafone India as discontinued operations following the agreement to combine it with Idea Cellular. Group1,2 Revenue Service revenue Other revenue Adjusted EBITDA Depreciation and amortisation Adjusted EBIT Share of adjusted results in associates and joint ventures5 Adjusted operating profit Adjustments for: Europe €m 33,888 30,713 3,175 11,036 (8,181) 2,855 AMAP €m 11,462 9,501 1,961 3,757 (1,655) 2,102 40 2,895 351 2,453 Other3 €m 1,408 1,037 371 (56) (74) (130) (2) (132) Eliminations €m (187) (185) (2) – – – 2018 €m 46,571 41,066 5,505 14,737 (9,910) 4,827 2017 €m 47,631 42,987 4,644 14,149 (10,179) 3,970 Reported (2.2) (4.5) % change Organic* 3.8 1.64 4.2 11.8 21.6 47.2 – – 389 5,216 164 4,134 26.2 49.0 Restructuring costs Amortisation of acquired customer bases and brand intangible assets Other income and expense6 Operating profit Non-operating income and expense Net financing costs Income tax credit/(expense) Profit/(loss) for the financial year from continuing operations Loss for the financial year from discontinued operations Profit/(loss) for the financial year (156) (974) 213 4,299 (32) (389) 879 4,757 (1,969) 2,788 (415) (1,046) 1,052 3,725 (1) (932) (4,764) (1,972) (4,107) (6,079) Notes: 1 2018 results reflect average foreign exchange rates of €1:£0.88, €1:INR 75.48, €1:ZAR 15.19, €1:TKL 4.31 and €1: EGP 20.84. 2 Service revenue, adjusted EBITDA, adjusted EBIT and adjusted operating profit are alternative performance measures which are non-GAAP measures that are presented to provide readers with additional financial information that is regularly reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measure. See “Alternative performance measures” on page 207 for reconciliations to the closest respective equivalent GAAP measure and “Definition of terms” on page 222 for further details. 3 The “Other” segment primarily represents the results of shareholder recharges received from Vodafone Netherlands, VodafoneZiggo and Vodafone India, partner markets and the net result of unallocated central Group costs. 4 Excluding the impact of a German legal settlement. 5 Excludes amortisation of acquired customer bases and brand intangible assets of €0.4 billion (2017: €0.1 billion). 6 Year ended 31 March 2017 includes a €1.3 billion gain on the formation of the VodafoneZiggo joint venture in the Netherlands. Revenue Group revenue decreased 2.2% to €46.6 billion and service revenue decreased 4.5% to €41.1 billion. In Europe, organic service revenue increased 0.9%* and in AMAP, organic service revenue increased by 7.7%*. Further details on the performance of these regions is set out below. Note: * All amounts in the Our financial performance 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. Organic growth is an alternative performance measure. See “Alternative performance measures” on page 207 for further details and reconciliations to the respective closest equivalent GAAP measure. Adjusted EBITDA Group adjusted EBITDA increased 4.2% to €14.7 billion, with organic growth in Europe and AMAP partly offset by foreign exchange movements and the deconsolidation of Vodafone Netherlands following the creation of our joint venture “VodafoneZiggo”. The Group’s adjusted EBITDA margin improved by 1.9 percentage points to 31.6%. On an organic basis, adjusted EBITDA rose 11.8%* and the Group’s adjusted EBITDA margin increased by 2.2* percentage points driven by organic margin improvement in Europe. Adjusted EBIT Adjusted EBIT increased by 21.6% to €4.8 billion as a result of both strong adjusted EBITDA growth and lower depreciation and amortisation expenses. On an organic basis, adjusted EBIT increased by 47.2%* for the year. Vodafone Group Plc Annual Report 2018Strategic Report Operating profit Adjusted EBIT excludes certain income and expenses that we have identified separately to allow their effect on the results of the Group to be assessed. The items that are included in operating profit but are excluded from adjusted EBIT are discussed below. The Group’s share of adjusted results in associates and joint ventures was €0.4 billion, up from €0.2 billion in the prior year due to higher contributions from VodafoneZiggo and Vodafone Hutchison Australia. Restructuring costs decreased by €0.2 billion due to the prior year including the impact of cost efficiency actions taken in Germany and the UK. Amortisation of intangible assets in relation to customer bases and brands is recognised under accounting rules after we acquire businesses and was €1.0 billion, largely unchanged compared to the prior year. Other income and expense were a €0.2 billion gain during the year compared to €1.1 billion in the prior year which included a €1.3 billion gain on the formation of VodafoneZiggo. Including the above items, operating profit increased by €0.6 billion to €4.3 billion. Higher adjusted EBIT and share of adjusted results in associates and joint ventures and lower restructuring costs more than offset the inclusion of the gain on the formation of the VodafoneZiggo joint venture in the prior year. Net financing costs Investment income Financing costs Net financing costs Analysed as: Net financing costs before interest on settlement of tax issues Interest income/(expense) arising on settlement of outstanding tax issues Mark-to-market gains Foreign exchange1 Net financing costs 23 2018 €m 685 (1,074) (389) 2017 €m 474 (1,406) (932) (749) (979) 11 (738) 27 322 (389) (47) (1,026) 66 28 (932) Note: 1 Primarily comprises foreign exchange rate differences reflected in the income statement in relation to certain sterling and US dollar balances. Net financing costs decreased by €543 million primarily driven by favourable foreign exchange rate movements. Net financing costs before interest on settlement of tax issues includes favourable foreign exchange movements related to both subsidiary borrowings and central hedging strategies. Excluding these, underlying financing costs remained stable, reflecting consistent average net debt balances and weighted average borrowing costs for both periods. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 24 Our financial performance (continued) Taxation Income tax credit/(expense): Tax on adjustments to derive adjusted profit before tax Deferred tax following revaluation of investments in Luxembourg Luxembourg deferred tax asset recognised in the year Deferred tax on use of Luxembourg losses in the year Tax on the Safaricom transaction Reduction in deferred tax following rate change in Luxembourg Adjusted income tax expense for calculating adjusted tax rate1 Profit before tax Adjustments to derive adjusted profit before tax (see earnings per share) Adjusted profit before tax1 Share of adjusted results in associates and joint ventures Adjusted profit before tax for calculating adjusted effective tax rate1 Adjusted effective tax rate1 2018 €m 879 2017 €m (4,764) (188) (320) (330) (328) (1,603) 1,603 304 110 369 – – 2,651 (828) (789) 3,878 2,792 530 4,408 480 3,272 (389) (164) 4,019 3,108 20.6% 25.4% The Group’s adjusted effective tax rate for its controlled businesses for the year ended 31 March 2018 was 20.6% compared to 25.4% for the last financial year. The lower rate in the current year is primarily due to the closure of tax audits in Germany and Romania as well as a change in the mix of the Group’s profits. We now expect the adjusted effective tax rate to be in the low to mid-twenties over the medium term. The Group’s adjusted effective tax rate for both years does not include the following items; deferred tax on the use of Luxembourg losses of €304 million (2017: €369 million); an increase in the deferred tax asset of €330 million (2017: increase of €328 million) arising from a revaluation of investments based upon the local GAAP financial statements and tax returns; the recognition of a deferred tax asset of €1,603 million due to higher interest rates; and a tax charge in respect of capital gains on the transfer of shares in Vodafone Kenya Limited to the Vodacom Group of €110 million (2017: €nil). The year ended 31 March 2017 also excludes a reduction in our Luxembourg deferred tax assets of €2,651 million following a reduction in the Luxembourg corporate tax rate to 26.0%. These items change the total losses we have available for future use against our profits in Luxembourg and do not affect the amount of tax we pay in other countries. Note: 1 See “Alternative performance measures” on page 207 for further details and reconciliations to the respective closest equivalent GAAP measure. Earnings per share Adjusted earnings per share, which excludes the results of Vodafone India which are included in discontinued operations, were 11.59 eurocents, an increase of 44.2% year-on-year, as higher adjusted operating profit and lower net financing costs more than offset the increase in income tax expense. Basic earnings per share were 8.78 eurocents, compared to a loss per share of 22.51 eurocents for the year ended 31 March 2017, with the increase largely due to the prior year including a non-cash impairment charge of €3.7 billion, net of tax, recognised in discontinued operations in respect of the Group’s investment in India and the changes in deferred tax on losses, as described above, both of which have been excluded from adjusted earnings per share. Profit/(loss) attributable to owners of the parent Adjustments: 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 India1 Non-controlling interests Adjusted profit attributable to owners of the parent2 Weighted average number of shares outstanding – basic Earnings per share: Basic earnings/(loss) per share Adjusted earnings per share 2018 €m 2017 €m 2,439 (6,297) 974 156 (213) 32 (419) 530 (1,707) 1,969 (13) 1,046 415 (1,052) 1 70 480 3,975 4,107 (16) 3,218 2,249 Millions Millions 27,770 27,971 eurocents eurocents 8.78c 11.59c (22.51)c 8.04c Notes: 1 India is classified as discontinued operations and includes the operating results, financing, tax and other gains and losses of Vodafone India recognised during the year 2 See “Alternative performance measures” on page 207 for further details and reconciliations to the respective closest equivalent GAAP measure. Vodafone Group Plc Annual Report 2018Strategic Report 25 Europe Year ended 31 March 2018 Revenue Service revenue Other revenue Adjusted EBITDA Adjusted operating profit Adjusted EBITDA margin Germany €m Italy €m UK €m Spain €m Other Europe €m Eliminations €m Europe €m 2017 €m % change Reported Organic* 10,847 10,262 585 4,010 1,050 37.0% 6,204 5,302 902 2,329 1,049 37.5% 7,078 6,094 984 1,762 168 24.9% 4,978 4,587 391 1,420 163 28.5% 4,941 4,625 316 1,515 465 30.7% (160) (157) (3) – – 33,888 30,713 3,175 11,036 2,895 32.6% 34,550 31,975 2,575 10,283 1,890 29.8% (1.9) (3.9) 7.3 53.2 3.0 0.9 13.0 86.3 European revenue decreased by 1.9%. Foreign exchange movements contributed a 0.8 percentage point negative impact and the deconsolidation of Vodafone Netherlands contributed a 4.1 percentage point negative impact, offset by 3.0% organic growth. Service revenue increased by 0.9%* or 0.6%* excluding a legal settlement in Germany in Q4, driven by strong fixed customer growth and the benefit of the Group’s “more-for-more” mobile propositions in several markets, which offset increased regulatory headwinds following the implementation of the EU’s “Roam Like At Home” policy in June and the impact of the introduction of handset financing in the UK. Excluding regulation and UK handset financing, as well as a legal settlement in Germany in Q4, service revenue growth was 2.0%* (Q3: 1.9%*, Q4: 1.7%*). Adjusted EBITDA increased 7.3%, including a 5.1 percentage point negative impact from the deconsolidation of Vodafone Netherlands and a 0.6 percentage point negative impact from foreign exchange movements. On an organic basis, adjusted EBITDA increased 13.0%*, supported by the benefit of the introduction of handset financing in the UK, regulatory settlements in the UK and a legal settlement in Germany. Excluding these items, as well as the net impact of roaming, adjusted EBITDA grew by 7.9*, reflecting operating leverage and tight cost control through our “Fit for Growth” programme. Adjusted EBIT increased by 86.3%*, reflecting strong adjusted EBITDA growth and stable depreciation and amortisation expenses. Other activity (including M&A) pps 4.1 Reported change % (1.9) Foreign exchange pps 0.8 Organic* change % 3.0 2.6 1.0 (8.1) 1.8 (19.6) (3.9) 10.9 4.5 45.4 4.4 (18.8) 7.3 – 0.2 0.1 0.3 22.9 4.0 (0.1) 0.1 (1.2) 0.6 26.8 5.1 – – 4.5 – (0.4) 0.8 (0.1) – 7.6 – (0.3) 0.6 2.6 1.2 (3.5) 2.1 2.9 0.9 10.7 4.6 51.8 5.0 7.7 13.0 53.2 34.8 (1.7) 86.3 Revenue – Europe Service revenue Germany Italy UK Spain Other Europe Europe Adjusted EBITDA Germany Italy UK Spain Other Europe Europe Europe adjusted operating profit Germany Service revenue grew 2.6%* or 1.6%* excluding the benefit in Q4 of a one-off fixed line legal settlement. This performance was driven by strong contract customer base growth in both mobile and fixed, partially offset by regulatory drags. Excluding regulation and the legal settlement, service revenue grew by 2.5%*. Q4 service revenue grew 5.9%*, or 1.8%* excluding the legal settlement, a slower rate of growth than in Q3 (2.5%*). This reflected a tough prior year comparator, particularly in wholesale, which more than offset the benefit from fully lapping the MTR cut implemented on 1 December 2016. Mobile service revenue grew 0.4%* or 1.8%* excluding regulation. This was driven by a higher contract customer base, which more than offset lower contract ARPU (driven by a mix shift towards SIM-only/multi-SIM family contracts and regulation) and lower wholesale revenues. Q4 mobile service revenue grew 0.3%* (Q3: 1.8%*), with minimal impact from regulation. This slowdown in quarterly trends primarily reflects the lapping of strong wholesale MVNO revenues in the prior year. Our commercial performance in the year was strong as we added 657,000 contract customers (2016/17: 212,000). This was driven by higher activity in direct channels, lower contract churn and the continued success of our Gigacube fixed-wireless proposition. Our 4G population coverage is now 92% with the ability to offer 500Mbps in 40 cities, and we are currently piloting 1Gbps services in four cities. Our customer service was recently ranked 1st by “Connect” for overall service quality, consistent with our market-leading NPS ranking. Fixed service revenue grew by 6.1%* or 3.5%* excluding the legal settlement. This was supported by good customer base growth. Quarterly service revenue trends (excluding the legal settlement) improved to Q4: 4.2%* (Q3: 3.5%*). During the year we added 362,000 broadband customers, of which 258,000 were on cable with the rest on DSL. Customer demand for our high speed propositions increased, with over 70% of cable gross adds in Q4 now taking our 200Mbps to 500Mbps offers. Our TV base remained stable at 7.7 million. Our convergence momentum continued to improve, supported by our GigaKombi proposition, and we added 278,000 converged customers in the year, taking our total consumer converged customer base to 700,000. Adjusted EBITDA grew 10.7%* or 8.3%* excluding the legal settlement. This was driven by service revenue growth, our focus on more profitable direct channels, and a reduction in operating costs of 2.3%* despite the strong growth in customer numbers. Our adjusted EBITDA margin was 37.0% and the adjusted EBITDA margin improved by 2.9 percentage points, or 2.4 percentage points excluding the legal settlement. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 26 Our financial performance (continued) Italy Service revenue grew 1.2%* supported by strong customer base growth in fixed line, partly offset by lower mobile revenues. Q4 service revenue grew 0.7%* (Q3: -0.4%*), with the quarterly improvement led by mobile. In April 2018 we implemented a shift from 28-day billing to “solar” monthly billing across all products, however the antitrust authority (AGCOM) blocked the related change in monthly pricing; subsequently, we announced new price plans, which will be implemented at the end of May 2018. Mobile service revenue declined 1.0%*, driven by intense price competition in the prepaid market and the lapping of pricing actions from the prior year. Promotional activity in the prepaid segment remained high, driven by aggressive “below-the-line” offers. During the year we launched new segment led propositions and personalised offers, which helped to improve our sales mix and customer retention, supporting prepaid ARPU despite a competitive environment. We also retained our market leading network and NPS position in consumer and enterprise. Q4 mobile service revenue declined 1.5%* (Q3: -2.9%*). Fixed line service revenue grew 12.4%* driven by continued strong customer base growth and higher ARPU. This strong momentum was maintained in Q4 with service revenue growth of 11.1%* (Q3: 12.0%*). We added a record 307,000 broadband households in the year to reach a total broadband customer base of 2.5 million. Through our owned NGN footprint and strategic partnership with Open Fiber, we now cover 5.3 million marketable households. In April 2018, we announced an extension to our wholesale partnership with Open Fiber, enabling us to provide FTTH services to 9.5m households (271 cities) by 2022, at attractive commercial terms. During the year, we launched our new converged proposition “Vodafone One”, providing customers with a single fibre and 4.5G offer that can be enriched via Vodafone TV as well as exclusive advantages for family members. We added 268,000 converged consumer customers in the year, taking our total base to 743,000. Adjusted EBITDA grew 4.6%*, with a 1.0 percentage point improvement in adjusted EBITDA margin to 37.5%. This was driven by revenue growth and tight cost control, having delivered a 6.0%* reduction in operating costs in the year. UK Service revenue declined 3.5%*, impacted by the drag from handset financing which weighed on organic service revenue by 2.5 percentage points. Excluding the impact of handset financing and regulatory drags, service revenue grew 0.3%*, with trends improving throughout the year, driven by improvements in consumer mobile and fixed line, largely offset by continued declines in Enterprise fixed. Q4 service revenue declined 3.4%* (Q3: -4.8%*), including an increased drag from handset financing of 4.4 percentage points (Q3: 3.6 percentage points). Excluding the impact from handset financing and regulation, Q4 service revenue grew 1.4%* (Q3: 0.4%*). Mobile service revenue declined 4.2%*, but grew 0.7%* excluding the impact of handset financing and regulation. This underlying growth was supported by more-for-more actions, a better inflow mix of higher-value customers, and RPI-linked consumer price increases. Enterprise continued to decline in a competitive market, however ARPU trends improved with an increasing proportion of customers adopting our bespoke SoHo tariffs. Q4 mobile service revenue declined 5.7%* (Q3: 5.2%*), but grew 0.7%* (Q3: 1.6%*) excluding handset financing and regulation. Our operational performance during the year improved, resulting in our best ever network performance and customer net promoter scores. Our 4G network coverage is now 99%, and we are well positioned for the evolution to 5G having acquired the largest share of 3.4GHz spectrum (50MHz) in the recent UK auction. We added 106,000 contract customers in the year excluding Talkmobile, our low- end mobile brand which is being phased out. Fixed line service revenue declined 1.1%*, with strong customer momentum in consumer broadband being more than offset by competitive pricing pressure and a lower customer base in enterprise. In Q4 service revenue returned to growth (Q4: 3.6%*, Q3: -3.6%*), supported by the timing of project work in Enterprise and record consumer broadband net additions of 65,000 (Q3: 39,000), making us the fastest growing operator in the UK broadband market. In total we now serve 382,000 broadband customers. Adjusted EBITDA grew 51.8%* and the adjusted EBITDA margin was 24.9%. Excluding the impact of handset financing and regulatory settlements in the year, adjusted EBITDA grew by 1.4%* and the adjusted EBITDA margin improved 0.3* percentage points as out-of- bundle roaming declines were more than offset by lower operating costs delivered through our Fit for Growth programme. In total we delivered a 4.9% reduction in operating costs year-on-year. Vodafone Group Plc Annual Report 2018Strategic Report Spain Service revenue grew by 2.1%*. This was driven by a higher customer base in both mobile and fixed and our more-for-more tariff refresh at the start of the year, partly offset by increased promotional activity, particularly in the value segment. In Q4 promotional activity moderated but the market remained highly competitive driven by value players offering aggressive prices and handset subsidies. Interconnect revenues also fell following an MTR cut on 1 February. As a result, Q4 service revenue grew 1.0%* (Q3: 2.0%*). We continued to grow our customer base adding 164,000 mobile contract customers, 109,000 fixed broadband households and 51,000 TV households in the year, however high competitive intensity in Q4 led to an increase in churn and a decline in our broadband and TV base. Vodafone One, our fully integrated fixed, mobile and TV service, reached 2.5 million households by the end of the year, up 154,000 year-on-year. Consumer converged revenues grew by 13.7%* and now represent 59% of total consumer revenue. We maintained our market leading NPS position in consumer, and further improved our market leading network position during the year. This was reflected in the latest independent network tests by P3 which showed we had extended our overall lead across both voice and data. Our 4G coverage is now 96%. In fixed, including our commercial wholesale agreement with Telefónica, our NGN footprint now covers 20.5 million households (of which 10.3 million are on-net). We continued to deploy DOCSIS 3.1 in our cable footprint, enabling us to deliver broadband speeds of up to 1Gbps to 7.9 million households by the end of the year. We expect to complete the DOCSIS 3.1 rollout in the first half of fiscal 2018/19. Adjusted EBITDA grew 5.0%*, and the adjusted EBITDA margin improved by 1.2 percentage points to 28.5%. This improvement was driven by service revenue growth and lower commercial and operating costs; these more than offset higher content, roaming and wholesale access costs. Operating costs were 2.5%* lower year-on-year, reflecting the impact of our Fit for Growth programme. 27 Other Europe Service revenue grew 2.9%* with all of the larger markets growing during the year (excluding the impact of an MTR cut in Ireland). Quarterly service revenue trends were broadly stable at 3.3%* in Q4 (Q3: 2.9%*). Adjusted organic EBITDA grew 7.7%* in the year, and adjusted EBITDA margin grew 0.3 percentage points to 30.7% reflecting continued strong cost control. In Ireland service revenue declined 0.2%*, but grew 1.3%* excluding the impact of regulation, supported by fixed customer growth. Portugal service revenue grew 4.6%* driven by a return to growth in mobile, and continued strong customer growth in fixed. In Greece, service revenue grew by 3.7%*, driven by ARPU growth in consumer mobile and strong fixed customer base growth. In January, we announced the acquisition of fixed and mobile telecommunications provider CYTA Hellas for a total enterprise value of €118 million. This acquisition provides further scale and momentum to our fixed line and convergence strategy in Greece. The transaction is subject to regulatory approval and is expected to close in the first half of 2019 financial year. VodafoneZiggo The results of VodafoneZiggo (in which Vodafone owns a 50% stake), are reported here on a US GAAP basis, broadly consistent with Vodafone’s accounting policies. Total revenue declined by 3.8%, or by 2.2% excluding the impact of regulation. This reflected intense price competition in mobile, particularly in the SoHo segment, partially offset by growth in fixed line driven by higher RGUs and ARPU. In Q4 revenues declined 2.9% (Q3: 3.7%) or 1.5% (Q3: -1.9%) excluding regulation. Within this mobile declined 12.5% (Q3: -12.4%) and fixed grew 1.3% (Q3: 0.6%). Excluding the drags from regulation, a mix-shift towards SIM-only sales and convergence discounts, mobile revenue was stable. We gained good commercial momentum during the year, supported by our new converged offers. We added 924,000 converged customers, equivalent to 28% of our fixed customer base, with these households using a total of 1.3 million mobile SIMs, including 62% of Vodafone- branded consumer contract customers. This strong take up of our converged products is contributing to a higher customer NPS and a significant reduction in churn across both mobile and fixed. In Q4 we recorded mobile contract net additions of 35,000 (Q3: 14,000), excluding the impact of discontinued non-revenue generating secondary SIMs as part of the migration of former Ziggo mobile subscribers to Vodafone. In fixed broadband we maintained our good momentum, adding 12,000 customers (Q3: 26,000). Adjusted EBITDA declined 3.8%, as lower revenues were partly offset by lower equipment expenses as a result of new consumer credit regulations which increased the proportion of SIM-only sales during the year. In Q4, adjusted EBITDA was down 0.6% year-on-year despite lower revenues, reflecting lower interconnect and roaming costs, lower equipment expenses, and operating cost savings from integration activities. We have continued to make good progress on integrating the business, and remain on track to deliver total annualised cost synergies of at least €210 million by 2021. Net third party debt and capital lease obligations was €10.1 billion at year-end, equivalent to 5.4x annualised adjusted EBITDA (last two quarters annualised). During 2018 financial year, Vodafone received €220 million in dividends from the joint venture, €55 million in interest payments on the shareholder loan and €100 million of principal repayments on the shareholder loan, which reduced to €900 million. For calendar year 2018, VodafoneZiggo expects stabilising adjusted EBITDA, supporting total cash returns of €600–800 million to its parents. As a result, we expect to receive total cash returns (including dividends, interest payments and shareholder loan repayments) of €300–400 million during the 2018 calendar year from the joint venture. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 28 Our financial performance (continued) Africa, Middle East and Asia-Pacific Year ended 31 March 2018 Revenue Service revenue Other revenue Adjusted EBITDA Adjusted operating profit Adjusted EBITDA margin Vodacom €m Other AMAP €m Eliminations €m AMAP €m 2017 €m Reported % change Organic* 5,692 4,656 1,036 2,203 1,594 38.7% 5,770 4,845 925 1,554 859 26.9% – – – – – 11,462 9,501 1,961 3,757 2,453 32.8% 11,773 9,956 1,817 3,854 2,238 32.7% (2.6) (4.6) (2.5) 9.6 9.4 7.7 8.6 17.9 Revenue in AMAP decreased 2.6%, with strong organic growth offset by an 11.5 percentage point adverse impact from foreign exchange movements, particularly with regards to the Turkish lira and Egyptian pound. On an organic basis service revenue was up 7.7%* driven by strong commercial momentum in South Africa, Turkey and Egypt. Adjusted EBITDA decreased 2.5%, including a 10.8 percentage point adverse impact from foreign exchange movements. On an organic basis, adjusted EBITDA grew 8.6%*, driven by service revenue growth and a continued focus on cost control and efficiencies to offset inflationary pressures. Adjusted EBIT increased 11.6%*. Other activity (including M&A) pps 0.5 – 1.6 0.6 – 1.0 0.3 Reported change % (2.6) 4.7 (12.1) (4.6) 6.8 (13.2) (2.5) Foreign exchange pps 11.5 Organic* change % 9.4 0.3 21.2 11.7 (0.3) 24.1 10.8 5.0 10.7 7.7 6.5 11.9 8.6 9.6 (1.6) 9.9 17.9 Revenue – AMAP Service revenue Vodacom Other AMAP AMAP Adjusted EBITDA Vodacom Other AMAP AMAP AMAP adjusted operating profit Vodacom Vodacom Group service revenue grew 5.0%*, supported by strong customer additions and data growth in South Africa, as well as growing data demand and M-Pesa in Vodacom’s International operations. Q4 service revenue grew by 5.8%* (Q3: 5.3%*), supported by improved data growth despite out-of-bundle rates being reduced in South Africa during Q3 and the continued strong performance of our International operations. In South Africa, service revenue grew 4.9%*, improving to 5.2%* in Q4 (Q3: 4.9%*). This was supported by continued strong customer base growth resulting from our effective segmentation and bundle strategy. We added 3.2 million prepaid customers in the year (excluding the impact of a change in disconnection policy in Q3), taking our total prepaid customer base to 44.8 million, an increase of 7.6% year-on-year. Our bundle strategy continued to deliver strong results, supported by big data applications to deliver personalised bundle offers. In total we now have 18.7 million bundle users, up 13.9% year-on year, and sold a total of 2.3 billion bundles, an increase of 51% year-on-year. Data revenue grew 12.8%* in the year and now represents 43% of total service revenue. In October, we took the decision to reduce out-of- bundle data rates by up to 50% and increase bundles sizes in order to improve customer experience and stimulate data take-up. We are successfully managing this pricing migration, as demonstrated by the acceleration in data revenue growth in Q4 to 13.1%* (Q3: 8.7%*). Voice revenues declined 4.6%*, an improvement on the prior year, reflecting the success of our personalised bundle strategy through our “Just 4 You” platform. Our mobile network has now reached 80% 4G population coverage, and we also maintained our market leading NPS position. Vodacom’s International operations outside of South Africa, which represent 22.2% of Vodacom Group service revenue, grew 8.3%* in the year and 11.1%* in Q4 (Q3: 10.4%*). Service revenue growth accelerated in the second half of the year supported by strong growth in Mozambique and Lesotho, an improved performance in the DRC and sustained growth in Tanzania. This improvement was driven by strong data growth and by M-Pesa, which now contributes 23.8% of International revenues and grew 24% in the year. In total we added 2.5 million customers in the year, reaching 32.2 million, up 8.6% year-on-year. In each of these markets we are No.1 for customer NPS. Vodacom’s adjusted EBITDA grew by 6.5%*, reflecting revenue growth and good cost control. Adjusted EBITDA margins declined by 0.3 percentage points to 38.7%, primarily due to strong growth in handset sales. Other AMAP Service revenue grew 10.7%*, with strong local currency growth in both Turkey and Egypt. Q4 service revenue grew 10.2%* (Q3: 8.3%*). This growth excludes the contribution of Vodafone Qatar in all periods, following the sale of our 51% stake in March 2018 for a total cash consideration of €301 million. Organic adjusted EBITDA grew 11.9%* and the organic adjusted EBITDA margin improved by 0.2* percentage points to 26.9% driven by good cost control. In Turkey, service revenue grew 14.1%* supported by good growth in consumer contract and data revenue, outstripping local price inflation of 11% in the year. Organic adjusted EBITDA grew 22.6%* and adjusted EBITDA margin improved by 1.4 percentage points to 22.6%, driven by revenue growth and improved cost control. Egypt service revenue grew by 20.7%* with successful segmented campaigns, rising data penetration and price increases supporting higher ARPU, combined with strong customer base growth. This significantly exceeded local price inflation of 13%. Organic adjusted EBITDA grew 14.9%* and adjusted EBITDA margin declined by 1.4 percentage points to 43.0% as revenue growth and strong cost discipline were more than offset by inflationary pressures. In New Zealand, service revenue declined 0.5%*, with growth in mobile offset by pressure in fixed. We continue to explore a potential Initial Public Offering (‘IPO’) of Vodafone New Zealand. Vodafone Group Plc Annual Report 2018Strategic Report 29 Associates and joint ventures Vodafone Hutchison Australia (‘VHA’) continued to perform well in a competitive environment, with local currency service revenue growth of 0.8% during year. This was driven by growth in our mobile contract customer base. Local currency adjusted EBITDA excluding changes in pricing structure for new mobile phone plans grew 1.9%, supported by revenue growth and strong commercial cost discipline. Our stake in Indus Towers Limited (‘Indus Towers’), the Indian towers company in which Vodafone owned a 42% interest during the year, achieved local currency revenue growth of 6.8% and adjusted EBITDA growth of 4.7%. In total, Indus Towers paid dividends of €138 million to the Group during the year. On 25 April 2018, Vodafone, Bharti Airtel Limited (‘Bharti Airtel’) and Idea announced the merger of Indus Towers into Bharti Infratel Limited (‘Bharti Infratel’), creating a combined company that will own the respective businesses of Bharti Infratel and Indus Towers. Bharti Airtel and Vodafone will jointly control the combined company, in accordance with the terms of a new shareholders’ agreement. Vodafone will be issued with 783.1 million new shares in the combined company, in exchange for its shareholding in Indus Towers. On the basis that (a) Providence decides to sell 3.35% of its 4.85% shareholding in Indus Towers for cash and (b) Idea Group decides to sell its full 11.15% shareholding in Indus Towers for cash, these shares would be equivalent to a 29.4% shareholding in the combined company. The final number of shares issued to Vodafone will be subject to closing adjustments, including but not limited to movements in net debt and working capital for Bharti Infratel and Indus Towers. The transaction is conditional on regulatory and other approvals and is expected to close before the end of the financial year ending 31 March 2019. India1 On 20 March 2017, Vodafone announced an agreement to combine its subsidiary, Vodafone India (excluding its 42% stake in Indus Towers), with Idea Cellular. The combined company will be jointly controlled by Vodafone and the Aditya Birla Group. Vodafone India has been classified as discontinued operations for Group reporting purposes. From an operational perspective, the Group remains highly focused on the management of the business and committed to its success, both prior to the completion of the merger and thereafter. The results of Vodafone India are detailed below. Service revenue declined 18.7%* as a result of intense price competition following the arrival of the new entrant. During the second half of the year the market leader increased the competitiveness of its tariffs, triggering further price reductions by the new entrant in the fourth quarter. This was further exacerbated by cuts to both domestic and international MTR rates in the second half of the year. Excluding the impact of regulation, service revenue declined 14.0%*. In Q4 service revenue declined by 21.2%* (Q3: -23.1%*), or by 9.4%* ex-regulation (Q3: -14.2%*). On a sequential basis, local currency service revenues excluding regulation declined 3.8% quarter-on-quarter. Adjusted EBITDA declined 34.5%*, with a 5.2 percentage point deterioration in adjusted EBITDA margin to 22.1%. This reflected lower revenues, partially offset by significant cost actions and a provision release in the fourth quarter following positive legal judgements. These cost initiatives included active network site sharing, the renegotiation of tower maintenance contracts and the closure of sites with low utilisation. During the year we continued to invest in network quality in our leadership circles, with a capital expenditure/sales ratio of 20.4%. We added 48,500 sites in the year, supporting our leading network-NPS scores. As a result of this investment we were able to carry 4.5x more data traffic than last year. Net debt in India was €7.7 billion at the end of the period, down from €8.7 billion at the end of the prior financial year due to the positive translation impact of closing foreign exchange rates on the debt balance of €1.2 billion and proceeds from the sale of Vodafone India’s standalone towers to American Tower Corporation of €0.5 billion, partially offset by negative free cash flow of €0.2 billion and accrued interest expense of €0.3 billion. Following the completion of Idea’s equity raising in February 2018, under the terms of the merger agreement the Group intends to inject up to €1 billion of incremental equity into India, net of the proceeds of the sale of a stake in the joint venture to the Aditya Birla Group, prior to completion. In the event that the joint venture partners decide to put in additional funding in the future, the Group would draw upon the value of its stake in Indus Towers. We are making good progress in securing the necessary regulatory approvals for the merger of Vodafone India and Idea Cellular. The merger is expected to complete in June 2018. Reported (20.2) (20.4) % change Organic* (18.5) (18.7) (35.5) (34.5) 106.3 110.7 Revenue Service revenue Other revenue Direct costs Customer costs Operating expenses Adjusted EBITDA Depreciation and amortisation Adjusted operating profit Adjustments for: Impairment loss2 Other income and expense3 Other Operating profit/(loss) Adjusted EBITDA margin 2018 €m 4,670 4,643 27 (1,165) (282) (2,193) 1,030 (40) 990 – 416 (107) 1,299 22.1% 2017 €m 5,853 5,834 19 (1,583) (313) (2,361) 1,596 (1,116) 480 (4,515) – (136) (4,171) 27.3% Notes: 1 The results of Vodafone India are classified as discontinued operations in accordance with IFRS. 2 2017 includes a gross impairment charge of €4.5 billion (€3.7 billion net of tax) recorded in respect of the Group’s investment in India. In addition, in 2018 we recorded a non-cash re-measurement charge of €3.2 billion (€2.2 billion net of tax) in respect of Vodafone India’s fair value less costs of disposal, as set out in note 7 “Discontinued operations, assets and liabilities held for sale” for further details. Includes the profit on disposal of Vodafone India’s standalone tower business to ATC Telecom during the year ended 31 March 2018 (2017: €nil). 3 Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 30 Financial position and resources Consolidated statement of financial position The consolidated statement of financial position is set out on page 103. 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 decreased by €2.9 billion to €43.3 billion. The decrease primarily arose as a result of €0.7 billion of spectrum additions, principally in Italy, plus €2.3 billion of software additions, offset by €4.4 billion of amortisation, €0.9 billion of disposals arising from the sale of the Group’s interest in Vodafone Qatar and €0.6 billion of unfavourable foreign exchange movements. Property, plant and equipment Property, plant and equipment decreased by €1.9 billion to €28.3 billion, principally due to €5.1 billion of additions driven by continued investment in the Group’s networks, offset by €6.0 billion of depreciation charges, €0.6 billion of unfavourable foreign exchange and €0.4 billion of disposals from the sale of the Group’s interest in Vodafone Qatar. Other non-current assets Other non-current assets increased by €0.6 billion to €36.1 billion, mainly due to a €1.9 billion increase in deferred tax assets in Luxembourg from higher interest rates and a revaluation of investments based upon the local GAAP financial statements and tax returns. This was offset by a €0.5 billion decrease in trade and other receivables as well as €0.6 billion and €0.3 billion reductions in investments in associates and joint ventures and other investments respectively. Current assets Current assets decreased by €1.4 billion to €24.1 billion, which includes a €4.2 billion decrease in cash and cash equivalents offset by a €2.7 billion increase in other investments. Assets and liabilities held for sale Assets and liabilities held for sale of €13.8 billion (2017: €17.2 billion) and €11.0 billion (2017: €11.8 billion) respectively, relate to our operations in India following the agreement to combine with Idea Cellular. Total equity and liabilities Total equity Total equity decreased by €5.1 billion to €68.6 billion largely due to €4.3 billion of dividends paid to equity shareholders and non-controlling interests and the repurchase of treasury shares for €1.7 billion partially offset by the total comprehensive income for the year of €0.4 billion. Non-current liabilities Non-current liabilities decreased by €0.6 billion to €38.0 billion primarily due to a €1.6 billion decrease in long-term borrowings which is partially offset by a €1.1 billion increase in trade and other payables. Current liabilities Current liabilities decreased by €2.6 billion to €28.0 billion mainly due to a €1.7 billion decrease in short-term borrowings. Trade payables at 31 March 2018 were equivalent to 48 days (2017: 48 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. Share buybacks On 25 August 2017, Vodafone announced the commencement of a new irrevocable and non-discretionary share buyback programme (the ‘Programme’). The sole purpose of the Programme was to reduce the issued share capital of Vodafone and thereby avoid any change in Vodafone’s issued share capital as a result of the maturing of the first tranche of the mandatory convertible bond (‘MCB’) in August 2017. In order to satisfy the first tranche of the MCB, 729.1 million shares were reissued from treasury shares on 25 August 2017 at a conversion price of £1.9751. This reflected the conversion price at issue (£2.1730) adjusted for the pound sterling equivalent of aggregate dividends paid in August 2016, February 2017 and August 2017. Number of shares purchased 000s 9,562 252,851 320,849 145,815 729,077 Average price paid per share inclusive of transaction costs Pence 221.77 212.07 215.15 221.25 215.39 Total number of shares purchased under publicly announced share buyback programme 000s 9,562 262,413 583,262 729,077 729,077 Maximum number of shares that may yet be purchased under the programme 000s 719,515 466,664 145,815 – – Date of share purchase August 2017 September 2017 October 2017 November 2017 Total Dividends Dividends will continue to be declared in euros and paid in euros, pounds sterling and US dollars, aligning the Group’s shareholder returns with the primary currency in which we generate free cash flow. The foreign exchange rate at which future dividends declared in euros will be converted into pounds sterling and US dollars will be calculated based on the average exchange rate over the five business days during the week prior to the payment of the dividend. The Board is recommending a final dividend per share of 10.23 eurocents, representing a 2.0% increase over the prior financial year’s final dividend per share. The ex-dividend date for the final dividend is 7 June 2018 for ordinary shareholders, the record date is 8 June 2018 and the dividend is payable on 3 August 2018. Dividend payments on ordinary shares will be paid directly into a nominated bank or building society account. Contractual obligations and commitments A summary of our principal contractual financial obligations and commitments at 31 March 2018 is set out below, and excludes the Group’s intention to inject up to €1 billion of incremental equity into India under the terms of the merger agreement (see note 28 “Commitments”) and commitments arising from the Group’s announcement on 9 May 2018 that it had agreed to acquire Liberty Global’s operations in Germany, the Czech Republic, Hungary and Romania (see note 31 “Subsequent events”). Contractual obligations and commitments1 Borrowings2 Operating lease commitments3 Capital commitments3,4 Purchase commitments5 Total Payments due by period €m Total 52,551 < 1 year 11,316 1–3 years 7,541 3–5 years 8,537 >5 years 25,157 9,694 2,686 2,788 1,620 2,600 2,706 1,973 391 278 64 8,652 1,042 2,016 73,603 20,728 12,736 11,276 28,863 4,753 841 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 148) and obligations to pay dividends to non-controlling shareholders (see “Dividends from associates and to non-controlling shareholders” on page 148). 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 25 “Post employment benefits” respectively. The table also excludes the contractual obligations of associates and joint ventures. 2 See note 20 “Borrowings”. 3 See note 28 “Commitments”. 4 Primarily related to spectrum and network infrastructure. 5 Primarily related to device purchase obligations. Vodafone Group Plc Annual Report 2018Strategic Report 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 “Identifying and managing our risks” on pages 38 to 45. 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 20, 21 and 22 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 page 208. A reconciliation of adjusted EBITDA to the respective closest equivalent GAAP measure, operating profit, is provided in note 2 “Segmental analysis” to the consolidated financial statements. The reconciliation to net debt is shown below. Adjusted EBITDA Capital additions1 Working capital Disposal of property, plant and equipment Other Operating free cash flow2 Taxation Dividends received from associates and investments Dividends paid to non-controlling shareholders in subsidiaries Interest received and paid Free cash flow (pre-spectrum)2 Licence and spectrum payments Restructuring payments Free cash flow2 Acquisitions and disposals Equity dividends paid Share buybacks3 Foreign exchange Other4 Net debt increase Opening net debt Closing net debt 2018 €m 14,737 (7,321) (584) 41 128 7,001 (1,010) 2017 €m 14,149 (7,675) (984) 43 94 5,627 (761) 489 433 (310) (753) 5,417 (1,123) (250) 4,044 1,405 (3,920) (1,626) 622 (825) (300) (31,169) (31,469) (413) (830) 4,056 (474) (266) 3,316 460 (3,714) – (1,372) (1,058) (2,368) (28,801) (31,169) Notes: 1 Capital additions include the purchase of property, plant and equipment and intangible assets, other than licence and spectrum, during the year. 2 Operating free cash flow, free cash flow (pre-spectrum) and free cash flow are alternative performance measures which are non-GAAP measures that are presented to provide readers with additional financial information that is regularly reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measure. In addition, free cash flow has been redefined to include restructuring and licence and spectrum payments to ensure greater comparability with similarly titled measures and disclosures by other companies. See “Alternative performance measures” on page 207 for reconciliations to the closest respective equivalent GAAP measure and “Definition of terms” on page 222 for further details. 3 Share buybacks are shown net of €140 million of receipts from the option structure entered into in February 2016, when the mandatory convertible bond was issued. The options structure was intended to ensure that the total cash outflow to execute the programme was broadly equivalent to the £1.44 billion raised on issuing the first tranche. 4 Other cash flows for the year ended 31 March 2018 include €nil (2017: €2,366 million) received from the repayment of US$2.5 billion of loan notes issued by Verizon Communications Inc. and €nil (2017: €3,571 million) from a capital injection into Vodafone India. 31 Operating free cash flow Operating free cash flow increased by €1.4 billion mainly due to higher adjusted EBITDA, lower capital additions and lower working capital cash outflows, which were predominately related to the final payments for Project Spring in the prior year. Free cash flow Free cash flow (pre-spectrum) was €5.4 billion, an increase of €1.4 billion, largely driven by the increase in operating free cash flow (see above). Licence and spectrum payments Licence and spectrum payments include amounts relating to the purchase of spectrum in Italy of €0.6 billion, UK of €0.3 billion and Germany of €0.1 billion (2017: €0.1 billion in Germany and €0.3 billion in Egypt). Licence and spectrum additions, which exclude working capital cash movements and represent licences acquired during the year, were €0.7 billion including €0.6 billion in Italy and €0.1 billion in Greece. Acquisitions and disposals Acquisitions and disposals include €1.0 billion of proceeds from the placing of Vodacom shares following the transfer of the Group’s interests in Safaricom to Vodacom and €0.2 billion from the Tanzanian initial public offering. Foreign exchange A foreign exchange gain of €0.6 billion was recognised on net debt as a result of the translation impact of closing foreign exchange rates, mainly due to movements in the US dollar and sterling against the euro. Net debt Closing net debt at 31 March 2018 was €31.5 billion (2017: €31.2 billion) and excludes €7.7 billion (2017: €8.7 billion) of net debt for Vodafone India, which is instead included in assets and liabilities held for sale on the consolidated statement of financial position; the remaining £1.4 billion mandatory convertible bond issued in February 2016 (see note 21 “Liquidity and capital resources”), which will be settled in equity shares; US$2.5 billion of loan notes receivable from Verizon Communications Inc. and €0.9 billion of shareholder loans receivable from VodafoneZiggo (see note 13 “Other investments”). Closing net debt also continues to include liabilities of €1.8 billion (2017: €1.8 billion) relating to minority holdings in KDG and certain bonds which are reported at an amount €1.65 billion (2017: €2.0 billion) higher than their euro-equivalent cash redemption value as a result of hedge accounting under IFRS. In addition, where bonds are issued in currencies other than euros, the Group has entered into foreign currency swaps to fix the euro cash outflows on redemption. The impact of these swaps are not reflected in gross debt and would increase the euro equivalent redemption value of the bonds by €0.6 billion (2017: reduction €0.9 billion). See note 21 “Liquidity and capital resources” for further details. This year’s report contains the Strategic Report on pages 4 to 45, 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 15 May 2018 Nick Read Chief Financial Officer 15 May 2018 Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 32 Sustainable business Building a sustainable business Our sustainable business strategy is built on an unwavering commitment to operating responsibly and a recognition that we have a significant role to play in contributing to the societies in which we operate. Our sustainable business strategy Our sustainable business strategy is founded on Vodafone’s purpose – to connect everybody to live a better today and build a better tomorrow – and on our commitment to responsible behaviour in everything we do. At the heart of our strategy is our intention to deliver significant transformation in three distinct areas, each of which has the potential to deliver meaningful socio-economic benefits for our customers and for wider society. Our programmes focus on women’s empowerment, energy innovation and youth skills and jobs, and we now have long-term targets in place for each of these areas. We remain committed to helping to achieve the UN Sustainable Development Goals (‘SDGs’) through the delivery of our strategy and have identified the areas in which we have the greatest impact. Read more about how our networks and innovative products and services make a difference to societies and the SDGs in our Sustainable Business Report 2018. Read more at vodafone.com/sbreport2018 1 Democratic Republic of Congo, Egypt, Ghana, India, Kenya, Mozambique, South Africa and Tanzania, Turkey and Qatar. Sustainable business strategy Our transformation areas Women’s empowerment Communications technology plays a critical role in empowering women to improve their lives and livelihoods. Owning even the most basic mobile device enables a woman to communicate, access information, learn, manage her finances and set up and run a business. Mobile technology also enhances many public and commercial services of value to women and girls in emerging markets, from accessing vaccinations and maternal healthcare, to mobile banking and online support for smallholder farmers. To enable women to access greater opportunities we are focused on delivering commercial programmes that help us to achieve our goal: Goal – To connect an additional 50 million women living in emerging markets1 to mobile by 2025 This year, we have made progress against that goal and now have an additional estimated 13.3 million active female customers, 3.9 million more than last year. This brings the total number of female customers to 113.7 million. To contribute towards that goal, we have launched commercial propositions focused on women living on low-incomes, such as our Business Women Connect programme in Tanzania and Mozambique, and Vodacom’s Mum & Baby initiative in South Africa (see case study overleaf). Progress towards our 50 million women goal Estimated number of female customers (millions) 100.3 109.7 113.7 Baseline: 2016 2017 2018 We are committed to diversity and believe that achieving greater gender parity will strengthen our business significantly over time. Our long- term ambition is to become an employer with such a strong track record for attracting, retaining and developing talented women that by 2025 we are widely considered to be the world’s best employer for women. We are making progress in this area: women currently hold 29% of our leadership and management roles and as of 31 March 2018, they hold 33% of our Board positions. Goal – We aim to be the world’s best employer for women by 2025 To help us recruit, retain and develop talented women at every level of our workforce, we are developing a range of programmes, including our ground-breaking global maternity policy and our ReConnect initiative, which supports people to return to work after a career break. This year, we also piloted an approach to adjust the vocabulary used in Vodafone’s job advertisements to help increase the number of women who apply for our vacancies. Our purpose is to connect everybody to live a better today and build a better tomorrow Our transformation areas Women’s empowerment Energy innovation Youth skills and jobs Tax and total economic contribution Digital rights and freedoms Supply chain integrity and safety Mobiles, masts and health Our transparency areas Principles and practice Vodafone Group Plc Annual Report 2018Strategic Report 33 Greenhouse gas (‘GHG’) emissions million tonnes of CO2e Scope 1 emissions (over which we have direct control) Scope 2 emissions (from purchased electricity) 2.54 2.15 2.54 2.15 2.58 2.20 0.39 2016 0.39 2017 0.38 2018 Note: Calculated using local market actual or estimated data sources from invoices, purchasing requisitions, direct data measurement and estimations. Carbon emissions calculated in line with GHG Protocol standards. Scope 2 emissions are reported using the market-based methodology. For full methodology see our Sustainable Business Report 2018. GHG emissions per petabyte of data carried by our mobile networks tonnes of CO2e 1,813 1,137 682 2016 2017 2018 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 our operational control are included in our GHG emissions totals. Ratio of GHG emission savings for customers to our own GHG footprint 1.8 1.9 2.1 Providing mums and babies with free health advice Internet access is often key to finding a job, helping a child get a better education, finding health information, or keeping in touch with friends and family. In South Africa, Vodacom’s Siyakha (‘we are building’) platform aims to lower the cost of communicating while simultaneously seeking to increase people’s digital and social connectivity. Targeted at people on low incomes, Siyakha offers free access to websites related to education and job seeking, as well as lower priced products and services. The platform currently has 7.5 million users. This year, Siyakha services were expanded to include a mobile-based platform for pregnant women called Mum & Baby. This new service provides parents and caregivers with free health information and includes videos that are useful at different stages of pregnancy and through the first five years of a child’s life. For many, this is the first time such health information has been made easily available to them. During the year 1.2 million registered users accessed this free health information. initiatives across our networks, particularly in power supply and cooling, and moving towards purchasing 100% of our electricity from renewable sources. We have also joined RE100, a collaborative initiative led by The Climate Group in partnership with CDP, which brings together major businesses committed to switch to 100% renewable electricity. In parallel, we are innovating to help our customers minimise their energy needs, particularly through the development of IoT services that use network intelligence to optimise performance and minimise energy use. In 2015, we set ourselves a goal to help our customers reduce their CO2e emissions by two tonnes for every one tonne of emissions produced from our own operations, by March 2018. We have met that goal, helping our customers to save an estimated 2.1 tonnes of CO2e for every tonne we generated through our own activities. Vodafone Foundation Energy innovation There is clear evidence that global temperatures are rising rapidly and a consensus among scientists and policy makers that man-made greenhouse gases (‘GHGs’) are having a direct impact on climate change. Our business has a role to play in holding global temperature rises to below 2°C and this year we have introduced two new targets as a result. By 2025, we aim to: Goals – Reduce our greenhouse gas emissions by 40% – Purchase 100% of the electricity we use from renewable sources This year, our total GHG emissions increased by just over 1% to 2.58 million tonnes of CO2e (carbon dioxide equivalent), predominantly due to a slight increase in our energy consumption in response to customer data demand. This does not include Vodafone Qatar, which was sold in March 2018, where GHG emissions were 0.03 million tonnes of CO2e1. We continued to improve our overall energy efficiency profile during the year and achieved a 40% reduction in the amount of GHG emissions per petabyte (PB) of data carried, to reach an average of 682 tonnes CO2e per PB (2017: 1,137). We have also estimated our indirect (Scope 3) GHG emissions to identify and prioritise where emissions are highest and where we have the greatest opportunity to influence third party GHG strategies. We will meet our targets through a combination of further investment in energy efficiency Through its “Connecting for Good” programme, the Vodafone Foundation supports projects around the world that are run in partnership with charitable organisations and NGOs. In 2018, the total amount donated to the Vodafone Foundation from Vodafone was €54.3 million. 2016 2017 2018 Note: Figures include all data carried by our mobile networks. Emissions savings for customers have been calculated based on GeSI’s ICT Enablement Methodology. 1 Following the sale of our stake in Qatar in March 2018, the GHG emissions for Vodafone Qatar are no longer included in our total GHG emissions figure. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 34 Sustainable business (continued) Youth skills and jobs Youth unemployment is a significant social and economic challenge in many of our markets. The International Labour Organization estimates that more than 210 million young people are either unemployed or work while living in poverty1. Simultaneously, some advances in technology, such as robotics and artificial intelligence, are enabling the automation of many categories of job, reducing employment opportunities and altering the nature of work. With a growing digital skills gap, in addition to the challenges facing the world of work, we believe that urgent action is needed to help young people develop their digital skills and access learning and employment opportunities, so that they can thrive in the digital economy. To respond to these challenges, we have introduced two new goals that will enable us, by 2022 to: Goals – Support 10 million young people to access digital skills, learning and employment opportunities – Provide up to 100,000 young people with a digital workplace experience at Vodafone This year, we introduced our international future jobs programme, “What will you be?”, to provide career guidance and access to training content and job opportunities in the digital economy. As part of this programme we launched our “Future Jobs Finder” platform, outlined in the case study below. 1 www.ilo.org/global/topics/youth-employment. Our transparency areas We remain committed to ensuring that our business operates ethically, lawfully and responsibly. Our transparency programme provides detailed information on our policies, principles and approach in four areas, each the focus of intense public debate, as well as a number of statutory and material non-financial disclosures. Taxation and total economic contribution In 2013, we became the first communications company in the world to report our total taxation and economic contribution on a country-by-country and actual cash paid basis. We have expanded the data we disclose in this report year-on-year, to ensure we continue to share the most relevant information available to help our stakeholders understand our tax position and economic impact. Read more at vodafone.com/tax Digital rights and freedoms In 2014, we published our first Law Enforcement Disclosure transparency report, explaining how we respond to lawful demands for access to our customers’ private data from law enforcement and intelligence agencies. The report has been updated and expanded since then and is available in our online Digital Rights and Freedoms Reporting Centre, which contains our principles and approach on a wide range of topics including law enforcement surveillance, privacy, data protection, freedom of expression, censorship and the digital rights of the child. Read more at vodafone.com/digitalrights Future Jobs Finder: Improving digital skills Over the past year, Vodafone has worked with psychologists, HR professionals, training providers and young people, to develop a smartphone-based service called Future Jobs Finder. It offers young people a free and comprehensive gateway to understand the digital skills they will need in the workplace, as well as find new opportunities for employment in the growing digital economy. A choice of quick, “gamified” psychometric tests have been designed to help users identify their aptitudes and interests. The service uses this information to suggest the “top five” most suitable digital job types for each individual and directs them to current job opportunities in their region, including those on offer with Vodafone. In the first four weeks since launch, 111,000 unique users completed Future Jobs Finder accessing digital job and training recommendations. You can visit Vodafone’s Future Jobs Finder at www.vodafone.com/whatwillyoube Supply chain integrity and safety Our businesses rely on a very large global and complex supply chain. We recognise there are many different labour rights and safety and environmental risks inherent within our supply chain and that similar risks can also arise in the business operations under our own direct control. Through our policies, training and audit programmes, we work to ensure the safety and wellbeing of everyone who works with Vodafone, in any capacity. Mobiles, masts and health The health and safety of our customers and the wider public is an absolute priority for Vodafone. While our mobile devices and masts operate well within the guidelines set by the International Commission on Non-Ionizing Radiation Protection (‘ICNIRP’), we recognise that in a number of countries there is still some public concern regarding the electromagnetic frequency (‘EMF’) emissions from mobile devices and base stations. We endeavour to address these concerns by providing up to date, open, transparent information on our website and by engaging with local communities. Read more at vodafone.com/mmh Human rights Our networks, products and services play an important role in helping to underpin individual human rights. We enable citizens around the world to share information widely, extending their ability to freely express themselves as well as enabling greater scrutiny of people in power. Some of our most salient human rights risks relate to an individual’s right to privacy and freedom of expression. Our online Digital Rights and Freedoms Reporting Centre contains our views on these topics and those most closely related to the protection of our customers’ private communications. In addition to human rights that extend into the digital realm, there are also other human rights risks in our operations and particularly in our complex supply chain. Our respect for an individual’s human rights is enshrined in our Code of Conduct, which underpins everything we do. The most relevant human rights risks applicable to our business include: labour rights; civil and political rights (particularly privacy and freedom of expression); the rights of the child; and economic, social and cultural rights (in particular with regard to bribery, corruption and political lobbying). Ensuring responsible and ethical behaviour across our supply chain is important and challenging. We have developed and implemented policies and processes to extend our human rights commitments into our supply chain, as specified in our Code of Ethical Purchasing. The Code sets out the standards we expect our suppliers to meet on health and safety, labour Vodafone Group Plc Annual Report 2018Strategic Report 35 (including child or forced labour) rights, ethics and environmental protection. Our commitment to human rights is overseen by our Group Executive Committee. In each of the countries in which we operate, the chief executive responsible for our operating company oversees human rights matters, with governance support from the relevant local market professionals. Over the past year, we have undertaken significant work and introduced robust measures in order to prepare for the European General Data Protection Regulation, which became effective on 25 May 2018. Ensuring compliance in our supply chain On-site audits provide detailed insights into how a supplier’s policies translate into action in the workplace. These involve an examination of written policies and procedures, inspections of site facilities, and discussions with factory management and employees. We work through the Joint Audit Cooperation (‘JAC’) initiative to share audits with peer companies with whom we share a number of suppliers. Between January and December 2017, there were 81 shared on-site audits, of which 75 were within Vodafone’s supply chain. In parallel, we conduct our own on-site assessments for specific suppliers that we have identified as high risk but that are not covered by the shared assessments. This year, we conducted 17 such on-site assessments. Detecting excessive working hours and ensuring ethical working conditions are an important part of our supplier assessments but are often hard to assess. Increasingly we seek feedback directly from our suppliers’ employees to help us and our suppliers to identify areas for improvement. We use Laborlink, which is a simple mobile phone-based independent worker survey, to gather confidential and unbiased feedback directly from employees. This enables employees to reply anonymously to pre-recorded questions in their local language at any time and from any location. During 2018, more than 2,500 suppliers’ employees in ten supplier factories responded to Laborlink surveys directly to tell us about their working conditions. Read more at vodafone.com/digitalrights Read more at vodafone.com/sbreport2018 Anti-bribery and corruption Vodafone does not tolerate bribery and corruption in any form – we would rather walk away from a business opportunity than engage in any act of corruption. Our anti-bribery and corruption policy is summarised in our Code of Conduct, which is mandatory for everyone working for Vodafone. It states that employees or others working on our behalf must never offer or accept any kind of bribe. Our policy is consistent with the UK Bribery Act and the US Foreign Corrupt Practices Act and any breaches can lead to dismissal or termination of contract. The policy provides guidance about what constitutes a bribe and prohibits the giving or receiving of any excessive or improper gifts and hospitality. It also makes clear that where our policy differs in degree from an equivalent local law, the more stringent of the two must be followed. Training in our Code of Conduct is incorporated into our standard induction processes and all employees complete refresher training every two years. Our Group Chief Executive and Group Executive Committee oversee and spearhead our efforts to prevent bribery and corruption. They are supported by our country chief executives, who are responsible for ensuring our anti-bribery and corruption programme is implemented effectively in their local market. The implementation of the policy is monitored regularly in all local markets by our anti-bribery specialist teams, and also as part of the annual Group Policy Compliance Review assurance process, which assesses key anti- bribery controls. Visits to local markets on a rotating basis enable us to formally review the implementation of the anti- bribery programme. This year, reviews conducted in Ghana and Greece found good implementation of key controls, however some areas for improvement in relation to supplier management and monitoring were identified and are now being addressed. Engaging employees to raise awareness of bribery risk Every Vodafone employee has an obligation to help us address the risk of bribery and corruption. To ensure they understand how they can each play a part, we run a high-profile communications programme, Doing What’s Right. This uses a range of materials to highlight some of the most common compliance challenges facing employees and focuses in particular on bribery-related risks, as well as gifts and hospitality. This year, we launched an updated version of our e-learning training programme which included a specific module on anti-bribery. To date, over 80,000 employees around the world have completed the e-learning training module. In addition, for higher-risk employees who work in areas such as procurement, network operations, Enterprise sales and government relations, tailored face-to-face training programmes are rolled out to cover relevant scenarios for those employees. All Vodafone employees are encouraged to report any suspected breaches of our Code of Conduct as soon as possible using our “Speak Up” process. Senior executives review every Speak Up report and the programme is reviewed by the Group Risk and Compliance Committee. In our latest Global People Survey, 86% of respondents said they would use Speak Up to report unethical behaviour. Find out more Our Sustainable Business Report 2018 provides more detail on our progress against our sustainable business strategy. Read more at vodafone.com/sbreport2018 We have also published a Slavery and Human Trafficking Statement, our first UK Gender Pay Gap Report and a Conflict Minerals Report, in line with our statutory reporting requirements. Read our latest reports at vodafone.com/sbreporting Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 36 Our people and culture The people behind our purpose led business Our people are behind every aspect of our Digital Vodafone strategy and are committed to delivering a superior network performance and outstanding customer experience. Our people: key information By contract Employees: 103,564 Contractors: 23,978 By gender Male: 62.5% Female: 37.5% By location Germany: 12.6% UK: 11.2% Average number of employees Employee engagement Employee turnover rate Women in senior leadership positions2 Women in management and leadership roles Italy: 5.8% Spain: 4.7% Vodacom: 7.3% India1: 20.9% Other: 37.5% 2018 103,564 2017 105,870 2016 104,553 80% 18% 25% 29% 80% 18% 25% 28% 79% 20% 24% 27% The headcount figures are an average of our monthly headcount and includes India but excludes the Netherlands. 1 Includes Vodafone Shared Services India. 2 % of senior women in our top 225 positions. Doing what’s right We believe that ethical conduct is just as important as high performance, as failure to operate ethically impacts our business. Our Code of Conduct outlines the behaviours we expect from every single person working for and with Vodafone. Our Business Principles are the foundation of how we do business and set out the values we want everyone who works for or with Vodafone to respect. Together, these elements ensure we protect Vodafone’s reputation, our people and our assets. This year’s, “Doing What’s Right” campaign utilised e-learning and gamification techniques to increase employee participation and engagement. The campaign highlighted a number of common compliance situations, such as dealing with personal data, conflicts of interest and accepting gifts. By bringing to life specific risk situations, the programme aimed to increase awareness and, importantly, understanding of the issues an individual may face and how to deal with situations that could arise. By the end of March 2018, more than 95% of employees who had access to the training had completed it. A diverse and inclusive organisation This year, we employed an average of 103,564 people with 136 nationalities as well as over 23,978 contractors. Our senior leadership team includes 26 nationalities, bringing together a diverse set of experiences and opinions, which helps us achieve our goals by better understanding the needs of our customers. Our commitment to all forms of diversity and inclusion begins at the top, with clear leadership from the Vodafone Group Plc Board and is embedded at every level of our business through the “Digital Vodafone Way,” the “Code of Conduct” and our “Business Principles”. Our commitment is acknowledged and supported by our employees worldwide: in our 2018 annual Global People Survey, 89% of employees who responded said they felt they were treated fairly, irrespective of age, gender, disability, sexual orientation, gender identity, cultural background or beliefs. This year, we reviewed and updated our Code of Conduct in order to emphasise our zero- tolerance stance towards sexual harassment and abuse of authority. We also launched a global minimum paternity standard and continued to support women returning to work through our Reconnect programme and global maternity standard, which, in the last three years has benefited more than 5,600 women. The two latter initiatives support our ambition to become the world’s best employer for women by 2025. Living the Digital Vodafone Way The Vodafone Way underpins our culture and purpose. At its centre is a focus on three core principles: speed, simplicity and trust. We want our people to respond swiftly and effectively to challenges and opportunities, especially those that affect our customers. We want them to do so while avoiding unnecessary bureaucracy and costly and cumbersome internal processes. And we want all of our business activities and decisions to be informed by an understanding that earning and retaining the trust of our customers, employees and all other stakeholders must be integral to everything we do as we connect people to the Gigabit Society. This year, we incorporated digital behaviours and mind-sets into the Vodafone Way and renamed it the Digital Vodafone Way to reflect the shifts required to support an acceleration of our digital strategy and purpose. Key initiatives have also taken place at all levels of the organisation to support this. The Group Executive Committee completed a “Digital Discovery” in Silicon Valley to explore new products and services and examine the impact that digital disruption has on various business models. More than 200 leaders attended the Digital Vodafone Way programme to deep dive on digital products, understand required leadership shifts and gain insights on what becoming a purpose-led organisation means. Digital Boot Camps, focusing on digitalising the customer experience have also been rolled out to our people managers. Our IT systems, processes and capabilities are a key enabler to unlock the value in data driven services and solutions. In 2018, to support our Digital Vodafone strategy we launched an acceleration programme, which strengthened our internal IT capabilities, adopted agile and lean ways of working, modernised our IT architecture and implemented a new IT operating model. Focusing on our customers Over the last year, we have continued to focus on improving the customer experience through the roll out of the Digital Vodafone Way CARE training initiative. The core of the programme aims to ensure front line staff take end-to-end ownership for resolving customer problems and deliver an outstanding customer experience. As part of the training, new interactive scenarios have been developed to provide employees with a deeper understanding of how to interact and support our diverse customer base. For instance, supporting a customer who is transitioning gender or customers who are physically disabled. Vodafone Group Plc Annual Report 2018Strategic Report 37 This is all part of our approach to ensure the needs of our customers are understood and everyone leads by putting the customer first. This year, an additional 40,693 people have been trained and the programme is now a core part of our induction process. Our customers are also becoming increasingly digital, meaning they want to be able to interact seamlessly and consistently with us when and how they want. Making sure our customers have the most engaging digital customer experience possible means that we need to work and operate in a simple, engaging and dynamic manner. To support this, Vodafone has embraced an agile methodology and established cross functional teams, bringing together the skills needed to improve specific customer journeys to better respond to changing customer demands. Early results are promising, with new customer features now delivered within two week periods as opposed to six-month release schedules. Attracting and developing great people In the last year, we have significantly increased the opportunities we provide to young people to experience work at Vodafone. Opportunities include, but are not limited to: work experience, apprenticeships and our graduate Discover programme. In the last year, we estimate that we have provided more than 14,000 young people with access to digital workplace experiences, doubling our previous year’s efforts. This has ranged from: innovative programmes like #Codelikeagirl, week long placements and bring your child to work day. We extended our apprenticeship programme from 8 to 19 markets, providing individuals who do not go to university with an opportunity to join our Technology and Retail programmes. Our Discover graduate programme has been in place for ten years and has supported more than 4,600 graduates to join Vodafone through structured schemes. Last year, more than 800 graduates joined the programme with our highest performing graduates progressing to our international scheme – Columbus. This year, we invested more than €60 million in employee training and development. These programmes take many forms and in the 2018 financial year our core focus was on developing leadership and management skills in agile and digital ways of working; as well as initiatives to empower front line staff and improve the digital customer experience. Better future for women – our #Codelikeagirl programme addresses the gender gap in STEM careers In partnership with social enterprise Code First: Girls, Vodafone’s #Codelikeagirl experiential programme provides girls aged 14–18 with basic coding experience including html, CSS, GitHub and Bootstrap. The programme is intended to encourage more girls to pursue science, technology, engineering and maths disciplines. During the year, 550 girls across Vodafone’s markets participated in the programme. In the 2019 financial year the programme will seek to engage with 1,000 girls. Better future for youth – apprentices in Vodafone Germany Apprenticeships are a good alternative for high school students who do not want to pursue an academic education before starting work. Vodafone Germany offers apprenticeships in three areas: consumer retail, customer care and technology. All our apprenticeships last between 2.5 and 3.5 years, during which time, participants combine part-time work at Vodafone with their studies at vocational schools. Since 2013, Vodafone Germany has hired between 90 and 105 apprentices every year. We also offer a study and work programme for degree-level students – with options to focus on consumer and enterprise sales, customer care or technology. Students can spend three-month periods working at Vodafone while also studying at the Baden-Wuerttemberg Cooperate State University in Stuttgart. Every year, Vodafone Germany hires up to 40 study and work students. Recognising performance We reward people based on their performance, potential and contribution to our values and success. This year, to drive simplification, empower our line managers, and encourage more future-focused and developmental conversations between employees and managers, we implemented a new performance dialogue rating system. The approach was piloted with our senior leaders last year and fully implemented this year. To maintain compliance with our fair pay standards, we benchmark and monitor our pay practices in every country in which we operate. This ensures our pay practices, including retirement and other benefit provision, are: compliant with all local legislation, free from discrimination, market competitive and easily understood. We also offer competitive retirement and other benefit provisions. 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 arrangements are subject to company and individual performance measures. Creating a safe place to work We want everyone working with Vodafone to return home safely every day. Despite all of our efforts, we deeply regret to report nine recordable fatalities during the year. To make further improvements in this area, this year we have increased the focus on our non-technology suppliers and introduced a range of structural and corrective measures to improve standards. This has included consolidating our tier one and tier two suppliers and reducing our reliance on tier three suppliers. Road traffic accidents are one of our high risk areas. In the last year, we’ve rolled out telematics tracking in Vodafone-dedicated vehicles and outbound warehouse transportation in India. In Vodacom, we’ve introduced the Road Guardian programme, a full telematics tracking package with vehicle cameras. The impact of these changes is starting to materialise, with a significant decrease in key indicator events such as speeding, harsh braking and swerving. Improving employee wellbeing has also been a key area of focus and we have continued to embed the Group Wellbeing Framework introduced in 2016. Increasing employee engagement Every year, all our employees are invited to participate in a global survey which allows us to measure engagement levels and identify ways to improve how we do things. The 2018 survey demonstrated that 87% of employees who responded were proud to work for Vodafone, consistent with the previous year’s survey. An even higher 91% of respondents felt that they were treated with respect at Vodafone. In addition, 90% felt that Vodafone was a socially responsible company, while 87% of respondents would recommend Vodafone as a place to work to their friends and family. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 38 Risk management Identifying and managing our risks Our global framework allows us to identify, measure, manage and monitor strategic and operational risks across our footprint. It provides management with a clear line of sight over risk to enable informed decision making. Process for identifying our principal risks Defining our principal risks begins with all local markets and entities reporting their biggest risks to create a Group-wide view. The output is used in interviews with around 40 of our senior leaders to gather their insights. The results of both exercises are then aggregated, and considered through the lens of the Company’s strategic objectives for the year ahead, to produce our principal risks which are then approved by the Executive Committee, and reviewed by the Audit and Risk Committee and the Board. Strengthening our framework We constantly strive to improve risk management and have made the following enhancements over the last 12 months: Linking risk to decision making – we have launched a new process to improve visibility of risk in decision making in relation to our strategic and operational risks. Linking risk to budget – we have worked with colleagues in Finance to ensure that any actions required to achieve target risk tolerance levels are flagged and tracked as part of the Group’s main budget and forecasting process. Extending the risk management framework – we have created specialist frameworks within our Security function and our Enterprise business to improve the link between strategic and operational risk management. Our principal risks Key changes in the year The principal risks have been updated to reflect developments in our strategic priorities as well as progress made in managing them. Key changes: – Disintermediation – (risk 5) has been separated from market disruption (risk 3) as the potential causes for these risks are managed differently. New risks: – Effective digital and technological transformation – this risk has increased due to the importance of delivering the “Digital Vodafone” agenda to transform the core business, drive efficiencies and explore new growth areas. It continues to address the associated risk of failing to deliver a differentiated customer experience and has been expanded to include the risk of an IT transformation failure (a separate principal risk in 2018). – Effective data management – this newly formulated risk reinforces the importance of General Data Protection Regulation (GDPR) as a business transformation programme and also recognises the strategic value of effectively managing our data assets in a digital economy. – Allocation of the Group’s capital – this risk covers failure to deliver long-term value to shareholders if we were unable to manage our capital effectively and successfully integrate strategic acquisitions and disposals. Risks removed: – The Convergence and Enterprise profitability risks have dropped below the materiality level for principal risks due to positive trends in 2018. Principal risks 11 1 2 4 3 10 9 6 8 5 7 h g H i t c a p m I w o L Low Likelihood High Risk movement Risk increased Risk stable Risk decreased What we do with our principal risks Accountability Assign ownership for risks and mitigations Tolerance Set tolerance for risk taking and benchmark against our current position Risk reduction Identify and track actions when out of tolerance Informed decisions Inform budget and strategic decisions Oversight Focal point for Executive Committee and Board deep dives Assurance Audit and Compliance teams use the risks to inform assurance planning and test how effectively risks are being managed Vodafone Group Plc Annual Report 2018Strategic Report Risk management in action: Brexit implications The Board continues to keep the possible implications of Brexit for Vodafone’s operations under review. A cross-functional team, led by two Executive Committee members, has identified ways in which Brexit might affect the Group’s operations. Despite the Article 50 Notice having been served, there remains insufficient information about the likely terms of the post-Brexit arrangements between the UK and the EU, as well as about any possible transitional arrangements, to draw any conclusions about the probable impact. There is however more clarity on the timetable, as any future arrangement regarding the future relationship between the EU and the UK would have to enter into force either at the formal date of exit (30 March 2019) or at the expiration of a potential transition period (31 December 2020) to avoid a so-called “cliff edge” scenario. 39 Although we are a UK headquartered company, a very large majority of our customers are in other countries, accounting for most of our revenue and cash flow. Each of our national operating companies is stand-alone business, incorporated and licensed in the jurisdiction in which it operates, and able to adapt to a wide range of local developments. As such, our ability to provide services to our customers in the countries in which we operate, inside or outside the EU, is unlikely to be affected by Brexit. We are not a major international trading company, and do not use passporting for any of our major services or processes. Depending on the arrangements agreed between the UK and the EU, two issues that could directly affect our operations, in both cases potentially causing us to incur additional cost, are: – – creation of a data frontier between the UK and the EU: the inability to move data freely between the UK and EU countries might cause us to have to move some technical facilities, and affect future network design; and inability to access the talent we need to run a multinational Group operation from the UK: increased controls over or restrictions to our ability to employ leading talent from non UK markets could cause us to have to adjust our operating model to ensure that we attract and retain the best people for the roles we have. A further, indirect, issue that could affect our future performance would arise if the Brexit process caused significant revisions to macro-economic performance in our major European markets including the UK, thus affecting the economic climate in which we operate, and in turn impacting the performance of the operating companies in those markets. Key to principal risks 1 Cyber threat and information security External or internal attack resulting in service unavailability or data breach 2 Adverse political and regulatory measures Excessive pricing of 5G licences, tax authority challenges, incumbent re-monopolisation 3 Market disruption New telco entrants with lean & agile models and unlimited offers creating increased competitive pressure 4 Effective digital and technological transformation Failure to create an agile, digital telco able to deliver a differentiated customer experience 5 Disintermediation Tech players gaining customer relevance through emerging technology 6 Global economic disruption/ adequate liquidity Economic disruption and uncertainty reducing consumer spending and our ability to refinance 7 Technology resilience Failure of critical IT, fixed or mobile assets causing service disruption 8 Effective data management Data management failures leading to missed commercial opportunities or a GDPR breach Legal and regulatory compliance 9 Non compliance with laws and regulations including customer registration, anti-bribery, competition law, anti- money laundering, sanctions and intellectual property rights requirements 10 Allocation of the Group’s capital Failure to maximise returns to shareholders due to inefficient use of capital 11 EMF health related risks EMF found to pose health risks causing reduction in mobile usage or litigation Interconnected risks Our principal risks are presented individually but in managing these risks, we also consider how they relate to each other and the potential cumulative effects. Identifying the interconnectivity between risks allows us to prioritise areas that require increased oversight and remedial action. Legal and regulatory risks EMF 11 Market disruption 3 Digital transformation 4 Commercial risks 9 Legal and regulatory 2 Political measures 6 Economic disruption Financial risks 7 1 Technology resilience Cyber threat Technology risks 5 Disintermediation 8 Data management 1010 Allocation of the Group’s capital Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 40 Risk management (continued) Cyber threat and information security What is the risk? An external attack, insider threat or supplier breach could cause service interruption or confidential data breaches. What is the impact? Failing to protect our customer information and service availability could have major customer, financial, reputational and regulatory impact in all markets in which we operate. What is our target tolerance position? We aim for a secure digital future for our customers. Security underpins our commitment to protecting our customers with reliable connections and keeping their data safe. We seek to avoid material breach, loss of data or reputational impact from a cyber event. Adverse political and regulatory measures What is the risk? The scale and complexity of political and regulatory risk is increasing especially as digital becomes the backbone of economic growth, potentially resulting in political intervention and competitive disadvantage. 5G spectrum auctions are also underway in many jurisdictions which could lead to unfair spectrum allocation or pricing. What is the impact? If the cost of operations were to significantly increase, directly or indirectly, this would impact our profitability and returns to shareholders. What is our target tolerance position? We seek actively to engage with governments, regulators and tax authorities to encourage good working relationships and to help shape potential impacts of legislative change on the Group. We look for spectrum auctions to be fair for all participants both in terms of ability to access auctions and pricing of spectrum. Market disruption What is the risk? New entrants to markets or competitors with lean models could create pricing pressure. As more competitors push unlimited bundles, it might impact profitability in the short to medium term through price erosion. What is the impact? Our market position and revenues could be damaged by failing to provide the services that our customers want at a fair price. What is our target tolerance position? We will evolve our offer and adopt an agile operating model to mitigate competitive risks. We will do this through targeted offers, smart pricing models and differentiated customer experience. Effective digital and technological transformation What is the risk? We plan to accelerate the evolution of Vodafone towards a digital future to improve customer experience, increase speed to market and operate in an efficient and agile manner. Failure to do this could lead to missed commercial opportunities, increased cost of working and customer service failures. What is the impact? Failure to deliver on our digital and customer experience objectives could result in lack of differentiation leading to increased customer churn and eventual loss of market share. What is our target tolerance position? We aim to be a leading digital company with modern systems, skills and talent to ensure a world-class offering and customer experience. Disintermediaton What is the risk? We face increased competition from a variety of new technology platforms which could impact our customer relationships and experience. We must be able to keep pace with new technology to compete in changing markets while maintaining high levels of customer service. What is the impact? If we do not provide the digital experience and service our customers want, we may lose customer relevance, market share and revenue. What is our target tolerance position? We offer a superior customer experience and continually improve our offering through a wide set of innovative products and services, including fixed and mobile content, IoT and voice over LTE. We also develop innovative new products and explore new growth areas such as 5G, IoT, convergence, digital services, data analytics, AI and security so that we continue to meet our customers’ needs. Vodafone Group Plc Annual Report 2018Strategic Report Key to core programmes: Network Leadership Customer eXperience eXcellence Fit for Growth Digital Vodafone 41 Risk owners: Johan Wibergh/Joakim Reiter Risk movement: Stable Risk category: Technology Link to core programmes: How do we manage it? We protect Vodafone and our customers from cyber threats through strong basic security, a leading Cyber Defence team and customer-focused security supported by simple risk led processes centrally and in local markets. Key risk indicators We monitor multiple trends including: – Confirmed security incidents – Security control effectiveness – Independent measurements of security on our networks Changes since last report We continue to make progress with our security strategies and have seen improvements in our control effectiveness. We have launched a new Security Risk, Control and Assurance Framework to provide guidance and oversight across all Security risks. Risk owners: Nick Read/Joakim Reiter Risk movement: Stable Risk category: Legal and regulatory Link to core programmes: How do we manage it? We engage with top level policy makers and influencers, addressing issues openly, with clear arguments to find mutually acceptable ways forward. We plan our approach to spectrum auctions to ensure we achieve fair access at sustainable prices. Key risk indicators We monitor: – Public sentiment, changes to laws and regulations, number and value of disputes across the Group – Benchmarking of spectrum cost between countries Changes since last report We continue to engage with governments, regulatory and public bodies and have seen some success in our strategy, particularly in Europe. We are seeing increasing regulatory intervention in areas like privacy, security and net neutrality. We have had recent success in spectrum auctions which will allow us to continue to maintain network leadership positions. Risk owner: Serpil Timuray Risk movement: Stable Risk category: Commercial Link to core programmes: How do we manage it? We monitor the competitor landscape in all markets, and react appropriately; working to make sure each market has a fair and competitive environment. We will continue to improve our Consumer and Enterprise propositions using our digital strategies and our ability to create personalised offerings. Key risk indicators – Trends in competitor behaviour – Level of customers actively using our new products and services Changes since last report Our joint venture in India is close to receiving regulatory approval. The merged entity should be better able to compete in its marketplace. We face increasing competition in some European markets and are managing this through developing new commercial strategies and differentiated offerings and customer experience. Risk owner: Serpil Timuray Risk movement: Increased Risk category: Commercial Link to core programmes: How do we manage it? We are running a company wide transformation programme, Digital Vodafone, with direct sponsorship of our executive team. The program has specific modules across each functional area, coordinated centrally and executed locally, to drive our key digital priorities. We are also implementing a new operating model (Digital Vodafone) in our operating companies to ensure a fast pace of change on digital. Key risk indicators – Measurement of NPS – Tracking of digital KPIs and objectives across all markets Changes since last report This is a new risk which encompasses the previous CXX and IT Transformation risks. Risk owner: Serpil Timuray Risk movement: Stable Risk category: Commercial Link to core programmes: How do we manage it? We continuously create innovative propositions and services whole evolving our customer experience to strengthen the relationship with our customers. Key risk indicators – Trends in new technologies – Level of customers actively using our new products and services Changes since last report This risk was previously managed as part of the wider Market Disruption risk but has now been split out to ensure appropriate consideration is given to our product and service offering. Over the last 12 months, we have seen the strengthening of OTTs message and voice platforms, the boom of digital assistants powered by AI and the continuing growth of Enterprise OTTs. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 42 Risk management (continued) Global economic disruption/adequate liquidity What is the risk? As a multinational business, we operate in many countries and currencies, so changes to global economic conditions can impact us. Any major economic disruption could result in reduced spending power for our customers and impact our ability to access capital markets. A relative strengthening or weakening of the major currencies in which we transact could impact our profitability. What is the impact? Economic instability and subsequent reductions in corporate and consumer spending or an impact on capital markets could restrict our refinancing options. A relative strengthening or weakening of the major currencies in which we transact could impact our profitability. What is our target tolerance position? We take a conservative approach to financial risks which reflects our diverse business. We carefully manage our liquidity and access to capital markets to limit our exposure to unstable economic conditions. Technology resilience What is the risk? A technology site loss could result in a major impact on our customers, revenues and reputation. This could involve all major technology sites including: mobile, fixed, and data centres. What is the impact? Major incidents caused by suppliers, natural disasters or an extreme technology failure, although rare, could result in the complete loss of a key technology site causing severe impact on our customers, revenues and reputation. What is our target tolerance position? Our customer promise is based on reliable availability of our network, therefore the recovery of critical mobile, fixed and IT services must be fast and robust. Effective data management What is the risk? We process vast amounts of data and are subject to numerous compliance, security, privacy, data quality and regulatory requirements. Processing and using this data is critical to fulfilling our customers’ service expectations in a digital world, but must be done according to an informed consent framework with clear and traceable permissions. What is the impact? Failure to achieve data governance could lead to data mismanagement thereby preventing us achieving our data strategic goals, and processing of data ethically in line with our values. If we do not use data (with appropriate permissions) to inform our services and offers, we will not be able to meet customer expectations, which will have a negative effect on both NPS and customer lifetime value. What is our target tolerance level? We aim to use data to improve the efficiency of our operations and to continually develop data centric business models. We seek to process personal data honestly, ethically, with integrity, and always consistent with applicable laws and our values. We provide our customers with transparency, choice and understanding of their rights through our permissions framework. Legal and regulatory compliance What is the risk? Vodafone must comply with a multitude of local and international laws as well as more specific regulations. These include licence requirements, customer registrations, anti-money laundering, competition law, anti-bribery law, intellectual property rights and economic sanctions. What is the impact? Non-compliance with legislation or regulatory requirements could lead to reputational damage, financial penalties and/or suspension of our license to operate. What is our target tolerance level? We seek to comply with all applicable laws and regulations in all of our markets. Allocation of the Group’s capital What is the risk? We may not effectively allocate the Group’s capital to maximise returns by failing to identify opportunities, agree appropriate terms, legally complete and successfully execute strategically important acquisitions, partnerships including joint ventures and disposals. What is the impact? If we fail to make the make the correct investment decisions or to execute our strategy in line with expectations, our cash flow, revenue and profitability could be negatively impacted. What is our target tolerance level? We seek opportunities to improve the effective deployment of our capital. Vodafone Group Plc Annual Report 2018Strategic Report Key to core programmes: Network Leadership Customer eXperience eXcellence Fit for Growth Digital Vodafone 43 Risk owner: Nick Read Risk movement: Stable Risk category: Financial Link to core programmes: How do we manage it? We maintain access to long and short term capital markets through diversified sources of funding. Key risk indicators – Current credit rating We forecast with contingencies in our business plans to cater for negative operational impacts that could occur from a variety of drivers including the impact from lower economic growth than is generally expected. – Average life and cost of debt – Currency and interest rate exposures – Monitoring of economic and financial market drivers Changes since last report There are no significant changes to this risk. We continue to take action to increase the average life of our bond debt and interest rate fixing. Risk owner: Johan Wibergh Risk movement: Stable Risk category: Technology Link to core programmes: How do we manage it? Unique recovery targets are set for critical sites to limit the impact of service outages. A global policy supports these targets with mandatory controls to ensure effective resilience. We monitor the lifespan of critical assets and maintain back up where necessary. Key risk indicators – Number of critical sites able to meet the recovery targets – Levels of incidents/near misses – Results of simulated recovery testing – Building a resilient future by evolving our services to cloud based solutions Changes since last report Our technology resilience levels continue to mature across all sites. Resilience levels were tested following network outages in some markets and we have worked to make improvements based on the lessons learned from these incidents. Risk owner: Serpil Timuray Risk movement: Increased Risk category: Commercial Link to core programmes: How do we manage it? We are enhancing our data governance framework to ensure quality data supports our strategy. Our Privacy and Security teams work to ensure that we collect, process and store data in line with our own policies and applicable law. Key risk indicators – Compliance with GDPR requirements – Adherence to customer permissions framework – Security testing and audits Changes since last report Included in the principal risks for the first time. Risk owner: Rosemary Martin Risk movement: Decreasing Risk category: Legal and Regulatory Link to core programmes: How do we manage it? We have subject matter experts in legal and regulatory teams at a local and global level, and a robust overarching policy compliance framework with underlying specialist compliance programmes. We train our employees in “Doing what’s right”, our training and awareness programme which sets our ethical culture across the organisation and ensures employees understand their role in ensuring compliance. Key risk indicators – Results of the annual compliance testing programme – Number of Speak Up cases in each market – Changes to applicable legal and regulatory requirements Changes since last report Data privacy has now moved into our Data management risk. Due to an increase in patent infringement threats and claims, intellectual property rights are now considered as part of this risk. Risk owner: Nick Read Risk movement: Increased Risk category: Commercial Link to core programmes: Key risk indicators – Achievement of synergies – Compliance with policies and standards Changes since last report Included in the principal risks for the first time. How do we manage it? Our strategic planning process identifies both risks and opportunities for effective deployment of capital. Any opportunities for change are carefully scoped before agreements are made to ensure we take the correct level of risk. We carefully manage the external approval processes and the subsequent integration of acquired operations. We manage integration through the alignment of policies, processes and systems to ensure maximum benefit is delivered. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 44 Risk management (continued) Electro-magnetic fields related health risks What is the risk? Electromagnetic signals emitted by mobile devices and base stations may be found to pose health risks, with potential impacts including: changes to national legislation, a reduction in mobile phone usage or litigation. What is the impact? 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 greater concern for environmental and health related risks. What is our target tolerance position? Vodafone does not want to expose anyone to levels of EMF above those mandated by regulators. We comply with national standards, where existing, and with our own EMF policy, based on international science guidelines. Our vision is to lead within the industry in responding to public concern about mobiles, masts and health. Long-Term Viability Statement The UK Corporate Governance Code (the ‘Code’) The Code requires the Directors to assess the prospects of the Group over a period significantly longer than 12 months and whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment. The Vodafone methodology The Board carried out an assessment of the principal risks facing the Group that would threaten its business model, future performance, solvency or liquidity. The assessment starts with the available headroom as of 31 March 2018 and follows a three-stage approach to stress test it (as shown in the diagram). The review period The Board has concluded that the most relevant time period for this assessment continues to be three years, as the period in which the principal risks (particularly those of an operational nature) are expected to develop, in what is a fairly dynamic industry sector with the potential impact from digital transformation a fast evolving risk. This time horizon is also supported by the business planning and forecasting cycle. Key assumptions 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. The Group has also taken into account the liquidity implications of merger and acquisition activity not yet completed. As of 31 March 2018, the Group had sources of liquidity (comprised mainly of cash and cash equivalents, and available facilities) of €18.9bn, excluding cash in the held for sale Indian subsidiary. Viability statement Having considered the principal risks facing the Group and their inherent uncertainty, as well as the likely effectiveness of the planned mitigating actions, the Directors deem that the process of stress-testing the Group’s prospects is reasonable and appropriate. The cash and facilities available to the Group as of 31 March 2018, along with options available to reduce cash outgoings, provide sufficient headroom, which remained positive in all scenarios tested. Therefore, the Directors confirm that they have a reasonable expectation that the Group remains in operation and is able to meet its liabilities as they fall due up to 31 March 2021. Vodafone Group Plc Annual Report 2018Strategic Report Key to core programmes: Network Leadership Customer eXperience eXcellence Fit for Growth Digital Vodafone 45 Risk owner: Joakim Reiter Risk movement: Stable Risk category: Legal and regulatory Link to core programmes: How do we manage it? Our Group EMF Board manages potential risks through cross sector initiatives and oversees a global programme to respond to public concern. Key risk indicators We monitor: – Scientific research We monitor scientific developments and engage with relevant bodies to support the delivery and transparent communication of the scientific research agenda set by the World Health Organisation. – International standards and guidelines – Public perception – Compliance with EMF policies Changes since last report There are no material changes to the risk. The Vodafone methodology Assessment of prospects Assessment of viability Principal risks Combined risk scenario Sensitivity analysis Headroom The available headroom is calculated using the cash and cash equivalents, plus available facilities, at year end Long Range Plan Three-year forecast is used to calculate cash position and available headroom over the period Severe but plausible scenarios modelled for each of the principal risks to quantify the cash impact of an individual risk materialising over the three-year period. The top three risks with the highest potential financial impact relate to global economic disruption, adverse political and regulatory measures, and executing the digital and technological transformation. Quantification of the cash impact of a combined scenario where multiple risks materialise, including the following: a. Failure to respond to market disruption resulting in loss of market share. b. Market disruption exacerbated by economic downturn, resulting in restricted access to capital markets and devaluation of emerging market currencies. c. Major data breach resulting in litigation and penalties. Long range plan output used to perform a sensitivity analysis, reviewing central debt profile and cash headroom analysis, including a review of sensitivity to “business as usual” risks to revenue and profit growth. The analysis focuses on the maximum tolerable revenue and adjusted EBITDA decline over the three-year period, as well as significant cash flow drivers, such as capital expenditure and debt financing. Overall viability = headroom – cash impact of risks + additional liquidity options Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 46 Chairman’s governance statement Committed to the highest standards of corporate governance Strong and robust corporate governance is integral to creating long-term value and success for the benefit of our shareholders and stakeholders. Contents 46 Chairman’s governance statement 60 Board evaluation 48 Board of Directors 50 Executive Committee 52 Leadership structure 54 Board activities 56 Board effectiveness 58 Engaging with our stakeholders 62 Nominations and Governance Committee 64 Audit and Risk Committee 70 Remuneration Committee 88 Our US listing requirements 89 Directors’ report Dear Shareholder, Welcome to the Corporate Governance Report for the year ended 31 March 2018 which I am pleased to present on behalf of the Board. This year has seen continued focus on companies’ corporate governance arrangements, ensuring that they have strong and robust corporate governance at the heart of everything they do. This report will outline how your Board has ensured that we have effective corporate governance in place to help support the creation of long-term value for our shareholders and stakeholders. My Chairman’s statement on page 3 highlights the progress we have made against our ambition to be a converged communications leader in all of our European markets, a mobile data leader in Africa and India, and an Enterprise leader internationally. Key to this progress is ensuring that the Board and senior management remain focused on the right things and a significant event within our annual calendar is the Board strategy day. Each year, the strategy day takes place in a key location and this year it was held at our Germany offices in Düsseldorf. As well as providing time for the Board and senior management to focus specifically on strategy, the day also gives the Board the opportunity to meet colleagues, customers and other stakeholders in one of our local markets. Board changes In May 2018, we announced the succession plan for the Group Chief Executive role. From 1 October 2018, Vittorio Colao will be succeeded by Nick Read, our current Chief Financial Officer, with Margherita Della Valle (our Deputy CFO) succeeding Nick and joining the Board after the AGM on 27 July 2018. In addition to this executive succession planning, the Nominations and Governance Committee continued to keep under review the composition of the Board to ensure that we have the right balance of skills and experience. On 1 June 2017, Maria Amparo Moraleda Martinez joined the Board as a Non-Executive Director. Amparo has strong international technology experience and has been a valuable addition to the Board. To ensure a smooth transition, Amparo has undertaken an extensive induction programme, of which further information is available on page 56. Following the announcement in March 2017 that Nick Land and Phil Yea would not stand for re-election at the 2017 AGM, it was identified that the Board would benefit from the addition of someone with financial experience. In January 2018, we announced the appointment of Michel Demaré with effect from 1 February 2018. Michel has a strong background in corporate finance and a wealth of leadership experience and is an important addition to the Board. Further information on Michel’s appointment process can be found on page 63. We have also announced that Dr. Mathias Döpfner will not be seeking re-election at our AGM in July, in order to focus on his executive role. I would like to take this opportunity to thank Mathias for his contribution to the Board over the last three years. Keeping in mind the delicate balance of skills and experience needed for your Board to operate effectively, and given Samuel Jonah’s continued independent character and judgement, I have asked Samuel to remain on the Board and to seek re-election for a further 12 months at our AGM. The Board is currently meeting its target of having at least 33% female representation on the Board by 2020. We are committed to having a diverse board in all respects and the Committee has taken into consideration the targets outlined in the Parker and Hampton- Alexander reports. Culture and governance The Board recognises the importance of its role in setting the tone of Vodafone’s culture and embedding it throughout the Group. Our Business Principles (the values we respect) and our Code of Conduct (the behaviours we expect) underpin everything that we do and are reinforced through the Digital Vodafone Way, which sets out the type of organisation we want to be. Everyone who works for and with us is required to comply with these. An overview of our Business Principles, our Code of Conduct and the Digital Vodafone Way can be found on pages 36 and 37. The Board, Executive Committee and our senior management understand how we work is as important as what we achieve and instil focus on the importance of compliance and integrity at all levels throughout the Group. Vodafone Group Plc Annual Report 2018Governance It is pleasing to see the external recognition Vodafone has received over the last 12 months for our work in diversity and inclusion. As discussed on pages 36 to 37, Vodafone is committed to diversity and inclusion in all forms. This year Vodafone was acknowledged as a top 100 LGBT+ inclusive employer by Stonewall and Vittorio was recognised as the top male champion of women in business in the UK by the Financial Times and HERoes. The Board is also committed to ensuring there is a robust system of corporate governance in place to support the successful execution of Vodafone’s strategy. This year Vodafone was subject to the 2016 UK Corporate Governance Code and I am pleased to confirm that Vodafone has complied with it. Following our success at the ICSA: The Governance Institute Awards 2016, winning Best Audit Report Disclosure, I am pleased to tell you that in 2017 Vodafone won Strategic Report of the Year and was also nominated for Annual Report of the Year, recognising our hard work and commitment to good reporting. Engagement with our stakeholders Vodafone’s success is dependent upon your Board taking decisions for the benefit of our shareholders and in doing so having regard for all of our stakeholders. A key event during the year is the AGM whereby the Board is able to engage with you and to answer your questions on the performance of the Group. Further details on how we have engaged with all of our stakeholders over the year can be found on pages 58 and 59. Board effectiveness This year the Board again undertook an internal evaluation with the assistance of Lintstock. The results of this review can be found on pages 60 and 61 which I am pleased to report show that your Board is still operating effectively. Looking ahead Maintaining the highest standards of corporate governance across the Group is integral to the delivery of our strategy and your Board remain focused on creating sustainable long-term value for the benefit of our shareholders and stakeholders. Gerard Kleisterlee Chairman 15 May 2018 47 Compliance with the 2016 UK Corporate Governance Code (the ‘Code’) In respect of the year ended 31 March 2018, Vodafone Group Plc was subject to the Code (available from www.frc.org.uk). The Board is pleased to confirm that Vodafone applied the principles and complied with all of the provisions of the Code throughout the year. Further information on compliance with the Code can be found as follows: Read more Leadership The role of the Board Division of responsibilities The Chairman Non-Executive Directors Effectiveness Read more Composition of the Board Appointments to the Board Commitment Development Information and support Evaluation Re-election Accountability Read more Financial and business reporting Risk management and internal control Audit Committee and auditors Remuneration Read more The level and components of remuneration Procedure Relations with shareholders Read more Dialogue with shareholders Constructive use of general meetings 52 53 53 53 52 62 62 57 57 60 62 65 68 64 73 70 58 58 Disclosure Guidance and Transparency Rules We comply with the corporate governance statement requirements pursuant to the FCA’s Disclosure Guidance 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 191 to 197. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 48 Board of Directors Experienced, effective and diverse leadership Our business is led by our Board of Directors. Biographical details of the Directors and senior management as at 15 May 2018 are as follows (with further information available at vodafone.com/board). Committee Key: A Audit and Risk Committee N Nominations and Governance Committee R Remuneration Committee Solid background signifies Committee Chair Gerard Kleisterlee Chairman – Independent on appointment N Vittorio Colao Chief Executive – Executive Director Nick Read Chief Financial Officer – Executive Director Tenure: 7 years Tenure: 11 years Tenure: 4 years Skills and experience: Gerard has extensive experience of senior leadership of global businesses both in 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: – Royal Dutch Shell, deputy chair, senior independent director, chair of the remuneration committee and member of the nomination and succession committee with effect from 23 May 2018 – ASML, chairman of supervisory board Skills and experience: With over 20 years’ experience working in the telecoms industry, Vittorio has extensive leadership skills developed within both Vodafone and the industry and is widely recognised as an outstanding leader in the telecoms sector. Vittorio became a member of the Board in October 2006 and was appointed Chief Executive in July 2008. Vittorio will stand down as a Director and as Chief Executive on 30 September 2018. Skills and experience: As Group Chief Financial Officer, Nick combines strong commercial and operational leadership with a detailed understanding of the industry and its challenges and opportunities. Nick has wide-ranging experience in senior finance roles both at Vodafone and other multinational companies including United Business Media plc and Federal Express Worldwide. Nick will become Chief Executive on 1 October 2018. Other current appointments: – European Round Table of Industrialists, vice chairman – Unilever PLC, non-executive director and chair of the compensation committee Other current appointments: – Booking Holdings Inc., non-executive director (subject to approval at the annual meeting of stockholders in June 2018) Sir Crispin Davis Non-Executive Director NA Tenure: 3 years Michel Demaré Non-Executive Director Tenure: <1 year Dr Mathias Döpfner Non-Executive Director R Tenure: 3 years Skills and experience: Sir Crispin has broad-ranging experience as a business leader within international content and technology markets from his roles as chief executive of RELX Group (formerly 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: – Hasbro, non-executive director – Oxford University, trustee and member of the university board – CVC Capital Partners, adviser – Rentokil Initial plc, non-executive director Skills and experience: Michel brings extensive international finance, strategy and M&A experience to the Board, gained during his 18-year career at Dow Chemical, as CFO of Baxter International (Europe), and as CFO and head of global markets of ABB Group. He was the non-executive chairman of Syngenta until the company was sold to ChemChina in 2017. Skills and experience: Mathias brings wide-ranging experience within the global digital media industry to the Board. 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. Mathias will be stepping down from the Board at our AGM on 27 July 2018. Other current appointments: – UBS AG, independent vice chairman – Louis Dreyfus Company Holdings BV, non-executive Other current appointments: – Axel Springer SE, chairman and chief executive officer director – Time Warner and Warner Music Group, member of – IMD Business School in Lausanne, vice chairman of the board of directors the supervisory board – Business Insider Inc., chairman of the board of – Department of Banking and Finance at the University directors of Zurich, advisory board member – American Academy, American Jewish Committee and the European Publishers Council, holds honorary offices – St John’s College, University of Cambridge, member Vodafone Group Plc Annual Report 2018Governance 49 Gender composition Board of Directors Female Male Experience and skills Non-Executive Directors Consumer goods Media Finance and capital markets Technology Financial services Telecoms Emerging markets Consumer services Dame Clara Furse Non-Executive Director A Tenure: 3 years Valerie Gooding cbe Senior Independent Director N R Tenure: 4 years Renee James Non-Executive Director N R Tenure: 7 years Skills and experience: Dame Clara brings to the Board a deep understanding of international capital markets, regulation, service industries and business transformation developed from her previous roles as chief executive officer 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: – HSBC UK, non-executive chairman – Amadeus IT Group SA, non-executive director 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: – TUI AG, non-executive director – Aviva UK Insurance Ltd, chairman – English National Ballet, trustee – Royal Botanical Gardens, Kew, Queen’s trustee – Lawn Tennis Association Trust, chairman Skills and experience: Renee brings comprehensive knowledge of the high technology sector developed from her long career at Intel Corporation where she was president. She is currently the chairman and CEO of Ampere Computing. Her extensive experience of international management, technology and the development and implementation of corporate strategy is an asset to the Board and the Committees for which she is a member. Other current appointments: – The National Security Telecommunications Advisory Committee, chairman – Carlyle Group, operating executive – Oracle Corporation, non-executive director – Citigroup Inc., non-executive director Samuel Jonah kbe Non-Executive Director R Amparo Moraleda Non-Executive Director A Tenure: 9 years Tenure: <1 year David Nish Non-Executive Director A Tenure: 2 years Skills and experience: Samuel brings experience and understanding of business operations in emerging markets, particularly Africa. Previously executive president of AngloGold Ashanti Ltd, he provides an international, commercial perspective to Board discussions. Other current appointments: – Global Advisory Council of Bank of America, member – President of Togo, adviser – Iron Mineral Beneficiation Services, non-executive chairman – Jonah Capital (Pty) Limited, executive chairman – Hollard (formerly Metropolitan) Insurance Company Limited, chairman – The Investment Climate Facility, member of trustee board Skills and experience: Amparo brings strong international technology experience to the Board from her previous role as chief executive officer of the international division of Iberdola and a career spanning 20 years at IBM, where she held a number of positions across a range of global locations. 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: – Airbus Group, non-executive director, chair of the nominations, governance and remuneration committees – CaixaBank, non-executive director and chair of the remuneration committee – Solvay, non-executive director – Royal Academy of Economic and Financial Services, member Other current appointments: – HSBC Holdings Plc, non-executive director – London Stock Exchange Group Plc, non-executive director and chair of the audit committee – Zurich Insurance Group, board member Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 50 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 and talent pipeline. Serpil Timuray Chief Commercial Operations and Strategy Officer Tenure: 1 year Rosemary Martin Group General Counsel and Company Secretary Tenure: 8 years Responsibilities: Serpil is responsible for Vodafone’s global commercial operations and strategy, as well as innovation and transformation projects, including the Customer eXperience eXcellence global programme. Previous roles include: – Vodafone, Regional Chief Executive Officer – Africa, Middle East and Asia-Pacific Region (AMAP) (2013–2016) – Vodafone Turkey, Chief Executive Officer (2009–2013) – Danone Turkey, chief executive officer (2002–2008), marketing director with additional sales director role (1999–2002) – Procter & Gamble Turkey, various marketing roles including executive committee member (1991–1999) Responsibilities: Rosemary is responsible for managing Vodafone’s legal risk and for providing legal, compliance and company secretariat services to the Group. Previous roles include: – Practical Law Company, chief executive officer (2008–2010) – Reuters Group Plc, various governance roles including group general counsel and company secretary (1997–2008) – Rowe & Maw, partner (1990–1997) Ronald Schellekens Group Human Resources Director Tenure: 9 years Responsibilities: Ronald is responsible 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: – Royal Dutch Shell, HR executive vice president (2003–2008) – PepsiCo, senior vice president (1994–2003) – AT&T Network Systems, various human resources roles (1986–1994) Johan Wibergh Group Technology Officer Tenure: 3 years Brian Humphries Group Enterprise Director Tenure: 1 year Responsibilities: Johan is responsible for leading Vodafone’s global technology organisation. His role is integral to developing Vodafone’s convergence strategy on a global scale. Previous roles include: – Ericsson, various roles including executive VP (1996–2015) Responsibilities: Brian manages and leads Vodafone’s growing Global Enterprise business which provides total communications solutions to businesses. His responsibilities include Vodafone’s strategy and execution in the Enterprise market worldwide. He manages a portfolio which includes: Vodafone Global Enterprise, Vodafone Carrier Services, Internet of Things and Cloud & Security. Previous roles include: – Dell-EMC, president, enterprise solutions (2013–2017) – Hewlett-Packard, various roles including senior vice president, emerging markets (2002–2013) Joakim Reiter Group External Affairs Director Tenure: <1 year Responsibilities: Joakim 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 we operate. He is also responsible for security, and for the Vodafone Foundation, of which he is a trustee. Previous roles include: – United Nations, assistant secretary-general and United Nations Conference on Trade and Development, deputy secretary-general (2015–2017) – Ministry of Foreign Affairs, Sweden, deputy director- general (2014–2015) – World Trade Organisation, ambassador (2011–2014) – Permanent Representation to the European Union, minister councillor (2008–2011) Vodafone Group Plc Annual Report 2018Governance 51 Membership The Committee is comprised of Vittorio Colao, Group Chief Executive, Nick Read, Group Chief Financial Officer and the senior managers as detailed below. Tenure refers to length of service in role. Biographies for Vittorio Colao, and Nick Read can be found on page 48. Committee Meetings 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. The Committee met 11 times during the year and considered the following items: – Strategy; – Customer innovations; – The new brand positioning strategy; – Substantial business developments and projects; – Chief Executive’s update on the business and the business environment; – Business performance; – Updates and presentations from the head of each Group function; – Talent updates; – Updates and reports on health and safety matters; – Presentations from senior managers, including from the Group Financial Controlling and Operations Director, the Group Audit Director and the Group Risk and Compliance Director; and – Competitor performance analysis. Nick Jeffery Chief Executive Officer – Vodafone UK Dr Hannes Ametsreiter Chief Executive Officer – Vodafone Germany Aldo Bisio Chief Executive Officer – Vodafone Italy Tenure: 1 year Tenure: 2 years Tenure: 4 years Responsibilities: Nick is responsible for: – Defining Vodafone’s strategy in the UK in accordance Responsibilities: Hannes is responsible for: – Defining Vodafone’s strategy in Germany in Responsibilities: Aldo is responsible for: – Defining Vodafone’s strategy in Italy in accordance with Group strategy and operating models; – Delivering the strategic vision and executing accordance with Group strategy and operating models; – Positioning Vodafone Germany as a gigabit company, with Group strategy and operating models; – Delivering the strategic vision and executing commercial plans; and – Ensuring delivery against KPIs. strengthening its role as Germany’s leading TV provider and integrated player; commercial plans; and – Ensuring delivery against KPIs. Previous roles include: – Vodafone Group Enterprise, Chief Executive Officer (2013–2016) – Cable & Wireless Worldwide, Chief Executive Officer (2012–2013) – Vodafone Global Enterprise, Chief Executive Officer (2006–2012) – Vodafone Group, Director, Business Marketing (2004-2006) – Delivering the strategic vision, executing commercial plans and delivery against KPIs; and – Shaping Vodafone’s leadership role in digital technologies. Previous roles include: – Telekom Austria, group chief executive officer (2009–2015) – A1 Telekom, chief executive officer (2009) – Mobilkom Austria/Telekom Austria, chief marketing officer (2001–2009) Previous roles include: – Ariston Thermo Group, chief executive officer/ managing director (2008–2013) – McKinsey & Company, senior partner (2007–2008) – RCS Quotidiani, managing director (2004–2006) – McKinsey & Company, partner (1992–2004) António Coimbra Chief Executive Officer – Vodafone Spain Vivek Badrinath Chief Executive Officer – Africa, Middle East and Asia-Pacific Region (AMAP) Ahmed Essam Chief Executive Officer – Europe Cluster Tenure: 5 years Tenure: 1 year Tenure: 1 year Responsibilities: António is responsible for: – Defining Vodafone’s strategy in Spain in accordance with Group strategy and operating models; – Delivering the strategic vision and executing commercial plans; and – Ensuring delivery against KPIs. Previous roles include: – Vodafone Portugal, Chief Executive Officer (2009– 2012), Executive Committee member (1995–2009), Marketing and Sales Director (1992–1995) – Apritel – Telco Association (on behalf of Vodafone Portugal), president (2005–2007) – Vodafone Japan, Chief Marketing Officer (2004) – Olivetti Portugal, marketing manager (1991–1992) – Siemens Portugal, produce and sales manager (1988-1991) Responsibilities: Vivek oversees Vodafone’s operations in the Vodacom Group, India, Australia, Egypt, Ghana, Kenya, New Zealand and Turkey. This includes: – Defining Vodafone’s strategy in these local markets in accordance with Group strategy and operating models; Responsibilities: Ahmed oversees Vodafone’s operations in the Netherlands, Portugal, Ireland, Greece, Romania, Czech Republic, Hungary, Albania and Malta. This includes: – Defining Vodafone strategy in these local markets in accordance with Group strategy and operating models; – Delivering the strategic vision and executing – Delivering the strategic vision and executing commercial plans; and – Ensuring delivery against KPIs. commercial plans; and – Ensuring delivery against KPIs. Previous roles include: – AccorHotels, deputy chief executive (2014–2016) – Orange, deputy chief executive (2013–2014) Previous roles include: – Vodafone Egypt, Chief Executive Officer (2014–2016) – Vodafone Group, Group Commercial Director (2012–2014) – Vodafone Egypt, various roles including customer care and consumer business unit director (1999–2012) Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 52 Leadership structure How we are governed The Board currently comprises the Chairman, two Executive Directors and nine Non-Executive Directors. Our Non-Executive Directors bring wide and varied commercial experience to the Board and Committees. Our Board The Board is responsible for: – Ensuring leadership through effective oversight and review. The Board sets the strategic direction and aims to deliver sustainable stakeholder value over the longer term; – Overseeing the implementation of appropriate risk assessment systems and processes to identify, manage and mitigate the principal risks of the Company’s business; – Effective succession planning at Board level and for assessing the processes in place to ensure that there is appropriate succession planning among senior management. Much of this work is delegated to the Nominations and Governance Committee; and – Matters relating to finance, audit and internal control, legal, reputation and listed company management. Our Committees The Board has delegated to its Committees’ responsibility for maintaining effective governance in relation to: – Audit and risk; – Remuneration; – Board composition and succession planning; and – Corporate governance. Full details of the Committees’ responsibilities are detailed within the respective Committee reports on pages 62 to 87. The Executive Committee and other management committees are responsible for implementing strategic objectives and realising competitive business performance in line with established risk management frameworks, compliance policies, internal control systems and reporting requirements. The Board Responsible for the overall conduct of the Group’s business including our long-term success; setting our purpose; values; standards and strategic objectives; reviewing our performance; and ensuring a positive dialogue with our stakeholders is maintained. Comprised of the Chairman, Senior Independent Director, Non-Executive Directors, the Chief Executive and the Chief Financial Officer. Audit and Risk Committee Reviews the integrity, adequacy and effectiveness of the Group’s system of internal control, including the risk management framework and related compliance activities. Remuneration Committee Sets, reviews and recommends the policy on remuneration of the Chairman, Executives and senior management team. Monitors the implementation of the Remuneration Policy. Nominations and Governance Committee Evaluates Board composition and ensures Board diversity and a balance of skills. Reviews Executive succession plans to maintain continuity of skilled resource. Oversees matters relating to corporate governance. 64 Read more 62 Read more 70 Read more Chief Executive Chief Financial Officer Executive Committee Focuses on strategy implementation, financial and competitive performance, commercial and technological developments, succession planning and organisational development. Disclosure Committee Oversees the accuracy and timeliness of Group disclosures and approves controls and procedures in relation to the public disclosure of financial information. Key Delegation Reporting Risk and Compliance Committee Assists the Executive Committee in fulfilling its accountabilities with regard to risk management and policy compliance. Vodafone Group Plc Annual Report 2018Governance 53 The following table shows the attendance of Directors at scheduled Board and Committee meetings during the year: Attendance table Gerard Kleisterlee Vittorio Colao Nick Read Sir Crispin Davis1 Michel Demaré2 Dr Mathias Döpfner3 Dame Clara Furse Valerie Gooding cbe Renee James Samuel Jonah kbe Amparo Moraleda4 David Nish Nick Land5 Phil Yea5 Board 7/7 7/7 7/7 6/7 1/1 6/7 7/7 7/7 7/7 7/7 6/6 7/7 2/2 2/2 Audit and Risk Committee – – – 4/5 – – 5/5 – – – 4/4 4/4 1/1 1/1 Nominations and Governance Committee 5/5 – – 2/3 – – – 5/5 3/3 – – – – 2/2 Remuneration Committee – – – – – 5/5 – 5/5 5/5 5/5 – – – – Notes: The maximum number of scheduled meetings held during the year that each Director could attend is shown next to the number attended. Additional meetings were held as required. 1 Sir Crispin Davis was unable to attend one Board, Audit and Risk Committee and Nominations and Governance Committee meeting due to medical reasons. 2 Michel Demaré was appointed on 1 February 2018. 3 Dr Mathias Döpfner was unable to attend one Board meeting due to a prior business commitment. 4 Amparo Moraleda was appointed on 1 June 2017. 5 Nick Land and Phil Yea stepped down from the Board on 28 July 2017. The meetings are structured to allow open discussion. At each Board meeting the Directors are made aware of the key discussions and decisions of the three principal Committees by the respective Committee Chairmen. Minutes of Board and Committee meetings are circulated to all Directors after each meeting. Details of the Board’s activities during the year are set out on pages 54 and 55. Our culture The Board recognises that a healthy corporate culture is fundamental to our business purpose and strategy. Vodafone’s culture is defined through the Digital Vodafone Way, our Business Principles and the Code of Conduct. Together these set out what we expect from our employees and how we expect business to be carried out. By embedding the Digital Vodafone Way into our processes, we strive for a culture of speed, simplicity and trust. Our Code of Conduct, which includes our Business Principles and the Digital Vodafone Way, can be found on our website. Our leaders have a critical role in setting the tone of our organisation and championing the behaviours we expect to see. The Executive Committee led campaigns and engagement throughout the year to highlight our values and beliefs. Various indicators are used to provide insight into our culture, including employee engagement, health, safety and wellbeing measures and diversity indicators. We regularly assess the state of our culture, through activities such as compliance reviews and we address behaviour that falls short of our expectations. Division of responsibilities We have a clear division of responsibilities between our Chairman and Chief Executive, each role is clearly defined and is quite distinct from one another. Chairman – Leads the Board, sets the agenda and promotes a culture of open debate between Executive and Non-Executive Directors; – Regularly meets with the Chief Executive and other senior management to stay informed; and – Ensures effective communication with our stakeholders. Senior Independent Director – Provides a sounding board to the Chairman and appraises his performance; – Acts as intermediary for other Directors, if needed; and – Is available to respond to shareholder concerns when contact through the normal channels is inappropriate. Non-Executive Directors – Contribute to developing our strategy; and – Scrutinise and constructively challenge the performance of management in the execution of our strategy. Chief Executive – Leads the business, implements strategy and chairs the Executive Committee. Chief Financial Officer – Responsible for the preparation and integrity of our financial reporting. Company Secretary – Assists the Chairman by organising induction and training programmes and ensuring that all Directors have full and timely access to all relevant information; – Ensures that the correct Board procedures are followed; and – 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. The Board is collectively responsible for the oversight and success of our business. The Board discharges some of its responsibilities directly and others through its principal Board Committees and through management. The Matters Reserved for the Board and Committee Terms of Reference were last reviewed in March 2018 and are available on our website. Our new brand positioning strategy Given the strategic significance of the new brand positioning, the Board was involved with its development and launch: Development The Board was fully briefed as our new brand strategy was being developed which included: Approval The new brand positioning strategy was approved by the Board at its July 2017 meeting. – Holding in-depth discussions over several months as the new brand strategy was developed; – Several presentations were provided to the Board, noting the progression being made by the brand team; and – Providing challenge and guidance to the brand team, which enabled them to refine the brand strategy. Launch On 5 October 2017, the new brand strategy was launched across all 36 countries in which the Vodafone brand is present. Review The Board was provided an update at its March 2018 meeting which highlighted the success of the new brand strategy launch. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 54 Board activities What the Board did this year Board activities are structured to develop the Group’s strategy and to enable the Board to support executive management on the delivery of it within a transparent governance framework. The table below sets out the key areas of focus for the Board’s activities and topics discussed during the year. Areas of Board focus Strategy and markets Regular updates were provided by management on strategic and commercial priorities including the development of the new brand strategy and updates on the Customer eXperience eXcellence (‘CXX’) programme People and culture The Board was given regular updates on talent and succession plans, reward structures and Group HR Policy. Results of the annual employee engagement survey were also reported to the Board Quarter 1: April–June Quarter 2: July–September Key issues and highlights – Key business developments Key issues and highlights – Key business developments – Commercial: strategic priorities update – Consumer: the brand refresh and consumer IoT – Principal risk review, including a focus on Brexit Annual matters Annual matters – Approval of the Annual Report and Notice of AGM – Group insurance renewal – Annual compliance and risk reports – Presentation from the Group HR Director, including the talent – Year end assessment of internal control systems – Approval of the Modern Day Slavery Statement – Recommendation of the final dividend – Treasury report Deep dives, updates and training – Local market focus: India – Technology 2020 strategy briefing – Investor relations report Other meetings held – Audit and Risk Committee – Remuneration Committee – Nominations and Governance Committee and succession planning report – Presentation from the Group External Affairs Director – US shelf registration Deep dives, updates and training – Local market focus: Vodacom – Local market focus: Germany – CXX update – Investor relations report – Annual Director share dealing training Other meetings held – AGM – Audit and Risk Committee – Remuneration Committee – Chairman and Non-Executive Directors met without the – Nominations and Governance Committee Executive Directors present – Chairman and Non-Executive Directors met without the Executive Directors present Vodafone Group Plc Annual Report 2018Governance Vodafone Group Plc Annual Report 2018 55 Performance The Board received updates from management on the performance of the business and on financial performance Governance, risk and regulatory Regular reports were provided by the Board’s principal Committees, with oversight of the governance and risk management frameworks Quarter 3: October–December Quarter 4: January–March Key issues and highlights – Key business developments Key issues and highlights – Key business developments – Commercial: Brand update and 2019 Commercial Strategy – Executive Director succession Annual matters Annual matters – Approval of the half-year results, interim dividend and Vodafone’s – Approval of the 2018/19 budget and long-term plan risk tolerance – Review of the Group’s security risk – Electromagnetic field risk report – Health & safety report – Litigation report – Treasury report – Matters reserved for the Board and Committees’ terms of reference – Risk report – Board effectiveness review – Approval of the Directors’ conflicts of interests Deep dives, updates and training Deep dives, updates and training – Local market focus: Spain – Investor relations report – Local market focus: UK and Europe (the smaller local markets including The Netherlands) – Vodafone Foundation update and funding Other meetings held – Audit and Risk Committee – Enterprise strategy update – Investor relations report Other meetings held – Audit and Risk Committee – Nominations and Governance Committee – Nominations and Governance Committee – Remuneration Committee – Remuneration Committee – Chairman and Non-Executive Directors met without the – Chairman and Non-Executive Directors met without the Executive Directors present Executive Directors present – Led by the Senior Independent Director, the Non-Executive Directors met to appraise the Chairman’s performance OverviewStrategic ReportGovernanceFinancialsOther information 56 Board effectiveness Board induction and development We are committed to ensuring that our Directors have a full understanding of all aspects of our business to ensure they are effective within their roles, through their induction and on-going training. Board induction We have a comprehensive induction programme in place for our newly appointed Directors. Each new Director is provided with a tailored programme which includes site visits and meetings with other members of the Board, Executive Committee members and senior management and also covers the Board Committees that they are joining. On joining the Board, Amparo Moraleda was provided with a detailed induction programme, which was designed to ensure she quickly gained a full understanding of the Group, including our business, culture and values, strategy, governance and financial position. You can read more about Amparo’s induction programme below. On completion of the induction programme, all new Directors should have sufficient knowledge and understanding of the business to enable them to effectively contribute to strategic discussions and oversight of the Group. Amparo Moraleda’s induction programme “ It’s essential to be able to make a valuable contribution and to gain a thorough understanding of the Group. My induction programme has ensured that I have the information and knowledge required to enable me to make an effective contribution to the Board.” Amparo Moraleda Non-Executive Director Appointed 1 June 2017 During the year, Amparo Moraleda joined the Board and her induction programme focused on enhancing her understanding of Vodafone and our business, including our markets, customers, competition, business opportunities and risks. Amparo’s induction programme included the following: Our business: – one-to-one meetings were held with the members of the Executive Committee to discuss our business, strategy and operations; – presentations were also given by the management teams of the Europe cluster, AMAP region and Enterprise business; and – visits were undertaken to the headquarters of Vodafone UK, a Vodafone UK store and Vodafone’s call centre in Stoke-on-Trent (UK). Our Board and governance structure: – training was provided on her duties as a Director and on Vodafone’s governance structure; – meetings were held with the Chairman and the Chairs of the Board’s principal Committees; and Our Group functions: Meetings were held with various Group senior managers to discuss: – Group strategy; – people strategy and remuneration; – technology and marketing; – legal and external affairs; – finance; – investor relations; and – risk. Our Audit and Risk Committee: As a member of the Audit and Risk Committee, specific meetings were also held, these included meetings with: – the Audit and Risk Committee Chair; and – attendance at the Morgan Stanley European Technology, Media and Telecom Investor Conference held in November 2017 and our 2017 AGM. – internal audit. Vodafone Group Plc Annual Report 2018Governance 57 Board training and development To assist the Board in undertaking its responsibilities, a programme of training and development is available to all Directors and training needs are assessed as part of the Board evaluation procedure. The Board programme includes regular presentations from management and informal meetings to build their understanding of the business and sector. This year the Board held its strategy day at our Düsseldorf offices, which enabled them to meet with senior managers of Vodafone Germany and to receive product demonstrations. In addition, individual Directors are given the opportunity to visit other local markets. During the year, Non-Executive Directors visited Ireland, Italy, Luxembourg, New Zealand, Singapore, South Africa and Spain. During these visits, meetings were held with local management teams and included site tours. Directors were able to gain greater understanding and insight into particular issues faced by the business in those regions. Directors who visited a local market were positive about the opportunity to improve the breadth and depth of their knowledge of Vodafone and to engage on an individual level with senior management in the respective market. Several deep-dive sessions were held during Board meetings, these sessions focused on the Indian, Vodacom, European and Spanish markets and the commercial operations of the Group. During the year, our Directors also received regular updates which included consumer, customer service, network and share dealing rules. The Board also received reports from the Group General Counsel and Company Secretary on current legal and governance issues. Specific and tailored updates were provided by external advisers and management to both the Audit and Risk and Remuneration Committees. Key themes included trends and changing disclosure requirements regarding financial and narrative reporting, accounting and auditing standards and remuneration developments. All Directors have access to the advice and services of the Group General Counsel and Company Secretary. Directors may take independent legal and/or financial advice at the Company’s expense when it is judged necessary in order to discharge their responsibilities effectively. No such independent advice was sought in the 2018 financial year. Local market focus: Vodafone Germany and the Mission to the Moon project As part of this project, Vodafone Germany will be working with Nokia and PTScientists to create the first 4G network on the moon. Vodafone’s 4G network will enable the first live-streaming of HD video from the moon’s surface to a global audience. During the Board’s meeting held in Düsseldorf, a demonstration was given of the new technology being developed as part of this project along with a project presentation from senior management from Vodafone Germany. The demonstration of this project allowed the Board to see first-hand the innovative work being undertaken in a local market and is a good example of how Vodafone is developing new and exciting mobile network infrastructure. It allowed the Board to gain a better insight into that local market. As outlined on pages 60 and 61, an action from the 2017 Board evaluation was to ensure that the Board was provided with opportunities to enhance its engagement with local markets and this is one example of such activities. 60 See pages 60 and 61 for further details of the Board evaluation process Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 58 Engaging with our stakeholders Committed to maintaining good communications We are committed to maintaining good communications and building positive relationships with all our stakeholders as we see this as fundamental to building a sustainable business. – We rely on more than 15,000 suppliers, ranging from small businesses and start-ups to multinational companies; – Every year we hold Supplier Safety Forums to share best practice and discuss ways to reduce safety risks in our supply chain; and – This year, Vodafone and three other operators set up a supplier academy, focusing on training to help them assess and improve the social, ethical and environmental performance issues inherent within supply chains. 34 Read more about how we work with our suppliers to mitigate human rights risks on page 34 Our suppliers 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. What our shareholders have asked us this year Common topics raised by our institutional and individual shareholders include: 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 Deutsche Bank (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. Institutional shareholder meetings We hold meetings with major institutional shareholders, 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 shareholders also meet with the Chairman to discuss matters of governance. Our investor calendar – Cash flow generation, capital intensity, debt, and dividend cover; – Rationale for the Liberty Global transaction; – 5G investment and business case; – Regulation in Europe and emerging markets; – Vodafone India and Idea Cellular merger; and – Administration of shareholding. AGM Our AGM 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. Representatives from investor relations and customer services are available before and after the meeting to answer any additional questions shareholders may have. May 2017 August 2017 November 2017 – Roadshows in London, Edinburgh, Netherlands, – Roadshows in Austin, Houston, Dallas, Kansas, Boston, New York, Chicago, Los Angeles, San Francisco, Toronto, Pittsburgh, and Milan – Investor conference with JP Morgan in London June 2017 – Chairman’s London Roadshow – Roadshows in Abu Dhabi, Frankfurt and Switzerland Singapore and Hong Kong – Investor conference with Credit Suisse in London September 2017 – Roadshow in Madrid – Investor conferences with Deutsche Bank in London, with Goldman Sachs in New York and with Bernstein in London – Bank of America Merrill Lynch Summer TMT – Analyst and investor Open Office event in Venice Conference in London – Investor conference with Exane in Paris – Roadshows in London, Netherlands, Edinburgh, Frankfurt, Switzerland, Paris, Boston, New York, Toronto, Los Angeles, Portland and San Francisco – Morgan Stanley European TMT conference in Barcelona December 2017 – Investor conference with Berenberg in Surrey March 2018 – Roadshow in Atlanta – Investor conference with Deutsche Bank in Palm Beach – Citi European & Emerging Telecoms conference Vodafone Group Plc Annual Report 2018Governance 59 – We engage with regulators and governments to inform the policy frameworks that affect our customers, investments and competitive stance; – In April 2017, we organised a stakeholder event with European Union institutions to advocate for future-proof gigabit networks in the context of the European Electronic Communications Code; and – In March 2018, we engaged with policy makers through a high-profile event to launch our international Future Jobs Finder programme, What will you be? 40 Read more about how we mitigate political and regulatory risk on page 40 Our people Regulators and governments Our local communities – Our products and services are found in local communities everywhere we operate, and range from remote villages to capital cities; – We work to understand and address any public concerns about the location of our base stations. This year in South Africa, Vodacom engaged with stakeholders on over 40 separate occasions on this topic; and – Our local businesses support the communities in which they operate in many different ways. For example, this year in the Czech Republic, we ran a public “Giving Tuesday” campaign to raise money for a local health charity. Read more about our approach to mobiles, masts and health at vodafone.com/mmh – Our business performance depends on our ability to attract, develop and retain talented individuals at all levels. This year, we employed an average of 103,564 people with 136 nationalities; – 88% of our employees responded to our annual global people survey. Of those, 87% stated that they are proud to work for Vodafone; and – In March 2018, a week-long campaign to recognise and support International Women’s Day engaged more than 17,000 employees. 36 Read more about how we engage with our employees on page 36 Our customers – Our customers range from individuals living in some of the world’s poorest communities to some of the world’s largest multinational companies; – Our Customer eXperience eXcellence (‘CXX’) programme drives how we engage with customers to help us deliver an outstanding and differentiated user experience; and – Every time a customer contacts us we measure their satisfaction through our “touchpoint net promoter score”. In the UK, this year we increased this rating to its highest ever level. 11 Read more about our CXX programme on page 11 Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 60 Board evaluation Continually monitoring and improving our performance The Board recognises that it continually needs to monitor and improve its performance. This is achieved through the annual performance evaluation, full induction of new Board members and ongoing Board development activities. The conclusions of this year’s review have been positive and confirmed that the Board and its Committees operate effectively and that each Director contributes to the overall effectiveness and success of the Group. Our three-year Board evaluation cycle Board expertise 2017 Internal evaluation: with the assistance of Lintstock Limited (‘Lintstock’), a London- based firm, which has no other connection with Vodafone. 2019 External evaluation: further details will be provided in next year’s report. 2018 Internal evaluation: with the assistance of Lintstock a questionnaire was completed by the Board. The Chairman presented the conclusions from the evaluation to the Board which were discussed and actions for the forthcoming year were agreed. The Senior Independent Director met with the other Non-Executive Directors and with the Executive Directors to review the Chairman’s performance and met the Chairman to provide feedback. The Chairman provided feedback to each Director on their individual contributions to the Board and considered their development priorities. Progress against 2017 actions The Directors continued to build their knowledge of the Company’s Enterprise business and Enterprise content assets. To enable the Board to do this, additional time was dedicated to the Enterprise business during Board meetings. This year’s findings Following the work undertaken as a result of last year’s evaluation, the Board positively rated its understanding of the Company’s Enterprise business. However, as the business is evolving it was recognised that there would be merit in hearing more about the Enterprise business on a regular basis. In addition, with the rapid changes in digital and technological developments, more time should be dedicated to this area. Action for 2019 The annual Board calendar would be reviewed to consider additional opportunities for Directors to further enhance their knowledge of the Enterprise business and keep updated on digital and technological developments. 57 See page 57 for details of the Mission to the Moon project Vodafone Group Plc Annual Report 2018Governance 61 Board composition Board training and development Strategy Progress against 2017 actions Progress against 2017 actions Progress against 2017 actions It was identified that the Board would benefit from adding further financial expertise. This led to the search for a new Non-Executive Director with the identified relevant skill set. This process resulted in the appointment of Michel Demaré in February 2018. It was recognised that Board members would benefit from more opportunities to take part in site visits and be offered more one-to-one interactions with members of the executive team. Regular local market visits were arranged with the executive team, which all Board members were invited to attend. These visits enabled the Directors to gain further insight into the local markets and build relationships with senior management. The Board identified that the balance between the Company’s focus on organic growth and on portfolio management needed to be carefully managed. This year’s findings This year’s findings This year’s findings The Board’s composition was positively rated as part of this year’s evaluation. The Board remains intent on ensuring its composition has the diversity and skills required to be effective. The Board induction programme was highly regarded by Directors, in addition, the deep dives which are provided at Board meetings, were rated as excellent. As part of this year’s evaluation outcomes, it was acknowledged that on-going training, particularly on developments in technology was needed. Improvement has been made to the balance between the Company’s focus on organic growth and on portfolio management, but remains an area which needs to be kept under constant review. Action for 2019 Action for 2019 Action for 2019 The Board will consider opportunities to use its natural life-cycle to address the identified skills gaps to ensure that the Board’s composition is aligned with the Company’s strategic goals. Efforts will be made to ensure all Directors are provided with relevant on-going training and that they receive the support they need to remain effective in their role. When deciding the agenda for Board meetings during the year, the Chairman and Chief Executive will keep in mind the need to balance focus on organic growth and portfolio management. 63 See page 63 for details of Michel’s appointment process 57 See page 57 for details of the Board’s overseas meeting and local market visits 54 See pages 54 and 55 for details of the Board’s activities during the year Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 62 Nominations and Governance Committee The Nominations and Governance Committee (‘the Committee’) continues its work of ensuring that the Board composition is right and that our governance is effective. Chairman Gerard Kleisterlee Chairman of the Board Members Sir Crispin Davis Valerie Gooding Renee James 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: – Assessing the composition, structure and size of the Board and its Committees and making recommendations on appointments to the Board; – Responsibility for Board and senior executive succession planning; – Overseeing the performance evaluation of the Board, its Committees and individual Directors; and – Monitoring developments in all matters relating to corporate governance, bringing any issues to the attention of the Board. The Committee is composed solely of independent Non-Executive Directors. The Committee met six times during the year and attendance by members at Committee meetings can be seen on page 53. Committee meetings were attended by Committee members, with other individuals and external advisers invited to attend all or part of the meetings as appropriate. The chart below illustrates how the Committee allocated its time during the year. Nominations and Governance Committee allocation of time (%) 1 Corporate governance matters 15% 2 Board and Committee composition 15% 4 5 1 3 Succession planning and talent 55% 4 Board effectiveness 5 Other 12.5% 2.5% 2 3 The terms of reference of the Committee, which were reviewed in March 2018, are available on the Vodafone website at vodafone.com/governance. 3 Dear Shareholder, On behalf of the Board, I am pleased to present the Nominations and Governance Committee’s report for the year ended 31 March 2018. This year, the Committee welcomed two new members, Sir Crispin Davis and Renee James and our main focus has been the succession of Executive Directors and Board composition. The process we followed for identifying our new Chief Executive and Chief Financial Officer is set out on page 63. As I said in my Chairman’s letter on page 3, on behalf of the Board, I would like to record our gratitude to Vittorio Colao for an outstanding tenure and to express our confidence in Nick Read and Margherita Della Valle in their new roles. It is a testament to the strength and depth of the Vodafone senior management and leadership team that these appointments have been made from within the Company. The Committee is also delighted to welcome two new Non-Executive Directors to the Board, Amparo Moraleda and Michel Demaré. An insight into the Committee’s appointment process for Michel can be found on page 63 and the induction programme for Amparo is shown on page 56. To find the most suitable candidates for the Board, the Committee considers the skills and experience required to align the Board’s composition with the Company’s strategic goals whilst maintaining an appropriate level of diversity. The Committee also ensures that initiatives are in place to develop the talent pipeline. As Chairman of the Committee, I take an active role in overseeing the progress made towards improving diversity in appointments to the Board, Executive Committee and senior management in a way that is consistent with the long-term strategy of the Group. The Committee will continue to monitor the balance of the Board to ensure that broad enough expertise is available from the existing members, and will recommend further appointments if desirable. Changes to the Board and Committees Following the 2017 AGM, Valerie Gooding became the Senior Independent Director and David Nish became Chairman of the Audit and Risk Committee. Amparo was appointed on 1 June 2017 and Michel joined the Board on 1 February 2018. Michel will join our Remuneration Committee with effect from 27 July 2018. As previously announced, at our AGM on 27 July 2018 Dr Mathias Döpfner will not seek re-election after more than three years of service and Margherita will be appointed as a Director and Chief Financial Officer. On 30 September 2018 Vittorio will step down as the Chief Executive and as a Director and will be succeeded by Nick. Assessment of the independence of the Non-Executive Directors The Committee and the Board are satisfied that the external commitments of the Non-Executive Directors and of me, your Chairman, do not conflict with our duties and commitments as Directors of the Company. Our Directors must: report any changes to their commitments to the Board; notify the Company of actual or potential conflicts or a change in circumstances relating to an existing authorisation; and complete an annual conflicts questionnaire. Any conflicts identified are considered and, as appropriate, authorised by the Board. A register of authorised conflicts is reviewed periodically. The Committee reviewed the independence of all the Non-Executive Directors. All are considered independent and they continue to make effective contributions. The Committee recognises that Samuel Jonah has served on the Board for more than nine years but remain confident that Samuel continues to demonstrate independent character and judgement in carrying out his role. All Non-Executive Directors have submitted themselves for re-election at the 2018 AGM, with the exception of Mathias. Michel and Margherita will be elected for the first time in accordance with our Articles of Association. The Executive Directors’ service contracts and Non-Executive Directors’ appointment letters are available for inspection at our registered office and at our AGM. Vodafone Group Plc Annual Report 2018Governance 63 Board evaluation The Committee oversaw the internal evaluation of the Board and Committees, details of the review and actions to be taken over the next 12 months can be found on page 60. Succession planning In addition to the succession planning for Board roles, the Committee received several presentations during the year from the Chief Executive and Group Human Resources Director on succession planning for senior management. Potential successors have been identified for the top senior management positions and the Committee reviewed these plans during the year. The Committee is satisfied that adequate succession planning is currently in place for the Executive Directors and senior management, and will continue to review succession planning and monitor the progress and success of the development plans which have been established for relevant employees. The Committee also monitors a schedule on the length of tenure, skills and experience of the Board. Diversity The Committee through Vodafone’s Board Diversity Policy is committed to supporting diversity and inclusion in the Boardroom. This includes diversity of skills and experience, age, gender, disability, sexual orientation, gender identity, cultural background and belief. The Committee annually reviews and agrees the Board Diversity Policy and monitors the progress made at the Board and management and leadership levels during the financial year. The Committee also monitors Vodafone’s compliance with the targets outlined in the Davies Report and Hampton-Alexander Review and I am pleased to report that following Amparo’s appointment on 1 June 2017, 33% of our Board roles are currently held by women. This exceeds the 25% target set out in the Davies Report and meets the 2020 target set out in the Hampton-Alexander Review. Our long-term ambition is to increase diversity on our Board in all forms, which is supported by our Board Diversity Policy. Our Board diversity statistics can be found on page 49. Diversity extends beyond the Boardroom and the Committee supports management in its efforts to build a diverse organisation. Currently 29% of our management and leadership roles are held by women and we would like this to increase to at least 30% by 2020. Governance The Committee receives updates on corporate governance developments during the year and has considered the impact of those developments on Vodafone. The Committee also reviewed Vodafone’s compliance with the 2016 UK Corporate Governance Code and was satisfied that Vodafone complied with the Code during the year. Gerard Kleisterlee On behalf of the Nominations and Governance Committee 15 May 2018 Appointment process When considering the recruitment of new Directors, the Committee adopts a formal and transparent procedure with due regard to the skills, knowledge and level of experience required as well as diversity. Executive Directors In anticipation of Vittorio Colao’s decision to step down from his role as Chief Executive, the Nominations and Governance Committee stepped up its regular succession planning process and established a succession planning subcommittee comprising me, your Chairman, who led the subcommittee, David Nish, Sir Crispin Davis, Valerie Gooding and, until his retirement from the Board, Phil Yea. The subcommittee was supported by Egon Zehnder which is independent of, and only provides talent services to, the Company. The succession process involved Egon Zehnder undertaking assessments of, and providing a development programme for, potential internal candidates and identifying potential candidates in the external market. The subcommittee met six times and extensively discussed the merits of the external and internal candidates. It concluded that the Company had very strong internal candidates and that making an internal appointment would best serve continuity in leadership which was important. The subcommittee met repeatedly with the internal candidates and had several in-depth interviews with the leading contender. The Board concurred with the subcommittee’s recommendations and as a result on 27 July 2018 Nick Read will be appointed as Chief Executive Designate until 1 October 2018 when he will become the Chief Executive in succession to Vittorio Colao. On 27 July 2018 Margherita Della Valle, currently Deputy Chief Financial Officer, will be appointed Chief Financial Officer and a Director. Nick Read To be appointed Chief Executive Designate on 27 July 2018 Margherita Della Valle To be appointed Chief Financial Officer and a Director on 27 July 2018 Non-Executive Directors During the search for a new Non-Executive Director, external search consultancy, Russell Reynolds Associates, was engaged to support with the recruitment process; they have no other connection with the Company other than providing recruitment services. Russell Reynolds Associates is an accredited firm under the Enhanced Code of Conduct for Executive Search Firms. Details of the different stages of the appointment process that the Committee followed in relation to the appointment process of Michel Demaré can be found below: Step 1 Step 2 Step 3 Step 4 Step 5 Engage with search consultancy and provide them with a search specification. Shortlisting of candidates by Committee. Interview process with Committee members and Chief Executive. Recommendation to the Board on the chosen candidate. Appointment terms drafted and agreed with the selected candidate. Michel Demaré Non-Executive Director Appointed 1 February 2018 Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 64 Audit and Risk Committee The Committee continues to play a key role in the governance over the Group’s financial reporting, risk management, control and assurance processes and the external audit. Chairman and financial expert David Nish (from 28 July 2017) Nick Land (to 28 July 2017) Members Sir Crispin Davis Dame Clara Furse Amparo Moraleda (from 28 July 2017) David Nish Phil Yea (to 28 July 2017) Key objectives Providing oversight of the Group’s system of internal control, business risk management processes and related compliance activities, effective governance over the appropriateness of the Group’s financial reporting including the adequacy of disclosures and monitoring the performance of both the internal audit function and the external auditors, PricewaterhouseCoopers LLP (‘PwC’). Responsibilities – Monitoring the integrity of published financial information and reviewing significant financial reporting judgements, including providing advice to the Board on whether the Annual Report is fair, balanced and understandable and the appropriateness of the long-term viability statement; – Reviewing and monitoring the external auditors’ independence and objectivity and the effectiveness of the external audit; – Reviewing the Group’s internal financial controls, internal control systems, the work of the Internal Auditor and compliance with section 404 of the US Sarbanes-Oxley Act; and – Monitoring the Group’s risk management system and reviewing the principal risks facing the Group, including the management and mitigation of those risks. The terms of reference of the Committee, which were updated in March 2018, are available on vodafone.com/governance. How the Committee operated The Committee met five times during the year and attendance by members at Committee meetings can be seen on page 53. We routinely conduct deep dive reviews, together with specific risk management activities as set out below: – in September and March, we assess issues affecting the Group’s half-year and year end reporting and approve the principal risks; – in November and May, we conclude this work and advise the Board on the Group’s external financial reporting; and – while each meeting has reviews of risk and compliance related matters, the January meeting is particularly focused on these. Meetings of the Committee generally take place the day before Board meetings and I report to the Board, as a separate agenda item, on the activity of the Committee and matters of particular relevance, with the Board receiving copies of the Committee minutes. The external auditors are invited to each meeting and I also meet with the external lead audit partner outside the formal Committee process throughout the year. The Committee also regularly meets separately with each of PwC, the Chief Financial Officer, the Group Risk and Compliance Director and the Group Audit Director without others being present. Dear Shareholder, On the following pages I have set out the Audit and Risk Committee’s report for the 2018 financial year which provides an overview of the areas considered by the Committee during the year. Through this report I am also aiming to give some insight into the Committee’s activities and its role in protecting the interests of our shareholders through ensuring the integrity of the Group’s published financial information and the effectiveness of its risk management, controls and related processes. This year has seen a number of changes to the Committee including: – my appointment as Chairman and financial expert, having recent and relevant financial experience for the purposes of the US Sarbanes- Oxley Act and the UK Corporate Governance Code; – the appointment of Amparo Moraleda, who brings her international business experience, engineering background and IT and technology expertise to the role; and – the departure of both Nick Land and Phil Yea, who did not seek re- election at the Company’s 2017 annual general meeting after more than ten years of service. On behalf of the Committee, I would like to thank both Nick and Phil for their years of service to Vodafone and to this Committee as well as for ensuring the smooth transfer of knowledge to myself and Amparo as part of the succession plan. We believe that the Committee as a whole continues to have competence relevant to the sector in which the Group operates. In addition to our standard annual work plan, this year the Committee has also focused on the following significant issues: – preparations for the adoption of IFRS 9 “Financial Instruments” and IFRS 15 “Revenue from Contracts with Customers” in the 2019 financial year and IFRS 16 “Leases” in the 2020 financial year, all of which will have a material effect on the Group’s accounting; – preparations for the adoption of EU General Data Protection Regulation, which comes into force on 25 May 2018; – the accounting, reporting and disclosure implications of the agreement to combine Vodafone India with Idea Cellular into a new joint venture; and – ensuring the continued independence of the Group’s external auditors. Looking ahead, these key areas are also likely to remain significant areas of focus for the Committee for the 2019 financial year. The Committee also performed a number of detailed in-depth reviews on the principal risks for the business, with risk owners discussing the mitigation and management of risks relating to cyber threat and information security, money laundering, sanctions, anti-bribery, technology failure, continuity and crisis management, IT transformation and telecommunications regulation compliance. Every three years the Board appoints an external organisation to perform an independent review of the Committee to evaluate its performance. The last review was performed in March 2016 and concluded that the Board members considered the Committee to be thorough and fully effective in meeting its objectives. The next review is expected to take place in March 2019. Additionally, an internal assessment facilitated by an independent third party, occurs annually. This reported positively on the functioning of the Committee for the current year. I am confident that the Committee has the necessary skills and experience to continue to meet the challenges ahead. David Nish On behalf of the Audit and Risk Committee 15 May 2018 Vodafone Group Plc Annual Report 2018Governance 65 The Committee received regular reports from management on the programmes for the adoption of 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 for the years ending 31 March 2019 and 2020 respectively. The implementation programmes for these new accounting pronouncements continued to progress satisfactorily during the year, with the Committee remaining focused on the key decision points relating to the choice of IT system, systems integration, the methodology in which the standard would be adopted and programme resourcing. Following discussions with management and the external auditors, the Committee approved the disclosures of these accounting policies and practices which are set out in note 1 “Basis of preparation” to the consolidated financial statements, including further qualitative and quantitative detail on the impacts of IFRS 9, 15 and 16. Significant judgements The areas of focus considered and actions taken by the Committee in relation to the 2018 Annual Report, which have been revised to remove the Group’s change in presentation currency from sterling to the euro which was completed in the 2017 financial year, are outlined below. We discussed these with the external auditors during the year and, where appropriate, these have been addressed as areas of audit focus as outlined in the Audit Report on pages 93 to 101. Financial reporting The Committee’s primary responsibility in relation to the Group’s financial reporting is to review, with both management and the external auditors, the appropriateness of the half-year and annual financial statements concentrating on, amongst other matters: – the quality and acceptability of accounting policies and practices; – material areas in which significant judgements have been applied or where significant issues have been discussed with the external auditors; – providing advice to the Board on the form and basis underlying the long-term viability statement; – the clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance reporting requirements; – any correspondence from regulators in relation to our financial reporting; and – an assessment of whether the Annual Report, taken as a whole, is fair, balanced and understandable. 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; – new accounting pronouncements, including the adoption of IFRS 9, IFRS 15 and IFRS 16; and – proposed disclosures of these in the 2018 Annual Report. Area of focus Actions taken/conclusion Revenue recognition The timing of revenue recognition, the recognition of revenue on a gross or net basis and the treatment of discounts, incentives and commissions are complex areas of accounting. In addition, there is heightened risk in relation to the accounting for revenue as a result of the inherent complexity of newly introduced systems and changing pricing models. See note 1 “Basis of preparation”. 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. See note 29 “Contingent liabilities and legal proceedings”. Further, the Group has extensive accumulated tax losses and a key management judgement is whether a deferred tax asset should be recognised in respect of these losses. See note 6 “Taxation”. The Committee challenged management over the basis of revenue accounting, with management confirming that revenue reporting remained consistent with prior years. The Committee also reviewed PwC’s audit plan which identified the primary risks attaching to the audit of revenue to be: – the controls over the underlying accuracy of billing systems; and – 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 was satisfied with the appropriateness of 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 2017 and May 2018 Committee meetings. He also provided an update on upcoming changes in the wider tax landscape that were potentially relevant to the Group. PwC also identified this as an area of higher audit focus. The Committee challenged both management and PwC on the legal judgements underpinning both the provisioning and disclosures adopted in relation to material elements of taxation contingent liabilities and the IFRS basis of, and operating assumptions underlying, the deferred tax assets recognised at the year end. The Committee was satisfied with the approach adopted by management to the recognition of income tax and deferred tax balances and related disclosure in the financial statements. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 66 Audit and Risk Committee (continued) Area of focus Actions taken/conclusion The Committee received detailed reporting from management and challenged the appropriateness of the assumptions made, including: – the consistent application of management’s methodology; – the achievability of the business plans; – assumptions in relation to terminal growth in the businesses at the end of the plan period; and – discount rates. This remains an area of audit focus and PwC provided detailed reporting on these matters to the Committee, including sensitivity testing. The Committee was satisfied with both the appropriateness of analysis performed by management (including the judgements made and estimates used) and the impairment related disclosures. The Committee received a presentation from the Group’s General Counsel and Company Secretary and the Director of Litigation in both November 2017 and May 2018 on management’s assessment of the most significant claims. As this is an area of audit focus, PwC 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 PwC on the level of provisioning for legal claims, requesting additional details where relevant. The Committee was satisfied that the amounts recorded in the financial statements appropriately reflect the risk of loss. Regulators and our financial reporting There has been no correspondence from regulators, including the FRC’s Corporate Reporting Review team, in relation to our financial reporting during the 2018 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, including FRC Labs projects on “Digital Future”, “Risk and Viability reporting”, “Dividend policy and practice” and “Reporting on Performance Metrics”. Impairment testing The judgements in relation to impairment testing continue to relate primarily to the assumptions underlying the calculation of the value in use of the Group’s businesses, being the achievability of the long- term business plans and the macroeconomic and related modelling assumptions underlying the valuation process. At 31 March 2017 and 2018 these judgements were extended to include the assessment of the fair value of Vodafone India following the announcement of the agreement to combine into a new joint venture with Idea Cellular and its treatment as a discontinued operation valued at fair value less costs to sell. The fair value of Vodafone India was reduced at 31 March 2018 giving rise to a non-cash charge of €3.2 billion (€2.2 billion net of tax). See note 4 “Impairment losses”. 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 legal and management judgements are important and accordingly an area of Committee focus. See note 29 “Contingent liabilities and legal proceedings”. 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, the Committee reviews the processes and controls that underpin its preparation, ensuring that all contributors, the core reporting team and senior management are fully aware of the requirements and their responsibilities. This includes reviewing the use and disclosure of alternative performance measures (or “non-GAAP” measures) and the financial reporting responsibilities of the Directors under section 172 of the Companies Act 2006 to promote the success of the Company for the benefit of its members as a whole as well as meeting the needs of wider society. In addition to reviewing an early draft of the Annual Report to enable timely review and comment, the Committee also takes an active role in reviewing financial results announcements as well as drawing on the work of the Group’s Disclosure Committee, which reviews and assesses the Annual Report and investor communications. These processes allowed us to provide positive assurance to the Board to assist them in making the statement required by the 2016 UK Corporate Governance Code. Vodafone Group Plc Annual Report 2018Governance 67 Long-term viability statement As part of the Committee’s responsibility to provide advice to the Board on the form and basis underlying the long-term viability statement as set out on pages 44 and 45, the Committee reviewed the process and assessment of the Group’s prospects made by management, including: – the review period and alignment with the Group’s internal long-term forecasts; – 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; – the modelling of the financial impact of certain of the Group’s principal risks materialising using severe but plausible scenarios; and – ensuring clear and enhanced disclosures in the Annual Report as to why the assessment period selected was appropriate to the Group, what qualifications and assumptions were made and how the underlying analysis was performed, consistent with recent FRC pronouncements. External audit The Committee has primary responsibility for overseeing the relationship with, and performance of, the external auditors. This includes making the recommendation on the appointment, reappointment and removal of the external auditors, assessing their independence on an ongoing basis, involvement in fee negotiations, approving the statutory audit fee, the scope of the statutory audit and approval of the appointment of the lead audit engagement partner. Tenure PwC were appointed by shareholders as the Group’s external auditors in July 2014 following a formal tender process. The audit will be put out to tender at least every ten years. The lead audit partner, Andrew Kemp, has held the position for three years and will be required to step down following the completion of the 2019 audit. The Committee has recommended that PwC be reappointed under the current external audit contract for the 2019 financial year and the Directors will be proposing their reappointment at the AGM in July 2018. The Company has complied with the Statutory Audit Services Order 2014 for the financial year under review. Audit risk The audit risk identification process is considered a key factor in the overall effectiveness of the external audit process and during the 2018 financial year we received a detailed audit plan from PwC identifying their audit scope, planning materiality and their assessment of key risks which are set outlined in the Audit Report on pages 93 to 101. The key audit risks for the 2018 financial year, were unchanged from the 2017 financial year except for: – a new risk relating to the accuracy of share of results from joint ventures following the merger of Vodafone’s and Liberty Global’s operating businesses in the Netherlands; – the implications of the agreement to combine Vodafone India with Idea Cellular into a new joint venture; and – the removal of the risk relating to the change in the Group’s presentation currency from sterling to the euro. These risks are regularly reviewed by the Committee to ensure the external auditors’ areas of audit focus remain appropriate. Effectiveness of the external audit process The Committee reviewed the quality of the external audit throughout the year and considered the performance of PwC, taking into account the Committee’s own assessment and feedback, 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 the auditors on their performance against their own performance objectives and the firm-wide audit quality inspection report issued by the FRC in June 2017. Based on these reviews, the Committee concluded that there had been appropriate focus and challenge by PwC on the primary areas of the audit and that they had applied robust challenge and scepticism throughout the audit. Consequently, as noted above, the Committee has recommended to the Board that they be reappointed at the AGM in July 2018. Independence and objectivity In its assessment of the independence of the auditors 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 PwC 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’). During the 2017 financial year, we were notified by our lead audit partner that a company, for which a number of PwC partners were acting as administrators, was considering litigation against the Group. The Committee, in consultation with the Group’s legal advisers, reviewed the implications on audit independence from the roles played by PwC’s partners as administrators and PwC as the Group’s statutory auditors in the context of relevant regulations and ethical standards. Further, the Committee consulted with the UK Financial Reporting Council and a number of institutional investors. To address any potential threat to their audit independence, PwC put in place a number of safeguards including ensuring both the administration and audit teams were physically separate and had no interactions, that working papers and other highly confidential material were separately stored with highly restricted access and that the lead group engagement partner would be solely responsible for the audit implications of the potential litigation. In response, we requested that both PwC’s Compliance Department and its independent non- executives provide oversight of the effectiveness of the safeguards put in place and report to the Committee on these safeguards on a regular basis. PwC confirmed to the Committee that these safeguards were in place, were monitored internally and operated effectively throughout the year. The Committee concluded that this position, which remained materially unchanged during the year, was not prohibited and PwC remained independent for the purposes of the audit for the 2018 financial year. Audit fees For the 2018 financial year, the Committee considered the ongoing fee proposal, was actively engaged in agreeing audit scope changes and, following the receipt of formal assurance that their fees were appropriate for the scope of the work required, agreed a charge from PwC and related member firms of €21 million for statutory audit services. This included €5 million of fees in respect of advance audit procedures in relation to the forthcoming implementation of IFRS 15 “Revenue from Contracts with Customers” and IFRS 16 “Leases”. See note 3 “Operating profit” for further details. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 68 Audit and Risk Committee (continued) Non-audit fees As one of the ways in which it seeks to protect the independence and objectivity of the external auditors, the Committee has a policy governing the engagement of the external auditors to provide non-audit services which precludes PwC from playing any part in management or decision making, providing certain services such as valuation work and the provision of accounting services. It also sets a presumption that PwC should only be engaged for non-audit services where there is no legal or practical alternative supplier and, consistent with recent UK regulation, includes a cap on the amount of non-audit fees that can be billed. For certain specific permitted services, the Committee has pre- approved that PwC can be engaged by management, subject to the policies set out above, and subject to: – a €60,000 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, pre-approve these permitted services. Non-audit fees were €5 million of which €1.4 million was for services where there was no legal alternative and €3.6 million for services where there was no practical alternative supplier. Non-audit fees represented 24% of audit fees for the 2018 financial year (2017: 22%, 2016: 11%). The amount for year ended 31 March 2018 includes non-recurring fees that were incurred during the preparations for a potential IPO of Vodafone New Zealand and the merger of Vodafone India and Idea Cellular. The amount for the year ended 31 March 2017 primarily arose from work on regulatory filings prepared in anticipation of a potential IPO of Vodafone India that was under consideration prior to the agreement for the merger of Vodafone India and Idea Cellular. See note 3 “Operating profit” for further details. 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. Internal audit The Internal Audit function provides independent and objective assurance over the design and operating effectiveness of the system of internal control, through a risk based approach. The function reports into the Group Audit and Risk Committee, and administratively to the Group Chief Financial Officer. The function is composed of teams across Group domains and local markets, allowing access to specialist skills through Group centres of excellence, as well as local knowledge and experience. The function has a high level of qualified personnel with a wide range of different professional qualifications and experience of working in professional practice. The Committee has a permanent agenda item to cover Internal Audit related topics. Prior to the start of each financial year the Committee reviews and approves the annual audit plan, assesses the adequacy of the budget and resources, and reviews the operational initiatives for the continuous improvement of the function’s effectiveness. The increased utilisation of data analytics has been a particular area of focus to provide deeper audit testing and drive increased confidence in test results. An external review takes place periodically to benchmark and assess the effectiveness of the function, with any improvement opportunities addressed. The Group Audit and Risk Committee reviews the progress against the approved audit plan and the results of audit activities, with focus on unsatisfactory audits results and “cross entity audits”, being audits performed across multiple markets with the same scope. Audit results are analysed by risk, process and geography to highlight movements in the control environment and areas that require attention. During the year, Internal Audit coverage was focused on principal risks, including cyber threat and information security, data privacy and GDPR readiness, technology resilience and the delivery of major IT transformation programmes. Relevant audit results are reported at the same time as the Committee’s in-depth review with the risk owner, which allows the Committee to have an integrated view on the way the risk is managed. Assurance was also provided in relation to key areas of the company “Code of Conduct” such as Health and Safety, Anti-bribery and Legal and Regulatory, as well as for the core financial processes such as Billing, Accounts Receivable and Sales Commissions. Dedicated focus has been put on the Enterprise operations, given the complexity of processes, products and services. The activities performed by the Share Service Centre in India also received specific attention due to their significant bearing on the effectiveness of overall global processes. Management are responsible for ensuring that issues raised by Internal Audit are addressed within the agreed timetable, and their timely completion is reviewed by the Committee. 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 38 to 45 and our review included reports from the Group Risk and Compliance Director, with whom I met regularly during the year, 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 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. 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 and any identified fraud included any involving management or employees with a significant role in internal controls as well as an external benchmark exercise of the Group’s compliance framework involving interviews, documentation reviews and comparisons to other FTSE 100 companies of a similar size, complexity and geographical footprint. Oversight of the Group’s compliance activities in relation to section 404 of the US Sarbanes-Oxley Act and policy compliance reviews also fall within the Committee’s remit. The Committee also maintains a programme of in-depth reviews that typically focus on the principal risks of the business, as well as areas of complexity and change. The deep dive schedule for the 2018 financial year was prepared giving consideration to coverage of the Group’s principal risks and, where possible, to align with Internal Audit reporting and the output of related cross-entity audits. There is an integrated assurance response to the Group’s principal risks review across the Group Internal Audit, Risk and Compliance teams. Principal risks not covered by these in-depth reviews were covered in the Board agenda during the 2018 financial year. Vodafone Group Plc Annual Report 2018Governance 69 Subject of in-depth review Anti-money laundering and M-Pesa, including the introduction of comprehensive anti- money laundering compliance programme in all markets operating M-Pesa and the implementation of a new watch list and transactional monitoring screening tool. Principle risk (see pages 38 to 45) Legal and regulatory compliance Sanctions and the Group’s risk tolerance relating to its existing relationships in high risk locations. Legal and regulatory compliance Technology resilience, including the Group’s continuing mobile resilience programme, the newer fixed resilience programme and the challenges related to building IT resilience. Technology resilience GDPR programme, including the implementation of a GDPR compliance programme as well as understanding its complexity and importance for delivering the Group’s digital telco strategy and being a trusted and admired brand. Effective data management Cyber threat and information security The Group’s business continuity and crisis management approach, training and governance processes, particularly as they relate to the business continuity plans for principal risks. Covers a number of principal risks Telecommunications regulation compliance programme designed to ensure that all local markets have governance processes in place to address regulatory requirements. Legal and regulatory compliance Vodacom Group risk and compliance overview, including the organisational structures to ensure programme compliance in South Africa and the international markets. Local market view of its principal risks IT transformation and the Group’s methodology which is being applied to all new IT transformation projects. Effective digital and technological transformation Anti-bribery, including the Group’s risk tolerance and anti-bribery and corruption processes. Legal and regulatory compliance Cyber security and information security and the Group’s processes to manage its risk tolerance. Cyber threat and information security 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 changes to the section 404 programme including scoping and the results of work performed. The scope of the Group’s section 404 compliance activities in 2018 were broadly similar compared to the 2017 financial year. The external auditors reported the status of their work in each of their reports to the Committee. In addition to these in-depth reviews, the Committee also received annual updates on: – the risk of fraud in the organisation and how it is being managed from the Group Corporate Security Director; – local market audit and risk committee activities and alignment with the Group Committee’s activities; and – 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. 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 2018 financial year and allowed us to provide positive assurance to the Board to assist it in making the statements required by the 2016 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. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 70 Remuneration Committee Following the approval of the Remuneration Policy at our 2017 AGM, the Committee has continued to ensure remuneration levels are determined in line with our principles and in the context of evolving external considerations. Chairman Valerie Gooding Members Dr Mathias Döpfner Renee James Samuel Jonah Key objectives: To assess and make recommendations to the Board on the policies for executive remuneration and reward packages for the individual Executive Directors. Responsibilities: – 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; – determining the total remuneration packages for these individuals including any compensation on termination of office; – operating within recognised principles of good governance; and – preparing an Annual Report on Directors’ remuneration. The Committee met five times during the year and each meeting had full attendance. The terms of reference of the Committee are available on vodafone.com/governance. Contents of the Remuneration Report 73 Remuneration Policy 74 The remuneration policy table 78 Chairman and Non-Executive Directors’ remuneration 79 Annual Report on Remuneration 79 Remuneration Committee 80 2018 remuneration 86 2019 remuneration 87 Further remuneration information Letter from the Remuneration Committee Chairman Dear Shareholder On behalf of the Board, I present our 2018 Directors’ Remuneration Report. This report includes both our current policy and details of how our remuneration arrangements were implemented during the year under review. Our current policy was last approved at the 2017 AGM where it received a vote in favour from shareholders of over 97%. I would like to take this opportunity to thank our shareholders for engaging in what was a constructive and two-way dialogue during the policy consultation. The relationship that exists between the Committee and our shareholders is greatly valued and we will work hard to ensure this continues. Whilst our recently approved policy has just completed its first year of implementation, the Committee will continue to monitor its effectiveness and appropriateness for our business. The policy was drafted to provide a degree of continuity in our arrangements and, subject to any compelling and currently unforeseen reason to the contrary, it is intended that the current policy will remain in place for its full three-year term. At the centre of this policy, and the decisions made by the Committee during the year, are our principles of: – ensuring our remuneration policy, and the manner in which it is implemented, drives the behaviours that support our strategy and business objectives; – 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; – 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; and – offering competitive and fair rates of pay and benefits. Strategic Priorities The Committee is fully aware of its responsibility in ensuring that remuneration arrangements support and drive our strategic priorities. These priorities are focused on leveraging our core programmes of Network Leadership, Customer eXperience eXcellence and Fit for Growth to build a sustainable competitive advantage. This advantage is set to be supported through the transformation of our business model via Digital Vodafone. This journey will ensure that we are equipped to compete in the Gigabit Society by allowing our growth engines of mobile data, fixed & converged and Enterprise to remain as competitive in the future as they are in the present. A core sign of our success along this journey will be how our customers judge our efforts. As such the importance of ensuring that the remuneration of management remains linked to customer satisfaction remained a priority for the Committee during this year’s review. The 40% weighting on customer appreciation KPIs under our short-term incentive will therefore remain in place for 2019 and will continue to be assessed robustly against a range of metrics (as detailed further on page 86). As communicated in previous years, cash generation continues to be the key driver of value creation. The Committee therefore continues to believe that including a cash flow measure in both our short-term and long-term incentive plans remains vital in emphasising where our financial priorities lie. Notwithstanding this, both service revenue and adjusted EBIT remain important metrics for ensuring an emphasis on cost discipline and will therefore continue to have an equal weighting with that of free cash flow under the GSTIP for the year ahead. Vodafone Group Plc Annual Report 2018Governance 71 Pay for Performance Over recent years the importance of cultivating a genuine “pay for performance” culture has been reflected in the wider market by the actions of shareholders who have used their votes to send clear messages to boards where they believe this principle has been neglected. performance was above target, reflecting the progress we are making across the business in this area. The combined performance under all of these measures during the year resulted in an overall payout of 64% of maximum. Further details on our performance under each measure can be found on pages 80 and 81 of the Annual Report on Remuneration. During consultations and conversations with our shareholders I have been pleased to see that the Committee’s robust annual approach to target setting is recognised. The Committee’s commitment to ensuring that exceptional outcomes are only warranted in the cases of exceptional performance continues to ensure that we deliver genuine variable pay, with the average payout over the last three years, including the year under review, for the GSTIP and GLTI being 56% and 45% of maximum respectively. Arrangements for the year ahead As has been announced, our Chief Executive, Vittorio Colao, has given notice to the Board of his wish to retire. Vittorio’s retirement will be effective 30 September 2018. His leaving arrangements will be in line with our shareholder approved remuneration policy and as such will include no additional elements outside of our normal approach to departing executives. Vittorio will not receive a GLTI award in 2018. Following the conclusion of our 2018 AGM, Nick Read (currently Chief Financial Officer) will be appointed Chief Executive-Designate, with Margherita Della Valle (currently Deputy Chief Financial Officer) being appointed to the Board as Chief Financial Officer. Nick Read will subsequently be appointed Chief Executive on 1 October 2018. Upon appointment to their new roles on 27 July 2018, Nick and Margherita will receive annual salaries of £1,050,000 and £700,000 respectively. This compares to current levels for these roles of £1,150,000 and £725,000 respectively. In addition, and in response to feedback we received during last year’s shareholder consultation, on 27 July 2018 the pension opportunity for both Nick and Margherita will be revised from the current level of 24% of salary to 10% of salary which will then be aligned with our wider UK population. When viewing these two changes together, the net result is a 19.0% decrease in fixed pay for the position of Chief Executive, and a decrease of 14.3% for the role of Chief Financial Officer. In the case of the Chief Executive the salary is lower than the level paid for the same role eight years ago. Further information on the forward-looking arrangements for Nick and Margherita can be found on pages 86 and 87 of the Annual Report on Remuneration. Finally, in respect of incentives, the Committee determined that no changes should be made to either the metrics or the weightings used under the short-term and long-term incentive plans. The Committee will continue to monitor these arrangements closely to ensure that the current measures and their respective weightings remain appropriate in future years. For 2018/19, Nick and Margherita will be eligible for incentives in line with our remuneration policy for their new respective positions. Remuneration outcomes during 2018 Annual bonus performance during the year was assessed against both financial and strategic measures. The former constituted 60% of total opportunity and consisted of the three equally weighted metrics of service revenue, adjusted EBIT and adjusted free cash flow. The latter constituted 40% of total opportunity and was linked to customer appreciation KPIs – the assessment of which looked at metrics including net promoter score, brand consideration, churn, revenue market share and ARPU. During the year service revenue performed in line with target, driven by strong performance in our European markets. Adjusted EBIT and free cash flow performed above target, with the UK business performing particularly well across both measures. Our Customer Appreciation KPI The 2016 Global Long-Term Incentive award was subject to free cash flow and TSR performance as measured over a three-year period ending 31 March 2018. The free cash flow measure finished below target during this period whilst TSR performance was above the median of our TSR peer group. Overall payout for the award was therefore 66.7% of maximum. Pay in the wider context During the year there were a number of external developments in the areas of gender pay and all employee pay more generally. For the former, this involved certain UK companies having to publish details of their gender pay gap for the first time, whilst for the latter this involved continued discussion around how corporate governance measures could be enhanced to ensure that employee conditions are appropriately considered when reviewing executive pay levels. The Committee was presented with information on both of these areas during the year and discussed our current positions as well as what activities were being undertaken to further improve our employee conditions. Our 2017 UK Gender Pay Gap can be found on our website at vodafone.com/sustainablebusiness/genderpay Our activity in the area of gender pay during the year was underlined by the work of our Chief Executive who is one of ten business leaders to actively champion gender equality as part of the UN HeForShe campaign. During the year we continued to engage in a number of activities to support the increase in the number of women in management roles including our ground-breaking global maternity policy and the world’s largest international programme to recruit women after a career break. In the wider area of all employee pay, we continue to undertake an annual Fair Pay exercise to ensure that employees across our markets are appropriately paid and, where issues are identified, that these are investigated and corrected. During the year the Committee also engaged with the consultation on future changes to UK corporate governance – in particular efforts to improve the “employee voice” and the likely future introduction of CEO pay ratios. In terms of the former, the Committee remains open to ideas on how to improve engagement with our employees and looks forward to seeing the final recommendations. In respect of the latter, given the current uncertainty regarding the methodology to be used, we do not plan to publish a ratio at this point but will of course comply with disclosure requirements once they are in place. The Committee will continue to monitor all external developments in these areas and respond as appropriate with the best interests of our stakeholders in mind. Finally, I would like to take this opportunity to thank Dr. Mathias Döpfner, who will be stepping down from the Board at the 2018 AGM, for his work and commitment whilst serving on the Committee. Michel Demaré will join the Committee on the same date as Mathias’ departure from it, and I look forward to the insight and experience that Michel will bring to his new role. Similarly, I would like to thank my fellow Committee members for their work during the year and look forward to working with them and you, our shareholders, in the year ahead. Valerie Gooding Chairman of the Remuneration Committee 15 May 2018 Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 72 Remuneration Committee (continued) Total target remuneration at a glance – 2018 compared to 2019 The below table illustrates the arrangements in place during the year under review (2018) compared to those which will be in place for 2019. 2018 (y/e 31 March 2018) 2019 (y/e 31 March 2019) Base salary Effective 1 July 2017: Chief Executive: £1,150,000 (no increase). Chief Financial Officer: £725,000 (1.5% increase). Effective 27 July 2018: Chief Executive: £1,050,000 (8.7% decrease to the role). Chief Financial Officer: £700,000 (3.4% decrease to the role). Benefits Travel related benefits and private medical cover. Travel related benefits and private medical cover. Pension Pension contribution of 24% of salary for all Executive Directors. Pension contribution of 24% of salary for all Executive Directors until 27 July 2018 from which date contributions will be reduced to 10% of salary for new executive incumbents. GSTIP Opportunity (% of salary): Target: 100% Maximum: 200% Opportunity (% of salary): Target: 100% Maximum: 200% Measures: Service revenue (20%), adjusted EBIT (20%), adjusted FCF (20%), and customer appreciation KPIs (40%). Measures: Service revenue (20%), adjusted EBIT (20%), adjusted FCF (20%), and customer appreciation KPIs (40%). GLTI Opportunity (% of salary): Target: Chief Executive – 230% Other Executive Directors – 210% Maximum: Chief Executive – 575% Other Executive Directors – 525% Opportunity (% of salary): Target: Chief Executive – 230% Other Executive Directors – 210% Maximum: Chief Executive – 575% Other Executive Directors – 525% Measures: Adjusted free cash flow (2/3 of total award) and TSR (1/3 of total award). Measures: Adjusted free cash flow (2/3 of total award) and TSR (1/3 of total award). Total target remuneration Chief Executive – £5.2m Chief Financial Officer – £3.2m Chief Executive – £4.6m Chief Financial Officer – £3.0m Shareholding guidelines Chief Executive – 500% of salary Chief Financial Officer – 400% of salary Include post-employment holding requirements. Chief Executive – 500% of salary Chief Financial Officer – 400% of salary Include post-employment holding requirements. Vodafone Group Plc Annual Report 2018Governance Remuneration Policy 73 No changes have been made to our policy since its approval at the 2017 annual general meeting which was held on 28 July 2017. 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 2017 Annual Report. As such, a few phrases (e.g. references to the 2017 annual general meeting and page number references) are now out of date. REMUNERATION POLICY (FIRST PUBLISHED IN THE 2017 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, including an indication of the potential future value of this package for each of the Executive Directors, and the policy applied to the Chairman and Non-Executive Directors. We will be seeking shareholder approval for our Remuneration Policy at the 2017 AGM and we intend to implement at that point. A summary and explanation of the proposed changes to the current remuneration policy is provided on pages 67 to 70. Subject to approval, we will review our policy each year to ensure that it continues to support our company strategy and 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 67 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 and a number of key governance stakeholders to comment on remuneration at Vodafone and to provide feedback on the proposed changes to the current policy which was approved at the 2014 AGM. A number of meetings between shareholders and the Remuneration Committee Chairman took place during this consultation period. Further details of this consultation are provided on pages 67 to 69 whilst a summary of the proposed changes to our current policy, which are incorporated in this revised Remuneration Policy section, is provided on page 70. Listening to and consulting with our employees is very important. This can take different forms in different markets but always includes our annual people survey which attracts very high levels of participation and engagement. We do not consult directly 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 74. 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 customer appreciation KPIs 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 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 has the discretion to use either malus or clawback as it sees appropriate. In the case of malus, 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. In the case of clawback, the Committee may recover bonus amounts that have been paid up to three years after the relevant payment date, or recover share awards that have vested up to two years after the relevant vesting date. The key trigger events for the use of the clawback arrangements include material misstatement of performance, material miscalculation of performance condition outcomes, and gross misconduct. Subject to approval of this Remuneration Policy, the clawback arrangements will be applicable to all future bonus amounts paid, or share awards granted, following the 2017 AGM. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 74 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 – To attract and retain the best talent. Pension – To remain competitive within the marketplace. Benefits – To aid retention and remain competitive within the marketplace. Operation – Salaries are usually reviewed annually and fixed for 12 months commencing 1 July. Decision is influenced by: – level of skill, experience and scope of responsibilities of individual; – business performance, scarcity of talent, economic climate and market conditions; – increases elsewhere within the Group; and – external comparator groups (which are used for reference purposes only) made up of companies of similar size and complexity to Vodafone. – Executive Directors may choose to participate in the defined contribution pension scheme or to receive a cash allowance in lieu of pension. – Travel related benefits. This may include (but is not limited to) company car or cash allowance, fuel and access to a driver where appropriate. – Private medical, death and disability insurance and annual health checks. – 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. – Legal fees if appropriate. – Other benefits are also offered in line with the benefits offered to other employees for example, our all-employee share plan, mobile phone discounts, maternity/paternity benefits, sick leave, paid holiday, etc. Opportunity Performance metrics – 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. – The pension contribution or cash payment is equal to 24% of annual gross salary. None. – Benefits will be provided in line with appropriate levels indicated by local market practice in the None. country of employment. external factors. – 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 Annual Bonus –Global Short- Term Incentive Plan (‘GSTIP’) – To drive behaviour and communicate the key – Bonus levels and the appropriateness of measures and – Bonuses can range from 0–200% of base salary, with 100% paid for on-target performance. – Performance over each financial year is priorities for the year. – To motivate employees and incentivise delivery of performance over the one year operating cycle. – The financial metrics are designed to both drive our growth strategies whilst also focusing on improving operating efficiencies. The strategic measures aim to ensure a great customer experience remains at the heart of what we do. weightings are reviewed annually to ensure they continue to support our strategy. – Performance over the financial year is measured against stretching financial and non-financial performance targets set at the start of the financial year. – 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’) – To motivate and incentivise delivery of sustained performance over the long term. – To support and encourage greater shareholder alignment through a high level of personal share ownership. – Award levels and the framework for determining vesting are reviewed annually to ensure they continue to support our strategy. – The target award level is 230% of base salary for the Chief Executive and 210% for other – Performance is measured against Executive Directors. – Minimum vesting is 0% of the target award level, threshold vesting is 45% of the target award – Long-term incentive awards consist of performance shares which level, and maximum vesting is 250% of the target award level. are granted each year. – Maximum long-term incentive face value at award of 575% of base salary for the Chief – The use of free cash flow as the principal – All awards vest not less than three years after the award based on Executive and 525% for others Executive Directors. 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. Group operational and external performance. – Dividend equivalents are paid in cash after the vesting date. have neither met their shareholding guideline nor increased their shareholding by 100% of – relative TSR against a peer group – The Committee has the discretion to reduce long-term incentive grant levels for directors who salary during the year. – The awards that vest accrue cash dividend equivalents over the three year vesting period. – 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. measured against stretching targets set at the beginning of the year. – 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) customer appreciation KPIs such as net promoter score and brand consideration. stretching targets set at the beginning of the performance period. – Vesting is determined based on the following measures: – adjusted free cash flow as our operational performance measure; and of companies as our external performance measure. – Measures will normally be weighted 2/3 to adjusted free cash flow and 1/3 to relative TSR. Vodafone Group Plc Annual Report 2018Governance 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 – To attract and retain the best talent. – Salaries are usually reviewed annually and fixed for 12 months Opportunity – 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. 75 Pension – To remain competitive within the marketplace. – Executive Directors may choose to participate in the defined – The pension contribution or cash payment is equal to 24% of annual gross salary. None. Benefits – To aid retention and remain competitive within – Travel related benefits. This may include (but is not limited to) – Benefits will be provided in line with appropriate levels indicated by local market practice in the None. the marketplace. company car or cash allowance, fuel and access to a driver country of employment. – 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. commencing 1 July. Decision is influenced by: – level of skill, experience and scope of responsibilities of individual; – business performance, scarcity of talent, economic climate and market conditions; – increases elsewhere within the Group; and – external comparator groups (which are used for reference purposes only) made up of companies of similar size and complexity to Vodafone. contribution pension scheme or to receive a cash allowance in lieu of pension. where appropriate. health checks. – Private medical, death and disability insurance and annual – 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. – Legal fees if appropriate. – Other benefits are also offered in line with the benefits offered to other employees for example, our all-employee share plan, mobile phone discounts, maternity/paternity benefits, sick leave, paid holiday, etc. Annual Bonus –Global Short- Term Incentive Plan (‘GSTIP’) – To drive behaviour and communicate the key – Bonus levels and the appropriateness of measures and priorities for the year. weightings are reviewed annually to ensure they continue to – To motivate employees and incentivise support our strategy. delivery of performance over the one year – Performance over the financial year is measured against operating cycle. stretching financial and non-financial performance targets set at – The financial metrics are designed to both drive the start of the financial year. our growth strategies whilst also focusing on – The annual bonus is usually paid in cash in June each year for improving operating efficiencies. The strategic performance over the previous year. measures aim to ensure a great customer experience remains at the heart of what we do. Long-Term Incentive – Global Long- Term Incentive Plan (‘GLTI’) – To motivate and incentivise delivery of sustained – Award levels and the framework for determining vesting performance over the long term. are reviewed annually to ensure they continue to support – To support and encourage greater shareholder our strategy. share ownership. are granted each year. performance measure ensures we apply prudent Group operational and external performance. – Dividend equivalents are paid in cash after the vesting date. 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. – Bonuses can range from 0–200% of base salary, with 100% paid for on-target performance. – Performance over each financial year is Maximum is only paid out for exceptional performance. measured against stretching targets set at the beginning of the year. – 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) customer appreciation KPIs such as net promoter score and brand consideration. – The target award level is 230% of base salary for the Chief Executive and 210% for other – Performance is measured against alignment through a high level of personal – Long-term incentive awards consist of performance shares which level, and maximum vesting is 250% of the target award level. – The use of free cash flow as the principal – All awards vest not less than three years after the award based on Executive and 525% for others Executive Directors. – Maximum long-term incentive face value at award of 575% of base salary for the Chief Executive Directors. – Minimum vesting is 0% of the target award level, threshold vesting is 45% of the target award – The Committee has the discretion to reduce long-term incentive grant levels for directors who have neither met their shareholding guideline nor increased their shareholding by 100% of salary during the year. – The awards that vest accrue cash dividend equivalents over the three year vesting period. – 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. stretching targets set at the beginning of the performance period. – Vesting is determined based on the following measures: – adjusted free cash flow as our operational performance measure; and – relative TSR against a peer group of companies as our external performance measure. – Measures will normally be weighted 2/3 to adjusted free cash flow and 1/3 to relative TSR. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 76 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 and/or prior to the approval and implementation of this policy. For the avoidance of doubt this includes payments in respect of any award granted under the previous remuneration policy. 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 “2017 award” was made in the financial year ending 31 March 2017. The awards are usually made in the first half of the financial year (the 2017 award was made in June 2016). The extent to which awards vest depends on two performance conditions: – underlying operational performance as measured by adjusted free cash flow; and – 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 the award subject to this performance element are shown in the table below (with linear interpolation between points): Performance Below threshold Threshold Target Maximum Vesting percentage (% of FCF element) 0% 18% 40% 100% 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 TSR vesting levels as a percentage of the award subject to this performance element are shown in the table below (with linear interpolation between points): Below median Median Percentage outperformance of the peer group median equivalent to 65th percentile Percentage outperformance of the peer group median equivalent to 80th percentile Vesting percentage (% of TSR element) 0% 18% 40% 100% In order to determine the percentages for the equivalent outperformance levels above median, the Remuneration Committee seeks independent external advice. 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 Committee are essentially the same as for the Executive Directors with some minor differences, for example smaller levels of share awards and local or regional performance conditions where appropriate. The remuneration for the next level of management, our senior leadership team, again follows the same principles with 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 conditional share awards without performance conditions. Vodafone Group Plc Annual Report 2018Governance 77 Estimates of total future potential remuneration from 2018 pay packages The tables below provide estimates of the potential future remuneration for each of the Executive Directors based on the remuneration opportunity to be granted in the 2018 financial year. 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 2017. Benefits are valued using the figures in the total remuneration for the 2017 financial year table on page 78 (of the 2017 report). Pensions are valued by applying cash allowance rate of 24% of base salary at 1 July 2017. Base (£’000) 1,150 725 Benefits (£’000) 27 Chief Executive 29 Chief Financial Officer 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 230% of base salary for the Chief Executive and 210% for the Chief Financial Officer. 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. 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) 1,453 928 Pension (£’000) 276 174 On target Maximum All scenarios Vittorio Colao, Chief Executive £’000 Nick Read, Chief Financial Officer £’000 12,000 10,000 8,000 6,000 4,000 2,000 £5,248 50% 28% 22% 14% £1,453 £10,366 64% 22% Maximum 12,000 10,000 8,000 6,000 4,000 2,000 £928 £3,176 48% 29% 23% 15% £6,184 62% 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 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 72 and 73) 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 575% 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. 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. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 78 Remuneration Policy (continued) 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 Policy 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’) on termination under plan rules – 12 months’ notice from the Company to the Executive Director. – 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). – 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. – 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. – 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. – The Remuneration Committee has discretion to vary the level of vesting as deemed appropriate, and in particular to determine that awards should not vest for reasons 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 – Generally pension and benefit provisions will continue to apply until the termination date. – 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. – 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 – 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 – An allowance is payable each time a non-Europe-based Non-Executive Director is required to travel to attend Incentives Benefits Board and committee meetings to reflect the additional time commitment involved. – Non-Executive Directors do not participate in any incentive plans. – 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. Vodafone Group Plc Annual Report 2018Governance Annual Report on Remuneration 79 Remuneration Committee In this section we give details of the composition of the Remuneration Committee and activities undertaken during the 2018 financial year. The Committee is comprised to exercise independent judgement and consists only of the following independent Non-Executive Directors: Chairman: Valerie Gooding Committee members: Dr Mathias Döpfner, 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 at the time 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 63 Other services provided to the Company Reward and benefits consultancy; provision of benchmark data; pension administration; and insurance consultancy services. 2017 annual general meeting – Remuneration Policy voting results At the 2017 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 17,581,245,488 % 97.19 Votes against 507,704,367 % 2.81 Total votes 18,088,949,855 Withheld 55,312,703 2017 annual general meeting – Remuneration Report voting results At the 2017 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 17,324,339,658 % 97.40 Votes against 462,209,294 % 2.60 Total votes 17,786,548,952 Withheld 357,720,232 Meetings The Remuneration Committee had five formal meetings and one formal conference call 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 2017 July 2017 November 2017 January 2018 March 2018 Agenda items – 2017 annual bonus achievement and 2018 targets and ranges – 2015 long-term incentive award vesting and 2018 targets and ranges – 2018 long-term incentive awards – Corporate governance matters – 2019 annual bonus framework – Gender Pay Gap – 2019 reward packages for the Executive Committee – Chairman and Non-Executive Director fee levels – 2018 Directors’ Remuneration Report – 2017 Directors’ Remuneration Report – Large local market CEO remuneration – External insights – Review of Remuneration Policy – Committee’s Terms of Reference – Risk assessment Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 80 Annual Report on Remuneration (continued) 2018 remuneration In this section we summarise the pay packages awarded to our Executive Directors for performance in the 2018 financial year versus 2017. 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 2018 as a result of the performance through the three year period ended at the completion of our financial year on 31 March 2018. 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 of long-term incentives awards under the 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 2018 financial year (audited) Salary/fees Taxable benefits1 Annual bonus: GSTIP (see below for further detail) Total long-term incentive: GLTI vesting during the year2 Cash in lieu of GLTI dividends3 Cash in lieu of pension Other4 Total Vittorio Colao Nick Read 2018 £’000 1,150 25 1,471 5,061 4,296 765 276 1 7,984 2017 £’000 1,150 27 1,087 3,791 3,271 520 276 1 6,332 2018 £’000 722 24 927 2,648 2,248 400 173 1 4,495 2017 £’000 710 29 675 2,029 1,751 278 171 1 3,615 Notes: 1 Taxable benefits include amounts in respect of: – Private healthcare (2018: Vittorio Colao £2,482, Nick Read £2,482; 2017: Vittorio Colao £3,091, Nick Read £2,079); – Cash car allowance £19,200 p.a.; and – Travel (2018: Vittorio Colao £2,864, Nick Read £2,479; 2017: Vittorio Colao £4,812, Nick Read £7,933). 2 The value shown in the 2017 column is the award which vested on 26 June 2017 and is valued using the execution share price on 26 June 2017 of 224.29 pence. The value shown in the 2018 column is the award which vests on 26 June 2018 and is valued using an average of closing share price over the last quarter of the 2018 financial year of 211.81 pence. 3 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 2018 relates to the award which vests on 26 June 2018. 4 Reflects the value of the SAYE benefit which is calculated as £375 (2017: £250) x 12 months x 20% to reflect the discount applied based on savings made during the year. 2018 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 2018 of 127.9% of target. 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 Adjusted EBIT 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 % 20.5% 30.0% 32.7% 44.7% 200% 127.9% Threshold performance level €bn 43.4 2.5 3.9 Target performance level €bn 45.7 3.7 4.7 Maximum performance level €bn 48.0 4.8 5.6 See below for further details Actual performance level1 €bn 45.7 4.3 5.3 Notes: 1 These figures are adjusted to include the removal of the impact of M&A, foreign exchange movements and any changes in accounting treatment. Financial Metrics During the year under review, service revenue performance was in line with the target performance level. This reflected above target revenue performance in Germany, UK, Italy, and most of our other European markets as well as Egypt and Turkey. However, this was offset by below target performance in Spain, India, and New Zealand. Adjusted EBIT and free cash flow results were above target in nearly all markets, with particularly strong results in the UK, Germany, Italy, Egypt and Turkey. Customer appreciation KPIs An assessment of performance under the customer appreciation KPIs measure was conducted on a market by market basis. Each market was assessed against a number of different metrics which included: – Net Promoter Score for both Consumer and Enterprise business units – Brand consideration for Enterprise and both Consumer user and Consumer non-user – Churn, revenue market share and ARPU 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. Vodafone Group Plc Annual Report 2018Governance 81 Both measures utilise data from our local markets which is collected and 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 other relevant customer factors such as churn, customer growth and service levels are considered. Overall Group performance was above target for the year reflecting our current market positions of: – Being ranked number 1 for Consumer NPS in 19 of the 22 markets where we measure this metric. – Being ranked number 1 for Enterprise NPS in 12 of the 18 markets where we measure this metric. – Being ranked number 1 for both User and Non-User Consumer Brand Consideration in 17 of the 22 markets where we measure this metric. During the year we increased the number of markets where we were number 1 for consumer NPS from 15 to 19 markets, but saw the number of markets where we were number 1 for Enterprise NPS decrease from 14 to 12. The fact that overall performance against our Customer Appreciation KPIs metrics remains significantly below maximum opportunity reflects that, in our opinion, there is still work to be done to both maintain and improve our global customer service offering. The aggregated performance for the regions and the Group is calculated on a revenue-weighted average to give an overall achievement. Performance this year under this measure is as follows; Europe AMAP Group Customer appreciation KPIs Achievement 110.0% 115.9% 111.7% To provide a breakdown of overall performance, the table above sets out our achievement in both our Europe and AMAP regions. The achievement percentage for Europe reflects strong performance in both Germany and Italy, with Portugal and Ireland also recording above target performance in this area. The above target performance in Germany reflects our position as NPS leader in this market, with our overall NPS score improving year on year. In Italy we hold the position of 4G customer leader with the average data usage increasing compared to the previous year. The achievement percentage for AMAP reflects strong performance in India, South Africa and our other Southern African markets. In South Africa we are the NPS leader in both Consumer and Enterprise with a significant lead above our second placed peers. This market leading position is replicated in India despite particularly challenging market conditions. Despite pricing pressures in this market we are the joint leader for both user and non-user Brand Consideration reflecting the effective implementation of our CXX programme despite difficult local conditions. 2018 annual bonus (‘GSTIP’) amounts Vittorio Colao Nick Read Base salary £’000 1,150 725 Target bonus % of base salary 100% 100% 2018 payout % of target 127.9% 127.9% Actual payment £’000 1,471 927 Long-term incentive (‘GLTI’) award vesting in June 2018 (audited) The 2016 long-term incentive (‘GLTI’) awards which were made in June 2015 and September 2015 will vest at 66.7% of maximum (166.9%of target) in June 2018. The performance conditions for the three year period ending in the 2018 financial year are as follows: Adjusted free cash flow measure Below threshold Threshold Target Maximum £bn <7.3 7.3 9.0 10.7 0.0% p.a. (Up to median) 0% 50% 75% 125% 4.5% p.a. (65th percentile equivalent) 0% 100% 150% 187.5% TSR outperformance 9.0% p.a. (80th percentile equivalent) 0% 125% 200% 250% TSR peer group Bharti BT Group Deutsche Telekom MTN Orange Telecom Italia Telefónica The adjusted free cash flow for the three year period ended on 31 March 2018 was £8.7 billion. This compares with a target of £9.0 billion and a threshold of £7.3 billion. The chart to the right shows that our TSR performance against our peer group for the same period resulted in an out-performance of the median by 7.6% a year. Using the combined payout matrix above, this performance resulted in a payout of 166.9% of target. The combined vesting percentages are applied to the target number of shares granted as shown below. 2016 GLTI award: TSR performance (growth in the value of a hypothetical US$100 holding over the performance period, six-month averaging) 120 115 110 105 100 95 90 85 80 75 70 107 103 100 114 105 98 100 98 87 108 92 94 86 83 75 106 102 80 03/15 09/15 03/16 09/16 03/17 09/17 03/18 Vodafone Group Median of peer group Outperformance of median of 9% p.a. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 82 Annual Report on Remuneration (continued) 2016 GLTI performance share awards vesting in June 2018 Vittorio Colao Nick Read Maximum number of shares 3,039,156 1,589,967 Target number of shares 1,215,662 635,986 Adjusted free cash flow performance payout % of target 90.5% 90.5% TSR multiplier 1.84 times 1.84 times Overall vesting % of target 166.9% 166.9% Number of shares vesting 2,028,332 1,061,143 Value of shares vesting (’000) £4,296 £2,248 These share awards will vest on 26 June 2018. 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 measure is undertaken by Willis Towers Watson. Details of how the plan works can be found in the Policy Report that was approved at the 2014 AGM. Long-term incentive (‘GLTI’) awarded during the year (audited) The independent performance conditions for the 2018 long-term incentive awards made in August 2017 are adjusted free cash flow and TSR performance as follows: Adjusted FCF Performance (2/3 of total award) Below threshold Threshold Target Maximum TSR Performance (1/3 of total award) Below threshold Threshold Target Maximum TSR peer group Bharti Orange Adjusted FCF performance (€bn) <14.75 14.75 16.60 18.45 TSR outperformance Below median Median 5.0% p.a. (65th percentile equivalent) 10.0% p.a. (80th percentile equivalent) Vesting percentage (% of FCF element) 0% 18% 40% 100% Vesting percentage (% of TSR element) 0% 18% 40% 100% BT Group Royal KPN Deutsche Telekom Telecom Italia Liberty Global Telefónica MTN The awards made to Executive Directors in August 2017 were as follows: 2018 GLTI performance share awards made in August 2017 Vittorio Colao Nick Read Number of shares awarded Face value of shares awarded1 Target vesting level (40% of max) 1,180,803 669,374 Maximum vesting level 2,952,008 1,673,437 Target vesting level £2,644,999 £1,499,398 Maximum vesting level £6,612,498 £3,748,499 Proportion of maximum award vesting at minimum performance Performance period end 1⁄5th 31 Mar 2020 1⁄5th 31 Mar 2020 Note: 1 Face value calculated based on the share price at the date of grant of 224.0 pence. Dividend equivalents on the shares that vest are paid in cash after the vesting date. Outstanding awards The structure for awards made in June 2016 (vesting in June 2019) is set out below. These awards vest subject to a combined vesting matrix as follows (illustrated as a percentage of target 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 structure for awards made in August 2017 (vesting August 2020) is set out at the top of this page. Further details on the structure of these awards can be found in the Annual Report on Remuneration of the relevant year. All-employee share plans During the year, the Executive Directors were eligible to participate in the Vodafone Group 2008 Sharesave Plan which is open to UK all-employees. 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 84. Pensions (audited) The Executive Directors received a cash allowance of 24% of base salary during the 2018 financial year. 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 £256,913 (2017: £233,011) into defined contribution pension schemes. Vodafone Group Plc Annual Report 2018Governance 83 Alignment to shareholder interests (audited) Both 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 2018 of 217.58 pence. At 31 March 2018 Vittorio Colao Nick Read Goal as a % of salary 500% 400% Current % of salary held 2,306% 634% % of goal achieved 461% 159% Number of shares 12,190,562 2,113,416 Value of shareholding £26.5m £4.6m Date for goal to be achieved July 2012 April 2019 The shareholding goals include a post-employment condition whereby the Executive Directors will be required to continue to meet their guideline until all long-term incentives have vested. If this condition is not met, then any unvested GLTI awards will normally be forfeited Collectively the Executive Committee including the Executive Directors own more than 24 million Vodafone shares, with a value of over £54.3 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. Share plans Share options Total number of interests in shares Unvested GLTI shares (with performance conditions) SAYE (unvested without performance conditions) 21,274,490 6,822,235 28,096,725 9,070,102 4,695,527 13,765,629 At 31 March 2018 Executive Directors Vittorio Colao Nick Read Total 13,826 13,292 27,118 Total number of interests in shares 34,500 – 11,500 25,000 28,970 27,272 30,190 107,078 – 74,137 The total number of interests in shares includes interests of connected persons, unvested share awards and share options. At 31 March 2018 Non-Executive Directors Sir Crispin Davis Michel Demaré1 Dr Mathias Döpfner Dame Clara Furse Valerie Gooding Renee James Samuel Jonah Gerard Kleisterlee Maria Amparo Moraleda Martinez1 David Nish Notes: 1 On 15 May 2018 Michel Demaré acquired an interest in 50,000 shares and Maria Amparo Moraleda Martinez acquired an interest in 25,000 shares resulting in a total interest in 50,000 shares and 25,000 respectively as at 15 May 2018. At 15 May 2018 and during the period from 1 April 2018 to 15 May 2018, 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 2018 members of the Group’s Executive Committee at 31 March 2018 had an aggregate beneficial interest in 10,695,611 ordinary shares of the Company. At 15 May 2018 the Directors had an aggregate beneficial interest in 14,717,625 ordinary shares of the Company and the Executive Committee members had an aggregate beneficial interest in 10,695,611 ordinary shares of the Company. 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 50,000 shares by Michel Demaré, and the acquisition of an interest in 25,000 shares by Maria Amparo Moraleda Martinez as outlined above, the Directors’ total number of interests in shares did not change during the period from 1 April 2018 to 15 May 2018. 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 Nick Read 2016 award Awarded: June 2015 and September 2015 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 2017 award Awarded: June 2016 Performance period ending: March 2019 Vesting date: June 2019 Share price at grant: 216.8 pence 3,078,938 1,432,123 2018 award Awarded: August 2017 Performance period ending: March 2020 Vesting date: August 2020 Share price at grant: 224.0 pence 2,952,008 1,673,437 For details of the performance conditions for the 2017 and 2018 awards please see page 82. Details of the 2016 award are available on page 81. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 84 Annual Report on Remuneration (continued) Share options The following information summarises the Executive Directors’ options under the Vodafone Group 2008 Sharesave Plan (‘SAYE’). 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 2017 or date of appointment Number of shares Options granted during the 2018 financial year Number of shares Options exercised during the 2018 financial year Options lapsed during the 2018 financial year Number of shares Number of shares 9,607 – 9,607 10,389 4,854 – 15,243 – 4,219 4,219 – – 8,438 8,438 – – 10,389 – – 10,389 – – – – – Options held at 31 March 2018 Number of shares Option price Pence1 Date from which exercisable Market price on exercise Expiry date Pence 9,607 156.13 Sep 2019 Feb 2020 4,219 177.75 Sep 2022 Feb 2023 – – 13,826 Gain on exercise – – – 144.37 Sep 2017 Feb 2018 4,854 154.51 Apr 2022 Sep 2022 8,438 177.75 Sep 2022 Feb 2023 213.75 – – £7,208 – – 13,292 Grant date Jul 2014 Jul 2017 Jul 2012 Mar 2017 Jul 2017 Vittorio Colao SAYE SAYE Total Nick Read SAYE SAYE SAYE Total Notes: 1 The closing trade share price on 31 March 2018 was 194.22 pence. The highest trade share price during the year was 238.00 pence and the lowest price was 190.90 pence. At 15 May 2018 there had been no change to the Directors’ interests in share options from 31 March 2018. Other than those individuals included in the table above, at 15 May 2018 members of the Group’s Executive Committee held options for 47,592 ordinary shares at prices ranging from 154.5 pence to 189.2 pence per ordinary share, with a weighted average exercise price of 162.0 pence per ordinary share exercisable at dates ranging from 1 September 2018 to 1 September 2022. Hannes Ametsreiter, Aldo Bisio, António Coimbra, Ahmed Essam, Joakim Reiter, Ronald Schellekens and Serpil Timuray held no options at 15 May 2018. Loss of office payments (audited) Other than amounts already disclosed in prior year reports, no loss of office payments were made during the year. Payments to past Directors (audited) During the 2018 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 (2017: £9,813). Fees retained for external non-executive directorships Executive Directors may hold positions in other companies as non-executive directors and retain the fees. During the year ended 31 March 2018, Vittorio Colao served as a non-executive director on the boards of Unilever N.V. and Unilever PLC. Vittorio retained fees of €54,474 and £42,500 respectively for these roles (2017: €54,474 and £43,870). Assessing pay and performance In the table below we summarise the Chief Executive’s single figure remuneration over the past nine 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 nine 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 81 and not this chart. 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) Nine-year historical TSR performance (growth in the value of a hypothetical €100 holding over nine years) 325 275 225 175 125 75 267 322 279 215 193 227 190 167 170 168 155 137 100 310 245 285 288 287 276 03/09 03/10 03/11 03/12 03/13 03/14 03/15 03/16 03/17 03/18 Vodafone Group STOXX Europe 600 Index 2011 2012 2013 20101 2014 2018 3,350 7,022 15,767 11,099 8,014 2,810 5,224 6,332 7,984 64% 62% 47% 33% 44% 56% 58% 47% 64% 0% 23% 44% 67% 25% 31% 100% 57% 37% 2016 2015 2017 Note: 1 The single figure reflects share awards which were granted in 2006 and 2007, prior to his appointment to Chief Executive in 2008. Vodafone Group Plc Annual Report 2018Governance 85 Change in the Chief Executive’s remuneration between 2017 and 2018 In the table below we show the percentage change in the Chief Executive’s remuneration (salary, taxable benefits and annual bonus payment) between the 2017 and 2018 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 2017 (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 0.0% -7.4% 35.3% Percentage change from 2017 to 2018 Other Vodafone Group employees employed in the UK 4.9% 1.2% 51.2% 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 6,000 5,000 4,000 3,000 2,000 1,000 [ 0 5,519 5,076 3,709 3,961 2017 2018 Distributed by way of dividends 2017 Overall expenditure on remuneration for all employees 2018 For more details on dividends and expenditure on remuneration for all employees, please see pages 130 and 154 respectively. 2018 remuneration for the Chairman and Non-Executive Directors (audited) Chairman Gerard Kleisterlee Senior Independent Director Valerie Gooding Non-Executive Directors Sir Crispin Davis Michel Demaré (appointed 1 February 2018) Dr Mathias Döpfner Dame Clara Furse Renee James2 Samuel Jonah2 Maria Amparo Moraleda Martinez (appointed 1 June 2017) David Nish Former Non-Executive Directors Nick Land (retired 28 July 2017) Phil Yea (retired 28 July 2017) Total 2018 £’000 625 157 115 19 115 115 139 151 96 132 Salary/fees 2017 £’000 2018 £’000 Benefits1 2017 £’000 625 140 115 – 115 115 139 145 – 115 85 10 5 6 5 6 19 12 21 24 87 12 10 – 10 13 11 9 – 13 2018 £’000 710 167 120 25 120 121 158 163 117 156 Total 2017 £’000 712 152 125 – 125 128 150 154 – 128 47 47 1,758 140 140 1,789 6 3 202 3 2 170 53 50 1,960 143 142 1,959 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. Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 86 Annual Report on Remuneration (continued) 2019 remuneration Details of how the remuneration policy will be implemented for the 2019 financial year are set out below. 2019 base salaries Vittorio Colao, will retire from the Board effective 30 September 2018. Following the conclusion of our 2018 AGM, Nick Read (currently Chief Financial Officer) will be appointed Chief Executive-Designate, with Margherita Della Valle (currently Deputy Chief Financial Officer) being appointed Chief Financial Officer. Nick Read will subsequently be appointed Chief Executive on 1 October 2018. The annual salaries for the two new incumbents (effective 27 July 2018) are as follows: – Chief Executive: Nick Read £1,050,000; and – Chief Financial Officer: Margherita Della Valle £700,000. The above salaries reflect a decrease on the current levels paid for these positions (currently £1,150,000 and £725,000 respectively). The Committee has sought to ensure that the revised salaries reflect the significant and relevant business experience and strong track records that both individuals will bring to the positions, and that overall arrangements remain fair and competitive. The average salary increase for Executive Committee members will be 2.6% – this compares to a budget of 2.5% which is based on an average of the relevant local market budget for each Executive Committee member, Pension Effective 27 July 2018, the pension contributions for all new Executive Directors will be reduced from 24% of salary to 10% of salary. This revised level will apply to both Nick Read and Margherita Della Valle following their appointments to their new respective positions on 27 July 2018 and is now in line with the pension arrangements of our other people in the UK. Total fixed pay The combined impact of the changes to salary and pension results in a reduction in fixed pay of 19.0% for the position of Chief Executive, and of 14.3% for the Chief Financial Officer. Although external market data was not the determining factor when setting the salary positions, the Committee recognises that the revised base salaries for both the Chief Executive and the Chief Financial Officer are towards the lower end of the market when compared to companies of a comparable size and complexity. Further information on the Committee’s rationale for the revised salary position can be found in the Remuneration Committee Chairman’s letter on page 71. 2019 annual bonus (‘GSTIP’) The performance measures and weightings for 2019, which remain unchanged from 2018, are outlined below. – service revenue (20%); – adjusted EBIT (20%); – adjusted free cash flow (20%); and – customer appreciation KPIs (40%). This includes an assessment of Net Promoter Score (‘NPS’) and brand consideration measures. The assessment of NPS and brand consideration metrics utilises data collected in our local markets which is validated for quality and consistency by independent third party agencies. Further details on how this data is collated and how the individual metrics used to measure customer appreciation KPIs are defined is provided on pages 80 and 81. Due to the potential impact on our commercial interests, annual bonus targets are considered commercially sensitive and therefore will be disclosed in the 2019 Remuneration Report following the completion of the financial year. Vodafone Group Plc Annual Report 2018Governance 87 Long-term incentive (‘GLTI’) awards for 2019 Awards for 2019 will be made in line with the arrangements described in our policy on pages 74 to 76. Vesting of the 2019 award will be subject to the performance of adjusted free cash flow (2/3 of total award) and TSR (1/3 of total award). The details for the 2019 award targets are provided in the table below (with linear interpolation between points). Following the annual review of the performance measures which included a review of analysis provided by the Committee’s external advisers, the Committee decided that for the 2019 award the TSR outperformance range should remain unchanged from that used for the 2018 award at 5.0% p.a. at target and 10.0% p.a. at maximum. The Committee also determined it appropriate to keep the same peer group constituents as used for the 2018 award. Adjusted FCF Performance (2/3 of total award) Below threshold Threshold Target Maximum TSR Performance (1/3 of total award) Below threshold Threshold Target Maximum TSR peer group Bharti Orange Adjusted FCF performance (€bn) <15.15 15.15 17.00 18.85 TSR outperformance Below median Median 5.0% p.a. (65th percentile equivalent) 10.0% p.a. (80th percentile equivalent) Vesting percentage (% of FCF element) 0% 18% 40% 100% Vesting percentage (% of TSR element) 0% 18% 40% 100% BT Group Royal KPN Deutsche Telekom Telecom Italia Liberty Global Telefónica MTN 2019 remuneration for the Chairman and Non-Executive Directors For the 2018 review, the fees for our Chairman and non-executives have been benchmarked against the FTSE 30 (excluding financial services companies). The Chairman’s fee was last increased in April 2014 and, following the review, it was agreed that this fee should be increased from £625,000 to £650,000 with effect from 1 July 2018. No changes will be made to the current non-executive fee structure. Full details of the fee levels are provided in the table below. Position/role Chairman1 Non-Executive Director Additional combined fee for Senior Independent Director and Chairman of the Remuneration Committee Additional fee for Chairmanship of Audit and Risk Committee Note: 1 The Chairman’s fee also includes the fee for the Chairmanship of the Nominations and Governance Committee. Fee payable £’000 From 1 July 2018 650 115 50 25 For 2019, 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, including the planned June 2018 awards, is approximately 2.7% of the Company’s share capital at 31 March 2018 (2.9% at 31 March 2017), whilst from all-employee share awards it is approximately 0.4% (0.3% at 31 March 2017). This gives a total dilution of 3.1% (3.2% at 31 March 2017). 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 15 May 2018 Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 88 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 Different tests of independence for Board members are applied under the 2016 UK Corporate Governance Code (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. – Our Nominations and Governance Committee is chaired by the Chairman of the Board and its other members are independent Non-Executive Directors. – Our Remuneration Committee is composed entirely of independent Non-Executive Directors. – 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. – 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. – 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. – 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. – 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 2018Governance Directors’ report The Directors of the Company present their report together with the audited consolidated financial statements for the year ended 31 March 2018. 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 Guidance and 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 91 and 92 which also provides details regarding the disclosure of information to the Company’s auditors and management’s report on internal control over financial information. Going concern The going concern statement required by the Listing Rules and the UK Corporate Governance Code (the ‘Code’) is set out in the “Directors’ statement of responsibility” on page 92. System of risk management and internal control The Board is responsible for maintaining a risk management and internal control system and for managing principal risks faced by the Group. 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. This is described in more detail in the Audit and Risk Committee report on pages 64 to 69. 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 (which can be found on pages 38 to 45). 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 our internal control and risk management arrangements in relation to the financial reporting process is set out on pages 47 to 87. The information required by DTR 7.2.6R can be found in the “Shareholder information” section on pages 191 to 197. A description of the composition and operation of the Board and its Committees is set out on pages 52 to 53. Strategic Report The Strategic Report is set out on pages 4 to 45 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 2018 and up to the date of signing the financial statements are as follows: Gerard Kleisterlee, Vittorio Colao, Nick Read, Sir Crispin Davis, Michel Demaré, Dr Mathias Döpfner, Dame Clara Furse, Valerie Gooding, Renee James, Samuel Jonah, Amparo Moraleda, Nick Land, Phil Yea and David Nish. A summary of the rules relating to the appointment and replacement of Directors and Directors’ powers can be found on page 62 to 63. 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 70 to 87. 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 62. 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, details of Company share repurchases and other shareholder information is contained on pages 30 and 191 to 197. 89 Change of control Details of change of control provisions in the Company’s revolving credit facilities are set out on page 148. 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 pages 77 and 78. 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. Dividends Full details of the Company’s dividend policy and proposed final dividend payment for the year ended 31 March 2018 are set out on page 21 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 32 to 35. 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 22 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 22. 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 31 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. Further details are included on page 169. Employee disclosures Vodafone is an inclusive employer and diversity is important to us. We give full and fair consideration to applications for employment by disabled persons and the continued employment of anyone incurring a disability whilst employed by us. Training, career development and promotion opportunities are equally applied for all our employees, regardless of disability. Our disclosures relating to the employment of women in senior management roles, employee engagement and policies are set out on pages 36 and 37. By Order of the Board Rosemary Martin Group General Counsel and Company Secretary 15 May 2018 Vodafone Group Plc Annual Report 2018 OverviewStrategic ReportGovernanceFinancialsOther information 90 Reporting our financial performance Focus on clear, effective and concise reporting We continue to review the format of our consolidated financial statements with the aim of making them clearer and easier to follow. This year we have added the following highlights to help you navigate to the information that is important to you: €3.2 billion (€2.2 billion net of tax) Re-measurement loss on Vodafone India Vodafone to acquire Liberty Global’s operations in Germany, the Czech Republic, Hungary and Romania Future adoption of IFRS 9, IFRS 15 and IFRS 16 Re-measurement of Vodafone India Subsequent events We have updated the disclosures in note 1 “Basis of preparation” relating to the timetable and potential impact of adopting IFRS 9 “Financial Instruments” and IFRS 15 “Revenue from Contracts with Customers” in the 2019 financial year and the adoption of IFRS 16 “Leases” in the 2020 financial year. We include details of the €3,170 million pre-tax re-measurement loss in respect of Vodafone India in note 7 “Discontinued operations and assets held for sale” which led to an overall €2,245 million (net of tax) reduction in the carrying value of Vodafone India at 31 March 2018. The year ended 31 March 2017 included an impairment change of €4,515 million (€3,675 million net of tax) as set out in note 4 “Impairment”. On 9 May 2018, Vodafone announced that it had agreed to acquire Liberty Global’s operations in Germany, the Czech Republic, Hungary and Romania for an enterprise value of €18.4 billion. See note 31 “Subsequent events” for further details. 110 For more information 128 For more information 168 For more information 91 93 102 102 102 103 104 105 Directors’ statement of responsibility 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 106 106 113 116 117 122 123 128 130 130 131 133 135 138 139 140 141 142 Notes to the consolidated financial statements: 1. Basis of preparation Cash flows Income statement 143 18. Reconciliation of net 178 Other unaudited financial information: 178 Prior year operating results 2. Segmental analysis 3. Operating profit 4. Impairment losses 5. Investment income and financing costs 6. Taxation 7. Discontinued operations and assets and liabilities held for sale 8. Earnings per share 9. Equity dividends Financial position 10. Intangible assets 11. Property, plant and equipment 12. Investments in associates and joint arrangements 13. Other investments 14. Trade and other receivables 15. Trade and other payables 16. Provisions 17. Called up share capital cash flow from operating activities 19. Cash and cash equivalents 20. Borrowings 21. Liquidity and capital resources 143 144 147 149 22. Capital and financial risk management Employee remuneration 153 154 155 23. Directors and key management compensation 24. Employees 25. Post employment benefits 159 26. Share-based payments 161 162 164 167 168 169 177 Additional disclosures 27. Acquisitions and disposals 28. Commitments 29. Contingent liabilities and legal proceedings 30. Related party transactions 31. Subsequent events 32. Related undertakings 33. Subsidiaries exempt from audit 183 183 184 185 185 187 187 188 188 189 189 189 190 190 Company financial statements Company statement of financial position Company statement of changes in equity Notes to the Company financial statements: 1. Basis of preparation 2. Fixed assets 3. Debtors 4. Other investments 5. Creditors 6. Called up share capital 7. Share-based payments 8. Reserves 9. Equity dividends 10. Contingent liabilities and legal proceedings 190 11. Other matters Vodafone Group Plc Annual Report 2018Financials 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 auditors, going concern and management’s report on internal control over financial reporting. 91 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: – select suitable accounting policies and apply them consistently; – make judgements and estimates that are reasonable and prudent; – present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; – 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’); – state for the Company’s financial statements whether applicable UK accounting standards have been followed; and – 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 48 and 49 confirm that, to the best of their knowledge: – 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; – 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 – 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 and robust assessment of the principal risks and uncertainties that it faces. The Directors are also responsible under section 172 of the Companies Act 2006 to promote the success of the Company for the benefit of its members as a whole and in doing so have regard for the needs of wider society and stakeholders, including customers, consistent with the Group’s core and sustainable business objectives. 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. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 92 Directors’ statement of responsibility (continued) Disclosure of information to the auditors 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 auditors are 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 auditors are aware of that information. 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’). Going concern The Group’s business activities, performance, position, principal risks and uncertainties and the Directors’ assessment of its long-term viability are set out in the Strategic Report on pages 4 to 45. In addition, the financial position of the Group is included in “Borrowings”, “Liquidity and capital resources” and “Capital and financial risk management” in notes 20, 21 and 22 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. The key inputs into this forecast are: – free cash flow forecasts, with the first three months’ inputs being sourced directly from the operating companies (analysed on a daily basis), with information beyond this taken from the latest forecast/budget cycle; – bond and other debt maturities; and – 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. By Order of the Board Rosemary Martin Group General Counsel and Company Secretary 15 May 2018 Vodafone Group Plc Annual Report 2018Financials Audit report on the consolidated and parent company financial statements 93 Independent auditors’ report to the members of Vodafone Group Plc Report on the audit of the financial statements Opinion In our opinion: – 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 2018 and of the Group’s profit and cash flows for the year then ended; – the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; – the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and – 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. We have audited the financial statements, included within the Annual Report, which comprise: the consolidated and Company statements of financial position as at 31 March 2018; the consolidated income statement and consolidated statement of comprehensive income for the year then ended; the consolidated statements of cash flows for the year then ended; the consolidated and Company statements of changes in equity for the year then ended; and the notes to the consolidated and Company financial statements, which include a description of the significant accounting policies. Our opinion is consistent with our reporting to the Audit and Risk Committee. 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 have been properly prepared in accordance with IFRSs as issued by the IASB. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Company. Other than those disclosed in note 3 of the financial statements, we have provided no non-audit services to the Group or the Company in the period from 1 April 2017 to 31 March 2018. Our audit approach Materiality – Overall Group materiality: €225 million (2017: €215 million), which represents 5% of a three year average of ‘Adjusted Operating Profit’ (“AOP”), including Vodafone India. Materiality – Overall Company materiality: €165 million (2017: €160 million), based on 1% of total assets, limited so as not to exceed 75% of Group materiality. Audit scope Areas of focus Audit scope – We identified seven local markets, which, in our view, required an audit of their complete financial information, either due to their size or due to their risk characteristics comprising UK, Spain, Italy, India, Vodacom South Africa, Turkey and Germany including 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. Key audit matters – Revenue recognition – accuracy of revenue recorded given the complexity of systems and disclosures on the expected impact of the initial application of IFRS 15 (Group). – Valuation of goodwill and Vodafone India treated as held for sale (Group and Company). – Taxation matters (Group). – Provisions and contingent liabilities (Group). – Capitalisation and asset lives (Group). Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 94 Audit report on the consolidated and parent company financial statements (continued) The scope of our audit As part of designing our audit, we determined materiality and assessed 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. We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it operates, and considered the risk of acts by the Group that were contrary to applicable laws and regulations, including fraud. We designed audit procedures at group and significant component level to respond to the risk, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. We focused on laws and regulations that could give rise to a material misstatement in the financial statements, including, but not limited to, the Companies Act 2006, the UK Listing Rules, UK tax legislation and equivalent local laws and regulations applicable to significant component teams. Our tests included agreeing the financial statement disclosures to underlying supporting documentation, assessment of significant component auditors’ work, enquiries with management and enquiries of legal counsel. There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits, we also addressed the risk of management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud. Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Key audit matter Revenue recognition – accuracy of revenue recorded given the complexity of systems and disclosures on the expected impact of the initial application of IFRS 15 (Group) 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. In addition, disclosure is required of the expected impact of the new standard on revenue recognition, IFRS 15, which will be adopted from 1 April 2018. The new standard is estimated to have a material impact on the Group. On adoption, Vodafone will apply the cumulative retrospective method to recognise the cumulative effect of the transition directly in equity as of 1 April 2018. It expects the initial recognition will lead to an increase in retained earnings under equity of approximately €2.1 billion to €2.8 billion (before accounting for deferred taxes) as of 1 April 2018. Refer to note 1 – “Basis of preparation” of the Group financial statements and Audit and Risk Committee report on pages 64–69. How our audit addressed the key audit matter We instructed the seven local market audit teams in full Group scope to undertake consistent audit procedures over revenue. Our audit approach included controls testing and substantive procedures covering, in particular: – 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; – 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; – 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 – 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. With regard to the estimated impact of the initial adoption of IFRS 15, we assessed the Group’s process for estimating the impact of the new standard. We instructed the seven local market audit teams in full Group scope to undertake specific audit procedures. Our audit approach included: – assessing the impact analysis and the accounting estimates and judgements made in respect of the business models of the Group; – assessing the appropriateness of the methods used to determine the estimated impact of the initial application of IFRS 15; and – assessing the design of the systems and processes set up by management to account for transactions in accordance with the new standard and used in determining the estimated impact of the initial application of IFRS 15. We assured ourselves that the systems, processes and controls established by management and the estimates and assumptions made in respect of the disclosure of the estimated impact were sufficiently documented and substantiated. Vodafone Group Plc Annual Report 2018Financials 95 How our audit addressed the key audit matter We evaluated the appropriateness of management’s identification of the Group’s CGUs and tested the operating effectiveness of controls over the impairment assessment process, including indicators of impairment. With the support of our valuation experts, we benchmarked and challenged key assumptions in management’s valuation models used to determine recoverable amount against external data, including assumptions of projected adjusted EBITDA, projected capital expenditure, projected licence and spectrum payments, long term growth rates and discount rates. – We compared historical forecasting to actual results; and – We performed testing of the mathematical accuracy of the cash flow models and challenged and agreed the key assumptions to the board approved long-term plan. Based on our procedures, we noted no exceptions and consider management’s key assumptions to be within a reasonable range. We validated the appropriateness of the related disclosures in note 4 and note 10 of the financial statements. With the support of our valuation experts, we challenged key assumptions in management’s valuation of Vodafone India, including the appropriateness of the basis of valuation determined with reference to the share price of Idea Cellular, and we traced data used in the valuation to supporting documents. Based on our procedures, we noted no exceptions and consider management’s approach and assumptions to be reasonable. We validated the appropriateness of the related disclosures in note 7 of the financial statements. We evaluated management’s assumption whether any indicators of impairment existed by comparing the equity value from the valuation model prepared for goodwill impairment review purposes or the net assets of the subsidiaries at 31 March 2018 with the Company’s investment carrying values. As a result of our work, we agreed with management that the carrying values of the investments held by the Company are supportable in the context of the Company financial statements taken as a whole. Key audit matter Valuation of goodwill and Vodafone India treated as held for sale (Group and Company) The Group has goodwill of €26.7 billion contained within 20 cash generating units (‘CGUs’). Impairment charges to goodwill have been recognised in prior periods. With the continued difficult macro- economic environment in Europe and the changing regulatory environment globally the risk that goodwill is impaired increases. For the CGUs which 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. Refer to note 4 – “Impairment losses” and note 10 – “Intangible assets” of the Group financial statements and Audit and Risk Committee report on pages 64–69. Vodafone India continues to be treated as held for sale and discontinued operations as at the balance sheet date. Its recoverable amount is determined on the lower of carrying amount and fair value less costs of disposal basis, which was calculated in part with reference to the quoted share price of Idea Cellular as at 31 March 2018. This has resulted in an impairment charge of €3.2 billion recognised in the year to 31 March 2018. Refer to note 7 – “Discontinued operations and assets and liabilities held for sale” of the Group financial statements and Audit and Risk Committee report on pages 64–69. The Company holds fixed asset investments comprising investments in subsidiaries of €83.7 billion. Investments in subsidiaries are accounted for at cost less any provision for impairment and capital related to share-based payments. Investments are tested for impairment annually. If an impairment exist, the recoverable amounts of the investment in subsidiaries are estimated in order to determine the extent of the impairment loss, if any. Any such impairment loss is recognised in the income statement. Refer to note 2 – “Fixed assets” of the Company financial statements. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 96 Audit report on the consolidated and parent company financial statements (continued) Key audit matter Taxation matters (Group) 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. We focused on 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, Germany, India and Spain. 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, Germany, India and Spain – significant judgement is required in relation to the recognition and recoverability of deferred tax assets, particularly in respect of losses in Luxembourg, Germany and Spain amounting to €21.3 billion, €2.8 billion, €0.9 billion respectively and €1.6 billion relating to deferred tax assets in India. Refer to note 6 – “Taxation” and note 29 – “Contingent liabilities and legal proceedings” of the Group financial statements and Audit and Risk Committee report on pages 64–69. How our audit addressed the key audit matter We evaluated the design and implementation of controls in respect of the process for calculating provisions for withholding tax and the recognition and recoverability of deferred tax assets. We gained an understanding of the status of the Indian tax investigations and monitored changes in the disputes by considering external advice received by the Group, where relevant, to establish that the tax provisions were appropriately adjusted to reflect the latest external developments. In respect of the deferred tax assets, we used our tax specialists to assess the recoverability of losses from a tax perspective through performing the following: – understanding how losses arose and where they are located, including to which subgroups they are attributed; – considering whether the losses can be reversed based on the ability to generate profits in excess of past losses; – comparing historical forecasting to actual results; – considering the impact of recent regulatory developments, as applicable; – assessing any restrictions on future use of losses; and – determining whether any of the losses will expire. In addition, we assessed the application of International Accounting Standard 12 – Income Taxes including: – understanding the triggers for recognition of deferred tax assets; – considering the effects of tax planning strategies; – testing the mathematical accuracy of the cash flow models and challenging and agreeing the key assumptions in the board approved management plan; and – in respect of the Luxembourg deferred tax assets we assessed management’s view of the Group’s likelihood of generating future taxable profits to support the recoverability of the deferred tax asset. We determined that the carrying value of deferred tax assets at 31 March 2018 was supported by management’s plans including intercompany funding arrangements. We validated the appropriateness of the related disclosures in note 6 and note 29 of the financial statements, including the disclosures made in respect of the utilisation period of deferred tax assets. Vodafone Group Plc Annual Report 2018Financials Key audit matter Provisions and contingent liabilities (Group) 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 note 1 – “Basis of preparation”, note 16 – “Provisions” and note 29 – “Contingent liabilities and legal proceedings” of the Group financial statements and Audit and Risk Committee report on pages 64–69. Capitalisation and asset lives (Group) 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: – the decision to capitalise or expense costs; – the annual asset life review, including the impact 97 How our audit addressed the key audit matter We used our tax specialists to gain an understanding of the current status of the tax cases 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. For legal, regulatory and tax matters our procedures included the following: – testing key controls over litigation, regulatory and tax procedures; – performing substantive procedures on the underlying calculations supporting the provisions recorded; – where relevant, reading external legal opinions obtained by management; – meeting with regional and local management and reading relevant Group correspondence; – discussing open matters with the Group litigation, regulatory, general counsel and tax teams; – assessing management’s conclusions through understanding precedents set in similar cases; and – circularisation where appropriate of 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 2018 to be appropriate. We validated the completeness and appropriateness of the related disclosures in note 16 and note 29 of the financial statements and concluded that the disclosure was sufficient. We tested controls in place over the property, plant and equipment 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 and the application of the asset life. In performing these substantive procedures, we challenged the judgements made by management including: of changes in the Group’s strategy; and – the nature of underlying costs capitalised as part of the cost of the network roll out; – the timeliness of transfers from “assets in the course – the appropriateness of asset lives applied in the calculation of depreciation; and of construction”. – in assessing the need for accelerated depreciation given the network modernisation Refer to note 1 – “Basis of preparation”, note 10 – Intangible assets and note 11 – “Property, plant and equipment” of the Group financial statements. programme in place across Europe. No issues were noted from our testing. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 98 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 structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. The Group operates in 25 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 component auditors performed the work, 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 seven local markets in Group scope (UK, Spain, Italy, India, Vodacom South Africa, Turkey and Germany including KDG) representing 79% and 76% of the Group’s revenue and AOP including Vodafone India. We identified these seven local markets as those components that, in our view, required an audit of their complete financial information, due to their size or risk characteristics. Specific audit procedures over certain balances and transactions were performed to give appropriate coverage of all material balances at both local market component and Group levels. The Group engagement team visited all seven local market components in scope for Group reporting during the audit cycle. These visits included meetings with local management, component auditors and review of audit working papers for these components. The lead audit partner or a senior member of the Group engagement team 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 response to the audit risk relating to the accuracy of share of results from joint ventures, we visited the component team of VodafoneZiggo Group Holding B.V. and obtained reporting in respect of the special purpose financial information from its auditor. Also, audits for local statutory purposes are performed at a further 13 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 in aggregate 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 materiality How we determined it Rationale for benchmark applied Group financial statements €225 million (2017: €215 million). 5% of three year average of ‘Adjusted Operating Profit’ (“AOP”), including Vodafone India. We used a three year average given volatility in the measure year-on-year. Company financial statements €165 million (2017: €160 million). 1% of total assets, limited so as not to exceed 75% of Group materiality. We believe that total assets is the most appropriate measure as Vodafone Group Plc acts as an investment holding parent company rather than a profit oriented trading company. However, materiality levels have been capped at 75% of Group materiality. For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality allocated across components was between €25 million and €160 million. Certain components were audited to a local statutory audit materiality that was also less than our overall Group materiality. We agreed with the Audit and Risk Committee that we would report to them misstatements identified during our audit above €15 million (Group audit) (2017: €15 million) and €15 million (Company audit) (2017: €15 million) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. Vodafone Group Plc Annual Report 2018Financials 99 Going concern In accordance with ISAs (UK), we report as follows: Reporting obligation We are required to report if we have anything material to add or draw attention to in respect of the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the directors’ identification of any material uncertainties to the Group’s and the Company’s ability to continue as a going concern over a period of at least twelve months from the date of approval of the financial statements. We are required to report if the directors’ statement relating to going concern in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit. Outcome We have nothing material to add or to draw attention to. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s and Company’s ability to continue as a going concern. We have nothing to report. Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic Report, Directors’ report and Corporate Governance Statement, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006, (CA06), ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described below (required by ISAs (UK) unless otherwise stated). Strategic Report and Directors’ report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ report for the year ended 31 March 2018 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. (CA06) In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors’ report. (CA06) Corporate Governance Statement In our opinion, based on the work undertaken in the course of the audit, the information given in the Chairman’s governance statement (on page 46) about internal controls and risk management systems in relation to financial reporting processes and about share capital structures in compliance with rules 7.2.5 and 7.2.6 of the Disclosure Guidance and Transparency Rules sourcebook of the FCA (“DTR”) is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. (CA06) In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in this information. (CA06) In our opinion, based on the work undertaken in the course of the audit, the information given in the Chairman’s governance statement (on page 46) with respect to the Company’s corporate governance code and practices and about its administrative, management and supervisory bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the DTR. (CA06) Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 100 Audit report on the consolidated and parent company financial statements (continued) 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 draw attention to regarding: – The directors’ confirmation on page 91 of the Annual Report 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. – The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated. – The directors’ explanation on page 44 of the Annual Report 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. We have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of the principal risks facing the Group and 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 UK Corporate Governance Code (the “Code”); and considering whether the statements are consistent with the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit. (Listing Rules) Other Code Provisions We have nothing to report in respect of our responsibility to report when: – The statement given by the directors, on page 91, that they consider the Annual Report taken as a whole to be fair, balanced and understandable, and provides the information necessary for the 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 obtained in the course of performing our audit. – The section of the Annual Report on page 64 describing the work of the Audit and Risk Committee does not appropriately address matters communicated by us to the Audit and Risk Committee. – The directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified, under the Listing Rules, for review by the auditors. Directors’ Remuneration In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. (CA06) Vodafone Group Plc Annual Report 2018Financials 101 Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements As explained more fully in the Directors’ statement of responsibility set out on page 91, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or taken together, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report 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. Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: – we have not received all the information and explanations we require for our audit; or – 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 – certain disclosures of directors’ remuneration specified by law are not made; or – 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. Appointment Following the recommendation of the Audit and Risk Committee, we were appointed by the members on 29 July 2014 to audit the financial statements for the year ended 31 March 2015 and subsequent financial periods. The period of total uninterrupted engagement is 4 years, covering the years ended 31 March 2015 to 31 March 2018. Andrew Kemp (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London, 15 May 2018 (a) 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. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. (c) Note that the report set out above is included for the purposes of Vodafone Group Plc’s Annual Report for 2018 only and does not form part of Vodafone Group Plc’s Annual Report on Form 20-F for 2018. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 102 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/(expense) Operating profit Non-operating expense Investment income Financing costs Profit/(loss) before taxation Income tax credit/(expense) Profit/(loss) for the financial year from continuing operations (Loss)/profit for the financial year from discontinued operations Profit/(loss) for the financial year Attributable to: – Owners of the parent – Non-controlling interests Profit/(loss) for the financial year Earnings/(loss) per share From continuing operations: – Basic – Diluted Total Group: – Basic – Diluted Consolidated statement of comprehensive income for the years ended 31 March Profit/(loss) for the financial year: Other comprehensive income/(expense): Items that may be reclassified to the income statement in subsequent years: Gains/(losses) on revaluation of available-for-sale investments, net of tax Foreign exchange translation differences, net of tax Foreign exchange (gains)/losses transferred to the income statement Fair value (gains)/losses transferred to the income statement Other, net of tax Total items that may be reclassified to the income statement in subsequent years Items that will not be reclassified to the income statement in subsequent years: Net actuarial (losses)/gains on defined benefit pension schemes, net of tax Total items that will not be reclassified to the income statement in subsequent years Other comprehensive expense Total comprehensive income/(expense) for the year Attributable to: – Owners of the parent – Non-controlling interests Note 2 4 3 3 5 5 6 7 8 8 2018 €m 46,571 (32,771) 13,800 (4,011) (5,644) (59) – 213 4,299 (32) 685 (1,074) 3,878 879 4,757 (1,969) 2,788 2,439 349 2,788 15.87c 15.82c 8.78c 8.76c 2017 €m 47,631 (34,576) 13,055 (4,349) (6,080) 47 – 1,052 3,725 (1) 474 (1,406) 2,792 (4,764) (1,972) (4,107) (6,079) (6,297) 218 (6,079) (7.83)c (7.83)c (22.51)c (22.51)c 2016 €m 49,810 (36,713) 13,097 (4,603) (6,379) 60 (569) (286) 1,320 (3) 539 (2,046) (190) (4,937) (5,127) 5 (5,122) (5,405) 283 (5,122) (20.27)c (20.27)c (20.25)c (20.25)c Note 2018 €m 2,788 2017 €m (6,079) 2016 €m (5,122) 25 9 (1,909) (80) – (339) (2,319) (70) (70) (2,389) 399 187 212 399 2 (1,201) – 4 110 (1,085) (272) (272) (1,357) (7,436) (7,535) 99 (7,436) (3) (3,030) 282 – 56 (2,695) 174 174 (2,521) (7,643) (7,579) (64) (7,643) Further details on items in the Consolidated statement of comprehensive income can be found in the consolidated statement of changes in equity on page 104. Vodafone Group Plc Annual Report 2018Financials 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 held for sale Total equity and liabilities 103 Note 31 March 2018 €m 31 March 2017 €m 10 10 11 12 13 6 25 14 14 13 19 7 17 20 6 25 16 15 20 16 15 7 26,734 16,523 28,325 2,538 3,204 26,200 110 4,026 107,660 581 106 9,975 8,795 4,674 24,131 13,820 145,611 4,796 150,197 (8,463) (106,695) 27,805 67,640 967 – 967 26,808 19,412 30,204 3,138 3,459 24,300 57 4,569 111,947 576 150 9,861 6,120 8,835 25,542 17,195 154,684 4,796 151,808 (8,610) (105,851) 30,057 72,200 1,525 (6) 1,519 68,607 73,719 32,908 644 520 1,065 2,843 37,980 10,351 541 891 16,242 28,025 10,999 145,611 34,523 535 651 1,130 1,737 38,576 12,051 661 1,049 16,834 30,595 11,794 154,684 The consolidated financial statements on pages 102 to 177 were approved by the Board of Directors and authorised for issue on 15 May 2018 and were signed on its behalf by: Vittorio Colao Chief Executive Nick Read Chief Financial Officer Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 104 Consolidated statement of changes in equity for the years ended 31 March 1 April 2015 Issue or reissue of shares Share-based payments7 Issue of mandatory convertible bonds8 Transactions with non-controlling interests in subsidiaries Dividends Comprehensive expense (Loss)/profit OCI – before tax OCI – taxes Transfer to the income statement Other9 31 March 2016 Issue or reissue of shares Share-based payments7 Transactions with non-controlling interests in subsidiaries Dividends Comprehensive expense (Loss)/profit OCI – before tax OCI – taxes Transfer to the income statement Other 31 March 2017 Issue or reissue of shares10 Share-based payments7 Transactions with non-controlling interests in subsidiaries11 Disposal of subsidiaries12 Dividends Comprehensive income Profit OCI – before tax OCI – taxes Transfer to the income statement Repurchase of treasury shares13 31 March 2018 Share capital1 €m Additional paid-in capital2 €m 5,246 161,801 Treasury shares €m (9,747) Retained losses €m (85,882) Currency reserve3 €m 19,765 Pensions reserve €m (1,004) Investment Revaluation surplus5 €m 1,227 reserve4 €m 53 Other comprehensive income Equity attributable to the Other6 owners €m €m 51 91,510 – – – – – – – – – 2 161 147 – 3,480 – – – – – – – – – – – – – (131) – – (44) (4,233) (5,405) (5,405) – – – – – – – (2,401) – (2,535) (148) – (450) – (13,750) 282 – 13,377 823 4,796 151,694 (8,777) (95,683) 30,741 – 12 – – – – – – – – 2 112 167 – (150) – – – – – – – – – – – – – – – (12) (3,709) (6,297) (6,297) – – – – (1,082) – (1,096) 14 – – – – – 174 – 216 (42) – – (830) – – – – (272) – (274) 2 Non- controlling interests €m Total equity €m 2,198 93,708 – – – (19) (332) (64) 283 (343) (4) 18 161 3,480 (63) (4,565) (7,643) (5,122) (2,591) (212) – – – – – (3) – (4) 1 – – – – – – – – – – – – 18 161 3,480 – (44) – (4,233) 56 (7,579) – (5,405) 75 (2,248) (208) (19) – – 50 – – 1,227 – – 282 12 107 83,325 – 28 282 40 1,811 85,136 – – – – 6 – 2 – – – – – – – – – – – 19 112 – – 19 112 – – 110 (12) (3,709) (7,535) – (6,297) (1,212) (30) 156 (46) 17 (410) 99 218 (121) 2 5 (4,119) (7,436) (6,079) (1,333) (28) – – – – 4,796 151,808 (8,610) (105,851) 29,659 (1,102) – – – – – – – – 4 – 56 – – 1,227 – – 4 – 217 72,200 – 2 4 2 1,519 73,719 – – – – – – – – – (1,741) 130 1,882 – – – – – – – – – – – – – – – (127) – 805 – (3,961) 2,439 2,439 – – – – – – – (1,852) – (1,641) (131) – – – – – (70) – (94) 24 – – – – – 9 – 9 – – – – – – – – – – – – 14 130 – – 14 130 – – – (339) – (351) 12 805 – (3,961) 187 2,439 (2,077) (95) 311 (769) (306) 212 349 (140) 3 1,116 (769) (4,267) 399 2,788 (2,217) (92) – – – – 4,796 150,197 (8,463) (106,695) 27,807 (1,172) – (1,735) (80) – – – – – – – 65 – – 1,227 – – (80) (1,735) (122) 67,640 – – (80) (1,735) 967 68,607 Notes: 1 See note 17 “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 6 Group’s pre-existing equity interest in the acquired subsidiary at fair value. Includes the impact of the Group’s cash flow hedges with €1,811 million net loss deferred to other comprehensive income during the year (2017: €787 million net gain; 2016: €337 million net gain) and €1,460 million net loss (2017: €654 million net gain; 2016: €294 million net gain) recycled to the income statement. These hedges primarily relate to foreign exchange exposure on fixed borrowings, with interest cash flows unwinding to the income statement over the life of the hedges and any foreign exchange on nominal balances impacting income statement at maturity (up to 2056). Includes €8 million tax charge (2017: €9 million credit; 2016: €5 million credit). Includes the equity component of mandatory convertible bonds which were compound instruments issued in the year ended 31 March 2016. Includes amounts relating to foreign translation differences arising on the retranslation of reserves due to the change in the Group’s presentation currency. 7 8 9 10 Includes the reissue of 729.1 million of shares (€1,742 million) in August 2017 in order to satisfy the first tranche of the Mandatory Convertible Bond. 11 See note 12 “Investments in associates and joint arrangements” for further details. 12 Relates to the disposal of Vodafone Qatar. See note 27 ”Acquisitions and disposals” for further details. 13 Represents the irrevocable and non-discretionary share buyback programme announced on 25 August 2017. Vodafone Group Plc Annual Report 2018Financials 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 subsidiaries, net of cash disposed Disposal of interests in associates and joint ventures Disposal of property, plant and equipment Disposal of investments Dividends received from associates and joint ventures Interest received Cash flows from discontinued operations Outflow 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 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 paid1 Cash flows from discontinued operations Tax on financing activities (Outflow)/inflow from financing activities Net cash (outflow)/inflow Cash and cash equivalents at beginning of the financial year Exchange loss on cash and cash equivalents Cash and cash equivalents at end of the financial year 105 2018 €m 13,600 2017 €m 14,223 2016 €m 14,336 (9) (33) (3,246) (4,917) (3,901) 239 115 41 1,250 489 378 (247) (9,841) 20 (534) 4,440 (4,664) (1,766) – (3,920) (310) 1,097 (194) (991) (302) (110) (7,234) (28) 499 (2,576) (6,285) (2,219) 2 4 43 3,597 433 434 (2,327) (8,423) 25 1,293 7,326 (9,267) – – (3,714) (413) 5 70 (1,264) (3,157) – (9,096) (3,475) (3,296) 9,302 (433) 5,394 12,911 (313) 9,302 (57) (3) (5,618) (8,265) (106) – – 164 1,888 92 342 (2,308) (13,871) 25 (11) 9,157 (3,784) – 3,480 (4,188) (309) (67) (31) (1,324) 1,134 – 4,082 4,547 9,492 (1,128) 12,911 Note 18 27 27 10 11 13 11 17 9 19 19 Note: 1 Amount for 2018 includes €140 million of cash inflow on derivative financial instruments for the share buyback related to the first tranche of the mandatory convertible bond that matured during the year. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 106 Notes to the consolidated financial statements 1. Basis of preparation This section describes the critical accounting judgements and estimates 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. On 1 April 2016, the Group’s presentation currency changed from sterling to the euro to better align with the geographic split of the Group’s operations. The results of Vodafone India are presented in results from discontinued operations in the current and prior periods and its assets and liabilities reported in assets and liabilities held for sale, respectively, at 31 March 2018. 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 regularly reviews, and revises as necessary, the accounting judgements that significantly impact the amounts recognised in the financial statements and the estimates that are considered to be “critical estimates” due to their potential to give rise to material adjustments in the Group’s financial statements in the year to 31 March 2019. As at 31 March 2018, management has identified critical judgements in respect of revenue recognition (gross versus net), classification of joint arrangements and whether to recognise a provision or disclose a contingent liability. In addition, management has identified critical accounting estimates in relation to the recovery of deferred tax assets, post employment benefits, and impairments and estimates that are not considered to be critical in respect of the useful economic lives of finite lived intangibles and property, plant and equipment. During the year to 31 March 2018, the Group had no significant acquisitions and no disposals of subsidiaries via contribution into joint arrangements, consequently there are no critical estimates disclosed in respect of such transactions. The majority of the Group’s provisions are either long term in nature (such as asset retirement obligations) or relate to shorter term liabilities (such as those relating to restructuring and property) where there is not considered to be a significant risk of material adjustment in the next financial year. Provisions for uncertain tax positions are no longer considered a critical estimate as the provision predominantly relates to a large number of immaterial issues across the Group’s markets and the risk of a material change in estimate in the next financial year is not considered to be significant. Critical judgements are exercised in respect of tax disputes in India, including the cases relating to our acquisition of Vodafone India. These critical accounting judgements, estimates 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 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 principally: 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 as well as capital allowances in the United Kingdom. Vodafone Group Plc Annual Report 2018Financials 107 The recognition of deferred tax assets, particularly in respect of tax losses, is based upon whether management judge that 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. 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” on page 108). 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. The estimated 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 estimates 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. Uncertain tax positions The tax impact of a transaction or item can be uncertain until a conclusion is reached with the relevant tax authority or through a legal process. The Group uses in-house tax experts when assessing uncertain tax positions and seeks the advice of external professional advisors where appropriate. The most significant judgement in this area relates to the Group’s tax disputes in India, including the cases relating to the Group’s acquisition of Vodafone India. Further details of these are included in note 29 “Contingent liabilities and legal proceedings” to the consolidated financial statements. Joint arrangements The Group participates in a number of joint arrangements where control of the arrangement is shared with one or more other parties. Judgement is required to classify joint arrangements in a separate legal entity as either a joint operation or as a joint venture which depends on management’s assessment of the legal form and substance of the arrangement taking into account relevant facts and circumstances such as whether the owners have rights to substantially all the economic outputs and, in substance, settle the liabilities of the entity. 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 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. Useful lives are periodically reviewed to ensure that they remain appropriate. Management’s estimates of useful life have a material impact on the amount of amortisation recorded in the year, but there is not considered to be a significant risk of material adjustment to the carrying values of intangible assets in the year to 31 March 2019 if these estimates were revised. The basis for determining the useful life for the most significant categories of intangible assets is discussed below. 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 estimated 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 19.5% (2017: 19.5%) 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. Management’s estimates of useful life have a material impact on the amount of depreciation recorded in the year, but there is not considered to be a significant risk of material adjustment to the carrying values of property, plant and equipment in the year to 31 March 2019 if these estimates were revised. 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. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 108 Notes to the consolidated financial statements (continued) 1. Basis of preparation (continued) Post employment benefits Management uses estimates when determining the Group’s liabilities and expenses arising for defined benefit pension schemes. Management is required to estimate the 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 25 “Post employment benefits” to the consolidated financial statements. Contingent liabilities The Group exercises judgement to determine whether to recognise 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 29 “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. 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 estimates to be made in respect of highly uncertain matters including management’s expectations of: – growth in adjusted EBITDA, calculated as adjusted operating profit before depreciation and amortisation; – timing and amount of future capital expenditure, licence and spectrum payments; – long-term growth rates; and – 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; a long-term growth rate into perpetuity has been determined as the lower of: – the nominal GDP growth rates for the country of operation; and – the long -term compound annual growth rate in adjusted EBITDA in years six to ten estimated by management. 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. For discontinued operations, impairment testing requires management to determine whether the carrying value of the discontinued operation can be supported by the fair value less costs to sell. Where not observable in a quoted market, management have determined fair value less costs to sell by reference to the outcomes from the application of a number of potential valuation techniques, determined from inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. 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 32 “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 euro, which is also the 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. 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 the consolidated statement of comprehensive income. 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 the consolidated statement of comprehensive income. Share capital, share premium and other capital reserves are initially recorded at the functional currency rate prevailing at the date of the transaction and are not retranslated. Vodafone Group Plc Annual Report 2018Financials 109 For the purpose of presenting consolidated financial statements, the assets and liabilities of entities with a functional currency other than euro are expressed in euro using exchange rates prevailing at the reporting period date. Income and expense items and cash flows are translated at the average exchange rates for each month and exchange differences arising are recognised directly in other comprehensive income. On disposal of a foreign entity, the cumulative amount previously recognised in the consolidated statement of comprehensive income 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. The net foreign exchange gain recognised in the consolidated income statement for the year ended 31 March 2018 is €295 million (31 March 2017: €637 million loss; 2016: €1,141 million loss). The net gains and net losses are recorded within operating profit (2018: €65 million credit; 2017: €133 million charge; 2016: €24 million credit), non-operating income and expense (2018: €nil; 2017: €nil; 2016: €282 million charge), investment and financing income (2018: €141 million credit; 2017: €505 million charge; 2016: €872 million charge) and income tax expense (2018: €9 million credit; 2017: €1 million credit; 2016: €11 million charge). 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 recognised in the consolidated statement of comprehensive income. Inventory 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. New accounting pronouncements adopted on 1 April 2017 On 1 April 2017 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: – Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealised Losses”; – Amendments to IAS 7 “Disclosure Initiative”; and – Amendments to IFRS 12 “Disclosure of Interests in Other Entities” (part of “Improvements to IFRS 2014-2016 cycle”). While the amendments to IAS 7 will have no impact on the Group’s accounting, additional disclosures are included to reconcile the movements in assets and liabilities during the year resulting from financing activities. New accounting pronouncements to be adopted on 1 April 2018 On 1 April 2018 the Group will adopt the following standards, which have been issued by the IASB and endorsed by the EU; these standards will have a significant impact on the Group’s financial reporting: – IFRS 15 “Revenue from Contracts with Customers”; and – IFRS 9 “Financial Instruments”. Additional information on the impact of these significant standards is discussed below. The following pronouncements, which have also been issued by the IASB and endorsed by the EU, will be adopted by the Group on 1 April 2018; these standards are not expected to have a material impact on the consolidated results, financial position or cash flows of the Group: – Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts”; – Amendments to IAS 28 “Investments in Associates and Joint Ventures” (part of “Improvements to IFRS 2014-2016 Cycle”); – Amendments to IFRS 2 “Classification and Measurement of Share-based Payment Transactions”; and – IFRIC 22 “Foreign Currency Transactions and Advance Consideration”. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 110 Notes to the consolidated financial statements (continued) 1. Basis of preparation (continued) New accounting pronouncements to be adopted on or after 1 April 2019 On 1 April 2019 the Group will adopt IFRS 16 “ Leases”, which has been issued by the IASB and endorsed by the EU. This is a significant new standard for the Group and the expected impacts are discussed below. The following pronouncements, which are potentially relevant to the Group, have been issued by the IASB and are effective for annual periods beginning on or after 1 January 2019; except where otherwise noted, they have not yet been endorsed by the EU. The Group’s financial reporting will be presented in accordance with these new standards, which are not expected to have a material impact on the consolidated results, financial position or cash flows of the Group, from 1 April 2019. – Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures”; – IFRIC 23 “Uncertainty over Income Tax Treatments”; – “Improvements to IFRS 2015-2017 Cycle”; – Amendment to IAS 19 “Plan Amendment, Curtailment or Settlement”; and – Amendments to IFRS 9 “Prepayment Features with Negative Compensation”, which has been endorsed by the EU. In addition, the Group will adopt the following standard, which has been issued by the IASB and has not yet been endorsed by the EU: – IFRS 17 “Insurance Contracts”, which is effective for accounting periods beginning on or after 1 January 2021. The Group is currently assessing the impact of the accounting changes that will arise under IFRS 17; however, the changes are not expected to have a material impact on the consolidated income statement and consolidated statement of financial position. IFRS 9 “Financial Instruments” IFRS 9 “Financial Instruments” was issued in July 2014 to replace IAS 39 “Financial Instruments: Recognition and Measurement” and has been endorsed by the EU. The standard is effective for accounting periods beginning on or after 1 January 2018 and will be adopted by the Group on 1 April 2018. IFRS 9 will impact the classification and measurement of the Group’s financial instruments, revises the requirements for when hedge accounting can be applied and requires certain additional disclosures. The primary changes resulting from IFRS 9 on the Group’s accounting for financial instruments are as follows : – The Group has elected, under IFRS 9, to recognise the full amount of credit losses that would be expected to be incurred over the full recovery period of trade receivables, contract assets recorded under IFRS 15 and finance lease receivables at the date of initial recognition of those assets; currently credit losses are not recognised on such assets until there is an indicator of impairment, such as a payment default. – Customer receivables that are received in instalments, which are currently recorded at amortised cost, will be recorded at fair value through other comprehensive income for receivable portfolios that the Group sells from time to time to third parties. Whilst hedge accounting requirements are revised under IFRS 9, no material changes to the Group’s hedge accounting have been identified. The Group will adopt IFRS 9 with the cumulative retrospective impact on the classification and measurement of financial instruments reflected as an adjustment to equity on the date of adoption. In order to comply with the transition requirements of IFRS 15 the Group will report financial information both under IFRS 15 and also under the pre-existing revenue standard (IAS 18, Revenue) for the year commencing 1 April 2018. The Group’s current estimate of the primary financial impact of adoption of IFRS 9 on an IAS 18 accounting basis on the consolidated statement of financial position on adoption is a reduction in cumulative retained earnings at 1 April 2018 of between €200 million and €300 million, inclusive of the impact of deferred tax movements but excluding the impact on equity accounted joint ventures and associates. No material impact is expected from implementing IFRS 9 on an IAS 18 basis on the consolidated income statement or on the consolidated statement of cash flows. Vodafone Group Plc Annual Report 2018Financials 111 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; both have been endorsed by the EU. IFRS 15, as amended, is effective for accounting periods beginning on or after 1 January 2018. IFRS 15 sets out the requirements for recognising revenue and costs from contracts with customers and includes extensive disclosure requirements; it will have a material impact on the Group’s reporting of revenue and costs as follows: – Deliverables in contracts with customers that qualify as separate “performance obligations” will be identified and the contractual transaction price receivable from customers must then be allocated to the performance obligations on a relative standalone selling price basis. The performance obligations identified will depend on the nature of individual customer contracts, but might typically be identified for mobile handsets, other equipment provided to customers and for services provided to customers such as mobile and fixed line. Stand-alone selling prices will be based on observable sales prices; however, where stand-alone selling prices are not directly observable, estimates will be made maximising the use of observable inputs. Revenue will be recognised either at a point in time or over time when the respective performance obligations in a contract are delivered to the customer. – 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 at contract inception, when control of the device typically passes to the customer, will increase and revenue subsequently recognised as services are delivered during the contract period will reduce. Where additional up-front unbilled revenue is recorded for the sale of devices, this will be reflected in the consolidated statement of financial position as a contract asset. – Expected credit losses will be recorded in respect of amounts due from customers. The recognition of contract assets under IFRS 15 will result in an increase in credit loss charges recorded in future periods. – Certain incremental costs incurred in acquiring a contract with a customer will be deferred on the consolidated statement of financial position 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. In addition, certain types of contract acquisition costs will be deducted from revenue as they are considered to relate to the funding of customer discounts. – In addition certain costs incurred in fulfilling customer contracts will be deferred on the consolidated statement of financial position 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 impact of the changes above on the Group’s reportable segments will depend largely on the extent to which customers receive discounted goods or services, such as mobile handsets, when they enter into airtime service agreements with the Group in the relevant markets. The combined impact of the changes is expected to increase the gross profit, or reduce the gross loss, recorded at inception on many customer contracts; in such cases, this will typically reduce the gross profit reported during the remainder of the contract; however, these timing differences will not impact the total gross profit reported for a customer contract over the contract term. In applying IFRS 15, and in determining the accounting impacts described above, the Group will be required to make material judgements. The most significant judgements are expected to be: – Determining standalone selling price for allocating revenue between performance obligations where contracts contain multiple performance obligations. Judgement will be required to determine whether a standalone selling price exists and if no standalone price exists estimation will be required to determine the appropriate revenue allocation. – Judgements relating to the reporting of revenue and costs on a gross or net basis, which are consistent with those required under IAS 18 described in section “Critical accounting judgements and key areas of estimation uncertainty” on page 106. The Group will adopt IFRS 15 with the cumulative retrospective impact reflected as an adjustment to equity on the date of adoption; and with disclosure of the impact of IFRS 15 on each line item in the financial statements in the reporting period. The transactions impacted by IFRS 15 are high in volume, value and complexity which has necessitated a phased approach to the development of new software solutions and changes to processes and related controls across the Group. The items discussed above are the main accounting changes for the Group under IFRS 15. The Group’s current estimate of the primary financial impact of these changes on the consolidated statement of financial position on adoption is a cumulative increase in: – Retained earnings at 1 April 2018 of between €2.1 billion and €2.8 billion, inclusive of the impact of deferred tax movements and including the impact of adopting IFRS 9 but excluding the impact on equity accounted joint ventures and associates. The primary movements contributing to the increase in retained earnings are the recognition of contract assets and the deferral of previously expensed contract acquisition costs. On the assumption that there are no significant changes to business models or products offered, the Group expects the primary financial impacts of these changes on the consolidated income statement will be: – A reduction in revenue which is currently estimated at between 2% and 3%; and – A reduction in the share of total revenue recorded as service revenue by between 2.5 and 4.5 percentage points primarily as a result of an increased allocation of customer receipts to up-front equipment revenue and of the impact of the revenue reduction noted above. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 112 Notes to the consolidated financial statements (continued) 1. Basis of preparation (continued) The implementation of IFRS 15 is not expected to have any financial impact on the consolidated statement of cash flows. These impacts are based on the assessments undertaken to date. The exact financial impacts of the accounting changes of adopting IFRS 15 at 1 April 2018 may be revised as further analysis is completed prior to presentation of financial information for periods including the date of initial application. The Group expects to be in a position to issue further guidance on the impact of adopting IFRS 15 in conjunction with the first quarter trading update for the financial year commencing 1 April 2018. IFRS 16 “Leases” IFRS 16 “Leases” was issued in January 2016 to replace IAS 17 “Leases” and has been endorsed by the EU. The standard is effective for accounting periods beginning on or after 1 January 2019 and will be adopted by the Group on 1 April 2019. 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 in many respects to existing IAS 17 accounting for finance leases, but will be substantively different to existing accounting for operating leases where rental charges are currently recognised on a straight-line basis and no lease asset or related lease creditor is recognised. Lessor accounting under IFRS 16 is similar to existing IAS 17 accounting and is not expected to have a material impact for the Group. The Group is assessing the impact of the accounting changes that will arise under IFRS 16; however, the following changes to lessee accounting will have a material impact as follows: – Right-of-use assets will be recorded for assets that are leased by the Group; currently no lease assets are included on the Group’s consolidated statement of financial position for operating leases. – Liabilities will be recorded for future lease payments in the Group’s consolidated statement of financial position for the “reasonably certain” period of the lease, which may include future lease periods for which the Group has extension options. Currently liabilities are generally not recorded for future operating lease payments, which are disclosed as commitments. The amount of lease liabilities will not equal the lease commitments reported on 31 March 2019, as they will be discounted to present value and the treatment of termination and extension options may differ, but may not be dissimilar. – Lease expenses will be for depreciation of right-of-use assets and interest on lease liabilities; interest will typically be higher in the early stages of a lease and reduce over the term. Currently operating lease rentals are expensed on a straight-line basis over the lease term within operating expenses. – Operating lease cash flows are currently included within operating cash flows in the consolidated statement of cash flows; under IFRS 16 these will be recorded as cash flows from financing activities reflecting the repayment of lease liabilities (borrowings) and related interest. A high volume of transactions will be impacted by IFRS 16 and material judgements are required in identifying and accounting for leases. The most significant judgement is expected to be determination of the lease term; under IFRS 16 the lease term includes extension periods where it is reasonably certain that a lease extension option will be exercised or that a lease termination option will not be exercised. Significant judgement will be required when determining the lease term of leases with extension or termination options. The Group is continuing to assess the impact of the accounting changes that will arise under IFRS 16 and cannot yet reasonably quantify the impact; however, the changes highlighted above will have a material impact on the consolidated income statement, consolidated statement of financial position and consolidated statement of cash flows after the Group’s adoption on 1 April 2019. The Group intends to adopt IFRS 16 with the cumulative retrospective impact as an adjustment to equity on the date of adoption. The Group currently intends to apply the following practical expedients allowed under IFRS 16: – The right-of-use assets will, generally, be measured at an amount equal to the lease liability at adoption and initial direct costs incurred when obtaining leases will be excluded from this measurement; – The Group will rely on its onerous lease assessments under IAS 37 to impair right-of-use assets recognised on adoption instead of performing a new impairment assessment for those assets on adoption; and – Hindsight will be used in determining the lease term. . Vodafone Group Plc Annual Report 2018Financials 113 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. The segmental revenue and profit of India are included in discontinued operations for all years reported and segmental assets and cash flows are included in assets and liabilities held for sale at 31 March 2018 and 31 March 2017. See note 7 “Discontinued operations and assets and liabilities held for resale” for details. 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 any related excess 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. 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. 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: – the Group receives an identifiable benefit in exchange for the cash incentive that is separable from sales transactions to that intermediary; and – 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. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 114 2. Segmental analysis (continued) Segmental revenue and profit 31 March 2018 Germany Italy UK Spain Other Europe Europe Vodacom Other AMAP AMAP Common Functions Group 31 March 2017 Germany Italy UK Spain Other Europe Europe Vodacom Other AMAP AMAP Common Functions Group 31 March 2016 Germany Italy UK Spain Other Europe Europe Vodacom Other AMAP AMAP Common Functions Group Segment revenue €m 10,847 6,204 7,078 4,978 4,941 34,048 5,692 5,770 11,462 1,408 46,918 10,600 6,101 6,925 4,973 6,128 34,727 5,294 6,479 11,773 1,390 47,890 10,626 6,008 8,428 4,959 6,599 36,620 5,325 6,566 11,891 1,567 50,078 Intra-region revenue €m (29) (30) (21) (35) (45) (160) – – – – (160) (32) (30) (23) (37) (55) (177) – – – – (177) (36) (22) (18) (27) (55) (158) – – – – (158) Regional revenue €m 10,818 6,174 7,057 4,943 4,896 33,888 5,692 5,770 11,462 1,408 46,758 10,568 6,071 6,902 4,936 6,073 34,550 5,294 6,479 11,773 1,390 47,713 10,590 5,986 8,410 4,932 6,544 36,462 5,325 6,566 11,891 1,567 49,920 Inter-region revenue €m (18) (3) (7) (2) (10) (40) (7) (25) (32) (115) (187) (21) (1) (6) (1) (5) (34) – (14) (14) (34) (82) (9) (1) (9) (2) (4) (25) – (20) (20) (65) (110) Group revenue €m 10,800 6,171 7,050 4,941 4,886 33,848 5,685 5,745 11,430 1,293 46,571 10,547 6,070 6,896 4,935 6,068 34,516 5,294 6,465 11,759 1,356 47,631 10,581 5,985 8,401 4,930 6,540 36,437 5,325 6,546 11,871 1,502 49,810 Adjusted EBITDA €m 4,010 2,329 1,762 1,420 1,515 11,036 2,203 1,554 3,757 (56) 14,737 3,617 2,229 1,212 1,360 1,865 10,283 2,063 1,791 3,854 12 14,149 3,462 2,015 1,756 1,250 2,002 10,485 2,028 1,678 3,706 (36) 14,155 Total revenue recorded in respect of the sale of goods for the year ended 31 March 2018 was €4,718 million (2017: €4,029 million, 2016: €4,472 million). The Group’s measure of segment profit, adjusted 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 adjusted EBITDA to operating profit is shown overleaf. For a reconciliation of operating profit to profit for the financial year, see the Consolidated income statement on page 102. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) Adjusted EBITDA Depreciation, amortisation and loss on disposal of fixed assets Share of adjusted results in equity accounted associates and joint ventures1 Adjusted operating profit Impairment losses Restructuring costs Amortisation of acquired customer based and brand intangible assets Other income/(expense) Operating profit Note: 1 Excludes amortisation of acquired customer bases and brand intangible assets of €0.4 billion (2017: €0.1 billion, 2016: €nil). Segmental assets and cash flow 115 2016 €m 14,155 (10,386) 60 3,829 (569) (316) (1,338) (286) 1,320 2018 €m 14,737 (9,910) 389 5,216 – (156) (974) 213 4,299 2017 €m 14,149 (10,179) 164 4,134 – (415) (1,046) 1,052 3,725 31 March 2018 Germany Italy UK Spain Other Europe Europe Vodacom Other AMAP AMAP Common Functions Group 31 March 2017 Germany Italy UK Spain Other Europe Europe Vodacom Other AMAP AMAP Common Functions Group 31 March 2016 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 Operating free cash flow3 €m 25,444 9,232 7,465 10,576 7,441 60,158 5,841 3,607 9,448 1,976 71,582 26,694 9,157 8,210 11,035 7,574 62,670 6,039 5,778 11,817 1,937 76,424 28,210 9,799 9,496 11,569 7,568 66,642 13,474 5,290 6,806 25,570 1,867 94,079 1,673 797 889 863 710 4,932 763 729 1,492 897 7,321 1,671 793 950 746 878 5,038 736 795 1,531 915 7,484 2,362 1,516 1,210 1,178 1,372 7,638 1,102 847 1,173 3,122 901 11,661 24 629 – – 93 746 1 – 1 – 747 – 2 – – 38 40 2 317 319 – 359 2,081 232 141 491 8 2,953 3,751 23 814 4,588 – 7,541 3,095 1,479 1,600 1,371 1,092 8,637 776 923 1,699 73 10,409 3,320 1,603 1,768 1,378 1,088 9,157 738 1,153 1,891 38 11,086 3,330 1,668 1,902 1,446 1,371 9,717 – 725 1,170 1,895 85 11,697 – – – – – – – – – – – – – – – – – – – – – – – – – – (569) (569) – – – – – (569) 2,147 1,607 408 628 788 5,578 1,453 725 2,178 (755) 7,001 1,749 1,161 57 344 619 3,930 1,347 947 2,294 (597) 5,627 866 496 334 (149) 546 2,093 – 1,071 503 1,574 (459) 3,208 Notes: 1 Comprises goodwill, other intangible assets and property, plant and equipment. 2 Includes additions to property, plant and equipment and computer software, reported within intangibles. Excludes licences and spectrum additions. 3 The Group’s measure of segment cash flow is reconciled to the closest equivalent GAAP measure cash generated by operations, on pages 207 and 208. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 116 3. Operating profit Detailed below are the key amounts recognised in arriving at our operating profit Net foreign exchange (gains)/losses1 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 24) Amounts related to inventory included in cost of sales 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 Net gain on formation of VodafoneZiggo (note 27)2 2018 €m (65) 5,963 47 4,399 – 5,295 6,045 3,788 36 (829) – 2017 €m 133 6,253 12 4,821 – 5,519 6,464 3,976 22 (800) (1,275) 2016 €m (24) 6,333 45 5,319 569 5,804 7,739 2,464 27 (764) – Notes: 1 The year ended 31 March 2018 included €80 million credit (2017: €127 million charge) reported in other income and expense in the consolidated income statement. 2 Reported in other income and expense in the consolidated income statement. The total remuneration of the Group’s auditors, PricewaterhouseCoopers LLP and other member firms of PricewaterhouseCoopers International Limited, for services provided to the Group during the year ended 31 March 2018 is analysed below. Parent company Subsidiaries Subsidiaries – new accounting standards1 Audit fees: Audit-related fees2 Non-audit fees: Total fees 2018 €m 2 14 5 21 5 5 26 2017 €m 2 13 1 16 4 4 20 2016 €m 2 13 – 15 2 2 17 Notes: 1 2 Relates to fees for statutory and regulatory filings. The amount for the year ended 31 March 2018 includes non-recurring fees that were incurred during the preparations for a potential Includes fees in respect of audit procedures in relation to the forthcoming implementation of IFRS 15 “Revenue from Contracts with Customers” and IFRS 16 “Leases”. IPO of Vodafone New Zealand and the merger of Vodafone India and Idea Cellular. The amount for the year ended 31 March 2017 primarily arose from work on regulatory filings prepared in anticipation of a potential IPO of Vodafone India that was under consideration prior to the agreement for the merger of Vodafone India and Idea Cellular. A description of the work performed by the Audit and Risk Committee in order to safeguard auditor independence when non-audit services are provided is set out in the Audit and Risk Committee report on pages 64 to 69. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 117 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 of disposal 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 the basis for the value in use calculations. 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 Romania Reportable segment Other Europe 2018 €m – – 2017 €m – – 2016 €m 569 569 For the year ended 31 March 2018, the Group recorded a non-cash charge of €3,170 million (€2,245 million net of tax), included in discontinued operations, as a result of the re-measurement of Vodafone India’s fair value less costs of disposal. See note 7 “Discontinued operations and assets and liabilities held for sale” for further details. For the year ended 31 March 2017, the Group recorded a non-cash impairment charge of €4,515 million in respect of the Group’s investment in India which, together with the recognition of an associated €840 million deferred tax asset, led to an overall €3,675 million reduction in the carrying value of Vodafone India, the results of which are included in discontinued operations (see note 7 “Discontinued operations and assets and liabilities held for sale”) for further details. Goodwill The remaining carrying value of goodwill at 31 March was as follows: Germany Italy Spain Other 2018 €m 12,479 3,654 3,814 19,947 6,787 26,734 2017 €m 12,479 3,654 3,814 19,947 6,861 26,808 Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 118 4. Impairment losses (continued) Key assumptions used in the value in use calculations The key assumptions used in determining the value in use are: Assumption Projected adjusted EBITDA Projected capital expenditure How determined Projected adjusted EBITDA has been based on past experience adjusted for the following: – 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; – 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 – 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. Projected licence and spectrum payments Long-term growth rate For businesses where the five year management plans are used for the Group’s value in use calculations, a long-term Pre-tax risk adjusted discount rate growth rate into perpetuity has been determined as the lower of: – the nominal GDP rates for the country of operation; and – the long-term compound annual growth rate in adjusted EBITDA in years six to ten estimated by management. 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. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 119 Year ended 31 March 2018 The table below shows key assumptions used in the value in use calculations. Pre-tax adjusted discount rate Long-term growth rate Projected adjusted EBITDA1 Projected capital expenditure2 Assumptions used in value in use calculation Germany % 8.3 0.5 3.7 16.6–18.8 Spain % 9.7 1.5 5.9 16.8–17.4 Italy % 10.4 1.0 (2.6) 12.1–13.3 Romania % 9.8 1.5 2.6 11.9–14.6 Notes: 1 Projected adjusted EBITDA is expressed as the compound annual growth rates in the initial five years for all cash-generating units of the plans used for impairment testing. 2 Projected capital expenditure, which excludes licences and spectrum, is expressed as 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 believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of any cash-generating unit to materially exceed its recoverable amount. The estimated recoverable amount of the Group’s operations in Germany, Spain and Romania exceed their carrying values by €7.7 billion, €0.3 billion and €nil respectively . The changes in the following table to assumptions used in the impairment review would, in isolation, lead to an impairment loss being recognised for the year ended 31 March 2018. Pre-tax risk adjusted discount rate Long-term growth rate Projected adjusted EBITDA1 Projected capital expenditure2 Change required for carrying value to equal recoverable amount Germany pps 2.0 (2.3) (3.3) 16.3 Spain pps 0.2 (0.2) (0.3) 1.4 Romania pps 0.1 (0.1) (0.1) 0.4 Notes: 1 Projected adjusted EBITDA is expressed as the compound annual growth rates in the initial five years for all cash-generating units of the plans used for impairment testing. 2 Projected capital expenditure, which excludes licences and spectrum, is expressed as capital expenditure as a percentage of revenue in the initial five years for all cash-generating units of the plans used for impairment testing. The carrying values for Vodafone UK, Portugal, Ireland and Czech Republic include goodwill arising from their acquisition by the Group and/ or the purchase of operating licences or spectrum rights. While the recoverable amounts for these operating companies are not materially greater than their carrying value, each has a lower risk of giving rise to impairment that would be material to the Group given their relative size or the composition of their carrying value. The changes in the following table to assumptions used in the impairment review would have, in isolation, led to an impairment loss being recognised in the year ended 31 March 2018. Pre-tax risk adjusted discount rate Long-term growth rate Projected adjusted EBITDA1 Projected capital expenditure2 Change required for carrying value to equal recoverable amount Ireland pps 0.6 (0.7) (1.0) 4.2 Portugal pps 1.0 (1.1) (1.5) 6.4 Czech Republic pps 3.1 (4.0) (4.0) 16.9 UK pps 0.5 (0.6) (0.8) 3.2 Notes: 1 Projected adjusted EBITDA is expressed as the compound annual growth rates in the initial five years for all cash-generating units of the plans used for impairment testing. 2 Projected capital expenditure, which excludes licences and spectrum, is expressed as capital expenditure as a percentage of revenue in the initial five years for all cash-generating units of the plans used for impairment testing. Following the recent merger, the recoverable amount for VodafoneZiggo is not materially greater than its carrying value. If adverse impacts of economic, competitive, regulatory or other factors were to cause significant deterioration in the operations of VodafoneZiggo and the entity’s expected future cash flows, this may lead to an impairment loss being recognised. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 120 4. Impairment losses (continued) Year ended 31 March 2017 During the year ended 31 March 2017, Vodafone India was classified as a discontinued operation and was consequently valued at fair value less costs of disposal. Vodafone India’s fair value less costs of disposal was not observable in a quoted market and accordingly was determined with reference to the outcomes from the application of a number of potential valuation techniques, which were considered to result in a “level 2” valuation1. As such significant judgement was required and involved the use of estimates. The two bases of valuation which were given the strongest weighting in the overall assessment of fair value are set out below. Fair value less costs of disposal excluding net debt was assessed to be INR 971 billion, equivalent to €14.0 billion. See note 7 “Discontinued operations and assets and liabilities held for sale” for further details. – The contracted cash price for the sale of a portion of the entity to the Aditya Birla Group as part of the planned disposal of Vodafone India, adjusted for the agreed level of debt which is an observable price relating to Vodafone India; and – The share price of Idea Cellular prior to the announcement of the plan to dispose of Vodafone India and participate with Idea Cellular in the planned jointly controlled entity, adjusted for transaction specific factors. Idea Cellular equity shares are the primary component of the consideration for Vodafone India to be received by the Group, and the value of the Idea Cellular shares has been adjusted to reflect 50% of the estimated cost synergies that management expects to be realised by the jointly controlled entity. A 10% increase or reduction in the expected cost synergies included in this determination of fair value would result in a €220 million increase or reduction, respectively, in the fair value less costs of disposal of Vodafone India calculated using this approach. Note: 1 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. The table below shows key assumptions used in the value in use calculations. Pre-tax adjusted discount rate Long-term growth rate Projected adjusted EBITDA1 Projected capital expenditure2 Assumptions used in value in use calculation Germany % 8.4 0.5 3.0 14.9–16.5 Spain % 9.7 1.5 7.9 14.3–15.8 Italy % 10.3 1.0 (0.8) 12.7–14.2 Romania % 9.0 1.0 0.1 12.6–15.9 Notes: 1 Projected adjusted EBITDA is expressed as the compound annual growth rates in the initial five years for all cash-generating units of the plans used for impairment testing. 2 Projected capital expenditure, which excludes licences and spectrum, is expressed as 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 amount of the Group’s operations in Germany, Spain and Romania exceed their carrying values by €3.5 billion, €1.0 billion and €0.2 billion respectively. The changes in the following table to assumptions used in the impairment review would, in isolation, lead to an impairment loss being recognised for the year ended 31 March 2017: Pre-tax risk adjusted discount rate Long-term growth rate Projected adjusted EBITDA1 Projected capital expenditure2 Change required for carrying value to equal recoverable amount Germany pps 0.9 (1.0) (1.6) 7.6 Spain pps 0.6 (0.7) (1.1) 4.4 Romania pps 1.5 (1.7) (1.9) 7.1 Notes: 1 Projected adjusted EBITDA is expressed as the compound annual growth rates in the initial five years for all cash-generating units of the plans used for impairment testing. 2 Projected capital expenditure, which excludes licences and spectrum, is expressed as capital expenditure as a percentage of revenue in the initial five years for all cash-generating units of the plans used for impairment testing. The carrying values for Vodafone UK, Portugal, Ireland and Czech Republic include goodwill arising from their acquisition by the Group and/ or the purchase of operating licences or spectrum rights. While the recoverable amounts for these operating companies were not materially greater than their carrying value, each had a lower risk of giving rise to impairment that would be material to the Group given their relative size or the composition of their carrying value. The changes in the following table to assumptions used in the impairment review would have, in isolation, led to an impairment loss being recognised in the year ended 31 March 2017: Pre-tax risk adjusted discount rate Long-term growth rate Projected adjusted EBITDA1 Projected capital expenditure2 Change required for carrying value to equal recoverable amount Ireland pps 0.8 (0.9) (1.2) 4.3 Portugal pps 0.6 (0.6) (0.9) 3.9 Czech Republic pps 2.1 (2.4) (2.8) 12.0 UK pps 0.5 (0.6) (0.8) 3.2 Notes: 1 Projected adjusted EBITDA is expressed as the compound annual growth rates in the initial five years for all cash-generating units of the plans used for impairment testing. 2 Projected capital expenditure , which excludes licences and spectrum, is expressed as 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. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 121 Year ended 31 March 2016 During the year ended 31 March 2016 impairment charges of €569 million were recorded in respect of the Group’s investments in Romania. The impairment charge related solely to goodwill. The recoverable amount of Romania was €0.9 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 Projected adjusted EBITDA1 Projected 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 Projected adjusted EBITDA is expressed as the compound annual growth rates in the initial five years for all cash-generating units of the plans used for impairment testing. 2 Projected capital expenditure, which excludes licences and spectrum, is expressed as 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 Romania, Germany and Spain were 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 exceeded their carrying values by €2.0 billion and €1.0 billion respectively. Pre-tax risk adjusted discount rate Long-term growth rate Projected adjusted EBITDA1 Projected 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 adjusted discount rate Long-term growth rate Projected adjusted EBITDA1 Projected capital expenditure2 Increase by 2pps €bn (0.2) 0.3 0.2 (0.1) Romania Decrease by 2pps €bn 0.3 (0.2) (0.2) 0.1 Notes: 1 Projected adjusted EBITDA is expressed as the compound annual growth rates in the initial five years for all cash-generating units of the plans used for impairment testing. 2 Projected capital expenditure, which excludes licences and spectrum, is expressed as capital expenditure as a percentage of revenue in the initial five years for all cash-generating units of the plans used for impairment testing. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 122 5. Investment income and financing costs Investment income comprises interest received from short-term investments and other receivables as well as certain foreign exchange movements. 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) 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 overdrafts Bonds and other loans2 Interest (credit)/charge on settlement of tax issues3 Fair value through the income statement (held for trading): Derivatives – forward starting swaps and futures Other1,4 Net financing costs Notes: 1 Primarily comprises foreign exchange rate differences reflected in the income statement in relation to certain sterling and US dollar balances. 2 Amounts for 2018 include net foreign exchange losses of €181 million (2017: €533 million; 2016: €299 million). 3 Amounts for 2018 include a decrease (2017: increase, 2016: increase) in provision for potential interest on tax issues. 4 Interest capitalised for the year ended 31 March 2018 was €nil (2017: €nil, 2016: €nil). 2018 €m 2017 €m 2016 €m – 339 24 322 685 74 (128) 48 (36) 317 885 (11) (75) – 1,074 389 – 426 20 28 474 170 (235) 22 (16) 419 1,243 47 (244) – 1,406 932 1 529 9 – 539 224 (127) (140) 166 284 926 19 121 573 2,046 1,507 Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 123 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 tax rates and laws that have been enacted or substantively enacted by the reporting period date. The Group recognises provisions for uncertain tax positions when the Group has a present obligation as a result of a past event and management judge that it is probable that there will be a future outflow of economic benefits from the Group to settle the obligation. Uncertain tax positions are assessed and measured on an issue by issue basis within the jurisdictions that we operate using management’s estimate of the most likely outcome. The Group recognises interest on late paid taxes as part of financing costs, and any penalties, if applicable, as part of the income tax expense. 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 expense/(credit): Current year1 Adjustments in respect of prior years Overseas current tax expense/(credit): 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 (credit)/expense Total income tax (credit)/expense2 Notes: 1 The 2016 credit 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. 2018 €m 70 (5) 65 1,055 (102) 953 1,018 39 (1,936) (1,897) (879) 2017 €m 27 (3) 24 961 (35) 926 950 (16) 3,830 3,814 4,764 2016 €m (129) 53 (76) 812 21 833 757 (32) 4,212 4,180 4,937 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 €10.3 billion of spectrum payments to the UK Government in 2000 and 2013. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 124 6. Taxation (continued) Tax on discontinued operations Tax credit on profit from ordinary activities of discontinued operations1 Tax charge relating to the gain on discontinuance Total tax credit on discontinued operations Note: 1 2018 includes a €925m credit (2017: €840m credit) relating to the impairment of Vodafone India. Tax charged/(credited) directly to other comprehensive income Current tax Deferred tax Total tax charged directly to other comprehensive income Tax charged/(credited) directly to equity Current tax Deferred tax Total tax charged/(credited) directly to equity 2018 €m (617) 15 (602) 2018 €m 22 70 92 2018 €m – 9 9 2017 €m (973) 95 (878) 2017 €m (16) 44 28 2017 €m – (9) (9) Factors affecting the tax expense for the year The table below explains the differences between the expected tax expense, being the aggregate of the Group’s geographical split of profits multiplied by the relevant local tax rates and the Group’s total tax expense for each year. Continuing profit/(loss) before tax as shown in the consolidated income statement Aggregated expected income tax expense Impairment losses with no tax effect Disposal of Group investments Effect of taxation of associates and joint ventures, reported within profit before tax (Recognition)/derecognition of deferred tax assets for losses in Luxembourg and Spain1 Deferred tax following revaluation of investments in Luxembourg1 Previously unrecognised temporary differences we expect to use in the future Previously unrecognised temporary differences utilised in the year Current year temporary differences (including losses) that we currently do not expect to use Adjustments in respect of prior year tax liabilities2 Revaluation of assets for tax purposes 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 (income not taxable) for tax purposes Income tax (credit)/expense Note: 1 See note below below regarding deferred tax asset recognition in Luxembourg and Spain on pages 126 and 127. 2 2018 includes the impact of closing tax audits across the Group during the year, including in Germany and Romania. 2018 €m 3,878 985 – 55 90 (1,583) (330) – (29) 20 (244) – 93 24 (44) 84 (879) 2017 €m 2,792 795 – (271) 23 1,603 (329) (15) (11) 139 (107) (39) 98 26 2,755 97 4,764 2016 €m (514) – (514) 2016 €m (81) 293 212 2016 €m (8) 3 (5) 2016 €m (190) 85 168 83 (18) 1,288 3,037 – (8) 50 (48) – (38) 17 95 226 4,937 Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) Deferred tax Analysis of movements in the net deferred tax balance during the year: 1 April 2017 Foreign exchange movements Charged to the income statement (continuing operations) Charged directly to OCI Credited directly to equity Reclassifications Arising on acquisition and disposals 31 March 2018 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 2018 Amount credited/ (expensed) in income statement €m 103 225 1,666 (24) (73) 1,897 Gross deferred tax asset €m 1,289 193 30,953 – 1,218 33,653 Gross deferred tax liability €m (1,342) (571) – (108) (132) (2,153) Less amounts unrecognised €m (33) 16 (5,904) – (23) (5,944) 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 2018 At 31 March 2017, 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 2017 Amount credited/ (expensed) in income statement €m 160 353 (4,064) (95) (168) (3,814) Gross deferred tax asset €m 1,368 127 30,590 – 1,347 33,432 Gross deferred tax liability €m (1,535) (715) – (95) (126) (2,471) Less amounts unrecognised €m (55) 16 (7,138) – (19) (7,196) 125 €m 23,765 (25) 1,897 (70) (9) (4) 2 25,556 Net recognised deferred tax (liability)/ asset €m (86) (362) 25,049 (108) 1,063 25,556 €m 26,200 (644) 25,556 Net recognised deferred tax (liability)/ asset €m (222) (572) 23,452 (95) 1,202 23,765 At 31 March 2017 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 2017 €m 24,300 (535) 23,765 Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 126 6. Taxation (continued) 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 OECD’s or European Commission’s work on the taxation of the digital economy and European Commission initiatives such as the anti tax avoidance directive, proposed 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). On 26 October 2017, the European Commission published a preliminary decision to open a formal investigation in relation to the “group financing exemption” (‘GFE’) in the UK’s controlled foreign company rules and whether the GFE constitutes unlawful State Aid. Their investigation remains ongoing. The Group has made claims under the GFE for practical reasons, however given that the Group’s Luxembourg financing activities are properly established and operate in accordance with EU and local law as well as the OECD’s transfer pricing guidelines, we do not anticipate any significant impact should a finding of unlawful State Aid be ultimately upheld. We do not anticipate any significant impact on our future tax charge, liabilities or assets, as a result of the triggering of Article 50(2) of the Treaty on European Union but cannot rule out the possibility that, for example, a failure to reach satisfactory arrangements for the UK’s future relationship with the European Union, could have an impact on such matters. We continue to monitor developments in this area. 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. The Group considers each issue on its merits and, where appropriate, holds provisions in respect of the potential tax liability that may arise. As at 31 March 2018, the Group holds provisions for such potential liabilities of €521 million (2017: €711 million). These provisions relate to multiple issues, across the jurisdictions in which the Group operates. The reduction relates to the closure of tax audits across the Group during the year, including in Germany and Romania. As the tax impact of a transaction can be uncertain until a conclusion is reached with the relevant tax authority or through a legal process, 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 29 “Contingent liabilities and legal proceedings” to the consolidated financial statements. At 31 March 2018, 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 266 621 887 At 31 March 2017, 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 292 352 644 Expiring beyond 6 years €m – 3,074 3,074 Expiring beyond 6 years €m 65 1,503 1,568 Unlimited €m 103,452 21,994 125,446 Total €m 103,718 25,689 129,407 Unlimited €m 97,335 28,556 125,891 Total €m 97,692 30,411 128,103 Deferred tax assets on losses in Luxembourg Included in the table above are losses of €81,740 million (2017: €82,634 million) that have arisen in Luxembourg companies, principally as a result of revaluations of those companies’ investments for local GAAP purposes. A deferred tax asset of €21,261 million (2017: €19,632 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 conclude that it is probable that the Luxembourg companies will continue to generate taxable income in the future. 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 can be utilised. Based on the current forecasts the losses will be fully utilised over the next 55 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 three to five years. During the current year the Group recognised an additional €330 million (2017: €329 million) of our deferred tax assets as a result of the revaluation of investments based upon the local GAAP financial statements, and tax returns at 31 March 2018. The Group has recognised €1,603 million of deferred tax asset as a result of higher interest rates reducing the length of time over which these losses will be utilised. 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 can be utilised. In addition to the above, €2,587 million (2017; €993 million) of the Group’s Luxembourg losses expire and no deferred tax asset is recognised as they will expire before we can use these losses. The remaining losses do not expire. We also have €9,132 million (2017: €9,132 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. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 127 Deferred tax assets on losses in Germany The Group has tax losses of €18,034 million (2017: €18,139 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 €2,796 million (2017: €2,799 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 38 to 45). 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 12 years. A 5%-10% change in the forecast profits of the German business would not significantly alter the utilisation period. Deferred tax assets on losses in Spain The Group has tax losses of €3,521 million (2017: €3,646 million) in Spain and which are available to offset against the future profits of the Grupo Corporativo ONO business. The losses do not expire. A deferred tax asset of €880 million (2017: €914 million) has been recognised in respect of these 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. During the year, the Group also derecognised a deferred tax asset of €20 million related to losses in Spain which we do not expect to utilise in the future. The Group has reviewed the latest forecasts for the Spanish business which incorporate the unsystematic risks of operating in the telecommunications business (see pages 38 to 45). In the period beyond the five 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 22 to 25 years. A 5%-10% change in the forecast profits of the Spanish business would change the period over which the losses are utilised by one to two years. Other tax losses The Group has losses amounting to €7,544 million (2017: €7,880 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 €12 million (2017: €108 million) of unrecognised other temporary differences. The Group holds a deferred tax liability of €108 million (2017: €95 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 on page 126). No deferred tax liability has been recognised in respect of a further €16,049 million (2017: €20,237 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. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 128 7. Discontinued operations and assets and liabilities held for sale Following the agreement to combine our Indian operations with Idea Cellular into a jointly controlled company, in accordance with IFRS accounting standards, the results of Vodafone India are included in discontinued operations. The Group will continue to actively manage these operations until the transaction completes. Discontinued operations On 20 March 2017, Vodafone announced the agreement to combine its subsidiary, Vodafone India (excluding its 42% stake in Indus Towers), with Idea Cellular, which is listed on the Indian Stock Exchanges, with the combined company to be jointly controlled by Vodafone and the Aditya Birla Group. Consequently, Vodafone India is now accounted for as a discontinued operation, the results of which are detailed below. Income statement and segment analysis of discontinued operations Revenue Cost of sales Gross profit Selling and distribution expenses Administrative expenses Impairment losses (note 4) Other income and expense1 Operating profit/(loss) Financing costs Profit/(loss) before taxation Income tax (expense)/credit Profit/(loss) after tax of discontinued operations Pre-tax loss on the re-measurement of disposal group Income tax credit After tax loss on the re-measurement of disposal group 2018 €m 4,648 (2,995) 1,653 (237) (533) – 416 1,299 (715) 584 (308) 276 (3,170) 925 (2,245) 2017 €m 5,827 (4,504) 1,323 (276) (703) (4,515) – (4,171) (909) (5,080) 973 (4,107) – – – (Loss)/profit for the financial year from discontinued operations (1,969) (4,107) (Loss)/earnings per share from discontinued operations – Basic – Diluted Total comprehensive (expense)/income for the financial year from discontinued operations Attributable to owners of the parent 2018 eurocents (7.09)c (7.06)c 2017 eurocents (14.68)c (14.68)c 2018 €m (1,969) 2017 €m (4,107) 2016 €m 6,120 (4,799) 1,321 (264) (634) – – 423 (932) (509) 514 5 – – – 5 2016 eurocents 0.02c 0.02c 2016 €m 5 For the year ended 31 March 2018, as a discontinued operation, Vodafone India has been valued at fair value less costs of disposal. Vodafone India’s fair value less costs of disposal is not observable in a quoted market. As the completion of the Vodafone India and Idea Cellular Limited merger is expected to complete in June 2018, the fair value of Vodafone India has been assessed to be primarily determined by reference to the Idea Cellular Limited quoted share price as at 31 March 2018 of INR 75.9 per share. This technique is considered to result in a “level 2” valuation2 under IFRS 13, as while the quoted price for Idea is observable, further adjustments, such as the assumption regarding the disposal of Vodafone India with a certain level of debt, are required to estimate fair value less costs of disposal. For the year ended 31 March 2018, the Group has recorded a non-cash charge of €3,170 million (€2,245 million net of tax), included in discontinued operations, as a result of the re-measurement of Vodafone India’s fair value less costs of disposal. Fair value at the equity level has been assessed to be INR 223 billion (2017: INR 370 billion), equivalent to €2.8 billion (2017: €5.3 billion) at the foreign exchange rates prevailing at those dates. Should the competitive environment in India become more intense, there could be a further significant deterioration in the operations of Vodafone India Limited and Idea Cellular Limited impacting the entities’ expected future cash flows. This may lead to a further impairment loss being recognised. The initial investment in the joint venture expected to be formed by the merger of Vodafone India Limited and Idea Cellular Limited in the financial year ending 31 March 2019 will also be measured in part by reference to the share price of Idea Cellular Limited at the date of completion. Accordingly the accounting gain or loss on the disposal of Vodafone India Limited to be recognised at that point, will in part be dependent on the share price of Idea Cellular Limited at that date. A change in the share price of Idea Cellular Limited from INR 75.9 per share as at 31 March 2018, to INR 85.9 per share or to INR 65.9 per share would give rise to a potential gain or loss of approximately €0.5 billion respectively. Based on Idea Cellular Limited’s share price of INR 51.75 per share as at 14 May 2018, the accounting loss on the disposal of Vodafone India would be approximately €1.2 billion based on the 31 March 2018 foreign exchange rate. Notes: 1 2 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. Includes the profit on disposal of Vodafone India’s standalone towers business to ATC Telecom during the year. See note 28 for further details. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 129 The Group will also realise as part of the disposal of Vodafone India Limited a loss comprising the cumulative foreign exchange losses arising from the retranslation of the consolidated net assets of Vodafone India Limited (which has a functional currency of Indian Rupee) to the Group’s presentation currency in the period from acquisition of the Group’s interest to the date of disposal. This foreign exchange is required to be recycled to the income statement from the translation reserve. Based on the 31 March 2018 exchange rate of €:INR: 80.48, a loss of approximately €1.9 billion would arise. The actual loss from the recycling of foreign exchange previously recognised in equity that would be recognised in the year ending 31 March 2019, will depend on the INR:€ exchange rate at the date of completion. A change in the exchange rate from €:INR 80.48 to €:INR 85.5 or to €:INR 75.5 would give rise to a foreign exchange loss of approximately €2.1 billion and €1.8 billion respectively. Assets and liabilities held for sale Assets and liabilities relating to our operations in India have been classed as held for sale on the consolidated statement of financial position at 31 March 2018 and 31 March 2017. The relevant assets and liabilities are detailed in the table below. Assets and liabilities held for sale1 Non-current assets Goodwill Other intangible assets Property, plant and equipment Deferred tax assets Trade and other receivables Current assets Inventory Taxation recoverable Trade and other receivables Other investments Cash and cash equivalents Total assets held for sale Non-current liabilities Long-term borrowings Post employment benefits Provisions Trade and other payables Current liabilities Short-term borrowings Provisions Trade and other payables Total liabilities held for sale 2018 €m 2017 €m – 5,937 2,823 1,641 526 10,927 – 1,219 936 11 727 2,893 13,820 (6,687) (14) (665) (32) (7,398) (1,756) (18) (1,827) (3,601) (10,999) – 9,214 3,462 1,202 694 14,572 1 1,311 831 13 467 2,623 17,195 (8,024) (15) (784) (39) (8,862) (1,139) (25) (1,768) (2,932) (11,794) Note: 1 Total net debt in India at 31 March 2018 was €7,714 million (2017: €8,674 million). This comprised cash of €727 million (2017: €467 million), licence payables classified as debt of €6,418 million (2017: €7,143 million) and €2,025 million (2017: €2,020 million) of other borrowings, together with €2 million (2017: €22 million) of derivative financial instruments reported within Trade and other receivables and Trade and other payables. €345 million (2017: €499 million) of the licence payables classified as debt have been paid in cash. The cash payment is reported in the consolidated statement of cash flows as cash flows from financing activities. Each of the eight legal entities within the Vodafone India Group provide cross guarantees to the lenders in respect of debt contracted by the other entities. Deferred tax assets on losses in India The Group recognises a deferred tax asset of €1,641 million (2017: €1,202 million) relating to its Indian business. This includes a deferred tax asset of €1,290 million (2017: €816 million) relating to losses, which do not expire. The deferred tax asset has been recognised as we conclude it is probable that we will generate taxable profits in the future, against which we can utilise these losses. The Group has reviewed the latest forecasts for the Indian business which incorporate the unsystematic risks of operating in the telecommunications business (see pages 38 to 45). In the period beyond the five year forecast, we have reviewed the profits inherent in the valuation of Indian business, and based on these and our expectations for the Indian 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 11 to 13 years. We do not recognise a deferred tax asset of €399 million (2017: €352 million) in relation to losses where we currently believe that is not probable these losses will be utilised in the future. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 130 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 Earnings/(loss) for earnings per share from continuing operations (Loss)/earnings for earnings per share from discontinued operations Earnings/(loss) for basic and diluted earnings per share Basic earnings/(loss) per share from continuing operations Basic (loss)/earnings per share from discontinued operations Basic earnings/(loss) per share Diluted earnings/(loss) per share from continuing operations Diluted (loss)/earnings per share from discontinued operations Diluted earnings/(loss) per share 9. Equity dividends 2018 Millions 27,770 87 27,857 2018 €m 4,408 (1,969) 2,439 eurocents 15.87c (7.09)c 8.78c eurocents 15.82c (7.06)c 8.76c 2017 Millions 27,971 – 27,971 2017 €m (2,190) (4,107) (6,297) eurocents (7.83)c (14.68)c (22.51)c eurocents (7.83)c (14.68)c (22.51)c 2016 Millions 26,692 – 26,692 2016 €m (5,410) 5 (5,405) eurocents (20.27)c 0.02c (20.25)c eurocents (20.27)c 0.02c (20.25)c 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 2017: 10.03 eurocents per share (2016: 7.77 pence per share, 2015: 7.62 pence per share) Interim dividend for the year ended 31 March 2018: 4.84 eurocents per share (2017: 4.74 eurocents per share, 2016: 3.68 pence per share) Proposed after the end of the year and not recognised as a liability: Final dividend for the year ended 31 March 2018: 10.23 eurocents per share (2017: 10.03 eurocents per share, 2016: 7.77 pence per share) 2018 €m 2017 €m 2016 €m 2,670 1,291 3,961 2,447 1,262 3,709 2,852 1,381 4,233 2,729 2,670 2,447 Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 131 10. Intangible assets The 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. Identifiable intangible assets are recognised at fair value when the Group completes a business combination. The determination of the fair values of the separately identified intangibles, is based, to a considerable extent, on management’s judgement. 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 annually 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. 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 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 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: – an asset is created that can be separately identified; – it is probable that the asset created will generate future economic benefits; and – 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. Estimated useful lives The estimated useful lives of finite lived intangible assets are as follows: – Licence and spectrum fees – Computer software – Brands – Customer bases 3–25 years 3–5 years 1–10 years 2–15 years Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 132 10. Intangible assets (continued) Cost: 31 March 2016 Transfer of assets held for sale Exchange movements Arising on acquisition Additions Disposals1 Other 31 March 2017 Exchange movements Arising on acquisition Disposal of subsidiaries Additions Disposals Other 31 March 2018 Accumulated impairment losses and amortisation: 31 March 2016 Transfer of assets held for sale Exchange movements Amortisation charge for the year Disposals1 Other 31 March 2017 Exchange movements Disposal of subsidiaries Amortisation charge for the year Disposals Other 31 March 2018 Net book value: 31 March 2017 31 March 2018 Goodwill €m 93,990 (3,680) 90,310 (90) 1 – – – 90,221 (313) 5 – – – – 89,913 65,752 (2,086) 63,666 (253) – – – 63,413 (234) – – – – 63,179 Licences and spectrum €m 40,973 (9,472) 31,501 (1,023) 10 359 (72) – 30,775 (855) – (1,712) 747 (158) – 28,797 17,128 (1,334) 15,794 (548) 1,780 (72) – 16,954 (398) (779) 1,758 (158) – 17,377 Computer software €m 15,729 (201) 15,528 (174) 11 2,193 (499) (97) 16,962 (233) – (222) 2,261 (1,381) 26 17,413 10,927 (160) 10,767 (152) 2,106 (486) (87) 12,148 (183) (173) 2,105 (1,357) 1 12,541 Other €m 7,446 (152) 7,294 158 5 3 (30) – 7,430 (72) – – 3 (6) (10) 7,345 5,767 (152) 5,615 133 935 (30) – 6,653 (65) – 536 (6) (4) 7,114 Total €m 158,138 (13,505) 144,633 (1,129) 27 2,555 (601) (97) 145,388 (1,473) 5 (1,934) 3,011 (1,545) 16 143,468 99,574 (3,732) 95,842 (820) 4,821 (588) (87) 99,168 (880) (952) 4,399 (1,521) (3) 100,211 26,808 26,734 13,821 11,420 4,814 4,872 777 231 46,220 43,257 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. The net book value and expiry dates of the most significant licences are as follows: Germany Italy UK Qatar Expiry date 2020/2021/2025/2033 2018/2021/2029 2023/2033/2038 2028/2029 2018 €m 4,053 1,896 2,316 – 2017 €m 4,726 1,442 2,818 1,164 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 204 and 205. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 133 11. Property, plant and equipment The Group makes 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 – Freehold buildings – Leasehold premises 25–50 years the term of the lease Equipment, fixtures and fittings – 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. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 134 11. Property, plant and equipment (continued) Cost: 31 March 2016 Reclassification as held for sale Exchange movements Arising on acquisition Additions Disposals Other 31 March 2017 Exchange movements Additions Disposals Disposal of subsidiaries Other 31 March 2018 Accumulated depreciation and impairment: 31 March 2016 Reclassification as held for sale Exchange movements Charge for the year Disposals Other 31 March 2017 Exchange movements Charge for the year Disposals Disposal of subsidiaries Other 31 March 2018 Net book value: 31 March 2017 31 March 2018 Land and buildings €m 2,393 (103) 2,290 (42) – 104 (94) 8 2,266 (38) 88 (94) – 3 2,225 1,141 (36) 1,105 (15) 139 (89) 1 1,141 (17) 123 (83) – 1 1,165 Equipment, fixtures and fittings €m 74,486 (7,445) 67,041 (1,779) 7 5,184 (2,522) 273 68,204 (1,415) 4,969 (2,720) (552) 46 68,532 40,223 (3,812) 36,411 (1,087) 6,126 (2,454) 129 39,125 (816) 5,887 (2,675) (287) 33 41,267 Total €m 76,879 (7,548) 69,331 (1,821) 7 5,288 (2,616) 281 70,470 (1,453) 5,057 (2,814) (552) 49 70,757 41,364 (3,848) 37,516 (1,102) 6,265 (2,543) 130 40,266 (833) 6,010 (2,758) (287) 34 42,432 1,125 1,060 29,079 27,265 30,204 28,325 The net book value of land and buildings and equipment, fixtures and fittings includes €3 million and €681 million respectively (2017: €3 million and €608 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 €15 million and €1,224 million respectively (2017: €10 million and €1,234 million). Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 135 12. Investments in associates and joint arrangements The Group holds interests in an associate in Kenya, where we have significant influence, as well as in a number of joint arrangements in the UK, the Netherlands, India and Australia, 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. Gains or losses resulting from the contribution or sale of a subsidiary as part of the formation of a joint arrangement are recognised in respect of the Group’s entire equity holding in the subsidiary. 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 arrangement. Significant influence is the power to participate in the financial and operating policy decisions of the investee but where the Group does 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 2018 rounded to the nearest tenth of one percent. Principal activity Network infrastructure Country of incorporation or registration UK Percentage1 shareholdings 50.0 Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 136 12. Investments in associates and joint arrangements (continued) Joint ventures and associates Investment in joint ventures Investment in associates 31 March 2018 €m 2,097 441 2,538 2017 €m 2,689 449 3,138 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 through 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 VodafoneZiggo Group Holding B.V.3 Indus Towers Limited2 Vodafone Hutchison Australia Pty Limited3 Principal activity Country of incorporation or registration Network operator Netherlands India Australia Network infrastructure Network operator Percentage1 shareholdings 50.0 42.0 50.0 Notes: 1 Effective ownership percentages of Vodafone Group Plc at 31 March 2018 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 and VodafoneZiggo Group Holding B.V. have a year end of 31 December. 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. VodafoneZiggo Group Holding B.V. Indus Towers Limited Vodafone Hutchison Australia Pty Limited Other Total Investment in joint ventures 2018 €m 2017 €m 2,119 2,736 893 1,032 (1,156) (979) 77 64 2,097 2,689 2016 €m – 982 (1,032) 79 29 (Loss)/profit from continuing operations Other comprehensive income Total comprehensive (expense)/income 2018 €m (398) 135 32 (15) (246) 2017 €m (160) 98 (59) (14) (135) 2016 €m – 101 (153) (39) (91) 2018 €m 1 – – – 1 2017 €m 2 – – – 2 2016 €m – – (1) – (1) 2018 €m (397) 135 32 (15) (245) 2017 €m (158) 98 (59) (14) (133) 2016 €m – 101 (154) (39) (92) The summarised financial information for each of the Group’s material equity accounted joint ventures on a 100% ownership basis is set out below. VodafoneZiggo Group Holding B.V. Indus Towers Limited Vodafone Hutchison Australia Pty Limited 2018 €m 2017 €m 2016 €m 2018 €m 2017 €m 2016 €m 2018 €m 2017 €m 2016 €m Income statement and statement of comprehensive income Revenue Depreciation and amortisation Interest income Interest expense Income tax income/(expense) (Loss)/profit from continuing operations Other comprehensive income/(expense) Total comprehensive (expense)/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 3,972 (2,232) 6 (543) 287 (795) 3 (792) 1,014 (764) 23 (117) 105 (320) 3 (317) 773 18,721 20,303 721 (13,303) (14,015) (1,538) (1,953) (5,471) (4,238) 273 355 (12,510) (13,668) – (1) – – – – – – – – 2,477 2,379 2,277 (489) (407) (303) 10 22 16 (86) (91) (74) (186) (267) (316) 240 234 322 – – – 240 234 322 2,518 2,287 2,354 (517) (473) (483) 2 3 3 (268) (240) (230) – 1 – (306) (117) 64 (2) – – (308) (117) 64 1,598 1,995 326 (545) (825) (951) 29 520 (476) (814) (828) 15 (136) (396) (188) (375) 2,317 3,241 892 194 (1,460) (4,478) (1,125) (4,301) 2,168 2,552 68 104 (4,453) (1,435) (464) (3,563) The Group received a dividend from Indus Towers Limited of €138 million in the year to 31 March 2018 (2017: €126 million; 2016: €nil) and a dividend of €220 million from VodafoneZiggo Group Holding B.V. (2017: €76 million; 2016: €nil). Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 137 Reconciliation of summarised financial information The reconciliation of summarised financial information presented to the carrying amount of our interest in joint ventures is set out below: Equity shareholders’ funds Interest in joint ventures (50%/42%/50%) Goodwill Carrying value VodafoneZiggo Group Holding B.V. Indus Towers Limited Vodafone Hutchison Australia Pty Limited 2018 €m 4,238 2,119 – 2,119 2017 €m 5,471 2,736 – 2,736 2018 €m 828 348 545 893 2017 €m 951 399 633 1,032 2018 €m (2,168) (1,084) 105 (979) 2017 €m (2,552) (1,276) 120 (1,156) 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 2018 rounded to the nearest tenth of one percent. 2 The Group also holds two non-voting shares. 3 At 31 March 2018 the fair value of Safaricom Limited was KES 496 billion (€3,996 million) based on the closing quoted share price on the Nairobi Stock Exchange. 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. Total Investment in associates 2018 €m 441 2017 €m 449 2016 €m 450 Profit from continuing operations Other comprehensive expense Total comprehensive income 2018 €m 187 2017 €m 182 2016 €m 151 2018 €m – 2017 €m – 2016 €m – 2018 €m 187 2017 €m 182 2016 €m 151 Vodacom and Safaricom On 15 May 2017, the Group announced that its wholly-owned subsidiary, Vodafone International Holdings B.V. (‘VIHBV’), had agreed to transfer part of its indirect shareholding in Safaricom Limited (‘Safaricom’) to Vodacom Group Limited (‘Vodacom’), its sub-Saharan African subsidiary. On 18 July 2017, Vodacom shareholders voted in favour of the transaction. The transaction completed on 7 August 2017, with the Group being issued with 233.5 million new shares in Vodacom, increasing Vodafone Group’s shareholding in Vodacom from 65.0% to 69.7%. Vodafone retains an indirect stake of 5% in Safaricom. On 5 September 2017, the Group announced that VIHBV intended to sell approximately 90 million ordinary shares in Vodacom (the ‘Placing Shares’) to institutional investors by way of an accelerated bookbuild process (the ‘Placing’). The Placing Shares represented 5.2% of Vodacom’s ordinary share capital. The objective of the Placing was to ensure that Vodacom meets the free float requirement and to restore Vodafone’s shareholding in Vodacom to a percentage that is broadly similar to that which it held prior to implementation of the Safaricom Transaction. It was further announced on 6 September 2017 that VIHBV had sold an aggregate of 90 million ordinary shares in Vodacom raising gross proceeds of approximately €955 million. Following the completion of the Placing, Vodafone Group indirectly owns 64.5% of Vodacom’s ordinary share capital. Vodafone remains committed to Vodacom and intends to retain a controlling majority shareholding in Vodacom for the long-term. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 138 13. Other investments The Group holds a number of other listed and unlisted investments, mainly comprising managed funds, loan notes, deposits and government bonds. 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 other comprehensive income, until the security is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in other comprehensive income, 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: Listed1 Unlisted2 Debt securities: Other debt and bonds2 2018 €m 3 44 2017 €m 3 82 3,157 3,204 3,374 3,459 The listed and unlisted equity securities are classified as available-for-sale. Other debt and bonds which are not quoted in an active market, are classified as loans and receivables. Other debt and bonds includes loan notes of US$2.5 billion (€2.0 billion), (2017: US$2.5 billion (€2.3 billion)) 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 and €0.9 billion (2017:€1.0 billion) issued by VodafoneZiggo Holding B.V. 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 bonds1 Other debt and bonds2 Cash and other investments held in restricted deposits 2018 €m 2017 €m 2,517 4,896 1,382 8,795 2,284 2,727 1,109 6,120 Public debt and bonds are classified as held for trading and stated at fair value. Cash held in restricted deposits is classified as loans and receivables and includes amounts held in qualifying assets by Group insurance companies to meet regulatory requirements. Other debt and bonds includes €3,087 million (2017: €2,039 million) of assets held for trading in managed investment funds with liquidity of up to 90 days; €830 million (2017: €506 million) of assets held at amortised cost on an effective interest method paid as collateral on derivative financial instruments and €976 million (2017: €182 million) short-term investments, also classified as loans and receivables at amortised cost , where the underlying assets are supply chain and handset receivables. Current public debt and bonds include highly liquid German and UK government bonds held for trading of €1,974 million (2017: €1,638 million) of which UK gilts of €1,112 million (2017: €1,172 million) is paid as collateral primarily on derivative financial instruments. For public debt and bonds, other debt and bonds and cash held in restricted deposits, the carrying amount approximates fair value. Notes: 1 For items measured at fair value, the valuation basis is level 1 classification, which comprises financial instruments where fair value is determined by unadjusted quoted prices in active markets for identical assets or liabilities. 2 For items measured at fair value, the valuation basis is level 2 classification, which 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. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 139 14. Trade and other receivables 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 that are recovered in instalments from customers over an extended period are discounted at market rates and interest is accreted over the expected repayment period. Other trade receivables do not carry any interest and are stated at their nominal value. The carrying value of all trade receivables is 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 Accrued income Derivative financial instruments Included within current assets: Trade receivables Amounts owed by associates and joint ventures Other receivables Prepayments Accrued income Derivative financial instruments 2018 €m 435 1 194 597 350 2,449 4,026 4,967 524 895 1,152 2,257 180 9,975 2017 €m 362 27 130 378 – 3,672 4,569 4,973 325 918 1,197 1,838 610 9,861 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 Reclassification as held for sale Exchange movements Amounts charged to administrative expenses Other 31 March 2018 €m 1,418 – (78) 528 (619) 1,249 2017 €m 1,385 (66) (94) 589 (396) 1,418 The carrying amounts of trade and other receivables approximate their fair value and are predominantly non-interest bearing. The fair values1 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 2018 €m 2017 €m 1,610 445 25 44 2,124 191 314 2,629 2,248 126 12 103 2,489 212 1,581 4,282 Note 1 The valuation basis is level 2. This 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. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 140 15. Trade and other payables 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 2018 €m 314 159 237 2,133 2,843 6,185 27 1,177 1,346 5,579 1,678 250 16,242 2017 €m 30 154 204 1,349 1,737 6,212 14 1,261 1,220 5,683 1,716 728 16,834 The carrying amounts of trade and other payables approximate their fair value. The fair values1 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 2018 €m 2017 €m 412 812 76 51 1,351 103 929 2,383 553 944 63 76 1,636 61 380 2,077 Note: 1 The valuation basis is 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. Other payables included within non-current liabilities include €271 million (2017: €nil) in respect of the re-insurance of a third-party annuity policy related to the Vodafone and CWW Sections of the Vodafone UK Group Pension Scheme. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 141 16. 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. Where the timing of settlement is uncertain amounts are classified as non-current where settlement is expected more than 12 months from the reporting date. 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 decommissioning. 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. 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. For a discussion of certain legal issues potentially affecting the Group see note 29 “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. 31 March 2016 Transfer of liabilities held for sale Exchange movements 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 2017 Disposal of subsidiaries Exchange movements Amounts capitalised in the year Amounts charged to the income statement Utilised in the year − payments Amounts released to the income statement 31 March 2018 Asset retirement obligations €m 571 (10) (17) 157 – (51) (44) – 606 (14) (13) 59 – (33) (22) 583 Legal and regulatory €m 1,215 (642) (32) – 148 (40) (56) 41 634 (3) (21) – 140 (57) (171) 522 Other €m 791 – (1) – 643 (376) (117) (1) 939 – (4) – 325 (324) (85) 851 Total €m 2,577 (652) (50) 157 791 (467) (217) 40 2,179 (17) (38) 59 465 (414) (278) 1,956 Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 142 16. Provisions (continued) Provisions have been analysed between current and non-current as follows: 31 March 2018 Current liabilities Non-current liabilities 31 March 2017 Current liabilities Non-current liabilities Asset retirement obligations €m 17 566 583 Asset retirement obligations €m 10 596 606 Legal and regulatory €m 280 242 522 Legal and regulatory €m 300 334 634 Other €m 594 257 851 Other €m 739 200 939 Total €m 891 1,065 1,956 Total €m 1,049 1,130 2,179 17. 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 year2 31 March Number 2018 €m Number 28,814,142,848 660,460 28,814,803,308 4,796 – 28,813,396,008 746,840 4,796 28,814,142,848 2017 €m 4,796 – 4,796 Notes: 1 At 31 March 2018 the Group held 2,139,038,029 (2017: 2,192,064,339) treasury shares with a nominal value of €356 million (2017: €365 million). The market value of shares held was €4,738 million (2017: €5,348 million). During the year, 53,026,317 (2017: 62,761,357) treasury shares were reissued under Group share schemes. On 25 August 2017, 729,077,001 treasury shares were issued in settlement of a maturing subordinated mandatory convertible bond issued on 19 February 2016. For further details see note 21 “Liquidity and capital resources”. 2 Represents US share awards and option scheme awards. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 18. 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. 143 Profit/(loss) for the financial year Loss/(profit) from discontinued operations Profit/(loss) for the financial year from continuing operations Non-operating expense Investment income Financing costs Income tax (credit )/expense Operating profit 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)/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 Cash flows from discontinued operations Net cash flow from operating activities 19. Cash and cash equivalents Notes 7 6 10, 11 3 12 4 14 15 2018 €m 2,788 1,969 4,757 32 (685) 1,074 (879) 4,299 128 10,409 36 59 – (213) (26) (1,118) 286 13,860 (1,118) 858 13,600 2017 €m (6,079) 4,107 (1,972) 1 (474) 1,406 4,764 3,725 95 11,086 22 (47) – (1,052) 117 308 (473) 13,781 (761) 1,203 14,223 2016 €m (5,122) (5) (5,127) 3 (539) 2,046 4,937 1,320 154 11,697 27 (60) 569 286 (144) (684) 332 13,497 (807) 1,646 14,336 The majority of the Group’s cash is held in bank deposits or money market funds 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 and bank deposits Cash and cash equivalents as presented in the statement of financial position Bank overdrafts Cash and cash equivalents of discontinued operations Cash and cash equivalents as presented in the statement of cash flows 2018 €m 2,197 2,477 4,674 (7) 727 5,394 2017 €m 1,856 6,979 8,835 – 467 9,302 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 €1,449 million (2017: €1,132 million) are held in countries with restrictions on remittances but where the balances could be used to repay subsidiaries’ third party liabilities. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 144 20. 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. Where they are identified as a hedged item in a designated fair value hedge relationship, fair value adjustments are recognised in accordance with policy (see note 22). 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 The carrying value and fair value of the Group’s borrowings are as follows: Financial liabilities measured at amortised cost Bank loans Commercial paper Bonds1 Other liabilities2,3 Bonds in designated hedge relationships Short-term borrowings Financial liabilities measured at amortised cost: Bank loans Bonds1 Other liabilities Bonds in designated hedge relationships Long-term borrowings Carrying value 2017 €m 2018 €m 1,159 2,712 3,062 3,003 415 10,351 2,157 18,804 278 11,669 32,908 867 3,648 660 4,632 2,244 12,051 2,741 19,345 305 12,132 34,523 2018 €m 1,180 2,715 3,057 3,003 409 10,364 2,176 18,714 278 11,010 32,178 Fair value 2017 €m 898 3,650 667 4,632 2,241 12,088 2,769 19,286 305 11,349 33,709 Notes: 1 Bonds mature between 2018 and 2056 (2017: 2017 and 2056) and have interest rates of 0.0% to 8.125% (2017: 0.0% to 8.125%). 2 Includes a €1.8 billion (2017: €1.8 billion) liability for payments due to holders of the equity shares in Kabel Deutschland AG under the terms of a domination and profit and loss transfer agreement. 3 Amount includes €1,070 million (2017: €2,654 million) in relation to collateral support agreements. 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. The Group’s gross and net debt includes certain bonds which have been designated in hedge relationships, which are carried at €1.7 billion higher than their euro equivalent redemption value. In addition, where bonds are issued in currencies other than euros, the Group has entered into foreign currency swaps to fix the euro cash outflows on redemption. The impact of these swaps are not reflected in gross debt and would increase the euro equivalent redemption value of the bonds by €0.6 billion. Assets and liabilities from financing activities1 Cash flows Non-cash changes Net proceeds/ (repayment) of borrowings €m (224) 2017 €m 44,369 Net movements in short-term borrowings €m (534) Interest paid €m (991) Net Financing costs2 €m 486 Reclassification 2018 €m (93) €m 43,013 Notes: 1 This balance comprises gross borrowings of €43,259 million (2017: € 46,574 million) and net derivative financial assets of €246 million (€2,205 million). Net debt disclosed in note 21 additionally includes cash and certain short term investments. 2 This amount includes interest, fair value and foreign exchange items which impact the income statement. Financing costs of €1,074 million as disclosed in note 5 primarily additionally include foreign exchange and other movements on items classified as net debt but not borrowings . Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (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 2018 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 2017 Bank loans €m 1,251 748 507 569 – 350 3,425 (109) 3,316 909 1,168 721 569 – 350 3,717 (109) 3,608 Commercial paper €m 2,715 – – – – – 2,715 (3) 2,712 3,660 – – – – – 3,660 (12) 3,648 Bonds €m 3,498 393 2,893 3,869 791 14,702 26,146 (4,280) 21,866 1,810 2,650 2,080 2,369 3,010 12,029 23,948 (3,943) 20,005 Other liabilities €m 3,002 34 25 22 26 172 3,281 – 3,281 4,606 21 56 22 24 203 4,932 5 4,937 Bonds in designated hedge relationships €m 850 1,423 1,518 359 2,901 9,933 16,984 (4,900) 12,084 3,142 1,527 366 1,522 1,253 11,548 19,358 (4,982) 14,376 145 Total €m 11,316 2,598 4,943 4,819 3,718 25,157 52,551 (9,292) 43,259 14,127 5,366 3,223 4,482 4,287 24,130 55,615 (9,041) 46,574 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 18,055 3,925 4,904 2,223 3,834 20,702 53,643 2018 Receivable €m 18,363 3,875 4,911 2,324 3,687 23,021 56,181 Payable €m 16,541 4,788 3,000 1,913 1,567 18,743 46,552 2017 Receivable €m 16,462 5,201 3,141 2,038 1,706 22,491 51,039 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 €2,292 million (2017: €2,282 million), leaving a €246 million (2017: €2,205 million) net receivable in relation to financial derivatives. This is split €2,383 million (2017: €2,077 million) within trade and other payables and €2,629 million (2017: €4,282 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 2018 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 Other Payable €m 4,459 27,655 6,862 5,568 44,544 2018 Receivable €m 7,280 9,609 20,615 7,972 45,476 Payable €m 1,176 23,167 4,246 5,420 34,009 2017 Receivable €m 6,576 5,556 19,482 4,813 36,427 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 €1,972 million (2017: €2,008 million), leaving a €1,040 million (2017: €410 million) net payable in relation to financial derivatives. This is split €1,868 million (2017: €1,400 million) within trade and other payables and €828 million (2017: €1,810 million) within trade and other receivables. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 146 20. Borrowings (continued) 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 2018 Sterling Euro US dollar Other 31 March 2017 2018 €m 46 94 172 312 Fixed rate borrowings1 €m 3,339 28,779 31 566 32,715 4,547 28,009 277 140 32,973 2017 €m 68 78 160 306 Other borrowings2 €m – 1,866 – – 1,866 – 1,894 – – 1,894 Total borrowings €m 3,339 36,411 2,930 579 43,259 4,552 37,420 4,449 153 46,574 Floating rate borrowings €m – 5,766 2,899 13 8,678 5 7,517 4,172 13 11,707 Notes: 1 The weighted average interest rate for the Group’s sterling denominated fixed rate borrowings is 2.5% (2017: 2.5%). The weighted average time for which these rates are fixed is 20.8 years (2017: 16.6 years). The weighted average interest rate for the Group’s euro denominated fixed rate borrowings is 2.1% (2017: 2.1%). The weighted average time for which the rates are fixed is 8.0 years (2017: 8.4 years). The weighted average interest rate for the Group’s US dollar denominated fixed rate borrowings is 0.0% (2017: 0.2%). The weighted average time for which the rates are fixed is 0.0 years (2017: 0.1 years). The weighted average interest rate for the Group’s other currency fixed rate borrowings is 12.3% (2017: 8.5%). The weighted average time for which the rates are fixed is 4.4 years (2017: 12.0 years). 2 At 31 March 2018 other borrowings of €1.9 billion (2017: €1.9 billion) include a €1.8 billion (2017: €1.8 billion) liability for payments due to holders of the equity shares in Kabel Deutschland AG under the terms of a domination and profit and loss transfer agreement. The figures shown in the tables above take into account cross-currency and interest rate swaps used to manage the currency and 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. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 147 21. Liquidity and capital resources This section includes an analysis of net debt, which is used to manage capital, and committed borrowing facilities. Net debt Net debt represented 49% of our market capitalisation at 31 March 2018 compared to 44% at 31 March 2017. Average net debt at month end accounting dates over the 12-month period ended 31 March 2018 was €31.9 billion and ranged between net debt of €30.0 billion and €32.9 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 Bonds, loans and other long-term borrowings Other financial instruments Derivative financial instruments included in trade and other receivables (note 14) Derivative financial instruments included in trade and other payables (note 15) Short-term investments (note 13)4 Cash collateral Net debt 2018 €m 4,674 2017 €m 8,835 (3,477) (2,712) (1,838) (1,159) (1,165) (10,351) (2,904) (3,648) (1,837) (867) (2,795) (12,051) (32,908) (32,908) (34,523) (34,523) 2,629 (2,383) 6,152 718 7,116 (31,469) 4,282 (2,077) 3,981 384 6,570 (31,169) Notes: 1 At 31 March 2018 US$570 million (2017: US$1,484 million) was drawn under the US commercial paper programme and €2,249 million (2017:€2,262 million) were drawn under the euro 2 commercial paper programme. Includes a €1.8 billion (2017: €1.8 billion) liability for payments due to holders of the equity shares in Kabel Deutschland AG under the terms of a domination and profit and loss transfer agreement. 3 At 31 March 2018 the amount includes €1,070 million (2017: €2,654 million) in relation to cash received under collateral support agreements. 4 At 31 March 2018 the amount primarily includes €3,087 million (31 March 2017: €2,039 million) in managed investment funds, €1,974 million (2017: €1,638 million) in government bonds of which UK gilts of €1,112 million (2017: €1,172 million) are used primarily as collateral in relation derivative financial instruments, and €976 million (31 March 2017: €182 million) short-term investments where the underlying assets are supply chain and handset receivables. At 31 March 2018 we had €4,674 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 2018 were managed investment funds, money market funds, government bonds 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 22 “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 2018 amounts external to the Group of €2,249 million were drawn under the euro commercial paper programme and US$570 million (€464 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 (€3.3 billion) and €3.8 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 2018 the total amounts in issue under these programmes split by currency were US$9.9 billion, €18.4 billion, £3.6 billion, AUD 1.2 billion, HKD 2.1 billion, NOK 2.2 billion, CHF 0.7 billion, JPY 10 billion. At 31 March 2018 the Group had bonds outstanding with a nominal value of €32.3 billion. During the year ended 31 March 2018 bonds with a nominal value equivalent of €4.2 billion were issued under the euro medium-term note programme. On 25 February 2016 the Group issued £2.9 billion (€3.5 billion) of subordinated mandatory convertible bonds (‘MCB’) issued in two tranches, with the first £1.4 billion (€1.7 billion) maturing during the year on 25 August 2017 and a further £1.4 billion (€1.7 billion) maturing on 25 February 2019 with coupons of 1.5% and 2.0% respectively. These were recognised as compound instruments with nominal values of £2.8 billion (€3.5 billion) recognised as a component of shareholders’ funds in equity and the fair value of future coupons of £0.1 billion (€0.1 billion) recognised as a financial liability in borrowings. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 148 21. Liquidity and capital resources (continued) The first tranche of the MCB converted to 729.1 million shares on 25 August 2017, reissued from treasury shares, at a conversion price of £1.9751. This reflected the conversion price at issue (£2.1730) adjusted for the pound sterling equivalent of aggregate dividends paid in August 2016, February 2017, and August 2017. At March 2018 conversion price of €1.9387, additionally reflecting dividends paid in February 2018, the remaining tranche would convert to 743 million Vodafone Group Plc shares representing approximately 3% of Vodafone’s share capital. The Group has hedged its exposure under the MCB 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 of the remaining tranche, the hedging strategy will provide a hedge for the repurchase price. Own shares The Group held a maximum of 2,192,064,339 of its own shares during the year which represented 8.0% of issued share capital at that time. Committed facilities In aggregate we have committed facilities of approximately €9,568 million, of which €7,168 million was undrawn and €2,400 million was drawn at 31 March 2018. The following table summarises the committed bank facilities available to us at 31 March 2018. Facility Syndicated revolving credit facilities EUR facility USD facility Loan facilities, capped at 50% of operating company capital expenditure in: Canada UK and Ireland Germany (VDSL spend) Italy Turkey and Romania Turkey Other Amount €m Drawn Maturity1 3,840 3,328 651 568 350 400 300 100 31 9,568 – – 651 568 350 400 300 100 31 2,400 11 January 20232 27 February 20222 02 June 2018 12 December 2021 16 March 2023 05 June 2020 18 September 2019 04 December 2020 19 September 2018 Notes: 1 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. 2 €0.1 billion/US$0.1 billion of the facility expires one year ahead of maturity. 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 2018 Vodafone Egypt had undrawn revolving credit facilities of EGP3 billion (€138 million). Vodacom had fully drawn facilities of US$75 million (€61 million) and facilities of ZAR0.48 billion (€33 million) of which ZAR0.46 billion (€32 million) was drawn. Vodafone Ghana had fully drawn facilities of US$143 million (€116 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 a 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, adjusted for dividends declared during the year, on 743 million shares. Sale of trade receivables During the year the Group sold certain trade receivables to a financial institution. Whilst there are no repurchase obligations in respect of these receivables, the Group provided a credit guarantee which would only become payable if default rates were significantly higher than historical rates. The credit guarantee is not considered substantive and substantially all risks and rewards associated with the receivables passed to the purchaser at the date of sale, therefore the receivables were derecognised. The maximum payable under the guarantees at 31 March 2018 was €506 million. No provision has been made in respect of these guarantees as the likelihood of a cash outflow has been assessed as remote. Supplier Financing arrangements The Group offers certain suppliers the opportunity to use a supply chain financing scheme (‘SCF’) which allows them to be paid earlier than the invoice due date. The Group evaluates supplier arrangements against a number of indicators to assess if the payable continues to hold the characteristics of a trade payable or should be classified as borrowings; these indicators include whether the payment terms exceed customary payment terms in the industry or 180 days. At 31 March 2018 none of the payables subject to supplier financing arrangements met the criteria to be reclassified as borrowings. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 149 22. Capital and financial risk management This note details the 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: – 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’); or – 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. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 150 22. Capital and financial risk management (continued) Net investment hedges Exchange differences arising from the translation of the net investment in foreign operations are recognised directly in other comprehensive income. 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 other comprehensive income 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: Net debt Equity Capital 2018 €m 31,469 68,607 100,076 2017 €m 31,169 73,719 104,888 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 manages centrally the Group’s funding requirement, net foreign exchange exposure, interest rate management exposures and counterpart risk arising from investments and derivatives. Treasury operations are conducted within a framework of policies and guidelines authorised and reviewed by the Board, most recently on 22 July 2017. A treasury risk committee comprising of the Group’s Chief Financial Officer, Group General Counsel and Company Secretary, Group Deputy Chief Financial Officer, Group Treasury Director and Group Director of Financial Controlling and Operations 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 maximum exposure to credit risk at 31 March to be as follows: Bank deposit Cash held in restricted deposits German government bonds UK government bonds Money market investments funds Derivative financial instruments Other investments – debt and bonds Trade receivables Other receivables and accrued income 2018 €m 2,197 1,382 862 1,112 2,477 2,629 8,596 5,402 3,410 28,067 2017 €m 1,856 1,109 – 1,638 6,979 4,282 6,747 5,335 2,886 30,832 The Group invested in UK and German government bonds on the basis they generate a fixed rate return and, are amongst the most creditworthy of investments available. The Group has three managed investment funds. These funds hold fixed income euro and 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 also invests in a fund where the underlying assets are supply chain receivables, the creditworthiness of which are enhanced by an insurance wrapper as provided by established insurance companies with a long-term credit rating of at least A-. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 151 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 2018 €m 1,070 2017 €m 2,654 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 2018 €3,389 million (2017: €3,322 million) of trade receivables were not yet due for payment. Overdue trade receivables consisted of €942 million (2017: €789 million) relating to the Europe region, and €306 million (2017: €423 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 810 226 530 1,250 2,816 Less provisions €m (32) (35) (206) (925) (1,198) 2018 Net receivables €m 778 191 324 325 1,618 Gross receivables €m 730 125 648 1,423 2,926 Less provisions €m (27) (23) (258) (1,077) (1,385) 2017 Net receivables €m 703 102 390 346 1,541 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 2018 were €528 million (2017: €589 million) (see note 14 “Trade and other receivables”). As discussed in note 29 “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. Liquidity risk At 31 March 2018 the Group had €3.8 billion and US$4.1 billion syndicated committed undrawn bank facilities which support the US$15 billion and €8 billion commercial paper programme available to the Group. The Group uses commercial paper and bank facilities to manage short-term liquidity and manages long-term liquidity by raising funds in the capital markets. The euro syndicated committed facility has a maturity date of 11 January 2023. The US$ syndicated committed facility has a maturity date of 27 February 2022. 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 38 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 2018 amounted to €4,674 million (2017: €8,835 million). Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 152 22. Capital and financial risk management (continued) 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. The policy also allows euros, US dollars and sterling to be moved to a fixed rate basis if interest rates are statistically low. 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 rise in market interest rates for all currencies in which the Group had borrowings at 31 March 2018 there would be an increase in profit before tax by approximately €372 million (2017: approximately €470 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. At 31 March 2018 other than USD denominated liabilities, which are retained in order to hedge foreign exchange movements arising from our investment in VZ Communication loan notes, substantially all of our outstanding liabilities are held on a fixed interest rate basis in accordance with treasury policy. 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 and sterling, the Group maintains the currency of debt and interest charges in proportion to its expected future principal cash flows and has a policy to hedge external foreign exchange risks on transactions denominated in other currencies above a certain de minimis level. At 31 March 2018 27% of net debt was denominated in currencies other than euro (9% sterling, 8% US dollar, 7% South African rand and 3% other). This allows US dollar, South African rand 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 2018 the Group held financial liabilities in a net investment hedge against the Group’s South African rand. Sensitivity to foreign exchange movements on the hedging liabilities, analysed against a strengthening of the South African rand by 15% (2017:18%) would result in a decrease in equity of €348 million (2017: €493 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 South African rand. ZAR 15% change (2017: 18%) – Operating profit1 Notes: 1 Operating profit before impairment losses and other income and expense. 2018 €m 239 2017 €m 249 At 31 March 2018 the Group’s sensitivity to foreign exchange movements, analysed against a strengthening of the US dollar by 9% (2017: 11%) on its external US dollar exposure, would decrease the profit before tax by €65 million (2017: €100 million). Foreign exchange on certain sterling balances analysed against a 7% (2017: 10%) strengthening of sterling would increase the profit before tax by €208 million (2017: decrease by €262 million). 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 2018 the Group’s sensitivity to a movement of 10% (2017: 7%) in its share price would result in an increase or decrease in profit before tax of approximately €164 million (2017: €236 million). Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 153 Fair value and carrying value information The carrying value and valuation basis of the Group’s financial assets are set out in notes 13, 14 and 19. For all financial assets held at amortised cost the carrying values approximate fair value. The carrying value and valuation basis of the Group’s financial liabilities are set out in notes 15 and 20. The carrying values approximate fair value for the Group’s trade payables and other payables categories. For other financial liabilities a comparison of fair value and carrying value is disclosed in note 20. 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 2018 Derivative financial assets Derivative financial liabilities Total At 31 March 2017 Derivative financial assets Derivative financial liabilities Total Gross amount €m 2,629 (2,383) 246 Amount set off €m – – – Related amounts not set off in the balance sheet Amounts presented in balance sheet €m 2,629 (2,383) 246 Right of set off with derivative counterparties €m (1,467) 1,467 – Cash collateral €m (1,070) 718 (352) Net amount €m 92 (198) (106) Gross amount €m 4,282 (2,077) 2,205 Amount set off €m – – – Related amounts not set off in the balance sheet Amounts presented in balance sheet €m 4,282 (2,077) 2,205 Right of set off with derivative counterparties €m (1,505) 1,505 – Cash collateral €m (2,654) 384 (2,270) Net amount €m 123 (188) (65) 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. 23. 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 2018 €m 4 3 1 8 2017 €m 4 2 1 7 2016 €m 5 4 1 10 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 2018 by one Director who served during the year was <€0.1 million (2017: one Director, €0.7 million; 2016: one Director, €0.2 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 2018 €m 27 30 57 2017 €m 24 25 49 2016 €m 30 26 56 Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 154 24. 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. By activity: Operations Selling and distribution Customer care and administration By segment: Germany Italy Spain UK Other Europe Europe India (Discontinued operations) Vodacom Other Africa, Middle East and Asia-Pacific Africa, Middle East and Asia-Pacific Common Functions Total The cost incurred in respect of these employees (including Directors) was: Wages and salaries Social security costs Other pension costs (note 25) Share-based payments (note 26) India (Discontinued operations) Total 2018 Employees 2017 Employees 2016 Employees 17,094 35,025 54,016 106,135 13,718 6,606 5,015 12,379 11,760 49,478 11,086 7,524 13,606 32,216 24,441 106,135 2018 €m 4,179 547 222 128 5,076 219 5,295 18,207 38,252 55,097 111,556 14,478 6,601 5,118 13,238 15,801 55,236 13,187 7,590 14,183 34,960 21,360 111,556 2017 €m 4,630 582 212 95 5,519 217 5,736 18,869 38,325 54,490 111,684 14,862 6,676 5,935 13,323 16,058 56,854 13,346 7,515 14,262 35,123 19,707 111,684 2016 €m 4,759 621 270 154 5,804 212 6,016 Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 155 25. Post employment benefits The Group operates 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 from 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. The Group’s contributions to defined contribution pension plans are charged to the income statement as they fall due. Background At 31 March 2018 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 24) 2018 €m 178 44 222 2017 €m 192 20 212 2016 €m 214 56 270 Defined benefit schemes The Group’s retirement policy is to provide competitive pension provision, in each operating country, in line with the market median for that location. The Group’s preferred retirement provision is focused on Defined Contribution (‘DC’) arrangements and/or State provision for future service. The Group’s main defined benefit funding liability is the Vodafone UK Group Pension Scheme (‘Vodafone UK plan’). Since June 2014 the plan has consisted of two segregated sections: the Vodafone Section and the Cable & Wireless Section (‘CWW Section’). Both sections are closed to new entrants and to future accrual. The Group also operates funded and unfunded plans in Germany and funded plans in Ireland. Defined benefit pension provision exposes the Group to actuarial risks such as longer than expected longevity of participants, lower than expected return on investments and higher than expected inflation, which may increase the liabilities or reduce the value of assets of the schemes. The defined benefit schemes are administered by Trustee Boards who are legally separate from the Group and consist of representatives who are employees, former employees or are independent from the Company. The Boards of the pension schemes are required by legislation to act in the best interest of the participants, set the investment strategy and contribution rates and are subject to statutory funding objectives. The Vodafone UK plan is registered as an occupational pension plan with HMRC and is subject to UK legislation and operates within the framework outlined by 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. The trustees obtain regular actuarial valuations to check whether the statutory funding objective is met and whether a recovery plan is required to restore funding to the level of the agreed technical provisions. On 19 October 2017, the 31 March 2016 triennial actuarial valuation for the Vodafone Section and CWW Section of the Vodafone UK plan, which is used to judge the funding the Group needs to put into the scheme, was concluded. This valuation showed a net deficit of £279 million (€317 million) on the scheme’s funding basis, comprising of a £339 million (€385 million) deficit for the Vodafone Section offset by a £60 million (€68 million) surplus for the CWW Section. These scheme specific actuarial valuations will always be different to the IAS 19 accounting deficit, which is an accounting rule concerning employee benefits and shown on the Group’s consolidated statement of financial position. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 156 25. Post employment benefits (continued) The Group and Trustees of the scheme agreed a funding plan to address the valuation deficit in the Vodafone Section over the period to 31 March 2025 and made a cash contribution on 19 October 2017 of £185 million (€209 million) into the Vodafone Section and a further cash payment in accordance with the arrangements set under the previous valuation of £58 million (€66 million) into the CWW Section. These cash payments were invested into annuity policies issued by a third party insurance company which in turn entered into a reinsurance policy covering these risks with the Group’s captive insurance company. No further contributions are due in respect of the deficit revealed at the 2016 valuation. 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 €61 million will be paid into the Group’s defined benefit pension schemes during the year ending 31 March 2019. The Group has also provided certain guarantees in respect of the Vodafone UK plan; further details are provided in note 29 “Contingent liabilities and legal proceedings” to the consolidated financial statements. The investment strategy for the UK schemes is controlled by the trustees in consultation with the Company and the schemes have no direct investments in the Group’s equity securities or in property or other assets currently used by the Group. The allocation of assets between different classes of investment is reviewed regularly and is a key factor in the trustee’s investment policy. The trustees aim to achieve the scheme’s investment objectives through investing partly in a diversified mix of growth assets which, over the long term are expected to grow in value by more than the low risk assets. The low risk assets include cash and gilts, inflation and interest rate hedging and in substantial insured pensioner annuity policies in both the Vodafone Section and CWW Sections of the Vodafone UK plan. A number of investment managers are appointed to promote diversification by assets, organisation and investment style and current market conditions and trends are regularly assessed, which may lead to adjustments in the asset allocation. 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 increases in pensions in payment and deferred revaluation are dependent on the rate of inflation. 2018 % 2.9 2.7 2.5 2017 % 3.0 2.6 2.6 2016 % 2.8 2.6 3.2 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 23.2/26.5 years (2017: 24.1/25.4 years; 2016: 24.0/25.3 years) for a male/female pensioner currently aged 65 years and 26.1/29.3 (2017: 26.7/28.3 years; 2016: 26.6/28.1 years) from age 65 for a male/female non-pensioner member currently aged 40. 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 Past service costs Net interest charge Total included within staff costs Actuarial losses/(gains) recognised in the SOCI 2018 €m 34 2 8 44 94 2017 €m 43 (27) 4 20 274 2016 €m 45 – 11 56 (216) Duration of the benefit obligations The weighted average duration of the defined benefit obligation at 31 March 2018 is 22.8 years (2017: 22.9 years; 2016: 22.3 years). Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 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: 157 1 April 2016 Reclassification as held for sale Service cost Interest income/(cost) Return on plan assets excluding interest income Actuarial losses arising from changes in financial assumptions Actuarial gains arising from experience adjustments Employer cash contributions Member cash contributions Benefits paid Exchange rate movements Other movements 31 March 2017 Service cost Interest income/(cost) Return on plan assets excluding interest income Actuarial losses arising from changes in demographic assumptions Actuarial losses arising from changes in financial assumptions Actuarial gains arising from experience adjustments Employer cash contributions Member cash contributions Benefits paid Exchange rate movements Other movements 31 March 2018 An analysis of net (deficit)/assets is provided below for the Group as a whole. Assets €m 6,229 – 6,229 – 190 818 – – 24 8 (180) (403) 23 6,709 – 167 (37) – – – 301 8 (289) (156) (6) 6,697 Analysis of net (deficit)/assets: 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 2018 €m 6,697 (7,028) (331) (79) (410) 110 (520) 2017 €m 2016 €m 6,709 (7,222) (513) (81) (594) 57 (651) 6,229 (6,487) (258) (83) (341) 224 (565) Liabilities €m (6,570) 12 (6,558) 16 (194) – (1,204) 112 – (8) 180 403 (50) (7,303) (36) (175) – (46) (12) 1 – (8) 289 166 17 (7,107) 2015 €m 6,857 (7,316) (459) (91) (550) 234 (784) Net deficit €m (341) 12 (329) 16 (4) 818 (1,204) 112 24 – – – (27) (594) (36) (8) (37) (46) (12) 1 301 – – 10 11 (410) 2014 €m 4,652 (5,237) (585) (80) (665) 42 (707) Note: 1 Pension assets are deemed to be recoverable and there are no adjustments in respect of minimum funding requirements as 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. The International Accounting Standards Board (IASB) published an Exposure Draft in June 2015 that would amend IFRIC14 IAS19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and Their Interaction. However, in 2017 the IASB stated that they are carrying out “further work to assess whether it can establish a more principles-based approach in IFRIC14 for an entity to assess and measure its right to a refund of a surplus”. As such, it is not clear at this stage how and when IFRIC14 may be revised, and we will assess the impact of any changes when the revised version is published. 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. As part of 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: Assets Liabilities 2018 €m 2017 €m 2016 €m CWW Section 2015 €m 2014 €m 2018 €m 2017 €m 2016 €m Vodafone Section 2015 €m 2014 €m 2,760 (2,655) 105 2,894 (2,842) 52 2,762 (2,543) 219 3,114 (2,884) 230 2,155 (2,097) 58 2,773 (2,945) (172) 2,654 (2,962) (308) 2,408 (2,548) (140) 2,645 (2,951) (306) 1,626 (2,030) (404) 105 – 52 – 219 – 230 – 58 – – (172) – (308) – (140) – (306) – (404) Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 158 25. Post employment benefits (continued) Fair value of scheme 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 Without 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. 2018 €m 95 1,407 360 4,149 590 27 78 (1,146) 44 275 818 6,697 2017 €m 104 1,938 413 3,982 461 30 78 (1,218) (1) 299 623 6,709 The fair value of scheme assets, which have been measured at fair value in accordance with IFRS 13 “Fair Value Measurement”, are analysed by asset category above and are subdivided by assets that have a quoted market price in an active market and those that do not, such as investment funds. Where available, the fair values are quoted prices (e.g. listed equity, sovereign debt and corporate bonds). Unlisted investments without quoted prices in an active market (e.g. private equity) are included at values provided by the fund manager in accordance with relevant guidance. Other significant assets are valued based on observable inputs such as yield curves. The Vodafone UK Plan annuity policies include two new buy-in arrangements with Legal & General Assurance Society Limited entered into during the year ended 31 March 2018 following the cash contributions made by the Group. These policies fully match the pension obligations of those pensioners insured and therefore are set equal to the present value of the related obligations. Investment funds of €275 million at 31 March 2018 include €259 million of investments in diversified alternate beta funds held in the Vodafone Section of the Vodafone UK plan. The actual return on plan assets over the year to 31 March 2018 was a gain of €130 million (2017: €1,008 million). 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 2018. 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 obligation1 (556) 633 (4) 5 833 (713) 223 (220) Note: 1 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 year, which is the same as that applied in calculating the defined benefit obligation liability recognised in the statement of financial position. The rate of inflation assumption sensitivity factors in the impact of changes to all assumptions relating to inflation including the rate of increase in salaries, pension increases and deferred revaluations. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 159 26. Share-based payments The Group has 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 an average calculation of the closing price of the Group’s shares on the days prior to the grant date, 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: – 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 – 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 2018. There were no options outstanding under the Vodafone Global Incentive Plan at the year-end. 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 £375 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 Following a review of the UK all-employee plans it was decided that with effect from 1 April 2017 employees would no longer be able to contribute to the Share Incentive Plan and would therefore no longer receive matching shares. Individuals who hold shares in the plan will continue to receive dividend shares. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 160 26. Share-based payments (continued) Movements in outstanding ordinary share 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 2018 Millions 41 11 (2) (5) (5) 40 £1.61 £1.72 £1.65 £1.57 £1.65 £1.64 2017 Millions 24 31 (1) (7) (6) 41 £1.62 £1.61 £1.66 £1.50 £1.75 £1.61 Ordinary share options 2016 Millions 25 7 (1) (5) (2) 24 £1.49 £1.89 £1.54 £1.42 £1.59 £1.62 Exercisable Weighted average remaining contractual life Months Summary of options outstanding and exercisable at 31 March 2018 Outstanding shares Millions Weighted average exercise price Outstanding Weighted average remaining contractual life Months Exercisable shares Millions Weighted average exercise price Vodafone Group savings related and Sharesave Plan: £1.01 – £2.00 Share awards Movements in non-vested shares are as follows: 1 April Granted Vested Forfeited 31 March 40 £1.64 21 – – – 2018 Weighted average fair value at grant date £1.91 £1.95 £1.76 £1.58 £2.04 Millions 178 74 (42) (28) 182 2017 Weighted average fair value at grant date £1.77 £1.97 £1.77 £1.57 £1.91 Millions 198 74 (47) (47) 178 2016 Weighted average fair value at grant date £1.56 £2.22 £1.80 £1.40 £1.77 Millions 217 63 (32) (50) 198 Other information The total fair value of shares vested during the year ended 31 March 2018 was £74 million (2017: £83 million; 2016: £58 million). The compensation cost included in the consolidated income statement in respect of share options and share plans was €128 million (2017: €95 million; 2016: €154 million) which is comprised principally of equity-settled transactions. The average share price for the year ended 31 March 2018 was 216.2 pence (2017: 216.2 pence; 2016: 224.2 pence). Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 161 27. Acquisitions and disposals We completed a number of acquisitions and disposals during the year. The note below provides details of these transactions as well as those in the prior year including, most significantly, the combination of our operations in the Netherlands with those of Liberty Global plc to form VodafoneZiggo, a 50:50 joint venture. 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. Disposals Vodafone And Qatar Foundation L.L.C (‘Vodafone Qatar’) On 29 March 2018, the Group sold its 51% interest in Vodafone And Qatar Foundation L.L.C for consideration of QAR1,350 million (€299 million). The Group recognised a net gain on disposal of €113 million reported in other income and expense. VodafoneZiggo Group Holding B.V. (‘VodafoneZiggo’) On 31 December 2016, we combined our operations in the Netherlands with those of Liberty Global plc to create VodafoneZiggo Group Holding B.V., a 50:50 joint venture providing national unified communications. As a result of the transaction, we no longer consolidate our previous interest in the Netherlands and account for our 50% interest in VodafoneZiggo as a Joint Venture using the equity method. The Group recognised a net gain on the formation of VodafoneZiggo of €1,275 million. Goodwill Other intangible assets Property, plant and equipment Inventory Trade and other receivables Cash and cash equivalents1 Current and deferred taxation Short and long-term borrowings Trade and other payables Provisions Net assets contributed into VodafoneZiggo Fair value of investment in VodafoneZiggo2 Net cash proceeds arising from the transaction1,3 Net gain on formation of VodafoneZiggo4 €m (855) (1,415) (1,164) (24) (302) (56) 87 1,000 387 28 (2,314) 2,970 619 1,275 Included in purchase of interests in associates and joint ventures in the consolidated statement of cash flows. Notes: 1 2 The fair value of our initial investment in VodafoneZiggo is not observable in a quoted market. Accordingly, the fair value has been primarily determined with reference to the outcome of a discounted cash flow analysis. Certain significant inputs used in the valuation, such as forecasts of future cash flows, are based on our assumptions and are therefore unobservable. The valuation therefore falls under Level 3 of the fair value hierarchy. The weighted average cost of capital and terminal growth rate used to value our initial investment in VodafoneZiggo were 7.0% and 1.0% respectively. Includes our 50% share of cash paid to both shareholders on creation of VodafoneZiggo (€1,422 million), together with an equalisation payment of €802 million made to Liberty Global plc. 3 4 Reported in other income and expense in the consolidated income statement. Includes €637 million related to the re-measurement of our retained interest in Vodafone Libertel B.V. Transaction costs of €35 million were charged in the consolidated income statement in the year. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 162 28. 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 2018 €m 2,686 1,633 1,155 903 717 2,600 9,694 2017 €m 2,522 1,487 1,136 882 709 2,693 9,429 The total of future minimum sublease payments expected to be received under non-cancellable subleases is €859 million (2017: €584 million). Capital commitments Contracts placed for future capital expenditure not provided in the financial statements1 Company and subsidiaries Share of joint operations 2018 €m 2017 €m 2,630 2,052 2018 €m 76 2017 €m 88 2018 €m Group 2017 €m 2,706 2,140 Note: 1 Commitment includes contracts placed for property, plant and equipment and intangible assets. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 163 Acquisition commitments Vodafone India On 20 March 2017, Vodafone announced the agreement to combine its subsidiary, Vodafone India (excluding its 42% stake in Indus Towers), with Idea Cellular Limited (‘Idea’), which is listed on the Indian Stock Exchanges, with the combined company to be jointly controlled by Vodafone and the Aditya Birla Group (‘ABG’). Vodafone will own 45.1% of the combined company after transferring a stake of 4.9% to the Aditya Birla Group for approximately INR39 billion (approximately US$579 million) in cash concurrent with completion of the merger. ABG will then own 26.0% and has the right to acquire more shares from Vodafone under an agreed mechanism with a view to equalising the shareholdings over time. If Vodafone and ABG’s shareholdings in the combined company are not equal after four years, Vodafone will sell down shares in the combined company to equalise its shareholding to that of the ABG over the following five-year period. Until equalisation is achieved, the voting rights of the additional shares held by Vodafone will be restricted and votes will be exercised jointly under the terms of the shareholders’ agreement. The transaction has a break-fee of INR33 billion (US$500 million) that would become payable under certain circumstances. On 4 January 2018 Idea announced its intention to raise up to INR67.5 billion (€882 million) of equity, which was achieved through a INR32.5 billion (€425 million) preferential allotment to the ABG entities and an additional INR35.0 billion (€457 million) of equity raised through a qualified institutions placement. The proceeds from this capital raise, in addition to the INR78.5 billion (€1.0 billion) of proceeds from the announced disposals of Vodafone India’s and Idea’s standalone tower businesses, would be used to strengthen the balance sheet of the merged entity (Vodafone India and Idea). As a consequence of the change in shareholding in Idea following the capital raise, ABG and Vodafone have agreed that ABG will buy a minimum of 2.5% of the merged entity from Vodafone, or such higher stake required in order for ABG to ultimately own at least 26% of the merged entity. Consequently, Vodafone will receive minimum proceeds of INR19.6 billion (€256 million) from such sale and Vodafone’s ownership in the combined entity is expected to be not more than 47.5% at completion. Vodafone’s stake in the combined entity in excess of 45.1% will not be subject to any lock-up after closing and Vodafone will be free to sell the relevant shares without restrictions. Based on ABG’s shareholding in Idea as at 31 March 2018, ABG will need to acquire approximately 4.8% of the merged entity from Vodafone at completion in order to own at least 26% of the merged entity. This would result in Vodafone having an approximate 45.2% shareholding. The aforementioned changes to the capital structure were already contemplated in the scheme of arrangement for the merger, which has been approved by the Competition Commission of India, the shareholders and creditors of both Idea and Vodafone India, and the relevant National Company Law Tribunals. Foreign investment and Department of Telecommunications approvals are currently pending. As such, Vodafone now expects the merger to be completed in June 2018. As per the agreement entered into on 20 March 2017, Vodafone India’s contribution of net debt to the merged entity and Vodafone Group’s funding requirement will be dependent on Idea’s net debt at completion of the merger, as well as customary closing adjustments, but is not affected by proceeds received in relation to the announced disposals of Vodafone India’s and Idea’s standalone towers and a potential monetisation of Idea’s 11.15% stake in Indus Towers. Vodafone will contribute INR24.8 billion (€323 million) more net debt than Idea at completion. On 31 March 2018, Vodafone India completed the sale of its standalone tower business in India to ATC Telecom Infrastructure Private Limited (‘ATC’) for an enterprise value of INR38.5 billion (€478 million). The receipt of these proceeds prior to completion of the proposed merger of Vodafone India and Idea was anticipated and provided for in the merger agreement and hence does not affect the agreed terms of the merger, including the amount of debt which Vodafone will contribute to the combined company at completion. Completion of Idea’s sale of its standalone tower business to ATC for INR40.0 billion is expected in the first half of this calendar year. Following the completion of Idea’s equity raise in February 2018, under the terms of the merger agreement with Idea the Group intends to inject up to €1 billion of incremental equity into India, net of the proceeds of the sale of a stake in the JV to the Aditya Birla Group, prior to completion. Vodafone Greece On 23 January 2018, Vodafone announced that Vodafone Greece had agreed to acquire CYTA Telecommunications Hellas S.A., a provider of fixed and mobile telecommunication services in Greece, for a total enterprise value of €118 million. The acquisition is subject to a number of conditions, including antitrust clearance by the relevant competent authorities. Vodafone to acquire Liberty Global’s operations in Germany, the Czech Republic, Hungary and Romania On 9 May 2018, Vodafone announced that it had agreed to acquire Liberty Global’s operations in Germany, the Czech Republic, Hungary and Romania for an enterprise value of €18.4 billion. See note 31 “Subsequent events” for further details. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 164 29. 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 2018 €m 993 4,036 2017 €m 2,413 3,576 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 AUD1.7 billion loan facility and a US$3.5 billion loan facility of its joint venture, Vodafone Hutchison Australia Pty Limited. The Group’s share of these loan balances is included in the net investment in joint venture (see note 12 “Investments in joint ventures”). UK pension schemes The Group’s main defined benefit scheme is the Vodafone UK Group Pension Scheme (the ‘Scheme’) which has two segregated sections, the Vodafone Section and the CWW Section, as detailed in note 25. The Group has covenanted to provide security in favour of both the Vodafone Sections and CWW Section of the Scheme whilst a deficit remains. The deficit is measured on a prescribed basis agreed between the Group and Trustee. The Group provides a combination of surety bonds and a charge over UK indexed gilts as the security. The level of the security has varied since inception in line with the movement in the Scheme deficit. At 31 March 2018 the Scheme retains security over €536 million (notional value) for the Vodafone Section and €57 million (notional value) for the CWW Section. The security may be substituted either on a voluntary or mandatory basis. The Company has also provided two guarantees to the Vodafone Section of the Scheme for a combined value up to €1.7 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 €1.7 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 €114 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 Group; 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, however costs in complex litigation can be substantial. Indian tax cases In August 2007 and September 2007, Vodafone India Limited (‘VIL’) and Vodafone International Holdings BV (‘VIHBV’) respectively received notices from the Indian tax authority alleging potential liability in connection with an alleged failure by VIHBV to deduct withholding tax from consideration paid to the Hutchison Telecommunications International Limited group (‘HTIL’) in respect of HTIL’s gain on its disposal to VIHBV of its interests in a wholly-owned Cayman Island incorporated subsidiary that indirectly holds interests in VIL. Following approximately five years of litigation in the Indian courts in which VIHBV sought to set aside the tax demand issued by the Indian tax authority, in January 2012 the Supreme Court of India handed down its judgement, holding that VIHBV’s interpretation of the Income Tax Act 1961 was correct, that the HTIL transaction in 2007 was not taxable in India, and that consequently, VIHBV had no obligation to withhold tax from consideration paid to HTIL in respect of the transaction. The Supreme Court of India quashed the relevant notices and demands issued to VIHBV in respect of withholding tax and interest. On 28 May 2012 the Finance Act 2012 became law. The Finance Act 2012, which amended various provisions of the Income Tax Act 1961 with retrospective effect, contained provisions intended to tax any gain on transfer of shares in a non-Indian company, which derives substantial value from underlying Indian assets, such as VIHBV’s transaction with HTIL in 2007. Further, it seeks to subject a purchaser, such as VIHBV, to a retrospective obligation to withhold tax. VIHBV received a letter on 3 January 2013 from the Indian tax authority reminding it of the tax demand raised prior to the Supreme Court of India’s judgement and purporting to update the interest element of that demand to a total amount of INR142 billion, which includes principal and interest as calculated by the Indian tax authority but does not include penalties. On 10 January 2014, VIHBV served an amended trigger notice on the Indian Government under the Netherlands-India Bilateral Investment Treaty (‘Dutch BIT’), supplementing a trigger notice filed on 17 April 2012, immediately prior to the Finance Act 2012 becoming effective, to add claims relating to an attempt by the Indian Government to tax aspects of the transaction with HTIL under transfer pricing rules. A trigger notice announces a party’s intention to submit a claim to arbitration and triggers a cooling off period during which both parties may seek to resolve the dispute amicably. Notwithstanding their attempts, the parties were unable to amicably resolve the dispute within the cooling off period stipulated in the Dutch BIT. On 17 April 2014, VIHBV served its notice of arbitration under the Dutch BIT, formally commencing the Dutch BIT arbitration proceedings. In June 2016, the tribunal was fully constituted with Sir Franklin Berman KCMG QC appointed as presiding arbitrator. The Indian Government has raised objections to the application of the treaty to VIHBV’s claims and to the jurisdiction of the tribunal under the Dutch BIT. On 19 June 2017, the tribunal decided to try both these jurisdictional objections along with the merits of VIHBV’s claim in a hearing now scheduled for February 2019. More recent attempts by the Indian Government to have the jurisdiction arguments heard separately have also failed. VIHBV will file its response to India’s defence in July 2018 and India will respond in December 2018. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 165 Separately, on 15 June 2015, Vodafone Group Plc and Vodafone Consolidated Holdings Limited served a trigger notice on the Indian Government under the United Kingdom-India Bilateral Investment Treaty (‘UK BIT’) in respect of retrospective tax claims under the Income Tax Act 1961 (as amended by the Finance Act 2012). Although relating to the same underlying facts as the claim under the Dutch BIT, the claim brought by Vodafone Group Plc and Vodafone Consolidated Holdings Limited is a separate and distinct claim under a different treaty. On 24 January 2017, Vodafone Group Plc and Vodafone Consolidated Holdings Limited served a Notice of Arbitration on the Indian Government formally commencing the arbitration. The Indian Government has appointed a second arbitrator as required under the UK BIT under protest. The Indian Government has indicated that it considers the arbitration under the UK BIT to be an abuse of process but this is strongly denied by Vodafone. On 22 August 2017, the Indian Government obtained an injunction from the Delhi High Court preventing Vodafone from progressing the UK BIT arbitration. Vodafone was not present when India obtained this injunction and applied to dismiss it. On 26 October 2017, the Delhi High Court varied its order to permit Vodafone to participate in the formation of the UK BIT tribunal. It now consists of Marcelo Kohen, an Argentinian national and professor of international law in Geneva (appointed by India), Neil Kaplan, a British national (appointed by Vodafone Group Plc) and Professor Campbell Mclachlan QC, a New Zealand national (appointed by the parties as presiding arbitrator). No further steps in the arbitration were permitted pending a decision on India’s injunction. On 7 May 2018, the Delhi High Court dismissed the injunction. The Indian Government has the right to appeal the decision. On 12 February 2016, VIHBV received a notice dated 4 February 2016 of an outstanding tax demand of INR221 billion (which included interest accruing since the date of the original demand) along with a statement that enforcement action, including against VIHBV’s indirectly held assets in India, would be taken if the demand was not satisfied. On 29 September 2017, VIHBV received an electronically generated demand in respect of alleged principal, interest and penalties in the amount of INR190.7 billion. This demand does not appear to have included any element for alleged accrued interest liability. Separate proceedings in the Bombay High Court taken against VIHBV to seek to treat it as an agent of HTIL in respect of its alleged tax on the same transaction, as well as penalties of up to 100% of the assessed withholding tax for the alleged failure to have withheld such taxes, were listed for hearing at the request of the Indian Government on 21 April 2016 despite the issue having been ruled upon by the Supreme Court of India. The hearing has since been periodically listed and then adjourned or not reached hearing. VIHBV and Vodafone Group Plc will continue to defend vigorously any allegation that VIHBV or VIL is liable to pay tax in connection with the transaction with HTIL and will continue to exercise all rights to seek redress including pursuant to the Dutch BIT and the UK BIT. We have not recorded a provision in respect of the retrospective provisions of the Income Tax Act 1961 (as amended by the Finance Act 2012) and any tax demands based upon such provisions. Other Indian tax cases VIL and Vodafone India Services Private Limited (‘VISPL’) (formerly 3GSPL) are involved in a number of tax cases with total claims exceeding €2.4 billion plus interest, and penalties of up to 300% of the principal. VISPL tax claims VISPL has been assessed as owing tax of approximately €264 million (plus interest of €422 million) in respect of (i) a transfer pricing margin charged for the international call centre of HTIL prior to the 2007 transaction with Vodafone for HTIL assets in India; (ii) the sale of the international call centre by VISPL to HTIL; and (iii) the acquisition of and/or the alleged transfer of options held by VISPL for VIL. The first two of the three heads of tax are subject to an indemnity by HTIL. The larger part of the potential claim is not subject to any indemnity. VISPL unsuccessfully challenged the merits of the tax demand in the statutory tax tribunal and the jurisdiction of the tax office to make the demand in the High Court. The Tax Appeal Tribunal heard the appeal and ruled in the Tax Office’s favour. VISPL lodged an appeal (and stay application) in the Bombay High Court which was concluded in early May 2015. On 13 July 2015 the tax authorities issued a revised tax assessment reducing the tax VISPL had previously been assessed as owing in respect of (i) and (ii) above. In the meantime, (i) a stay of the tax demand on a deposit of £20 million and (ii) a corporate guarantee by VIHBV for the balance of tax assessed remain in place. On 8 October 2015, the Bombay High Court ruled in favour of Vodafone in relation to the options and the call centre sale. The Tax Office has appealed to the Supreme Court of India. A hearing has been adjourned with no specified date. Indian regulatory cases Litigation remains pending in the Telecommunications Dispute Settlement Appellate Tribunal (‘TDSAT’), High Courts and the Supreme Court of India 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’). 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 Supreme Court of India. The matter is pending before the Supreme Court of India. 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 Supreme Court of India, and will be listed in due course. Other public interest litigation Three public interest litigations have been initiated in the Supreme Court of India 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. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 166 29. Contingent liabilities and legal proceedings (continued) Adjusted Gross Revenue (‘AGR’) dispute before the Supreme Court of India: VIL and others v Union of India VIL has challenged the tribunal’s judgement dated 23 April 2015 to the extent that it dealt with the calculation of AGR, upon which licence fees and spectrum usage charges are based. The cumulative impact of the inclusion of these components is approximately €1.67 billion. The Department of Telecommunications (‘DoT’) also moved cross appeals challenging the tribunal’s judgement. In the hearing before the Supreme Court of India, the Court orally directed the DoT not to take any coercive steps in the matter, which was adjourned. On 29 February 2016, the Supreme Court of India ordered that the DoT may continue to raise demands for fees and charges, but may not enforce them until a final decision on the matter. Other cases in the Group Patent litigation Germany The telecoms industry is currently involved in significant levels of patent litigation brought by non-practising 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 Marthon, IPCom and Intellectual Ventures. Vodafone has contractual indemnities from suppliers which have been invoked in relation to the alleged patent infringement liability. Spain Vodafone Group Plc has been sued in Spain by TOT Power Control (‘TOT’), an affiliate of Top Optimized Technologies. The claim makes a number of allegations including patent infringement, with TOT seeking over €500 million from Vodafone Group Plc as well as an injunction against using the technology in question. Vodafone’s initial challenge of the appropriateness of Spain as a venue for this dispute was denied. Vodafone Group Plc appealed the denial and was partially successful. In a decision dated 30 October 2017, the court ruled that while it did have jurisdiction to hear the infringement case relating to the Spanish patent, it was not competent to hear TOT’s contractual and competition law claims. This decision is subject to appeal. TOT’s application for an injunction was unsuccessful and TOT is appealing. A trial has now been set to commence on 10 September 2018. Germany: Mannesmann and Kabel Deutschland takeover – class actions Since 2001, the German courts have been determining the adequacy of the mandatory cash offer made to minority shareholders in Vodafone’s takeover of Mannesmann. The German courts were also asked to consider whether “squeeze out” compensation was payable to affected Mannesmann shareholders in a similar proceeding. In September 2014, the German courts awarded compensation to minority shareholders of Mannesmann in the amount of €229.58 per share, which would have resulted in a pay-out of €19 million. The German courts also ruled that the “squeeze out” compensation should amount to €251.31 per share, which would have resulted in a pay-out of €43.8 million. Vodafone appealed these decisions and in March 2018 the Court ruled in Vodafone’s favour that the original compensation had been adequate. There is no right of appeal. Similar proceedings were initiated by 80 Kabel Deutschland shareholders. These proceedings are in their early stages, and, accordingly, Vodafone believes that it is too early to assess the likely quantum of any claim. In a hearing on 6 October 2016, the Court examined the Kabel Deutschland business plan which formed the main basis for the calculation of the offer per share. The next hearings are scheduled for June 2018. Italy: British Telecom (Italy) v Vodafone Italy The Italian Competition Authority concluded an investigation in 2007 when Vodafone Italy gave certain undertakings in relation to allegations that it had abused its dominant position in the wholesale market for mobile termination. In 2010, British Telecom (Italy) brought a civil damages claim against Vodafone Italy on the basis of the Competition Authority’s investigation and Vodafone Italy’s undertakings. British Telecom (Italy) sought 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) appealed the amount of the damages to the Court of Appeal of Milan. In addition, British Telecom (Italy) has asked again for a reference to the European Court of Justice for an interpretation of the European community law on antitrust damages. Vodafone Italy also filed an appeal which was successful. British Telecom (Italy) were ordered to repay to Vodafone Italy the €12 million with interest and legal costs. An appeal to the Supreme Court is still possible. 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 final hearing took place in September 2016, and on 1 March 2017 the Court rejected FASTWEB’s appeal and confirmed the first instance ruling. FASTWEB appealed this decision to the Supreme Court and a decision is not expected for two to three years. 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 expert has prepared a draft report with a range of damages from €nil–9 million. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 167 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. 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. A number of small claims have been submitted by individual customers in the small claims courts. On 15 February 2018, Consumentenbond (a claims agency) issued a press release stating that Consumentenbond has initiated collective claim proceedings against VodafoneZiggo, Tele2, T-Mobile and now KPN. South Africa: GH Investments (‘GHI’) v Vodacom Congo Vodacom Congo contracted with GHI to install ultra-low cost base stations on a revenue share basis. After rolling out three sites, GHI stopped and sought to renegotiate the terms. Vodacom Congo refused. GHI accused it of bad faith and infringement of intellectual property rights. In April 2015, GHI issued a formal notice for a claim of US$1.16 billion, although there does not seem to be a proper basis nor any substantiation for the compensation claimed. The dispute was submitted to mediation under the International Chamber of Commerce. A mediator was appointed in September 2015 who convened a first meeting which took place in early November 2015. A follow-up mediation meeting was scheduled for December 2015 but was postponed without a new date having been fixed. In July 2016, Vodacom filed a request for arbitration with the International Chamber of Commerce’s International Court of Arbitration. In their response GHI revised their claim down to US$256 million. Each party has appointed an arbitrator and the arbitrators have appointed a third arbitrator to act as chairman of the tribunal. A trial was scheduled for March 2018 but GHI failed to pay its share of the arbitration fees resulting in a decision by the Court in February 2018 that GHI’s claims were considered withdrawn. South Africa: Makate v Vodacom (Proprietary) Limited (‘Vodacom’) Negotiations in accordance with the Constitutional Court order to determine a reasonable compensation for Mr. Makate for a business idea that led to a product known as “Please Call Me” have deadlocked and the matter has been referred to the Group’s Chief Executive Officer to determine reasonable compensation in accordance with the Constitutional Court order. 30. 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 25 “Post employment benefits” and note 23 “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 2018 €m 19 1 194 199 120 4 2 107 28 1,328 150 2017 €m 37 90 19 183 87 – 1 158 15 1,209 127 2016 €m 39 118 21 92 92 1 4 232 71 108 106 Note: 1 Amounts arise primarily through VodafoneZiggo, Vodafone Hutchison Australia 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. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 168 30. Related party transactions (continued) Transactions with Directors other than compensation During the three years ended 31 March 2018, and as of 15 May 2018, 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 2018 and as of 15 May 2018, 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. 31. Subsequent events Vodafone UK On 5 April 2018, Vodafone announced that Vodafone UK had acquired 50 MHz of spectrum in the 3400 MHz band for mobile data services in Ofcom’s auction for a total cost of £378.2 million (€433.4 million). The spectrum acquired has a 20 year term and is convertible to perpetual licences thereafter. Indus Towers On 25 April 2018, Vodafone, Bharti Airtel Limited (‘Bharti Airtel’) and Idea announced the merger of Indus Towers Limited (‘Indus Towers’) into Bharti Infratel Limited (‘Bharti Infratel’), creating a combined company that will own the respective businesses of Bharti Infratel and Indus Towers. Indus Towers is currently jointly owned by Bharti Infratel (42%), Vodafone (42%), Idea Group (11.15%) and Providence (4.85%). Bharti Airtel and Vodafone will jointly control the combined company, in accordance with the terms of a new shareholders’ agreement. Idea Group has the option to either sell its 11.15% shareholding in Indus Towers for cash or receive new shares in the combined company. Providence has the option to elect to receive cash or shares for 3.35% of its 4.85% shareholding in Indus Towers, with the balance exchanged for shares. Vodafone will be issued with 783.1 million new shares in the combined company, in exchange for its 42% shareholding in Indus Towers. On the basis that (a) Providence decides to sell 3.35% of its 4.85% shareholding in Indus Towers for cash and (b) Idea Group decides to sell its full 11.15% shareholding in Indus Towers for cash, these shares would be equivalent to a 29.4% shareholding in the combined company. On the basis that (a) Providence decides to sell 3.35% of its 4.85% shareholding in Indus Towers for cash, and (b) Idea Group decides to sell its full 11.15% shareholding in Indus Towers for cash, Bharti Airtel’s shareholding will be diluted from 53.5% in Bharti Infratel today to 37.2% in the combined company. The final number of shares issued to Vodafone and the cash paid or shares issued to Idea Group and Providence, will be subject to closing adjustments, including but not limited to movements in net debt and working capital for Bharti Infratel and Indus Towers. The transaction is conditional on regulatory and other approvals and is expected to close before the end of the financial year ending 31 March 2019. Vodafone to acquire Liberty Global’s operations in Germany, the Czech Republic, Hungary and Romania On 9 May 2018, Vodafone announced that it had agreed to acquire Unitymedia GmbH (‘Unitymedia’) in Germany and Liberty Global’s operations (excluding its ‘Direct Home’ business) in the Czech Republic (‘UPC Czech’), Hungary (‘UPC Hungary’), and Romania (‘UPC Romania’), for a total enterprise value of €18.4 billion (the ‘Transaction’). This is expected to comprise approximately €10.8 billion of cash consideration paid to Liberty Global and €7.6 billion of existing Liberty debt, subject to completion adjustments. UPC Czech, UPC Hungary and UPC Romania will be acquired on a cash-free, debt-free basis, while it is expected that Unitymedia’s existing bond structure (€4.5 billion outstanding as of 9 May 2018) will be retained and refinanced over time, with €2.2 billion of Unitymedia’s term loans to be refinanced shortly after completion. The €10.8 billion of cash consideration payable to Liberty Global and the refinancing of Unitymedia’s term loans will be financed using Vodafone’s existing cash, around €10 billion of new debt facilities (including hybrid debt securities) and around €3 billion of mandatory convertible bonds, which will be issued prior to completion. The cash consideration payable to Liberty Global will be subject to adjustments for net debt and other items at completion. A break fee of €250 million will be payable by Vodafone, in certain circumstances, if the Transaction does not complete. The Transaction is subject to review by and approval from the European Commission. It is anticipated that completion will take place around the middle of calendar 2019. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 169 32. 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 2018 is detailed below. 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 % of share class held by Group Companies Share class Company name % of share class held by Group Companies Share class Company name % of share class held by Group Companies Share class Albania Autostrada Tirane-Durres, Rruga: “Pavaresia”, Nr 61, Kashar, Tirana, Albania Vodafone Albania Sh.A 100.00 Ordinary shares Vodafone M-PESA SH.P.K. 100.00 Ordinary shares Angola Rua Fernao de Sousa, Condominio do Benga, 10A, Vila Alice, Luanda, Angola Vodacom Business (Angola) Limitada 2 63.87 Ordinary shares Argentina Cerrito 348, 5to B, C1010AAH, Buenos Aires, Argentina CWGNL S.A. 100.00 Ordinary shares Australia C/-KPMG Level 38 Tower Three, International Towers Sydney, 300 Barangaroo Avenue, Sydney NSW 2000, Australia Quickcomm Pty Limited 100.00 Ordinary shares, Redeemable convertible preference shares Level 1, 177 Pacific Highway, 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 Mills Oakley, Level 12, 400 George Street, Sydney NSW 2000, Australia Vodafone Enterprise Australia Pty Limited 100.00 Ordinary shares Austria c/o Stolitzka & Partner Rechtsanwälte OG, Kärntner Ring 12, 3. Stock, 1010, Wien, Austria Vodafone Enterprise Austria GmbH 100.00 Ordinary shares Bahrain RSM Bahrain, 3rd floor Falcon Tower, Diplomatic Area, Manama, PO BOX 11816, Bahrain Vodafone Enterprise Bahrain W.L.L. 100.00 Ordinary shares Belgium Malta House, rue Archimède 25, 1000 Bruxelles, Belgium Vodafone Belgium SA/NV 100.00 Ordinary shares Brazil Avenida Cidade Jardim, 400, 7th and 20th Floors, Jardim Paulistano, Sao Paul, Brazil, 01454-000 Vodafone Serviços Empresariais Brasil Ltda. 100.00 Ordinary shares 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 Rua Boa Vista, 01014-907, 254, 13th Floor, Suite 38, Centro, City of São Paulo, State of São Paulo, Brazil Vodafone Empresa Brasil Telecomunicações Ltda 100.00 Ordinary shares Bulgaria 10 Tsar Osvoboditel Blvd., 3rd Floor, Spredets Region, Sofia, 1000, Bulgaria Vodafone Enterprise Bulgaria EOOD 100.00 Ordinary shares Cameroon Porte 201A 3eme Etage Entree C, immeuble SOCAR, Boulevard de la liberte, Akwa, Douala, Cameroon Vodacom Business Cameroon SA 2 64.52 Ordinary shares Canada 2 Bloor Street West, Suite 700, Toronto ON M4W3E2, Canada Vodafone 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, Chile Vodafone Enterprise Chile S.A. 100.00 Ordinary shares China Building 21, 11, Kangding St., BDA, Beijing, 100176 – China, China Vodafone Automotive Technologies (Beijing) Co, Ltd 100.00 Ordinary shares Floor 36, Unit 23-25, China World Tower 1 No. 1, Jianguomenwai Avenue, Chaoyang District, Beijing, 100004, China Vodafone China Limited (China) 100.00 Equity interest shares Unit 1708, Full Tower, No. 9 Dong San Huan Zhong Road, Chaoyang District, Beijing, 100020, China Cable & Wireless Communications Technical Service (Shanghai) Co. Ltd (Beijing Branch) 100.00 Branch Unit 558-560, 5/F Standard Chartered Bank Tower, No.201 Century Avenue, Pudong District, Shanghai, 200120, China Vodafone Enterprise Communications Technical Service (Shanghai) Co., Ltd. 100.00 Ordinary shares Congo, The Democratic Republic of the 292 Avenue de la Justice, Commune de la Gombe, Kinshasa, Congo Vodacash S.A. 2 32.90 Ordinary shares Vodacom Congo (RDC) SA 2,3 32.90 Ordinary shares Cote d’Ivoire No 62, Rue du Docteur Blanchard, Zone 4C, Abidjan, Cote d’Ivoire Vodacom Business Cote D’Ivoire S.A.R.L. 2 64.52 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, 155 00, Czech Republic Oskar Mobil S.R.O. 100.00 Basic capital shares Vodafone Czech Republic A.S. 100.00 Ordinary shares Vodafone Enterprise Europe (UK) Limited – CZECH BRANCH 100.00 Branch Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 170 32. Related undertakings (continued) Company name % of share class held by Group Companies Share class Company name % of share class held by Group Companies Share class Company name % of share class held by Group Companies Share class Denmark Tuborg Boulevard 12, 2900, Hellerup, Denmark Vodafone Enterprise Denmark A/S 100.00 Ordinary (DKK) shares Egypt 17 Port Said Street, Maadi El Sarayat, Cairo, Egypt Vodafone International Services LLC 54.93 Ordinary shares 37 Kaser El Nil St, 4th. Floor,Cairo,Egypt Starnet 54.90 Ordinary shares 54 El Batal Ahmed Abed El Aziz, Mohandseen, Giza, Egypt Sarmady Communications 54.91 Ordinary shares Site No 15/3C, Central Axis, 6th October City, Egypt Vodafone Egypt Telecommunications S.A.E. 54.93 Ordinary shares Vodafone For Trading 54.87 Ordinary shares Smart Village C3 Vodafone Building, Egypt Vodafone Data 54.93 Ordinary shares Finland c/o Eversheds Asianajotoimisto Oy, Fabianinkatu 29 B, Helsinki, 00100, Finland Vodafone Enterprise Finland OY 100.00 Ordinary shares France 1300 route de Cretes, Le WTC, Bat I1, 06560, Valbonne Soph, France Friedrich-Wilhelm-Strasse 2, 38100, Braunschweig, Germany KABELCOM Braunschweig Gesellschaft Fur Breitbandkabel- Kommunikation Mit Beschrankter Haftung 4 76.70 Ordinary shares Nobelstrasse 55, 18059, Rostock, Germany Urbana Teleunion Rostock GmbH & Co.KG 4 Verwaltung “Urbana Teleunion” Rostock GmbH 4 53.69 Ordinary shares 38.35 Ordinary shares Seilerstrasse 18, 38440, Wolfsburg, Germany KABELCOM Wolfsburg Gesellschaft Fur Breitbandkabel- Kommunikation Mit Beschrankter Haftung 4 76.70 Ordinary shares Ghana 3rd Floor, The Elizabeth Building, 68 Senchi Link, Airport Residential Area, Accra, Ghana Vodacom Business (Ghana) Limited 2 64.52 Ordinary shares and non-voting, irredeemable, non-cumulative preference shares Telecom House, Nsawam Road, Accra-North, Greater Accra Region, PMB 221, Ghana Ghana Telecommunications Company Limited National Communications Backbone Company Limited 70.81 100.00 Ordinary shares Preference shares 70.81 Ordinary shares Vodafone Automotive Telematics Development S.A.S 100.00 Ordinary shares Vodafone Ghana Mobile Financial Services Limited 70.81 Ordinary shares 144, Avenue Roger Salengro, 92372 – Chaville Cedex, France Vodafone Automotive France S.A.S 50.94 Ordinary shares Tour Egée, 9/11 Allée de l’Arche, 92671 Courbevoie La Défense Cedex – France Vodafone Enterprise France SAS 100.00 New Euro shares Germany Altes Forsthaus 2, 67661, Kaiserslautern, Germany 76.70 Ordinary shares TKS Telepost Kabel-Service Kaiserslautern Beteiligungs GmbH 4 TKS Telepost Kabel-Service Kaiserslautern GmbH & Co. KG 4 Betastraße 6-8, 85774 Unterföhring, Germany Kabel Deutschland Holding AG 4 76.70 Ordinary shares Kabel Deutschland Holding Erste Beteiligungs GmbH 4 Kabel Deutschland Holding Zweite Beteilgungs GmbH 4 76.70 Ordinary shares 76.70 Ordinary shares Greece 1-3 Tzavella str, 152 31 Halandri, Athens, Greece Vodafone-Panafon Hellenic Telecommunications Company S.A. Vodafone Global Enterprise Telecommunications (Hellas) A.E. 99.87 Ordinary shares 100.00 Ordinary shares 12,5 km National Road Athens – Lamia, Metamorfosi / Athens, 14452, Greece Vodafone Innovus S.A. 6 99.87 Ordinary shares 76.70 Ordinary shares Pireos 163 & Ehelidon, Athens, 11854, Greece 360 Connect S.A. 99.87 Ordinary shares Guernsey Martello Court, Admiral Park, St. Peter Port, GY1 3HB, Guernsey Kabel Deutschland Neunte Beteiligungs GmbH Kabel Deutschland Siebte Beteiligungs GmbH 4 Vodafone Kabel Deutschland GmbH 4 Vodafone Kabel Deutschland Kundenbetreuung GmbH 4 100.00 Ordinary shares Silver Stream Investments Limited 100.00 Ordinary shares Roseneath, The Grange, St Peter Port, GY1 2QJ, Guernsey 76.70 Ordinary shares 76.70 Ordinary shares VBA Holdings Limited VBA International Limited 76.70 Ordinary shares 64.52 Ordinary shares 64.52 Ordinary shares, non-voting irredeemable non-convertible non-cumulative Preference Buschurweg 4, 76870, Kandel, Germany Vodafone Automotive Deutschland GmbH 100.00 Ordinary shares Ferdinand-Braun-Platz 1, 40549, Duesseldorf, Germany Hong Kong Level 24, Dorset House, Taikoo Place, 979 King’s Road, Quarry Bay, Hong Kong CRVSH GmbH Vodafone Enterprise Germany GmbH Vodafone GmbH 100.00 Ordinary shares 100.00 Ordinary shares, Ordinary #2 shares 100.00 Ordinary A shares, Ordinary B shares Vodafone Group Services GmbH 100.00 Ordinary shares Vodafone Institut für Gesellschaft und Kommunikation GmbH Vodafone Stiftung Deutschland Gemeinnutzige GmbH 100.00 Ordinary shares 100.00 Ordinary shares Vodafone Vierte Verwaltungs AG 100.00 Ordinary shares Vodafone Enterprise Global Network HK Ltd 100.00 Ordinary shares Vodafone Enterprise Hong Kong Ltd 100.00 Ordinary shares Hungary 6 Lechner Ödön fasor, Budapest, 1096, Hungary Vodafone Magyarorszag Mobile Tavkozlesi Zartkoruen Mukodo Reszvenytarsasag 100.00 Series A registered common shares HU-1087 Budapest, Hungária körút 40-44., Hungary VSSB Vodafone Shared Services Budapest Private Limited Company 100.00 Registered ordinary shares India 10th Floor, Tower A&B, Global Technology Park, (Maple Tree Building), Marathahalli Outer Ring Road, Devarabeesanahalli Village, Varthur Hobli, Bengaluru, Bengaluru, Karnataka, 560103, India Cable and Wireless Global (India) Private Limited Cable & Wireless Networks India Private Limited Cable and Wireless (India) Limited (India branch) 100.00 Ordinary shares 100.00 Equity shares 100.00 Branch 127, Maker Chamber III, Nariman Point, Mumbai, Maharashtra, 400021, India AG Mercantile Company Private Limited 100.00 Equity shares Jaykay Finholding (India) Private Limited 100.00 Equity shares, Preference shares MV Healthcare Services Private Limited 100.00 Equity shares, Preference shares Nadal Trading Company Private Limited ND Callus Info Services Private Limited Omega Telecom Holdings Private Limited 100.00 Equity shares 100.00 Equity shares 100.00 Equity shares Plustech Mercantile Company Private Limited 100.00 Equity shares, Preference shares SMMS Investments Pvt Limited 100.00 Equity shares, Non-convertible cumulative redeemable preference shares Telecom Investments India Private Limited 100.00 Equity shares, Preference shares UMT Investments Limited 100.00 Equity shares 8th Floor, RDB Boulevard, Plot K-1, Block- EP & GP, Sector – V, Saltlake City, Kolkata, West Bengal, 700091, India Usha Martin Telematics Limited 100.00 Equity shares Business @ Mantri, Tower A, 3rd Floor, S No.197, Wing A1 & A2, Near Hotel Four Points, Lohegaon, Pune, Maharashtra, 411014, India Vodafone Global Services Private Limited 100.00 Equity shares C-48, Okhla Industrial Estate, Phase – II, New Delhi, 110 020, India Vodafone Towers Limited 100.00 Equity shares Indiabulls Finance Center, 1201, 12 Floor, Tower 1, Senapati Bapat Road, Elphinstone (West), Maharashtra, 400013, India Scorpios Beverages Pvt. Ltd 100.00 Equity shares Peninsula Corporate Park, Ganpatro Kadam Marg, Lower Parel, Mumbai, Maharashtra, 400013, India Mobile Commerce Solutions Limited Vodafone Foundation Vodafone India Digital Limited Vodafone India Limited 100.00 Equity shares 100.00 100.00 100.00 Equity shares Equity shares Equity shares Vodafone India Ventures Limited 100.00 Ordinary shares Vodafone Mobile Services Limited Vodafone m-pesa Limited Vodafone Technology Solutions Limited 100.00 100.00 100.00 Equity shares Equity shares Equity shares Plot No 54, Marol Co-op Industrial Area, Makwana, Off Andheri Kurla Road, Andheri East, Mumbai, Mumbai, Maharashtra, 400059, India You Broadband India Limited You System Integration Private Limited 100.00 100.00 Equity shares Equity 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 FB Holdings Limited 100.00 Ordinary shares Le Bunt Holdings Limited 100.00 Ordinary shares Vodafone India Services Private Limited 100.00 Ordinary shares Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) Company name % of share class held by Group Companies Share class Company name % of share class held by Group Companies Share class Company name % of share class held by Group Companies Share class 171 Vodafone House, Corporate Road, Prahladnagar, Off S. G. Highway, Ahmedabad, Gujarat, 380051, India Vodafone Business Services Limited 100.00 Equity shares Ireland 2nd Floor, The Iveagh Building, The Park, Carrickmines, Dublin 18, Ireland Eudokia Limited 100.00 Ordinary shares Mountainview, Leopardstown, Dublin 18, Ireland Cable & Wireless GN Limited 100.00 Ordinary shares 100.00 Ordinary shares 100.00 Ordinary shares Kenya 6th Floor, ABC Towers, ABC Place, Waiyaki Way, Nairobi, 00100, Kenya Mauritius DTOS Ltd, 10th Floor, Standard Chartered Tower, 19 Cybercity, Ebene, Mauritius Vodafone Kenya Limited 2 68.95 Ordinary shares Mobile Wallet VM1 2 M-PESA Holding Co. Limited 100.00 Equity shares Mobile Wallet VM2 2 64.52 Ordinary shares 64.52 Ordinary shares The Riverfront, 4th floor, Prof. David Wasawo Drive, Off Riverside Drive, Nairobi, Kenya Vodacom Business (Kenya) Limited 2 51.62 Ordinary shares, Ordinary B shares Korea, Republic of 3rd Floor, 54 Gongse-ro, Gieheung-gu, Yongin-si, Gyeonggi-do, Korea, Republic of Fifth Floor, Ebene Esplanade, 24 Cybercity, Ebene, Mauritius Al-Amin Investments Limited 100.00 Ordinary shares Array Holdings 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 100.00 Ordinary shares Vodafone Automotive Korea Limited 100.00 Ordinary shares Euro Pacific Securities Ltd. 100.00 Ordinary shares Vodafone Global Network Limited 100.00 Ordinary shares ASEM Tower level 37, 517 Yeongdong-daero, Gangnam-gu, Seoul, 135-798, Korea, Republic of 100.00 Ordinary shares Vodafone Enterprise Korea Limited 100.00 Ordinary shares Mobilvest Prime Metals Ltd. Trans Crystal Ltd. 100.00 Ordinary shares 100.00 Ordinary shares 100.00 Ordinary shares Stentor Limited VF Ireland Property Holdings Limited Vodafone Enterprise Global Limited Vodafone Group Services Ireland Limited Vodafone Ireland Distribution Limited 100.00 Ordinary shares Vodafone Ireland Limited 100.00 Ordinary shares Vodafone Ireland Marketing Limited 100.00 Ordinary shares Vodafone Ireland Retail Limited 100.00 Ordinary shares Italy Piazzale Luigi Cadorna, 4, 20123, Milano, Italy Vodafone Global Enterprise (Italy) S.R.L. 100.00 Ordinary shares SS 33 del Sempione KM 35, 212, 21052 Busto Arsizio (VA), Italy Vodafone Automotive Italia S.p.A 100.00 Ordinary shares Via Astico 41, 21100 Varese, Italy Vodafone Automotive Electronic Systems S.r.L 100.00 Ordinary shares Vodafone Automotive SpA 100.00 Ordinary shares Via Jervis 13, 10015, Ivrea, Tourin, Italy VEI S.r.l. Vodafone Italia S.p.A. 100.00 Partnership Interest shares 100.00 Ordinary shares Via Lorenteggio 240, 20147, Milan, Italy Vodafone Enterprise Italy S.r.L 100.00 Euro shares Vodafone Gestioni S.p.A. 100.00 Ordinary shares Vodafone Servizi E Tecnologie S.R.L. 100.00 Equity shares Japan 15th Floor, The Imperial Hotel Tower, 1-1, Uchisaiwaicho 1-chome, Chiyoda-ku, Tokyo, 100-0005, Japan Vodafone Enterprise U.K. (Japanese Branch) 100.00 Branch KAKiYa building, 9F, 2-7-17 Shin-Yokohama, Kohoku-ku, Yokoha- City, Kanagawa, 222-0033, Japan Vodafone Automotive Japan K.K. 100.00 Ordinary shares The Imperial Hotel Tower, 15F, 1-1-1 Uchisaiwai-cho, Chiyoda, Tokyo, 100-0011, Japan Vodafone Global Enterprise (Japan) K.K. 100.00 Ordinary shares Jersey 44 Esplanade, St Helier, JE4 9WG, Jersey Aztec Limited Globe Limited Plex Limited 100.00 Ordinary shares 100.00 Ordinary shares 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 Jersey Dollar Holdings Limited 100.00 Limited liability shares Vodafone Jersey Finance Vodafone Jersey Yen Holdings Unlimited 100.00 Ordinary shares, B shares, C shares, D shares, F shares, G shares 100.00 Limited Liability shares Lesotho Vodacom Park, 585 Mabile Road, 3rd Floor; Maseru, Lesotho Vodacom Lesotho (Pty) Limited 2 51.62 Ordinary shares Luxembourg 13 rue Edward Steichen, Luxembourg, 2540, Luxembourg 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 Suite 214, 2nd Floor, Grand Bay Business Park, Grand Bay, Mauritius Tomorrow Street GP S.à r.l. 100.00 Ordinary shares VBA (Mauritius) Limited 2 15 rue Edward Steichen, Luxembourg, 2540, Luxembourg Vodafone Asset Management Services S.à r.l. Vodafone Enterprise Global Businesses S.à r.l. 100.00 Ordinary shares Vodacom International Limited 2 100.00 Ordinary shares 64.52 Ordinary shares, Redeemable preference shares 64.52 Ordinary shares, Non-cumulative preference shares Vodafone Enterprise Luxembourg S.A. 100.00 Ordinary shares Vodafone International 1 S.à r.l. 100.00 Ordinary shares Vodafone International M S.à r.l. 100.00 Ordinary shares Vodafone Investments Luxembourg S.à 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 Vodafone Procurement Company S.à r.l. 100.00 Ordinary shares Mexico Insurgentes Sur #1377 8th Floor, Colonia Insurgentes Mixcoac, Mexico City, Mexico 03920 Vodafone Empresa México S.de R.L. de C.V. 100.00 Corporate certificate series A shares, Corporate certificate series B shares Morocco 129 Rue du Prince Moulay, Abdellah, Casablanca, Morocco Vodafone Real Estate S.à.r.l. 100.00 Ordinary shares Vodafone Maroc SARL 79.75 Ordinary shares Vodafone Roaming Services S.à r.l. 100.00 Ordinary shares Vodafone Services Company S.à r.l. 100.00 Ordinary shares Malaysia Suite 13.03, 13th Floor, Menara Tan & Tan, 207 Jalan Tun Razak, 50400 Kuala Lumpur, Malaysia VM, SA 2 Mozambique Rua dos Desportistas, Numero 649, Cidade de Maputo, Mozambique Vodafone Global Enterprise (Malaysia) Sdn Bhd 100.00 Ordinary shares Vodafone M-Pesa, S.A 2 54.84 64.52 Ordinary shares Redeemable preference shares 54.84 Ordinary shares Malta SkyParks Business Centre, Malta International Airport, Luqa, LQA 4000, Malta Multi Risk Indemnity Company Limited Multi Risk Limited 100.00 ‘A’ Ordinary shares, ‘B’ Ordinary shares 100.00 ‘A’ Ordinary shares, ‘B’ Ordinary shares Vodafone Malta Limited 100.00 Ordinary shares Netherlands Rivium Quadrant 173, 15th Floor, 2909 LC, Capelle aan den IJssel, Netherlands Vodafone Enterprise Netherlands B.V. Vodafone Europe B.V. Vodafone International Holdings B.V. Vodafone Panafon International Holdings B.V. 100.00 Ordinary shares 100.00 Ordinary shares 100.00 Ordinary shares 100.00 Ordinary shares New Zealand 74 Taharoto Road, Takapuna, Auckland, 0622, New Zealand Vodafone Mobile NZ Limited 100.00 Ordinary shares Vodafone New Zealand Foundation Limited Vodafone New Zealand Holdings Limited 100.00 Ordinary shares 100.00 Ordinary shares Vodafone New Zealand Limited 100.00 Ordinary shares Vodafone Next Generation Services Limited 100.00 Ordinary shares Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 172 32. Related undertakings (continued) Company name % of share class held by Group Companies Share class Company name % of share class held by Group Companies Share class Company name % of share class held by Group Companies Share class 8 Butler Street, Timaru, 7910, New Zealand BayCity Communications Limited 70.00 Ordinary shares BayCity Dairy Limited Farmside Limited 70.00 Ordinary shares 70.00 Ordinary shares Farmside Technologies Limited 70.00 Ordinary shares MyFarmside Limited 70.00 Ordinary shares Nigeria 3A Aja Nwachukwu Close, Ikoyi, Lagos, Nigeria Spar Aerospace (Nigeria) Limited 2 64.52 Ordinary shares Vodacom Business Africa (Nigeria) Limited 2 64.52 Ordinary shares, Preference shares 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 c/o EconPartner AS, Dronning Mauds gate 15, Oslo, 0250, Norway Vodafone Enterprise Norway AS 100.00 Ordinary shares Vodafone House, The Connection, Newbury, Berkshire, RG14 2FN, United Kingdom Vodafone Limited (Norway Branch) 100.00 Branch Portugal Av. D. João II, nº 36 – 8º Piso, 1998 – 017, Parque das Nações, 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 Romania 201 Barbu Vacarescu, 8th Floor, 1st District, Bucharest, Romania, 020276, Romania Vodafone Romania S.A 100.00 Ordinary shares Sectorul 2, Strada Barbu Văcărescu, Nr. 201, Etaj 1, Bucureşti, Romania Vodafone România M – Payments SRL Vodafone România Technologies SRL 100.00 Ordinary shares 100.00 Ordinary shares Sectorul 4, Strada Oltenitei, Nr. 2, Etaj 3, Bucureşti, Romania Vodafone Shared Services Romania SRL 100.00 Ordinary shares Russian Federation 4A, Atarbekova Street, Moscow, 107076, Russian Federation Vodafone Global Enterprise Russia LLC 100.00 Equity shares Build. 2, 14/10, Chayanova str., 125047, Moscow, Russian Federation Cable & Wireless CIS Svyaz LLC 100.00 Charter capital shares Seychelles F20, 1st Floor, Eden Plaza, Eden Island, Seychelles Cavalry Holdings Ltd 2 East Africa Investments (Mauritius) Limited 2 31.61 Ordinary A shares 31.61 Ordinary A shares Sierra Leone 12 White Street, Brookfield, Off Railway Line, Freetown, Sierra Leone Singapore Asia Square Tower 2, 12 Marina View, #17-01, Singapore, 018961, Singapore Sweden c/o Hellström advokatbyrå, Box 7305, 103 90, Stockholm, Sweden Vodafone Enterprise Singapore Pte.Ltd 100.00 Ordinary shares Vodafone Enterprise Sweden AB 100.00 Ordinary shares Slovakia Zochova 6-8, Bratislava, 811 03, 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) Limited 2 60.49 Ordinary A Shares 319 Frere Road, Glenwood, 4001, South Africa Cable and Wireless Worldwide South Africa (Pty) Ltd 100.00 Ordinary shares 76 Maude Street, Sandton, Johannesberg, 2196, South Africa Waterberg Lodge (Proprietary) Limited 2 30.25 Ordinary shares 9 Kinross Street, Germiston South, 1401, South Africa Vodafone Holdings (SA) Proprietary Limited Vodafone Investments (SA) Proprietary Limited 100.00 Ordinary shares 100.00 Ordinary A shares, “B” Ordinary shares Vodacom Corporate Park, 082 Vodacom Boulevard, Midrand, 1685, South Africa GS Telecom (Pty) Limited 2 64.52 Ordinary shares Jupicol (Proprietary) Limited 2 42.34 Ordinary shares Switzerland Schiffbaustrasse 2, 8005, Zurich, Switzerland Vodafone Enterprise Switzerland AG 100.00 Ordinary shares Schoenburgstrasse 41, 3013, Bern, Switzerland Vodafone International 1 S.a.r.l. Luxembourg, Zweigniederlassung Bern Vodafone Investments Luxembourg S.à r.l., Luxembourg, Zweigniederlassung Bern Vodafone Luxembourg 5 S.à r.l., Luxembourg, Zweigniederlassung Bern Vodafone Luxembourg S.à r.l., Luxembourg, Zweigniederlassung Bern 100.00 Branch 100.00 Branch 100.00 Branch 100.00 Branch Via Franscini 10, 6850 Mendrisio, Switzerland Vodafone Automotive Telematics S.A 100.00 Ordinary shares World Trade Center, Lia Lugano 13, 6982, Agno, Ticino, Switzerland Vodafone Enterprise Switzerland AG – AGNO BRANCH 100.00 Branch Taiwan 13F, No. 156, Sec. 3, Minsheng E. Rd., Songshan District, Taipei City, 10596, Taiwan Mezzanine Ware Proprietary Limited (RF) 2 54.44 Ordinary shares Vodafone Global Enterprise Taiwan Limited 100.00 Ordinary shares Motifpros 1 (Proprietary) Limited 2 60.49 Ordinary shares 60.49 Ordinary shares 30.85 Ordinary shares 60.49 Ordinary shares 64.52 Ordinary shares Tanzania, United Republic of 3rd Floor, Maktaba (Library), ComplexBibi, Titi Mohaned Road, Dar es Salaam, Tanzania, United Republic of Gateway Communications Tanzania Limited 2 63.87 Ordinary shares 15 Floor, Vodacom Tower, Ursino Estate, Plot No. 23, Bagamoyo Road, Dar es Salaam, Tanzania, United Republic of 60.49 Ordinary shares M-Pesa Limited 2 60.49 Ordinary shares Mirambo Limited 2 31.61 Ordinary shares 64.52 Ordinary shares 60.49 Ordinary shares 60.49 Ordinary shares 64.52 Ordinary shares 60.49 Ordinary shares 60.49 Ordinary shares 60.49 Ordinary shares 64.52 Ordinary shares Shared Networks Tanzania Limited 2 Vodacom Tanzania Limited Zanzibar 2 39.74 Ordinary shares 39.75 Ordinary shares 39.75 Ordinary shares Vodacom Tanzania Public Limited Company 2 39.75 Ordinary shares Plot no. 77, Kipawa, Nyerere Road, PO Box 40954, Dar es Sala, Tanzania, United Republic of Turkey Büyükdere Caddesi, No: 251, Maslak, Şişli / İstanbul, Turkey, 34398, Turkey Vodafone Bilgi Ve Iletisim Hizmetleri AS 100.00 Registered shares Vodafone Dagitim Hizmetleri A.S. 100.00 Registered shares Vodafone Elektronik Para Ve Ödeme Hizmetleri A.Ş. Vodafone Holding A.S. Vodafone Net İletişim Hizmetleri A.Ş. 100.00 Registered shares 100.00 Registered shares 100.00 Ordinary shares Vodafone Telekomunikasyon A.S 100.00 Registered shares İTÜ Ayazağa Kampüsü, Koru Yolu, Arı Teknokent Arı 3 Binası, Maslak, İstanbul, 586553, Turkey Scarlet Ibis Investments 23 (Pty) Limited 2 Storage Technology Services (Pty) Limited 2 Vodacom (Pty) Limited 2 Vodacom Business Africa Group (Pty) Limited 2 Vodacom Financial Services (Proprietary) Limited 2 Vodacom Group Limited 2 Vodacom Insurance Administration Company (Proprietary) Limited 2 Vodacom Insurance Company (RF) Limited 2 Vodacom International Holdings (Pty) Limited 2 Vodacom Life Assurance Company (RF) Limited 2 Vodacom Payment Services (Proprietary) Limited 2 Vodacom Properties No 1 (Proprietary) Limited 2 Vodacom Properties No.2 (Pty) Limited 2 Wheatfields Investments 276 (Proprietary) Limited 2 VBA International (SL) Limited 2 64.52 Ordinary shares Vodafone Enabler España, S.L. 100.00 Ordinary shares Spain Antracita, 7 – 28045, Madrid CIF B-91204453, Spain Vodafone Automotive Iberia S.L. 100.00 Ordinary shares Avenida de América 115, 28042, Madrid, Spain Vodafone Enterprise Spain SLU 100.00 Ordinary shares Vodafone Teknoloji Hizmetleri A.S. 100.00 Registered 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 Servicios S.L.U. 100.00 Ordinary shares Ukraine Bohdana Khmelnytskogo Str. 19-21, Kyiv, Ukraine LLC Vodafone Enterprise Ukraine 100.00 Ordinary shares Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 100.00 Ordinary shares 100.00 Ordinary shares Vodafone 2. Vodafone 4 UK Vodafone 5 Limited Vodafone 5 UK 100.00 Ordinary shares Vodafone 6 UK Company name % of share class held by Group Companies Share class Company name % of share class held by Group Companies Share class Company name % of share class held by Group Companies Share class 173 100.00 Ordinary shares Vodafone (New Zealand) Hedging Limited 100.00 Ordinary shares United Arab Emirates Office 101, 1st Floor, DIC Building 1, Dubai Internet City, Dubai, United Arab Emirates Vodafone Enterprise Europe (UK) Limited – DUBAI BRANCH 100.00 Branch United Kingdom 1-2 Berkeley Square, 99 Berkeley Street, Glasgow, G3 7HR, Scotland Thus Group Holdings Limited 100.00 Ordinary shares Cable & Wireless Global Telecommunication Services Limited Cable & Wireless UK Holdings Limited Cable & Wireless UK Services Limited Cable & Wireless Worldwide Limited Cable & Wireless Worldwide Voice Messaging Limited 100.00 Ordinary shares Thus Group Limited 100.00 Ordinary shares Cable and Wireless (India) Limited 100.00 Ordinary shares Thus Profit Sharing Trustees Limited 100.00 Ordinary shares Cable and Wireless Nominee 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 Cellops Limited 100.00 Ordinary shares Cellular Operations Limited 100.00 Ordinary shares Central Communications Group Limited 100.00 Ordinary shares, Ordinary A shares CWW Operations Limited 100.00 Ordinary shares Pinnacle Cellular Group Limited 100.00 Ordinary shares Pinnacle Cellular Limited 100.00 Ordinary shares Dataroam Limited Vodafone (Scotland) Limited 100.00 Ordinary shares Emtel Europe Limited 100.00 Ordinary shares, Ordinary A shares 100.00 Ordinary shares Woodend Cellular Limited 100.00 Ordinary shares Energis Communications Limited 100.00 Ordinary shares 100.00 Ordinary shares Energis Squared Limited 100.00 Ordinary shares Woodend Communications Limited Woodend Group Limited 100.00 Ordinary shares Woodend Holdings Limited 100.00 Ordinary shares, Redeemable Preference Quarry Corner, Dundonald, Belfast, BT16 1UD, Northern Ireland Flexphone Limited 100.00 Ordinary shares FM Associates (UK) Limited 100.00 Ordinary shares General Mobile Corporation Limited 100.00 Ordinary shares Global Cellular Rental Limited 50.00 Ordinary shares Internet Network Services Limited 100.00 Ordinary shares Energis (Ireland) Limited 100.00 A Ordinary shares, B Ordinary shares, C Ordinary shares Isis Telecommunications Management Limited 100.00 A Ordinary shares, B Ordinary shares, C Ordinary shares Shuttleworth House, 21 Bridgewater Close, Network 65 Business Park, Hapton, Burnley, Lancashire, England, BB11 5TE, United Kingdom Navtrak Ltd 100.00 Ordinary shares Vodafone Automotive UK Limited 100.00 Ordinary shares Staple Court, 11 Staple Inn Building, London, WC1V 7QH, United Kingdom Legend Communications Limited 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 64.52 Ordinary shares ML Integration Services Limited 100.00 Ordinary shares Mobile Phone Centre Limited 100.00 Ordinary shares Gateway Communications Africa (UK) Limited 2 Vodacom Business Africa Group Services Limited 2 Vodacom UK Limited 2 64.52 Ordinary shares, preference shares 64.52 Ordinary shares, Ordinary A shares, Ordinary B shares, Irredeemable preference shares Vodafone House, The Connection, Newbury, Berkshire, RG14 2FN, United Kingdom AAA (Euro) Limited 100.00 Ordinary shares Acorn Communications Limited 100.00 Ordinary shares Apollo Submarine Cable System Limited Aspective Limited 100.00 Ordinary shares 100.00 Ordinary shares, A Preference shares, B Preference shares, C Preference shares P.C.P. (North West) Limited 100.00 Ordinary shares Peoples Phone Limited 100.00 Ordinary shares Project Telecom Holdings Limited 1 100.00 Ordinary shares PT Network Services Limited 100.00 Ordinary shares PTI Telecom Limited Rian Mobile Limited 100.00 Ordinary shares 100.00 Ordinary shares Singlepoint (4U) Limited 100.00 Ordinary shares Singlepoint Payment Services Limited Stentor Communications Limited (Dissolved 1 May 2018) 100.00 Ordinary shares 100.00 Ordinary shares Talkland Airtime Services Limited 100.00 Ordinary shares Astec Communications Limited 100.00 Ordinary shares Talkland International Limited 100.00 Ordinary shares Bluefish Communications Limited 100.00 Ordinary B shares, Ordinary A shares, Ordinary C shares, Ordinary D shares C.S.P. Solutions Limited 100.00 Ordinary shares Talkmobile Limited Ternhill Communications Limited Talkland Midlands Limited 100.00 Ordinary shares Cable & Wireless Aspac Holdings Limited Cable & Wireless CIS Services Limited 100.00 Ordinary shares 100.00 Ordinary shares The Eastern Leasing Company Limited Cable & Wireless Communications Data Network Services Limited 100.00 ‘A’ Ordinary shares, ‘B’ Ordinary shares Thus Limited 100.00 Ordinary shares Townley Communications Limited 100.00 Ordinary shares Cable & Wireless Europe Holdings Limited Cable & Wireless Global Business Services Limited Cable & Wireless Global Holding Limited 100.00 Ordinary shares Uniqueair Limited Vizzavi Limited 100.00 Ordinary shares Voda Limited 100.00 Ordinary shares Vodacall Limited 1 100.00 Ordinary shares 100.00 Ordinary shares 100.00 Ordinary shares; Zero coupon redeemable preference 100.00 Ordinary shares 100.00 Ordinary shares 100.00 Ordinary shares, Non-convertible Redeemable Preference 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 Vodafone Americas 4 Vodafone Benelux Limited Vodafone Business Solutions Limited Vodafone Cellular Limited 1 100.00 Ordinary shares Vodafone Central Services Limited 100.00 Ordinary shares Vodafone Connect 2 Limited 100.00 Ordinary shares Vodafone Connect Limited 100.00 Ordinary shares Vodafone Consolidated Holdings Limited 100.00 Ordinary shares Vodafone Corporate Limited 100.00 Ordinary shares Vodafone Corporate Secretaries Limited 1 Vodafone DC Pension Trustee Company Limited 1 Vodafone Distribution Holdings Limited Vodafone Enterprise Corporate Secretaries Limited Vodafone Enterprise Equipment Limited Vodafone Enterprise Europe (UK) 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 Vodafone Enterprise U.K. 100.00 Ordinary shares Vodafone Euro Hedging Limited 100.00 Ordinary shares Vodafone Euro Hedging Two 100.00 Ordinary shares Vodafone Europe UK 100.00 Ordinary shares Vodafone European Investments 1 100.00 Ordinary shares Vodafone European Portal Limited 1 100.00 Ordinary shares Vodafone Finance Limited 1 100.00 Ordinary shares Vodafone Finance Luxembourg Limited 100.00 Ordinary shares Vodafone Finance UK Limited 100.00 Ordinary shares Vodafone Financial Operations 100.00 Ordinary shares 100.00 Ordinary shares, Ordinary deferred 100.00 Ordinary shares, 5% fixed rate non- voting preference shares 100.00 Ordinary shares; Deferred, B Deferred 100.00 Ordinary shares 100.00 Ordinary shares 100.00 Ordinary shares, Deferred 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 Vodafone Global Content Services Limited Vodafone Global Enterprise Limited Vodafone Group (Directors) Trustee Limited 1 Vodafone Group Pension Trustee Limited 1 Vodafone Group Services No.2 Limited 1 Vodafone Group Share Trustee Limited 1 Vodafone Hire Limited Vodafone Holdings Luxembourg Limited Vodafone Intermediate Enterprises Limited Vodafone International Holdings Limited Vodafone International Operations Limited Vodafone Investment UK 100.00 Ordinary shares Vodafone Investments Australia Limited 100.00 Ordinary shares Vodafone Investments Limited 1 100.00 Ordinary shares Vodafone IP Licensing Limited 1 100.00 Ordinary shares Talkland Communications Limited 100.00 Ordinary shares Vodafone Group Services Limited Nat Comm Air Limited 100.00 Ordinary shares Vodafone Finance Sweden Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 174 32. Related undertakings (continued) Company name % of share class held by Group Companies Share class Company name % of share class held by Group Companies Share class Vodafone Leasing Limited 100.00 Ordinary shares Vodafone Limited Vodafone M.C. Mobile Services Limited 100.00 Ordinary shares 100.00 Ordinary shares, A Preference Vodafone Marketing UK 100.00 Ordinary shares United States 560 Lexington Avenue, 8th Floor, New York, NY 10022 Bluefish Communications Inc. 100.00 Common stock shares, Preference shares 100.00 Ordinary shares Cable & Wireless Americas Systems, Inc. 100.00 Common stock shares 100.00 Ordinary shares Cable & Wireless a-Services, Inc 100.00 Common shares 100.00 A-ordinary shares, Ordinary One Pound shares 100.00 A-ordinary shares, Ordinary one pound shares Vodafone Americas Virginia Inc. 100.00 Vodafone US Inc. 100.00 Common stock shares Common stock shares Zambia Orange Park, Plot 35185, Alick Nkhata Road, Lusaka, Zambia Africonnect (Zambia) Limited 2 64.52 50.00 Ordinary shares, Redeemable preference Shares D Ordinary shares Vodafone Mobile Commerce Limited Vodafone Mobile Communications Limited Vodafone Mobile Enterprises Limited Vodafone Mobile Network Limited Vodafone Multimedia Limited 100.00 Ordinary shares Vodafone Nominees Limited 1 100.00 Ordinary shares Vodafone Oceania Limited 100.00 Ordinary shares Vodafone Old Show Ground Site Management Limited Vodafone Overseas Finance Limited Vodafone Overseas Holdings Limited Vodafone Panafon UK Vodafone Partner Services Limited Vodafone Property Investments Limited 100.00 Ordinary shares 100.00 Ordinary shares 100.00 Ordinary shares 100.00 Ordinary shares 100.00 Ordinary shares, Redeemable preference shares 100.00 Ordinary shares Vodafone Retail (Holdings) Limited 100.00 Ordinary shares Vodafone Retail Limited 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 Limited 1 100.00 Ordinary shares Vodafone Ventures Limited 1 100.00 Ordinary shares Vodafone Worldwide Holdings Limited 100.00 Ordinary shares, Cumulative preference 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 B Ordinary shares, Redeemable preference shares Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) Associated undertakings and joint arrangements Company Name % of share class held by Group Companies Share Class Company Name % of share class held by Group Companies Share Class Company Name % of share class held by Group Companies Share Class 175 Australia Level 1, 177 Pacific Highway, North Sydney NSW 2060, Australia H3ga Properties (No.3) Pty Limited 50.00 Ordinary shares Mobileworld Communications Pty Limited 50.00 Ordinary shares Mobileworld Operating Pty Ltd 50.00 Ordinary shares Vodafone Australia Pty Limited Vodafone Foundation Australia Pty Limited Vodafone Hutchison Australia Pty Limited Vodafone Hutchison Finance Pty Limited Vodafone Hutchison Receivables Pty Limited 50.00 Ordinary shares, Class B shares, Redeemable preference 50.00 Ordinary shares 50.00 Ordinary shares 50.00 Ordinary shares Ziggo B.V. 50.00 Ordinary shares Netherlands Assendorperdijk 2, 8012 EH Zwolle, The Netherlands Zoranet Connectivity Services B.V. 50.00 Ordinary shares Atoomweg 100, 3542 AB Utrecht, The Netherlands Amsterdamse Beheer- en Consultingmaatschappij B.V. 50.00 Ordinary shares Torenspits II B.V. 50.00 Ordinary shares Vodafone Nederland Holding I B.V. 50.00 Ordinary shares Vodafone Nederland Holding II B.V. 50.00 Ordinary shares Vodafone Nederland Holding III B.V. 50.00 Ordinary shares VodafoneZiggo Group B.V. 50.00 Ordinary shares 50.00 Ordinary shares 50.00 Ordinary shares 50.00 Ordinary shares 50.00 Ordinary shares New Zealand C/- The Office Of Minterellisonruddwatts, Level 20, Lumley Centre, 88 Shortland Street, Auckland, 1010, New Zealand Rural Connectivity Group Limited 33.33 Ordinary shares Level 1, Building C, 14-22 Triton Drive, Albany, New Zealand TNAS Limited 50.00 Ordinary shares Level 5, 151 Victoria Street West, Auckland 1010, New Zealand Centurion GSM Limited 25.00 Ordinary shares Portugal Av. D. João II, no. 34, 1998 – 031, Parque das Nações, Lisboa, Portugal Celfocus – Solucoes Informaticas Para Telecomunicacoes S.A 45.00 Ordinary shares Rua Pedro e Inês, Lote 2.08.01, 1990-075, Parque das Nações, Lisboa, Portugal Vodafone Network Pty Limited 50.00 Ordinary shares Vodafone Pty Limited 50.00 Ordinary shares Czech Republic Jankovcova 1037/49, 170 00 Praha 7-Holešovice, Czech Republic HBO Netherlands Channels s.r.o. 25.00 Ordinary shares U Rajské zahrady 1912/3, Praha 3, 130 00, Czech Republic COOP Mobil s.r.o. 33.33 Ordinary shares Egypt Piece No. 1215, Plot Of Land No. 1/14A, 6th October City, Egypt Wataneya Telecommunications S.A.E 50.00 Ordinary shares Greece 43-45 Valtetsiou Str., Athens, Greece Safenet N.P,A. 25.00 Ordinary shares Marathonos Ave 18 km & Pylou, Pallini, Attica, Pallini, Attica, 15351, Greece Victus Networks S.A. 50.00 Ordinary shares LGE HoldCo V B.V. India A-19, Mohan Co-operative Industrial Estate, Mathura Road, New Delhi, New Delhi, Delhi, 110044, India LGE HoldCo VI B.V. LGE Holdco VII B.V. LGE HoldCo VIII B.V. VZ Financing I B.V. VZ Financing II B.V. Ziggo Bond Finance B.V. Ziggo Deelnemingen B.V. Ziggo Finance 2 B.V. Ziggo Holding B.V. Ziggo Netwerk II B.V. Ziggo Real Estate B.V. 50.00 Ordinary shares SPORT TV PORTUGAL, S.A. 25.00 Nominative shares 50.00 Ordinary shares 50.00 Ordinary shares 50.00 Ordinary shares 50.00 Ordinary shares Romania Floor 3, Module 2, Connected Buildings III, Nr. 10A, Dimitrie Pompei Boulevard, Bucharest, Sector 2, Romania Netgrid Telecom SRL 50.00 Ordinary shares Ziggo Secured Finance B.V. 50.00 Ordinary shares Ziggo Secured Finance II B.V. 50.00 Ordinary shares Ziggo Services B.V. 50.00 Ordinary shares Ziggo Services Employment B.V. 50.00 Ordinary shares Ziggo Services Netwerk 2 B.V. 50.00 Ordinary shares Ziggo Zakelijk Services B.V. 50.00 Ordinary shares Russian Federation 401, Building 3, 11, Promyshlennaya Street, Moscow 115 516 Autoconnex Limited 35.00 Ordinary shares United Kingdom 83 Baker Street, London, W1U 6AG, United Kingdom ZUM B.V. 50.00 Ordinary shares Digital Mobile Spectrum Limited 25.00 Ordinary shares Avenue Ceramique 300, 6221 KX Maastricht, The Netherlands Vodafone Libertel B.V. 50.00 Ordinary shares Barbara Strozzilaan 101, 1083 HN Amsterdam Cooperatie Nederland Cooperatief U.A. 25.00 Partnership Interest Boeingavenue 53, 1119 PE Schiphol-Rijk, The Netherlands FinCo Partner 1 B.V. 50.00 Ordinary shares 50.00 Ordinary shares 50.00 Ordinary shares 50.00 Ordinary shares 50.00 Ordinary shares Griffin House, 161 Hammersmith Road, London, W6 8BS, United Kingdom Cable & Wireless Trade Mark Management Limited 50.00 Ordinary B shares The Exchange Building 1330, Arlington Business Park, Theale, Berks, RG7 4SA, United Kingdom Cornerstone Telecommunications Infrastructure Limited 50.00 Ordinary shares United States 2711 Centerville Road, Suite 400, Wilmington, DE 19808 Delaware LG Financing Partnership 50.00 50.00 Partnership Interest Partnership Interest Partnership Interest FireFly Networks Limited 50.00 Equity shares VodafoneZiggo Group Holding B.V. 50.00 Ordinary shares Ziggo Financing Partnership Bharti Crescent, 1 Nelson Mandela Road, Vasant Kunj, Phase -ll, New Delhi – 110070, India Fred. Roeskestrata 123, 1076 EE Amsterdam, The Netherlands Indus Towers Limited 42.00 Equity shares HBO Netherlands Distribution B.V. 25.00 Ordinary shares Ziggo Secured Finance Partnership 50.00 Ireland Two Gateway, East Wall Road, Dublin 3, Ireland Siro Limited 50.00 Ordinary shares Italy Via per Carpi 26/B, 42015, Correggio (RE), Italy VND S.p.A. 35.00 Ordinary shares Kenya LR No. 13263, Safaricom House, Waiyaki Way, PO Box 66827-00800, Nairobi, Kenya Safaricom PLC 5 22.58 Ordinary shares Luxembourg 15 rue Edward Steichen, Luxembourg, 2540, Luxembourg Tomorrow Street SCA 50.00 Ordinary B shares, Ordinary C shares Koningin Wilhelminaplein 2-4, 1062 HK Amsterdam, The Netherlands Liberty Global Content Netherlands B.V. 50.00 Ordinary shares Monitorweg 1, 1322 BJ Almere, The Netherlands 50.00 Ordinary shares Esprit Telecom B.V. XB Facilities B.V. Notes: 1 Directly held by Vodafone Group Plc. 2 Shareholding is indirect through Vodacom Group Limited. The indirect shareholding is calculated using the 64.52% ownership interest in Vodacom. 3 The Group has rights that enable it to control the strategic and operating decisions of Vodacom Congo (RDC) S.A. 50.00 Ordinary shares 4 Shareholding is indirect through Vodafone Kabel Simon Carmiggeltstraat 6, 1011 DJ Amsterdam Vodafone Financial Services B.V. 50.00 Ordinary shares Winschoterdiep 60, 9723 AB Groningen, The Netherlands Zesko B.V. 50.00 Ordinary shares Ziggo Bond Company B.V. 50.00 Ordinary shares Ziggo Netwerk B.V. 50.00 Ordinary shares Deutschland GmbH. 5 At 31 March 2018 the fair value of Safaricom Plc was KES 1.2 trillion (€9,963 million) based on the closing quoted share price on the Nairobi Stock Exchange. 6 Name changed from Zelitron S.A. on 12 April 2018. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 176 32. Related undertakings (continued) 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 gain/(loss) on cash and cash equivalents Cash and Cash Equivalents Vodacom Group Limited 2018 €m 2017 €m Vodafone Egypt Telecommunications S.A.E. 2018 €m 2017 €m 5,692 934 (8) 926 342 309 6,433 2,389 8,822 (2,151) (2,104) 4,567 3,595 972 4,567 1,727 (541) (879) 307 619 (39) 887 5,294 768 (10) 758 257 258 6,213 2,023 8,236 (2,368) (1,825) 4,043 3,379 664 4,043 1,702 (788) (777) 137 464 18 619 962 206 – 206 93 1 985 407 1,392 (46) (522) 824 491 333 824 307 (145) (55) 107 57 (5) 159 1,333 194 – 194 82 153 1,038 352 1,390 (25) (656) 709 433 276 709 520 (609) (328) (417) 619 (145) 57 Vodafone Qatar Q.S.C. 2018 €m 468 (40) – (40) (31) – – – – – – – – – – 115 (119) (33) (37) 43 (6) – 2017 €m 510 (67) – (67) (52) – 1,550 137 1,687 (266) (226) 1,195 275 920 1,195 134 (93) (32) 9 31 3 43 The voting rights held by the Group equal the Group’s percentage shareholding as shown on pages 169 to 175. Vodafone Group Plc Annual Report 2018FinancialsNotes to the consolidated financial statements (continued) 177 33. 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 2018. Name Cable & Wireless Aspac Holdings Limited Cable & Wireless CIS Services Limited Cable & Wireless Europe Holdings Limited Cable & Wireless Global Business Services Limited Cable & Wireless Global Holding Limited Cable & Wireless UK Holdings Limited Cable & Wireless Worldwide Limited Cable & Wireless Worldwide Voice Messaging Limited Cable and Wireless Nominee Limited Central Communications Group Limited Energis (Ireland) Limited Energis Communications Limited Energis Squared Limited Internet Network Services Limited Legend Communications Limited MetroHoldings Limited ML Integration Group Limited ML Integration Services Limited Singlepoint (4U) Limited The Eastern Leasing Company Limited Thus Group Holdings Limited Thus Group Limited Vizzavi Finance Limited Voda Limited Vodafone (New Zealand) Hedging Limited Vodafone 2 Vodafone 4 UK Vodafone 5 Limited Vodafone 5 UK Vodafone Americas 4 Vodafone Benelux Limited Vodafone Business Solutions Limited Vodafone Cellular Limited Vodafone Connect Limited Vodafone Consolidated Holdings Limited Vodafone Distribution Holdings Limited Vodafone Enterprise Equipment Limited Vodafone Enterprise Europe (UK) Limited Vodafone Euro Hedging Limited Vodafone Euro Hedging Two Registration number 4705342 2964774 4659719 3537591 3740694 3840888 7029206 1981417 3249884 4625248 NI035793 2630471 3037442 3047165 3923166 3511122 3252903 4087040 2795597 1672832 SC192666 SC226738 80499 1847509 4158469 4083193 6357658 6688527 2960479 6389457 4200960 2186565 896318 2225919 5754561 3357115 1648524 3137479 3954207 4055111 Name Vodafone Europe UK Vodafone European Investments Vodafone European Portal Limited Vodafone Finance Luxembourg Limited Vodafone Finance Sweden Vodafone Finance UK Limited Vodafone Financial Operations Vodafone Global Content Services Limited Vodafone Holdings Luxembourg Limited Vodafone Intermediate Enterprises Limited Vodafone International 2 Limited Vodafone International Holdings Limited Vodafone International Operations Limited Vodafone Investment UK Vodafone Investments Limited Vodafone IP Licensing Limited Vodafone Marketing UK Vodafone Mobile Communications Limited Vodafone Mobile Enterprises Limited Vodafone Mobile Network Limited Vodafone Nominees Limited Vodafone Oceania Limited Vodafone Overseas Finance Limited Vodafone Overseas Holdings Limited Vodafone Panafon UK Vodafone Property Investments Limited Vodafone Retail (Holdings) Limited Vodafone Retail Limited Vodafone UK Limited Vodafone Worldwide Holdings Limited Vodafone Yen Finance Limited Vodafone-Central Limited Vodaphone Limited Vodata Limited Woodend Holdings Limited Your Communications Group Limited London Hydraulic Power Company (The) Vodafone Enterprise Corporate Secretaries Ltd (formerly Intercell Limited) Vodafone Corporate Secretaries Limited Registration number 5798451 3961908 3973442 5754479 2139168 3922620 4016558 4064873 4200970 3869137 BR009978 2797426 2797438 5798385 1530514 6846238 6858585 3942221 3961390 3961482 1172051 3973427 4171115 2809758 6326918 3903420 3381659 1759785 2227940 3294074 4373166 1913537 2373469 2502373 SC128335 4171876 ZC000055 2303594 2357692 Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 178 Other unaudited financial information Prior year operating results This section presents our operating performance for the 2017 financial year compared to the 2016 financial year, providing commentary on how the revenue and the adjusted EBITDA performance of the Group and its operating segments developed over those years. The results for both years include the results of Vodafone India as discontinued operations following the agreement to combine it with Idea Cellular. Group1,2 Revenue Service revenue Other revenue Adjusted EBITDA Depreciation and amortisation Adjusted EBIT Share of result in associates and joint ventures Adjusted operating profit Adjustments for: Europe €m 34,550 31,975 2,575 10,283 (8,344) 1,939 (49) 1,890 AMAP €m 11,773 9,956 1,817 3,854 (1,829) 2,025 213 2,238 Other3 €m 1,390 1,138 252 12 (6) 6 – 6 Eliminations €m (82) (82) – – – – – – Impairment loss Restructuring costs Amortisation of acquired customer bases and brand intangible assets Other income/(expense)4 Operating profit 2017 €m 47,631 42,987 4,644 14,149 (10,179) 3,970 164 4,134 – (415) (1,046) 1,052 3,725 2016 €m 49,810 44,618 5,192 14,155 (10,386) 3,769 60 3,829 (569) (316) (1,338) (286) 1,320 Reported (4.4) (3.7) – 5.3 8.0 % change Organic* 1.2 1.9 5.8 7.0 11.8 Notes: 1 Group revenue and service revenue includes the results of Europe, AMAP, Other (which includes the results of partner markets) and eliminations. 2017 results reflect average foreign exchange rates of €1:£0.84, €1:INR 73.58, €1:ZAR 15.43, €1:TRY 3.51 and €1: EGP 13.60. 2 Service revenue, adjusted EBITDA, adjusted EBIT and adjusted operating profit are alternative performance measures which are non-GAAP measures that are presented to provide readers with additional financial information that is regularly reviewed by management and should not be viewed in isolation or as an alternative to the equivalent GAAP measure. See “Alternative performance measures” on page 207 for reconciliations to the closest respective equivalent GAAP measure and “Definition of terms” on page 222 for further details. 3 The “Other” segment primarily represents the results of shareholder recharges received from Vodafone Netherlands, VodafoneZiggo and Vodafone India, partner markets and the net result of unallocated central Group costs. Includes a €1.3 billion gain (2016: €nil) on the formation of the VodafoneZiggo joint venture in the Netherlands. 4 Revenue Group revenue decreased 4.4% to €47.6 billion and service revenue decreased by 3.7% to €43.0 billion. In Europe, organic service revenue increased 0.6%* and in AMAP, organic service revenue increased by 7.7%*. Further details on the performance of these regions is set out below. Adjusted EBITDA Group adjusted EBITDA remained stable at €14.1 billion, with organic growth in Europe and AMAP more than offset by foreign exchange movements and M&A and other activity. The Group’s adjusted EBITDA margin improved by 1.3 percentage points to 29.7%. On an organic basis, adjusted EBITDA rose 5.8%* and the Group’s adjusted EBITDA margin increased by 1.2* percentage points driven by organic margin improvements in both Europe and AMAP. Adjusted EBIT Adjusted EBIT increased by 5.3% to €4.0 billion as adjusted EBITDA growth outpaced the increase in depreciation and amortisation. On an organic basis adjusted EBIT increased by 7.0%* for the year. 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. Organic growth is an alternative performance measure. See “Alternative performance measures” on page 207 for further details and reconciliations to the respective closest equivalent GAAP measure. 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 207). 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 current year in respect of the Group’s continuing operations (2016: €569 million in Romania). Further detail is provided in note 4 to the Group’s consolidated financial statements. Restructuring costs of €415 million (2016: €316 million) primarily reflect discrete cost efficiency actions taken during the year in Germany and the UK. Amortisation of intangible assets in relation to customer bases and brands are recognised under accounting rules after we acquire businesses and decreased to €1,046 million (2016: €1,338 million) due to the acquisitions of KDG, Vodafone Italy and Ono. Including the above items, operating profit increased by €2.4 billion to €3.7 billion, due to a €1.3 billion gain on the formation of the VodafoneZiggo joint venture in the Netherlands which for accounting purposes was characterised as a part disposal of the Group’s interest in Vodafone Netherlands, €0.5 billion lower depreciation and amortisation charges, partially as a result of the treatment of our Netherlands operation as an asset held for sale during the year and the €0.6 billion impairment charge recognised in the year ended 31 March 2016. Vodafone Group Plc Annual Report 2018Financials 179 Europe Year ended 31 March 2017 Revenue Service revenue Other revenue Adjusted EBITDA Adjusted operating profit Adjusted EBITDA margin Year ended 31 March 2016 Revenue Service revenue Other revenue Adjusted EBITDA Adjusted operating profit Adjusted EBITDA margin Germany €m 10,600 10,006 594 3,617 568 34.1% 10,626 9,817 809 3,462 523 32.6% Italy €m UK €m Spain €m Other Europe €m Eliminations €m Europe €m Reported % change Organic* 6,101 5,247 854 2,229 948 36.5% 6,008 5,129 879 2,015 805 33.5% 6,925 6,632 293 1,212 (542) 17.5% 8,428 7,987 441 1,756 (97) 20.8% 4,973 4,507 466 1,360 180 27.3% 4,959 4,468 491 1,250 75 25.2% 6,128 5,756 372 1,865 736 30.4% 6,599 6,132 467 2,002 621 30.3% (177) (173) (4) – – (158) (152) (6) – – 34,550 31,975 2,575 10,283 1,890 29.8% 36,462 33,381 3,081 10,485 1,927 28.8% (5.2) (4.2) (1.9) (1.9) 3.3 2.4 4.0 (13.0) (0.4) 0.6 3.1 (5.0) 0.4 (0.6) 1.7 (12.9) Revenue decreased by 5.2%. Foreign exchange movements contributed a 2.8 percentage point negative impact and M&A and other activity contributed a 2.0 percentage point negative impact. On an organic basis, service revenue increased by 0.6%*, reflecting customer growth in mobile and fixed line (‘fixed’) and stabilising contract ARPU across all our major markets, more than offsetting the regulatory headwinds. Ex-regulation, service revenue growth was 1.6%*. Adjusted EBITDA decreased 1.9%, including a 2.9 percentage point negative impact from M&A and other activity and a 2.1 percentage point negative impact from foreign exchange movements. On an organic basis, adjusted EBITDA increased 3.1%*, driven by tight cost control through our “Fit for Growth” programme. Other activity (including M&A) pps 2.0 Reported change % (5.2) Foreign exchange pps 2.8 Organic* change % (0.4) 1.9 2.3 (17.0) 0.9 (6.1) (4.2) 4.5 10.6 (31.0) 8.8 (6.8) (1.9) – – 1.4 – 8.4 1.8 – – 5.1 – 10.1 2.9 – – 12.3 – (0.1) 3.0 – – 10.1 – (0.1) 2.1 1.9 2.3 (3.3) 0.9 2.2 0.6 4.5 10.6 (15.8) 8.8 3.2 3.1 (1.9) (2.4) (0.7) (5.0) Revenue – Europe Service revenue Germany Italy UK Spain Other Europe Europe Adjusted EBITDA Germany Italy UK Spain Other Europe Europe Europe adjusted operating profit Germany Service revenue grew 1.9%* for the year (Q3: 1.8%*, Q4: 1.2%*) driven by customer growth in both mobile and fixed and stabilising mobile contract ARPU, which more than offset regulatory drags. The slowdown in the final quarter reflected the full impact of the mobile and fixed termination cuts, (a 1.3 percentage point year-on-year headwind), as well as the lapping of an accounting reclassification in fixed in the prior financial year. Mobile service revenue grew 0.1%* (Q3: flat*, Q4: -0.4%*) as a higher customer base was offset by regulatory headwinds. Excluding regulation (including the MTR cut from 1 December and the decline in roaming revenues), mobile service revenue grew 1.6%* (Q3: 1.1%*, Q4: 1.8%*). Aided by “more-for-more” propositions and successful “Giga moves” campaigns, consumer mobile contract ARPU returned to growth in Q4, while contract net additions accelerated in the second half (Q4: 123,000 Q3: 61,000) supported by a reduction in churn and higher activity in direct channels. The Enterprise mobile market remained competitive, however ARPU declines moderated throughout the year. Our 4G customer base surpassed 10 million by the period end, as we reached 90% 4G population coverage. Fixed service revenues increased 4.8%* (Q3: 4.8%*, Q4 3.7%*) driven by strong broadband customer growth, with 433,000 net customer additions (Q4: 123,000), of which 320,000 were on cable and the remainder on DSL. Our “GigaKombi” convergence offer, launched in the summer last year, continues to gain traction, reaching 357,000 accounts by year end. We also launched our “GigaTV” advanced digital TV service in February 2017, and our TV customer base reached 7.7 million at the end of the period. Following upgrades to our superior coax-fibre cable network during the year, we now offer 400 Mbps speeds to almost 6 million households (out of our total NGN footprint of 12.6 million). Adjusted EBITDA grew 4.5%* with the adjusted EBITDA margin improving by 1.5 percentage points to 34.1%. Margin expansion was driven by revenue growth, our focus on more profitable direct channels and a reduction of underlying operating costs. This was supported by exceeding our full year cost and capex target synergies of €300 million from the integration of Kabel Deutschland. Italy Service revenue grew 2.3%* for the year (Q3: 3.0%*, Q4: 2.8%*) supported by mobile and fixed ARPU growth and an acceleration in consumer fixed performance. Mobile service revenue grew 1.5%* (Q3: 1.4%*, Q4: 1.4%*) driven by ARPU growth in prepaid following changes to our tariff plans and improved data monetisation through targeted “more-for-more” offers. In Q4, the prepaid pricing environment became increasingly competitive, particularly in the below-the-line channels, however customer losses moderated somewhat compared to Q3. As at 31 March 2017 we had reached over 97% population coverage on our 4G network and had 9.0 million 4G customers, adding 2.5 million customers within the year. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 180 Prior year operating results (continued) Fixed service revenue was up 6.8%* (Q3: 11.9%*, Q4: 10.2%*) driven by strong customer growth and ARPU improvement across all segments during the second half of the financial year. We added 224,000 broadband customers (Q3: 70,000, Q4: 75,000) during the year, and in total we now have 2.2 million broadband customers of which 0.7 million are on fibre. We also launched our advanced digital “Vodafone TV” proposition in March 2017, which is gaining good early traction. Adjusted EBITDA grew significantly faster than revenues at 10.6%*, with a 3.0 percentage point improvement in adjusted EBITDA margin to 36.5%. This was driven by a strong revenue performance and tight cost control, with absolute declines in both customer and operating costs during the year. UK Our UK operational performance was disrupted during the year by mistakes made during the implementation of a new billing system in the final calendar quarter of 2015. We have now resolved these challenges, with billing accuracy improving to 99.9% and customer service levels now above those achieved prior to the implementation of the new system. In the fourth quarter we delivered our best ever network performance, which is reflected in our ranking as the best voice provider and the co-leader for data in the latest independent P3 test. Our financial performance lagged behind this operational recovery. Service revenue declined 3.3%* (Q3: -3.2%*, Q4: -4.8%*) reflecting the impact of operational challenges, increased competition in Enterprise and lower roaming revenues. The slowdown in the final quarter mainly reflected a strong prior year comparator in carrier services and Enterprise. Mobile service revenue declined 3.3%* (Q3: -3.9%*, Q4: -3.9%*) as a result of higher churn, an increase in the SIM only mix driving lower ARPU, increased competition in Enterprise and lower roaming and MVNO revenues. Improved operational performance contributed to lower contract churn rates and growth in branded contract customers during the final quarter. We have 9.5 million 4G customers at the end of the period, with 4G coverage at 96% (Ofcom definition: 98%). Fixed service revenue declined 3.4%* (Q3: -0.9%*, Q4: -7.5%*). Excluding carrier service revenue, fixed service revenue declined 2.5%* in Q4, reflecting a strong comparator together with the ongoing effect of two large contract losses during the year as we balanced our growth objectives with a focus on customer profitability. We continued to gain good momentum in consumer broadband with 216,000 customers by the end of the period (Q4: 33,000 net additions), of which 163,000 are consumer customers. Adjusted EBITDA declined 15.8%* excluding the benefit of one-off settlements with other network operators in the prior year, with a 3.3 percentage point decline in adjusted EBITDA margin. The decline was driven by lower revenues, increased costs as a result of sterling weakness post Brexit, regulatory headwinds and reallocation of costs across Vodafone Group. These headwinds were partially offset by a reduction in underlying operating costs. Excluding the reallocation of central costs, sterling weakness and one-off settlements, adjusted EBITDA declined at a high-single digit rate both for the year and in H2. Spain Service revenue grew 0.9%* (Q3: 0.8%*, Q4: 1.3%*). Excluding the impact of handset financing, service revenue grew by 4.0%* in the year (Q3: 4.1%*, Q4: 3.8%*). This performance improvement was driven by our strong commercial momentum in mobile and fixed, supported by our “more-for-more” propositions at the start of the year. We maintained our leadership in both consumer and enterprise NPS, widening the gap versus our competitors during the year. Vodafone One, our fully integrated fixed, mobile and TV service, reached 2.4 million customers at the end of the period, up from 1.5 million a year ago. Our commercial momentum has remained strong throughout the year with 337,000 mobile contract net additions (Q3: 97,000, Q4: 96,000) and 209,000 fixed broadband net additions (Q3: 93,000, Q4: 75,000). Our fixed performance accelerated in the second half of the year as we focused on cross selling services to our mobile base. Our TV base reached 1.3 million (246,000 net additions during the year), reflecting the improvement in our content packages. Our market-leading 4G coverage reached 93% at the end of the period and we now have 7.6 million 4G customers. In March 2017, we reached a commercial wholesale agreement with Telefónica to access its fibre network in both regulated and deregulated areas, which expands our NGN footprint to 18.7 million homes passed (almost 65% population coverage), of which 10.2 million are on our own network. Adjusted EBITDA grew 8.8%*, and adjusted EBITDA margin improved by 2.1 percentage points to 27.3%. This improvement was driven by service revenue growth, lower mobile handset subsidies and a lower operating cost base; these more than offset sharply higher content costs. Other Europe Service revenue grew by 2.2%* (Q3: 1.8%*, Q4: 1.3%*), with all of the larger markets growing in Q4 (excluding the MTR impact in Ireland). Adjusted EBITDA grew 3.2%* and adjusted EBITDA margin improved by 0.1 percentage points, reflecting good cost control. In Ireland, service revenue was flat* for the year but grew 2.0% excluding MTRs (Q4: -1.2%*, 2.3% ex. MTRs) supported by ongoing fixed customer growth. Portugal service revenue grew 1.7%* (Q4: 2.2%*), with strong fixed customer growth as our FTTH roll-out reached 2.7 million homes, which was partially offset by mobile service revenue declines (which moderated throughout the year). In Greece, service revenue grew 0.5%* (Q4: 0.2%*) driven by growth in consumer fixed service revenue. VodafoneZiggo The joint venture between Vodafone Netherlands and Ziggo (VodafoneZiggo, in which Vodafone owns a 50% stake) was formed on 31 December 2016. Note that VodafoneZiggo’s quarterly reports for credit investors are published on a US GAAP basis, whereas Vodafone Group reports the results of the joint venture on an IFRS basis. VodafoneZiggo experienced a decline in local currency revenue of 2% in Q4. The decline in local currency mobile service revenue (Q4: -7%) reflected increasing competition, particularly in the SoHo segment. Cable subscription revenues stabilised in Q4, as increased ARPU offset a decline in the customer base, and in the B2B segment (mid and large- sized enterprises) revenues grew 1%, supported by mobile growth. Excluding the impact of the divestment of Vodafone “Thuis”, we added 16,000 postpaid mobile customers in the quarter, supported by our successful promotional campaign. We also added 11,000 broadband RGU additions in the quarter, with significantly fewer video subscriber losses (an outflow of 18,500 RGUs) compared to the prior year. Adjusted EBITDA in local currency declined by 6% in Q4, as lower revenues and higher mobile acquisition and content costs were only partially offset by underlying cost reductions. During the quarter, Vodafone received €76 million in dividends from the joint venture and €14 million in interest payments on the shareholder loan. Vodafone Group Plc Annual Report 2018FinancialsOther unaudited financial information (continued) Africa, Middle East and Asia-Pacific Year ended 31 March 2017 Revenue Service revenue Other revenue Adjusted EBITDA Adjusted operating profit Adjusted EBITDA margin Year ended 31 March 2016 Revenue Service revenue Other revenue Adjusted EBITDA Adjusted operating profit Adjusted EBITDA margin Vodacom €m Other AMAP €m Eliminations €m 5,294 4,447 847 2,063 1,381 39.0% 5,325 4,419 906 2,028 1,356 38.1% 6,479 5,509 970 1,791 857 27.6% 6,566 5,624 942 1,678 585 25.6% – – – – – – – – – – AMAP €m 11,773 9,956 1,817 3,854 2,238 32.7% 11,891 10,043 1,848 3,706 1,941 31.2% 181 Reported % change Organic* (1.0) (0.9) 4.0 15.3 2.5 2.8 3.4 11.2 7.4 7.7 13.2 25.2 8.1 8.0 9.0 19.9 Revenue decreased 1.0%, with strong organic growth offset by an 8.6 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 7.7%* driven by strong commercial momentum in South Africa, Turkey and Egypt. Adjusted EBITDA increased 4.0%, including a 9.2 percentage point adverse impact from foreign exchange movements. On an organic basis, adjusted EBITDA grew 13.2%*, driven by service revenue growth and a continued focus on cost control and efficiencies to offset inflationary pressures. Our market-leading network has now reached 76% 4G coverage (up from 58% in the prior year), and we have 6.0 million 4G customers. Vodacom’s international operations outside South Africa, which now represent 22.5% of Vodacom Group service revenue, grew 2.3%* (Q3: 1.9%*, Q4: 0.5%*) supported by commercial actions such as the introduction of “Just 4 You” personalised offers across all markets. Commercial momentum stabilised towards the end of the year as we began to lap the changes in customer registration requirements in Tanzania, the DRC and Mozambique, while political and economic disruptions adversely impacted the DRC’s performance. M-Pesa customers totalled 10 million in Q4 (up from 6.8 million the prior year). Other activity (including M&A) pps (0.2) Reported change % (1.0) Foreign exchange pps 8.6 Organic* change % 7.4 0.6 (2.0) (0.9) 1.7 6.7 4.0 15.3 – – – – – – – 3.5 12.8 8.6 3.2 18.0 9.2 4.1 10.8 7.7 4.9 24.7 13.2 9.9 25.2 Revenue – AMAP Service revenue Vodacom Other AMAP AMAP Adjusted EBITDA Vodacom Other AMAP AMAP AMAP adjusted operating profit Vodacom Vodacom Group service revenue increased 4.1%* (Q3: 4.0%*, Q4: 3.8%*), supported by strong customer additions, data usage and enterprise growth in South Africa. Vodacom’s International operations were impacted by a change in customer registration requirements in the prior year, which slowed customer growth during the period. In South Africa service revenue grew 5.6%* (Q3: 5.6%*, Q4: 5.6%*), with continued strong customer growth in both the prepaid and contract base supported by our effective segmentation strategy. We added 3.2 million prepaid mobile customers (Q4: 1.2 million) in the year and contract churn remained at historically low levels. Data revenue growth remained strong at 20% for the year, supported by growth in active data customers (19.5 million), data bundle sales (almost 500 million sold during the year, up 45%), and higher usage. Voice revenue fell by 3.7%*, with the pace of decline slowing in the final quarter due to the success of our personalised voice bundle strategy on our “Just 4 You” platform. Vodacom Group adjusted EBITDA grew 4.9%*, with a 0.9 percentage point adjusted EBITDA margin improvement to 39.0%. In South Africa, margin improvement was supported by a subsidy shift towards data enabled devices, improved channel efficiencies, rationalisation of offices and network cost savings. International margins declined modestly as revenue growth was lower than underlying cost inflation. Other AMAP Service revenue grew by 10.8%* (Q3: 10.5%*, Q4: 9.8%*), with strong local currency growth in Turkey, Egypt and Ghana. Service revenue in Turkey was up 16.0%* (Q3: 15.0%*, Q4: 13.9%*), supported by good growth in consumer contract, strong fixed customer momentum and a robust performance in Enterprise. Adjusted EBITDA grew 29.9%*, with an adjusted EBITDA margin improvement of 2.5 percentage points to 21.2% driven by lower commercial spend and improved operating cost control. Egypt service revenue grew by 15.6%* (Q3: 19.6%*, Q4: 22.8%*) as rising data penetration drove higher ARPU. Adjusted EBITDA grew 22.7%*, with a 2.6 percentage point adjusted EBITDA margin improvement to 44.4% as revenue growth and cost discipline more than offset high inflationary pressures. In New Zealand, service revenue was up 0.8%* (Q3: flat*, Q4: 0.3%*) with strong fixed performance and mobile customer growth across both consumer and Enterprise. In February 2017, the New Zealand Commerce Commission (‘NZCC’) did not approve the proposed merger with Sky Network Television. We are reviewing the reasoning of the NZCC and have reserved the right to appeal the decision. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information With effect from 1 April 2016, the Group changed the reporting of certain dealer commissions in India. Annual and quarterly organic growth rates for the year ended 31 March 2017 of Vodafone India have been amended to exclude the impact of this change, which had no effect on earnings or cash flows. Service revenue declined 0.7%* (Q3: -1.9%*, Q4: -11.5%*) as a result of heightened competitive pressure following free services offered by the new entrant during the second half of the year. The slowdown in Q4, as expected, was due to the ongoing impact of free services, which dragged on data and voice pricing, compounded by the leap year benefit in the prior period. However, we grew our overall customer base during the year and retained our high value customers. Data browsing revenue declined by 16%* in Q4 compared to +0.6%* in Q3. Our active data customer base returned to growth in the quarter, increasing to 66.9 million (Q3: 65.0 million), mainly reflecting a 2.7 million increase in our 3G/4G customer base to 37.7 million (adding 10 million customers in the year). Unit prices declined 38% year-on-year (Q3: -11%), although this helped to stimulate 40% growth in monthly data usage per 3G/4G customer to 636 MB (Q3: 505 MB). Voice revenue declined 13%* in Q4 (Q3: -3.0%*) as the benefit of higher incoming volumes and a larger customer base was offset by a 22% year-on-year decline in voice prices as the market moved to unlimited voice propositions. Total mobile customers increased 4.4 million in the quarter, giving a closing customer base of 209 million. Following the Indian spectrum auction in October, we now offer 4G services in 18 circles, up from 9 circles prior to the auction. These circles cover around 92% of service revenues and 96% of our data revenues. Adjusted EBITDA declined 10.5%*, with a 2.2 percentage point deterioration in adjusted EBITDA margin to 27.3%. This reflected lower revenues in the second half of the year and higher costs as a result of 4G network expansion, partially offset by lower intra circle roaming fees and an underlying reduction in operating costs. In the first half of the 2017 financial year, the Group recorded a noncash impairment of €6.4 billion (€5.0 billion net of tax), relating to our Indian business. This was driven by lower projected cash flows within our business plan as a result of increased competition in the market. Impairment testing at 31 March 2017, following the announcement of the merger of Vodafone India with Idea Cellular, gave rise to a partial reversal of that impairment. As a result, the impairment charge for the year reduced to €4.5 billion (€3.7 billion net of tax). 182 Prior year operating results (continued) Associates and joint ventures Safaricom, Vodafone’s 40% associate, which is the number one mobile operator in Kenya, achieved local currency service revenue growth of 14.8% for the year and local currency adjusted EBITDA growth of 24.6% (20.6% excluding a current year benefit), driven by data and M-Pesa. 40 out of 47 targeted regions (counties) now have 4G coverage. During the year the Group received €214 million in dividends from Safaricom. Vodafone Hutchison Australia (‘VHA’), in which Vodafone owns a 50% stake, continued to perform solidly in a competitive environment. VHA continued to grow service revenue (excluding MTRs), driven by growth in our contract customer base and ARPU. Local currency adjusted EBITDA grew 19.0%, driven by an increase in underlying revenue and strong commercial cost discipline. Indus Towers, the Indian towers company in which Vodafone has a 42% interest, will be excluded from the perimeter of the Idea merger. Indus achieved local currency revenue growth of 6.2% and adjusted EBITDA growth of 0.3% for the year. Indus owned 122,730 towers as at 31 March 2017, with a tenancy ratio of 2.35x. Our share of Indus’ adjusted EBITDA for the year was €410 million and its contribution to Vodafone Group adjusted operating profit was €98 million. During the year the Group received €126 million in dividends from Indus Towers. India1 On 20 March 2017, Vodafone announced an agreement to combine its subsidiary, Vodafone India (excluding its 42% stake in Indus Towers), with Idea Cellular. The transaction is subject to regulatory approvals and is expected to close during calendar 2018. The combined company will be jointly controlled by Vodafone and the Aditya Birla Group. Vodafone India has been classified as discontinued operations for Group reporting purposes. From an operational perspective, the Group remains highly focused on the management of the business and committed to its success, both prior to the completion of the merger and thereafter. The results of Vodafone India are detailed below. Reported (5.0) (4.9) % change Organic* (0.7) (12.1) (10.5) (10.9) Revenue Service revenue Other revenue Direct costs Customer costs Operating expenses Adjusted EBITDA Depreciation and amortisation Adjusted operating profit Adjustments for: Impairment loss2 Other Operating (loss)/profit Adjusted EBITDA margin 2017 €m 5,853 5,834 19 (1,583) (313) (2,361) 1,596 (1,116) 480 (4,515) (136) (4,171) 27.3% 2016 €m 6,161 6,135 26 (1,835) (287) (2,224) 1,815 (1,276) 539 – (116) 423 29.5% Notes: 1 In accordance with IFRS, the results of Vodafone India are classified as discontinued operations. 2 Year ended 31 March 2017 includes a gross impairment charge of €4.5 billion (2016: €nil) recorded in respect of the Group’s investment in India, which together with the recognition of an associated €0.8 billion deferred tax asset, led to an overall €3.7 billion reduction in the carrying value of Vodafone India. Vodafone Group Plc Annual Report 2018FinancialsOther unaudited financial information (continued) Company statement of financial position of Vodafone Group Plc at 31 March 183 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 (liabilities)/assets 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 redemption reserve Other reserves Own shares held Profit and loss account1 Total equity shareholders’ funds Note 2018 €m 2017 €m 2 3 3 4 5 5 6 83,728 83,991 2,480 221,233 1,945 174 225,832 (229,396) (3,564) 80,164 (34,332) 45,832 4,796 20,380 111 2,646 (8,598) 26,497 45,832 3,692 217,590 1,678 322 223,282 (219,924) 3,358 87,349 (35,369) 51,980 4,796 20,379 111 4,385 (8,739) 31,048 51,980 Note: 1 The loss for the financial year dealt with in the financial statements of the Company is €253 million (2017: profit of €1,134 million). The Company financial statements on pages 183 to 190 were approved by the Board of Directors and authorised for issue on 15 May 2018 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. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 184 Company statement of changes in equity of Vodafone Group Plc For the years ended 31 March 1 April 2016 Issue or reissue of shares Profit for the financial year Dividends Capital contribution given relating to share-based payments4 Contribution received relating to share-based payments Other movements5 31 March 2017 Issue or reissue of shares6 Loss for the financial year Dividends Capital contribution given relating to share-based payments4 Contribution received relating to share-based payments Repurchase of treasury shares7 Other movements5 31 March 2018 Called up share capital €m 4,796 Share premium account1 €m 20,377 Capital redemption reserve1 €m 111 – – – – – – 2 – – – – – 4,796 20,379 – – – – – – – 1 – – – – – – 4,796 20,380 – – – – – – 111 – – – – – – – 111 Other reserves1 €m 4,423 – – – 112 (150) – 4,385 (1,742) – – 130 (127) – – 2,646 Reserve for own shares2 €m Profit and loss account3 €m (8,906) 33,494 Total equity shareholders’ funds €m 54,295 167 – – – – – – 1,134 (3,709) – – 129 169 1,134 (3,709) 112 (150) 129 (8,739) 31,048 51,980 1,876 – – – – (1,735) – 135 (253) (3,961) 130 (127) (1,735) (337) (8,598) 26,497 45,832 – (253) (3,961) – – – (337) 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 €8 million tax credit (2017: €9 million credit). Includes the impact of the Company’s cash flow hedges with €1,811 million net loss deferred to other comprehensive income during the year (2017: €787 million net gain; 2016: €337 million net gain) and €1,460 million net loss (2017: €654 million net gain; 2016: €294 million net gain) recycled to the income statement. These hedges primarily relate to foreign exchange exposure on fixed borrowings, with interest cash flows unwinding to the income statement over the life of the hedges and any foreign exchange on nominal balances impacting income statement at maturity (up to 2056). Includes the reissue of 729.1 million of shares (€1,742 million) in August 2017 in order to satisfy the first tranche of the mandatory convertible bond. 6 7 This represents the irrevocable and non-discretionary share buyback programme announced on 25 August 2017. 4 5 Vodafone Group Plc Annual Report 2018Financials Notes to the Company financial statements 185 1. Basis of preparation The separate financial statements of the Company are drawn up in accordance with the Companies Act 2006 and Financial Reporting Standard 101 “Reduced disclosure framework”, (‘FRS 101’). 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. 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 following exemptions available under FRS 101 have been applied: – 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); – IFRS 7 “Financial Instruments: Disclosures”; – 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); – Paragraph 38 of IAS 1 “Presentation of financial statements” comparative information requirements in respect of paragraph 79(a)(iv) of IAS 1; – The following paragraphs of IAS 1 “Presentation of financial statements”: – 10(d) (statement of cash flows); – 16 (statement of compliance with all IFRS); – 38A (requirement for minimum of two primary statements, including cash flow statements); – 38B-D (additional comparative information); – 40A-D (requirements for a third statement of financial position); – 111 (cash flow statement information); and – 134-136 (capital management disclosures). – IAS 7 “Statement of cash flows”; – 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); and – The requirements in IAS 24 “Related party disclosures” to disclose related party transactions entered into between two or more members of a group. – The requirements in IAS 36 to disclose valuation technique and assumptions used in determining recoverable amount. 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 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. Borrowing costs All borrowing costs are recognised in the income statement in the period in which they are incurred. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 186 1. Basis of preparation (continued) 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 temporary 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 temporary differences are expected to reverse, based on the tax rates and laws that are enacted or substantively enacted at the reporting period date. Temporary 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 2018 and 31 March 2017. 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. Vodafone Group Plc Annual Report 2018FinancialsNotes to the Company financial statements (continued) 187 2. Fixed assets Accounting policies Shares in Group undertakings are stated at cost less any provision for impairment and capital related to share-based payments. Contributions in respect of share-based payments are recognised in line with the policy set out in note 7. 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 Capital contributions arising from share-based payments Contributions received in relation to share-based payments 31 March Amounts provided for: 1 April Impairment losses 31 March Net book value: 31 March 2018 €m 2017 €m 91,902 130 (127) 91,905 7,911 266 8,177 91,940 112 (150) 91,902 7,343 568 7,911 83,728 83,991 At 31 March 2018 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 32 “Related undertakings” to the consolidated financial statements. 3. Debtors Amounts falling due within one year: Amounts owed by subsidiaries1 Taxation recoverable Other debtors Derivative financial instruments2 Amounts falling due after more than one year: Derivative financial instruments2 Deferred tax 2018 €m 2017 €m 220,871 – 199 163 221,233 2,449 31 2,480 216,686 134 173 597 217,590 3,672 20 3,692 Notes: 1 Amounts owed by subsidiaries are unsecured, have no fixed date of repayment and are repayable on demand. 2 Amounts falling due within one year include amounts in relation to cross-currency swaps €67 million (2017: €463 million), interest rate swaps €30 million (2017: €31 million), options €22 million (2017: €nil) and foreign exchange contracts €44 million (2017: €103 million). The amounts falling due in more than one year includes amounts in relation to cross-currency swaps €690 million (2017: €1,243 million), interest rate swaps €1,755 million (2017: €2,417 million) and options €4 million (2017: €12 million). Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 188 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 2018 €m 1,945 2017 €m 1,678 Note: 1 Investments include collateral paid on derivative financial instruments of €718 million (2017: €506 million) and €1,225 million (2017: €1,172 million) of gilts and deposits paid as collateral primarily on derivative financial instruments. 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 subsidiaries1 Derivative financial instruments2 Taxation payable Other creditors Accruals and deferred income Amounts falling due after more than one year: Other loans Derivative financial instruments2 2018 €m 2017 €m 8,367 220,625 229 9 120 46 229,396 32,199 2,133 34,332 10,353 208,671 717 – 108 75 219,924 34,020 1,349 35,369 Notes: 1 Amounts owed to subsidiaries are unsecured, have no fixed date of repayment and are repayable on demand. 2 Amounts falling due within one year include amounts in relation to cross-currency swaps €116 million (2017: €590 million) of which €nil (2017: €301 million) relates to transactions with joint ventures , interest rate swaps of €33 million (2017: €48 million), options of €29 million (2017: €3 million) and foreign exchange contracts of €51 million (2017: €76 million). The amounts falling due in more than one year include amounts in relation to cross-currency swaps of €1,626 million (2017: €735 million) of which €263 million (2017:€nil) relates to transactions with joint ventures, interest rate swaps of €460 million (2017: €554 million) and options of €47 million (2017: €60 million). Included in amounts falling due after more than one year are other loans of €19,326 million which are due in more than five years from 1 April 2018 and are payable otherwise than by instalments. Interest payable on these loans ranges from 0.035% to 7.875%. Details of bond and other debt issuances are set out in note 21 “Liquidity and capital resources” in the consolidated financial statements. Vodafone Group Plc Annual Report 2018FinancialsNotes to the Company financial statements (continued) 6. Called up share capital Accounting policies Equity instruments issued by the Company 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, 2 1 April Allotted during the year3 31 March Number 28,814,142,848 660,460 28,814,803,308 2018 €m 4,796 – 4,796 Number 28,813,396,008 746,840 28,814,142,848 189 2017 €m 4,796 – 4,796 Notes: 1 50,000 (2017: 50,000) 7% cumulative fixed rate shares of £1 each were allotted, issued and fully paid by the Company. 2 At 31 March 2018 the Company held 2,139,038,029 (2017: 2,192,064,339) treasury shares with a nominal value of €356 million (2017: €365 million). The market value of shares held was €4,738 million (2017: €5,348 million). During the year, 53,026,317 (2017: 62,761,357) treasury shares were reissued under Group share schemes. On 25 August 2017, 729,077,001 treasury shares were issued in settlement of a maturing subordinated mandatory convertible bond issued on 19 February 2016. For further details see note 21 “Liquidity and capital resources” in the consolidated financial statements. 3 Represents US share awards and option scheme awards 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 2018, the Company had 40 million ordinary share options outstanding (2017: 41 million). The Company has made capital contributions to its subsidiaries in relation to share-based payments. At 31 March 2018, the cumulative capital contribution net of payments received from subsidiaries was €56 million (2017: €53 million). During the year ended 31 March 2018, the total capital contribution arising from share-based payments was €130 million (2017: €112 million), with payments of €127 million (2017: €150 million) received from subsidiaries. Full details of share-based payments, share option schemes and share plans are disclosed in note 26 “Share-based payments” to the consolidated financial statements. 8. Reserves 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: – the absolute size of the profit pools either currently available for distribution or capable of realisation into distributable reserves in the relevant entities; – the location of these entities in the Group’s corporate structure; – profit and cash flow generation in those entities; and – 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 104 do not reflect the profits available for distribution in the Group. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 190 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 2017: 10.03 eurocents per share (2016: 7.77 pence per share, 2015: 7.62 pence per share) Interim dividend for the year ended 31 March 2018: 4.84 eurocents per share (2017: 4.74 eurocents per share, 2016: 3.68 pence per share) Proposed after the balance sheet date and not recognised as a liability: Final dividend for the year ended 31 March 2018: 10.23 eurocents per share (2017: 10.03 eurocents per share, 2016: 7.77 pence per share) 10. Contingent liabilities and legal proceedings Other guarantees and contingent liabilities 2018 €m 2017 €m 2,670 1,291 3,961 2,447 1,262 3,709 2,729 2,670 2018 €m 1,961 2017 €m 3,420 Other guarantees and contingent liabilities Other guarantees principally comprise the Company’s guarantee of the Group’s 50% share of an AUD1.7 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 25 “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 29 “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 29 “Contingent liabilities and legal proceedings” to the consolidated financial statements. 11. Other matters The auditors’ remuneration for the current year in respect of audit and audit-related services was €2.5 million (2017: €2.2 million) and for non-audit services was €0.1 million (2017: €0.9 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 the “Annual Report on Remuneration” on pages 79 to 87. The Company had two (2017: two) employees throughout year. 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. Vodafone Group Plc Annual Report 2018FinancialsNotes to the Company financial statements (continued) Shareholder information Unaudited information Investor calendar Ex-dividend date for final dividend Record date for final dividend Trading update for the quarter ending 30 June 2018 AGM Final dividend payment Half-year financial results for the six-months ending 30 September 2018 Ex-dividend date for interim dividend Record date for interim dividend Interim dividend payment Dividends See pages 30 and 130 for details on dividend amount per share. Euro dividends Dividends are declared in euros and paid in euros and pounds sterling according to where the shareholder is resident. Cash dividends to ADS holders are paid by the ADS depositary in US dollars. This aligns the Group’s shareholder returns with the primary currency in which we generate free cash flow. The foreign exchange rate at which dividends declared in euros are converted into pounds sterling and US dollars is calculated based on the average exchange rate of the five business days during the week prior to the payment of the dividend. 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 from our ADS depository bank, Deutsche Bank. 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, Computershare Investor Services PLC, through a low cost dealing arrangement. For ADS holders, Deutsche Bank, through its transfer agent, American Stock Transfer & Trust Company, LLC (AST) maintains the DB Global Direct Investor Services Program which is a direct purchase and sale plan for depositary receipts with a dividend reinvestment facility. See vodafone.com/dividends for further information about dividend payments or, alternatively please contact our registrar, Computershare or AST for ADS holders as applicable. See page 192 for their contact information. Taxation of dividends See pages 194 for details on dividend taxation. 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: – update dividend bank mandate instructions and review dividend payment history; – update member details and address changes; and – register to receive Company communications electronically. Computershare also offers an internet and telephone share dealing service to existing shareholders. 191 7 June 2018 8 June 2018 25 July 2018 27 July 2018 3 August 2018 13 November 2018 22 November 2018 23 November 2018 1 February 2019 The service can be obtained at www.investorcentre.co.uk. Shareholders with any queries regarding their holding should contact Computershare. See page 192 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 our impact on the environment and our costs. Each time we issue a shareholder communication, shareholders who have elected for electronic communication will be sent an email alert containing a link to the relevant documents. 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 Computershare at www.investorcentre.co.uk or contact them via the telephone number provided on page 192. See vodafone.com/investor for further information about this service. AGM Our thirty-fourth AGM will be held at the Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE on 27 July 2018 at 11.00 am. The AGM 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. Landmark Financial 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. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 192 Shareholder information (continued) Unaudited 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/scamsmart for more detailed information about this or similar activities. Contact details for Computershare and AST The Registrar Computershare Investor Services PLC The Pavilions Bridgwater Road, Bristol BS99 6ZZ, United Kingdom Telephone: +44 (0)370 702 0198 www.investorcentre.co.uk/contactus 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 ADS holders AST Operations Center 6201 15th Avenue Brooklyn NY 11219 United States of America Telephone: +1 800 233 5601 (toll free) or, for calls outside the United States: +1 201 806 4103 Email: db@astfinancial.com Share price history The closing share price at 31 March 2018 was 194.20 pence (31 March 2017: 208.10 pence). The closing share price on 14 May 2018 was 207.20 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 2014 2015 2016 2017 2018 Quarter 2016/2017 First quarter Second quarter Third quarter Fourth quarter 2017/2018 First quarter Second quarter Third quarter Fourth quarter 2018/2019 First quarter1 Month November 2017 December 2017 January 2018 February 2018 March 2018 April 2018 May 20181 London Stock Exchange Pounds per ordinary share NASDAQ Dollars per ADS High 2.52 2.40 2.55 2.40 2.38 Low 1.80 1.85 2.00 1.91 1.91 High 41.57 38.26 39.21 34.69 32.67 Low 27.74 29.67 29.19 24.30 25.59 High Low High Low 2.33 2.40 2.28 2.15 2.32 2.27 2.36 2.38 2.09 2.19 1.91 1.92 1.99 2.05 2.09 1.91 34.69 31.68 29.30 26.91 30.26 29.90 31.93 32.67 28.31 28.99 24.30 24.42 25.59 28.06 28.06 27.36 2.14 1.94 30.07 28.37 London Stock Exchange Pounds per ordinary share NASDAQ Dollars per ADS High 2.30 2.36 2.38 2.20 2.08 2.14 2.13 Low 2.16 2.24 2.24 2.00 1.91 1.94 2.07 High 30.96 31.93 32.67 31.05 29.04 30.07 29.13 Low 28.81 30.48 31.32 28.25 27.36 27.42 28.37 Note: 1 Covering period up to 14 May 2018. Foreign currency translation The following table sets out the euro exchange rates of the other principal currencies of the Group, being: “Sterling”, “£” or “pence”, the currency of the United Kingdom, and “US dollars”, “US$”, “cents” or “¢”, the currency of the United States. Currency (=€1) Average: Sterling US dollar At 31 March: Sterling US dollar 31 March 2018 2017 % Change 0.88 1.17 0.88 1.23 0.84 1.10 0.85 1.07 4.8 6.4 3.5 15.0 Vodafone Group Plc Annual Report 2018Other information 193 The following table sets out, for the periods and dates indicated, the period end, average, high and low exchange rates for euro expressed in US dollars per €1.00. Year ended 31 March 2014 2015 2016 2017 2018 31 March 1.38 1.08 1.13 1.07 1.23 Average 1.34 1.27 1.10 1.10 1.17 High 1.39 1.39 1.16 1.15 1.25 Low 1.28 1.05 1.06 1.04 1.06 The following table sets out, for the periods indicated, the high and low exchange rates for euro expressed in US dollars per €1.00. Year ended 31 March November 2017 December 2017 January 2018 February 2018 March 2018 April 2018 May 2018 High 1.19 1.20 1.25 1.25 1.24 1.24 1.20 Low 1.16 1.17 1.19 1.22 1.22 1.21 1.19 On 14 May 2018 (the latest practicable date for inclusion in this report), the exchange rates between euros and US dollars and between euros and sterling were as follows: €1 = US$1.20 and €1 = £0.88. 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 Deutsche Bank, as depositary, under a deposit agreement, dated 27 February 2017 between the Company, the depositary and the holders from time to time of ADRs issued thereunder. ADS holders are not shareholders in the Company but may instruct Deutsche Bank 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 194. Shareholders as at 31 March 2018 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 306,097 43,247 12,317 507 786 1,217 364,171 Ownership location (as a percentage of shares held) as at 31 March UK Europe (excluding UK) North America Rest of World 2018 35.0 15.0 42.7 7.3 % of total issued shares 0.24 0.35 0.56 0.14 0.69 98.02 100 2017 38.4 14.2 40.7 6.7 Major shareholders As at 14 May 2018, Deutsche Bank as custodian of our ADR programme, held approximately 17.79% of our ordinary shares of 20 20/21 US cents each as nominee. At this date, the total number of ADRs outstanding was 474,789,483 and 1,489 holders of ordinary shares had registered addresses in the United States and held a total of approximately 0.00824% of the ordinary shares of the Company. At 31 March 2018 the following percentage interests in the ordinary share capital of the Company, disclosable under the Disclosure Guidance and Transparency Rules, (‘DTR 5’), have been notified to the Directors. Shareholder BlackRock, Inc. Shareholding 6.90% No changes in the interests disclosed under DTR 5 have been notified to the Company between 31 March 2018 and 14 May 2018. As far as the Company has been notified under DTR 5, between 1 April 2015 and 14 May 2018, no shareholder, other than described above, held 3% or more of the voting rights attributable to the ordinary shares of the Company other than Deutsche Bank, as custodian of our ADR programme, and Bank of New York Mellon as custodian of our ADR programme prior to 27 February 2017. 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. As at 14 May 2018 the Directors are not aware 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 195 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 as set out in the Articles of Association. 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. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 194 Shareholder information (continued) Unaudited information 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 2017 AGM and the Company concluded an irrevocable and non-discretionary share buy-back programme on 15 November 2017. Under this programme the Company purchased 729,077,008 ordinary shares of 20 20/21 US cents each, equal to the limit the Company announced for the programme on 25 August 2017, for an aggregate consideration of €1.7 billion. The number of shares purchased represented 2.73% of the Company’s issued share capital excluding treasury shares as at 31 March 2018 which was below the number permitted to be purchased by the Company pursuant to the authority granted by the shareholders at the 2017 AGM. At each AGM all Directors who were elected or last re-elected at or before the AGM 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 73 to 78. Rights attaching to the Company’s shares At 31 March 2018, the issued share capital of the Company was comprised of 50,000 7% cumulative fixed rate shares of £1.00 each and 26,675,765,279 ordinary shares (excluding treasury shares) of 20 20/21 US cents each. As at 31 March 2018, 2,139,038,029 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 or proxies 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 who hold shares under the Vodafone Group Share Incentive Plan or in a vested nominee share account are able to vote through the respective plan’s trustees. Note there is now a vested share account with Computershare (in respect of shares arising from a SAYE exercise) and Equatex (MyShareBank). 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 2017 AGM the amount of relevant securities fixed by shareholders under (i) above and the amount of equity securities specified by shareholders under (ii) above were in line with the Pre-Emption Group’s Statement of Principles. Further details of such proposals are provided in the 2018 Notice of AGM. Vodafone Group Plc Annual Report 2018Other information 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 the Disclosure Guidance and Transparency Rules. General meetings and notices Subject to the Articles of Association, AGMs 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 AGM 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 AGM 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. 195 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 its results or operations except for: – its US$4.1 billion and €3.8 billion revolving credit facilities which are discussed in note 21 “Liquidity and capital resources” to the consolidated financial statements; – its subscription agreements for the €1.6 billion of subordinated mandatory convertible bonds placed on 25 February 2016 as discussed in note 21 “Liquidity and capital resources” to the consolidated financial statements; – the Contribution and Transfer Agreement in respect of the Dutch joint venture with Liberty Global as detailed in note 28 “Commitments” to the consolidated financial statements; – the Implementation Agreement dated 20 March 2017 between Vodafone India Limited and Idea Cellular Limited and such other parties as listed in the agreement; and – the Sale and Purchase Agreement dated 9 May 2018 relating to the sale of Liberty Global plc’s businesses in Germany, Romania, Hungary and the Czech Republic. 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 American Depositary Shares (‘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 stock (by vote or value); 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. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information Taxation of dividends UK taxation Under current UK law, there is no requirement to withhold 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 resident in the UK will be subject to the income tax on the dividends we pay. Dividends will be taxable in the UK at the dividend rates applicable where the income received is above the dividend allowance (currently £2,000 per tax year) which is taxed at a nil rate. Dividend income is treated as the highest part of an individual shareholder’s income and the dividend allowance will count towards the basic or higher rate limits (as applicable) which may affect the rate of tax due on any dividend income in excess of the allowance. 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 or euro payments made determined at the spot pound sterling/US dollar rate or the spot euro/ US dollar rate, as applicable, 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 or euros 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 US holder may be entitled, subject to certain limitations, to a foreign tax credit in respect of such taxes. 196 Shareholder information (continued) Unaudited information A US holder is a beneficial owner of shares or ADSs that is for US federal income tax purposes: – an individual citizen or resident of the United States; – a US domestic corporation; – an estate, the income of which is subject to US federal income tax regardless of its source; or – 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 and such practice are subject to change, possibly on a retroactive basis. 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 American Depositary Receipts (‘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 197). Vodafone Group Plc Annual Report 2018Other information 197 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 receipt 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: – is a citizen of the United States and is resident in the UK; – 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); – is a US domestic corporation resident in the UK by reason of being centrally managed and controlled in the UK; or – 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. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 198 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: – 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. – 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. – 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’). – 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. – On 8 May 2007 we acquired companies with controlling interests in Vodafone India Limited (‘VIL’), formerly Vodafone Essar Limited, for US$10.9 billion (€7.7 billion). – On 20 April 2009 we acquired an additional 15.0% stake in Vodacom for cash consideration of ZAR20.6 billion (€1.8 billion). On 18 May 2009 Vodacom became a subsidiary. – On 10 September 2010 we sold our entire 3.2% interest in China Mobile Limited for cash consideration of £4.3 billion (€5.2 billion). – On 16 June 2011 we sold our entire 44% interest in SFR to Vivendi for a cash consideration of €7.75 billion and received a final dividend from SFR of €200 million. – 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 (€2.9 billion) including withholding tax. – 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 INR28.6 billion (€410 million). On 8 February 2012, they purchased a further 5.5% of VIL from the Essar Group for a cash consideration of approximately INR30.1 billion (€460 million) taking Piramal’s total shareholding in VIL to approximately 11%. – On 9 November 2011 we sold our entire 24.4% interest in Polkomtel in Poland for cash consideration of approximately €920 million before tax and transaction costs. – On 27 July 2012 we acquired the entire share capital of Cable & Wireless Worldwide plc for a cash consideration of £1,050 million (€1,340 million). – On 31 October 2012 we acquired TelstraClear Limited in New Zealand for a cash consideration of NZ$840 million (€660 million). – On 13 September 2013 we acquired a 76.57% interest in Kabel Deutschland Holding AG in Germany for cash consideration of €5.8 billion. – 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 (€95 billion) including the remaining 23.1% minority interest in Vodafone Italy. Following completion, Vodafone shareholders received Verizon shares and cash totalling US$85 billion (€37 billion). – 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 INR89.0 billion (€1.0 billion), taking our ownership interest to 100%. – On 23 July 2014 we acquired the entire share capital of Grupo Corporativo Ono, S.A. (‘Ono’) in Spain for total consideration, including associated net debt acquired, of €7.2 billion. – On 31 December 2016 we completed the transaction with Liberty Global plc to combine our Dutch operations in a 50:50 joint venture called VodafoneZiggo Group Holding B.V. (‘VodafoneZiggo’). See note 27 “Acquisitions and disposal” for further details. – On 20 March 2017 we announced the agreement to combine Vodafone India (excluding its 42% stake in Indus Towers), with Idea Cellular, which is listed on the Indian Stock Exchanges, with the combined company to be jointly controlled by Vodafone and the Aditya Birla Group. See note 28 “Commitments” for further details. – On 31 March 2018, Vodafone India completed the sale of its standalone tower business in India to ATC Telecom Infrastructure Private Limited (“ATC”) for an enterprise value of INR 38.5 billion (€478 million). Completion of Idea’s sale of its standalone tower business to ATC for INR 40.0 billion is expected in the first half of this calendar year. See note 28 “Commitments” for further details. – On 26 February 2018, we announced that Qatar Foundation would acquire Vodafone Europe B.V.’s 51% stake in the joint venture company, Vodafone and Qatar Foundation LLC, that controls Vodafone Qatar for a total cash consideration of QAR1,350 million (€301 million). The transaction was completed on 29 March 2018. See note 27 “Acquisitions and disposals” for further details. – On 25 April 2018, Vodafone, Bharti Airtel Limited (‘Bharti Airtel’) and Idea announced the merger of Indus Towers Limited (‘Indus Towers’) into Bharti Infratel Limited (‘Bharti Infratel’), creating a combined company that will own the respective businesses of Bharti Infratel and Indus Towers. Bharti Airtel and Vodafone will jointly control the combined company, in accordance with the terms of a new shareholders’ agreement. See note 31 “Subsequent events” for further details. – On 9 May 2018, Vodafone announced that it had agreed to acquire Unitymedia GmbH in Germany and Liberty Global’s operations (excluding its “Direct Home” business) in the Czech Republic, Hungary and Romania, for a total enterprise value of €18.4 billion. This is expected to comprise approximately €10.8 billion of cash consideration paid to Liberty Global and €7.6 billion of existing Liberty debt, subject to completion adjustments. See note 31 “Subsequent events” for further details. Details of other significant transactions that occurred after 31 March 2018 and before the signing of this Annual Report on 15 May 2018 are included in note 31 “Subsequent events”. Vodafone Group Plc Annual Report 2018Other information 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 regional level and in the European Union (‘EU’), in which we had significant interests during the year ended 31 March 2018. 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 June 2017 the requirement to implement “Roam Like at Home” came into force. As a result, all of our EU customers are able to use their home tariff whilst roaming in the EU, subject to fair use limits. In September 2017 the European Commission (the ‘Commission’) published the Proposed Free Flow of Data Regulation which aims to facilitate the cross-border provision within the EU of data storage and processing services such as cloud computing, big data analytics and IoT and the new EU cybersecurity strategy and Cybersecurity Act, which aims to give a bigger role and more resources to the EU Agency for Network and Information Security and establish a new framework at EU level for the cybersecurity certification of ICT products and services. In April 2018 the Commission released its strategy on how to prepare the EU to compete in the global race for artificial intelligence. New proposals have been made in relation to platforms, with proposed regulation of platform to business relationships and initiatives addressing fake news and liability for content. The European Electronic Communications Code (‘Communications Code’) discussions are ongoing between the European Parliament, European Council and the Commission and are expected to be finalised by the end of 2018. The Communications Code covers access regulation, spectrum, end user rights, universal service, and the institutional set-up and governance. Key proposals still being debated include access to passive infrastructure, symmetrical regulation and treatment of regulated co-investment, retail pricing of intra-EU international calls and level of EU oversight on Member State Spectrum management policy. The proposals on consumer protection, copyright and audio-visual services which are likely to impact e-commerce and the distribution of content across the European Single Market in a variety of areas are ongoing. These include proposals for new Directives on Digital and Tangible Goods, a New Deal for Consumers which includes proposals on better enforcement of consumer rights and New Directives on Audio-visual Media Services and copyright. New Regulation on cross-border portability of online content services on copyright, has now entered into application in the Member States which will allow consumers access to online TV and Video on Demand subscriptions while travelling across Europe. The Commission’s legislative proposal for an e-Privacy Regulation, which will update the existing e-Privacy Directive with specific rules applicable to the electronic communications sector is ongoing. The General Data Protection Regulation (‘GDPR’) replaced the 1995 Data Protection Directive (Directive 95/46/EC) when it came into force on 25 May 2018. The GDPR harmonises data protection requirements across the EU, strengthening protection for EU citizens and improve organisation’s accountability when holding their personal data. 199 Europe region Germany In May 2017 the national regulatory authority (‘BNetzA’) initiated the market review process for wholesale access at fixed locations (market 3 of the Commission market recommendation) currently covering both unbundled local loop (‘ULL’) and virtual unbundled local access (‘VULA’) as well as bitstream wholesale products. The modification of Fibre to the Home (‘FTTH’) regulation currently included in market 3 regulation has not excluded the possibility that access to the incumbent’s FTTH network may only be regulated by a light touch approach (e.g. retail minus) or fully deregulated. In June 2017 BNetzA assessed the demand for spectrum at 2.0 GHz and 3.5 GHz for mobile services. An auction is expected for year-end 2018. In August 2017 BNetzA published its decision regarding the reference offer on the migration of very high-rate digital subscriber line unbundled local loop (‘VDSL ULL’) and the introduction VULA product at street cabinets in view of Deutsche Telekom’s Vectoring deployment in nearshore areas. Vodafone Germany’s VDSL ULL customers are due to be migrated on to the substitute bitstream products from mid-2018. In December 2017 Vodafone Germany purchased 1x42MHz spectrum in the 3.5GHz band from Telefónica Germany. The rights to this spectrum expire in 2021. In February 2018 BNetzA initiated a national consultation concerning principles and guidelines for infrastructure pricing within the context of the German Digital Network Law (‘DigiNetz-Gesetz’). Results of this consultation are not expected before mid-2018. Italy In September 2017 Vodafone Italy was assigned the city of Milan for their proposed 5G pilot. In November 2017 the national regulatory authority (‘AGCOM’) announced an enforcement action against Vodafone Italy for failure to comply with a resolution requiring telecoms operators to adhere to monthly billing cycles. In February 2018 the Italian Competition Authority (‘ICA’) also opened an antitrust investigation into Vodafone Italy, three of its competitors and the industry trade association, alleging that the operators infringed competition law by agreeing not to comply with the AGCOM resolution and exchanging information on future pricing strategies in response to a subsequent law which has forced the operators to revert to monthly billing. Vodafone Italy has appealed against AGCOM’s enforcement action and the hearing is due to take place in October 2018. Vodafone is also defending itself against the ICA investigation and has revised its pricing strategy going forward. For information on litigation in Italy, see note 29 “Contingent liabilities and legal proceedings” to the consolidated financial statements. United Kingdom In November 2017 the Competition Appeal Tribunal published its full reasoning behind its decision on BT’s Appeal of the national regulatory authority’s (‘Ofcom’) 2016 Business Connectivity Market Review. BT has put on hold the launch of its Dark Fibre Access Product and Ofcom put in place temporary conditions to continue regulation where Ofcom’s previous decisions were unchallenged. In December 2017 the Court of Appeal upheld BT/EE’s appeal against Ofcom in setting the Annual Licence Fees for 900MHz and 1800MHz spectrum. As a result, we expect Ofcom to re-consult on these fees in the near future. In February 2018 Ofcom notified the commission of its proposed MTR change effective from 1 April 2018 to 31 March 2021. The current rate will change from 0.495 pence per minute to 0.489 pence per minute from 1 June 2018, and annually thereafter fall by approximately CPI-4% (current rate of CPI = 2.5%). Ofcom also clarified that all inbound calls will be subject to the charge control, including calls originated from non-EEA countries. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 200 Regulation (continued) Unaudited information In March 2018 Ofcom notified Vodafone UK that it had opened an investigation into its Vodafone Passes tariffs. Ofcom is investigating whether the use of traffic management is compliant with Net Neutrality regulations. In April 2018 Vodafone UK acquired 1x50MHz spectrum in the 3.5GHz band at a cost of £380 million, expiring in April 2038. Hutchison 3G’s appeal to the EU’s General Court against the Commission’s competition authority (‘DGCOMP’) decision to prohibit the proposed Hutchison 3G acquisition of Telefónica UK (‘O2’) is ongoing. The Court has granted EE leave to intervene to support the Commission. Under the Digital Economy Act, Vodafone UK has to implement bill capping functionality by October 2018. The cap will be chosen by the customer and any expenditure above the chosen cap, without the customer’s explicit prior opt-in, cannot be charged. Spain In June 2017 the Spanish Supreme Court dismissed the appeals brought by Vodafone Spain and other stakeholders against the Royal Decree on the so-called “TV Tax” created by Law 8/2009 that requires the financing of the RTVE Corporation to be supported by 1.5% of private TV networks’, and 0.9% of telecom operators’, gross operating revenues. In February 2018 the National Audience presented its preliminary ruling before the European Court of Justice (‘ECJ’) on the compatibility of the TV Tax with Article 6 of Authorisation Directive which is currently under review by the ECJ. In September 2017 the National Audience court declared the fines that had been previously 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’), as void. The national regulatory authority’s (‘CNMC’) has appealed against this ruling in the Supreme Court. In December 2017 a draft Ministerial Order was issued for its rural LTE plan that requires holders of spectrum in the 800 MHz to achieve joint coverage in areas with less than 5,000 inhabitants, with a minimum speed of 30 Mbps for 90% of population, before 1st January 2020. The Final Order is expected by June 2018. In February 2018 CNMC’s new MTRs came into force, reducing the current rate of 1.09 eurocents per minute to 0.64 eurocents per minute by January 2020. In March 2018 CNMC’s proposed Regulatory Economic Replicability Test (‘ERT’) was adopted as part of Telefónica’s obligations on its fibre network under the Resolution on markets 3 and 4. This mechanism will calculate maximum wholesale price for the access component of wholesale broadband services (‘NEBA’) and NEBA Local (‘VULA’) services. Telefónica’s new wholesale price of €17.57 per month was approved by CNMC in April 2018. Netherlands The national regulatory authority (‘ACM’) did not file an appeal against the Court of Rotterdam’s April 2017 ruling that the European rules prevail over the net neutrality provision in the Dutch Telecommunications Act and amended the act accordingly. In July 2017 VodafoneZiggo’s request for a preliminary injunction against the new MTR of 0.581 eurocents per minute for the period 2017-2020 was dismissed by the court. The new tariffs entered into force in July 2017. For the period 2013 to 2016 the existing tariffs remained unchanged, based on Bottom-Up Long Run Incremental Cost Plus (‘BULRIC+’). In July 2017 VodafoneZiggo filed an appeal against ACM’s MTR/FTR market decision. The appeal court is expected to deliver its verdict after June 2018. In February 2018 ACM published a draft decision based on its analysis of the Wholesale Fixed Access market, in which it aims to regulate VodafoneZiggo (cable access) in addition to continuing existing regulation on KPN. The public consultation closed in April 2018 and ACM will notify the Commission of its decision after June 2018. In April 2018 Liberty Global and Vodafone formally re-notified the UPC/Ziggo merger to the Commission following the annulment of the original clearance decision by the European Court. The parties met with the Commission on 25 April where the Commission explained their position and what needed to be done in order to obtain clearance. The decision is due on 30 May 2018. In April 2018 the Commission commenced an investigation in relation to the acquisition of sports rights, including VodafoneZiggo’s TV channel, Ziggo Sport. The Commission stated that it is concerned that the companies involved may have violated EU antitrust rules that prohibit cartels and restrictive business practices in relation to the acquisition of sports rights. As well as VodafoneZiggo, Fox Sports and media buying agents IMG, MP & Silva and B4 Capital all confirmed that they were visited by the Commission. VodafoneZiggo are fully cooperating with the commission’s investigation. Ireland In May 2017 Vodafone Ireland acquired 105MHz spectrum in the cities and 85MHz spectrum in the regions for the 3.6GHz band at a cost of €18 million, expiring in July 2032. Discussions are ongoing with the regulator on transition plans. In June 2017 the national regulatory authority (‘ComReg’) issued the findings of their review of the processes for regulatory governance of the incumbent operator in Ireland. A follow up consultation is planned for the second half of 2018. The markets 3a and 3b review for broadband is ongoing and a move to cost-oriented pricing has been proposed. Portugal In January 2018 the national regulatory authority (‘ANACOM’) launched a public consultation on wholesale markets for voice call termination where it proposes to reduce the MTR from 0.75 to 0.43 eurocents per minute and set a glide path for additional annual decreases to 0.36 eurocents per minute in July 2020. In February 2018 ANACOM issued a draft decision on zero rating practices in Portugal which concludes that some offers in the Portuguese market are in breach of the Net Neutrality Regulation and Roaming Regulation. Vodafone Portugal submitted its response during the public consultation that closed in April and ANACOM’s final decision is expected before the end of 2018. In March 2018 ANACOM launched a public consultation to assess and prepare the allocation of spectrum for 5G. Vodafone Portugal continues to challenge payment notices totalling €34.8 million issued by ANACOM regarding 2012-2014 extraordinary compensation of Universal Service net costs. Romania In June 2017 the national regulatory authority (‘ANCOM’) launched a consultation process for 5G spectrum allocation in Romania and industry responses were published by ANCOM at the beginning of September 2017. Auctions are expected in 2019 but timing has not been confirmed. In July 2017 ANCOM published its draft market review analysis of the relevant markets for fixed and mobile call termination and proposed to maintain the current level of termination rates however following objections from the Commission, MTRs will be reduced using the EU benchmark, from 0.96 to 0.84 eurocent per minute from 1 May 2018, until the new LRIC model results are available. Greece In August 2017 the national regulatory authority (‘EETT’) announced the MTR for calls originating within the EU was reduced from 1.072 to 0.982 eurocents per minute and remained effective until the end of 2017. A glide path further reduced the MTR to 0.958 eurocents per minute from 1 January 2018 and then 0.946 eurocents per minute from 1 January 2019 until further review. Vodafone Group Plc Annual Report 2018Other information In September 2017 EETT held a formal hearing for Vodafone Greece and Cosmote to present their views in response to the complaint brought by Wind for alleged abuse of dominance commencing in 2012, in relation to international mobile calls from Greece to Albania. Subsequent to this oral hearing Vodafone Greece submitted their written response to the EETT in January 2018. In November 2017 Vodafone Greece launched its VULA Fibre to the Cabinet (‘FTTC’) regulated services as part of its 28-month Next Generation Access (‘NGA’) roll-out plan and the VULA-FTTH launch is scheduled for mid-2018. EETT’s final decision regarding the VULA specifications and provisions is expected to be issued and notified to the Commission by May 2018. EETT is developing a BULRIC+ model for calculating the wholesale copper and fibre access prices (including Vodafone Greece’s wholesale VULA services through both FTTC and FTTH). In November 2017 Vodafone Greece renewed 2x15MHz spectrum in the 1800MHz band, that was due to expire in February 2018, at the reserve price of €59.1 million, for a 17 years and 10-month licence. In December 2017 EETT announced that “Regulation on General Authorization” will become effective from 3 June 2018, regulating how customers’ contracts are set up, managed, terminated and renewed. Vodafone Greece has requested an extension of one year for the implementation deadline. In March 2018 EETT announced its decision that the Universal Service costs for the years 2010 & 2011 represented an unfair burden on the designated provider and the net cost should be between all the operators. Vodafone Greece has appealed against EETT’s decisions. Czech Republic In November 2017 the national competition authority (‘UOHS’) published the findings of the retail mobile telecoms market sector inquiry and concluded there was no anti-competitive conduct found and mobile operators are compliant with competition law. However, it did not exclude the possibility of future ex-ante regulation imposed by the national regulatory authority (‘CTU’). CTU’s mobile market analysis continues and in their initial finding concluded that the mobile wholesale access market is susceptible to ex ante regulation. In April 2018 Vodafone Czech Republic’s existing 900MHz and 1800MHz spectrum licences were extended until June 2029 for a one- off fee of €6.5 million. DG COMP‘s investigation into a network sharing agreement between O2 CZ/CETIN and T-Mobile CZ is ongoing. Hungary In December 2017 the national regulatory authority (‘NMHH’) published the market 3a and 3b review decision for wholesale access at fixed locations. NMHH has withdrawn the obligations in an area covering almost 20% of the population where there is a satisfactory competition level. In non-competitive areas it has imposed an obligation to provide VULA access and has introduced BULRIC+ access pricing for all of the access products. The investigation into the 800MHz network and spectrum sharing of Magyar Telekom and Telenor is ongoing. A new spectrum cap to de-incentivise spectrum pooling has not been implemented. This was proposed by NMHH in response to the Magyar Telekom and Telenor 900MHz band spectrum share approval and to address the 700MHz auction scheduled for 2019. Albania In February 2018 the national regulatory authority (‘AKEP’) concluded its analysis of the mobile market and concluded all three operators are SMPs in their respective mobile voice call termination markets. AKEP has launched a public consultation recommending asymmetric MTRs in favour of Albtelecom and Telekom. 201 In March 2018 Vodafone Albania acquired 50% of the spectrum made available by PLUS exiting the market. In March 2018 AKEP launched a public consultation on granting usage rights for the 800 MHz spectrum band. In April 2018 AKEP issued its decision to impose on operators the obligation to switch their bundles from 28 to 30 days starting from 1 June 2018. Malta In March 2018 the Maltese Government announced its intention to introduce SIM registration requirements for all new and existing accounts. In April 2018 Vodafone Malta acquired 2x10MHz spectrum in the 800MHz band and 2x30+25MHz spectrum in the 2.6GHz band at a cost of €619,500 per annum, expiring in April 2033. Africa, Middle East and Asia-Pacific region India In August 2017 the national regulatory authority (‘TRAI’) amended its Quality of Service Regulations for assessment of Drop Call Rate and increased financial penalties for non-compliance. In September 2017 DoT issued Indian Telegraph (Amendment) Rules 2017 that from 1 October 2018 requires Original Equipment Manufacturers (‘OEMs’) to mandatorily seek pre-sale testing and certification of all imported and domestically manufactured telecom equipment by accredited labs in India. In September 2017 TRAI issued its revised Interconnect Usage Charge (‘IUC’) Regulation, reducing the MTR from INR0.14 per minute to INR 0.06 per minute, effective from 1 October 2017 until 31 December 2019 and Bill & Keep from 1 January 2020. Vodafone India has challenged this Regulation in the Bombay High Court. The next hearing is due on 11 June 2018. Vodafone India’s petition in the Delhi High Court against TRAI’s previous IUC regulation of February 2015 that reduced the MTR to INR 0.14 is next listed on 24 May 2018. In January 2018 the pleadings in the Delhi High Court on Vodafone India’s challenge against TRAI’s recommended fine for alleged failure to provide adequate points of interconnection to Reliance Jio (‘RJIL’) have been completed. As the issue is already before the Division Bench in the case of Idea Cellular it is now adjourned until 10 August 2018. Vodafone India’s challenge against RJIL’s zero/free mobile tariff offers being non-compliant with TRAI’s tariff requirements for interconnect usage charges is pending in the Delhi High Court and the next hearing is scheduled in August 2018. In February 2018 TRAI has issued Telecommunication Tariff Order (‘TTO’) 63rd Amendment and Significant Marker Power (‘SMP’) will now be determined on the basis of subscriber base and gross revenue for purposes of predatory pricing, and segmented offers are to be reported and published. Vodafone India have challenged the TTO requirement in the Madras High Court and on 19 March 2018 the Court ordered TRAI not to take any coercive or penal action for non-publishing of segmented tariffs. In February 2018 TRAI has submitted its recommendations on the formulation of its revised National Telecom Policy. The draft National Digital Communications Policy was issued by the DoT for comments and the policy is expected to be finalized by June 2018. In March 2018 Vodafone India challenged TRAI’s reduction of International Termination Charges from INR 0.53 to INR 0.30 per minute in Mumbai High Court. The court will hear the matter along with the petitions also filed by Airtel and Idea, with the next hearing due on 19 June 2018. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 202 Regulation (continued) Unaudited information In March 2018 DoT issued amendments to licences for revised spectrum caps and payment of deferred payment liabilities against the spectrum won by such licensees in the years 2012 to 2016. The overall spectrum cap limit has been increased from 25% to 35%. The intra-band cap of 50% has been removed and a cap of overall 50% on combined spectrum holding in sub 1 GHz bands has been imposed (700 MHz, 800 MHz, and 900 MHz). No cap has been affixed for individual or combined spectrum holding in above 1 GHz band. In May 2018 the Telecom Commission approved a set of TRAI recommendations creating a regulatory framework for internet telephony, the proliferation of broadband via public Wi-Fi networks, the introduction of in-flight connectivity (‘IFC’) service provider licences, the creation of a telecoms ombudsman under TRAI and for the broadcasting sector, ease of doing business proposals. The next step is for the development of the necessary frameworks and amendments to existing laws for the recommendations to come into effect. TRAI’s recommendations on net neutrality that were issued in November 2017 were not part of Telecom Commission’s May agenda and their review date is yet to be confirmed. The Telecom Tribunal (‘TDSAT’) hearing for Vodafone India’s challenge against the financial demands by the Department of Telecommunications (‘DoT’) for approving the transfer of Vodafone India telecom is still pending. For information on the proposed Vodafone Idea merger, see note 28 “Commitments”. For information on litigation in India, see note 29 “Contingent liabilities and legal proceedings” to the consolidated financial statements. Vodacom: South Africa In June 2017 the national regulatory authority (‘ICASA’) gave notice of its intention to conduct an inquiry to identify priority markets in the Electronic Communications Sector (‘ECS’). The purpose of the enquiry is to identify relevant wholesale and retail markets or market segments in the ECS that are generally prone to ex ante regulations, and to determine from these markets and market segments those that the authority intends to prioritise for market reviews and potential regulation. The report is not expected to be published before September 2019. In August 2017 the Competition Commission (‘CompCom’) indicated that they will conduct a market inquiry into the market(s) for data services in South Africa (“the Data Services Market Inquiry”) covering all relevant players in the value chain who contribute to or influence prices of data services in South Africa. The review is ongoing. In September 2017 ICASA published an amendment to Termination Rate Regulations extending the MTRs and FTRs until 30 September 2018. ICASA is in the process of constructing cost models that will inform MTRs and FTRs to be applied from October 2018, and the glide- path that will apply thereafter. In November 2017 the Minister of Telecommunications and Postal Services published an invitation to provide comments on the Electronic Communications Amendment Bill (‘Bill’), which stems from the ICT Policy White Paper published in October 2016. The Department of Telecommunications and Postal Services will submit the final Bill for adoption by the Cabinet and Parliament. ICASA’s inquiry into Equity Ownership by Historically Disadvantaged Groups (‘HDG’) is ongoing. The purpose of the inquiry is to determine ICASA’s approach to the implementation the ICT Sector Code, and ICASA’s promotion of B-BBEE and equity ownership by HDG’s. Currently the authority for regulating B-BBEE lies with the Department of Trade and Industry, and ICASA’s present role has been restricted to implementing the requirement of the B-BBEE Act and associated regulations. ICASA has announced that a public hearing will be held on 16 and 17 May 2018, after which they will publish their findings. Vodacom: Democratic Republic of Congo In June 2017 the Tax Authority commenced investigations on whether Vodacom Congo’s 2G licence renewal in December 2015 was legally obtained. Vodacom Congo has made representations to show that the process followed and fees paid in renewing the licence were in accordance with the law. In September 2017, the Public Prosecutor commenced its SIM registration investigation with all MNOs. The outcome of the investigation has not yet been communicated. In March 2018 an ordinance law was signed that included the extension of 10% excise duty on telecommunications services that are provided free to the end user, such as promotions with free minutes, data usage and messaging. Vodacom DRC is participating in industry association engagement with the DRC government to clarify aspects of the law. Vodacom DRC continues to participate in industry association engagement with the DRC government to clarify aspects of the law and apply for any necessary exemptions on the requirements, applying to all industries from March 2018, that all sub-contracts must be with Congolese owned and registered companies only. Vodacom: Tanzania In July 2017 Vodacom Tanzania acquired 2x7MHz and 2x14MHz spectrum in the 3.5GHz band at a cost of US$70,000, expiring in July 2031. In July 2017 Vodacom Tanzania received a non-compliance order and US$900,000 penalty from the national regulatory authority (‘TCRA’) in relation to SIM registration tests conducted in December 2016. In December 2017 Vodacom Tanzania received a further non- compliance order in relation to tests conducted in September 2017. Vodacom Tanzania has submitted its defence and awaits TCRA’s final decision. Vodacom Tanzania continues to work with TCRA and industry to execute the SIM registration compliance actions. In December 2017 TCRA published a new MTR of TZS15.60 per minute from 1 January 2018. The glide path reduces the MTR to TZS2.00 per minute by January 2022. Vodacom Tanzania has filed an appeal with the Fair Competition Commission. In January 2018 Lawful Enforcement Regulations were issued introducing a lawful intercept system. In February 2018 Vodacom Tanzania’s application for the Payment System Licence was approved by the Central Bank of Tanzania along with permission to continue providing mobile money services pending the processing of the Electronic Money Issuer Licence application. In March 2018 TCRA announced its intention to auction 2x20 MHz spectrum in the 700 MHz band in June 2018. In April 2018 ICASA introduced End User and Subscriber Service Charter Amendment Regulations 2018, which includes regulation on data transfer and rollover requirements for data bundles. In March 2018 TCRA commenced a review to determine if there is significant market power in the mobile financial services and telecommunications markets. Findings are due by December 2018. The timeframe for ICASA’s Invitation to Apply (‘ITA’) spectrum licensing process in the 700MHz, 800MHz and 2.6GHz bands remains deferred whilst the judicial review process in the High Court is ongoing. Vodafone Group Plc Annual Report 2018Other information Vodacom: Mozambique In July 2017 the national regulatory authority (‘INCM’) notified Vodacom Mozambique to comply with the National Security Authority implementation of interception capability on Mobile Operators. In November 2017 INCM completed the cost study on MTRs and the glide path sets the MTR at Mt0.43 per minute from 1 January 2018 reducing to Mt0.36 by 1 January 2020. Vodacom Mozambique has submitted an application to INCM for the renewal of its 2G licence that expires in August 2018. INCM has announced its intention to auction 800 MHz, 1800 MHz, and 2.1GHz in the second half of 2018. INCM has so far issued draft Licensing, Infrastructure Sharing, and Competition Law Regulations for consultation under the requirements of the Communications Act 2016. Vodacom: Lesotho In January 2018 the Central Bank granted Vodacom Lesotho an annual mobile financial services licence. The national regulatory authority (‘LCA’) sector review is ongoing and the draft paper raises concerns in relation to a two-player market structure. Vodacom Lesotho has submitted comments on the draft paper and results of the sector review are expected later in 2018. International roaming in Africa Vodacom has participated throughout the East Africa Community (‘EAC’) Roaming consultation process and have submitted an impact assessment to the Tanzania Ministry of Communications in September 2016 and presented views at the February 2017 East African Legislative Assembly conference. There have been no further initiatives from the TCRA on EAC Roaming, and Vodacom Tanzania has not participated in the proposed EAC Roaming Regulation rates to date. CRASA will commission a cost model review to inform regulation of wholesale and retail roaming rates across the Region. The study is expected to start in September 2018 with an introductory stake- holders’ session expected to be scheduled by June 2018. Turkey In December 2017 Basket Law 7061 for Tax Regime changes was issued. Telecommunication tax changes include the harmonisation of the Special Communication Tax (‘SCT’) rate to 7.5% across mobile and fixed services (data, voice and SMS), and that VAT and SCT applied to roaming charges will be limited to the margin between costs and revenue. In December 2017 the national regulatory authority (‘ICTA’) initiated the market review process for Broadband Market 3a and 3b including remedies for margin squeeze test and VULA. Vodafone Turkey has submitted its response and the review is expected to be completed by the end of 2018. ICTA’s proposed action to broaden the scope of the 3G coverage to include new metropolitan areas is still suspended by the Council of State motion, as Vodafone Turkey’s appeal to the administrative court is still pending. Australia In April 2017 Vodafone Hutchison Australia (‘VHA’) acquired 2x5MHz national spectrum in the 700mHz band at a cost of AU$285 million, expiring in December 2030. In June 2017 VHA made a submission to the National Broadband Network’s (‘NBN’) access pricing review. VHA’s submission urged significant and urgent changes to the NBN pricing regime which it argued was distorting retail service providers’ incentives to efficiently use the NBN’s infrastructure. In December 2017 the NBN announced new pricing arrangements for retail service providers in response to its access pricing review. This has allowed VHA to restructure its pricing to increase demand for faster speed tier plans. 203 In December 2017 VHA purchased 2x5MHz spectrum in the 1800 MHz band in Regional Western Australia and 2x10MHz spectrum in the 2.1GHz band in Hobart and Darwin for a total cost of AU$7,237,000. In April 2018 the ACCC published the final report on its market study of the communications sector which included recommendations on a range of competition and consumer issues. The study determined that strong price competition exists in fixed and mobile despite considerable concentration of players including Telstra’s dominance in regional Australia. Egypt In October 2017 a price increase of 25% was implemented on all airtime tariffs by all operators including Vodafone Egypt. The increase had been approved by the national regulatory authority (‘NTRA’) in response to the inflationary effect of the Egyptian pound devaluation. The arbitration case with Etisalat Misr concerning the Administrative Court ruling in favour of Vodafone Egypt regarding NTRA’s authority to set MTRs between operators is still pending. The arbitration tribunal is expected to set a date for the ruling following cross-examinations and witness statements during May 2018. For information on litigation in Egypt, see note 29 “Contingent liabilities and legal proceedings” to the consolidated financial statements. Ghana In January 2018 Vodafone Ghana paid 30% of the judgment debt (€4.8 million) in line with a Conditional Stay of Execution in relation to a High Court decision, affirmed by a panel of the Court of Appeal, on a parcel of land located at Afransi in the Central Region of Ghana. This land was originally granted to Ghana Telecom by the Ghana Lands Commission. The Twidan Royal family of Gomoa Afransi stool contested Vodafone Ghana’s title to the land in Court and secured a Judgment Debt equivalent to c€13.6 million. Vodafone is currently preparing to file its submission on the appeal against the substantive judgment of the High Court. New Zealand In August 2017 the New Zealand Government introduced the Telecommunications (New Regulatory Framework) Amendment Bill that, from December 2019, will establish regulated access to the existing Ultra-Fast Broadband fibre to the premises (‘FTTP’) initiative, and deregulate copper access where FTTP exists. The Bill will also streamline processes to amend regulation in the mobile market, and increase regulatory oversight of retail service quality. In August 2017 the New Zealand Government awarded contracts to expand broadband coverage in rural areas and address mobile blackspots, with a subsidy of NZ$150 million. The Rural Connectivity Group, a joint venture between Vodafone New Zealand, Spark and 2Degrees, was awarded a contract to build a minimum of 400 new cell sites that will expand coverage and deliver fixed wireless and mobile services over the next five years. Safaricom: Kenya Safaricom continues to work with the authorities to ensure an effective transition to the national regulatory authority’s (‘CA’) new registration process. CA is yet to release its response to the comments submitted by operators to their initial study on competition within the Telecommunication sector. Qatar In March 2018 Vodafone Qatar’s mobile licence was extended to 28 June 2068. In March 2018 Qatar Foundation completed its acquisition of Vodafone’s stake in the joint venture company that controls Vodafone Qatar. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 204 Regulation (continued) Unaudited information Overview of spectrum licences at 31 March 2018 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) 2x10 (2033) 1x20 (2033) 2x25 (2033) 2x10 (2029) 2x10 (2018) 2.6GHz Quantity1 (Expiry date) 3.5GHz Quantity1 (Expiry date) 2x20+25 (2025) 1x42 (2021) 2x15 (2029) n/a 2.1GHz Quantity1 (Expiry date) 2x10+5 (2020) 2x52 (2025) 2x15+5 (2021) 2x15 See note3 2x15+5 (2030) 2x20+5 (2020) 2x15 (2022) 2x20 (2033) 2x20+25 (2033) 2x20+20 (2030) 2x10 (2030) n/a 2x20+25 (2027) 2x15+5 (2020) 2x20+5 (2021) 1x15 (2029) 2x20+20 (2030) 2x20 (2025) 2x15 (2019) 2x20 (2029) 2x20+25 (2029) 2x20+20 (2030) 2x15+5 (2025) 2x52 (2029) 2x56 (2021) 2x20+5 (2020) 1x50 (2038) n/a n/a 1x1054 (2032) n/a 2x20 (2025) n/a n/a 2x30 (2034) n/a 2x30+25 (2033) 2x21 (2020) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 2x10 (2033) 2x10 (2030) 2x10 (2029) 2x10 (2030) 2x10 (2027) 2x10 (2029) 2x10 (2030) 2x10 (2029) 2x10 (2029) 1x20 (2029) 1x20 (2023) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 2x15 (2018) 2x52 (2029) 2x6 See note3 2x20 (2030) 2x20 (2030) 2x25 (2030) 2x6 (2021) 2x142 (2027) 2x30 (2029) 2x10 (2027) 2x152 (2035) 2x27 (2029) 2x15 (2022)5 2x9 (2031) 2x142 (2030) 2x56 (2024) 2x25 (2026) 2x17 See note3 2x10 (2028) 2x10 (2030) 2x10 (2030) 2x5 (2021) 2x52 (2027) 2x10 (2029) 2x15 (2027) 2x10 (2021) 2x10 (2022)5 2x1 (2029)5 2x8 (2031) 2x22 (2030) 2x46 (2024) 2x15 (2026) Albania n/a n/a Malta n/a 2x10 (2033) Vodafone Group Plc Annual Report 2018Other information 700MHz Quantity1 Country by region (Expiry date) Africa, Middle East and Asia-Pacific India7 n/a Vodacom: South Africa8 n/a n/a Vodacom: Democratic Republic of Congo Lesotho9 Mozambique n/a n/a Tanzania Turkey Australia11 Egypt New Zealand Safaricom: Kenya Ghana Qatar (Sold March 2018) n/a n/a n/a n/a 2x15 (2031) n/a n/a n/a 205 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) n/a (2021–2036)7 2x118 n/a 2x6 n/a (2028) 2x229 2x8 (2018)10 2x8 (2031) n/a 2x209 n/a n/a (2021–2036)7 (2030–2036)7 2x15+58 2x128 n/a 2x10+15 2x18 n/a (2032) (2028) 2x159 2x309 2x15+10 2x8 (2018)10 (2023) 2x15 2x10 (2031) (2031) n/a n/a n/a n/a n/a n/a 1x409 n/a n/a 2x10 (2029) 2x10 (850MHz) (2028) n/a n/a 2x10 (TBC)12 n/a 2x10 (2029) 2x11 (2023) 2x12 (2029) 2x8 (annual) 2x13 (2031) 2x15 (2031) 2x17 (2024) 2x8 (2019) 2x11 (2028) n/a n/a n/a n/a n/a n/a n/a 2x10 (2029) 2x15+5 (2029) 2x15+10 (2029) 2x25+5 (2032) 2x20 (2031) 2x25+10 (2021) 2x10 (2022) 2x15 (2023)13 2x15 (2028) n/a n/a 2x15+5 (2028) n/a n/a 2x20 (Trial) 2x30 (2028) 2x10 (2031) 2x25 (2021) 2x20 (2024) 2x10 (2019) 2x20 (2028) 2x52 (2029) n/a n/a 2x15 (2026) 1x429 n/a 2x7+2x14 (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 5 Hungary – 900MHz and 1800MHz – conditional options to extend these licences to 2034. 6 Albania – spectrum acquired from PLUS’ exit from market. 7 8 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. Ireland – 105MHz in cities, 85MHz in regions. licence which will permit Vodacom to offer mobile and fixed services. The service and network licences have a 20 year duration and will expire in 2028. 9 Vodacom’s Lesotho spectrum licences are renewed annually. N.B. 1x40MHz in 2.6GHz column is actually 2.3GHz. 10 Licence renewal due 31 May 2018. 11 Australia – table refers to Sydney/Melbourne only. In total VHA has: – 700MHz band – 2x5 MHz across Australia. – 850MHz band – 2x10MHz in Sydney/Melbourne/Brisbane/Adelaide/Perth and 2x5MHz across the rest of Australia. – 900MHz band – 2x8MHz across Australia. – 800MHz band – 2x30MHz in Sydney/Melbourne, 2x25MHz in Brisbane/Adelaide/Perth/Canberra, 2x15MHz in South-West Western Australia, 2x10MHz in Victoria/North Queensland and 2x5MHz in Darwin/Tasmania/South Queensland. – 2.1GHz band (excluding short-term 2.1GHz licences), VHA holds 2x25 MHz in Sydney/Melbourne, 2x20MHz in Brisbane/Adelaide/Perth, 2x20MHz Darwin/Hobart, 2x10 MHz in Canberra and 2x5MHz in regional Australia. 12 Kenya – awaiting confirmation of full licence terms. 13 Ghana – the NRA has issued provisional licences with the intention of converting them to full licences once the NRA has been reconvened. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 206 Regulation (continued) Unaudited information 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) 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) Vodacom: South Africa (ZAR) 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) (Sold March 2018) 2016 2017 1.66 0.98 0.68 1.09 1.86 2.60 0.83 0.96 1.08 0.27 1.71 1.48 0.40 0.14 0.16 3.40 0.32 0.86 28.57 0.03 1.70 10.00 3.56 0.99 5.00 9.00 1.10 0.98 0.50 1.09 1.86 0.84 0.79 0.96 1.07 0.248 1.71 1.48 0.40 0.144 0.13 2.70 0.26 0.44 26.96 0.03 1.70 10.00 3.56 0.99 5.00 7.62 1 April 20182 0.95 (1 Dec 2018) 0.95 (1 Jan 2019) 0.49 (1 Jun 2018) 0.66 (1 Dec 2018) 0.84 (1 May 2018) 0.95 (1 Jan 2019) 1.22 (1 Sep 2018) 2.20 (1 Jan 2019) 0.39 (1 Jan 2019) 20181 1.07 0.98 0.50 0.70 0.5813 0.79 0.75 0.96 0.96 0.248 1.71 1.48 0.40 0.064 0.13 2.40 0.20 0.48 15.60 0.03 1.70 11.00 3.56 0.99 5.00 7.62 Notes: 1 All MTRs are based on end of financial year values. 2 MTR changes already announced to be implemented after 1 April 2018 are included at the current rate or where a glide-path or a final decision has been determined by the national regulatory authority. 3 NL – an appeal process against ACM’s MTR/FTR market decision began with a decision not expected until June 2018 at the earliest 4 IN – 2018 MTR has been challenged this Regulation in the Bombay High Court. The next hearing is due 11 June 2018. Vodafone India’s petition in Delhi High Court against TRAI’s previous IUC regulation of February 2015, that had reduced the MTR to INR 0.14 is next listed on 24 May 2018. Vodafone Group Plc Annual Report 2018Other information 207 Alternative performance measures Unaudited information In the discussion of the Group’s reported operating results, alternative performance measures are 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 alternative performance measures should not be viewed in isolation or as an alternative to the equivalent GAAP measure. Service revenue 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. We believe that it is both useful and necessary to report this measure for the following reasons: – It is used for internal performance reporting; – It is used in setting director and management remuneration; and – It is useful in connection with discussion with the investment analyst community. A reconciliation of reported service revenue to the respective closest equivalent GAAP measure, revenue, are provided in the “Our financial performance” section on pages 22 to 29 and the “Prior year operating results” on pages 178 to 182. Adjusted EBITDA and adjusted EBITDA margin Adjusted EBITDA is operating profit excluding share of results in associates and joint ventures, depreciation and amortisation, gains/losses on the disposal of fixed assets, impairment losses, restructuring costs arising from discrete restructuring plans, 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 adjusted EBITDA, in conjunction with other GAAP and non-GAAP financial measures such as adjusted EBIT, adjusted operating profit, operating profit and net profit, to assess our operating performance. We believe that adjusted 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 adjusted EBITDA margin, which is an alternative sales margin figure. We believe it is both useful and necessary to report adjusted EBITDA as a performance measure as it enhances the comparability of profit across segments. Because adjusted EBITDA does not take into account certain items that affect operations and performance, adjusted EBITDA has inherent limitations as a performance measure. To compensate for these limitations, we analyse adjusted EBITDA in conjunction with other GAAP and non-GAAP operating performance measures. Adjusted EBITDA should not be considered in isolation or as a substitute for a GAAP measure of operating performance. A reconciliation of adjusted EBITDA and adjusted EBITDA margin to the closest equivalent GAAP measure, operating profit, is provided in note 2 “Segmental analysis” to the consolidated financial statements and page 217 respectively. Group adjusted EBIT, adjusted operating profit and adjusted earnings per share Group adjusted EBIT and adjusted operating profit exclude impairment losses, restructuring costs arising from discrete restructuring plans, amortisation of customer bases and brand intangible assets, other operating income and expense and other significant one-off items. Adjusted EBIT also excludes the share of results in associates and joint ventures. 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 as they are used for internal performance reporting, in setting director and management remuneration and in connection with discussions with the investment analyst community and debt rating agencies. Adjusted EBIT is reconciled to the respective closest equivalent GAAP measure, operating profit, in the “Our financial performance” section on page 22. A reconciliation of adjusted operating profit to the respective closest equivalent GAAP measure, operating profit, is provided 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 “Our financial performance” section on page 24. Cash flow measures and capital additions In presenting and discussing our reported results, free cash flow (pre-spectrum), free cash flow, capital additions 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: – Free cash flow (pre-spectrum) and free cash flow allows us and external parties to evaluate our liquidity and the cash generated by our operations. Free cash flow (pre-spectrum) and capital additions do 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; – 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; – These measures are used by management for planning, reporting and incentive purposes; and – These measures are useful in connection with discussion with the investment analyst community and debt rating agencies. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 208 Alternative performance measures (continued) Unaudited information 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 18) Capital additions Working capital movement in respect of capital additions Disposal of property, plant and equipment Restructuring costs Other 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 (pre-spectrum) Licence and spectrum payments Restructuring payments Free cash flow 2018 €m 13,860 (7,321) 171 41 250 – 7,001 (1,010) 489 (310) (753) 5,417 (1,123) (250) 4,044 2017 €m 13,781 (7,675) (822) 43 266 34 5,627 (761) 433 (413) (830) 4,056 (474) (266) 3,316 2016 €m 13,497 (10,561) (140) 164 252 (4) 3,208 (738) 92 (309) (982) 1,271 (3,182) (252) (2,163) 2018 financial year guidance The adjusted EBITDA and free cash flow guidance measures for the year ended 31 March 2018 were forward-looking alternative performance measures based on the Group’s assessment of the global macroeconomic outlook and foreign exchange rates of €1:ZAR14.6, €1:£0.85, €1:TRY4.0 and €1:EGP19.1. These guidance measures exclude the impact of licence and spectrum payments, material one-off tax-related payments, restructuring costs and any fundamental structural change to the Eurozone. They also assume no material change to the current structure of the Group. We believe it is both useful and necessary to report these guidance measures to give investors an indication of the Group’s expected future performance, the Group’s sensitivity to foreign exchange movements and to report actual performance against these guidance measures. Reconciliations of adjusted EBITDA and free cash flow to the 2018 financial year guidance basis is shown below. Reported Other activity (including M&A) Foreign exchange Guidance basis Adjusted EBITDA Free cash flow (pre-spectrum) 2018 €m 14,737 – 266 15,003 2017 €m 14,149 (476) (248) 13,425 Growth % 4.2 11.8 2018 €m 5,417 19 142 5,578 Other Certain of the statements within the Strategic Report contains forward-looking alternative performance measures 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 19 contain forward-looking non-GAAP financial information which at this time cannot be quantitatively reconciled to comparable GAAP financial information. Organic growth and change at constant exchange rates All amounts in this document marked with an “*” represent “organic growth”, which presents performance on a comparable basis in terms of merger and acquisition activity and foreign exchange rates. “Change at constant exchange rates” presents performance on a comparable basis in terms of foreign exchange rates only. Whilst neither of these measures are intended to be a substitute for reported growth, nor are they superior to reported growth, we believe that these measures provide useful and necessary information to investors and other interested parties for the following reasons: – They provide additional information on underlying growth of the business without the effect of certain factors unrelated to its operating performance; – They are used for internal performance analysis; and – They facilitate 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). The Group’s organic growth rates for all periods exclude the results of Vodafone India (excluding its 42% stake in Indus Towers), which are now reported in discontinued operations, and the results of Vodafone Netherlands following the disposal of its consumer fixed business and subsequent merger into VodafoneZiggo, as well as the results of VodafoneZiggo after the merger. In addition, operating segment organic service revenue growth rates for the quarter ended 31 December 2017 and the quarter and year ended 31 March 2018 have been amended to exclude the adverse impact of changes to intercompany interconnect rates. Vodafone Group Plc Annual Report 2018Other information 209 For all periods during the year ended 31 March 2016, Group and operating segment organic growth rates were also adjusted to exclude the beneficial impact of settlements of historical interconnect rate dispute in the UK in both the year ended 31 March 2016 and 31 March 2015 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 during the year ended 31 March 2015. For all periods during the year ended 31 March 2017, Group and operating segment organic growth rates were also adjusted to exclude the beneficial impact of a settlement of historical interconnect rate dispute in the UK in the year ended 31 March 2016. For all periods during the year ended 31 March 2018, operating segment organic service revenue growth rates have been adjusted to exclude the adverse impact of changes to intercompany interconnect rates. We have not provided a comparative in respect of organic growth rates as the current rates describe the change between the beginning and end of the current year, with such changes being explained by the commentary in this news release. If comparatives were provided, significant sections of the commentary from the news release for the prior year would also need to be included, reducing the usefulness and transparency of this document. Reconciliations of organic growth to reported growth are shown where used or in the following tables. Year ended 31 March 2018 Revenue Europe AMAP Of which: Turkey Of which: Egypt Other Eliminations Total India Adjusted EBITDA Germany Italy UK Spain Other Europe Europe Vodacom Other AMAP Of which: Turkey Of which: Egypt AMAP Other Total India Percentage point change in adjusted EBITDA margin Europe AMAP Other AMAP Of which: Turkey Of which: Egypt Group Adjusted EBIT Group Adjusted operating profit Europe AMAP Other Total India 2018 €m 2017 €m Reported % Other activity (including M&A) pps Foreign exchange pps 33,888 11,462 2,845 961 1,408 (187) 46,571 4,670 4,010 2,329 1,762 1,420 1,515 11,036 2,203 1,554 644 413 3,757 (56) 14,737 1,030 32.6% 32.8% 26.9% 22.6% 43.0% 31.6% 34,550 11,773 3,052 1,329 1,390 (82) 47,631 5,853 3,617 2,229 1,212 1,360 1,865 10,283 2,063 1,791 646 590 3,854 12 14,149 1,596 29.8% 32.7% 27.6% 21.2% 44.4% 29.7% (1.9) (2.6) (6.8) (27.7) (2.2) (20.2) 10.9 4.5 45.4 4.4 (18.8) 7.3 6.8 (13.2) (0.3) (30.0) (2.5) 4.2 (35.5) 2.8 0.1 (0.7) 1.4 (1.4) 1.9 4.1 0.5 0.1 – 2.7 – (0.1) 0.1 (1.2) 0.6 26.8 5.1 – 1.0 0.3 – 0.3 4.3 – 0.2 (0.1) (0.1) – – 0.3 0.8 11.5 21.2 48.0 3.3 1.7 (0.1) – 7.6 – (0.3) 0.6 (0.3) 24.1 22.6 44.9 10.8 3.3 1.0 (0.1) (0.3) 1.0 0.1 (0.6) – Organic % 3.0 9.4 14.5 20.3 3.8 (18.5) 10.7 4.6 51.8 5.0 7.7 13.0 6.5 11.9 22.6 14.9 8.6 11.8 (34.5) 2.9 (0.3) 0.2 1.5 (2.0) 2.2 4,827 3,970 21.6 20.7 4.9 47.2 2,895 2,453 (132) 5,216 990 1,890 2,238 6 4,134 480 53.2 9.6 26.2 106.3 34.8 (1.6) 17.4 0.1 (1.7) 9.9 5.4 4.3 86.3 17.9 49.0 110.7 Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 210 Alternative performance measures (continued) Unaudited information 2018 €m 2017 €m Reported % Other activity (including M&A) pps Foreign exchange pps Organic % Year ended 31 March 2018 (continued) Service revenue Germany Mobile service revenue Fixed service revenue Italy Mobile service revenue Fixed service revenue UK Mobile service revenue Fixed service revenue Spain Other Europe Of which: Ireland Of which: Portugal Of which: Greece Eliminations Europe Mobile service revenue Fixed service revenue Vodacom Of which: South Africa Of which: International operations Other AMAP Of which: Turkey Of which: Egypt Of which: New Zealand AMAP Other Eliminations Total service revenue Other revenue Revenue Other growth metrics Group – Enterprise service revenue Europe – Enterprise service revenue AMAP – Enterprise service revenue Group – IoT revenue Germany – Operating expenses Italy – Operating expenses UK – Operating expenses Spain – Consumer converged revenues Spain – Operating expenses South Africa – Data revenue South Africa – Voice revenue India – Service revenue Excluding the impact of legal settlement: Group – Service revenue Germany – Service revenue Germany – Fixed service revenue Germany – Adjusted EBITDA 10,262 6,087 4,175 5,302 4,310 992 6,094 4,629 1,465 4,587 4,625 949 950 815 (157) 30,713 21,778 8,935 4,656 3,601 1,034 4,845 2,146 927 1,099 9,501 1,037 (185) 41,066 5,505 46,571 12,018 9,504 2,042 747 (2,537) (1,265) (1,911) 1,804 (1,121) 1,540 1,459 4,643 41,066 10,262 4,175 4,010 10,006 6,071 3,935 5,247 4,365 882 6,632 5,079 1,553 4,507 5,756 954 911 789 (173) 31,975 23,351 8,624 4,447 3,396 1,001 5,509 2,310 1,278 1,169 9,956 1,138 (82) 42,987 4,644 47,631 12,735 10,164 2,098 697 (2,597) (1,346) (2,111) 1,586 (1,149) 1,352 1,505 5,834 42,987 10,006 3,935 3,617 Excluding the impact of regulation, German legal settlement and handset financing: Group – Enterprise service revenue Group – Adjusted EBITDA Europe – Service revenue Europe – Adjusted EBITDA Germany – Service revenue Germany – Mobile service revenue UK – Service revenue UK – Mobile service revenue UK – Adjusted EBITDA UK – Adjusted EBITDA margin Group – Adjusted EBITDA margin Ireland – Service revenue India – Service revenue 12,018 14,737 30,713 11,036 10,262 6,087 6,094 4,629 1,762 24.9% 31.6% 949 4,643 12,735 14,149 31,975 10,283 10,006 6,071 6,632 5,079 1,212 17.5% 29.7% 954 5,834 2.6 0.3 6.1 1.0 (1.3) 12.5 (8.1) (8.9) (5.7) 1.8 (19.6) (0.5) 4.3 3.3 (3.9) (6.7) 3.6 4.7 6.0 3.3 (12.1) (7.1) (27.5) (6.0) (4.6) (4.5) (2.2) (5.6) (6.5) (2.7) 7.2 (2.3) (6.0) (9.5) 13.7 (2.4) 13.9 (3.1) (20.4) (4.5) 2.6 6.1 10.9 (5.6) 4.2 (3.9) 7.3 2.6 0.3 (8.1) (8.9) 45.4 7.4 1.9 (0.5) (20.4) – 0.1 – 0.2 0.3 – 0.1 0.1 – 0.3 22.9 0.3 0.4 0.4 4.0 4.9 1.4 – – – 1.6 0.1 – – 0.6 3.1 2.7 4.2 5.4 (0.7) 5.5 – – – – – – – – 2.9 (1.0) (2.6) (2.5) 5.4 0.4 5.1 – (0.1) 1.5 3.9 5.0 (51.6) (7.2) (0.6) 1.8 4.7 – – – – – (0.1) 4.5 4.6 4.6 – (0.4) – (0.1) – 0.8 0.8 0.9 0.3 (1.1) 5.0 21.2 21.1 48.2 5.5 11.7 3.2 3.3 2.3 1.2 8.7 1.4 – – 4.6 – (0.1) (1.1) (1.5) 1.7 3.2 – – (0.1) 2.3 3.3 0.8 0.6 – – 4.5 4.6 7.6 0.1 – – 1.7 2.6 0.4 6.1 1.2 (1.0) 12.4 (3.5) (4.2) (1.1) 2.1 2.9 (0.2) 4.6 3.7 0.9 (1.0) 5.9 5.0 4.9 8.3 10.7 14.1 20.7 (0.5) 7.7 1.8 3.8 0.9 0.1 5.3 14.1 (2.3) (6.0) (4.9) 13.7 (2.5) 12.8 (4.6) (18.7) 1.6 1.6 3.5 8.3 2.1 7.9 2.0 7.9 2.5 1.8 0.3 0.7 1.4 0.3 1.3 1.3 (14.0) Vodafone Group Plc Annual Report 2018Other information 211 2018 €m 2017 €m Reported % Other activity (including M&A) pps Foreign exchange pps Organic % 2,636 1,501 1,135 1,305 1,051 254 1,524 1,114 410 1,117 1,144 244 232 195 (35) 7,691 5,305 2,386 1,197 946 251 1,163 505 232 265 2,360 292 (58) 10,285 1,414 11,699 3,054 203 411 993 979 10,285 2,636 1,135 3,054 7,691 1,524 1,114 1,117 979 2,492 1,500 992 1,298 1,069 229 1,624 1,218 406 1,109 1,102 235 226 189 (32) 7,593 5,412 2,181 1,198 937 252 1,239 526 224 303 2,437 314 (23) 10,321 1,020 11,341 3,071 184 380 1,385 1,379 10,321 2,492 992 3,071 7,593 1,624 1,218 1,109 1,379 5.8 0.1 14.4 0.5 (1.7) 10.9 (6.2) (8.5) 1.0 0.7 3.8 3.8 2.7 3.2 1.3 (2.0) 9.4 (0.1) 1.0 (0.4) (6.1) (4.0) 3.6 (12.5) (3.2) (0.3) 3.2 (0.6) 10.3 8.2 (28.3) (29.0) (0.3) 5.8 14.4 (0.6) 1.3 (6.2) (8.5) 0.7 (29.0) 0.1 0.2 – 0.2 0.2 – 0.1 0.2 – 0.3 0.2 0.3 0.3 0.1 – – – – (0.1) – 1.0 – – – 0.3 – (0.9) (0.1) – – – – (1.0) (4.0) (10.2) 0.5 (0.1) 4.9 6.6 1.1 11.8 – – – – – 0.2 2.7 2.6 2.6 – (0.7) 0.2 0.1 – 0.5 0.5 0.5 5.9 4.3 11.5 15.3 18.3 15.1 11.4 10.7 2.7 2.9 2.2 1.5 4.9 7.9 7.8 2.7 – – 2.2 0.5 2.7 2.6 – 7.8 5.9 0.3 14.4 0.7 (1.5) 11.1 (3.4) (5.7) 3.6 1.0 3.3 4.3 3.1 3.3 1.8 (1.5) 9.9 5.8 5.2 11.1 10.2 14.3 18.7 (1.1) 7.8 2.4 5.2 1.5 11.8 13.1 (20.4) (21.2) 1.4 1.8 4.2 2.1 1.7 1.4 0.7 1.8 (9.4) Quarter ended 31 March 2018 Service revenue Germany Mobile service revenue Fixed service revenue Italy Mobile service revenue Fixed service revenue UK Mobile service revenue Fixed service revenue Spain Other Europe Of which: Ireland Of which: Portugal Of which: Greece Eliminations Europe Mobile service revenue Fixed service revenue Vodacom Of which: South Africa Of which: International operations Other AMAP Of which: Turkey Of which: Egypt Of which: New Zealand AMAP Other Eliminations Total service revenue Other revenue Revenue Other growth metrics Group – Enterprise service revenue Group – IoT revenue South Africa – Data revenue India – Revenue India – Service revenue Excluding the impact of legal settlement: Group – Service revenue Germany – Service revenue Germany – Fixed service revenue Excluding the impact of regulation, German legal settlement and handset financing: Group – Enterprise service revenue Europe – Service revenue UK – Service revenue UK – Mobile service revenue Spain – Service revenue India – Service revenue Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 212 Alternative performance measures (continued) Unaudited information Quarter ended 31 December 2017 Service revenue Germany Mobile service revenue Fixed service revenue Italy Mobile service revenue Fixed service revenue UK Mobile service revenue Fixed service revenue Spain Other Europe Of which: Ireland Of which: Portugal Of which: Greece Eliminations Europe Mobile service revenue Fixed service revenue Vodacom Of which: South Africa Of which: International operations Other AMAP Of which: Turkey Of which: Egypt Of which: New Zealand AMAP Other Eliminations Total service revenue Other revenue Revenue Other growth metrics Group – Enterprise service revenue Group – IoT revenue South Africa – Data revenue India – Revenue India – Service revenue Excluding the impact of legal settlement: Germany – Service revenue Germany – Fixed service revenue Excluding the impact of regulation, German legal settlement and handset financing: Group – Enterprise service revenue Europe – Service revenue UK – Service revenue UK – Mobile service revenue Spain – Service revenue India – Service revenue 2017 €m 2016 €m Reported % Other activity (including M&A) pps Foreign exchange pps Organic % 2,564 1,540 1,024 1,324 1,071 253 1,496 1,138 358 1,144 1,157 236 236 201 (36) 7,649 5,427 2,222 1,149 878 267 1,189 520 235 264 2,338 255 (53) 10,189 1,608 11,797 2,999 187 372 1,067 1,063 2,564 1,024 2,999 7,649 1,496 1,138 1,144 1,063 2,505 1,516 989 1,330 1,105 225 1,607 1,227 380 1,125 1,537 236 228 195 (41) 8,063 5,887 2,176 1,165 896 256 1,363 581 288 300 2,528 282 (18) 10,855 1,384 12,239 3,238 170 366 1,453 1,450 2,505 989 3,238 8,063 1,607 1,227 1,125 1,450 2.4 1.6 3.5 (0.5) (3.1) 12.4 (6.9) (7.3) (5.8) 1.7 (24.7) – 3.5 3.1 (5.1) (7.8) 2.1 (1.4) (2.0) 4.3 (12.8) (10.5) (18.4) (12.0) (7.5) (6.1) (3.6) (7.4) 10.0 1.6 (26.6) (26.7) 2.4 3.5 (7.4) (5.1) (6.9) (7.3) 1.7 (26.7) 0.1 0.1 – 0.1 0.2 – 0.1 0.1 – 0.3 28.0 0.3 0.3 0.2 5.1 6.2 1.9 – – – – – – – – 3.9 3.8 5.6 7.1 (0.1) - – 0.1 – 6.8 6.7 5.3 6.9 0.3 8.9 – 0.1 – – – (0.4) 2.0 2.0 2.2 – (0.4) 0.1 0.1 0.3 0.3 0.3 0.4 6.7 6.9 6.1 21.1 23.7 37.2 10.3 14.3 3.3 3.5 2.2 1.7 7.2 3.6 3.6 – – 2.2 0.3 2.0 2.0 – 3.6 2.5 1.8 3.5 (0.4) (2.9) 12.0 (4.8) (5.2) (3.6) 2.0 2.9 0.4 3.9 3.6 0.3 (1.3) 4.4 5.3 4.9 10.4 8.3 13.2 18.8 (1.7) 6.8 1.1 3.7 0.4 18.8 8.7 (23.0) (23.1) 2.5 3.5 1.6 1.9 0.4 1.6 2.0 (14.2) Vodafone Group Plc Annual Report 2018Other information 2017 €m 2016 €m Reported % Other activity (including M&A) pps Foreign exchange pps (5.2) (1.0) 3.1 (18.7) 2.0 (0.2) – – 2.8 8.6 12.2 35.0 (4.4) 1.5 4.1 1.2 34,550 11,773 3,052 1,329 1,390 (82) 47,631 3,617 2,229 1,212 1,360 1,865 10,283 2,063 1,791 646 590 3,854 12 14,149 34.1% 36.5% 17.5% 27.3% 30.4% 29.8% 39.0% 27.6% 21.2% 44.4% 32.7% 29.7% 36,462 11,891 2,959 1,634 1,567 (110) 49,810 3,462 2,015 1,756 1,250 2,002 10,485 2,028 1,678 553 683 3,706 (36) 14,155 32.6% 33.5% 20.8% 25.2% 30.3% 28.8% 38.1% 25.6% 18.7% 41.8% 31.2% 28.4% Year ended 31 March 2017 Revenue Europe AMAP Of which: Turkey Of which: Egypt Other Eliminations Total Adjusted EBITDA Germany Italy UK Spain Other Europe Europe Vodacom Other AMAP Of which: Turkey Of which: Egypt AMAP Other Total Percentage point change in adjusted EBITDA margin Germany Italy UK Spain Other Europe Europe Vodacom Other AMAP Of which: Turkey Of which: Egypt AMAP Group Adjusted EBIT Total Adjusted operating profit Europe AMAP Other Total 4.5 10.6 (31.0) 8.8 (6.8) (1.9) 1.7 6.7 16.8 (13.6) 4.0 – 1.5 3.0 (3.3) 2.1 0.1 1.0 0.9 2.0 2.5 2.6 1.5 1.3 – – 5.1 – 10.1 2.9 – – – – – 1.8 – – 0.8 – 0.5 0.2 0.2 – – – – – 10.1 – (0.1) 2.1 3.2 18.0 13.1 36.3 9.2 4.0 – – (0.1) – – (0.2) (0.4) 0.9 0.1 (0.1) 3,970 3,769 5.3 (3.0) 4.7 1,890 2,238 6 4,134 1,927 1,941 (39) 3,829 (1.9) 15.3 8.0 (2.4) – (1.1) (0.7) 9.9 4.9 213 Organic % (0.4) 7.4 15.3 16.3 4.5 10.6 (15.8) 8.8 3.2 3.1 4.9 24.7 29.9 22.7 13.2 5.8 1.5 3.0 (2.6) 2.1 0.6 1.0 0.7 2.9 1.6 1.2 7.0 (5.0) 25.2 11.8 Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 214 Alternative performance measures (continued) Unaudited information 2017 €m 2016 €m Reported % Other activity (including M&A) pps Foreign exchange pps Organic % Year ended 31 March 2017 (continued) Service revenue Germany Mobile service revenue Fixed service revenue Italy Mobile service revenue Fixed service revenue UK Mobile service revenue Fixed service revenue Spain Other Europe Of which: Ireland Of which: Portugal Of which: Greece Eliminations Europe Fixed service revenue Vodacom Of which: South Africa Of which: International operations Other AMAP Of which: Turkey Of which: Egypt Of which: New Zealand AMAP Other Eliminations Total service revenue Other revenue Revenue Other growth metrics Group – Enterprise service revenue Vodafone Group Enterprise – Service revenue Europe – Service revenue excluding the impact of regulation Germany – Mobile service revenue excluding the impact of regulation Spain – Service revenue excluding the impact of handset financing Ireland – Service revenue excluding the impact of MTR cuts South Africa – Data revenue South Africa – Voice revenue India – Service revenue India – Adjusted EBITDA 10,006 6,071 3,935 5,247 4,365 882 6,632 5,079 1,553 4,507 5,756 954 911 789 (173) 31,975 8,624 4,447 3,396 1,001 5,509 2,310 1,278 1,169 9,956 1,138 (82) 42,987 4,644 47,631 9,817 6,062 3,755 5,129 4,303 826 7,987 6,025 1,962 4,468 6,132 954 896 785 (152) 33,381 8,691 4,419 3,269 1,071 5,624 2,222 1,578 1,101 10,043 1,303 (109) 44,618 5,192 49,810 12,735 2,982 13,318 3,108 31,975 33,381 6,071 4,507 954 1,352 1,505 5,834 1,596 6,062 4,468 954 1,143 1,586 6,135 1,815 1.9 0.1 4.8 2.3 1.4 6.8 (17.0) (15.7) (20.8) 0.9 (6.1) – 1.7 0.5 (4.2) (0.8) 0.6 3.9 (6.5) (2.0) 4.0 (19.0) 6.2 (0.9) (3.7) (4.4) (4.4) (4.1) (4.2) 0.1 0.9 – 18.3 (5.1) (4.9) (12.1) – – – – – – 1.4 – 5.7 – 8.4 – – – 1.8 1.3 – – – – – – – – 1.4 1.5 2.7 1.7 2.8 1.5 3.1 2.0 – – 2.5 – – – – – 0.1 – 12.3 12.4 11.7 – (0.1) – – – 3.0 3.0 3.5 1.7 8.8 12.8 12.0 34.6 (5.4) 8.6 4.2 4.1 4.0 5.4 3.0 – – – 1.4 1.4 1.7 1.6 1.9 0.1 4.8 2.3 1.5 6.8 (3.3) (3.3) (3.4) 0.9 2.2 – 1.7 0.5 0.6 3.5 4.1 5.6 2.3 10.8 16.0 15.6 0.8 7.7 1.9 1.2 2.3 3.0 1.6 1.6 4.0 2.0 19.7 (3.7) (0.7) (10.5) Vodafone Group Plc Annual Report 2018Other information 215 2017 €m 2016 €m Reported % Other activity (including M&A) pps Foreign exchange pps Organic % 2,492 1,500 992 1,298 1,069 229 1,624 1,218 406 1,109 1,102 235 226 189 (32) 7,593 1,198 937 252 1,239 526 224 303 2,437 314 (23) 10,321 1,020 11,341 1,500 406 1109 235 1,379 247 870 2,462 1,505 957 1,263 1,055 208 1,903 1,412 491 1,094 1,516 238 221 189 (36) 8,202 992 717 259 1,404 560 390 272 2,396 335 (45) 10,888 1,118 12,006 1,505 491 1,094 238 1,532 306 1,046 1.2 (0.3) 3.7 2.8 1.3 10.1 (14.7) (13.7) (17.3) 1.4 (27.3) (1.3) 2.3 – (7.4) 20.8 30.7 (2.7) (11.8) (6.1) (42.6) 11.4 1.7 (5.2) (5.5) (0.3) (17.3) 1.4 (1.3) (10.0) (19.3) (16.8) – – – – – – – – – – 28.6 – – – 5.3 – – – – – – – – 3.9 2.8 2.2 5.0 2.5 3.5 2.3 – – – (0.1) – – 0.1 0.1 9.9 9.8 9.8 (0.1) – 0.1 (0.1) 0.2 2.2 (17.0) (25.1) 3.2 21.6 20.0 65.4 (11.1) 5.1 2.8 2.9 (0.1) 9.8 (0.1) 0.1 (3.8) 3.4 3.6 1.2 (0.4) 3.7 2.8 1.4 10.2 (4.8) (3.9) (7.5) 1.3 1.3 (1.2) 2.2 0.2 0.1 3.8 5.6 0.5 9.8 13.9 22.8 0.3 6.8 1.5 0.2 1.8 (2.5) 3.8 2.3 (11.5) (15.9) (13.2) Quarter ended 31 March 2017 Service revenue Germany Mobile service revenue Fixed service revenue Italy Mobile service revenue Fixed service revenue UK Mobile service revenue Fixed service revenue Spain Other Europe Of which: Ireland Of which: Portugal Of which: Greece Eliminations Europe Vodacom Of which: South Africa Of which: International operations Other AMAP Of which: Turkey Of which: Egypt Of which: New Zealand AMAP Other Eliminations Total service revenue Other revenue Revenue Other growth metrics Germany – Mobile service revenue excluding the impact of regulation UK – Fixed service revenue excluding carrier services Spain – Service revenue excluding the impact of handset financing Ireland – Service revenue excluding the impact of MTR cuts India – Service revenue India – Data browsing revenue India – Voice revenue Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 216 Alternative performance measures (continued) Unaudited information Quarter ended 31 December 2016 Service revenue Germany Mobile service revenue Fixed service revenue Italy Mobile service revenue Fixed service revenue UK Mobile service revenue Fixed service revenue Spain Other Europe Of which: Ireland Of which: Portugal Of which: Greece Eliminations Europe Vodacom Of which: South Africa Of which: International operations Other AMAP Of which: Turkey Of which: Egypt Of which: New Zealand AMAP Other Eliminations Total service revenue Other revenue Revenue Other growth metrics Germany – Mobile service revenue excluding the impact of regulation Spain – Service revenue excluding the impact of handset financing India – Service revenue India – Data browsing revenue India – Voice revenue Restated 2016 €m Restated 2015 €m Reported % Other activity (including M&A) pps Foreign exchange pps Organic % 2,505 1,516 989 1,330 1,105 225 1,607 1,227 380 1,125 1,537 235 227 195 (41) 8,063 1,165 896 256 1,363 581 288 299 2,528 281 (17) 10,855 1,384 12,239 1,516 1,125 1,450 293 991 2,460 1,517 943 1,291 1,090 201 1,998 1,537 461 1,116 1,536 240 223 192 (35) 8,366 1,107 817 270 1,423 562 395 276 2,530 308 (18) 11,186 1,536 12,722 1,517 1,116 1,529 289 1,014 1.8 (0.1) 4.9 3.0 1.4 11.9 (19.6) (20.2) (17.6) 0.8 0.1 (2.1) 1.8 1.6 (3.6) 5.2 9.7 (5.2) (4.2) 3.4 (27.1) 8.3 (0.1) (3.0) (3.8) (0.1) 0.8 (5.2) 1.4 (2.3) – – – – – – – – – – 1.9 – – – 0.3 – – – – – – – – 0.3 0.9 1.1 3.3 2.5 – – – 0.1 (0.1) – – – 16.4 16.3 16.7 – (0.2) 0.1 0.4 (0.4) 4.0 (1.2) (4.1) 7.1 14.7 11.6 46.7 (8.3) 7.5 4.8 4.4 0.1 – 0.8 (0.8) (0.7) 1.8 – 4.8 3.0 1.4 11.9 (3.2) (3.9) (0.9) 0.8 1.8 (2.0) 2.2 1.2 0.7 4.0 5.6 1.9 10.5 15.0 19.6 – 7.4 2.1 1.5 1.1 4.1 (1.9) 0.6 (3.0) Vodafone Group Plc Annual Report 2018Other information 217 Restated 2016 €m Restated 2015 €m Reported % Other activity (including M&A) pps Foreign exchange pps Organic % 36,462 11,891 1,567 (11) 49,810 33,381 10,043 1,303 (109) 44,618 5,192 49,810 10,485 3,706 (36) 14,155 35,296 11,600 1,595 (106) 48,385 32,612 9,770 1,356 (103) 43,635 4,750 48,385 10,077 3,584 41 13,702 3.3 2.5 2.9 2.4 2.8 2.3 2.9 4.0 3.4 3.3 3,769 4,127 (8.7) (1.8) 1,927 1,941 (39) 3,829 2,216 1,746 78 4,040 (13.0) 11.2 (5.2) (1.3) 0.8 (1.6) 4.8 (0.7) (0.1) 0.4 8.1 2.1 (0.6) 8.0 1.1 2.1 1.7 9.0 2.3 (7.3) (12.9) 19.9 (3.8) (1.5) 4.2 (0.4) (0.1) (1.0) 5.0 0.6 3.2 0.5 7.1 3.1 (1.5) 1.0 (0.8) (0.7) (1.3) 0.6 (1.6) (0.4) 1.6 (1.7) 2017 €m 47,631 3,725 10,179 (164) – 415 1,046 (1,052) 14,149 2016 €m 49,810 1,320 10,386 (60) 569 316 1,338 286 14,155 2015 €m 48,385 2,073 9,584 78 – 204 1,617 146 13,702 29.7% 28.4% 28.3% 2018 €m 46,571 4,299 9,910 (389) – 156 974 (213) 14,737 31.6% (0.8%) 30.8% Year ended 31 March 2016 Revenue Europe AMAP Other Eliminations Total Service revenue Europe AMAP Other Eliminations Total Other revenue Total Adjusted EBITDA Europe AMAP Other Total Adjusted EBIT Total Adjusted operating profit Europe AMAP Other Total Adjusted EBITDA margin Revenue Operating profit Depreciation, amortisation and loss on disposal of fixed assets Share of adjusted results in equity accounted associates and joint ventures Impairment losses Restructuring costs Amortisation of acquired customer based and brand intangible assets Other income/(expense) Adjusted EBITDA Adjusted EBITDA margin Impact of EU roaming, handset and financing settlements Adjusted EBITDA margin excluding impact of EU roaming, handset and financing settlements Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 218 Form 20-F cross reference guide Unaudited information The information in this document that is referenced in the following table will be included in our Annual Report on Form 20-F for 2018 filed with the SEC (the ‘2018 Form 20-F’). The information in this document will be updated and supplemented at the time of filing with the SEC or later amended if necessary. No other information in this document is included in the 2018 Form 20-F or incorporated by reference into any filings by us under the Securities Act. Please see “Documents on display” on page 195 for information on how to access the 2018 Form 20-F as filed with the SEC. The 2018 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 2018 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: Contact details for Computershare and AST 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 7: “Discontinued operations and assets and liabilities held for sale” Note 11 “Property, plant and equipment” Note 27 “Acquisitions and disposals” Note 28 “Commitments” Highlights Our business at a glance Industry trends Our business model Chief Executive’s strategic review Our financial performance Financial position and resources Sustainable business Prior year operating results Note 2 “Segmental analysis” – Segmental revenue and profit Regulation Note 32 “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 – – 225 192 and 193 – – 38 to 45 198 Back cover 192 193 and 194 14 to 17 18 and 19 106 to 112 113 to 115 128 and 129 133 and 134 161 162 and 163 2 4 and 5 6 and 7 8 and 9 14 to 17 22 to 29 30 and 31 32 to 35 178 to 182 113 to 115 199 to 206 169 to 176 135 to 137 138 14 to 17 18 and 19 30 and 31 133 and 134 – Vodafone Group Plc Annual Report 2018Other 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 Location in this document Our financial performance Prior year operating results Note 20 “Borrowings” Shareholder information: Foreign currency translation Regulation Financial position and resources: Liquidity and capital resources Note 22 “Capital and financial risk management” Note 21 “Liquidity and capital resources” Note 20 “Borrowings” Note 28 “Commitments” Chief Executive’s strategic review Chief Financial Officer’s review Regulation: Licences Chief Executive’s strategic review Industry trends Long-Term Viability Statement Note 21 “Liquidity and capital resources” Note 28 “Commitments” Note 29 “Contingent liabilities and legal proceedings” Financial position and resources: Contractual obligations and commitments Forward-looking statements Board of Directors Executive Committee Leadership structure 2018 Remuneration Remuneration Policy Note 23 “Directors and key management compensation” Shareholder information: Articles of Association and applicable English law Remuneration policy Board of Directors Audit and Risk Committee Remuneration Committee Leadership structure Our people and culture Note 24 “Employees” 2018 Remuneration Remuneration Policy Shareholder information: Major shareholders 2018 Remuneration Note 29 “Contingent liabilities and legal proceedings” Note 30 “Related party transactions” Not applicable Financials1 Audit report on the consolidated and parent company financial statements1 Note 29 “Contingent liabilities and legal proceedings” Note 31 “Subsequent events” Shareholder information: Share price history Not applicable Shareholder information: Markets Not applicable Not applicable Not applicable 219 Page 22 to 29 178 to 182 144 to 146 192 and 193 199 to 206 31 149 to 153 147 and 148 144 to 146 162 and 163 14 to 17 18 and 19 204 and 205 14 to 17 6 and 7 44 and 45 147 and 148 162 and 163 164 to 167 30 221 48 and 49 50 and 51 52 and 53 80 to 87 73 to 78 153 193 and 194 73 to 78 48 and 49 64 to 69 70 to 71 52 and 53 36 and 37 154 80 to 87 73 to 78 193 80 to 87 164 to 167 167 – 102 to 177 93 to 101 164 to 167 168 192 – 193 – – – Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 220 Form 20-F cross reference guide (continued) Unaudited information 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 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 11 12 13 14 15 16 17 18 19 Location in this document Not applicable Shareholder information: Articles of Association and applicable English law Shareholder information: Rights attaching to the Company’s shares Shareholder information: Disclosure of interests in the Company’s shares Shareholder information: Limitations on transfer, voting and shareholding Shareholder information: Material contracts Shareholder information: Exchange controls Shareholder information: Taxation Not applicable Not applicable Shareholder information: Documents on display Not applicable Note 22 “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” Board Committees: Audit and Risk Committee – External audit Not applicable Not applicable Not applicable Our US listing requirements Not applicable Not applicable Financials1 Report of independent registered public accounting firm Filed with the SEC Page – 193 and 194 194 195 195 195 195 195 to 197 – – 195 – 149 to 153 – – – – – – 46 to 71 – – 62 to 71 88 116 67 and 68 – – – 88 – – 102 to 177 – – Note: 1 The parent company financial statements together with the associated notes and the audit report relating thereto, on pages 183 to 190 and pages 94 to 101 respectively, should not be considered to form part of the Company’s Annual Report on Form 20-F. Vodafone Group Plc Annual Report 2018Other information 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: – 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, preparation for 5G and expectations regarding customers; – intentions and expectations regarding the development of products, services and initiatives introduced by, or together with, Vodafone or by third parties; – 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; – revenue and growth expected from the Group’s Enterprise and total communications strategy; – mobile penetration and coverage rates, MTR cuts, the Group’s ability to acquire spectrum and licences, including 5G licences, expected growth prospects in the Europe and AMAP regions and growth in customers and usage generally; – anticipated benefits to the Group from cost-efficiency programmes, including their impact on the absolute indirect cost base; – possible future acquisitions, including increases in ownership in existing investments, the timely completion of pending acquisition transactions and pending offers for investments; – expectations and assumptions regarding the Group’s future revenue, operating profit, adjusted EBITDA, adjusted EBITDA margin, free cash flow, depreciation and amortisation charges, foreign exchange rates, tax rates and capital expenditure; – 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 – 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: – general economic and political conditions in the jurisdictions in which the Group operates and changes to the associated legal, regulatory and tax environments; – increased competition; – levels of investment in network capacity and the Group’s ability to deploy new technologies, products and services; – rapid changes to existing products and services and the inability of new products and services to perform in accordance with expectations; – the ability of the Group to integrate new technologies, products and services with existing networks, technologies, products and services; 221 – the Group’s ability to generate and grow revenue; – 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; – slower than expected customer growth, reduced customer retention, reductions or changes in customer spending and increased pricing pressure; – the Group’s ability to extend and expand its spectrum resources, to support ongoing growth in customer demand for mobile data services; – the Group’s ability to secure the timely delivery of high-quality products from suppliers; – loss of suppliers, disruption of supply chains and greater than anticipated prices of new mobile handsets; – changes in the costs to the Group of, or the rates the Group may charge for, terminations and roaming minutes; – the impact of a failure or significant interruption to the Group’s telecommunications, networks, IT systems or data protection systems; – the Group’s ability to realise expected benefits from acquisitions, partnerships, joint ventures, franchises, brand licences, platform sharing or other arrangements with third parties; – acquisitions and divestments of Group businesses and assets and the pursuit of new, unexpected strategic opportunities; – the Group’s ability to integrate acquired business or assets; – 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; – 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; – the Group’s ability to satisfy working capital requirements; – changes in foreign exchange rates; – changes in the regulatory framework in which the Group operates; – the impact of legal or other proceedings against the Group or other companies in the communications industry; and – changes in statutory tax rates and profit mix. 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 38 to 45 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. References in this document to information on websites (and/or social media sites) are included as an aid to their location and such information is not incorporated in, and does not form part of, the 2018 Annual Report on Form 20-F. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 222 Definition of terms Unaudited information 2G 3G 4G/LTE 5G Adjusted EBIT Adjusted EBITDA Adjusted operating profit ADR ADS AGM AMAP Applications (‘apps’) ARPU Capital additions (‘capex’) Churn Cloud services Converged customer Customer costs Customer value management (‘CVM’) Depreciation and other amortisation Direct costs Enterprise FCA Fixed broadband customer Fixed service revenue FTTC FTTH FRC 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. Operating profit excluding share of results in associates and joint ventures, impairment losses, amortisation of customer bases and brand intangible assets restructuring costs arising from discrete restructuring plans and other income and expense. The Group’s definition of adjusted EBIT may not be comparable with similarly titled measures and disclosures by other companies. Operating profit excluding share of results in associates and joint ventures, depreciation and amortisation, gains/losses on the disposal of fixed assets, impairment losses, restructuring costs arising from discrete restructuring plans and other income and expense. The Group’s definition of adjusted EBITDA may not be comparable with similarly titled measures and disclosures by other companies. Group adjusted operating profit excludes impairment losses, restructuring costs arising from discrete restructuring plans, amortisation of customer bases and brand intangible assets and other income and expense. 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 customer revenue and incoming revenue divided by average customers. Comprises the purchase of property, plant and equipment and intangible assets, other than licence and spectrum payments, during the year. 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. A customer who receives both fixed and mobile services (also known as unified communications) on a single bill or who receives a discount across both bills. Customer costs include acquisition costs, retention costs and expenses related to ongoing commissions. The delivery of perceived value to identifiable customer segments that results in a profitable return for the company. 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. 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 data network. Service revenue relating to provision of fixed line (‘fixed’) and carrier services. 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. Vodafone Group Plc Annual Report 2018Other information 223 Free cash flow Gbps HSPA+ ICT IFRS Incoming revenue Internet of Things (‘IoT’) IP IP-VPN Mark-to-market Mbps Mobile broadband Mobile customer Mobile service revenue Mobile termination rate (‘MTR’) MVNO Net debt 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 arising from discrete restructuring plans and licence and spectrum payments. For the year ended 31 March 2016, free cash flow also excluded payments in respect of the Group’s historical UK tax settlement. 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. Comprises revenue from termination rates for voice and messaging to Vodafone customers. 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 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. Service revenue relating to the provision of mobile services. A per minute charge paid by a telecommunications network operator when a customer makes a call to another mobile or fixed 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. Next generation networks (‘NGN’) Fibre or cable networks typically providing high-speed broadband over 30Mbps. Net promoter score (‘NPS’) Operating expenses Operating free cash flow Organic growth Other revenue Partner markets Penetration Petabyte Pps RAN Regulation Reported growth Restructuring costs RGUs/sub Roaming 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 additions (excludes capital licence and spectrum payments) and cash receipts from the disposal of intangible assets and property, plant and equipment, but before restructuring costs arising from discrete restructuring plans. An alternative performance measure which presents performance on a comparable basis, both in terms of merger and acquisition activity and movements in foreign exchange rates. See pages 207 to 217 “Alternative performance measures” for further details. Other revenue includes revenue from connection fees and equipment sales. 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. Impact of industry specific law and regulations covering telecommunication services. The impact of regulation on service revenue comprises the effect of changes in mobile termination rates and roaming regulations. Reported growth is based on amounts reported in euros as determined under IFRS. Costs incurred by the Group following the implementation of discrete restructuring plans to improve overall efficiency. Revenue Generating Units/unique subscriber ratio (‘RGUs/sub’) describes the average number of fixed services taken by subscribers. Allows customers to make calls, send and receive texts and data on other operators’ mobile networks, usually while travelling abroad. Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information 224 Definition of terms (continued) Unaudited information Service revenue Smartphone penetration SME Spectrum SRAN Supranational VGE VoIP VZW 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. See pages 207 to 217 “Alternative performance measures” for further details. 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. 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. Vodafone Group Plc Annual Report 2018Other information Selected financial data Unaudited information The selected financial data shown below include the results of Vodafone India as discontinued operations in all years following the agreement to combine it with Idea Cellular. 225 At/for the year ended 31 March Consolidated income statement data (€m) Revenue Operating profit/(loss) Profit/(loss) before taxation Profit/(loss) for financial year from continuing operations Profit/(loss) 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/(loss) per ordinary share Diluted earnings/(loss) per ordinary share Basic earnings/(loss) per share from continuing operations Cash dividends1,3 Amount per ordinary share (eurocents) Amount per ADS (eurocents) 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 2018 2017 2016 2015 2014 46,571 4,299 3,878 4,757 2,788 47,631 3,725 2,792 (1,972) (6,079) 49,810 1,320 (190) (5,127) (5,122) 48,385 2,073 1,734 7,805 7,477 40,845 (4,722) (5,960) 13,900 71,515 145,611 154,684 169,107 169,579 147,536 86,919 68,607 85,136 85,733 83,325 67,640 73,719 72,200 93,708 91,510 27,770 27,857 8.78c 8.76c 15.87c 15.07c 15.07c – – 17.93c 179.3c 27,971 27,971 26,692 26,692 (22.51)c (22.51)c (7.83)c (20.25)c (20.25)c (20.27)c 14.77c 147.7c – – 18.52c 182.5c – – 11.45p 114.5p 16.49c 164.9c 26,489 26,629 27.48c 27.33c 28.72c – – 11.22p 111.2p 16.65c 166.5c 26,472 26,682 269.41c 267.29c 51.77c – – 11.00p 110.0p 18.31c 183.1c 2.9 – 2.1 – – 159 2.2 – – 485 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. 3 The final dividend for the year ended 31 March 2018 was proposed by the Directors on 15 May 2018 and is payable on 3 August 2018 to holders of record as of 8 June 2018. The total dividends have been translated into US dollars at 31 March 2018 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. Vodafone, the Vodafone Portrait, the Vodafone Speechmark, Vodafone Broken Speechmark Outline, Vodacom, Vodafone One, The future is exciting. Ready?, M-Pawa and M-Pesa, are trade marks 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 revive 100 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 2018 Designed and produced by Radley Yeldar ry.com Vodafone Group Plc Annual Report 2018OverviewStrategic ReportGovernanceFinancialsOther information Vodafone Group Plc Registered Office Vodafone House The Connection Newbury Berkshire RG14 2FN England Registered in England No. 1833679 Telephone +44 (0)1635 33251 Website vodafone.com Contact details 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 Online Annual Report vodafone.com/ar2018 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 8